[Federal Register Volume 68, Number 43 (Wednesday, March 5, 2003)]
[Proposed Rules]
[Pages 10429-10434]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-5155]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket No. 96-45; FCC 03J-1]


Federal-State Joint Board on Universal Service Seeks Comment on 
Certain of the Commission's Rules Relating to High-Cost Universal 
Service Support and the ETC Designation Process

AGENCY: Federal Communications Commission.

ACTION: Solicitation of comments.

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SUMMARY: On November 8, 2002, the Federal Communications Commission 
requested that the Federal-State Joint Board on Universal Service 
``review certain of the Commission's rules relating to the high-cost 
universal service support mechanisms to ensure that the dual goals of 
preserving universal service and fostering competition continue to be 
fulfilled.'' In particular, the Commission asked the Joint Board to 
review the Commission's rules relating to high-cost universal service 
support in study areas in which a competitive eligible 
telecommunications carrier is providing services, as well as the 
Commission's rules regarding support for second lines. The Commission 
also asked the Joint Board to examine the process for designating ETCs. 
In this document, the Joint Board invite public comment on whether 
these rules continue to fulfill their intended purposes, whether

[[Page 10430]]

modifications are warranted, and if so, how the rules should be 
modified.

DATES: Comments are due on or before May 5, 2003. Reply comments are 
due on or before June 3, 2003.

ADDRESSES: Send comments to 445 12th Street, SW., Washington DC 20554. 
See SUPPLEMENTARY INFORMATION section for more information on where and 
how to file comments.

FOR FURTHER INFORMATION CONTACT: Katherine Tofigh, Attorney, 
Telecommunication Access Policy Division, Wireline Competition Bureau 
or Paul Garnett, Attorney, Telecommunications Access Policy Division, 
Wireline Competition Bureau, (202) 418-7400, TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: On November 8, 2002, the Federal 
Communications Commission (Commission) requested that the Federal-State 
Joint Board on Universal Service (Joint Board) ``review certain of the 
Commission's rules relating to the high-cost universal service support 
mechanisms to ensure that the dual goals of preserving universal 
service and fostering competition continue to be fulfilled.'' In 
particular, the Commission asked the Joint Board to review the 
Commission's rules relating to high-cost universal service support in 
study areas in which a competitive eligible telecommunications carrier 
(ETC) is providing services, as well as the Commission's rules 
regarding support for second lines. The Commission also asked the Joint 
Board to examine the process for designating ETCs. By this Public 
Notice, the Joint Board initiates its review. As set forth below, we 
invite public comment on whether these rules continue to fulfill their 
intended purposes, whether modifications are warranted, and if so, how 
the rules should be modified.

Issues for Comment

    1. We seek comment on whether changes to the Commission's rules 
relating to high-cost universal service support in study areas in which 
a competitive ETC is providing services and the Commission's rules 
regarding support for second lines are warranted, and if so, how those 
rules should be modified. We also seek comment regarding the process 
for designating ETCs. With respect to each of these issues, we ask that 
commenters specifically address how any proposed modifications will 
further, or impede, the Act's goals of maintaining universal service 
and fostering competition. We also ask commenters to address the effect 
of any rule changes on incentives to invest in and upgrade the network 
and on incentives to provide supported services in high-cost areas. In 
addition, commenters should address how any proposed modifications to 
the high-cost loop support mechanism for rural carriers would affect 
the specific conclusions adopted in the Rural Task Force Order, 66 FR 
34603 (June 29, 2001), as well as its five-year time frame.

