[Federal Register Volume 67, Number 126 (Monday, July 1, 2002)]
[Rules and Regulations]
[Pages 44079-44083]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-16444]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 36

[CC Docket No. 96-45; FCC 02-171]


Federal-State Joint Board on Universal Service; Multi-Association 
Group (MAG) Plan for Regulation of Interstate Services of Non-Price Cap 
Incumbent Local Exchange Carriers and Interexchange Carriers; Petitions 
for Reconsideration Filed by: Coalition of Rural Telephone Companies, 
Competitive Universal Service Coalition, Illinois Commerce Commission, 
and National Telephone Cooperative Association

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission address the requests to 
reconsider portions of the Commission's order modifying the 
Commission's rules for providing high-cost universal service support to 
rural telephone companies based on the proposals made by the Rural Task 
Force by amending its rules to provide that the amount of high-cost 
loop support available to rural carriers in 2002 should be adjusted to 
account for mid-2001 implementation of the rules adopted in the Rural 
Task Force Order.

DATES: Effective July 31, 2002.

FOR FURTHER INFORMATION CONTACT: Sharon Webber, Deputy Chief, 
Telecommunications Access Policy Division, Wireline Competition Bureau, 
(202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of a Commission's Order on 
Reconsideration in CC Docket No. 96-45 released on June 13, 2002. The 
full text of this document is available for public inspection during 
regular business hours in the FCC Reference Center,

[[Page 44080]]

Room CY-A257, 445 Twelfth Street, SW., Washington, DC, 20554.

I. Introduction

    1. In this Order on Reconsideration, we address the requests to 
reconsider portions of the Commission's order modifying the 
Commission's rules for providing high-cost universal service support to 
rural telephone companies based on the proposals made by the Rural Task 
Force. Specifically, we amend our rules to provide that the amount of 
high-cost loop support available to rural carriers in 2002 should be 
adjusted to account for mid-2001 implementation of the rules adopted in 
the RTF Order, 66 FR 30080, June 5, 2001. In addition, we deny requests 
filed by the Coalition of Rural Telephone Companies, Competitive 
Universal Service Coalition, and Illinois Commerce Commission to 
reconsider certain elements of the RTF Order. We conclude that these 
petitioners have failed to present any new arguments that lead us to 
reconsider these issues.

