[Federal Register Volume 68, Number 62 (Tuesday, April 1, 2003)]
[Rules and Regulations]
[Pages 15669-15672]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-7702]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170; 
FCC 03-58]


Federal-State Joint Board on Universal Service

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Commission addresses petitions for 
interim waiver and several petitions for reconsideration of rules 
recently adopted in the Interim Contribution Methodology Order 
regarding the assessment and recovery of contributions to the federal 
universal service support mechanisms.

DATES: Effective April 1, 2003.

FOR FURTHER INFORMATION CONTACT: Paul Garnett, Attorney or Diane Law 
Hsu, Deputy Division Chief, Wireline Competition Bureau, 
Telecommunications Access Policy Division, (202) 418-7400.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order 
and Second Order on Reconsideration in CC Docket Nos. 96-45, 98-171, 
90-571, 92-237, 99-200, 95-116, 98-170; FCC 03-58, released on March 
14, 2003. The full text of this document is available for public 
inspection during regular business hours in the FCC Reference Center, 
Room CY-A257, 445 Twelfth Street, SW., Washington, DC, 20554.

I. Introduction

    1. In this Order, we address petitions for interim waiver and 
several petitions for reconsideration of rules recently adopted in the 
Interim Contribution Methodology Order, 67 FR 79525, December 30, 2002, 
regarding the assessment and recovery of contributions to the federal 
universal service support mechanisms. We grant local exchange carriers' 
request for an interim waiver of Sec.  54.712 of the Commission's rules 
to permit such carriers to continue to recover through the federal 
universal service line item certain contribution costs associated with 
Centrex customers on a per-line basis from multi-line business 
customers, pending action on petitions for reconsideration of this 
rule. In addition, we grant, in part, petitions filed by the United 
States Telecommunications Association (USTA) and SBC Communications 
Inc. (SBC) seeking reconsideration of Sec.  54.712 to permit eligible 
telecommunications carriers (ETCs) to recover contribution costs 
associated with Lifeline customers' occasional interstate revenues 
through a universal service pass-through charge for such customers. We 
also address petitions filed by the National Exchange Carrier 
Association, Inc. (NECA), Verizon Wireless, and WorldCom, Inc. 
(WorldCom), and clarify how the Universal Service Administrative 
Corporation (USAC) shall conduct the universal service contribution 
true-up processes for revenues from 2002 and 2003. Finally, we grant, 
in part, a petition for reconsideration filed by AT&T Corp. (AT&T) 
requesting that the Commission announce the universal service 
contribution factor as a percentage rounded up to the nearest tenth of 
a percent.

