[Federal Register Volume 68, Number 240 (Monday, December 15, 2003)]
[Proposed Rules]
[Pages 69641-69647]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-30827]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[CC Docket No. 96-45; FCC 03-249]


Federal-State Joint Board on Universal Service

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Commission seeks comment to further 
develop the record on specific issues that relate to the rate review 
and expanded State certification process recommended by the Joint 
Board. The Commission also seeks comment on a proposal to further 
encourage States to preserve and advance universal service by making 
available additional targeted Federal support for high-cost wire 
centers in states that implement explicit universal service mechanisms.

DATES: Comments are due on or before January 14, 2004. Reply comments 
are due on or before February 13, 2004. Written comments on the 
proposed information collection(s) must be submitted by the public, 
Office of Management and Budget OMB), and other interested parties on 
or before February 13, 2004.

ADDRESSES: All 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. In addition to 
filing comments with the Secretary, a copy of any Paperwork Reduction 
Act (PRA) 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 Kim A. Johnson, OMB 
Desk Officer, Room 10236 NEOB, 725 17th Street, NW., Washington, DC 
20503, or via the Internet to [email protected] or by fax to 
202-395-5167. Parties should also send three paper copies of their 
filings to Sheryl Todd, Telecommunications Access Policy Division, 
Wireline Competition Bureau, Federal Communications Commission, 445 
Twelfth Street, SW., Room 5-B540, Washington, DC 20554. See 
SUPPLEMENTARY INFORMATION for further filing instructions.

FOR FURTHER INFORMATION CONTACT: Jennifer Schneider, Attorney, Wireline 
Competition Bureau, Telecommunications Access Policy Division, (202) 
418-7400. For additional information concerning the information 
collection(s) contained in this document, contact Judith B. Herman at 
202-418-0214, or via the Internet at [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's 
Further Notice of Proposed Rulemaking in CC Docket No. 96-45 released 
on October 27, 2003. A companion Order on Remand and Memorandum Opinion 
and Order was also released in CC Docket No. 96-45 on October 27, 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 or at www.fcc.gov/wcb/universal_service/highcost.html.
    This Further Notice of Proposed Rulemaking (FNPRM) 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 FNPRM contained proposed information collections. The 
Commission, as part of its continuing effort to reduce paperwork 
burdens, invites the general public and the Office of Management and 
Budget (OMB) to comment on the information collection(s) contained in 
this FNPRM, as required by the Paperwork Reduction Act (PRA) of 1995, 
Public Law 104-13. Public and agency comments on the proposed 
information collections discussed in this Further Notice of Proposed 
Rulemaking are due on or before February 13, 2004. PRA 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

[[Page 69642]]

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: 3060-XXXX.
    Title: Certification Letter Accounting for Receipt of Federal 
Support--CC Docket Nos. 96-45 and 96-262.
    Form No.: N/A.
    Type of Review: New collection.
    Respondents: Business or other for-profit; not for profit 
institutions.

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                                                                     Number of     Frequency of    Total annual
                              Title                                 respondents      response         burden
----------------------------------------------------------------------------------------------------------------
1. Collection of Additional Rate Data...........................              52               1              52
    Total Annual Burden: 52
    Total Annual Costs: $0
2. Procedures for Filing And Processing any State Requests for                 1               4               1
 further Federal Action.........................................
    Total Annual Burden: 4
    Total Annual Costs: $0
----------------------------------------------------------------------------------------------------------------

    Grand Total Annual Burden: 52 + 4 = 56.
    Needs and Uses: In the Further Notice of Proposed Rulemaking, we 
seek further comment on issues related to the rate review and expanded 
certification process that we adopt in the Companion Remand Order. The 
Commission seeks comment on whether it should require States to file, 
in connection with their reasonable comparability certifications, 
additional data that might enhance the Commission's ability to assess 
the non-rural mechanism and State actions to achieve comparability of 
urban and rural rates, including business rate data, rate data for non-
rural areas served by non-rural carriers, and rate data from States 
that would not otherwise be required to file data under the rules we 
adopt in the Companion Remand Order. The Commission also seeks comment 
on how to treat any State requests for further Federal action, 
including procedures for States to submit any such requests, required 
showings by requesting States, and how to calculate any additional 
targeted Federal support. The additional rate data, along with the 
expanded certifications filed by all States, will aid the Commission in 
its review of rate comparability nationwide. Further, the information 
that State commissions will file to support requests for further 
Federal action will enable the Commission to determine if action is 
necessary.

