[Federal Register Volume 71, Number 131 (Monday, July 10, 2006)]
[Rules and Regulations]
[Pages 38781-38797]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 06-6059]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 1 and 54

[CC Docket No. 96-45, WC Docket No. 04-36; FCC 06-94]


Federal-State Joint Board on Universal Service; IP-Enabled 
Services

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission or FCC) adopts rules that make interim modifications to the 
existing approach for assessing contributions to the federal universal 
service fund (USF or Fund) in order to provide stability while the 
Commission continues to examine more fundamental reform. First, the 
Commission raises the interim wireless safe harbor from its current 
28.5 percent level to 37.1 percent. Second, the Commission establishes 
universal service contribution obligations for providers of 
interconnected voice over Internet Protocol (VoIP) service. These rules 
are essential for securing the viability of universal service--a 
fundamental goal of communications policy as expressed in the 
Communications Act--in the near-term.

DATES: Effective Date: These rules contain information collection 
requirements that have not been approved by the Office of Management 
and Budget (OMB). The Commission will publish a document in the Federal 
Register announcing the effective date.
    Comment Date: Written comments by the public on the new and/or 
modified information collection requirements are due September 8, 2006.

FOR FURTHER INFORMATION CONTACT: Amy Bender, Wireline Competition 
Bureau, (202) 418-1469, or via e-mail at [email protected].
    For additional information concerning the Paperwork Reduction Act 
information collection requirements contained in this document, contact 
Judith B. Herman at (202) 418-0214, or via e-mail at [email protected].

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order (Order) in CC Docket No. 96-45 and WC Docket No. 04-36, FCC 
06-94, adopted June 21, 2006, and released June 27, 2006. The complete 
text of this document is available for inspection and copying during 
normal business hours in 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, Best Copy and Printing, Inc., 445 12th Street, SW., Room 
CY-B402, Washington, DC 20554, telephone (800) 378-3160 or (202) 863-
2893, facsimile (202) 863-2898, or via e-mail at www.bcpiweb.com. It is 
also available on the Commission's Web site at http://www.fcc.gov.
    In addition to filing comments with the Office of the Secretary, a 
copy of any comments on the Paperwork Reduction Act information 
collection requirements contained herein should be submitted to Judith 
B. Herman, Federal Communications Commission, Room 1-C804, 445 12th 
Street, SW., Washington,

[[Page 38782]]

DC 20554, or via the Internet to [email protected].
    Compliance Dates: Providers of interconnected VoIP service must 
file FCC Form 499-Q quarterly, beginning with the August 1, 2006 
filing. Interconnected VoIP providers must file Blocks 1, 2, and 6 of 
FCC Form 499-A prior to filing the FCC Form 499-Q on August 1, 2006. 
Interconnected VoIP providers must complete and file FCC Form 499-A 
beginning on April 1, 2007.

Synopsis of the Report and Order

    1. Background. In 1996, Congress directed the Commission and the 
states to take the steps necessary to establish support mechanisms to 
ensure the delivery of affordable telecommunications services to all 
Americans in a changing competitive environment. Since then, the 
Commission has undertaken a number of reforms to fulfill the universal 
service goals established by Congress, and this Order takes additional 
steps to continue to satisfy these goals.
    2. The interim revisions adopted in this Order respond to changes 
that have occurred in recent years in the telecommunications market, 
but retain the essential elements of the current approach to USF 
contributions. Specifically, while stand-alone interstate long distance 
revenues have been declining, wireless services and interconnected VoIP 
services, both of which typically include bundled long distance 
service, have been growing dramatically. As noted below, from December 
2000 to December 2004, the number of wireless subscribers grew from 
approximately 101 million to approximately 181 million, and wireless 
providers' revenues grew from approximately $70 billion to 
approximately $122 billion. Similarly, the number of VoIP subscribers 
has grown from about 150 thousand at the end of 2003 to about 4.2 
million at the end of 2005. The interim revisions made in this Order 
respond to these growing pressures on the stability and sustainability 
of the Fund.
    3. Of particular relevance to this Order are three prior Commission 
actions. First, in 2002, the Commission sought additional comment on 
the ability of mobile wireless providers to report actual interstate 
end-user telecommunications revenue and whether the Commission should 
eliminate the interim safe harbor of 28.5 percent that it had 
established for mobile wireless providers. Second, as part of its 
efforts to ensure the long-term stability and sufficiency of the 
universal service support system in an increasingly competitive 
marketplace, the Commission began a proceeding to revisit the universal 
service contribution methodology in May 2001. In its Notice of Proposed 
Rulemaking, the Commission sought comment generally on whether and how 
to streamline and reform the contribution assessment methodology. Among 
other things, the Commission sought comment on whether to modify the 
existing revenue-based methodology, as well as whether to replace that 
methodology with one that assesses contributions on the basis of a 
flat-fee charge, such as a per-line charge. Finally, on March 10, 2004, 
the Commission initiated a proceeding to examine issues relating to 
Internet Protocol (IP)-enabled services--services and applications 
making use of the IP, including, but not limited to, VoIP services. In 
the IP-Enabled Services Notice, the Commission asked commenters to 
address, among other things, the universal service contribution 
obligations of both facilities-based and non-facilities-based providers 
of IP-enabled services.
    4. Discussion. In this Order, we adopt interim revisions to the 
existing approach for assessing contributions for the federal USF that 
will preserve and advance universal service in the short term, while we 
continue to explore more fundamental reform. These interim revisions 
comport with the requirements of section 254 of the 1996 Act, and do so 
in a manner that responds to recent developments in the communications 
industry marketplace. See 47 U.S.C. 254. First, we raise the interim 
mobile wireless safe harbor from 28.5 percent to 37.1 percent. Second, 
we establish universal service contribution obligations for providers 
of interconnected VoIP service.
    5. We conclude that immediate interim measures to revise the 
existing approach to USF contributions are necessary and in the public 
interest to preserve and advance universal service. There is widespread 
agreement that the Fund is currently under significant strain. The size 
of the Fund has grown significantly, with disbursements rising from 
approximately $4.4 billion in 2000 to approximately $6.5 billion in 
2005, and projected to grow even further in the coming years. Moreover, 
changing market conditions, including the decline in long distance 
revenue and the growth of wireless and interconnected VoIP services, 
are eroding the assumptions that form the basis for the current 
revenue-based system.
    6. When the revenue-based system was adopted in 1997, assessable 
interstate revenues were growing. The total assessable revenue base has 
recently declined, however, from about $79.0 billion in 2000 to about 
$74.7 billion in 2004, while Fund disbursements grew from approximately 
$4.4 billion in 2000 to approximately $5.7 billion in 2004, and 
continued to grow to approximately $6.5 billion in 2005. Declines in 
the contribution base combined with growth in the size of the Fund 
increasingly have placed upward pressure on the percentage of 
assessable revenues that must be contributed to the Fund (the 
``contribution factor''). The contribution factor grew from 5.9 percent 
in the first quarter of 2000 to 8.9 percent in the fourth quarter of 
2004, and is 10.9 percent for the second quarter of 2006. The pressure 
caused by a declining revenue base combined with growing disbursement 
needs jeopardizes the immediate sufficiency and stability of the 
support mechanisms, demonstrating the need for immediate, interim USF 
improvements, while we continue to pursue long-term fundamental reform 
of the contribution methodology.
    7. In making our decision today, we considered the voluminous 
record in light of the current pressures on the Fund. We decline to 
adopt, at this time, more fundamental changes to the entire universal 
service program or to the contribution methodology. For example, one 
commenter has suggested that the entire universal service program is 
``broken'' and advocated that a ``holistic, coordinated rational reform 
of all universal support mechanisms'' is necessary. It argued that 
reforming the contribution methodology in isolation, without addressing 
distribution issues, is ill-advised. Other parties advocate 
fundamentally reforming the contribution methodology by moving away 
from a revenue-based approach. The scale of reforming universal service 
is considerable, and we will continue to work towards stabilizing the 
Fund, as well as the entire universal service system. We note, however, 
that a consensus approach to reform has not developed. Thus, while we 
recognize that there may be merit to fundamental reform of the current 
USF contribution methodology, we find, at this time, that the discrete 
interim reforms we make to expand the contribution base will best 
promote the statutory requirements set forth in section 254 of the 1996 
Act in the near-term, while providing the Commission with the 
opportunity to continue to address the challenges of fundamental 
reform.
    8. Wireless Provider Contributions. To sustain the sufficiency of 
the Fund at this time, we raise the current interim safe harbor for 
mobile wireless providers from 28.5 percent to 37.1 percent, a level 
that better reflects that

[[Page 38783]]

