[Federal Register Volume 67, Number 49 (Wednesday, March 13, 2002)]
[Proposed Rules]
[Pages 11268-11276]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-6029]


=======================================================================
-----------------------------------------------------------------------

FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, and 98-
170; FCC 02-43]


Federal-State Joint Board on Universal Service

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: In this document, the Commission seeks comment on how to 
streamline and reform both the manner in which the Commission assesses 
carrier contributions to the universal service fund and the manner in 
which carriers may recover those costs from their customers.

DATES: Comments are due on or before April 12, 2002. Reply comments are 
due on or before April 29, 2002. Written comments by the public on the 
proposed and/or modified information collections discussed in this 
Notice of Proposed Rulemaking are due on or before April 12, 2002. 
Written comments must be submitted by the Office of Management and 
Budget (OMB) on the proposed and/or modified information collections on 
or before May 13, 2002.

ADDRESSES: All filings must be sent to the Commission's Acting 
Secretary, William F. Caton, Office of the Secretary, Federal 
Communications Commission, 445 12th Street, SW., Washington, DC 20554. 
In addition to filing comments with the Secretary, a copy of any 
comments on the information collection(s) contained herein should be 
submitted to Judith B. Herman, Federal Communications Commission, Room 
1-C804, 445 12th Street, SW., Washington, DC 20554, or via the Internet 
to [email protected] and to Jeanette Thornton, OMB Desk Officer, 10236 
NEOB, 725--17th Street, NW., Washington, DC 20503 or via the Internet 
to [email protected]. Parties should also send three paper 
copies of their filings to Sheryl Todd, Accounting Policy Division, 
Common Carrier Bureau, Federal Communications Commission, 445 12th 
Street, SW., Room 5-B540, Washington, DC 20554. Parties who choose to 
file by paper should also submit their comments on diskette. These 
diskettes should be submitted to Sheryl Todd, Accounting Policy 
Division, Common Carrier Bureau, Federal Communications Commission, 445 
12th Street, SW., Room 5-B540, Washington, DC 20554. In addition, 
commenters must send diskette copies to the Commission's copy 
contractor, Qualex International, Portals II, 445 12th Street, SW., 
Room CYB402, Washington, DC 20554.

FOR FURTHER INFORMATION CONTACT: Paul Garnett, Attorney, Common Carrier 
Bureau, Accounting Policy Division, (202) 418-7400. For further 
information concerning the information collection contained in this 
Further Notice of Proposed Rulemaking contact Judith B. Herman, Federal 
Communications Commission, Room 1-C804, 445 12th Street, SW., 
Washington, DC 20554, or via the Internet to [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
Further Notice of Proposed Rulemaking and Report and Order in CC Docket 
Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, and 98-170, 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

[[Page 11269]]

Center, Room CY-A257, 445 12th Street, SW., Washington, DC 20554.
    This Further Notice of Proposed Rulemaking (Further Notice) 
contains proposed information collection(s) subject to the Paperwork 
Reduction Act of 1995 (PRA). It has been submitted to the Office of 
Management and Budget (OMB) for review under the PRA. OMB, the general 
public, and other Federal agencies are invited to comment on the 
proposed information collections contained in this proceeding.

Paperwork Reduction Act

    The Further Notice contains a proposed information collection. The 
Commission, as part of its continuing effort to reduce paperwork 
burdens, invites the general public and OMB to comment on the 
information collection(s) contained in this Further Notice, as required 
by the PRA, Public Law 104-13. Public and agency comments on the 
proposed and/or modified information collections discussed in this 
Further Notice are due on or before April 12, 2002. Written comments 
must be submitted by the OMB on the proposed and/or modified 
information collections on or before May 13, 2002.
    Comments should address: (a) Whether the proposed collection of 
information is necessary for the proper performance of the functions of 
the Commission, including whether the information shall have practical 
utility; (b) the accuracy of the Commission's burden estimates; (c) 
ways to enhance the quality, utility, and clarity of the information 
collected; and (d) ways to minimize the burden of the collection of 
information on the respondents, including the use of automated 
collection techniques or other forms of information technology.
    OMB Control Number: None.
    Title: Contribution Methodology--FNPRM.
    Form No.: FCC Forms 499-A, 499-Q, and 499-M.
    Type of Review: Proposed New Collection.
    Respondents: Business or other for-profit.

