[Federal Register Volume 73, Number 43 (Tuesday, March 4, 2008)]
[Proposed Rules]
[Pages 11580-11587]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-4148]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 32, 36 and 54

[WC Docket No. 05-337; CC Docket No. 96-45; FCC 08-4]


High-Cost Universal Service Support; Federal-State Joint Board on 
Universal Service

AGENCY: Federal Communications Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: In this document, the Commission seeks comment on the 
Commission's rules governing the amount of high-cost universal service 
support provided to competitive eligible telecommunications carriers 
(ETCs), and tentatively concludes that it should eliminate the existing 
``identical support'' rule--also known as the ``equal support'' rule--
which provides competitive ETCs with the same per-line high-cost 
universal service support amounts that incumbent local exchange 
carriers receive.

DATES: Comments are due on or before April 3, 2008 and reply comments 
are due on or before May 5, 2008.

ADDRESSES: You may submit comments, identified by WC Docket No. 05-337 
and CC Docket No. 96-45, by any of the following methods:
     Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Federal Communications Commission's Web Site: http://www.fcc.gov/cgb/ecfs/. Follow the instructions for submitting comments.
     E-mail: [email protected], and include the following words in 
the body of the message, ``get form.'' A sample form and directions 
will be sent in response. Include the docket number in the subject line 
of the message.
     Mail: Secretary, Federal Communications Commission, 445 
12th Street, SW., Washington, DC 20544.
     People with Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by e-mail: [email protected] or phone: 202-418-
0530 or TTY: 202-418-0432.
    For detailed instructions for submitting comments and additional 
information on the rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Ted Burmeister or Katie King, Wireline 
Competition Bureau, Telecommunications Access Policy Division, 202-418-
7400 or TTY: 202-418-0484.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Notice of Proposed Rulemaking (NPRM) in WC Docket No. 05-337, CC Docket 
No. 96-45, FCC 08-4, adopted January 9, 2008, and released January 29, 
2008. 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.
    The 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 http://
www.bcpiweb.com. It is also available on the Commission's Web site at 
http://www.fcc.gov.

Initial Paperwork Reduction Act of 1995 Analysis

    This document does not contain proposed information collection(s) 
subject to the Paperwork Reduction Act of 1995 (PRA), Public Law 104-
13. In addition, therefore, it does not contain any new or modified 
``information collection burden for small business concerns with fewer 
than 25 employees,'' pursuant to the Small Business Paperwork Relief 
Act of 2002, Public Law 107-198, see 44 U.S.C. 3506(c)(4).

Synopsis of the Notice of Proposed Rulemaking

Introduction

    1. In this NPRM, we seek comment on the Commission's rules 
governing the amount of high-cost universal service support provided to 
competitive eligible telecommunications carriers (ETCs). As discussed 
below, we tentatively conclude that we should eliminate the 
Commission's current ``identical support'' rule--also known as the 
``equal support rule''--which provides competitive ETCs with the same 
per-line high-cost universal service support amounts that incumbent 
local exchange carriers (LECs) receive. We seek comment on this 
tentative conclusion. We also seek comment on our tentative conclusion 
to provide support to a competitive ETC based on its own costs of 
providing the supported services. We then seek comment on methodologies 
for determining a competitive ETC's relevant costs for universal 
service support purposes, and other matters related to how the support 
should be calculated, including the appropriate reporting obligations, 
and whether we should cap such support at the level of the incumbent 
LECs.

Background

    2. Section 254(b) of the Communications Act of 1934, as amended, 
(the Act) directs the Federal-State Joint Board on Universal Service 
(Joint Board) and the Commission to base policies for the preservation 
and advancement of universal service on several general principles, 
including the principle that there should be specific, predictable, and 
sufficient federal and state universal service support mechanisms. 
Public Law 104-104. The Commission adopted the additional principle 
that federal support mechanisms should be competitively neutral. 
Consistent with this principle and with the Joint Board's 
recommendation, the Commission determined in 1997 that federal 
universal service support should be made available, or ``portable,'' to 
all ETCs that provide supported services, regardless of the technology 
used. Federal-State Joint Board on Universal Service, 62 FR 32862, June 
17, 1997 (First Report and Order). Section 254(e) of the Act requires 
that a carrier that receives support ``shall use that support only for 
the provision, maintenance, and upgrading of facilities and services 
for which the support is intended.'' Furthermore, pursuant to section 
214(e) of the Act, an ETC must provide service and advertise its 
service throughout the entire service area. In order to receive 
universal service support, competitors must obtain ETC status from the 
relevant state commission, or the Commission in cases where the state 
commission lacks jurisdiction.

