[Federal Register Volume 67, Number 49 (Wednesday, March 13, 2002)]
[Rules and Regulations]
[Pages 11254-11260]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6028]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket Nos. 96-45, 98-77, 90-571, 92-237, 99-200, and 95-116; FCC 
02-43]


Federal-State Joint Board on Universal Service

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission adopts certain modifications 
to the existing federal universal service contribution system. Based on 
examination of the record, the Commission concludes that these 
modifications are warranted because they will streamline and improve 
the current system without undue disruption while the Commission 
considers other, more substantial reforms.

DATES: Effective April 12, 2002.

FOR FURTHER INFORMATION CONTACT: Paul Garnett, 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 Nos. 96-45, 98-171, 90-571, 92-237, 99-200, and 
95-116, FCC 02-43 released on February 26, 2002. 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 the Report and Order, we adopt certain modifications to the 
existing federal universal service contribution system. Based on 
examination of the record, we conclude that these modifications are 
warranted because they will streamline and improve the current system.

II. Report and Order

    2. In the Notice of Proposed Rulemaking initiating this proceeding, 
see 66 FR 28718 (May 24, 2001), we recognized the need to reassess 
periodically the current contribution methodology to ensure that it 
remains consistent with the goals of the Act as the telecommunications 
marketplace evolves. Although we are seeking more focused comment on 
specific proposals to reform the Commission's universal service 
contribution methodology, we conclude that certain modifications to the 
current revenue-based contribution assessment methodology should be 
adopted now to ensure that the goals of the Act are maintained in the 
short term. Specifically, the measures we adopt in the Order will 
ensure that universal service funding remains specific and predictable 
while we consider whether to implement more substantial changes to the 
contribution methodology. In addition, these modifications will ensure 
that the recovery of universal service contributions is more 
understandable for consumers. These measures also will further reduce 
the regulatory costs of complying with universal service obligations 
and will ensure that the assessment of contributions remains equitable 
and nondiscriminatory.
    3. First, we revise the Commission's rules to exclude universal 
service contributions from a contributor's assessable gross-billed 
interstate telecommunications revenues. This modification addresses 
``circularity'' in the current methodology that may cause contributors 
to mark-up line items. Second, we amend the rules to permit 
contributors to submit revenue data on a consolidated basis on behalf 
of commonly-owned subsidiaries. Third, we increase from eight to 12 
percent the amount of domestic interstate revenues a contributor may 
have and still qualify for the limited international revenues

[[Page 11255]]

exception to our universal service contribution requirements.

A. Eliminating Circularity

    4. We adopt our proposal to exclude universal service contributions 
from a contributor's assessable gross-billed interstate 
telecommunications revenues, so-called ``circularity.'' This measure 
will eliminate one cause for contributors to recover amounts in excess 
of the contribution factor.
    5. We clarify how the exclusion of contributor contributions from 
the contribution base will operate in practice. Contributors will 
continue to file the Form 499-Q with their gross-billed interstate 
telecommunications revenues from the prior quarter. A contributor's 
reported gross-billed interstate telecommunications revenues from the 
prior quarter serve as the basis for its contributions in the next 
quarter. The Universal Service Administrative Company (USAC) will 
subtract from a contributor's contribution base in the upcoming quarter 
those amounts contributed to universal service in the prior quarter. 
Contributions will be credited in the quarter in which they are 
received by USAC. We direct USAC to begin excluding carrier 
contributions from the contribution base in the third quarter of 2002.