A. State of the Marketplace and Universal Service Fund

    2. We seek to establish a complete record on the development of 
competition in high-cost areas, the effect of the Commission's current 
policies on such development, and how line growth in high-cost areas 
may impact the universal service fund. To the extent possible, we 
request that commenters provide detailed data on competition and line 
growth in high-cost areas. The more specific data that we receive, the 
better able we will be to tailor our recommendations to meet the Act's 
goals of maintaining universal service and fostering competition.
    3. Based on Universal Service Administrative Company (USAC) data, a 
total of approximately 1,400 ETCs received approximately $803 million 
in high-cost support disbursed in the third quarter of 2002 for service 
to approximately 31 million lines. Of these ETCs, 45 were competitive 
ETCs, of which 15 were mobile wireless providers, and 30 were 
competitive LECs. The competitive ETCs received approximately $14 
million for service to 1.2 million lines for the same time period, 
representing approximately 1.8 percent of the total amount of high-cost 
support provided to ETCs. In contrast, in the first quarter of 2001, 
competitive ETCs received approximately $2 million out of approximately 
$638 million in high-cost support, or approximately 0.4 percent of 
total high-cost support.
    4. To what extent will support for competitive ETCs likely grow 
over time? Is the growth rate of support for competitive ETCs over the 
last eighteen months indicative of what one would expect to see in the 
future? How does the growth in support for competitive ETCs compare to 
the growth in support for other ETCs (i.e., incumbent LECs)?
    5. According to the Commission's most recent Local Telephone 
Competition report, 93 percent of United States households are located 
in zip codes where there is at least one competitive local exchange 
carrier. In some states, however, entry is occurring in only a limited 
number of zip codes. According to the Commission's most recent CMRS 
Competition report, 94 percent of the total United States population 
lives in counties with access to three or more different mobile 
telephone service operators (including cellular, broadband Personal 
Communications Services, and/or digital Specialized Mobile Radio 
providers). What percentage of consumers in rural and high-cost areas 
have access to competitive alternatives for services provided by 
incumbent LECs? What economic and business factors affect competitive 
entry in rural and high-cost areas? To what extent, if any, is there a 
relationship between competitive entry and receipt of high-cost support 
by competitive ETCs?
    6. In addition, we encourage commenters to provide the Joint Board 
with data on the number of telephone connections in high-cost areas, 
and to also indicate the type of technological platform providing the 
telephone connections. Is there line growth in high cost areas, and if 
so, how much of the line growth is due to services being provided by 
wireline, wireless, and other technology platforms? To what extent does 
such growth represent secondary lines, and to what extent does it 
represent new end users? Where are such lines located? To what extent 
are such lines eligible for high-cost support, i.e., provided by ETCs? 
How many currently receive support?
    7. To what extent does wireless or other technology represent the 
addition of complementary service rather then substitution for 
traditional wireline in rural and high-cost areas? We note that, 
according to the Commission's most recent Telephone Subscribership in 
the United States report, as of November 2001, 1.2 percent of 
households in the United States indicated that they had only wireless 
phones. Is it reasonable to assume that this statistic on household 
wireless substitution nationwide is indicative of the degree of 
substitution occurring in high-cost areas? To what extent have 
customers of mobile wireless competitive ETCs substituted wireless for 
wireline service?

B. Methodology for Calculating Support in Competitive Study Areas

    8. We seek comment regarding the methodology for calculating 
support for ETCs in competitive study areas. Under the Commission's 
current rules, per-line support for all ETCs is based on the support 
that the incumbent LEC would receive for the same line. This means that 
support to the competitive ETC is based on a variety of factors 
directly related to the incumbent's operations.
    9. We seek comment on the policy goals of portable support. Does 
providing universal service support for multiple ETCs in high-cost 
areas result