----------------------------------------------------------------------------------------------------------------
                                                                     Number of    Est. time  per   Total annual
                              Title                                 respondents      response         burden
----------------------------------------------------------------------------------------------------------------
1. Assessment on a Connection and Capacity Basis................           5,500         \1\ 9.5          69,250
Total Annual Burden: 69,250
Cost to Respondents: $0.
 
2. Assessment on a Modified Revenue Basis.......................           5,500         \2\ 9.5          81,250
Total Annual Burden: 81,250
Cost to Respondents: $0.
----------------------------------------------------------------------------------------------------------------
\1\ 9.5 hours for 3,500 respondents that file the annual filing and 1.5 hours for 2,000 respondents that file
  the monthly filing, if adopted.
\2\ 9.5 hours for 3,500 respondents that file the annual filing and 6 hours for 2,000 respondents that file the
  quarterly filing, if adopted.

    Needs and Uses: The Commission has issued a Further Notice which 
seeks comment on how to streamline and reform both the manner in which 
the Commission assesses carrier contributions to the universal service 
fund and the manner in which carriers may recover those costs from 
their customers. The Commission seeks comment on specific proposals to 
require carriers to contribute based on the number and capacity of 
connections to a public network, or to contribute based on 
modifications to the existing mechanism, such as on a projected 
revenues basis. Additionally, the Commission seeks comment on limiting 
the manner in which carriers recover contribution costs from their 
customers. If carriers choose to recover universal service 
contributions from their customers through line items, the Commission 
seeks comment on requiring carriers to do so through a uniform 
universal service line item that corresponds to the contribution 
assessment on the carrier. The Universal Service Administrative Company 
(Administrator) would use information filed on connections and capacity 
or revenues to determine the universal service contribution factor. 
Section 254 of the Act requires carriers providing interstate 
telecommunications services to contribute to universal service. 
Currently, respondents file their gross-billed end-user 
telecommunications revenues on a quarterly basis in FCC Form 499-Q, and 
on an annual basis in FCC Form 499A.

Synopsis of Further Notice

I. Introduction

    1. In 1997, the Commission adopted a system under which 
telecommunications providers contribute to universal service based on 
their end-user revenues. Since that time, the telecommunications 
marketplace has changed rapidly and technologies have evolved, with 
major developments including increased competition, migration to new 
products and services, and bundling of traditionally distinct services. 
These trends could erode the contribution base over time. In light of 
these trends, the Commission began a proceeding to revisit its 
universal service contribution methodology in May 2001. Commenters have 
submitted a range of innovative ideas and proposals for reforming the 
current system, while others assert that the status quo should be 
maintained. We now seek to further develop the record on some of these 
proposals.
    2. In the Further Notice, we seek more focused comment on whether 
to assess contributions based on the number and capacity of connections 
provided to a public network, as proposed by some commenters. We seek 
comment on whether a connection-based assessment approach would ensure 
the long-term stability, fairness, and efficiency of the universal 
service contribution system in a dynamic telecommunications 
marketplace. We also invite commenters to supplement the record 
developed in response to the 2001 Notice, (66 FR 28718, May 24, 2001), 
with any new arguments or data regarding proposals to retain or modify 
the existing revenue-based system. In addition, we seek additional 
comment in the Further Notice on reforming the contribution recovery 
process to make it more fair and understandable for consumers.
    3. Whereas this proceeding concerns the Commission's methodology 
for assessment and recovery of universal service contributions 
generally, we seek comment in a companion proceeding on a different but 
related issue: In an evolving telecommunications marketplace, should 
facilities-based broadband Internet access providers be required to 
contribute to support universal service and, if so, on what legal 
basis? That proceeding explores this question by seeking comment on 
what universal service contribution obligations providers of 
facilities-based broadband Internet access should have as the 
telecommunications market evolves, and how such obligations can be 
administered in an equitable and non-discriminatory manner.