II. Discussion

    2. As discussed in greater detail below, we amend our rules to 
provide that the amount of high-cost loop support available to rural 
carriers in 2002 should be adjusted to account for mid-2001 
implementation of the rules adopted in the RTF Order. In addition, we 
deny the requests of RTC, CUSC, and Illinois Commission to reconsider 
other elements of the RTF Order. As part of our continuing assessment 
of support to rural areas, we intend to initiate a proceeding in the 
future to examine further issues related to the application of the 
universal service mechanisms to competitive ETCs.
    3. NTCA Petition. We agree with NTCA that the Commission's rules 
for calculating a rural incumbent carrier's loop cost expense 
adjustment should be amended to take into consideration mid-year 2001 
implementation of the adopted plan. The Commission based its estimate 
of the increase in rural carrier universal service funding on data 
submitted by the Rural Task Force. This data assumed that the adopted 
plan would be implemented as of January 1, 2001. As NTCA notes, due to 
July 1, 2001 implementation of the Rural Task Force plan, application 
of Sec. 36.603(a) would result in 2002 support for rural carriers being 
calculated by adding the totals for the first half of 2001, during 
which the plan was not in effect, and the second half of 2001, during 
which the plan was in effect. We agree with NTCA that mid-year 2001 
implementation will result in less support for eligible rural carriers 
in 2002 than intended by the Commission in adopting the Rural Task 
Force plan. This result would be compounded over five years.
    4. We therefore amend Sec. 36.603(a) of our rules by taking the 
uncapped support for 2000 and increasing it for 2001 and 2002 by the 
rural growth factor. Specifically, for the period of January 1, 2002, 
to December 31, 2002, the annual amount of the rural incumbent local 
exchange carrier portion of the nationwide loop cost expense adjustment 
shall not exceed the non-capped amount of the total rural incumbent 
local exchange carrier loop cost expense adjustment for calendar year 
2000, multiplied times one plus the rural growth factor for 2001, which 
then shall be multiplied times one plus the rural growth factor for 
2002. We believe this result is consistent with the Commission's intent 
in adopting the recommendations of the Rural Task Force. We direct USAC 
to take the administrative steps necessary to implement this rule 
amendment beginning in the third quarter of 2002, including the 
provision of retroactive support to any carrier that may qualify for 
such additional support as of January 1, 2002. Specifically, in 
addition to any other payments for which carriers qualify in the third 
quarter 2002, we further direct USAC to provide the additional rural 
high-cost support retroactively in third quarter 2002 to those carriers 
that qualify for such additional support pursuant to this rule 
amendment during first quarter 2002. Similarly, in addition to any 
other payments for which carriers qualify in the fourth quarter 2002, 
USAC shall provide the additional rural high-cost support retroactively 
in fourth quarter 2002 for those carriers that qualify for such 
additional support during second quarter 2002.
    5. We do not address NTCA's request at this time to amend our rules 
to provide ``safety valve'' support for the first year of investment in 
acquired exchanges. The Commission intends to address this request at a 
later date.
    6. RTC Petition. We deny the request of RTC to reconsider the 
Commission's determination to use a wireless mobile customer's billing 
address as the basis for determining the customer's location for 
purposes of delivering high-cost universal service support. Because 
universal service support is portable, competitive ETCs receive the 
same per-line high-cost support as the incumbent local exchange carrier 
for the lines that it serves in the high-cost areas of the incumbent 
local exchange carrier. It is therefore necessary to establish a 
reasonable means to identify customer locations in order to determine 
the support amounts for the competitive carrier. We find no new 
arguments in RTC's petition that persuade us to reconsider the 
Commission's decision on this issue.
    7. We affirm that the use of the customer's billing address as a 
surrogate for actual service location is reasonable and the most 
administratively viable solution to this problem at this time. For 
example, as the Commission noted in the RTF Order, this approach 
eliminates the need to require many wireless mobile carriers to create 
a new database for purposes of universal service funding. The 
Commission addressed concerns similar to those raised in RTC's petition 
in the RTF Order, including the potential for arbitrage opportunities 
of the universal service mechanism. In so doing, the Commission 
acknowledged that this approach is not a perfect solution. Consistent 
with the Commission's conclusion in the RTF Order, we believe that 
sufficient safeguards are in place to alleviate those concerns. The 
Commission has specifically committed to taking enforcement action as 
appropriate for any such abuses. Moreover, the Commission has indicated 
that it will continue to monitor the reasonableness of using a 
customer's billing address as the surrogate for a wireless mobile 
customer's location for universal service purposes and may revisit this 
approach in the future.
    8. RTC contends that the Commission's universal service rules are 
generally incompatible for calculating universal service support for 
wireless carriers. RTC effectively asks the Commission to modify 
certain of the universal service rules as they apply to wireless 
carriers and to initiate new proceedings to establish a cost mechanism 
for wireless carriers. These requests exceed the scope of the RTF 
Order. Many of the rules for which RTC seeks modification were adopted 
prior to the RTF Order and this order is limited to those issues raised 
on reconsideration of the RTF Order. RTC's petition is therefore more 
appropriately characterized as a request for rulemaking. As part of our 
continuing assessment of support to rural areas, we intend to initiate 
a proceeding in the future to examine further issues related to the 
application of universal service mechanisms to competitive ETCs.
    9. CUSC Petition. We deny the request of CUSC to reconsider the 
requirement adopted in the RTF Order that state commissions must file 
annual certifications with the Commission to ensure that carriers use 
universal