I. Further Notice of Proposed Rulemaking

    1. In this Further Notice of Proposed Rulemaking (FNPRM), we seek 
further comment on issues related to the rate review and expanded 
certification process that we adopt in the Companion Remand Order. 
First, we seek comment on whether we should require States to file, in 
connection with their reasonable comparability certifications, 
additional data that might enhance the Commission's ability to assess 
the non-rural mechanism and State actions to achieve comparability of 
urban and rural rates, including business rate data, rate data for non-
rural areas served by non-rural carriers, and rate data from States 
that would not otherwise be required to file data under the rules we 
adopt in the Companion Remand Order. Second, we seek comment on the 
role of calling scopes in the rate review process. Third, we seek 
comment on how to treat any State requests for further Federal action, 
including procedures for States to submit any such requests, required 
showings by requesting States, and how to calculate any additional 
targeted Federal support. In addition, we propose a method for 
calculating additional targeted Federal support on a wire-center basis 
using forward-looking model cost estimates. Finally, we seek comment on 
a proposal to further encourage States to advance the Act's universal 
service goals by making available additional targeted Federal support 
to States that implement explicit universal service mechanisms, without 
regard to their achievement of rate comparability.

A. Collection of Additional Rate Data

    2. We seek comment on whether all States should submit rate data to 
the Commission in connection with the rate review and expanded 
certification process, in order to establish a more complete picture of 
State efforts to achieve rate comparability. In the Companion Remand 
Order, we adopt rules that require a State to file, in connection with 
its expanded certification, rate data for rural areas served by non-
rural carriers only if its rural rates exceed the nationwide urban rate 
benchmark or if it certifies that its rural rates are not reasonably 
comparable to urban rates nationwide, despite being within the safe 
harbor established by the nationwide urban rate benchmark. These data, 
along with the expanded certifications filed by all States, will aid 
the Commission in its review of the reasonable comparability of rural 
and urban rates nationwide. We seek comment on whether collecting 
additional rate data from a larger number of States, either on a 
mandatory or voluntary basis, would provide the Commission with a 
better basis for its review. To what extent would collecting additional 
rate data from all States improve the Commission's ability to assess 
the reasonable comparability of rural and urban rates nationwide 
through the rate review and expanded certification process? To what 
extent would the availability of this additional rate data improve the 
ability of each State to analyze its own rate comparability issues? To 
what extent would the availability of this additional rate data improve 
the ability of other interested parties to monitor the reasonable 
comparability of rural and urban rates nationwide? We anticipate that 
each State will have assembled much of the additional data in the 
course of performing its rate review. Would it be unduly burdensome if 
all States were to file such data?
    3. We seek comment on whether we should require States to file data 
related to business rates, in addition to residential rates. A 
meaningful comparison of rates across different States may necessarily 
include business rates in addition to residential rates. For example, 
because Wyoming, unlike many other States, has rebalanced its single-
line business rates to levels equivalent to residential rates, 
Wyoming's residential rates no longer rely on implicit support flows 
from its business rates, and its business customers pay lower rates 
than they would in a State that relied on such implicit support flows. 
Collecting data only on residential rates, therefore, may not permit 
the Commission to identify the specific nature of any problems with 
reasonable comparability. Would collecting data on business rates 
provide

[[Page 69643]]