[[Page 11270]]

Commenters should be mindful of the relationship between this 
proceeding and the Broadband NPRM, (67 FR 9232, February 28, 2002), 
proceeding and, where appropriate, should address interrelated issues 
raised by the proposals.

II. Overview

    4. Prior to passage of the Telecommunications Act of 1996, the 
Commission and the states oversaw a variety of explicit and implicit 
subsidy programs designed to reduce the cost of telecommunications 
services for consumers living in high-cost areas and for eligible low-
income consumers. Universal service for high-cost areas helped to 
ensure that consumers in those areas paid rates for services comparable 
to those paid by consumers in low-cost areas, and the low-income 
program helped to make services more affordable for low-income 
consumers. Ensuring the affordability and availability of 
telecommunications services benefited consumers, and continues to do 
so, by increasing subscribership levels and, consequently, the value of 
the Nation's communications network.
    5. In section 254 of the Telecommunications Act of 1996, Congress 
further codified the Commission's historic commitment to ensuring the 
affordability and availability of telecommunications services for all 
Americans. Specifically, section 254(d) provides that federal support 
mechanisms should be specific, predictable, and sufficient to preserve 
and advance universal service, and that telecommunications providers 
should contribute on an equitable and nondiscriminatory basis. The 
Commission implemented the current contribution system in 1997. This 
system has two distinct but related components: The assessment of 
contributions on telecommunications providers; and the recovery of 
contribution payments by providers from their customers. Contributors 
are assessed on the basis of their interstate and international end-
user telecommunications revenues, based on a percentage or 
``contribution factor'' that is calculated every quarter. The 
Commission recognized in 1997 that contributors likely would recover 
their contributions to universal service from their end users, although 
they are not required to do so. Contributors are permitted to do so in 
any equitable and non-discriminatory manner. Many contributors elect to 
recover their contributions from their customers through a line-item 
fee, while others do not have a specific line item to recover the costs 
and instead recover them through their rates. In considering possible 
reforms to the universal service contribution system, we may determine 
that it is appropriate to modify the assessment and/or the recovery 
components.
    6. Over the last few years, important changes have occurred in the 
interstate telecommunications marketplace. Interstate revenues grew 
consistently between 1984 and 1997, when the current contribution 
system was adopted, and such growth was expected to continue. Recently, 
however, interstate revenues have declined for interexchange carriers, 
which are now responsible for contributing approximately 63 percent of 
federal universal service funding. Various factors may be responsible 
for this decline, including migration of customers to new products and 
services, local exchange carrier entry into the long distance market, 
and related price competition. If the current methodology is not 
modified or replaced, this trend could erode the contribution base over 
time, requiring increases in the contribution factor to maintain 
current levels of universal service support.
    7. We also have observed broader fluctuations in the contribution 
base. The Common Carrier Bureau recently reported that annual end-user 
switched interstate telecommunications revenues declined in 2000, the 
first time since such data has been compiled. We also observed a 
decline in assessable revenues in the first half of 2001. One analyst 
projected that United States long distance revenues would decline 12 
percent in 2001.
    8. Competition in the interexchange market continues to increase. 
For example, Regional Bell Operating Companies (RBOCs) increasingly are 
providing interstate long distance service. To date, the Commission has 
granted RBOCs approval to offer in-region interLATA service in nine 
states: Arkansas, Connecticut, Massachusetts, Missouri, New York, 
Pennsylvania, Kansas, Oklahoma, and Texas. One analyst recently 
reported that Verizon and SBC already have captured 25 percent of the 
long distance markets in New York and Texas, respectively. Verizon 
recently reported that it is the fourth-largest residential long 
distance provider in the nation based on subscriber market share.
    9. Because the current contribution system is based on historical 
revenues, some contend that it creates competitive advantages for 
contributors with increasing interstate telecommunications revenues, 
while disadvantaging those with declining revenues. Under the current 
system, contributors are assessed on revenues that they earned six 
months earlier. As a result, contributors with increasing revenues 
recover contributions from a larger revenue base than the one on which 
they are assessed, and can pass through to their customers lower fees 
than competitors with declining revenues, who must recover their 
contributions from a declining revenue base. New entrants also may be 
able to undercut the prices offered by established service providers 
who already contribute to universal service, because they do not 
contribute for the first six months that they provide service due to 
their lack of historical revenues for that period.
    10. In addition, the growth of Commercial Mobile Radio Service 
(CMRS) appears to be causing a significant migration of interstate 
telecommunications revenues from wireline to mobile wireless providers. 
Since the current assessment system was adopted in 1997, mobile 
telephony subscribership has increased from 55.3 million to 109.5 
million subscribers, and average customer minutes of use have increased 
from 117 minutes per month to 255 minutes per month. Consistent with 
these trends, mobile service is becoming a substitute for traditional 
wireline services such as payphones and second lines to the home, and 
there is a small but growing number of customers who have substituted 
mobile wireless for their primary residential lines. In addition, many 
customers are using their mobile service rather than interexchange 
service to make long distance calls: According to one report, 16 
percent of customers surveyed now make most of their long distance 
calls using mobile services. In some areas, such ``technology 
substitution'' has begun to erode revenue from interexchange services, 
which is currently the primary contribution source for universal 
service funding.
    11. Since 1997, marketplace developments also have blurred the 
distinctions between interstate/intrastate and telecommunications/non-
telecommunications revenues on which the current contribution system is 
based. For example, carriers increasingly are bundling services 
together in creative ways, such as by offering flat-rate packages that 
include both local- and long-distance services. Virtually all of the 
major mobile telecommunications service providers now offer a type of 
Digital-One-Rate (DOR) pricing plan that allows customers to purchase a 
bucket of minutes on a nationwide, or nearly