[[Page 44081]]

service support ``only for the provision, maintenance and upgrading of 
facilities and services for which the support is intended.'' We 
therefore deny CUSC's request to permit all competitive ETCs to self-
certify their compliance with section 254(e). Specifically, we disagree 
with CUSC's contention that self-certification should be extended from 
carriers that are not subject to state jurisdiction pursuant to section 
214(e)(6) to all competitive ETCs due to the fact that competitive ETCs 
may not be subject to state rate regulation. The self-certification 
process established for carriers not subject to the jurisdiction of a 
state commission recognized that, in limited instances, there is no 
state regulatory authority to ensure compliance with section 254(e). 
This is not the case for the majority of competitive ETCs. The 
Commission has previously concluded that state commissions have the 
principal responsibility in designating carriers as ETCs, including 
those carriers not subject to state rate regulation under section 
332(c). We believe that state commissions that conduct ETC designations 
should also certify that such carriers are in compliance with section 
254(e). It would be contrary to the principle of competitive neutrality 
to require certain classes of carriers subject to state ETC 
jurisdiction to receive state certification while allowing others to 
self-certify. Nor do we agree with CUSC's alternative suggestion that 
all ETCs be allowed to self-certify compliance with section 254(e). As 
the Commission concluded in adopting this requirement, we believe that 
the state certification process provides the most reliable means of 
determining whether carriers are using support in a manner consistent 
with section 254(e).
    10. We also deny the request of CUSC to reconsider the Commission's 
decisions regarding disaggregation and targeting of universal service 
support. We disagree with CUSC's suggestion that, whenever a rural 
incumbent carrier study area is disaggregated for purposes of targeting 
funding, the study area should automatically be disaggregated for 
purposes of ETC designation as well. In the case of an area served by a 
rural telephone company, section 214(e)(5) defines the competitive 
ETC's designated service area as the rural telephone company's study 
area unless and until the Commission and states establish a different 
definition of service area. We believe that granting CUSC's request in 
this proceeding would be inconsistent with the statute.
    11. We also disagree with CUSC's assertion that the disaggregation 
rules adopted in the RTF Order violate the principle of competitive 
neutrality because they allow only rural incumbent carriers to select 
from a range of disaggregation options. Specifically, CUSC contends 
that competitive ETCs should have the same opportunity to initiate 
study area disaggregation as the rural carrier. We find that the 
disaggregation and targeting approach adopted in the RTF Order achieves 
a reasonable balance between rural carriers' need for flexibility and 
the goal of encouraging competitive entry. The Commission recognized in 
the RTF Order that some incumbent carriers may choose a disaggregation 
path based on anti-competitive reasons. For that reason, the Commission 
concluded that a state commission may require, on its own motion, upon 
petition by an interested party, or upon petition by the rural 
incumbent carrier, modification to the disaggregation and targeting of 
support under the selected path. We affirm the Commission's conclusion 
that state commissions have the capability to safeguard against anti-
competitive manipulation of the disaggregation and targeting of support 
that could occur with such requests. Competitive ETCs and other 
interested parties will have an opportunity to participate in this 
process. We therefore find no basis to conclude that the disaggregation 
process is inconsistent with the principle of competitive neutrality.
    12. We also decline to adopt CUSC's request that the Commission 
adopt specific rules governing how the amounts of support in each sub-
zone under Path Three (self-certification) are to be calculated in 
order to ensure support amounts are cost justified. We reaffirm the 
Commission's prior decision to permit carriers flexibility in how they 
disaggregate support. We are not persuaded on the record before us that 
permitting carriers to self-certify to a disaggregation path creates 
too great an opportunity for the incumbent carrier to manipulate 
support in an anti-competitive manner. A self-certified disaggregation 
plan under Path 3 is subject to complaint by interested parties before 
the appropriate regulatory authority. Moreover, the state or 
appropriate regulatory authority may require on its own motion at any 
time the disaggregation of support in a different manner. We believe 
such regulatory oversight will sufficiently safeguard against the anti-
competitive manipulation of the disaggregation and targeting of 
support.
    13. Finally, at this time, we decline to adopt CUSC's request that 
USAC publish and make available on its website additional information 
relating to the geographic boundaries of wire centers and study areas 
and the amount of support available in each geographic location. In the 
RTF Order, the Commission required rural incumbent local exchange 
carriers to submit to USAC maps in which the boundaries of the 
designated disaggregation zones of support are clearly specified, which 
USAC will make available for public inspection. In addition, when 
submitting information in support of self-certification, an incumbent 
carrier must provide USAC with publicly available information that 
allows competitors to verify and reproduce the algorithm used to 
determine zone support levels. We also note that USAC makes publicly 
available in its quarterly funding report detailed information relating 
to the high-cost support received by carriers in each study area. We 
recognize that the availability of such information is important to 
competitors in assessing potential entry. We believe that sufficient 
information is available to competitors under our existing rules and 
policies and will continue to be available following requests for 
disaggregation of study areas by rural incumbent carriers. The 
Commission will, however, continue to monitor this situation and take 
appropriate steps as necessary.
    14. Illinois Commission Petition. We deny the request of the 
Illinois Commission to reconsider the plan adopted in the RTF Order for 
providing high-cost universal service support to rural carriers for the 
next five years due to concerns relating to the sufficiency of the 
evidentiary record. Specifically, we disagree with the Illinois 
Commission that the funding increases adopted in the RTF Order are 
excessive and not based upon an adequate record.
    15. Based upon the extensive record developed in this proceeding, 
the Commission used its expertise and informed judgment to formulate an 
interim plan for providing high-cost universal service support to rural 
carriers. That plan was based largely on the recommendations of the 
Rural Task Force. After exhaustive deliberations and considerable 
effort, including six white papers, the Rural Task Force submitted its 
Recommendation to the Joint Board on September 29, 2000. After 
reviewing the Rural Task Force's proposal, the Joint Board submitted 
its recommendations to the Commission on December 22, 2000. The 
Commission carefully reviewed these recommendations, including comments 
filed by the Illinois Commission and others, in adopting the interim 
plan for rural carriers. In balancing the competing interests presented 
in this