II. Discussion

    1. Centrex. In this Order, we grant, in part, petitions for interim 
waiver filed by BellSouth, National Exchange Carrier Association 
(NECA), National Telecommunications Cooperative Association (NTCA), 
Organization for the Promotion and Advancement of Small 
Telecommunications Companies (OPASTCO), SBC, and Verizon (Petitioners) 
of Sec.  54.712(a) of our rules as it applies to the multi-line 
business customers of local exchange carriers, pending the Commission's 
resolution of petitions for reconsideration of the rule. We find 
Petitioners have demonstrated special circumstances to warrant 
deviation from our rule and that the public interest would be served by 
granting a limited interim waiver. Therefore, we waive Sec.  54.712 on 
an interim basis to enable local exchange carriers to continue to 
recover federal universal service contribution costs through universal 
service line items using the equivalency ratios established for Centrex 
lines under our rules governing the Presubscribed Interexchange Carrier 
Charge (PICC). Until the Commission resolves pending petitions for 
reconsideration of Sec.  54.712, local exchange carriers that utilize 
the PICC equivalency ratios when recovering contribution costs from 
Centrex customers will be permitted to recover a share of their 
contributions associated with the subscriber line charge for a specific 
Centrex line from their multi-line business customers in a given state.
    3. Under Sec. Sec.  69.131 and 69.158 of our rules, local exchange 
carriers have the option of recovering their contribution costs from 
Centrex customers through a universal service line item that uses the 
equivalency ratios established for Centrex lines under our rules 
governing the PICC. In the Access Charge Reform Reconsideration Order, 
the Commission adopted, for purposes of the PICC, a ratio of up to nine 
Centrex lines to one PBX trunk. The Commission subsequently granted 
local exchange carriers the option of applying this equivalency ratio 
to the recovery of universal service contribution costs from Centrex 
customers.
    4. In the Interim Contribution Methodology Order, the Commission 
adopted a general prohibition on the recovery of amounts in excess of 
contribution obligations through federal universal line-item charges. 
As discussed, the Commission concluded such action would prevent 
carriers from recovering unrelated costs through universal service line 
items and from averaging contribution costs across all end-user 
customers. In addition, it would alleviate end-user confusion regarding 
universal service line items.
    5. We conclude that special circumstances exist that warrant 
interim waiver of the rule. Petitioners have noted a potential 
inconsistency between Sec. Sec.  54.712, 69.131, and 69.158. They 
assert that if carriers are not permitted to increase recovery charges 
for multi-line business customers, they may be unable to continue to 
apply an equivalency ratio to Centrex universal service pass-through 
charges as permitted by Sec. Sec.  69.131 and 69.158 of our rules and 
still recover their contribution costs from their customers. They note 
the Commission did not indicate its intent in the Interim Contribution 
Methodology Order to overturn its existing policy of permitting local 
exchange carriers to apply an equivalency ratio to Centrex customer 
universal service pass-through charges. To the contrary, they argue 
that the Commission recognized that it may be appropriate to continue 
applying the one-ninth equivalency ratio to Centrex customer lines in 
the event that a connection-based universal service contribution 
methodology is adopted.
    6. The petitions for reconsideration of this issue raise important 
issues we intend to resolve expeditiously. In the meanwhile, we believe 
the public interest would be served by granting a limited waiver of the 
general prohibition on averaging contribution