[[Page 11271]]

nationwide, network without incurring roaming or long distance charges. 
A number of carriers, including AT&T Wireless, Verizon Wireless, and 
Cingular Wireless, also have begun offering regional DOR calling plans. 
At the end of 2000, approximately 20 million mobile wireless telephone 
customers subscribed to calling plans that do not charge extra for long 
distance. The availability of such plans compounds the inherent 
difficulty of identifying interstate revenues in a mobile environment.
    12. Likewise, more and more carriers now offer bundled packages of 
telecommunications services and customer premises equipment (CPE) or 
information services. The accelerating development of new technologies 
like ``voice over Internet'' increases the strain on regulatory 
distinctions such as interstate/intrastate and telecommunications/non-
telecommunications, and may reduce the overall amount of assessable 
revenues reported under the current system. Additional legal, 
technological, and market developments that we cannot foresee also 
could significantly impact the universal service contribution base.
    13. In light of these and other changes in the telecommunications 
marketplace, we have recognized the need to review the current system 
for assessing universal service contributions. Fifty-nine parties filed 
comments in response to the 2001 Notice. Our examination of the record 
reveals a consensus that reforms are necessary, although different 
industry segments differ on what reforms should be undertaken. Some 
commenters support retention of the current revenue-based assessment 
system. Other commenters support modifying the current system, for 
example, by assessing contributions on projected or current revenues 
rather than historical revenues. Still other commenters support 
replacing the current revenue-based assessment system with one that 
focuses on connections.
    14. Our primary goal in considering possible reforms of the current 
assessment system is to ensure the stability and sufficiency of the 
universal service fund as the marketplace continues to evolve. We also 
seek to identify the best means of ensuring that contributors continue 
to be assessed in an equitable and nondiscriminatory manner. In 
addition, we seek to provide certainty to market participants, and 
minimize the regulatory costs of complying with universal service 
obligations. Achievement of these goals, in turn, should benefit 
consumers by helping to ensure that the contribution recovery process 
is fair, reasonable, and readily understood by consumers.
    15. In this Further Notice, we seek comment on whether to base 
contributions not on a contributor's revenues, but on the number and 
capacity of the connections it provides to a public network. Under this 
proposal, contributions for residential, single-line business, and 
mobile wireless connections would be assessed on a flat, monthly basis. 
Contributions for multi-line business connections would be calculated 
to recover the remaining universal service funding needs, based on the 
capacity of the connections provided. In addition, we seek comment on a 
variant of a connection-based assessment methodology that would 
maintain the relative contribution burdens on different industry 
segments. We also invite commenters to supplement the record developed 
in response to the 2001 Notice with any new arguments or data regarding 
whether to retain or modify the existing system.
    16. A connection-based assessment may address the difficulty of 
applying regulatory distinctions inherent in the existing system to new 
services and technologies. By harmonizing the contribution system with 
the telecommunications marketplace, a connection-based assessment 
approach may help to ensure the stability and sufficiency of the 
universal service contribution base over time. Such an approach also 
may provide contributors with greater certainty, reduce administrative 