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in inefficient competition and impose greater costs on the universal 
service fund? Do the current rules promote competitive neutrality and 
properly balance the statutory goals of competition and universal 
service? Do the current rules promote efficient competition in high-
cost areas? Do they operate in a competitively neutral manner? Do they 
remove or create barriers to entry? Do the current rules have the 
effect of supporting the costs of two or more networks serving the same 
area concurrently? If so, is that consistent with the purpose of 
section 254 of the Act?
    10. To what extent do the costs of competitive ETCs differ from the 
costs of incumbents? Do the Commission's rules create an unfair 
advantage for ETCs with lower costs? Should support vary depending on 
an ETC's technology platform? What is the effect of competitive entry 
in rural and non-rural study areas on the amount of support that an 
incumbent ETC receives?
    11. We also seek comment on alternative methodologies for 
calculating support for competitive ETCs. For example, should the 
Commission calculate support for a competitive ETC based on its own 
costs? What would be the competitive effects of paying different 
amounts per ``customer'' or per ``line'' to each ETC? To the extent 
competitive ETCs were to receive support based on their own costs, what 
costs would be appropriately included in determining support? Under 
such an approach, should support be based on competitive ETCs' forward-
looking economic costs or embedded costs? Should the methodology used 
to calculate competitive ETC support be the same as the methodology 
used to calculate support for the incumbent? We note that the 
Commission's forward-looking cost model is designed to model the costs 
of a wireline network, and that competitive ETCs are not subject to the 
same regulatory and reporting requirements as incumbent LECs. Also, 
several ETCs now provide service using wireless technology. What 
reporting requirements would be necessary in order to implement a 
requirement that support for each competitive ETC be based on its own 
costs? Under such an approach, would it be appropriate to calculate 
support for competitive ETCs on a per-line basis? If so, should per-
line support amounts reflect solely the competitive ETC's line count, 
or some combination of the line counts reported by all area ETCs? What 
are the alternatives to calculating support on a per-line basis?
    12. In addition, we seek comment on other methods of determining 
high-cost support for ETCs in competitive study areas. For example, 
should support in competitive areas be based on the lowest-cost 
provider's costs, in order to promote efficiency? For example, if a 
fixed wireless carrier can serve an area at lower cost, should support 
to all carriers serving that area be based on the cost of the fixed 
wireless service? How should the Commission determine the lowest cost 
of service and to what extent should quality of service be considered 
when making such a determination? To the extent the costs of 
competitive ETCs are lower than the costs of incumbent LECs, what 
effect would such rules have on incumbent providers?
    13. We also seek comment on whether and how auctions might be 
utilized to award support. For example, should high-cost support be 
awarded to the ETC with the lowest bid for support in a designated 
service area for a set period of time? Under such a system, how would 
the geographic units of the auction be determined, what criteria should 
determine when an ETC or ETCs receive support, what regulatory 
authority should administer the process, and how frequently should 
auctions be conducted? What responsibilities should be imposed on the 
ETC that receives high-cost support? Should such an ETC be required to 
assume quality of service obligations? How would auctions be 
implemented in light of section 214(e)(2) of the Act, which requires 
states to determine through the ETC process whether designation of a 
competitive ETC in a given service area would serve the public 
interest? What other laws should be considered when determining the 
suitability of auctions as a mechanism for directing support to rural 
or non-rural service areas? What would be the effect of auctions on the 
objective of fostering competition and the principle of competitive 
neutrality in high-cost areas? Specifically, what impact would auctions 
have on investment by incumbents and competitors in high-cost areas? 
What sort of measures could be adopted to encourage auction winners, as 
well as losers, to continue investing in high-cost areas? What level of 
competition should be present prior to auctions being conducted in a 
given service area? Under an auction system, would adequate incentives 
exist to ensure each carrier would provide its lowest bid?
    14. In addition, we seek comment on the Commission's rules 
governing calculation of high-cost support for competitive ETCs 
utilizing UNEs. Currently, a competitive ETC that provides supported 
services utilizing UNEs receives the lesser of the UNE price or the 
per-line support amount available to the incumbent LEC. Some 
competitive UNE-based ETCs serving high-cost areas may receive support 
equal to the full price of the UNEs they purchase from the incumbent 
LEC. As a result, these competitive ETCs have no net UNE cost, and may 
pay only non-UNE costs such as customer service support, administrative 
costs, and network costs ancillary to the UNE costs. Also, the 
geographic area for which support is calculated for competitive ETCs 
may be different from the area for which UNE prices are calculated by 
the state commission. Should the Commission revise its rules? If so, 
how? For example, should the Commission require a competitive ETC to 
qualify for high-cost support based on its cost associated with the 
purchase of UNEs? What costs do competitive ETCs have in addition to 
the cost of purchasing UNEs? Under such an approach, how should these 
additional costs be considered in determining whether to provide 
support to a competitive ETC that utilizes UNEs? How should such costs 
be determined? Are modifications to the Commission's rules warranted in 
order to clarify how incumbents report loops sold as UNEs to 
competitive ETCs?
    15. With respect to any proposed alternative methodologies, 
commenters should provide a detailed explanation as to how support 
should be calculated and the administrative burdens entailed. In 
particular, we seek a comprehensive assessment of the reporting 
obligations and the frequency of such reporting, and the necessity for 
either regular Commission review of embedded costs or development and 
update of models. Commenters should quantify the burden of any proposed 
reporting obligations and any necessary embedded cost or model review. 
Commenters should also address how any proposed alternative 
methodologies would affect competition and competitive neutrality, and 
how they would serve the principles of section 254 of the Act. In 
addition, commenters should address the relationship between carrier of 
last resort obligations and the proposed alternative methodology. To 
the extent a commenter's proposal would result in a change in the 
amount of support paid to an ETC, that commenter should also explain 
whether the change should occur as soon as possible, be phased in, or 
be deferred to hold existing ETCs harmless from the change.
    16. Furthermore, we seek comment on whether the support available 
to competitive ETCs in high-cost areas should be subject to limitations 
similar