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costs among different customers for contribution costs not recovered by 
operation of the Centrex equivalency ratios to preserve the status quo 
for a limited period of time. Grant of this interim waiver does not 
represent a substantive change in Commission policy. To the contrary, 
grant of this interim waiver is only provided to allow carriers to 
continue an existing Commission policy, while we examine that policy 
and contribution issues more broadly. Until the Commission addresses 
pending petitions for reconsideration of this issue, local exchange 
carriers will be permitted to continue to average such unrecovered 
contribution costs across multi-line business customers.
    7. Moreover, this interim waiver will prevent an unintended 
increase in universal service pass-through charges on current Centrex 
users, pending the Commission's determination of the merits of the 
petitions for reconsideration on this and other related issues. Because 
most local exchange carriers currently apply the PICC equivalency 
ratios to Centrex universal service pass-through charges, the limited 
waiver we grant today will minimize changes in universal service line 
items for multi-line business customers in the immediate term, while 
carriers otherwise implement the new rule on April 1, 2003. In 
particular, we note that several organizations representing state 
agencies have submitted letters in support of this action. These 
commenters note that state governments rely heavily on Centrex service 
and would be disproportionately affected by increases in universal 
service line item charges resulting from denial of the interim waiver. 
We intend to weigh these and other arguments in reviewing the pending 
petitions for reconsideration.
    8. We emphasize the limited nature of our action today. This waiver 
is limited to the narrow issue of how to accommodate existing 
Commission policies that the Commission did not directly address in the 
Interim Contribution Methodology Order. Except for this limited 
exception, all carriers (including local exchange carriers) will 
continue to be subject to broader limitations on the recovery of 
contribution costs through federal universal service line-item charges.
    9. Lifeline. In addition, we grant, in part, petitions filed by SBC 
and USTA to reconsider Sec.  54.712(b) of our rules, as it applies to 
the recovery of contributions associated with Lifeline customers. 
Specifically, we amend Sec.  54.712(b) to permit ETCs to recover from 
Lifeline customers contribution costs associated with the provision of 
interstate telecommunications services that are not supported by the 
Commission's universal service mechanisms. ETCs have always been free 
to recover such amounts from these customers in the past, and the 
Commission did not intend to preclude such recovery when it adopted the 
interim modifications in the Interim Contribution Methodology Order.
    10. Sections 54.712(a) and (b) read together prohibit ETCs from 
recovering any contribution costs associated with Lifeline customers 
either from Lifeline customers directly or through a federal universal 
service line-item charge assessed on all other customers. When the 
Commission adopted Sec.  54.712(b), it reasoned that because 
``customers of Lifeline services do not generate assessable interstate 
telecommunications revenues for ETCs, the relevant assessment rate and 
contribution amounts recovered from such customers would be zero.'' In 
particular, the Commission focused on the fact that Lifeline customers 
are not obligated to pay a subscriber line charge, which typically is a 
major source of interstate revenue for an ETC. Several large local 
exchange carriers, however, point out that customers of Lifeline 
services do in fact generate occasional interstate telecommunications 
revenues from interstate telecommunications services, such as one-time 
presubscribed interexchange carrier (PIC) change charges and other 
interstate intraLATA toll charges. These charges, however, are not 
associated with services subject to Lifeline discounts and, in any 
event, should not generate substantial contribution amounts. Therefore, 
we find that ETCs should not be prohibited from recovering these 
minimal contributions associated with these occasional interstate 
charges from Lifeline customers.
    11. Moreover, this modification will ensure that ETCs are not 
disadvantaged by our recovery limitations if they provide both local 
and long distance services to customers who participate in the Lifeline 
program. The combination of Sec. Sec.  54.712(a) and (b) could prohibit 
ETCs that provide both local and long distance services from recovering 
their contributions associated with such customer's long distance 
charges through any universal service line items. Interexchange 
carriers that only provide long distance services to customers who also 
qualify for Lifeline, however, have always been permitted to recover 
their contribution costs from these customers and still are free to do 
so under the current rules. We do not believe this disparity in 
recovery practices is competitively neutral. Accordingly, we will amend 
our rules to permit ETCs to recover contribution costs associated with 
interstate long distance charges from Lifeline customers.
    12. True-Up Process for 2002 and 2003. In response to petitions for 
reconsideration filed by NECA, Verizon Wireless, and WorldCom, we 
clarify how USAC will true up annual revenue data filed by contributors 
on the FCC Form 499-A against quarterly revenue data filed on the FCC 
Form 499-Q. Specifically, we clarify that USAC shall only apply the 
annual true-up to revenue periods for which universal service 
contributions actually were assessed. The annual true-ups for calendar 
year 2002 and 2003 revenues, therefore, will not apply to revenues from 
the fourth quarter of 2002 and the first quarter 2003. As discussed, we 
deny other proposed modifications to USAC's true-up procedures or to 
the methodologies for calculating contributions to other support 
programs.
    13. During the third quarter of each calendar year, USAC uses 
annual revenue data provided by contributors in the FCC Form 499-A to 
perform a true-up to quarterly revenue data submitted by contributors 
in FCC Form 499-Qs for the prior calendar year. As necessary, USAC 
refunds or collects from contributors any over-payments or under-
payments. If the combined quarterly revenues reported by a contributor 
are greater than those reported on its annual revenue report (FCC Form 
499-A), then a refund is provided to the contributor based on an 
average of the two lowest contribution factors for the year. If the 
combined quarterly revenues reported by a contributor are less than 
those reported on its FCC Form 499-A, USAC collects the difference from 
the contributor using an average of the two highest contribution 
factors for the year.
    14. Because the purpose of the annual true-up is to ensure that 
interstate telecommunications providers contribute appropriate amounts 
to the universal service mechanisms based on quarterly revenue data, we 
agree with WorldCom and Verizon Wireless that USAC should only apply 
the true-up to revenue periods for which universal service 
contributions actually were assessed. If USAC applied the true-up to 
revenue periods for which universal service contributions were not 
assessed, certain providers' contribution obligation could potentially 
be increased or decreased. Consistent with this conclusion, we direct 
USAC not to apply the annual true-ups for calendar