costs, and avoid marketplace distortions, ultimately benefiting 
consumers. Moreover, by eliminating some of the complexity involved 
with contribution recovery fees and making only one provider 
responsible for contributing based on a single connection, a 
connection-based assessment also may make the recovery process more 
understandable for consumers. Furthermore, by reducing costs associated 
with the recovery of contributions, a connection-based assessment also 
may reduce the total amount that consumers pay in contribution recovery 
fees.
    17. Our experience over the last few years also has led us to 
reevaluate carrier recovery practices. Carriers currently have the 
flexibility to recover their contribution obligations in any manner 
that is equitable and nondiscriminatory. Some elect to recover their 
contributions from their customers through line-item charges, while 
others elect to collect their contribution requirement through their 
rates. Although the contribution factor is uniform for all 
contributors, universal service line items to consumers may vary widely 
among contributors, and often significantly exceed the amount of the 
contribution factor. For example, in the second quarter of 2001, after 
the Commission established a contribution factor of 6.882 percent, one 
interexchange carrier raised its residential universal service line 
item to 12 percent. That carrier's residential line item was 
subsequently reduced to 9.9 percent. Another interexchange carrier 
increased its residential line item to 11.5 percent on January 1, 2002, 
even though the contribution factor recently decreased from 6.918 in 
the fourth quarter to 6.808 percent in the first quarter.
    18. Some carriers also employ different recovery methods for 
different customer groups, imposing universal service line-item charges 
on certain categories of presubscribed customers, but recovering an 
undisclosed amount from other customers through per-minute service 
rates. For example, some carriers do not recover universal service 
contributions from certain categories of customers, such as dial-around 
customers. In addition, universal service line-item percentages for 
residential customers often are higher than those for business 
customers. Other carriers charge customers large, up-front universal 
service fees that are unrelated to their revenues from a customer. Such 
practices may be inexplicable to the casual observer, and may shift a 
disproportionate share of the cost of contributions onto certain 
customer classes.
    19. In this Further Notice, therefore, we seek comment on how to 
modify our rules to ensure that carriers that elect to recover their 
universal service obligations from their customers do so in a manner 
that is reasonable, fair, and understandable. In particular, we seek 
comment on whether to require carriers that elect to recover through 
separate universal service line-item charges on any customer bill to 
apply a uniform line item on all customer bills. To further develop the 
record in the Truth-in-Billing proceeding, we also seek comment on 
whether to require carriers to describe such line-item charges on 
customer bills as the ``Federal Universal Service Fee.'' We seek 
comment on whether these proposals would help to prevent consumers from 
being charged excessive universal service fees, to make the recovery 
process more understandable for consumers, and to ensure that carriers 
do not recover more from certain customers or classes of customers than 
from others. We also seek comment on whether the proposed

[[Page 11272]]

reforms would place significant administrative or financial burdens on 
contributing carriers and on the potential benefits and costs for 
consumers.

III. Procedural Issues

A. Ex Parte Presentations

    20. This is a non-restricted notice and comment rulemaking 
proceeding. Ex parte presentations are permitted, except during the 
Sunshine Agenda period, provided they are disclosed as provided in the 
Commission's rules.