B. Consolidated Form 499 Filing for Certain Contributors

    6. We modify our reporting requirements to enable contributors 
meeting certain criteria to file the Form 499 Worksheet on a 
consolidated basis. The criteria we adopt for permitting consolidated 
filings are designed to ensure that a contributor actually functions as 
a single entity, and to obtain essential revenue and contact 
information from such a contributor. The ability to file a consolidated 
Worksheet may substantially decrease the administrative burdens on some 
contributors. For example, it may ameliorate the need of some 
contributors to artificially divide their whole company revenues into 
separate revenue amounts for their subsidiaries solely for Worksheet 
reporting purposes. We anticipate that many wireless contributors will 
qualify and choose to file the Worksheet on a consolidated basis. 
Furthermore, this revision may dramatically decrease the number of 
Worksheets filed with USAC, thereby reducing the administrative burden 
on the Commission's data collection agent and fund administrators. Most 
importantly, permitting contributors to have the option of filing on a 
consolidated basis will have no negative impact on the integrity of the 
information contained in the Worksheet.
    7. Under the modified reporting requirements we adopt here, 
consolidated filing will be permitted only if the filing entity 
certifies that all of the following conditions are met:
    (1) A single entity oversees the management of the affiliated 
systems;
    (2) A single entity sends bills to customers and these bills 
identify a single entity (or trade name) as the service provider, 
rather than identifying the individual legal entities;
    (3) All revenues are posted to a single general ledger;
    (4) To the extent that separate revenue and expense accounts exist, 
they are derived from one consolidated set of books and the 
consolidated filing must cover all revenues contained in the 
consolidated books;
    (5) Customers have a single point of contact;
    (6) The consolidated filer acknowledges that process served on the 
consolidated filer would represent process served on any or all of the 
affiliated legal entities;
    (7) The consolidated filer agrees to document and resolve all 
slamming complaints that might be served on either the filing entity or 
any of the affiliated legal entities;
    (8) The consolidated filer obtains a separate FRN from those 
assigned to its affiliated legal entities;
    (9) The consolidated filer acknowledges that its obligations with 
regard to universal service, Telecommunications Relay Services, Local 
Number Portability, North American Numbering Plan Administrator, and 
regulatory fees will be based on the data provided in consolidated 
Worksheet filings, that it bears the responsibility to satisfy those 
obligations, and that all legal entities covered by the filing are 
jointly and severally liable for such obligations; and
    (10) The consolidated filer acknowledges that it: (A) Was not 
insolvent on the date it undertook to make payments on a consolidated 
basis or on the date of actual payments to universal service, 
Telecommunications Relay Services, Local Number Portability, the North 
American Numbering Plan, and regulatory fees, and did not become 
insolvent as a result of such undertaking or payments; (B) was not left 
with unreasonably small capital as a result of such undertaking or 
payments; and (C) was not left unable to pay debts as they matured as a 
result of such undertaking or payments.
    8. Each year, entities choosing to file on a consolidated basis 
must file a statement certifying that they meet all of the above 
conditions. Such certification also must include: (1) A list of the 
legal names of all legal entities that are covered by the filing; (2) 
the Form 499 identification numbers of all legal entities that are 
covered by the filing; (3) the consolidated filer's FCC Registration 
Number (FRN); and (4) for wireless carriers, a list of all radio 
licenses (call signs) issued to each legal entity covered by the 
filing. Consolidated filers should file this certification with the 
Commission's Data Collection Agent. Furthermore, a contributor choosing 
to file on a consolidated basis should recognize that any penalties 
associated with failure to pay or with underpayment of any of its 
obligations will be assessed on the total revenue reported on the 
consolidated basis, rather than on a separate legal entity basis. We 
direct USAC to begin accepting such consolidated Worksheets in the 
second quarter of 2002.
    9. We also amend Sec. 54.702 by removing Sec. 54.702(f) of our 
rules. Under Sec. 54.702(f) of our rules, USAC is required to 
periodically compare information from ``Telecommunications Relay 
Services Fund Worksheets'' with information submitted on ``Universal 
Service Worksheets.'' In 1999, however, the Commission established the 
FCC Form 499 Telecommunications Reporting Worksheet, which consolidated 
reporting requirements for the universal service mechanisms, the 
Telecommunications Relay Services Fund, the cost recovery mechanism for 
administration of the North American Numbering Plan, and the cost 
recovery mechanism for administration of long-term number portability. 
As a result, Sec. 54.702(f) was made obsolete, but inadvertently was 
not removed at that time. Accordingly, we remove it now.