[[Page 15671]]

years 2002 and 2003 to revenues from the fourth quarter 2002 and first 
quarter 2003.
    15. The true-up for calendar year 2002 revenues will apply to 
revenues reported for the first three quarters of 2002, which were the 
basis for assessments in the third and fourth quarters of 2002 and the 
first quarter of 2003. The true-up for calendar year 2002 revenues will 
not apply to revenues reported for the fourth quarter of 2002. USAC 
will subtract revenues reported for the fourth quarter of 2002 from 
annual revenues reported on the FCC Form 499-A to arrive at an estimate 
of a contributor's actual revenues for the first three quarters of 
2002. Consistent with USAC's current true-up procedures, USAC will then 
compare this amount to the sum of revenues reported for the first three 
quarters of 2002 to determine whether a refund or additional collection 
is warranted. Refunds will be based on the average of the two lowest 
contribution factors applied to revenues reported for the first three 
quarters of 2002. Additional collections will be based on the average 
of the two highest contribution factors applied to revenues reported 
for the first three quarters of 2002.
    16. The true-up for calendar year 2003 revenues will apply to 
revenues projected for the second through fourth quarters of 2003. The 
true-up for calendar year 2003 revenues will not apply to revenues 
projected for the first quarter of 2003. USAC will subtract revenues 
projected for the first quarter of 2003 from annual revenues reported 
on the FCC Form 499-A to arrive at an estimate of a contributor's 
actual revenues for the second through fourth quarters of 2003. USAC 
will then compare this amount to the sum of revenues projected for the 
second through fourth quarters of 2003 to determine whether a refund or 
collection is appropriate. In subsequent years, the annual true-up will 
continue to apply to any and all revenue periods for which 
contributions are assessed.
    17. We deny NECA's proposal to conduct additional true-ups on a 
quarterly basis. In addition to the annual true-up, NECA proposes a 
quarterly true-up mechanism in which a contributor's quarterly revenue 
projections would be compared to the corresponding quarter's actual 
revenue filed six months later. Under NECA's proposal, any difference 
between projections and actual revenues would be applied to the 
relevant contribution factor for that calendar quarter to arrive at a 
true-up amount. We disagree with NECA that quarterly true-ups are 
appropriate because it is more difficult for contributors to project 
revenues than report historical revenues. As the Commission noted in 
the Interim Contribution Methodology Order, although the modified 
contribution methodology relies on the ability of contributors to 
project gross-billed and collected revenues, it only requires 
contributors to project for the upcoming quarter, which should minimize 
the potential for inaccurate estimates. In addition, contributors may 
correct their projections up to 45 days after the due date of each FCC 
Form 499-Q. We also note that by eliminating penalties for over-or 
under-reporting, NECA's quarterly true-up proposal would reduce 
incentives created under current true-up procedures for contributors to 
accurately forecast their revenues for the upcoming quarter. We 
therefore decline to adopt NECA's proposal at this time.
    18. Timing of Revised Safe Harbor for Mobile Wireless Providers. We 
also reject Verizon Wireless's contention that the Commission 
retroactively changed reporting requirements for mobile wireless 
providers by requiring mobile wireless providers that choose to report 
their interstate telecommunications revenues based on an interim safe 
harbor to report an increased percentage of interstate revenues for the 