industry's interstate revenues in light of the extraordinary growth of 
wireless services since 2002, the last time the Commission revisited 
this issue. We also require mobile wireless providers that use traffic 
studies (rather than use the safe harbor) to report interstate revenues 
to submit those traffic studies to USAC and to the Commission for 
review.
    9. The revised interim safe harbor of 37.1 percent is the highest 
percentage of interstate and international usage by a wireless company 
supported in the record. Specifically, according to a traffic study 
conducted by TNS Telecoms for TracFone Wireless, the (then) seven large 
national mobile wireless service providers' interstate minutes of use 
ranged from 11.9 percent to 37.1 percent. Accordingly, consistent with 
the Commission's previous rationale for raising the interim wireless 
safe harbor to the highest level in the record, and based on the record 
now before us, we set the revised interim wireless safe harbor at 37.1 
percent. Mobile wireless providers that choose to use the revised 
interim safe harbor must report 37.1 percent of their 
telecommunications revenues as interstate beginning with fourth quarter 
2006 projected revenues that they will report on the August 1, 2006 FCC 
Form 499-Q.
    10. We disagree with those parties that assert that the Commission 
should not rely on the TNS Telecoms traffic study because of concerns 
with sample size and methodology. Notably, no other wireless provider 
has proposed an alternative safe harbor level or submitted a traffic 
study that looks at various wireless providers to support a different, 
updated, interim safe harbor level. Indeed, none of the parties that 
criticize the TNS Telecoms study have submitted any data or statistical 
analysis that would show a specific upward bias in the TNS Telecoms 
study.
    11. In light of apparent data discrepancies revealed in a 
preliminary review by Commission staff of FCC Form 499-A filings and 
other reports filed by wireless telephony providers, we take an 
additional step to ensure the accuracy of reported revenue data. 
Currently, a mobile wireless provider that reports actual revenue data 
must provide, upon request, documentation to support the reporting of 
actual interstate telecommunications revenues. We note that a mobile 
wireless provider may use a traffic study as a proxy for calculating 
its total amount of actual interstate revenues. We are concerned that 
the use of traffic studies may be, in part, a cause of these data 
reporting problems. For example, mobile wireless providers have 
incentives to bias any traffic studies to minimize their amount of 
interstate and international end-user revenues and thereby minimize 
their Fund contributions; there are no countervailing market forces to 
offset these incentives. Consequently, we now require any mobile 
wireless provider that uses a traffic study to determine its interstate 
end-user revenues for universal service contribution purposes to submit 
the study to the Commission and to USAC for review. Any mobile wireless 
provider using a traffic study shall submit the traffic study no later 
than the deadline for submitting the FCC Form 499-Q for the same time 
period. We also remind wireless carriers that, while they are permitted 
to continue to report revenues at either the legal entity level or on a 
consolidated basis, they are required to decide whether to report 
either actual or safe harbor revenues for all of their affiliated legal 
entities within the same safe harbor category.
    12. Accordingly, we take this opportunity to caution universal 
service contributors (and other entities reporting data to the 
Commission) that we will not hesitate to use our enforcement authority 
to investigate and remedy these and other discrepancies in data 
reported to the Commission. Moreover, we expect filers that have made 
reporting errors to re-file the relevant FCC forms or reports as soon 
as possible (regardless of whether the forms are due to the Commission, 
USAC, or another entity). To the extent that filers determine that they 
should have made additional contributions to the Fund, we further 
expect those entities to work with USAC to resolve their contribution 
obligations.
    13. Interconnected VoIP Services. We require providers of 
``interconnected VoIP services,'' as defined by the Commission, to 
contribute to the federal USF under the existing contribution 
methodology on an interim basis. As described above, the number of VoIP 
subscribers in the United States has grown significantly in recent 
years, and we expect that trend to continue. At the same time, the USF 
contribution base has been shrinking, and the contribution factor has 
risen considerably as a result. We therefore find that extending USF 
contribution obligations to providers of interconnected VoIP services 
is necessary at this time in order to respond to these growing 
pressures on the stability and sustainability of the Fund.
    14. The Commission has not yet classified interconnected VoIP 
services as ``telecommunications services'' or ``information services'' 
under the definitions of the Act. Again here, we do not classify these 
services. To the extent interconnected VoIP services are 
telecommunications services, they are of course subject to the 
mandatory contribution requirement of section 254(d). Absent our final 
decision classifying interconnected VoIP services, we analyze the 
issues addressed in this Order under our permissive authority pursuant 
to section 254(d) and our Title I ancillary jurisdiction. Specifically, 
we find that interconnected VoIP providers are ``providers of 
interstate telecommunications'' under section 254(d), and we assert the 
Commission's permissive authority to require interconnected VoIP 
providers ``to contribute to the preservation and advancement of 
universal service'' because ``the public interest so requires.'' We 
also exercise our ancillary jurisdiction to extend contribution 
obligations to interconnected VoIP providers. We note that both Vonage 
and the VON Coalition have stated on the record in this proceeding 
their belief that interconnected VoIP providers should be required to 
contribute to the Fund, apparently conceding that the Commission has 
the authority to impose such a requirement. Finally, we address 
implementation issues related to our requirement that interconnected 
VoIP providers contribute to the USF.
    15. Scope. We extend universal service obligations to providers of 
interconnected VoIP services, as previously defined by the Commission. 
The Commission has defined ``interconnected VoIP services'' as those 
VoIP services that: (1) Enable real-time, two-way voice communications; 
(2) require a broadband connection from the user's location; (3) 
require IP-compatible customer premises equipment; and (4) permit users 
to receive calls from and terminate calls to the PSTN. We emphasize 
that interconnected VoIP service offers the capability for users to 
receive calls from and terminate calls to the PSTN; the obligations we 
establish apply to all VoIP communications made using an interconnected 
VoIP service, even those that do not involve the PSTN. Furthermore, 
these obligations apply regardless of how the interconnected VoIP 
provider facilitates access to and from the PSTN, whether directly or 
by making arrangements with a third party. Finally, we recognize that 
the definition of interconnected VoIP services may need to expand as 
new VoIP services increasingly substitute for traditional phone 
service.
    16. We believe that it is appropriate to require USF contributions 
from

[[Page 38784]]

interconnected VoIP providers because this approach is consistent with 
important principles that the Commission has established in its 
implementation of section 254 of the Act. Specifically, the Commission 
has previously found it appropriate to extend universal service 
contribution obligations to classes of providers that benefit from 
universal service through their interconnection with the PSTN. In 
addition, in the Universal Service First Report and Order, the 
Commission established competitive neutrality as a principle to guide 
the development of universal service policies. As discussed in more 
detail below, we find that these two principles support our conclusion 
that extending universal service contribution obligations to this 
particular category of providers is in the public interest.
    17. Permissive Authority Under Section 254(d). Section 254(d) 
states that the Commission may require ``[a]ny other provider of 
interstate telecommunications'' to contribute to universal service, 
``if the public interest so requires.'' Pursuant to the Act's 
definitions, a ``provider of interstate telecommunications'' provides 
``the transmission, between or among points specified by the user, of 
information of the user's choosing, without change in the form or 
content of the information as sent and received.'' Unlike providers of 
interstate telecommunications services, however, providers of 
interstate telecommunications do not necessarily ``offer'' 
telecommunications ``for a fee directly to the public.'' The Commission 
has previously used this permissive authority to require private 
carriers and payphone aggregators to contribute to the Fund. In the IP-
Enabled Services Notice, the Commission sought comment on, among other 
things, its authority, including mandatory and permissive authority 
under section 254(d), to require universal service contributions by IP-
enabled service providers.
    18. Providers of Interstate Telecommunications. We find that 
interconnected VoIP providers are ``providers of interstate 
telecommunications'' as required for the use of the permissive 
authority pursuant section 254(d). Specifically, using the Act's 
definitions, we find that interconnected VoIP providers ``provide'' 
``the transmission, between or among points specified by the user, of 
information of the user's choosing, without change in the form or 
content of the information as sent and received.''
    19. First, we must consider whether interconnected VoIP providers 
``provide'' telecommunications. Congress did not define the term 
``provide'' or ``provider,'' but the structure of the Act informs us 
that ``provide'' is a different and more inclusive term than ``offer.'' 
It is settled law that the determination of what is ``offered,'' under 
the Act's definitions, ``turns on the nature of the functions the end 
user is offered.'' Had Congress intended us to look at the same factors 
in analyzing our permissive authority under section 254(d), it would 
have referred to ``other offerors of telecommunications.'' Because 
Congress used a different term--``providers''--we understand Congress 
to have meant something broader. Common definitions of the term 
``provide'' suggest that we should consider the meaning of ``provide'' 
from a supply side, i.e., from the provider's point of view. For 
example, Black's Law Dictionary defines ``provide'' to mean ``[t]o 
make, procure, or furnish for future use, prepare. To supply; to 
afford; to contribute.'' Transmission is an input into the finished 
service ``offered'' to the customer. But from the interconnected VoIP 
provider's point of view, we believe that the provider ``provides'' 
more than just a finished service. We believe that it is reasonable to 
conclude that a provider ``furnishes'' or ``supplies'' components of a 
service, in this case, transmission.
    20. Second, we determine that interconnected VoIP providers provide 
``telecommunications.'' As the Commission has recognized, ``the heart 
of `telecommunications' is transmission.'' The Commission has 
previously concluded that interconnected VoIP services involve 
``transmission of [voice] by aid of wire, cable, or other like 
connection'' and/or ``transmission by radio'' of voice. Indeed, by 
definition, interconnected VoIP services are those ``permitting users 
to receive calls from and terminate calls to the PSTN.'' To provide 
this capability, interconnected VoIP providers may rely on their own 
facilities or provide access to the PSTN through others. ``Over the 
top'' interconnected VoIP providers generally purchase access to the 
PSTN from a telecommunications carrier who accepts outgoing traffic 
from and delivers incoming traffic to the interconnected VoIP 
provider's media gateway. The telecommunications carrier supplies 
transmission to or from the PSTN user, or transmits the communication 
to another carrier that can transmit the communication to the PSTN 
user. Facilities-based interconnected VoIP providers similarly enter 
into arrangements with telecommunications carriers to complete 
communications to and from the PSTN. The telecommunications carriers 
involved in originating or terminating a communication via the PSTN are 
by definition offering ``telecommunications.'' Just as the Commission 
has previously found resellers to be supplying telecommunications to 
their customers even though they do not own or operate the transmission 
facilities, we find interconnected VoIP providers to be ``providing'' 
telecommunications regardless of whether they own or operate their own 
transmission facilities or they obtain transmission from third parties. 
In contrast to services that merely use the PSTN to supply a finished 
product to end users, interconnected VoIP supplies PSTN transmission 
itself to end users.
    21. Finally, the Commission previously determined that Vonage's 
interconnected VoIP service is a jurisdictionally mixed service in 
which part of the service is interstate in nature. We believe that 
other interconnected VoIP services similarly are jurisdictionally mixed 
and thus are subject to USF contributions on interstate and 
international revenues. For these reasons, we conclude that 
interconnected VoIP providers are ``providers of interstate 
telecommunications'' under section 254(d).
    22. Public Interest. Next, we must consider whether requiring 
interconnected VoIP providers to contribute to the USF is in the public 
interest. We conclude that it is. The Commission has previously found 
it in the public interest to extend universal service contribution 
obligations to classes of providers that benefit from universal service 
through their interconnection with the PSTN. We believe that providers 
of interconnected VoIP services similarly benefit from universal 
service because much of the appeal of their services to consumers 
derives from the ability to place calls to and receive calls from the 
PSTN, which is supported by universal service mechanisms. As the Fifth 
Circuit explained, ``Congress designed the universal service scheme to 
exact payments from those companies benefiting from the provision of 
universal service.'' Like other contributors to the Fund, 
interconnected VoIP providers are ``dependent on the widespread 
telecommunications network for the maintenance and expansion of their 
business,'' and they ``directly benefit[] from a larger and larger 
network.'' It is therefore

[[Page 38785]]