the Commission with a more useful picture of the local rates charged in 
rural areas? Would requiring States to file business rate data unduly 
increase the administrative burdens on States associated with the rate 
review and expanded certification process? Is there any reason why the 
Commission should or should not concentrate solely on residential rates 
in assessing the state of rate comparability nationwide?
    4. We also seek comment on whether we should collect data related 
to rates in non-rural areas served by non-rural carriers. While the 
rules we adopt today will result in the collection of some data 
regarding the rates in rural areas served by non-rural carriers, 
collecting non-rural rate data would provide the Commission with more 
complete data. To what extent would collecting rate information for 
non-rural areas in addition to rural areas provide the Commission with 
useful data to assess the reasonable comparability of rural and non-
rural rates nationwide? To what extent would the collection of such 
data permit the Commission to assess the reason for high rural rates? 
For example, if a State's rates in areas other than rural areas were 
also above the benchmark, would it indicate that an adjustment to the 
Federal support mechanism was warranted? To what extent would 
collecting non-rural rate information aid the Commission in assessing 
whether States are fulfilling their obligations to promote the Act's 
goals? To what extent would requiring States to file non-rural rate 
data unduly increase the administrative burdens on the States 
associated with the rate review process?
    5. With additional rate data, should states be required to file 
information annually related to their efforts to advance universal 
service by adopting explicit universal service mechanisms, such as the 
establishment of explicit State universal service funds? To what extent 
would such information aid the Commission in assessing the sources of 
any problems with rate comparability to determine whether additional 
actions are necessary at the Federal level? If we conclude that such 
information should be collected, what specific information should each 
State be required to file? For example, should each State be required 
to file data related to the existence and size of any explicit 
universal service support mechanisms established in the State? Should 
States be required to identify implicit support flows in the rate 
structure, including implicit support flowing from business line rates 
to residential line rates, from geographically averaged rates, and from 
intrastate access charges? Commenters should identify any other 
information related to the establishment of explicit universal service 
policies that would assist the Commission in refining our comprehensive 
plan for supporting universal service in high-cost areas over time.

B. Calling Scopes

    6. We seek comment on the role of calling scopes in the rate review 
process. The foregoing Order permits a State to consider the calling 
scopes available in rural areas served by non-rural carriers when 
reviewing whether rates in those areas are comparable to urban rates 
nationwide. Calling scopes are not included in the rate template, 
however, and States need not consider them if they choose to certify 
based on the safe harbor. To what extent should States be encouraged to 
consider the calling scopes available in rural areas served by non-
rural carriers in assessing rate comparability? Should the Commission 
incorporate calling scopes into the safe harbor? If so, how would the 
Commission do so? To what extent would consideration of calling scopes 
increase the burdens associated with the rate review process? 
Commenters should describe in detail any proposed methodologies for 
normalizing the impact of calling scopes on rates. Alternatively, 
should the Commission provide States with additional guidance as to how 
calling scopes may be factored into their rate comparability analyses, 
if States decide that this is appropriate? What data would be useful 
for analyzing the calling scopes available in rural and urban areas?

C. Procedures for Filing and Processing Any State Requests for Further 
Federal Action

    7. Consistent with the Joint Board's recommendation, we recognize 
that the procedures for filing and reviewing State requests for further 
Federal action should be as specific and predictable as possible, while 
also providing the necessary flexibility for each State to demonstrate 
the unique circumstances involved in its request. We also note that the 
Joint Board did not recommend a specific method for calculating any 
additional targeted Federal support, if necessary, and the present 
record does not provide an adequate basis for us to determine an 
appropriate method. Accordingly, we seek comment below on several 
interrelated issues. First, we seek comment on the timing of State 
requests for further Federal action. Second, we seek comment on the 
showing that a State should be required to make in order to demonstrate 
a need for further Federal action. Third, we seek comment on the types 
of further Federal action that may be provided to requesting States if 
the Commission determines that further Federal action is necessary in a 
particular instance, including possible methods of calculating any 
additional targeted Federal support.
1. Timing of Requests for Further Federal Action
    8. The Joint Board recommended that the Commission develop exact 
procedures to be used in the filing and processing of requests for 
further Federal action. We propose that a State should be permitted to 
make a request for further Federal action only concurrently with the 
filing of its expanded certification regarding the comparability of its 
rural rates in areas served by non-rural carriers. We anticipate that 
any State request for further Federal action will arise from the State 
rate review process and the expanded certification, and any State 
requests for further Federal action are likely to rely on the same 
data. Therefore, we believe that requiring the filing of any State 
requests at the time of the expanded certification will promote 
administrative simplicity. We seek comment on this proposal.
    9. We also seek comment on how frequently a State should be 
required to seek further Federal action if the State's request is 
granted the first time. Should a State be required to seek further 
Federal action every year? Should further Federal action be provided 
for a specified period of years? If so, should that period be dependent 
on the specific circumstances of a particular request?
2. Required Showings
    10. We seek comment on the showings that a State should be required 
to make in support of a request for further Federal action, in the 
interest of making the process as specific and predictable as possible. 
The Joint Board's Recommended Decision suggests that two showings 
should be required: (1) A demonstration that rural rates in non-rural 
carrier service areas in the State are not reasonably comparable to 
urban rates nationwide, including an analysis of the rates in the basic 
service template and other relevant factors; and (2) a demonstration 
that the State has taken all reasonable actions to achieve reasonable 
comparability of its rural rates to urban rates nationwide, including 
an explanation of how the requesting State has used any Federal support 
currently received to achieve comparable rates and whether it has 
implemented a State universal service fund. We propose that these 
showings