[[Page 44082]]

proceeding, the Commission considered both the adequacy of support to 
rural carriers and the burden on contributors. In concluding that the 
modified embedded mechanism for rural carriers strikes an appropriate 
balance, the Commission rejected the contention that no increase in the 
current high-cost support levels was warranted.
    16. We affirm the Commission's conclusion that it was reasonable to 
modify the high-cost loop support levels for rural carriers established 
in 1997 to account for changes in costs and technology, and to ensure 
that rural carriers can maintain existing facilities until such time as 
a long-term plan is adopted. For example, the Commission's decision to 
increase high-cost loop support to rural carriers by ``rebasing'' the 
indexed fund cap and the corporate operations expense limitation as if 
the indexed cap had not been in effect for the calendar year 2000 was 
reasonable because more than seven years had passed since the 
Commission originally implemented the indexed cap on high-cost loop 
support. The Commission concluded that the indexed cap on the high-cost 
loop fund increasingly limited the amount of high-cost loop support for 
rural carriers. In addition, the Commission noted that, even with these 
changes any increase in the universal service contribution factor as a 
result of this plan would be modest. In the RTF Order, the Commission 
concluded that no commenter proffered any specific evidence that the 
adopted plan would provide support that is excessive. The Illinois 
Commission petition contains no such empirical evidence to support this 
contention. We therefore decline to now reconsider the Commission's 
conclusions.
    17. We also decline to reconsider the state certification 
requirement to ensure that carriers are using support in a manner 
consistent with section 254(e). As discussed, we do not agree with the 
Illinois Commission that excessive funding is provided to rural 
carriers. We therefore are not persuaded by the argument that any such 
state certification requirement is unworkable due to excessive funding 
for universal service purposes. Given that states generally have 
primary authority over carriers' intrastate activities, we reiterate 
the Commission's determination that the state certification process 
provides the most reliable means of determining whether carriers are 
using support for its intended purpose in a manner consistent with 
section 254(e).