consistent with Commission precedent to impose obligations that 
correspond with the benefits of universal service that these providers 
already enjoy.
    23. We also find that the principle of competitive neutrality 
supports our conclusion that we should require interconnected VoIP 
providers to contribute to the support mechanisms. Competitive 
neutrality means that ``universal service support mechanisms and rules 
neither unfairly advantage nor disadvantage one provider over another, 
and neither unfairly favor nor disfavor one technology over another.'' 
As the Commission has noted, interconnected VoIP service ``is 
increasingly used to replace analog voice service.'' As the 
interconnected VoIP service industry continues to grow, and to attract 
subscribers who previously relied on traditional telephone service, it 
becomes increasingly inappropriate to exclude interconnected VoIP 
service providers from universal service contribution obligations. 
Moreover, we do not want contribution obligations to shape decisions 
regarding the technology that interconnected VoIP providers use to 
offer voice services to customers or to create opportunities for 
regulatory arbitrage. The approach we adopt today reduces the 
possibility that carriers with universal service obligations will 
compete directly with providers without such obligations. We therefore 
find that the principle of competitive neutrality is served by 
extending universal service obligations to interconnected VoIP service 
providers.
    24. Thus, based on the record before us, we find that 
interconnected VoIP providers, like telecommunications carriers, have 
built their businesses, or a part of their businesses, on access to the 
PSTN. For these reasons, we find that the public interest requires 
interconnected VoIP providers, as providers of interstate 
telecommunications, to contribute to the preservation and advancement 
of universal service in the same manner as carriers that provide 
interstate telecommunications services. Finally, we note that the 
inclusion of such providers as contributors to the support mechanisms 
will broaden the funding base, lessening contribution requirements on 
telecommunications carriers or any particular class of 
telecommunications providers.
    25. Ancillary Jurisdiction. In addition to permissive authority 
under section 254(d), we exercise our ancillary jurisdiction under 
Title I of the Act to extend universal service contribution obligations 
to interconnected VoIP providers. We conclude that regardless of the 
statutory classification of these services, the Commission has 
ancillary jurisdiction to promote universal service by adopting 
universal service contribution rules for interconnected VoIP services, 
and commenters largely agree. Ancillary jurisdiction may be employed, 
in the Commission's discretion, when Title I of the Act gives the 
Commission subject matter jurisdiction over the service to be regulated 
and the assertion of jurisdiction is ``reasonably ancillary to the 
effective performance of [its] various responsibilities.'' Both 
predicates for ancillary jurisdiction are satisfied here.
    26. First, as we concluded in the VoIP 911 Order, interconnected 
VoIP services fall within the subject matter jurisdiction granted to us 
in the Act. Second, our analysis requires us to evaluate whether 
imposing universal service contribution obligations is reasonably 
ancillary to the effective performance of the Commission's various 
responsibilities. Based on the record in this matter, we find that 
section 254 and section 1 of the Act provide the requisite nexus.
    27. Section 254 requires the Commission to establish ``specific, 
predictable, and sufficient mechanisms * * * to preserve and advance 
universal service.'' The Act requires telecommunications carriers to 
contribute to those mechanisms on a mandatory basis, and as discussed 
above, section 254(d) grants the Commission permissive authority to 
require other ``providers of interstate telecommunications'' to 
contribute. As discussed above, we recognize that interconnected VoIP 
service ``is increasingly used to replace analog voice service.'' We 
expect that trend to continue. If we do not require interconnected VoIP 
providers to contribute, the revenue base that supports the Fund will 
continue to shrink, while these providers continue to benefit from 
their interconnection to the PSTN. We believe that this trend threatens 
the stability of the Fund and our action to extend contributions 
obligations to interconnected VoIP providers is ``reasonably ancillary 
to the effective performance of [our] responsibilities'' under section 
254. Thus, we determine, as required, that the approach we adopt today 
``will `further the achievement of long-established regulatory goals' 
'' to preserve and advance universal service through specific, 
predictable, and sufficient contribution mechanisms.
    28. In addition, section 1 of the Act charges the Commission with 
responsibility to ``make available, so far as possible, to all the 
people of the United States, * * * a rapid, efficient, Nation-wide, * * 
* wire and radio communication service with adequate facilities at 
reasonable charges.'' In light of this statutory mandate, promoting 
universal service became one of the Commission's primary 
responsibilities under the Act even before Congress adopted section 254 
in 1996. Before the 1996 Act, the Commission relied exclusively on its 
Title I ancillary jurisdiction to adopt regulations establishing a fund 
to further this statutory goal. In Rural Telephone Coalition v. FCC, 
the United States Court of Appeals for the District of Columbia Circuit 
upheld the Commission's assertion of ancillary jurisdiction to 
establish a funding mechanism to support universal service in the 
absence of specific statutory authority as ancillary to its 
responsibilities under section 1 of the Act to ``further the objective 
of making communications service available to all Americans at 
reasonable charges.'' We conclude that as more consumers begin to rely 
on interconnected VoIP services for their communications needs, the 
action we take here ensures that the Commission continues to ``further 
the achievement of long-established regulatory goals'' to ``make 
available * * * communication service with adequate facilities at 
reasonable charges.'' Thus, pursuant to our ancillary jurisdiction, we 
extend USF contribution obligations to providers of interconnected VoIP 
services.
    29. Implementation. In this section, we address implementation 
issues related to our requirement that interconnected VoIP providers 
contribute to the USF. Because we are expanding the base of 
contributors, certain entities that in the past have not been required 
to report interstate and international revenues will now be required to 
do so. For that reason, we provide a brief overview of our reporting 
requirements. This Order does not fully explain all of the Commission's 
requirements. Interconnected VoIP providers that are new to the USF 
procedures should familiarize themselves with the Commission's USF 
rules and with FCC Forms 499-A and 499-Q Telecommunications Reporting 
Worksheets and the accompanying instructions.
    30. Identifying Revenues for Reporting Purposes. Most 
interconnected VoIP providers offer packages of services to consumers 
for a single price that include telecommunications, as discussed above, 
along with CPE and/or features that may be information services. To the 
extent that an interconnected VoIP provider has

[[Page 38786]]

chosen to structure its offerings in this manner, it may use the safe 
harbors established in the CPE Bundling Order to determine the 
appropriate amount of telecommunications revenues to be reported (as 
distinguished from revenue derived from non-telecommunications). 
Interconnected VoIP service providers are not obligated to use either 
of the safe harbors in the CPE Bundling Order, but we emphasize that 
other allocation methods may not be considered reasonable and will be 
evaluated on a case-by-case basis in an audit context.
    31. Interconnected VoIP providers must report and contribute to the 
USF on all their interstate and international end-user 
telecommunications revenues. To fulfill this obligation, interconnected 
VoIP providers have three options: (1) They may use the interim safe 
harbor established in this Order; (2) they may report based on their 
actual interstate telecommunications revenues; or (3) they may rely on 
traffic studies, subject to the conditions described below.
    32. As we recognized in the Vonage Order, it is difficult for some 
interconnected VoIP providers to separate their traffic on a 
jurisdictional basis. Indeed, many of these VoIP providers have 
advocated to us in other proceedings that their services are 
``inherently interstate.'' Consistent with this advocacy and based on 
the conclusions in the Vonage Order, we find that it would be 
reasonable for us to treat the interconnected VoIP traffic as 100 
percent interstate for USF purposes. Indeed, in another context where 
providers were unable to separate their interstate telecommunications 
revenues from other revenues, the Commission found a safe harbor of 100 
percent to be reasonable. Nevertheless, we establish a safe harbor that 
is lower than 100 percent as a convenient alternative for 
interconnected VoIP providers. Our safe harbor is necessarily the 
product of line drawing. In adopting a safe harbor we consider what 
would be an appropriate analogue. One industry report has estimated 
that 83.8 percent of VoIP traffic in 2004 was either long distance or 
international and only 16.2 percent was local. Thus, it appears that 
VoIP traffic is predominantly long distance or international. As such, 
it is much like wireline toll service which similarly offers 
interstate, intrastate toll, and international services. In fact as 
described below, VoIP services are often marketed as a substitute for 
wireline toll service. The percentage of interstate revenues reported 
to the Commission by wireline toll providers is 64.9 percent. We 
therefore find that establishing a safe harbor of 64.9 percent is 
reasonable for purposes of this interim action.
    33. Moreover, we believe that setting the safe harbor at 64.9 
percent is reasonable pending the completion of the accompanying NPRM 
where we seek comment on whether to change or eliminate all of the safe 
harbors. To set the safe harbor lower would permit providers that 
actually provide more interstate service to escape universal service 
contribution obligations for some of their interstate traffic, thus 
undermining our actions to preserve and advance the goals of universal 
service. Furthermore, to the extent the safe harbor percentage is 
higher than some providers' actual interstate use, providers may 
instead contribute to the fund based on actual revenue allocations or 
by conducting a traffic study, as described below. We encourage 
interconnected VoIP providers to explore these more precise avenues for 
determining the jurisdictional nature of their revenues.
    34. We do not believe that the percentage used as the wireless safe 
harbor would serve as a reasonable safe harbor for interconnected VoIP. 
Indeed, the record reflects that interconnected VoIP service is often 
marketed as an economical way to make interstate and international 
calls, as a lower-cost substitute for wireline toll service. For 
purposes of a safe harbor, it is reasonable to account for the many 
customers who purchase these services to place a high volume of 
interstate and international calls, and benefit from the pricing plans 
the providers offer for such services. We believe that these 
characteristics differentiate it from wireless service. Accordingly, we 
find that the interconnected VoIP safe harbor should be substantially 
higher than the wireless safe harbor in order to properly capture 
interstate revenues.
    35. While, as stated above, interconnected VoIP providers may 
report their actual interstate telecommunications revenues, we 
recognize that some interconnected VoIP providers do not currently have 
the ability to identify whether customer calls are interstate and 
therefore subject to the section 254(d) contribution requirement. 
Indeed, a fundamental premise of our decision to preempt Minnesota's 
regulations in the Vonage Order was that it was impossible to determine 
whether calls by Vonage's customers stay within or cross state 
boundaries. Therefore, an interconnected VoIP provider may rely on 
traffic studies or the safe harbor described above in calculating its 
federal universal service contributions. Alternatively, to the extent 
that an interconnected VoIP provider develops the capability to track 
the jurisdictional confines of customer calls, it may calculate its 
universal service contributions based on its actual percentage of 
interstate calls. Under this alternative, however, we note that an 
interconnected VoIP provider with the capability to track the 
jurisdictional confines of customer calls would no longer qualify for 
the preemptive effects of our Vonage Order and would be subject to 
state regulation. This is because the central rationale justifying 
preemption set forth in the Vonage Order would no longer be applicable 
to such an interconnected VoIP provider.
    36. In lieu of using the interim safe harbor or reporting actual 
interstate telecommunications revenues, interconnected VoIP providers 
may rely on traffic studies, as noted above, and as wireless carriers 
may do. The record indicates that traffic studies are a feasible option 
for providers of interconnected VoIP service. However, before it can 
begin to base its USF contributions on a traffic study, an 
interconnected VoIP provider must submit its proposed traffic study to 
the Commission for approval. While prior Commission approval of traffic 
studies is not required for wireless carriers, we have nonetheless 
identified concerns in the wireless context with the use of traffic 
studies as a replacement for reporting actual revenues, and we now 
require wireless carriers to submit their traffic studies to the 
Commission and to USAC. If we were to allow interconnected VoIP 
providers to rely on unapproved traffic studies, we would risk 
extending the problems we have identified with the use of traffic 
studies by wireless carriers to a new technology, possibly creating 
unforeseen problems. For these reasons, we find it appropriate to 
require prior Commission approval of any traffic study on which an 
interconnected VoIP provider proposes to rely. Until the Commission has 
approved an interconnected VoIP provider's proposed traffic study, that 
provider may use the interim safe harbor. We may extend this treatment 
to wireless traffic studies in the future, but we decline to do so 
today. While there would be a benefit to parity of requirements between 
wireless and interconnected VoIP providers, a pre-approval requirement 
for wireless traffic studies would be disruptive to wireless 
contributors who, unlike interconnected VoIP providers, are already 
relying on the current regime.
    37. We take one additional interim action here to ensure the health 
of the USF pending broader reform. As we stated earlier, we have not 
yet classified

[[Page 38787]]