C. Limited International Revenues Exception

    10. We conclude that the limited international revenues exception 
should be increased from eight to 12 percent. Consistent with section 
254(d) of the Act, we conclude that raising the threshold to 12 percent 
will ensure that a contributor's universal service contribution does 
not exceed the amount of its interstate end-user telecommunications 
revenues by providing a margin of safety to account for any possible 
increases to the contribution factor over time. When the limited 
international revenues exception was implemented in November 1999, the 
universal service contribution factor was 5.8995 percent, and the 
Commission anticipated that the universal service contribution factor 
would not exceed eight percent in the

[[Page 11256]]

near future. The Commission recently established a universal service 
contribution factor of 6.808 percent. As a result of many factors, 
including possible decreases in assessable revenues and increases in 
universal service funding requirements over time, modest increases to 
the contribution factor may occur in the foreseeable future. If the 
universal service contribution factor increases to eight percent, a 
contributor may become obligated to contribute to the universal service 
mechanisms an amount that exceeds the amount of its interstate end-user 
telecommunications revenues. With the elimination of ``circularity'' 
and anticipated implementation of interstate access support for non-
price cap carriers, Commission staff projects that the contribution 
factor may exceed 8 percent in 2002. This projection is predicated on 
the removal of prior period universal service contributions from the 
contribution base, the continuation of the current assessment system 
based on revenues, anticipated growth in the universal service 
mechanisms, and continued modest growth in assessable interstate end-
user telecommunications revenues. Large-scale migration to services 
that are not easy to categorize by jurisdiction or marketplace 
disruptions, such as a prolonged recession, may result in additional 
increases to the contribution factor over time. We therefore conclude 
that increasing the threshold to qualify for the international revenues 
exception to 12 percent will ensure that contributors are not required 
to contribute more to universal service than they derive from 
interstate end-user telecommunications revenues. We direct USAC to 
begin applying the higher threshold to qualify for the international 
revenues exception in the second quarter of 2002.
    11. Our adoption of a 12 percent threshold to qualify for the 
limited international revenues exception should not be taken as an 
indication that we expect the contribution factor to rise to that level 
in the near future. To the contrary, we choose 12 percent because it 
will provide for a more than adequate margin of safety if the current 
contribution factor increases over time.

III. Procedural Issues

A. Final Regulatory Flexibility Act Analysis

1. Need for, and Objectives of, the Report and Order
    12. As required by the Regulatory Flexibility Act (RFA), an Initial 
Regulatory Flexibility Analysis (IRFA) was incorporated in the 2001 
Notice, (66 FR 28718, May 24, 2001). The Commission sought written 
public comment on the proposals in the 2001 Notice, including comment 
on the IRFA. This present Final Regulatory Flexibility Analysis (FRFA) 
conforms to the RFA.
    13. In the Order, we adopt modifications to our current universal 
service contribution methodology, which will further refine and 
streamline the assessment of universal service contributions. First, we 
exclude universal service contributions from contributors' assessable 
gross-billed interstate telecommunications revenues. This modification 
addresses ``circularity'' in our current methodology that may cause 
contributors to mark-up line items. Second, we amend our rules to 
permit contributors to submit revenue data on a consolidated basis on 
behalf of commonly-owned subsidiaries. This modification will allow 
certain carriers to reduce the burdens associated with complying with 
the reporting requirements of the universal service fund. Third, we 
increase from eight to 12 percent the amount of domestic interstate 
revenues a contributor may have and still qualify for the limited 
international revenue exception to our universal service contribution 
requirements. Examination of the record in this proceeding demonstrates 
the need for these modifications, which address specific concerns 
raised by commenters to the 2001 Notice.
2. Summary of Significant Issues Raised by the Public Comments in 
Response to the IRFA
    14. The Commission received comments related to the needs of small 
local telephone companies. In particular, the Small Business 
Administration's Office of Advocacy suggested that the Commission 
should retain the current contribution methodology to avoid raising the 
administrative costs on small businesses associated with compliance. 
While we retain the current methodology, we note that the Commission, 
concurrent with the issuance of the Order, adopted a Further Notice 
(published elsewhere in this issue) that seeks comment on proposals to 
fundamentally reform the contribution methodology. The proposals 
detailed in the Further Notice of Proposed Rulemaking may result in a 
program with significantly reduced administrative burdens.
    15. In the Order, however, the Commission adopts certain 
modifications to the existing methodology. In particular, the 
Commission adopted a proposal suggested by many wireless carriers to 
allow certain contributors to file on a consolidated basis, which 
should alleviate some of the administrative burden associated with 
complying with the universal service fund. Additionally, the 
Commission's reform of the limited international revenue exception 
should help continue to ensure that contributors are not required to 
contribute more to universal service than they derive from interstate 
end-user telecommunications revenues. The Commission has through these 
modifications minimized potential burdens created by its contribution 
methodology.
3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply
    16. 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 rules adopted herein. The RFA generally defines ``small 
entity'' as having the same meaning as the term ``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, unless the 
Commission has developed one or more definitions that are appropriate 
to its activities. Under the Small Business Act, a ``small business 
concern'' is one that: (1) Is independently owned and operated; (2) is 
not dominant in its field of operation; and (3) meets any additional 
criteria established by the SBA.
    17. 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.
    18. We have included small incumbent carriers in this 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 carriers are not 
dominant in their field of operation because any such dominance is not