[[Page 69644]]

should be required in support of a State's request for further Federal 
action. We further propose that each State should bear the 
responsibility of fully explaining the basis for each element of its 
showing. As discussed in the Companion Remand Order, each State has 
rate-setting jurisdiction and primary responsibility for ensuring rate 
comparability within its border and, therefore, is in the best position 
to explain any problems it may have in achieving rate comparability and 
the actions it has taken to address those problems. In addition to 
these showings, are there any additional types of showings that a State 
should be required to make in support of a request for further Federal 
action? Should different showings be required for different types of 
further Federal action (e.g., Commission action to address calling 
areas or quality of service where the State lacks jurisdiction)?
    11. We also seek comment on what a State should be required to show 
to satisfy the first element of the Joint Board's recommended test, a 
demonstration that rural rates within the State are not reasonably 
comparable to urban rates nationwide. In making the required showing, 
to what extent should a State be permitted to rely on the presumption 
created by the nationwide urban rate benchmark? Should the Commission 
consider residential and business rates or only residential rates? What 
weight, relative to the presumption created by the rate benchmark, 
should the Commission accord additional non-rate factors that the State 
contends are relevant in determining whether rural rates in a State are 
reasonably comparable to urban rates nationwide?
    12. Consistent with the Joint Board's recommendation, we also seek 
comment on what State actions should be considered reasonable and, 
therefore, necessary to support a request for further Federal action 
for purposes of the second element of the Joint Board's recommended 
showing. In particular, we seek comment on the extent to which States 
must reform their universal service support mechanisms in order to be 
able to demonstrate that they have taken all reasonably possible 
actions to achieve rate comparability. In this regard, we note that the 
Act strongly favors explicit support mechanisms, which are less 
vulnerable to erosion in competitive markets than implicit support 
mechanisms. Although States are not required to adopt explicit 
mechanisms to support universal service, we propose that a State that 
has not done so cannot be deemed to have taken all reasonably possible 
steps to support rate comparability within the State, the requirement 
recommended by the Joint Board. We seek comment on this proposal.
    13. We further propose that, in order to enable the Commission to 
determine whether a State has made its universal service mechanisms 
explicit, a State requesting further Federal action should be required 
to explain the extent to which it has made its universal service 
mechanisms explicit, and file supporting data, including rate data for 
residential and business lines in rural and urban areas served by non-
rural carriers. We seek comment on these proposals. We also seek 
comment on the extent of reform that should be required for further 
Federal action. Some commenters argue that it is necessary for States 
to rebalance their residential and business rates in order to eliminate 
implicit support flows. For example, Wyoming has rebalanced its 
residential and business rates, while other States have not rebalanced 
rates. As a result, Wyoming's residential rates presumably will be 
higher than a State with comparable resources that has chosen to 
maintain implicit support flows through higher business rates. Should 
the rebalancing of residential and business rates be required in 
support of a request for further Federal action?
3. Types of Further Federal Action
    14. We seek comment on the types of further Federal action that 
should be available to a requesting State if the Commission determines 
that further Federal action is appropriate. The Joint Board recommended 
that further Federal action could include additional targeted Federal 
support, as well as Commission action to address scope of local calling 
areas or quality of service where the State commission lacked the 
authority to do so. Are there any other types of further Federal action 
that the Commission should consider in addition to the Joint Board's 
recommendations? Should the Commission specify in advance all possible 
forms of further Federal action, or, in light of the Joint Board's 
recommendation that the Commission provide maximum flexibility for 
States, should the Commission retain the ability to develop additional 
types of further Federal action in response to the specific 
circumstances underlying a particular State's request? Are there any 
reasons that the Commission should not consider making certain types of 
Federal action available on request?
    15. We propose that any additional targeted Federal support should 
equal a set percentage of estimated forward-looking wire-center costs 
in excess of two standard deviations above the average cost per line. 
We believe that a method for calculating any additional targeted 
Federal support based on forward-looking wire-center cost estimates 
would be specific and predictable, and provide consistency with the 
non-rural support mechanism, which also uses model cost estimates to 
calculate and target support. We also believe that such a method would 
provide a fair and equitable means of determining any additional 
targeted Federal support and avoid inappropriate incentives that might 
be created if we were to base any additional targeted Federal support 
on rate levels in a particular area. Furthermore, a forward-looking 
cost estimate-based method would permit any additional support to be 
targeted specifically to high-cost wire-centers, consistent with the 
Joint Board's recommendation. We seek comments on this proposal. Is 
there another proposed method that, based on some measure other than 
forward-looking cost estimates, would provide a more appropriate basis 
for calculating any additional targeted Federal support? If so, a 
commenter should describe the method with specificity and provide any 
relevant supporting data. If any commenters contend that a rate-based 
method would be more appropriate, they should support their contentions 
with a detailed explanation of how rate-based support would be 
calculated under their proposal and any relevant supporting data.
    16. To determine any additional targeted Federal support based on 
forward-looking cost estimates, we propose that any additional Federal 
support should be provided to wire centers in qualifying States with 
costs per line exceeding a benchmark of two standard deviations from 
the average cost per line among all non-rural carrier wire centers 
nationwide. Based on recent forward-looking high-cost model results, a 
wire center with per-line costs that are two standard deviations above 
the average wire center would have an average cost per line of $40.85, 
or 189 percent of the nationwide average cost per line. Wire centers 
with costs per line exceeding the proposed nationwide average cost per 
loop would be very high cost wire centers in which it is likely to be 
more difficult to achieve rate comparability, despite otherwise 
sufficient State resources and Federal support. Because most States 
have wire centers that exceed two standard deviations from the national 
average wire center cost per line, we believe that this benchmark would 
provide an effective means of calculating any