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to those imposed on support for incumbent LECs. Under the Commission's 
current rules, high-cost loop support for competitive ETCs is not 
capped, whereas the Commission's rules limit the overall amount of 
rural high-cost loop support available to incumbent LECs. Should the 
maximum amount of support available to a single competitive ETC have 
some relation to the total amount of high-cost support available to the 
incumbent in the same area? Should the total amount of funding 
available to all ETCs in a geographic area be capped in some manner? 
Commenters should address the potential benefits and costs of modifying 
these rules on the stability, predictability, and sufficiency of the 
fund, as well as their potential effects on competition.
    17. In addition, we seek comment regarding the specific concerns 
raised by the Rural Task Force relating to excessive growth in the fund 
if incumbent rural carriers lose a significant number of lines to 
competitive ETCs. The Rural Task Force stated, for example, that as a 
rural incumbent LEC ``loses'' lines to a competitive ETC, the rural 
incumbent LEC must recover its fixed costs from fewer lines, thus 
increasing its average per-line costs. With higher average per-line 
costs, the rural incumbent LEC could receive greater per-line support, 
which would also be available to the competitive ETC for each of the 
lines that it serves. In response to these concerns, the Commission 
sought comment on whether to freeze per-line support amounts available 
to the rural incumbent LEC and any competitive ETC in competitive study 
areas served by rural carriers. We invite commenters to update the 
record and provide alternative proposals that may be appropriate to 
address this issue. Commenters should support their responses with data 
or other empirical information regarding loss of lines by rural 
carriers to competitive ETCs. We request that such empirical 
information be categorized by customer class or service, including 
residential and business, single and multi-line business, special 
access, etc.
    18. We also seek comment regarding the methodology for determining 
the location of a line served by a mobile wireless provider, and 
whether modifications are warranted. Currently, competitive ETCs 
providing mobile wireless service use the customer's billing address 
for purposes of identifying the service location of a mobile wireless 
customer in a service area. In the Rural Task Force Order, the 
Commission concluded that this approach was reasonable and the most 
administratively simple solution to the problem of determining the 
location of a wireless customer for universal service purposes, 
although it could be subject to abuse. The Commission also stated that 
it might revisit this approach ``[a]s more mobile wireless carriers are 
designated as eligible to receive support[.]'' We invite commenters to 
address the reasonableness of the Commission's current approach and 
whether it should be reevaluated. To the extent commenters assert this 
approach has led to unintended consequences, they should describe such 
situations with specificity. We ask commenters to provide suggestions 
regarding alternative methods of determining the location of lines 
served by a mobile wireless service provider. Commenters should 
specifically address the administrative burdens entailed by any 
proposed approaches.