interconnected VoIP as either a telecommunications service or an 
information service. Because we have not yet made that classification, 
some interconnected VoIP providers may hold themselves out as 
telecommunications carriers, but others do not, considering themselves 
instead to be ``end users.'' Carriers that provide telecommunications 
service inputs to the latter group of interconnected VoIP providers 
therefore have been reporting the resulting revenues as end-user 
revenues and including them in their bases. Because we do not classify 
interconnected VoIP today, nor do we attempt to quantify the magnitude 
of USF contributions from carriers that supply wholesale inputs to 
interconnected VoIP providers, carriers supplying telecommunications 
services to interconnected VoIP providers who are not themselves 
carriers should continue to include the revenues derived therefrom in 
their own contribution bases for two full quarters after the effective 
date of this Order. Wholesale carriers may not exclude these revenues 
by invoking the ``carrier's carrier'' rule during this interim period. 
To the extent required, we waive here Commission rule 54.706(b) for the 
duration of this requirement.
    38. We recognize that, by requiring on an interim basis that both 
the underlying carrier and the interconnected VoIP provider contribute 
based (in part) on the revenues derived from providing the underlying 
transmission, the Fund may receive contributions from 
telecommunications revenues associated with the same facilities two 
times. We emphasize that this is a temporary measure, and we do not 
take this step lightly. We are concerned, however, that if carriers are 
permitted to invoke the carrier's carrier rule immediately to exclude 
revenues from interconnected VoIP providers, the result could be a net 
decrease in the Fund in the short term. Such a result would be 
inconsistent with our obligation to ensure a sufficient and sustainable 
Fund and to preserve and advance universal service. By continuing to 
require contributions from carriers supplying transmission facilities 
to interconnected VoIP providers for an additional two quarters, we 
eliminate any risk of decreasing the Fund while we implement 
contribution obligations for interconnected VoIP providers. Further, we 
find nothing in section 254 of the 1996 Act that prohibits this interim 
approach.
    39. Reporting Requirements. Providers of interconnected VoIP 
services will follow the same basic USF reporting procedures as other 
providers of interstate and international telecommunications, using the 
same forms and filing instructions. Contributors to USF report 
historical gross-billed, projected gross-billed, and projected 
collected end-user interstate and international revenues quarterly on 
FCC Form 499-Q. Interconnected VoIP service providers will be required 
to file FCC Form 499-Q beginning on August 1, 2006. Contributors report 
gross-billed and actual collected end-user interstate and international 
revenues on FCC Form 499-A on April 1 of each year. Interconnected VoIP 
service providers will be required to file a completed FCC Form 499-A 
beginning on April 1, 2007. Interconnected VoIP providers who will be 
submitting the FCC Form 499-Q for the first time because of this Order 
are not required to complete lines 115-118 on the Form until they 
submit the Form for the February 1, 2007 deadline. All other portions 
of the Form must be completed beginning with the submissions due August 
1, 2006.
    40. Under Commission rules, a provider of interstate and 
international telecommunications whose annual universal service 
contribution is expected to be less than $10,000 is not required to 
contribute to the USF, or to file a Telecommunications Reporting 
Worksheet unless it is required to contribute to other support and cost 
recovery mechanisms. Interconnected VoIP providers that satisfy this de 
minimis exemption need not contribute to the Fund. We find, however, 
that it is appropriate to require all providers of interconnected VoIP 
services--including those that satisfy the de minimis exemption--to 
register with the Commission in order to facilitate our enforcement of 
the obligations the Commission has imposed in this Order on providers 
of interconnected VoIP services. In order to fulfill this reporting 
requirement, every interconnected VoIP provider that has not already 
registered with the Commission (and designated an agent for service of 
process) must complete and file an FCC Form 499-A with blocks 1, 2, and 
6 completed. Providers should refer to the instructions on the revised 
FCC Form 499-A for additional details on how to complete this 
registration requirement. Interconnected VoIP providers will receive an 
FCC Registration Number (FRN) when they register with the Commission. 
Because providers must have an FRN in order to submit required USF 
filings, it is the responsibility of the interconnected VoIP provider 
to register with the Commission and obtain an FRN prior to the August 
1, 2006 deadline for filing FCC Form 499-Q.
    41. Finally, interconnected VoIP providers must comply with the 
Commission's rules with respect to recovering USF contributions from 
their customers. Contributors may choose to recover part or all of 
their universal service contributions from their customers, but they 
are prohibited from marking up universal service line-item amounts 
above the relevant contribution factor.
    42. Technical Matters. On our own motion, we amend section 54.5 of 
our rules to correct a typographical error. Section 54.5 currently 
defines ``contributor'' as ``an entity required to contribute to the 
universal service support mechanisms pursuant to Sec.  54.703.'' 
Section 54.706 addresses which entities are required to contribute to 
the universal service support mechanisms, not section 54.703. 
Accordingly, we amend section 54.5 to define ``contributor'' as ``an 
entity required to contribute to the universal service support 
mechanisms pursuant to Sec.  54.706.'' Further, in the sections of our 
rules that we revise to conform to this Order, we also remove 
references to our contribution methodology prior to April 1, 2003 which 
are now outdated. Because these rule changes are non-substantive, the 
notice and comment and effective date provisions of the Administrative 
Procedure Act are inapplicable.

Final Paperwork Reduction Act Analysis

    43. This document contains new information collection requirements. 
The Commission, as part of its continuing effort to reduce paperwork 
burdens, invites the general public to comment on the information 
collection requirements contained in this Report and Order as required 
by the Paperwork Reduction Act of 1995, Public Law 104-13. Public and 
agency comments are due September 8, 2006.

Final Regulatory Flexibility Analysis

    44. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), an Initial Regulatory Flexibility Analysis (IRFA) was 
incorporated in the FNPRM in CC Docket No. 96-45 and into the NPRM in 
WC Docket No. 04-36. The Commission sought written public comment on 
the proposals in the NPRMs, including comment on the IRFAs. This 
present Final Regulatory Flexibility Analysis (FRFA) conforms to the 
RFA. To the extent that any statement in this FRFA is perceived as 
creating ambiguity with respect to our rules or statements made in 
preceding

[[Page 38788]]

sections of this Order, the rules and statements set forth in those 
preceding sections shall be controlling.

1. Need for, and Objectives of, the Rules

    45. In the Report and Order (Order), the Commission makes interim 
modifications to the existing approach for assessing contributions to 
the federal universal service fund (USF or Fund) in order to maintain 
the stability and sufficiency of the Fund in the near-term in response 
to marketplace changes while we continue to examine more fundamental 
reform. Under the revised approach, the Commission raises the interim 
wireless safe harbor from its current 28.5 percent level to 37.1 
percent. The Commission also establishes universal service contribution 
obligations for providers of interconnected voice over Internet 
Protocol (VoIP) service. As detailed in the Order, interconnected VoIP 
providers must report and contribute to the USF on all their interstate 
and international end-user telecommunications revenues. To fulfill this 
obligation, interconnected VoIP providers have three options: (1) They 
may use the interim safe harbor of 64.9 percent established in this 
Order; (2) they may report based on their actual interstate 
telecommunications revenues; or (3) they may rely on traffic studies. 
The interim changes made in the Order are essential for securing the 
viability of universal service--a fundamental goal of communications 
policy as expressed in the Communications Act--in the near-term.
    46. The interim modifications adopted in the Order respond to 
marketplace developments and minimize the impact of changes to the 
current system on consumers, service providers, and universal service 
administration, while we continue to work towards more fundamental 
reform. Specifically, the revised approach to USF contributions will 
ensure that all interstate telecommunications carriers and providers of 
telecommunications contribute, on an equitable, competitively neutral, 
and nondiscriminatory basis, to our mechanism for preserving and 
advancing universal service. For example, applying universal service 
obligations to providers of interconnected VoIP service is consistent 
with the principle of competitive neutrality. In the Universal Service 
First Report and Order, the Commission established competitive 
neutrality as a principle to guide the development of universal service 
policies. Competitive neutrality means that ``universal service support 
mechanisms and rules neither unfairly advantage nor disadvantage one 
provider over another, and neither unfairly favor nor disfavor one 
technology over another.'' The Commission has recognized that 
interconnected VoIP service is increasingly seen by consumers as a 
potential substitute for traditional telephone service. As 
interconnected VoIP service continues to grow, and to attract 
subscribers who previously relied on traditional telephone service, it 
becomes increasingly inappropriate to exclude interconnected VoIP 
service providers from universal service contribution obligations.
    47. The interim modifications will provide near-term stability and 
sustainability for the Fund by responding to the fundamental changes in 
the telecommunications market while retaining the essential elements of 
the current approach to USF contributions. They also ensure that 
telecommunications carriers and providers of telecommunications 
contribute on an equitable, competitively neutral, and 
nondiscriminatory basis, to our mechanism for preserving and advancing 
universal service. For these reasons, the Order revises the existing 
approach for assessing contributions to the Fund.

2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA

    48. On June 15, 2006, the Office of Advocacy of the U.S. Small 
Business Administration (SBA) filed an ex parte letter with the 
Commission. In its letter, the SBA challenges the sufficiency of the 
Commission's IRFA released with the notice of proposed rulemaking in 
the IP-Enabled Services proceeding. The SBA states that the item itself 
``did not propose specific regulations and the IRFA released with the 
proposal reflected this lack of specificity.'' The SBA states that the 
IP-Enabled Services IRFA ``makes no conclusions regarding which 
regulations, if any, would apply to any entity, including small 
entities.'' This analysis leads SBA to conclude that the Commission has 
not analyzed the economic impact of the actions taken in the Order on 
small businesses, and to recommend that the Commission defer action and 
complete an IRFA that it believes would meet the requirements of the 
RFA.
    49. We disagree with SBA that the Commission should postpone taking 
action in this proceeding to change the safe harbor percentage for 
wireless carriers and to impose universal service obligations on 
interconnected VoIP providers, and instead issue a supplemental IRFA 
identifying and analyzing the economic impacts on small entities and 
less burdensome alternatives. We believe the additional steps suggested 
by SBA are unnecessary because small entities already have received 
sufficient notice of the issues addressed in today's Order and because 
the Commission has considered the economic impact on small entities and 
what ways are feasible to minimize the burdens imposed on those 
entities, and, to the extent feasible, has implemented less burdensome 
alternatives. Moreover, SBA's proposal to postpone and thus further 
delay these interim actions is antithetical to the core purpose of the 
Order, which is to ensure the near-term stability and sufficiency of 
the USF.
    50. The Commission also received some general small business-
related comments. Some commenters, for example, asserted that a 
connection-based methodology would be inequitable and burdensome for 
small businesses, particularly with respect to assessment of multi-line 
business connections based on the proposed tiers of capacity outlined 
in the Further Notice. Other commenters maintained that a de minimis 
exemption was essential to any contribution system adopted by the 
Commission. To the extent that these commenters' concerns are 
implicated by today's actions, they are discussed throughout the Order.

3. Description and Estimate of the Number of Small Entities to Which 
Rules Will Apply

    51. 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).
    52. The most reliable source of information regarding the total 
numbers of common carrier and related providers nationwide, including 
the numbers of commercial wireless entities, appears to be data the 
Commission publishes

[[Page 38789]]