[[Page 69645]]

additional targeted Federal support for any qualifying State in a 
specific, predictable and consistent manner. We seek comment on this 
proposed method for calculating additional targeted Federal support. Is 
two standard deviations an appropriate threshold for this purpose?
    17. We also propose that any additional targeted Federal support 
for eligible wire centers in qualifying States should be calculated as 
a set percentage of costs in excess of the benchmark. For example, if 
the Commission were to set the percentage at 5 percent of costs in 
excess of two standard deviations above the average and Wyoming were to 
qualify for additional targeted Federal support, it would be eligible 
for approximately $546,000. If the Commission were to set the 
percentage at 25 percent of costs in excess of two standard deviations 
above the average and Wyoming were to qualify, it would be eligible for 
approximately $2,731,000 in additional targeted Federal support.
    18. We believe that this proposal is consistent with the current 
and past methodologies for determining high-cost support for non-rural 
carriers and would provide meaningful support to assist States in 
resolving any rate comparability issues that combined Federal and State 
action have failed to resolve. Under the non-rural support mechanism, a 
non-rural carrier in a State with an average cost per loop for areas 
served by non-rural carriers that exceeds the cost benchmark of two 
standard deviations above the average is eligible for support for 76 
percent of its costs in excess of the benchmark. This percentage 
represents an estimate of the costs above the benchmark that are 
assigned to the intrastate jurisdiction. Because any additional 
targeted Federal support would supplement the non-rural support 
mechanism in order to address exceptional problems, we do not believe 
that it would be necessary that such support be provided for the same 
percentage of costs in excess of the benchmark as covered by the non-
rural support mechanism. We seek comment on what percentage of costs in 
excess of the benchmark should be supported for purposes of additional 
targeted Federal support. Is there another proposed method of 
calculating any additional targeted Federal support based on forward-
looking cost estimates that would better address the purpose for which 
the support would be intended?