C. Scope of Support

    19. Under the Commission's current rules, all residential and 
business connections provided by ETCs are eligible for high-cost 
support. In its 1996 recommendations to the Commission regarding 
universal service, the Joint Board recommended that support be limited 
to the provision of a single connection to a subscriber's primary 
residence and to businesses with only a single connection. The Joint 
Board also recommended that support not be provided to second 
residences. In declining to adopt this recommendation, the Commission 
stated that it shared the Joint Board's concern regarding this matter, 
but it would continue to evaluate this recommendation as it further 
developed a support mechanism based on forward-looking economic costs.
    20. As noted above, currently incumbent LECs and competitive ETCs 
collectively serve a total of 32.2 million lines in high-cost areas. 
What percentage of these lines, or lines in any particular geographic 
area, are second lines? To the extent possible, commenters should 
provide detailed empirical information and should address whether the 
percentage of lines that should be deemed ``second lines'' varies in 
any way between incumbent LECs and competitive ETCs.
    21. We seek comment regarding whether the goals of section 254 
would be better served if support were limited to a single connection 
to the residential or single-line business end-user--whether provided 
by the incumbent or a competitive ETC. Would limiting support to 
primary lines be consistent with the universal service principle 
stating that access in rural and high-cost areas should be ``reasonably 
comparable'' to urban areas? How would a primary line restriction 
affect the implementation of federal support mechanisms based on 
embedded or forward-looking costs? How would such a restriction affect 
the implementation of the Commission's interstate access reform goals 
adopted in the CALLS Order, 65 FR 57739, September 26, 2000 and MAG 
Order, 66 FR 59719, November 30, 2001? Commenters also should address 
the significance of carrier of last resort obligations to these issues. 
What would be the impact of primary line restrictions on consumers, 
ETCs, and an ETC's ability to provide universal service?
    22. If support were limited to a single connection, how would it be 
determined which line receives support? Is it administratively feasible 
to distinguish primary from second lines? Commenters should address 
whether and how primary lines should be defined. Should the end user be 
defined as a household, or a single individual? How would a rule 
limiting support to a single residential end user affect households in 
which two or more unrelated individuals reside? The Commission 
previously acknowledged the administrative difficulties associated with 
applying different primary and non-primary residential SLC rates. Would 
similar problems arise if the Commission were to limit high-cost 
support to primary lines? Would such problems be magnified in a multi-
carrier environment? Would limiting support to primary lines reduce 
incentives to construct second lines in high-cost areas or create a 
negative financial effect on the incumbent? If the Commission limited 
support to primary lines, would the Commission also need to revise how 
it determined the amount of support per line? If so, how should the 
level of support be determined?
    23. If support were limited to a single connection, should the end 
user designate the line to be supported, and if so, how would this rule 
be administered? How would consumers be affected by such action? How 
would this affect the price of services for single line subscribers and 
multi-line subscribers? Under such an approach, should support depend 
on the type of line designated by the end user?
    24. Should support be provided to second residences, and if not, 
how would second residences be defined? Alternatively, should the 
number of connections eligible for high-cost support be limited in some 
manner other than a primary line restriction?

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    25. We also ask commenters to discuss whether any proposed rule 
modifications would advance the goals of section 254, would be 
competitively neutral, and would promote more efficient competition in 
competitive study areas. How would a limit on the number of lines that 
receive support affect incumbent LECs' and competitive ETCs' incentives 
to compete for all lines? Would a limit on the number of lines that 
receive support be a barrier to entry? In addition, to what extent 
would any proposed modifications affect the size of the universal 
service fund?