annually in its Trends in Telephone Service report. According to data 
in the most recent report, there are 5,679 interstate carriers. These 
carriers include, inter alia, incumbent local exchange carriers, 
competitive local exchange carriers, competitive access providers, 
interexchange carriers, other wireline carriers and service providers 
(including shared-tenant service providers and private carriers), 
operator service providers, pay telephone operators, providers of 
telephone toll service, wireless carriers and services providers, and 
resellers.
    53. Nationwide, there are a total of approximately 22.4 million 
small businesses, according to SBA data. A ``small organization'' is 
generally ``any not-for-profit enterprise which is independently owned 
and operated and is not dominant in its field.'' Nationwide, as of 
2002, there were approximately 1.6 million small organizations. The 
term ``small governmental jurisdiction'' is defined generally as 
``governments of cities, towns, townships, villages, school districts, 
or special districts, with a population of less than fifty thousand.'' 
Census Bureau data for 2002 indicate that there were 87,525 local 
governmental jurisdictions in the United States. We estimate that, of 
this total, 84,377 entities were ``small governmental jurisdictions.'' 
Thus, we estimate that most governmental jurisdictions are small.
    54. We have perhaps been overbroad in our list of entities directly 
affected, below, in an effort to encourage comment.
a. Wireline Carriers and Service Providers
    55. We have included small incumbent local exchange carriers in 
this present RFA analysis. As noted above, a ``small business'' under 
the RFA is one that, inter alia, meets the pertinent small business 
size standard (e.g., a telephone communications business having 1,500 
or fewer employees), and ``is not dominant in its field of operation.'' 
The SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent local exchange carriers are not dominant in their field of 
operation because any such dominance is not ``national'' in scope. We 
have therefore included small incumbent local exchange carriers in this 
RFA analysis, although we emphasize that this RFA action has no effect 
on Commission analyses and determinations in other, non-RFA contexts.
    56. Incumbent Local Exchange Carriers (LECs). Neither the 
Commission nor the SBA has developed a small business size standard 
specifically for incumbent local exchange services. The appropriate 
size standard under SBA rules is for the category Wired 
Telecommunications Carriers. Under that size standard, such a business 
is small if it has 1,500 or fewer employees. According to Commission 
data, 1,303 carriers have reported that they are engaged in the 
provision of incumbent local exchange services. Of these 1,303 
carriers, an estimated 1,020 have 1,500 or fewer employees and 283 have 
more than 1,500 employees. Consequently, the Commission estimates that 
most providers of incumbent local exchange service are small businesses 
that may be affected by our action.
    57. Competitive Local Exchange Carriers (CLECs), Competitive Access 
Providers (CAPs), ``Shared-Tenant Service Providers.'' and ``Other 
Local Service Providers.'' Neither the Commission nor the SBA has 
developed a small business size standard specifically for these service 
providers. The appropriate size standard under SBA rules is for the 
category Wired Telecommunications Carriers. Under that size standard, 
such a business is small if it has 1,500 or fewer employees. According 
to Commission data, 769 carriers have reported that they are engaged in 
the provision of either competitive access provider services or 
competitive local exchange carrier services. Of these 769 carriers, an 
estimated 676 have 1,500 or fewer employees and 93 have more than 1,500 
employees. In addition, 12 carriers have reported that they are 
``Shared-Tenant Service Providers,'' and all 12 are estimated to have 
1,500 or fewer employees. In addition, 37 carriers have reported that 
they are ``Other Local Service Providers.'' Of the 39, an estimated 38 
have 1,500 or fewer employees and one has more than 1,500 employees. 
Consequently, the Commission estimates that most providers of 
competitive local exchange service, competitive access providers, 
``Shared-Tenant Service Providers,'' and ``Other Local Service 
Providers'' are small entities that may be affected by our action.
    58. Local Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 143 carriers have reported 
that they are engaged in the provision of local resale services. Of 
these, an estimated 141 have 1,500 or fewer employees and two have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of local resellers are small entities that may be affected by 
our action.
    59. Toll Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 770 carriers have reported 
that they are engaged in the provision of toll resale services. Of 
these, an estimated 747 have 1,500 or fewer employees and 23 have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of toll resellers are small entities that may be affected by 
our action.
    60. Payphone Service Providers (PSPs). Neither the Commission nor 
the SBA has developed a small business size standard specifically for 
payphone services providers. The appropriate size standard under SBA 
rules is for the category Wired Telecommunications Carriers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 654 carriers have reported 
that they are engaged in the provision of payphone services. Of these, 
an estimated 652 have 1,500 or fewer employees and two have more than 
1,500 employees. Consequently, the Commission estimates that the 
majority of payphone service providers are small entities that may be 
affected by our action.
    61. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a small business size standard specifically for 
providers of interexchange services. The appropriate size standard 
under SBA rules is for the category Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to Commission data, 316 carriers have 
reported that they are engaged in the provision of interexchange 
service. Of these, an estimated 292 have 1,500 or fewer employees and 
24 have more than 1,500 employees. Consequently, the Commission 
estimates that the majority of IXCs are small entities that may be 
affected by our action.
    62. Operator Service Providers (OSPs). Neither the Commission nor 
the SBA has developed a small business size standard specifically for 
operator service providers. The appropriate size standard under SBA 
rules is for the category Wired Telecommunications Carriers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to

[[Page 38790]]

Commission data, 23 carriers have reported that they are engaged in the 
provision of operator services. Of these, an estimated 20 have 1,500 or 
fewer employees and three have more than 1,500 employees. Consequently, 
the Commission estimates that the majority of OSPs are small entities 
that may be affected by our action.
    63. Prepaid Calling Card Providers. Neither the Commission nor the 
SBA has developed a small business size standard specifically for 
prepaid calling card providers. The appropriate size standard under SBA 
rules is for the category Telecommunications Resellers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 89 carriers have reported that they are 
engaged in the provision of prepaid calling cards. Of these, an 
estimated 88 have 1,500 or fewer employees and one has more than 1,500 
employees. Consequently, the Commission estimates that the majority of 
prepaid calling card providers are small entities that may be affected 
by our action.
    64. 800 and 800-Like Service Subscribers. Neither the Commission 
nor the SBA has developed a small business size standard specifically 
for 800 and 800-like service (``toll free'') subscribers. The 
appropriate size standard under SBA rules is for the category 
Telecommunications Resellers. Under that size standard, such a business 
is small if it has 1,500 or fewer employees. The most reliable source 
of information regarding the number of these service subscribers 
appears to be data the Commission collects on the 800, 888, and 877 
numbers in use. According to our data, at the beginning of January 
2005, the number of 800 numbers assigned was 7,540,453; the number of 
888 numbers assigned was 5,947,789 and the number of 877 numbers 
assigned was 4,805,568. We do not have data specifying the number of 
these subscribers that are not independently owned and operated or have 
more than 1,500 employees, and thus are unable at this time to estimate 
with greater precision the number of toll free subscribers that would 
qualify as small businesses under the SBA size standard. Consequently, 
we estimate that there are 7,540,453 or fewer small entity 800 
subscribers; 5,947,789 or fewer small entity 888 subscribers; and 
4,805,568 or fewer small entity 877 subscribers.
b. International Service Providers
    65. Satellite Telecommunications and Other Telecommunications. 
There is no small business size standard developed specifically for 
providers of international service. The appropriate size standards 
under SBA rules are for the two broad census categories of ``Satellite 
Telecommunications'' and ``Other Telecommunications.'' Under both 
categories, such a business is small if it has $13.5 million or less in 
average annual receipts.
    66. The first category of Satellite Telecommunications ``comprises 
establishments primarily engaged in providing point-to-point 
telecommunications services to other establishments in the 
telecommunications and broadcasting industries by forwarding and 
receiving communications signals via a system of satellites or 
reselling satellite telecommunications.'' For this category, Census 
Bureau data for 2002 show that there were a total of 371 firms that 
operated for the entire year. Of this total, 307 firms had annual 
receipts of under $10 million, and 26 firms had receipts of $10 million 
to $24,999,999. Consequently, we estimate that the majority of 
Satellite Telecommunications firms are small entities that might be 
affected by our action.
    67. The second category of Other Telecommunications ``comprises 
establishments primarily engaged in (1) providing specialized 
telecommunications applications, such as satellite tracking, 
communications telemetry, and radar station operations; or (2) 
providing satellite terminal stations and associated facilities 
operationally connected with one or more terrestrial communications 
systems and capable of transmitting telecommunications to or receiving 
telecommunications from satellite systems.'' For this category, Census 
Bureau data for 2002 show that there were a total of 332 firms that 
operated for the entire year. Of this total, 259 firms had annual 
receipts of under $10 million and 15 firms had annual receipts of $10 
million to $24,999,999. Consequently, we estimate that the majority of 
Other Telecommunications firms are small entities that might be 
affected by our action.
c. Wireless Telecommunications Service Providers
    68. Below, for those services subject to auctions, we note that, as 
a general matter, the number of winning bidders that qualify as small 
businesses at the close of an auction does not necessarily represent 
the number of small businesses currently in service. Also, the 
Commission does not generally track subsequent business size unless, in 
the context of assignments or transfers, unjust enrichment issues are 
implicated.
    69. Wireless Service Providers. The SBA has developed a small 
business size standard for wireless firms within the two broad economic 
census categories of ``Paging'' and ``Cellular and Other Wireless 
Telecommunications.'' Under both categories, the SBA deems a wireless 
business to be small if it has 1,500 or fewer employees. For the census 
category of Paging, Census Bureau data for 2002 show that there were 
807 firms in this category that operated for the entire year. Of this 
total, 804 firms had employment of 999 or fewer employees, and three 
firms had employment of 1,000 employees or more. Thus, under this 
category and associated small business size standard, the majority of 
firms can be considered small. For the census category of Cellular and 
Other Wireless Telecommunications, Census Bureau data for 2002 show 
that there were 1,397 firms in this category that operated for the 
entire year. Of this total, 1,378 firms had employment of 999 or fewer 
employees, and 19 firms had employment of 1,000 employees or more. 
Thus, under this second category and size standard, the majority of 
firms can, again, be considered small.
    70. Cellular Licensees. The SBA has developed a small business size 
standard for wireless firms within the broad economic census category 
``Cellular and Other Wireless Telecommunications.'' Under this SBA 
category, a wireless business is small if it has 1,500 or fewer 
employees. According to Commission data, 437 carriers reported that 
they were engaged in the provision of cellular service, Personal 
Communications Service (PCS), or Specialized Mobile Radio (SMR) 
Telephony services, which are placed together in the data. We have 
estimated that 260 of these are small, under the SBA small business 
size standard. Thus, under this category and size standard, the 
majority of firms can be considered small.
    71. Common Carrier Paging. The SBA has developed a small business 
size standard for Paging, under which a business is small if it has 
1,500 or fewer employees. According to Commission data, 375 carriers 
have reported that they are engaged in Paging or Messaging Service. Of 
these, an estimated 370 have 1,500 or fewer employees, and 5 have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of paging providers are small entities that may be affected by 
our action. In addition, in the Paging Third Report and Order, we 
developed a small business size standard for ``small businesses'' and 
``very small businesses'' for purposes of

[[Page 38791]]