[[Page 11257]]

``national'' in scope. We have therefore included small incumbent 
carriers in this RFA analysis, although we emphasize that this RFA 
action has no effect on the Commission's analyses and determinations in 
other, non-RFA contexts.
    19. 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 4,822 
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.
    20. Total Number of Telephone Companies Affected. The United States 
Bureau of the Census (``the Census Bureau'') reports that, at the end 
of 1992, there were 3,497 firms engaged in providing telephone 
services, as defined therein, for at least one year. This number 
contains a variety of different categories of carriers, including local 
exchange carriers, interexchange carriers, competitive access 
providers, cellular carriers, mobile service carriers, operator service 
providers, pay telephone operators, PCS providers, covered SMR 
providers, and resellers. It seems certain that some of those 3,497 
telephone service firms may not qualify as small entities or small 
incumbent LECs because they are not ``independently owned and 
operated.'' For example, a PCS provider that is affiliated with an 
interexchange carrier having more than 1,500 employees would not meet 
the definition of a small business. It seems reasonable to conclude, 
therefore, that fewer than 3,497 telephone service firms are small 
entity telephone service firms or small incumbent LECs that may be 
affected by the decisions and rules adopted in the Order.
    21. 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 the Order.
    22. 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 on the Form 499-A. According to our most 
recent data, there are 1,335 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 1,335 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 
the Order.
    23. 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 Trends 
Report, 806 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 806 small 
cellular service carriers that may be affected by the proposed rules, 
if adopted.
    24. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service 
has both Phase I and Phase II licenses. Phase 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.
    25. 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

[[Page 11258]]

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.
    26. Private and Common Carrier Paging. In the Paging 220 MHz 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 Trends 
Report, 427 carriers reported that they were engaged in the provision 
of paging and messaging services. 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 427 
small paging carriers that may be affected by the decisions and rules 
adopted in the Order. We estimate that the majority of private and 
common carrier paging providers would qualify as small entities under 
the SBA definition.
    27. 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.
    28. 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 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.
    29. 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.
    30. 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

[[Page 11259]]

estimate that almost all of them qualify as small under the SBA 
definition.
    31. 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.
    32. 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.
    33. For geographic area licenses in the 900 MHz SMR band, there are 
60 who qualified as small entities. For the 800 MHz SMRs, 38 are small 
or very small entities.
4. Description of Reporting, Recordkeeping, and Other Compliance 
Requirements
    34. Pursuant to the Order, the only new or modified reporting 
requirement is that we amend our rules to permit contributors to submit 
revenue data on a consolidated basis on behalf of commonly-owned 
subsidiaries. The Commission based its decision in part on the fact 
that the reduction in administrative costs for these carriers would be 
significant. The Commission will seek OMB approval for this new or 
modified reporting requirement when it submits the modified Form 499-Q 
for approval.
5. Steps Taken to Minimize Significant Economic Impact on Small 
Entities, and Significant Alternative Considered
    35. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its proposed approach, 
which may include the following four alternatives (among others): (1) 
The establishment of differing compliance or reporting requirements or 
timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance or reporting requirements under the rule for small entities; 
(3) the use of performance, rather than design, standards; and (4) an 
exemption from coverage of the rule, or any part thereof, for small 
entities.
    36. The Commission has taken numerous steps to minimize significant 
economic impacts on small entities of modifying the universal service 
contribution methodology adopted in the Order. By eliminating 
circularity that exists under the current contribution methodology, we 
reduce one cause for contributors to recover amounts in excess of the 
current contribution factor and will help address consumer concerns 
regarding the disparate recovery of universal service contributions 
through line items. Further, by amending our rules to permit 
contributors to submit revenue data on a consolidated basis on behalf 
of commonly-owned subsidiaries, we substantially decrease the 
administrative burdens of some contributors. We anticipate that many 
wireless contributors, for example, will choose to file on a 
consolidated basis. Finally, by increasing the international revenue 
exception from 8 percent to 12 percent, we ensure that a contributor's 
universal service obligation does not exceed the amount of its 
interstate end-user telecommunications revenues.
6. Report to Congress
    37. The Commission will send a copy of the Order, including the 
FRFA analysis, in a report to be sent to Congress pursuant to the 
Congressional Review Act. In addition, the Commission will send a copy 
of the Order, including the FRFA analysis, to the Chief Counsel for 
Advocacy of the Small Business Administration. A copy of the Order and 
FRFA analysis (or summaries thereof) also will be published in the 
Federal Register.
7. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules
    38. None.
8. Paperwork Reduction Act Analysis
    39. The action contained herein has been analyzed with respect to 
the Paperwork Reduction Act of 1995 and found to impose no new or 
modified reporting and recordkeeping requirement on the public, 
although it may eliminate certain reporting requirements for some 
entities.