fourth quarter of 2002 and the first quarter of 2003. In the Interim 
Contribution Methodology Order, the Commission increased to 28.5 the 
interim safe harbor that provides cellular, broadband Personal 
Communications Service, and certain Specialized Mobile Radio providers 
with the option of assuming that a fixed percentage of their 
telecommunications revenues are interstate with the presumption of 
reasonableness. The Commission's decision to increase the mobile 
wireless safe harbor was based, in large part, on traffic studies 
conducted in the third quarter of 2002 by five unnamed large national 
mobile wireless providers. In the Interim Contribution Methodology 
Order, the Commission left unchanged mobile wireless providers' option 
of reporting actual interstate telecommunications revenues if they are 
able to do so.
    19. Contrary to Verizon Wireless's contention, the rules adopted in 
the Interim Contribution Methodology Order do not impact revenues 
reported prior to January 29, 2003, the effective date of the order. 
The requirements adopted in the Interim Contribution Methodology Order 
only apply to future reporting obligations. For example, contributors 
to the federal universal service programs first reported revenues for 
the fourth quarter of 2002 and the first quarter of 2003 on the FCC 
Form 499-Q filed on February 3, 2003. Moreover, the increased interim 
safe harbor for mobile wireless providers will apply to universal 
service contributions beginning in the second quarter of 2003. These 
contributions will be based on projected revenues for the second 
quarter of 2003, which contributors reported on the February 3, 2003, 
FCC Form 499-Q.
    20. The Commission also did not retroactively change revenue 
reporting requirements for other Commission programs, such as Local 
Number Portability, Numbering Administration, and Telecommunications 
Relay Service. The reporting of fourth quarter 2002 revenues for 
purposes of calculating assessment to other Commission programs will 
not occur until April 1, 2003. Contributions to these other programs 
are based on annual revenues reported on April 1st of each year. 
Assessments to these other programs based on calendar year 2002 
revenues will not be billed until beginning in the third quarter of 
2003. Likewise, reporting of revenues for the first quarter of 2003 for 
these other Commission programs will not occur until April 1, 2004, and 
will not be assessed until beginning in the third quarter of 2004. 
Therefore, we conclude that our decision to apply the revised interim 
wireless safe harbor to revenues reported for the fourth quarter of 
2002 and the first quarter of 2003 does not constitute retroactive 
changes to reporting obligations or to contribution obligations.
    21. Rounding Up the Contribution Factor. Finally, we grant, in 
part, a petition for reconsideration filed by AT&T requesting that the 
Commission announce the universal service contribution factor as a 
percentage rounded up to the nearest tenth of a percent. Sprint and 
Verizon support AT&T's request. We direct the Wireline Competition 
Bureau (Bureau) to announce a contribution factor rounded up to the 
nearest tenth of a percent (e.g., .073 or 7.3 percent). In order to 
allow an individual contributor the ability to recover the full amount 
of its contribution obligation through its federal universal line item, 
we also direct the Bureau to account for contribution factor rounding 
when calculating the circularity discount factor.
    22. In the past, the Bureau has announced a contribution factor 
rounded to the nearest 1/10,000th of a percent (e.g., .072805). AT&T 
has asserted that some of its billing systems can only accommodate a 
factor of three digits beyond the decimal point. Our decision today 
that the contribution