determining their eligibility for special provisions such as bidding 
credits and installment payments. A ``small business'' is an entity 
that, together with its affiliates and controlling principals, has 
average gross revenues not exceeding $15 million for the preceding 
three years. Additionally, a ``very small business'' is an entity that, 
together with its affiliates and controlling principals, has average 
gross revenues that are not more than $3 million for the preceding 
three years. The SBA has approved these small business size standards. 
An auction of Metropolitan Economic Area licenses commenced on February 
24, 2000, and closed on March 2, 2000. Of the 985 licenses auctioned, 
440 were sold. Fifty-seven companies claiming small business status 
won.
    72. Wireless Communications Services. This service can be used for 
fixed, mobile, radiolocation, and digital audio broadcasting satellite 
uses. The Commission established small business size standards for the 
wireless communications services (WCS) auction. A ``small business'' is 
an entity with average gross revenues of $40 million for each of the 
three preceding years, and a ``very small business'' is an entity with 
average gross revenues of $15 million for each of the three preceding 
years. The SBA has approved these small business size standards. The 
Commission auctioned geographic area licenses in the WCS service. In 
the auction, held in April 1997, there were seven winning bidders that 
qualified as ``very small business'' entities, and one that qualified 
as a ``small business'' entity.
    73. Wireless Telephony. Wireless telephony includes cellular, 
personal communications services (PCS), and specialized mobile radio 
(SMR) telephony carriers. As noted earlier, the SBA has developed a 
small business size standard for ``Cellular and Other Wireless 
Telecommunications'' services. Under that SBA small business size 
standard, a business is small if it has 1,500 or fewer employees. 
According to Commission data, 437 carriers reported that they were 
engaged in the provision of wireless telephony. We have estimated that 
260 of these are small under the SBA small business size standard.
    74. Broadband Personal Communications Service. The broadband 
Personal Communications Service (PCS) spectrum is divided into six 
frequency blocks designated A through F, and the Commission has held 
auctions for each block. The Commission defined ``small entity'' for 
Blocks C and F as an entity that has average gross revenues of $40 
million or less in the three previous calendar years. For Block F, an 
additional classification for ``very small business'' was added and is 
defined as an entity that, together with its affiliates, has average 
gross revenues of not more than $15 million for the preceding three 
calendar years.'' These standards defining ``small entity'' in the 
context of broadband PCS auctions have been approved by the SBA. No 
small businesses, within the SBA-approved small business size standards 
bid successfully for licenses in Blocks A and B. There were 90 winning 
bidders that qualified as small entities in the Block C auctions. A 
total of 93 small and very small business bidders won approximately 40 
percent of the 1,479 licenses for Blocks D, E, and F. On March 23, 
1999, the Commission re-auctioned 347 C, D, E, and F Block licenses. 
There were 48 small business winning bidders. On January 26, 2001, the 
Commission completed the auction of 422 C and F Broadband PCS licenses 
in Auction No. 35. Of the 35 winning bidders in this auction, 29 
qualified as ``small'' or ``very small'' businesses. Subsequent events, 
concerning Auction 35, including judicial and agency determinations, 
resulted in a total of 163 C and F Block licenses being available for 
grant.
    75. Narrowband Personal Communications Services. To date, two 
auctions of narrowband personal communications services (PCS) licenses 
have been conducted. For purposes of the two auctions that have already 
been held, ``small businesses'' were entities with average gross 
revenues for the prior three calendar years of $40 million or less. 
Through these auctions, the Commission has awarded a total of 41 
licenses, out of which 11 were obtained by small businesses. To ensure 
meaningful participation of small business entities in future auctions, 
the Commission has adopted a two-tiered small business size standard in 
the Narrowband PCS Second Report and Order. A ``small business'' is an 
entity that, together with affiliates and controlling interests, has 
average gross revenues for the three preceding years of not more than 
$40 million. A ``very small business'' is an entity that, together with 
affiliates and controlling interests, has average gross revenues for 
the three preceding years of not more than $15 million. The SBA has 
approved these small business size standards. In the future, the 
Commission will auction 459 licenses to serve Metropolitan Trading 
Areas (MTAs) and 408 response channel licenses. There is also one 
megahertz of narrowband PCS spectrum that has been held in reserve and 
that the Commission has not yet decided to release for licensing. The 
Commission cannot predict accurately the number of licenses that will 
be awarded to small entities in future auctions. However, four of the 
16 winning bidders in the two previous narrowband PCS auctions were 
small businesses, as that term was defined. The Commission assumes, for 
purposes of this analysis, that a large portion of the remaining 
narrowband PCS licenses will be awarded to small entities. The 
Commission also assumes that at least some small businesses will 
acquire narrowband PCS licenses by means of the Commission's 
partitioning and disaggregation rules.
    76. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service 
has both Phase I and Phase II licenses. Phase I licensing was conducted 
by lotteries in 1992 and 1993. There are approximately 1,515 such non-
nationwide licensees and four nationwide licensees currently authorized 
to operate in the 220 MHz band. The Commission has not developed a 
small business size standard for small entities specifically applicable 
to such incumbent 220 MHz Phase I licensees. To estimate the number of 
such licensees that are small businesses, we apply the small business 
size standard under the SBA rules applicable to ``Cellular and Other 
Wireless Telecommunications'' companies. This category provides that a 
small business is a wireless company employing no more than 1,500 
persons. The Commission estimates that nearly all such licensees are 
small businesses under the SBA's small business size standard.
    77. 220 MHz Radio Service--Phase II Licensees. The Phase II 220 MHz 
service is a new service, and is subject to spectrum auctions. In the 
220 MHz Third Report and Order, we adopted a small business size 
standard for ``small'' and ``very small'' businesses for purposes of 
determining their eligibility for special provisions such as bidding 
credits and installment payments. This small business size standard 
indicates that a ``small business'' is an entity that, together with 
its affiliates and controlling principals, has average gross revenues 
not exceeding $15 million for the preceding three years. A ``very small 
business'' is an entity that, together with its affiliates and 
controlling principals, has average gross revenues that do not exceed 
$3 million for the preceding three years. The SBA has approved these 
small business size standards. Auctions of Phase II licenses commenced 
on September 15, 1998, and closed on October 22, 1998. In the first

[[Page 38792]]

auction, 908 licenses were auctioned in three different-sized 
geographic areas: three nationwide licenses, 30 Regional Economic Area 
Group (EAG) Licenses, and 875 Economic Area (EA) Licenses. Of the 908 
licenses auctioned, 693 were sold. Thirty-nine small businesses won 
licenses in the first 220 MHz auction. The second auction included 225 
licenses: 216 EA licenses and 9 EAG licenses. Fourteen companies 
claiming small business status won 158 licenses.
    78. 800 MHz and 900 MHz Specialized Mobile Radio Licenses. The 
Commission awards ``small entity'' and ``very small entity'' bidding 
credits in auctions for Specialized Mobile Radio (SMR) geographic area 
licenses in the 800 MHz and 900 MHz bands to firms that had revenues of 
no more than $15 million in each of the three previous calendar years, 
or that had revenues of no more than $3 million in each of the previous 
calendar years, respectively. These bidding credits apply to SMR 
providers in the 800 MHz and 900 MHz bands that either hold geographic 
area licenses or have obtained extended implementation authorizations. 
The Commission does not know how many firms provide 800 MHz or 900 MHz 
geographic area SMR service pursuant to extended implementation 
authorizations, nor how many of these providers have annual revenues of 
no more than $15 million. One firm has over $15 million in revenues. 
The Commission assumes, for purposes here, that all of the remaining 
existing extended implementation authorizations are held by small 
entities, as that term is defined by the SBA. The Commission has held 
auctions for geographic area licenses in the 800 MHz and 900 MHz SMR 
bands. There were 60 winning bidders that qualified as small or very 
small entities in the 900 MHz SMR auctions. Of the 1,020 licenses won 
in the 900 MHz auction, bidders qualifying as small or very small 
entities won 263 licenses. In the 800 MHz auction, 38 of the 524 
licenses won were won by small and very small entities.
    79. 700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order, 
we adopted a small business size standard for ``small businesses'' and 
``very small businesses'' for purposes of determining their eligibility 
for special provisions such as bidding credits and installment 
payments. A ``small business'' as an entity that, together with its 
affiliates and controlling principals, has average gross revenues not 
exceeding $15 million for the preceding three years. Additionally, a 
``very small business'' is an entity that, together with its affiliates 
and controlling principals, has average gross revenues that are not 
more than $3 million for the preceding three years. An auction of 52 
Major Economic Area (MEA) licenses commenced on September 6, 2000, and 
closed on September 21, 2000. Of the 104 licenses auctioned, 96 
licenses were sold to nine bidders. Five of these bidders were small 
businesses that won a total of 26 licenses. A second auction of 700 MHz 
Guard Band licenses commenced on February 13, 2001 and closed on 
February 21, 2001. All eight of the licenses auctioned were sold to 
three bidders. One of these bidders was a small business that won a 
total of two licenses.
    80. Rural Radiotelephone Service. The Commission has not adopted a 
size standard for small businesses specific to the Rural Radiotelephone 
Service. A significant subset of the Rural Radiotelephone Service is 
the Basic Exchange Telephone Radio System (BETRS). The Commission uses 
the SBA's small business size standard applicable to ``Cellular and 
Other Wireless Telecommunications,'' i.e., an entity employing no more 
than 1,500 persons. There are approximately 1,000 licensees in the 
Rural Radiotelephone Service, and the Commission estimates that there 
are 1,000 or fewer small entity licensees in the Rural Radiotelephone 
Service that may be affected by the rules and policies adopted herein.
    81. Air-Ground Radiotelephone Service. The Commission has not 
adopted a small business size standard specific to the Air-Ground 
Radiotelephone Service. We will use SBA's small business size standard 
applicable to ``Cellular and Other Wireless Telecommunications,'' i.e., 
an entity employing no more than 1,500 persons. There are approximately 
100 licensees in the Air-Ground Radiotelephone Service, and we estimate 
that almost all of them qualify as small under the SBA small business 
size standard.
    82. Aviation and Marine Radio Services. Small businesses in the 
aviation and marine radio services use a very high frequency (VHF) 
marine or aircraft radio and, as appropriate, an emergency position-
indicating radio beacon (and/or radar) or an emergency locator 
transmitter. The Commission has not developed a small business size 
standard specifically applicable to these small businesses. For 
purposes of this analysis, the Commission uses the SBA small business 
size standard for the category ``Cellular and Other 
Telecommunications,'' which is 1,500 or fewer employees. Most 
applicants for recreational licenses are individuals. Approximately 
581,000 ship station licensees and 131,000 aircraft station licensees 
operate domestically and are not subject to the radio carriage 
requirements of any statute or treaty. For purposes of our evaluations 
in this analysis, we estimate that there are up to approximately 
712,000 licensees that are small businesses (or individuals) under the 
SBA standard. In addition, between December 3, 1998 and December 14, 
1998, the Commission held an auction of 42 VHF Public Coast licenses in 
the 157.1875-157.4500 MHz (ship transmit) and 161.775-162.0125 MHz 
(coast transmit) bands. For purposes of the auction, the Commission 
defined a ``small'' business as an entity that, together with 
controlling interests and affiliates, has average gross revenues for 
the preceding three years not to exceed $15 million dollars. In 
addition, a ``very small'' business is one that, together with 
controlling interests and affiliates, has average gross revenues for 
the preceding three years not to exceed $3 million dollars. There are 
approximately 10,672 licensees in the Marine Coast Service, and the 
Commission estimates that almost all of them qualify as ``small'' 
businesses under the above special small business size standards.
    83. Fixed Microwave Services. Fixed microwave services include 
common carrier, private operational-fixed, and broadcast auxiliary 
radio services. At present, there are approximately 22,015 common 
carrier fixed licensees and 61,670 private operational-fixed licensees 
and broadcast auxiliary radio licensees in the microwave services. The 
Commission has not created a size standard for a small business 
specifically with respect to fixed microwave services. For purposes of 
this analysis, the Commission uses the SBA small business size standard 
for the category ``Cellular and Other Telecommunications,'' which is 
1,500 or fewer employees. The Commission does not have data specifying 
the number of these licensees that have more than 1,500 employees, and 
thus is unable at this time to estimate with greater precision the 
number of fixed microwave service licensees that would qualify as small 
business concerns under the SBA's small business size standard. 
Consequently, the Commission estimates that there are up to 22,015 
common carrier fixed licensees and up to 61,670 private operational-
fixed licensees and broadcast auxiliary radio licensees in the 
microwave services that may be small and may be affected by the rules 
and policies adopted herein. We noted, however, that the common carrier