D. Additional Inducements for State Action

    19. Finally, we seek comment on whether we should make additional 
targeted Federal support available for high-cost wire centers in States 
that implement explicit universal service mechanisms. The purpose of 
this proposal is to create a positive incentive for States to reform 
their implicit universal service mechanisms. Under this proposal, as 
discussed below, any additional targeted Federal support would be 
determined using a methodology similar to that proposed above in 
connection with State requests for further Federal action. Unlike State 
requests for further Federal action, States would not be required to 
demonstrate that combined State and Federal efforts had failed to 
achieve rate comparability.
    20. As discussed, section 254 states a clear preference for 
explicit, rather than implicit, support, but the 1996 Act does not 
require States to adopt explicit universal service support mechanisms. 
In the foregoing Order, therefore, we decline to adopt measures to 
require or induce all States to immediately remove implicit subsidies 
from intrastate rates through substantial increases in Federal support. 
Nevertheless, we agree with commenters that States should be encouraged 
to replace implicit support with explicit support mechanisms that will 
be sustainable in a competitive environment. To what extent should the 
Commission encourage States to replace their implicit universal service 
support mechanisms with explicit mechanisms? We seek comment on whether 
the Commission has an interest, other than the aspirational provisions 
of the Act, in States' decisions to adopt explicit mechanisms or to 
rely on implicit support flows. How do State universal service 
mechanisms, explicit and implicit, interact with the Federal universal 
service support mechanisms? We note that some States have made progress 
in making explicit their universal service support mechanisms. Can we 
expect States to adopt, in advance of or concurrently with the local 
development of competition, reforms that will reduce the vulnerability 
of the States' universal service mechanisms to competition? If States 
have not yet taken action to adopt explicit universal service 
mechanisms, can we assume that they will do so?
    21. We seek comment on whether providing additional targeted 
Federal support to States that replace implicit universal service 
mechanisms with explicit universal service mechanisms would be an 
appropriate means of inducing reforms of State universal service 
support mechanisms. The availability of additional targeted Federal 
support would provide each State with a direct incentive to make its 
universal service support mechanisms explicit, rather than implicit. 
This method of inducement would pose less risk to our universal service 
goals than conditioning receipt of existing non-rural high-cost support 
on State action. Moreover, providing States that implement universal 
service reforms with additional targeted Federal support might mitigate 
possible transitional issues associated with the replacement of 
implicit support with explicit support and encourage States to adopt a 
long-term approach to universal service. To what extent are there 
transitional issues associated with moving from implicit support 
mechanisms to explicit support mechanisms? If such transitional issues 
are a significant deterrent to State adoption of universal service 
reforms, should any additional targeted Federal support be limited for 
the period of time during which the transition takes place? If 
commenters contend that another form of inducement would be better 
suited for achieving the Commission's goals, the commenters should 
provide a detailed explanation of their inducement.
    22. We further propose that any additional targeted Federal support 
that is provided to induce States to adopt explicit universal service 
mechanisms should be based on forward-looking wire-center cost 
estimates. Basing any additional targeted Federal support on forward-
looking cost estimates will make such support specific and predictable, 
consistent with the Act, and would target the support to high-cost 
areas, which may ease a State's implementation of explicit universal 
service mechanisms. Similar to the additional targeted Federal support 
proposed above with respect to State requests for further Federal 
action to achieve rate comparability, we propose that any additional 
targeted Federal support provided for inducement purposes should be 
calculated based on a percentage of forward-looking costs in excess of 
a particular threshold for high-cost wire centers.
    23. Specifically, we propose that, if a State meets the necessary 
conditions, it should receive additional targeted Federal support equal 
to a specific percentage of costs in excess of two standard deviations 
above the average cost wire center. We seek comment on this proposed 
method of calculating additional targeted Federal support for 
inducement purposes. We specifically seek comment on the appropriate 
percentage of costs in excess of the threshold that we should support 
with additional targeted Federal support. We note that 48 States and 
Puerto Rico would have at least one wire center with costs per loop 
above the benchmark of

[[Page 69646]]