D. Process for Designating ETCs

    26. In order to receive universal service support, carriers must 
obtain ETC designation from the relevant state commission, or the 
Commission in cases where the state commission lacks jurisdiction. 
Before designating an additional ETC for an area served by a rural 
telephone company, the state commission or the Commission must find 
that the designation is in the public interest. We seek comment 
regarding the system for resolving requests for ETC designations under 
sections 214(e)(2) and 214 (e)(6) of the Act. Is there a need to 
clarify the standards for ETC designations under the Act? What factors 
should the Commission consider when it performs ETC designations 
pursuant to section 214(e)(6)? In particular, what factors should the 
Commission consider in determining whether designation of more than one 
ETC is consistent with the public interest, convenience, and necessity? 
What additional factors, if any, should be considered when considering 
whether to designate an ETC in a rural carrier study area?
    27. We also seek specific comment on ETC designations performed by 
states pursuant to section 214(e)(2) of the Act. Is it advisable to 
establish permissive federal guidelines for states to use in 
designating ETCs pursuant to section 214(e)(2), and if so, what should 
be included in such guidelines? Should the Commission encourage states 
to have similar standards for the designation of ETCs? In considering 
this issue, commenters should also address the impact of the Fifth 
Circuit's decision regarding the Commission's ability to prohibit 
states from imposing additional eligibility criteria on ETCs. In 
addition, what effect, if any, does the current ETC designation system 
have on the emergence of competition? We also seek comment on the 
public interest finding that must be made before any competitive 
carrier can be designated as an ETC in a rural telephone company's 
study area. What sort of factors do state commissions currently 
consider when evaluating whether the designation is in the public 
interest? If greater consistency among the states in performing the 
public interest evaluation is desirable, should the Commission provide 
guidance regarding the factors a state commission's public interest 
analysis should consider? To what extent are similar universal service 
obligations or quality of service obligations not imposed on incumbent 
LECs and competitive ETCs? Should any Commission guidelines differ 
depending upon whether or not the rural exemption has been lifted in 
the area for which ETC status is sought?
    28. In the Rural Task Force Order, the Commission determined that 
rural carriers should be permitted to disaggregate and target per-line 
high-cost universal service support into geographic areas below the 
study area level. The Commission concluded that such action would 
ensure that support is ``distributed in a manner that ensures that the 
per-line level of support is more closely associated with the cost of 
providing service.'' The Commission also determined that rural 
incumbent LECs must submit maps that clearly specify the boundaries of 
the designated disaggregation zones of support. Do the Commission's 
reporting requirements adequately ensure that competitors have 
sufficient information about the geographic scope of incumbent 
disaggregation zones? We invite commenters to address whether the 
Commission should clarify its requirements. Further, the Commission 
concluded in the Rural Task Force Order that the level of 
disaggregation of support should be considered in determining whether 
to certify new ETCs for a service area other than a rural carrier's 
entire study area. In light of the Commission's finding that 
disaggregation zones encourage efficient market entry, what weight 
should states and the Commission place on the presence of such zones 
when determining whether the designation of a competitive ETC below the 
study area level is in the public interest?
    29. Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's 
rules, interested parties may file comments on or before May 5, 2003, 
and reply comments on or before June 3, 2003. Comments may be filed 
using the Commission's Electronic Comment Filing System (ECFS) or by 
filing paper copies. Comments filed through the ECFS can be sent as an 
electronic file via the Internet to http://www.fcc.gov/e-file/ecfs.html. Only one copy of an electronic submission must be filed. In 
completing the transmittal screen, commenters should include their full 
name, Postal Service mailing address, and CC Docket No. 96-45. Parties 
also may submit electronic comments by Internet e-mail. To receive 
filing instructions for e-mail comments, commenters should send an e-
mail to [email protected], and include the following words in the body of 
the message, ``get form .'' A sample 
form and directions will be sent in reply. Parties who choose to file 
by paper must file an original and four copies of each filing.
    30. All paper filings must be sent to the Commission's Secretary, 
Marlene H. Dortch, Office of the Secretary, Federal Communications 
Commission, 445 12th Street, SW., Washington, DC 20554. Parties who 
choose to file by paper also should send three copies of their filings 
to Sheryl Todd, Telecommunications Access Policy Division, 445 12th 
Street, SW., Room 5-B540, Washington, DC 20554. In addition, parties 
who choose to file by paper must send copies of their comments on 
diskette to the Commission's duplicating contractor, Qualex 
International, Portals II, 445 12th Street, SW., Room CY-B402, 
Washington, DC 20554. Such submissions 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, CC Docket No. 96-45, the 
type of pleading (comment or reply comment), the 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.
    31. The full text of this document is available for public 
inspection and copying during regular business hours at the FCC 
Reference Information Center, Portals II, 445 12th Street, SW., Room 
CY-A257, Washington, DC 20554. This document may also be purchased from 
the Commission's duplicating contractor, Qualex International, Portals 
II, 445 12th Street, SW., Room CY-B402, Washington, DC, 20554, 
telephone 202-863-2893, facsimile 202-863-2898, or via e-mail 
[email protected].

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