B. Initial Regulatory Flexibility Act Analysis

    21. As required by the Regulatory Flexibility Act (RFA), the 
Commission has prepared this Initial Regulatory Flexibility Analysis 
(IRFA) of the possible significant economic impact on small entities by 
the policies and rules proposed in this Further Notice of Proposed 
Rulemaking. Written public comments are requested on this IRFA. 
Comments must be identified as responses to the IRFA and must be filed 
by the deadlines for comments on the Further Notice provided below in 
section III.C. The Commission will send a copy of the Further Notice, 
including this IRFA, to the Chief Counsel for Advocacy of the Small 
Business Administration. In addition, the Further Notice and IRFA (or 
summaries thereof) will be published in the Federal Register.
1. Need for and Objectives of the Proposed Rules
    22. Over the last few years, important changes have occurred in the 
interstate telecommunications marketplace. Recently, interstate 
revenues have declined for certain interexchange carriers, who are now 
responsible for contributing approximately 63 percent of federal 
universal service funding. We observed a decline in assessable revenues 
in the first half of 2001. One analyst projects that United States long 
distance revenues will decline 12 percent in 2001. Various factors may 
be responsible for this decline, including migration of customers to 
new products and services, local exchange carrier entry into the long 
distance market, and related price competition. This trend could erode 
the contribution base over time, requiring increases in the 
contribution factor.
    23. Additionally, since 1997, marketplace developments also have 
blurred the distinctions between interstate/intrastate and 
telecommunications/non-telecommunications revenues on which the current 
contribution system is based. Carriers increasingly are bundling 
services together in creative ways, for example by offering flat-rate 
packages that include both local and long distance services. Virtually 
all of the major mobile telecommunications service providers now offer 
a type of Digital-One-Rate (DOR) pricing plan that allows customers to 
purchase a bucket of minutes on a nationwide, or nearly nationwide, 
network without incurring roaming or long distance charges. A number of 
carriers, including AT&T Wireless, Verizon Wireless, and Cingular 
Wireless, also have begun offering regional DOR calling plans. At the 
end of 2000, approximately 20 million mobile telephone customers 
subscribed to calling plans that offer free nationwide long distance. 
The availability of such plans compounds the inherent difficulty of 
identifying interstate revenues in a mobile environment. Traditional 
wireline providers also are increasingly offering bundled rates for 
packages of local and long distance services.
    24. Likewise, more and more carriers now offer bundled packages of 
telecommunications services and customer premises equipment (CPE) or 
information services. The accelerating development of new technologies 
like ``voice over Internet'' increases the strain on regulatory 
distinctions such as interstate/intrastate and telecommunications/non-
telecommunications, and may reduce the overall amount of assessable 
revenues reported under the current system. Additional legal, 
technological, and market developments that we cannot foresee now also 
could significantly impact the universal service contribution base.
    25. In light of these and other changes in the telecommunications 
marketplace, the Commission has recognized the need to review the 
current system for assessing universal service contributions. Our 
examination of the record reveals a consensus that reforms are 
necessary, although different industry segments differ on what reforms 
should be undertaken. Our primary goal is to ensure the stability and 
sufficiency of the universal service fund as the marketplace continues 
to evolve. We also seek to identify the best means of ensuring that 
contributors continue to be assessed in an equitable and 
nondiscriminatory manner, and recover their contributions in ways that 
are fair and understandable for consumers. In addition, we seek to 
provide certainty to market participants, and minimize the regulatory 
costs of complying with universal service obligations.
2. Legal Basis
    26. The legal basis as proposed for this Further Notice is 
contained in sections 4(i), 4(j), 201-205, 254, and 403 of the 
Communications Act of 1934, as amended, 47 U.S.C. 4(i), 4(j), 201-205, 
254, 403.
3. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply
    27. The Commission's contributor reporting requirements apply to a 
wide range of entities, including all telecommunications carriers and 
other providers of interstate telecommunications services that offer 
telecommunications services for a fee. Thus, we expect that the 
proposal in this proceeding could have a significant economic impact on 
a substantial number of small entities. Of the estimated 5,000 filers 
of the Telecommunications Reporting Worksheet, FCC Form 499, we do not 
know how many are small entities, but we offer below a detailed 
estimate of the number of small entities within each of several major 
carrier-type categories.
    28. To estimate the number of small entities that could be affected 
by these proposed rules, we first consider the statutory definition of 
``small entity'' under the RFA. 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.''
    29. 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.