the average cost per loop plus two standard deviations. We estimate 
that if the support amount were set at 10 percent of costs exceeding 
the proposed high-cost wire center benchmark, the 48 States and Puerto 
Rico would be eligible to receive a total of approximately $116 million 
if they met the conditions for additional targeted Federal support, in 
addition to the support provided under the rules we adopt today.
    24. Would the proposed methodology provide significant inducement 
to each State to reform its universal service mechanisms? Would the 
benefits of inducing State action to reform State universal service 
mechanisms outweigh the cost of the additional contributions to the 
universal service fund that this additional targeted Federal support 
could entail? Commenters should address how this proposal relates to 
the Act's requirement that universal service should be sufficient to 
achieve the Act's goals and, specifically, that sufficiency requires 
that support should not exceed the amount necessary to achieve the 
Act's goals.
    25. We also seek comment on what showings a State should be 
required to make in order to receive any additional targeted Federal 
support, if such an inducement mechanism were adopted. Above, we seek 
comment on what showings a State must make in support of a request for 
further Federal action, in addition to showing the failure to achieve 
rate comparability. To what extent should the showings that a State is 
required to make in order to receive additional targeted Federal 
support for inducement purposes differ from the showings the State 
should be required to make in order to demonstrate that it has taken 
all reasonably possible actions to achieve rate comparability? Should a 
State be required to show that it has established an explicit support 
mechanism of a particular size relative to the number of lines in the 
State or some other measure? Should a State be required to demonstrate 
that it has rebalanced its residential and business rates? Should a 
State be required to demonstrate that it has eliminated geographic rate 
averaging through implicit support flows? Are there any specific 
actions reasonably calculated to eliminate or reduce implicit support 
in intrastate rates that a State should be required to show?

II. Procedural Matters

A. Initial Regulatory Flexibility Act Analysis

    26. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Commission has prepared this Initial Regulatory 
Flexibility Analysis (IRFA) of the possible significant economic impact 
on small entities of 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 FNPRM. The Commission will 
send a copy of this FNPRM, including this IRFA, to the Chief Counsel of 
Advocacy of the Small Business Administration (SBA). In addition, the 
FNPRM and IRFA (or summaries thereof) will be published in the Federal 
Register.
1. Need for and Objectives of the Proposed Rules
    27. Consistent with the Tenth Circuit's remand of the Ninth Report 
and Order, 64 FR 67416, December 1, 1999, and the recommendations of 
the Federal-State Joint Board on Universal Service (Joint Board), we 
modify the high-cost universal service support mechanism for non-rural 
carriers and adopt measures to induce States to ensure reasonable 
comparability of rural and urban rates in areas served by non-rural 
carriers in the Companion Remand Order. As discussed, the FNPRM is 
necessary to develop the record on specific issues that relate to the 
rate review and expanded State certification process recommended by the 
Joint Board. The rate review and expanded State certification process 
will fulfill the requirement of the Tenth Circuit remand by inducing 
State action to ensure that rates in rural and high-cost areas served 
by non-rural carriers are reasonably comparable to urban rates 
nationwide in compliance with section 254(b) of the Act.
    28. First, in this FNPRM, we seek comment on whether we should 
require States to file, in connection with their reasonable 
comparability certifications, additional data that might enhance the 
Commission's ability to assess the non-rural mechanism and State 
actions to achieve comparability of urban and rural rates, including 
business rate data, urban rate data, and rate data from States that 
would not otherwise be required to file data under the rules we adopt. 
Second, we seek comment on the role of calling scopes in the rate 
review process. Third, we seek comment on how to treat any State 
requests for further Federal action, including procedures for States to 
submit any such requests; how to review required showings by requesting 
States; and how to calculate any additional targeted Federal support. 
In addition, we propose a method for calculating additional targeted 
Federal support on a wire-center basis using forward-looking model cost 
estimates. Finally, we also seek comment on a proposal to further 
encourage States to advance the Act's universal service goals by making 
available additional targeted Federal support to States that implement 
explicit universal service mechanisms, without regard to their 
achievement of rate comparability.
2. Legal Basis
    29. The legal basis as proposed for this FNPRM is contained in 
sections 4(i), 4(j), 201-205, 218-220, 254, 403 and 410 of the 
Communications Act of 1934, as amended.
3. Description and Estimate of the Number of Small Entities To Which 
the Proposed Rules Will Apply
    30. The RFA directs agencies to provide a description of, and, 
where feasible, an estimate of the number of small entities that may be 
affected by the rules adopted herein. The RFA generally defines 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, unless the Commission has developed one or more definitions that 
are appropriate to its activities. Under the Small Business Act, a 
``small business concern'' is one that: (1) Is independently owned and 
operated; (2) is not dominant in its field of operation; and (3) meets 
any additional criteria established by the Small Business 
Administration (SBA).
    31. We have described in detail, in the Companion Order in the 
Final Regulatory Flexibility Analysis, the categories of entities that 
may be directly affected by any rules or proposals adopted in our 
efforts to reform the universal service contribution system. For this 
Initial Regulatory Flexibility Analysis, we hereby incorporate those 
entity descriptions by reference.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements
    32. Should the Commission decide that modifications must be made to 
the rate review and expanded certification process implemented, the 
associated rule changes will only modify the reporting requirements of 
the State commissions. Based on our review of the process, such State 
reporting requirements have no direct effect on the Federal reporting 
and recordkeeping