III. Procedural Matters

A. Paperwork Reduction Act

    18. The action contained herein has been analyzed with respect to 
the Paperwork Reduction Act of 1995 (PRA) and found to impose no new or 
modified reporting and/or recordkeeping requirements or burdens on the 
public.

B. Supplemental Final Regulatory Flexibility Analysis

    19. In compliance with the Regulatory Flexibility Act (RFA), this 
Supplemental Final Regulatory Flexibility Analysis (SFRFA) supplements 
the Final Regulatory Flexibility Analysis (FRFA) included in the RTF 
Order, to the extent that changes to that Order adopted here on 
reconsideration require changes in the conclusions reached in the FRFA. 
As required by the RFA, the FRFA was preceded by an Initial Regulatory 
Flexibility Analysis (IRFA) incorporated in the Further Notice of 
Proposed Rulemaking, which sought public comment on the proposals in 
the Further Notice.
1. Need for, and Objective of, the Order
    20. Section 254 of the Communications Act of 1934, as amended by 
the 1996 Act, requires the Commission to promulgate rules to preserve 
and advance universal service support. In the RTF Order, the Commission 
adopted interim rules for determining high-cost universal service 
support for rural telephone companies based upon the modified embedded 
cost mechanism proposed by the Rural Task Force. The Commission based 
its estimate of the appropriate funding for rural carriers on data 
submitted by the Rural Task Force. This data assumed that the adopted 
plan would be implemented as of January 1, 2001. In this Order, we 
amend Sec. 36.603(a) of our rules to reflect the fact that July 1, 2001 
implementation of the rules, as adopted in the RTF Order, would result 
in less support being provided than intended by the Commission.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    21. No comments were submitted in response to the IRFA or FRFA. On 
reconsideration, however, NTCA noted that clarification of the 
Sec. 36.603(a) of the Commission's rules was required to ensure that 
mid-year 2001 implementation did not result in less support being 
provided for rural incumbent carriers in 2002 than intended by the 
Commission in adopting the Rural Task Force plan.
3. Description and Estimate of the Number of Small Entities to Which 
This Order Will Apply
    22. In the FRFA at paragraphs 218-229 of the RTF Order, we 
described and estimated the number of small entities that would be 
affected by the new universal service rules for rural carriers. The 
rule amendment adopted herein may apply to the same entities affected 
by the rules adopted in that order. We therefore incorporate by 
reference paragraphs 218-229 of the RTF Order.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
    23. The rule amendment adopted in this Order contains no new 
reporting, recordkeeping, or other compliance requirements.
5. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    24. In the RTF Order, we described the steps taken to minimize the 
significant economic impact on small entities consistent with the 
stated objectives associated with the adopted plan for providing high-
cost support to rural carriers. Because many of the same issues are 
presented in this Order, we incorporate by reference paragraphs 233-235 
of the RTF Order. In this Order, we amend Sec. 36.603(a) of our rules 
consistent with the intent of the Commission in adopting the Rural Task 
Force plan for providing high-cost universal service support to rural 
carriers for an interim period of five years. That plan was predicated 
on funding estimates for rural incumbent carriers based on January 1, 
2001 implementation. The adopted rule, however, established July 1, 
2001, as the implementation date. The rule amendment adopted herein 
rectifies this inconsistency, and thereby ensures that appropriate 
funding is provided to rural incumbent local exchange carriers and 
competitive ETCs, many of whom may qualify as small entities, over the 
next five years. As discussed, the alternative option of denying the 
request for reconsideration on this issue was considered and deemed to 
be inconsistent with Commission's intent in adopting the Rural Task 
Force's plan.
6. Report to Congress
    25. The Commission will send a copy of this Order, including this 
Supplemental FRFA, in a report to be sent to Congress pursuant to the 
Congressional Review Act, see 5 U.S.C. 801(a)(1)(A). In addition, the 
Commission will send a copy of this

[[Page 44083]]

Order, including the Supplemental FRFA, to the Chief Counsel for 
Advocacy of the Small Business Administration. A copy of the Order and 
Supplemental FRFA (or summaries thereof) will also be published in the 
Federal Register. See 5 U.S.C. 604(b).