[[Page 11273]]

    30. 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.
    31. 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.
    32. 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 this Order.
    33. 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.
    34. 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 
this Order.
    35. 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.
    36. 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

[[Page 11274]]

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.
    37. 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.
    38. Private and Common Carrier Paging. In the Paging 200 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 this Order. We estimate that the majority of private and 
common carrier paging providers would qualify as small entities under 
the SBA definition.
    39. 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.
    40. 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.
    41. 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

[[Page 11275]]

as small entities under the SBA's definition.
    42. 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.
    43. 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.
    44. 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.
    45. 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
    46. Should the Commission decide that fundamental reform of the 
existing contribution methodology is needed, the associated rule 
changes potentially could modify the reporting and recordkeeping 
requirements of telecommunications service providers regulated under 
the Communications Act. As discussed previously, we potentially could 
require telecommunications service providers to file additional and/or 
different monthly or quarterly reports. Any such reporting requirements 
potentially could require the use of professional skills, including 
legal and accounting expertise. Without more data, we cannot accurately 
estimate the cost of compliance by small telecommunications service 
providers. In this Further Notice, we therefore seek comment on the 
frequency with which carriers should submit reports to USAC, the types 
of burdens carriers will face in periodically submitting reports to 
USAC, and whether the costs of such reporting are outweighed by the 
potential benefits of the possible reforms. Entities, especially small 
businesses, are encouraged to quantify the costs and benefits of the 
reporting requirement proposals.
5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    47. 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.
    48. As discussed previously, this Further Notice seeks comment on 
how to streamline and reform both the manner in which the Commission 
assesses carrier contributions to the universal service fund and the 
manner in which carriers may recover those costs from their customers. 
We seek more focused comment on whether to assess contributions based 
on the number and capacity of connections provided to a public network, 
as proposed by some commenters. A connection-based assessment approach 
may address the difficulty of applying regulatory distinctions inherent 
in the existing system to new services and technologies. By harmonizing 
the contribution system with the telecommunications marketplace, a 
connection-based assessment approach may help to ensure the stability 
and sufficiency of the universal service contribution base over time. 
We also invite commenters to supplement the record developed in 
response to the 2001 Notice with any new arguments or data regarding 
whether to retain or modify the existing revenue-based system. For 
example, some commenters suggest that we retain or modify slightly the 
existing system. In addition, we seek additional comment in the Further 
Notice on reforming the contribution recovery process to make it more 
fair and understandable for consumers.
    49. Wherever possible, the Further Notice seeks comment on how to 
reduce the administrative burden and cost of compliance for small 
telecommunications service providers. We seek comment, for example, on 
the appropriate frequency and content of reporting under a connection-
based methodology. We particularly seek comment from contributors that 
are ``small business concerns'' under the Small Business Act.
    50. Contributors currently report their gross-billed interstate 
end-user telecommunications revenues on a quarterly basis on the Form 
499-Q. We seek comment on requiring contributors to report the number 
and capacity of their connections on a monthly basis. Under this 
proposal, each month contributors would receive a fill-in-the-blank 
bill from USAC and would remit their contribution based on the number 
and capacity of their end-user connections in service as of the end of 
the prior month. Therefore, the proposed new Form 499-M would serve 
both as a contributor's monthly bill and its reporting obligation. 
Although contributors would have to report more frequently under this 
proposal than under the current system, their overall reporting burdens 
may be significantly reduced because they would only be required to 
report the number and capacity of the connections they provide, rather 
than their interstate telecommunications revenues. In

[[Page 11276]]

addition, a contributor's reporting obligation and its bill would 
become one in the same. We also seek comment on whether requiring only 
one entity to contribute for a connection would ease some of the 
administrative burdens associated with compliance. Last, we also seek 
comment on an alternative that might assist small entities: how to 
craft a de minimis exemption should the Commission choose to adopt a 
connection-based system.
6. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules
    51. None.