[[Page 69647]]

requirements of telecommunications service providers regulated under 
the Communications Act, including any small business entities directly 
affected by the Order. No questions posed in the FNPRM consider any 
changes to the rules that would directly impose additional reporting, 
recordkeeping, and other compliance requirements on small business 
entities.
5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    33. 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.
    34. The Commission does not foresee that any modifications to the 
rate review and expanded certification process resulting from this 
FNPRM will have a direct impact on any small business entities. 
Furthermore, based on the current data, we do not believe that the 
result in any area of the proposals under consideration will have a 
differential impact on small entities. In this FNPRM, however, the 
commenters may present the Commission with various proposals that may 
have varying impacts on small businesses. We seek comment on whether 
any proposals, if implemented, may result in an unfair burden. If there 
is such an unfair burden, we seek comment on how best to mitigate or 
eliminate it, as appropriate.
6. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules
    35. None.

B. Initial Paperwork Reduction Act of 1995 Analysis

    36. This FNPRM contained proposed information collections. The 
Commission, as part of its continuing effort to reduce paperwork 
burdens, invites the general public and the Office of Management and 
Budget (OMB) to comment on the information collections contained in 
this FNPRM, as required by the Paperwork Reduction Act (PRA) of 1995, 
Public Law 104-13. Public and agency comments are due February 13, 
2004. It will be submitted to the Office of Management and Budget (OMB) 
for review under the PRA. PRA 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.

C. Comment Filing Procedures

    37. We invite comment on the issues and questions set forth in the 
FNPRM and Initial Regulatory Flexibility Analysis contained herein. 
Pursuant to applicable procedures set forth in Sec. Sec.  1.415 and 
1.419 of the Commission's rules, interested parties may file comments 
on or before January 14, 2004, and reply comments on or before February 
13, 2004. All filings should refer to CC Docket No. 96-45. Comments may 
be filed using the Commission's Electronic Comment Filing System (ECFS) 
or by filing paper copies.
    38. 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, U.S. 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 .'' A sample form and directions 
will be sent in reply.
    39. 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 appears in the caption of this proceeding, commenters must 
submit two additional copies for each additional docket or rulemaking 
number. Filings can be sent by hand or messenger delivery, by 
commercial overnight courier, or by first-class or overnight U.S. 
Postal Service mail (although we continue to experience delays in 
receiving U.S. Postal Service mail). The Commission's contractor, 
Natek, Inc., will receive hand-delivered or messenger-delivered paper 
filings for the Commission's Secretary at 236 Massachusetts Avenue, 
NE., Suite 110, Washington, DC 20002. The filing hours at this location 
are 8 a.m. to 7 p.m. All hand deliveries must be held together with 
rubber bands or fasteners. Any envelopes must be disposed of before 
entering the building. Commercial overnight mail (other than U.S. 
Postal Service Express Mail and Priority Mail) must be sent to 9300 
East Hampton Drive, Capitol Heights, MD 20743. U.S. Postal Service 
first-class mail, Express Mail, and Priority Mail should be addressed 
to 445 12th Street, SW., Washington, DC 20554. All filings must be 
addressed to the Commission's Secretary, Marlene H. Dortch, Office of 
the Secretary, Federal Communications Commission.
    40. Parties also must send three paper copies of their filing to 
Sheryl Todd, Telecommunications Access Policy Division, Wireline 
Competition 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 CY-B402, 
Washington, DC 20054.

III. Ordering Clauses

    41. Pursuant to the authority contained in sections 1, 4(i), 4(j), 
201-205, 214, 218-220, 254, and 403 of the Communications Act of 1934, 
as amended, this Further Notice of Proposed Rulemaking is adopted.
    42. The Commission's Consumer and Governmental Affairs Bureau, 
Reference Information Center, shall send a copy of this Further Notice 
of Proposed Rulemaking, including the Final Regulatory Flexibility 
Analysis and 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.
Marlene H. Dortch,
Secretary.
[FR Doc. 03-30827 Filed 12-12-03; 8:45 am]
BILLING CODE 6712-01-P