[[Page 38793]]

microwave fixed licensee category includes some large entities.
    84. Offshore Radiotelephone Service. This service operates on 
several UHF television broadcast channels that are not used for 
television broadcasting in the coastal areas of states bordering the 
Gulf of Mexico. There are presently approximately 55 licensees in this 
service. We are unable to estimate at this time the number of licensees 
that would qualify as small under the SBA's small business size 
standard for ``Cellular and Other Wireless Telecommunications'' 
services. Under that SBA small business size standard, a business is 
small if it has 1,500 or fewer employees.
    85. 39 GHz Service. The Commission created a special small business 
size standard for 39 GHz licenses--an entity that has average gross 
revenues of $40 million or less in the three previous calendar years. 
An additional size standard for ``very small business'' is: an entity 
that, together with affiliates, has average gross revenues of not more 
than $15 million for the preceding three calendar years. The SBA has 
approved these small business size standards. The auction of the 2,173 
39 GHz licenses began on April 12, 2000 and closed on May 8, 2000. The 
18 bidders who claimed small business status won 849 licenses. 
Consequently, the Commission estimates that 18 or fewer 39 GHz 
licensees are small entities that may be affected by the rules and 
polices adopted herein.
    86. Multipoint Distribution Service, Multichannel Multipoint 
Distribution Service, and ITFS. Multichannel Multipoint Distribution 
Service (MMDS) systems, often referred to as ``wireless cable,'' 
transmit video programming to subscribers using the microwave 
frequencies of the Multipoint Distribution Service (MDS) and 
Instructional Television Fixed Service (ITFS). In connection with the 
1996 MDS auction, the Commission established a small business size 
standard as an entity that had annual average gross revenues of less 
than $40 million in the previous three calendar years. The MDS auctions 
resulted in 67 successful bidders obtaining licensing opportunities for 
493 Basic Trading Areas (BTAs). Of the 67 auction winners, 61 met the 
definition of a small business. MDS also includes licensees of stations 
authorized prior to the auction. In addition, the SBA has developed a 
small business size standard for Cable and Other Program Distribution, 
which includes all such companies generating $12.5 million or less in 
annual receipts. According to Census Bureau data for 1997, there were a 
total of 1,311 firms in this category, total, that had operated for the 
entire year. Of this total, 1,180 firms had annual receipts of under 
$10 million and an additional 52 firms had receipts of $10 million or 
more but less than $25 million. Consequently, we estimate that the 
majority of providers in this service category are small businesses 
that may be affected by the rules and policies adopted herein. This SBA 
small business size standard also appears applicable to ITFS. There are 
presently 2,032 ITFS licensees. All but 100 of these licenses are held 
by educational institutions. Educational institutions are included in 
this analysis as small entities. Thus, we tentatively conclude that at 
least 1,932 licensees are small businesses.
    87. Local Multipoint Distribution Service. Local Multipoint 
Distribution Service (LMDS) is a fixed broadband point-to-multipoint 
microwave service that provides for two-way video telecommunications. 
The auction of the 1,030 Local Multipoint Distribution Service (LMDS) 
licenses began on February 18, 1998 and closed on March 25, 1998. The 
Commission established a small business size standard for LMDS licenses 
as an entity that has average gross revenues of less than $40 million 
in the three previous calendar years. An additional small business size 
standard for ``very small business'' was added as an entity that, 
together with its affiliates, has average gross revenues of not more 
than $15 million for the preceding three calendar years. The SBA has 
approved these small business size standards in the context of LMDS 
auctions. There were 93 winning bidders that qualified as small 
entities in the LMDS auctions. A total of 93 small and very small 
business bidders won approximately 277 A Block licenses and 387 B Block 
licenses. On March 27, 1999, the Commission re-auctioned 161 licenses; 
there were 40 winning bidders. Based on this information, we conclude 
that the number of small LMDS licenses consists of the 93 winning 
bidders in the first auction and the 40 winning bidders in the re-
auction, for a total of 133 small entity LMDS providers.
    88. 218-219 MHz Service. The first auction of 218-219 MHz spectrum 
resulted in 170 entities winning licenses for 594 Metropolitan 
Statistical Area (MSA) licenses. Of the 594 licenses, 557 were won by 
entities qualifying as a small business. For that auction, the small 
business size standard was an entity that, together with its 
affiliates, has no more than a $6 million net worth and, after federal 
income taxes (excluding any carry over losses), has no more than $2 
million in annual profits each year for the previous two years. In the 
218-219 MHz Report and Order and Memorandum Opinion and Order, we 
established a small business size standard for a ``small business'' as 
an entity that, together with its affiliates and persons or entities 
that hold interests in such an entity and their affiliates, has average 
annual gross revenues not to exceed $15 million for the preceding three 
years. A ``very small business'' is defined as an entity that, together 
with its affiliates and persons or entities that hold interests in such 
an entity and its affiliates, has average annual gross revenues not to 
exceed $3 million for the preceding three years. These size standards 
will be used in future auctions of 218-219 MHz spectrum.
    89. 24 GHz--Incumbent Licensees. This analysis may affect incumbent 
licensees who were relocated to the 24 GHz band from the 18 GHz band, 
and applicants who wish to provide services in the 24 GHz band. The 
applicable SBA small business size standard is that of ``Cellular and 
Other Wireless Telecommunications'' companies. This category provides 
that such a company is small if it employs no more than 1,500 persons. 
We believe that there are only two licensees in the 24 GHz band that 
were relocated from the 18 GHz band, Teligent and TRW, Inc. It is our 
understanding that Teligent and its related companies have less than 
1,500 employees, though this may change in the future. TRW is not a 
small entity. Thus, only one incumbent licensee in the 24 GHz band is a 
small business entity.
    90. 24 GHz--Future Licensees. With respect to new applicants in the 
24 GHz band, the small business size standard for ``small business'' is 
an entity that, together with controlling interests and affiliates, has 
average annual gross revenues for the three preceding years not in 
excess of $15 million. ``Very small business'' in the 24 GHz band is an 
entity that, together with controlling interests and affiliates, has 
average gross revenues not exceeding $3 million for the preceding three 
years. The SBA has approved these small business size standards. These 
size standards will apply to the future auction, if held.
d. Cable and OVS Operators
    91. Cable and Other Program Distribution. The Census Bureau defines 
this category as follows: ``This industry comprises establishments 
primarily engaged as third-party distribution systems for broadcast 
programming. The establishments of this industry deliver visual, aural, 
or textual programming received from cable networks, local

[[Page 38794]]

television stations, or radio networks to consumers via cable or 
direct-to-home satellite systems on a subscription or fee basis. These 
establishments do not generally originate programming material.'' The 
SBA has developed a small business size standard for Cable and Other 
Program Distribution, which is: All such firms having $13.5 million or 
less in annual receipts. According to Census Bureau data for 2002, 
there were a total of 1,191 firms in this category that operated for 
the entire year. Of this total, 1,087 firms had annual receipts of 
under $10 million, and 43 firms had receipts of $10 million or more but 
less than $25 million. Thus, under this size standard, the majority of 
firms can be considered small.
    92. Cable Companies and Systems. The Commission has also developed 
its own small business size standards, for the purpose of cable rate 
regulation. Under the Commission's rules, a ``small cable company'' is 
one serving 400,000 or fewer subscribers, nationwide. Industry data 
indicate that, of 1,076 cable operators nationwide, all but eleven are 
small under this size standard. In addition, under the Commission's 
rules, a ``small system'' is a cable system serving 15,000 or fewer 
subscribers. Industry data indicate that, of 7,208 systems nationwide, 
6,139 systems have under 10,000 subscribers, and an additional 379 
systems have 10,000-19,999 subscribers. Thus, under this second size 
standard, most cable systems are small.
    93. Cable System Operators. The Communications Act of 1934, as 
amended, also contains a size standard for small cable system 
operators, which is ``a cable operator that, directly or through an 
affiliate, serves in the aggregate fewer than 1 percent of all 
subscribers in the United States and is not affiliated with any entity 
or entities whose gross annual revenues in the aggregate exceed 
$250,000,000.'' The Commission has determined that an operator serving 
fewer than 677,000 subscribers shall be deemed a small operator, if its 
annual revenues, when combined with the total annual revenues of all 
its affiliates, do not exceed $250 million in the aggregate. Industry 
data indicate that, of 1,076 cable operators nationwide, all but ten 
are small under this size standard. We note that the Commission neither 
requests nor collects information on whether cable system operators are 
affiliated with entities whose gross annual revenues exceed $250 
million, and therefore we are unable to estimate more accurately the 
number of cable system operators that would qualify as small under this 
size standard.
    94. Open Video Services. Open Video Service (OVS) systems provide 
subscription services. As noted above, the SBA has created a small 
business size standard for Cable and Other Program Distribution. This 
standard provides that a small entity is one with $13.5 million or less 
in annual receipts. The Commission has certified approximately 25 OVS 
operators to serve 75 areas, and some of these are currently providing 
service. Affiliates of Residential Communications Network, Inc. (RCN) 
received approval to operate OVS systems in New York City, Boston, 
Washington, D.C., and other areas. RCN has sufficient revenues to 
assure that they do not qualify as a small business entity. Little 
financial information is available for the other entities that are 
authorized to provide OVS and are not yet operational. Given that some 
entities authorized to provide OVS service have not yet begun to 
generate revenues, the Commission concludes that up to 24 OVS operators 
(those remaining) might qualify as small businesses that may be 
affected by the rules and policies adopted herein.
e. Internet Service Providers
    95. Internet Service Providers. The SBA has developed a small 
business size standard for Internet Service Providers (ISPs). ISPs 
``provide clients access to the Internet and generally provide related 
services such as web hosting, web page designing, and hardware or 
software consulting related to Internet connectivity.'' Under the SBA 
size standard, such a business is small if it has average annual 
receipts of $23 million or less. According to Census Bureau data for 
2002, there were 2,529 firms in this category that operated for the 
entire year. Of these, 2,437 firms had annual receipts of under $10 
million, and an additional 47 firms had receipts of between $10 million 
and $24, 999,999. Consequently, we estimate that the majority of these 
firms are small entities that may be affected by our action.
f. Other Internet-Related Entities
    96. Web Search Portals. Our action pertains to VoIP services, which 
could be provided by entities that provide other services such as e-
mail, online gaming, web browsing, video conferencing, instant 
messaging, and other, similar IP-enabled services. The Commission has 
not adopted a size standard for entities that create or provide these 
types of services or applications. However, the Census Bureau has 
identified firms that ``operate web sites that use a search engine to 
generate and maintain extensive databases of Internet addresses and 
content in an easily searchable format. Web search portals often 
provide additional Internet services, such as e-mail, connections to 
other web sites, auctions, news, and other limited content, and serve 
as a home base for Internet users.'' The SBA has developed a small 
business size standard for this category; that size standard is $6.5 
million or less in average annual receipts. According to Census Bureau 
data for 2002, there were 342 firms in this category that operated for 
the entire year. Of these, 303 had annual receipts of under $5 million, 
and an additional 15 firms had receipts of between $5 million and 
$9,999,999. Consequently, we estimate that the majority of these firms 
are small entities that may be affected by our action.
    97. Data Processing, Hosting, and Related Services. Entities in 
this category ``primarily * * * provid[e] infrastructure for hosting or 
data processing services.'' The SBA has developed a small business size 
standard for this category; that size standard is $23 million or less 
in average annual receipts. According to Census Bureau data for 2002, 
there were 6,877 firms in this category that operated for the entire 
year. Of these, 6,418 had annual receipts of under $10 million, and an 
additional 251 firms had receipts of between $10 million and 
$24,999,999. Consequently, we estimate that the majority of these firms 
are small entities that may be affected by our action.
    98. All Other Information Services. ``This industry comprises 
establishments primarily engaged in providing other information 
services (except new syndicates and libraries and archives).'' Our 
action pertains to VoIP services, which could be provided by entities 
that provide other services such as e-mail, online gaming, web 
browsing, video conferencing, instant messaging, and other, similar IP-
enabled services. The SBA has developed a small business size standard 
for this category; that size standard is $6.5 million or less in 
average annual receipts. According to Census Bureau data for 2002, 
there were 155 firms in this category that operated for the entire 
year. Of these, 138 had annual receipts of under $5 million, and an 
additional four firms had receipts of between $5 million and 
$9,999,999. Consequently, we estimate that the majority of these firms 
are small entities that may be affected by our action.
    99. Internet Publishing and Broadcasting. ``This industry comprises 
establishments engaged in publishing and/or broadcasting content on the

[[Page 38795]]

Internet exclusively. These establishments do not provide traditional 
(non-Internet) versions of the content that they publish or 
broadcast.'' The SBA has developed a small business size standard for 
this census category; that size standard is 500 or fewer employees. 
According to Census Bureau data for 2002, there were 1,362 firms in 
this category that operated for the entire year. Of these, 1,351 had 
employment of 499 or fewer employees, and six firms had employment of 
between 500 and 999. Consequently, we estimate that the majority of 
these firms small entities that may be affected by our action.
    100. Software Publishers. These companies may design, develop or 
publish software and may provide other support services to software 
purchasers, such as providing documentation or assisting in 
installation. The companies may also design software to meet the needs 
of specific users. The SBA has developed a small business size standard 
of $23 million or less in average annual receipts for all of the 
following pertinent categories: Software Publishers, Custom Computer 
Programming Services, and Other Computer Related Services. For Software 
Publishers, Census Bureau data for 2002 indicate that there were 6,155 
firms in the category that operated for the entire year. Of these, 
7,633 had annual receipts of under $10 million, and an additional 403 
firms had receipts of between $10 million and $24,999,999. For 
providers of Custom Computer Programming Services, the Census Bureau 
data indicate that there were 32,269 firms that operated for the entire 
year. Of these, 31,416 had annual receipts of under $10 million, and an 
additional 565 firms had receipts of between $10 million and 
$24,999,999. For providers of Other Computer Related Services, the 
Census Bureau data indicate that there were 6,357 firms that operated 
for the entire year. Of these, 6,187 had annual receipts of under $10 
million, and an additional 101 firms had receipts of between $10 
million and $24,999,999. Consequently, we estimate that the majority of 
the firms in each of these three categories are small entities that may 
be affected by our action.