A. Comment Filing Procedures

    52. Pursuant to Sec. 1.415 and Sec. 1.419 of the Commission's 
rules, interested parties may file comments April 12, 2002, and reply 
comments April 29, 2002. Comments may be filed using the Commission's 
Electronic Comment Filing System (ECFS) or by filing paper copies.
    53. Comments filed through the ECFS can be sent as an electronic 
file via the Internet to http://www.fcc.gov/e-file/ecfs.html>. 
Generally, only one copy of an electronic submission must be filed. If 
multiple docket or rulemaking numbers appear in the caption of this 
proceeding, however, commenters must transmit one electronic copy of 
the comments to each docket or rulemaking number referenced in the 
caption. In completing the transmittal screen, commenters should 
include their full name, Postal Service mailing address, and the 
applicable docket or rulemaking number. Parties may also submit an 
electronic comment by Internet e-mail. To get filing instructions for 
e-mail comments, commenters should send an e-mail to [email protected], and 
should include the following words in the body of the message, ``get 
form your e-mail address>.'' A sample form and directions will be sent 
in reply.
    54. Parties who choose to file by paper must file an original and 
four copies of each filing. If more than one docket or rulemaking 
number appear in the caption of this proceeding, commenters must submit 
two additional copies for each additional docket or rulemaking number. 
All filings must be sent to the Commission's Acting Secretary, William 
F. Caton, Office of the Secretary, Federal Communications Commission, 
445 12th Street, SW., Washington, DC 20554.
    55. Parties who choose to file by paper should also submit their 
comments on diskette. These diskettes should be submitted to: Sheryl 
Todd, Accounting Policy Division, 445 12th Street, SW., Washington, DC 
20554. Such a submission should be on a 3.5-inch diskette formatted in 
an IBM compatible format using Word or compatible software. The 
diskette should be accompanied by a cover letter and should be 
submitted in ``read only'' mode. The diskette should be clearly labeled 
with the commenter's name, proceeding (including the docket number, in 
this case CC Docket No. 96-45, type of pleading (comment or reply 
comment), date of submission, and the name of the electronic file on 
the diskette. The label should also include the following phrase ``Disk 
Copy--Not an Original.'' Each diskette should contain only one party's 
pleadings, preferably in a single electronic file. In addition, 
commenters must send diskette copies to the Commission's copy 
contractor, Qualex International, Portals II, 445 12th Street, SW., 
Room CYB402, Washington, DC 20554.
    56. Written comments by the public on the proposed and/or modified 
information collections are due on or before April 12, 2002. Written 
comments must be submitted by the Office of Management and Budget (OMB) 
on the proposed and/or modified information collections on or before 
May 13, 2002. In addition to filing comments with the Secretary, a copy 
of any comments on the information collections contained herein should 
be submitted to Judith B. Herman, Federal Communications Commission, 
Room 1-C804, 445 12th Street, SW., Washington, DC 20554, or via the 
Internet to [email protected] and to Jeanette Thornton, OMB Desk 
Officer, 10236 NEOB, 725--17th Street, NW., Washington, DC 20503 or via 
the Internet to [email protected].

IV. Ordering Clauses

    57. Pursuant to the authority contained in sections 4(i), 4(j), 
201-205, 254, and 403 of the Communications Act of 1934, as amended, 
this Further Notice of Proposed Rulemaking is adopted.
    58. The Commission's Consumer Information Bureau, Reference 
Information Center, shall send a copy of this Further Notice of 
Proposed Rulemaking, including the Initial Regulatory Flexibility 
Analysis, 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.
[FR Doc. 02-6029 Filed 3-12-02; 8:45 am]
BILLING CODE 6712-01-P