IV. Ordering Clauses

    40. Pursuant to the authority contained in sections 4(i), 4(j), 
254, and 303(r) of the Communications Act of 1934, as amended, the 
Report and Order is adopted.
    41. Part 54 of the Commission's rules, 47 CFR part 54, is amended, 
effective April 12, 2002.
    42. The Commission's Consumer Information Bureau, Reference 
Information Center shall send a copy of the Report and Order to the 
Chief Counsel for Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 54

    Reporting and recordkeeping requirements, Telecommunications, 
Telephone.

Federal Communications Commission.
William F. Caton,
Acting Secretary.

Rule Changes

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

PART 54--UNIVERSAL SERVICE

    1. The authority citations continues to read as follows:

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


Sec. 54.702  [Amended]

    2. Section 54.702 is amended by removing paragraph (f) and by

[[Page 11260]]

redesignating paragraphs (g) through (n) as paragraphs (f) through (m).
    3. Section 54.706 is amended by revising paragraphs (b) and (c) to 
read as follows:


Sec. 54.706  Contributions.

* * * * *
    (b) Except as provided in paragraph (c) of this section, every 
telecommunications carrier that provides interstate telecommunications 
services, every provider of interstate telecommunications that offers 
telecommunications for a fee on a non-common carrier basis, and every 
payphone provider that is an aggregator shall contribute to the federal 
universal service support mechanisms on the basis of its interstate and 
international end-user telecommunications revenues, net of prior period 
actual contributions.
    (c) Any entity required to contribute to the federal universal 
service support mechanisms whose interstate end-user telecommunications 
revenues comprise less than 12 percent of its combined interstate and 
international end-user telecommunications revenues shall contribute to 
the federal universal service support mechanisms for high cost areas, 
low-income consumers, schools and libraries, and rural health care 
providers based only on such entity's interstate end-user 
telecommunications revenues, net of prior period actual contributions. 
For purposes of this paragraph, an ``entity'' shall refer to the entity 
that is subject to the universal service reporting requirements in 47 
CFR 54.711 and shall include all of that entity's affiliated providers 
of telecommunications services.
* * * * *
    4. Section 54.709 is amended by revising paragraphs (a) 
introductory text, (a)(1), and (a)(2) to read as follows:


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

    (a) Contributions to the universal service support mechanisms shall 
be based on contributors' end-user telecommunications revenues and a 
contribution factor determined quarterly by the Commission.
    (1) For funding the federal universal service support mechanisms, 
the subject revenues will be contributors' interstate and international 
revenues derived from domestic end users for telecommunications or 
telecommunications services, net of prior period actual contributions.
    (2) The quarterly universal service contribution factor shall be 
determined by the Commission based on the ratio of total projected 
quarterly expenses of the universal service support mechanisms to the 
total end-user interstate and international telecommunications 
revenues, net of prior period actual contributions. The Commission 
shall approve the Administrator's quarterly projected costs of the 
universal service support mechanisms, taking into account demand for 
support and administrative expenses. The total subject revenues shall 
be compiled by the Administrator based on information contained in the 
Telecommunications Reporting Worksheets described in Sec. 54.711(a).
* * * * *
[FR Doc. 02-6028 Filed 3-12-02; 8:45 am]
BILLING CODE 6712-01-P