IV. Ordering Clauses

    26. It is ordered that, pursuant to the authority contained in 
sections 1-4, 214, and 254 of the Communications Act of 1934, as 
amended, 47 U.S.C 151-154, 214, and 254, and Sec. 1.429 of the 
Commission's rules, the above captioned petitions for reconsideration 
are denied, to the extent discussed herein.
    27. The petition for reconsideration filed by National Telephone 
Cooperative Association on July 5, 2001 is granted in part, to the 
extent discussed herein.
    28. Part 36 of the Commission's rules, 47 CFR part 36, is amended 
as set forth, effective July 31, 2002.
    29. The Commission's Consumer and Governmental Affairs Bureau, 
Reference Information Center, shall send a copy of this Order, 
including the Final Regulatory Flexibility Analysis, to the Chief 
Counsel for Advocacy of the Small Business Administration.

List of Subjects in 47 CFR Part 36

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone.


    Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Rules Changes

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 36 as follows:

PART 36--JURISDICTIONAL SEPARATIONS PROCEDURES; STANDARD PROCEDURES 
FOR SEPARATING TELECOMMUNICATIONS PROPERTY COSTS, REVENUES, 
EXPENSES, TAXES AND RESERVES FOR TELECOMMUNICATIONS COMPANIES

    1. The authority citation for part 36 continues to read as follows:

    Authority: 47 U.S.C. 151, 154(i) and (j), 205, 221(c), 254, 403 
and 410, unless otherwise noted.


    2. Section 36.603 is amended by revising paragraph (a) to read as 
follows:


Sec. 36.603  Calculation of rural incumbent local exchange carrier 
portion of nationwide loop cost expense adjustment.

    (a) Effective July 1, 2001, the rural incumbent local exchange 
carrier portion of the annual nationwide loop cost expense adjustment 
will be recomputed by the fund administrator as if the indexed cap 
calculated pursuant to Sec. 36.601(c) and the corporate operations 
expense limitation calculated pursuant to Sec. 36.621 had not been in 
effect for the calendar year 2000. For the period July 1, 2001, to 
December 31, 2001, the annualized amount of the rural incumbent local 
exchange carrier portion of the nationwide loop cost expense adjustment 
calculated pursuant to this subpart F shall not exceed the non-capped 
amount of the total rural incumbent local exchange carrier loop cost 
expense adjustment for the calendar year 2000, multiplied times one 
plus the Rural Growth Factor calculated pursuant to Sec. 36.604. For 
the period January 1, 2002, to December 31, 2002, the annual amount of 
the rural incumbent local exchange carrier portion of the nationwide 
loop cost expense adjustment calculated pursuant to this subpart F 
shall not exceed the non-capped amount of the total rural incumbent 
local exchange carrier loop cost expense adjustment for calendar year 
2000, multiplied times one plus the Rural Growth Factor for 2001, which 
then shall be multiplied times one plus the Rural Growth Factor for 
2002. Beginning January 1, 2003, the annual amount of the rural 
incumbent local exchange carrier portion of the nationwide loop cost 
expense adjustment calculated pursuant to this subpart F shall not 
exceed the amount of the total rural incumbent local exchange carrier 
loop cost expense adjustment for the immediately preceding calendar 
year, multiplied times one plus the Rural Growth Factor calculated 
pursuant to Sec. 36.604.
* * * * *

[FR Doc. 02-16444 Filed 6-28-02; 8:45 am]
BILLING CODE 6712-01-P