4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements

    101. As discussed in detail in the Order, the modifications to the 
reporting system only expand the scope of entities that are required to 
report to include interconnected VoIP service providers. Under the 
modified reporting system, contributors will continue to report 
projected and historical revenues on Form 499-Q and their annual 
revenues on the Form 499-A. Failure to file the required form by the 
applicable deadline, or failure to file accurate information on the 
form, could subject a contributor to enforcement action. In addition, 
we note that we retain the requirement for an officer to certify to the 
truthfulness and accuracy of the Form 499 submitted to USAC. To ensure 
that contributors report correct information, we also require all 
contributors to maintain records and documentation to justify the 
information reported in the Form 499, and to provide such records and 
documentation to the Commission and to USAC upon request.
    102. Our action today raises the wireless safe harbor and imposes 
new USF contribution obligations on interconnected VoIP providers. We 
note, however, that neither wireless providers nor interconnected VoIP 
providers are required to use the safe harbors established in this 
order; they have the additional options of basing their contributions 
on actual interstate and international revenues, or of relying on a 
traffic study. We emphasize once again that the interim actions adopted 
in the Order are necessary to ensure that all interstate 
telecommunications carriers and providers of telecommunications 
contribute, on an equitable, competitively neutral, and 
nondiscriminatory basis, to our mechanism for preserving and advancing 
universal service.

5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered

    103. 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.''
    104. With respect to wireless providers, the Commission considered 
and rejected setting the interim safe harbor higher than the 37.1 
percent established in this Order. Similarly, the Commission considered 
and rejected a requirement that interconnected VoIP providers 
contribute on 100 percent of their end-user revenues. Thus both 
wireless and interconnected VoIP providers--especially smaller 
entities--benefit from being able to use a lower safe harbor to report 
their interstate and international end-user revenues.
    105. The Commission's application of the de minimis exception to 
interconnected VoIP providers remains the best means of minimizing the 
impact on small entities of adopting our interim changes to USF 
contribution methodology. The de minimis exception protects small 
businesses and ensures that compliance costs associated with 
contributing to universal service do not exceed actual contribution 
amounts. As noted by several commenters, the de minimis exemption is 
critical to curtailing the potential administrative costs of 
contributing for small entities.
    106. Report to Congress: The Commission will send a copy of the 
Order, including this FRFA, in a report to be sent to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act. In addition, the Commission will send a copy of the Order, 
including this FRFA, to the Chief Counsel for Advocacy of the SBA. A 
copy of this present summarized Order and FRFA is also hereby published 
in the Federal Register.

Ordering Clauses

    107. Accordingly, it is ordered that, pursuant to sections 1, 2, 
4(i), 4(j), 201, 202, 218-220, 254, and 303(r) of the Communications 
Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i)-(j), 201, 202, 218-
220, 254, and 303(r), this Report and Order and Notice of Proposed 
Rulemaking in WC Docket No. 06-122, CC Docket No. 96-45, CC Docket No. 
98-171, CC Docket No. 90-571, CC Docket No. 92-237/NSD File No. L-00-
72, CC Docket No. 99-200, CC Docket No. 95-116, CC Docket No. 98-170, 
and WC Docket No. 04-36 is adopted, part 54 of the Commission's rules, 
47 CFR Part 54, is amended as set forth in Appendix A, Form 499-A is 
amended as set forth in Appendix C, and Form 499-Q is amended as set 
forth in Appendix D. These rules contain information collection 
requirements that have not been approved by OMB. The Commission will 
publish a document in the Federal Register announcing the effective 
date.
    108. It is further ordered that, pursuant to sections 1, 2, 4(i), 
4(j), 201, 202, 218-220, 254, and 303(r) of the Communications Act of 
1934, as amended, 47 U.S.C. 151, 152, 154(i)-(j), 201, 202, 218-220, 
254, and 303(r), any mobile wireless provider that uses a

[[Page 38796]]

traffic study to report actual interstate revenue data for universal 
service contribution purposes shall submit the traffic study to the 
Commission and to USAC.
    109. It is further ordered that, pursuant to sections 1, 2, 4(i), 
4(j), 201, 202, 218-220, 254, and 303(r) of the Communications Act of 
1934, as amended, 47 U.S.C. 151, 152, 154(i)-(j), 201, 202, 218-220, 
254, and 303(r), any provider of interconnected VoIP service that 
proposes to use a traffic study to report actual interstate revenue 
data for universal service contribution purposes shall petition the 
Commission for approval of its proposed traffic study.
    110. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order, including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.

List of Subjects in 47 CFR Parts 1 and 54

    Interconnected voice over Internet protocol services, 
Communications, Telecommunications, Telephone, Reporting and 
recordkeeping requirements.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

0
For the reasons discussed in the preamble, the Federal Communications 
Commission amends 47 CFR parts 1 and 54 as follows:

PART 1--PRACTICE AND PROCEDURE

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

    Authority: 15 U.S.C. 79 et seq.; 47 U.S.C. 151, 154(i), 154(j), 
155, 157, 225, and 303(r).

0
2. Amend Sec.  1.47 by revising paragraph (h) to read as follows:


Sec.  1.47  Service of documents and proof of service.

* * * * *
    (h) Every common carrier and interconnected VoIP provider, as 
defined in Sec.  54.5 of this chapter, that is subject to the 
Communications Act of 1934, as amended, shall designate an agent in the 
District of Columbia, and may designate additional agents if it so 
chooses, upon whom service of all notices, process, orders, decisions, 
and requirements of the Commission may be made for and on behalf of 
such carrier or interconnected VoIP provider in any proceeding before 
the Commission. Such designation shall include, for both the carrier or 
interconnected VoIP provider and its designated agents, a name, 
business address, telephone or voicemail number, facsimile number, and, 
if available, Internet e-mail address. Such carrier or interconnected 
VoIP provider shall additionally list any other names by which it is 
known or under which it does business, and, if the carrier or 
interconnected VoIP provider is an affiliated company, the parent, 
holding, or management company. Within thirty (30) days of the 
commencement of provision of service, such carrier or interconnected 
VoIP provider shall file such information with the Chief of the 
Enforcement Bureau's Market Disputes Resolution Division. Such carriers 
and interconnected VoIP providers may file a hard copy of the relevant 
portion of the Telecommunications Reporting Worksheet, as delineated by 
the Commission in the Federal Register, to satisfy this requirement. 
Each Telecommunications Reporting Worksheet filed annually by a common 
carrier or interconnected VoIP provider must contain a name, business 
address, telephone or voicemail number, facsimile number, and, if 
available, Internet e-mail address for its designated agents, 
regardless of whether such information has been revised since the 
previous filing. Carriers and interconnected VoIP providers must notify 
the Commission within one week of any changes in their designation 
information by filing revised portions of the Telecommunications 
Reporting Worksheet with the Chief of the Enforcement Bureau's Market 
Disputes Resolution Division. A paper copy of this designation list 
shall be maintained in the Office of the Secretary of the Commission. 
Service of any notice, process, orders, decisions or requirements of 
the Commission may be made upon such carrier or interconnected VoIP 
provider by leaving a copy thereof with such designated agent at his 
office or usual place of residence. If such carrier or interconnected 
VoIP provider fails to designate such an agent, service of any notice 
or other process in any proceeding before the Commission, or of any 
order, decision, or requirement of the Commission, may be made by 
posting such notice, process, order, requirement, or decision in the 
Office of the Secretary of the Commission.

PART 54--UNIVERSAL SERVICE

0
3. 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.


0
4. Amend Sec.  54.5 by revising the definition of ``contributor'' and 
adding the definition of ``interconnected VoIP provider'' in 
alphabetical order to read as follows:


Sec.  54.5  Terms and definitions.

* * * * *
    Contributor. The term ``contributor'' shall refer to an entity 
required to contribute to the universal service support mechanisms 
pursuant to Sec.  54.706.
* * * * *
    Interconnected VoIP Provider. An ``interconnected VoIP provider'' 
is an entity that provides interconnected VoIP service, as that term is 
defined in section 9.3 of these rules.
* * * * *

0
5. Amend Sec.  54.706 by revising paragraphs (a) introductory text, 
(a)(16), (a)(17), by adding paragraph (a)(18), and by revising 
paragraphs (b) and (c) to read as follows:


Sec.  54.706  Contributions.

    (a) Entities that provide interstate telecommunications to the 
public, or to such classes of users as to be effectively available to 
the public, for a fee will be considered telecommunications carriers 
providing interstate telecommunications services and must contribute to 
the universal service support mechanisms. Certain other providers of 
interstate telecommunications, such as payphone providers that are 
aggregators, providers of interstate telecommunications for a fee on a 
non-common carrier basis, and interconnected VoIP providers, also must 
contribute to the universal service support mechanisms. Interstate 
telecommunications include, but are not limited to:
* * * * *
    (16) Resale of interstate services;
    (17) Payphone services; and
    (18) Interconnected VoIP services.
    (b) Except as provided in paragraph (c) of this section, every 
entity required to contribute to the federal universal service support 
mechanisms under paragraph (a) of this section shall contribute on the 
basis of its projected collected interstate and international end-user 
telecommunications revenues, net of projected contributions.
    (c) Any entity required to contribute to the federal universal 
service support mechanisms whose projected collected interstate end-
user telecommunications revenues comprise less than 12 percent of its 
combined projected collected interstate and international end-user 
telecommunications revenues shall

[[Page 38797]]

contribute based only on such entity's projected collected interstate 
end-user telecommunications revenues, net of projected contributions. 
For purposes of this paragraph, an ``entity'' shall refer to the entity 
that is subject to the universal service reporting requirements in 
Sec.  54.711 and shall include all of that entity's affiliated 
providers of interstate and international telecommunications and 
telecommunications services.
* * * * *

0
6. Amend Sec.  54.708 by adding a new sentence after the first sentence 
to read as follows:


Sec.  54.708  De minimis exemption.

    * * * The foregoing notwithstanding, all interconnected VoIP 
providers, including those whose contributions would be de minimis, 
must file the Telecommunications Reporting Worksheet. * * *

0
7. Amend Sec.  54.712 by revising the section heading and paragraph (a) 
to read as follows:


Sec.  54.712  Contributor recovery of universal service costs from end 
users.

    (a) Federal universal service contribution costs may be recovered 
through interstate telecommunications-related charges to end users. If 
a contributor chooses to recover its federal universal service 
contribution costs through a line item on a customer's bill the amount 
of the federal universal service line-item charge may not exceed the 
interstate telecommunications portion of that customer's bill times the 
relevant contribution factor.
* * * * *
[FR Doc. 06-6059 Filed 7-7-06; 8:45 am]
BILLING CODE 6712-01-P