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factor be rounded up to the nearest tenth of a percent, and that 
rounding be accounted for when calculating circularity, accommodates 
concerns expressed by AT&T and others that billing system limitations, 
when coupled with the recovery limitations in Sec.  54.712 of our 
rules, may inhibit some carriers' ability to recover a portion of their 
contribution costs through their federal universal service line-item 
charges. This action also will prevent carriers from recovering amounts 
in excess of contribution obligations. We therefore conclude that each 
quarter the Bureau shall announce a contribution factor rounded up to 
the nearest tenth of a percent.

III. Regulatory Flexibility Act Certification

    23. The Regulatory Flexibility Act of 1980, as amended (RFA), see 
generally 5 U.S.C. 601-612, requires that a regulatory flexibility 
analysis be prepared for notice-and-comment rule making proceedings, 
unless the agency certifies that ``the rule will not, if promulgated, 
have a significant economic impact on a substantial number of small 
entities.'' 5 U.S.C. 605(b). 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 which: (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). As required by the RFA, an Initial Regulatory 
Flexibility Analysis (IRFA) was incorporated in the First Further 
Notice, 67 FR 11254, March 13, 2002. The Commission sought written 
public comment on the proposals in the First Further Notice, including 
comment on the IRFA. In the Interim Contribution Methodology Order, the 
Commission included a Final Regulatory Flexibility Analysis (FRFA) that 
conformed to the RFA.
    24. In the Second Order on Reconsideration, we eliminate Sec.  
54.712(b) of the Commission's rules, in order to permit eligible 
telecommunications carriers (ETCs) to recover from Lifeline customers 
contribution costs associated with the provision of interstate 
telecommunications services, such as occasional interstate charges and 
interstate long distance charges, that are not supported by the 
Commission's universal service mechanisms. By eliminating this 
restriction on cost recovery, the Second Order on Reconsideration will 
have a beneficial, deregulatory impact on all ETCs with such customers, 
including small entity ETCs. We also note that this action will have no 
impact on the universal service contribution obligations of ETCs and 
should only minimally impact their contribution recovery practices. We 
therefore conclude that a FRFA is not required here because the Second 
Order on Reconsideration will have no significant economic impact on a 
substantial number of small entities.

IV. Ordering Clauses

    25. Pursuant to sections 1-4, 201-202, 254, and 405 of the 
Communications Act of 1934, as amended, and Sec.  1.108 of the 
Commission's rules, this Order and Second Order on Reconsideration is 
adopted.
    26. Pursuant to sections 1, 4(i), 254 and 405 of the Communications 
Act of 1934, as amended, and Sec. Sec.  1.3, 1.429 of the Commission's 
rules, that the Verizon Telephone Companies, SBC Communications Inc., 
and BellSouth Corporation Joint Petition for Interim Waiver and the 
National Exchange Carrier Association, Inc., National 
Telecommunications Cooperative Association, Organization for the 
Promotion and Advancement of Small Telecommunications Companies Joint 
Petition for Interim Waiver are granted to the extent indicated herein.
    27. Pursuant to section 405 of the Communications Act of 1934, as 
amended, and Sec.  1.429 of the Commission's rules, the petitions for 
reconsideration filed by the United States Telecommunications 
Association and SBC Communications Inc. are granted to the extent 
indicated herein.
    28. Pursuant to section 405 of the Communications Act of 1934, as 
amended, and Sec.  1.429 of the Commission's rules, the petition for 
reconsideration filed by the National Exchange Carrier Association, 
Inc. is denied.
    29. Pursuant to section 405 of the Communications Act of 1934, as 
amended, and Sec.  1.429 of the Commission's rules, the petition for 
reconsideration filed by WorldCom, Inc. is granted.
    30. Pursuant to section 405 of the Communications Act of 1934, as 
amended, and Sec.  1.429 of the Commission's rules, the petition for 
reconsideration filed by the Verizon Wireless is granted, in part, and 
denied, in part, to the extent indicated herein.
    31. Pursuant to section 405 of the Communications Act of 1934, as 
amended, and Sec.  1.429 of the Commission's rules, the petition for 
reconsideration filed by AT&T Corp. is granted to the extent indicated 
herein.
    32. Section 54.712 of the Commission's rules, is amended as set 
forth, effective April 1, 2003.

List of Subjects 47 CFR Part 54

    Reporting and recordkeeping requirements, Telecommunications, 
Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

Subpart H--Administration

0
1. The authority citation for part 54 continues to read as follows:

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


Sec.  54.712  [Amended]

0
2. In Sec.  54.712, remove and reserve paragraph (b).

[FR Doc. 03-7702 Filed 3-31-03; 8:45 am]
BILLING CODE 6712-01-U