[[Page 11581]]

    3. Under the Commission's existing rules, a competitive ETC that 
serves a customer in an incumbent LEC's service area receives the same 
per-line amount of high-cost universal service support that the 
incumbent LEC would receive for serving that same customer. The 
Commission's universal service rules do not distinguish between primary 
and secondary lines; therefore, multiple connections to a single end-
user in high-cost areas may receive universal service support for each 
connection.
    4. High-cost support for competitive ETCs has grown rapidly over 
the last several years, placing extraordinary pressure on the federal 
universal service fund. In 2006, the universal service fund provided 
approximately $4.1 billion per year in high-cost support. In contrast, 
in 2001, high-cost universal service support totaled approximately $2.6 
billion. In recent years, this growth has been due to increased support 
provided to competitive ETCs, which receive high-cost support based on 
the per-line support that the incumbent LECs receive, rather than on 
the competitive ETCs' own costs. While support to incumbent LECs has 
been flat, or has even declined since 2003, competitive ETC support, in 
the six years from 2001 through 2006, has grown from under $17 million 
to $980 million--an annual growth rate of over 100 percent. Competitive 
ETCs received $557 million in high-cost support in the first six months 
of 2007. Annualizing this amount projects that they will receive 
approximately $1.11 billion in 2007.

Discussion

Basis of Support for Competitive ETCs

    5. To ensure the sufficiency of the universal service mechanism, we 
believe that the Commission must fundamentally reform how we distribute 
support under the existing high-cost mechanism. We therefore 
tentatively conclude that we should eliminate the Commission's current 
identical support rule for competitive ETCs, which bears no 
relationship to the amount of money such competitive ETCs have invested 
in rural and other high-cost areas of the country. We further 
tentatively conclude that a competitive ETC should receive high-cost 
support based on its own costs, which better reflect real investment in 
rural and other high-cost areas of the country, and which creates 
greater incentives for investment in such areas.
    6. In its 1996 Recommended Decision, the Joint Board recommended 
inter alia that the Commission should ``establish `competitive 
neutrality' as an additional principle upon which it shall base 
policies for the preservation and advancement of universal service.'' 
Federal-State Joint Board on Universal Service, 12 FCC Rcd 87 (1996). 
The Joint Board did not define what it meant by ``competitive 
neutrality,'' however. The Joint Board further recommended that the 
support payments to incumbent LECs be made ``portable'' to competitive 
ETCs. Specifically, it recommended that ``[a] CLEC should be allowed to 
receive support payments to the extent that it is able to capture 
subscribers formerly served by carriers eligible for frozen support 
payments or to add new customers in the incumbent LEC's study area.'' 
The Joint Board also recommended that high-cost support be limited to 
``a single connection to a subscriber's principal residence.''
    7. In May 1997, the Commission adopted the majority of the Joint 
Board's recommendations. First Report and Order, 62 FR 32862, June 17, 
1997. First, it adopted ``competitive neutrality'' as a principle for 
universal service support. The Commission provided the following very 
general definition of competitive neutrality: ``competitive neutrality 
means that universal service support mechanisms and rules neither 
unfairly advantage or disadvantage one provider over another, and 
neither unfairly favor or disfavor one technology over another.'' The 
Commission did not explain what it meant to ``unfairly advantage or 
disadvantage one provider over another,'' however. In addition, the 
Commission acknowledged that, ``given the complexities and diversity of 
the telecommunications marketplace it would be extremely difficult to 
achieve strict competitive neutrality.''
    8. The Commission also adopted the Joint Board's recommendation 
that it make incumbent carriers' support payments ``portable to other 
eligible telecommunications carriers.'' In justifying this portability 
requirement, both the Joint Board and Commission made clear that they 
envisioned that competitive ETCs would compete directly against 
incumbent LECs and try to take existing customers from them. Thus, for 
example, the Commission explained:

    A competitive carrier that has been designated as an eligible 
telecommunications carrier shall receive universal service support 
to the extent that it captures subscribers' lines formerly served by 
an incumbent LEC or new customer lines in that incumbent LEC's study 
area. At the same time, the incumbent LEC will continue to receive 
support for the customer lines it continues to serve.

    9. The predictions of the Joint Board and the Commission have 
proven inaccurate, however. First, they did not foresee that 
competitive ETCs might offer supported services that were not viewed by 
consumers as substitutes for the incumbent LEC's supported service. 
Second, wireless carriers, rather than wireline competitive LECs, have 
received a majority of competitive ETC designations, serve a majority 
of competitive ETC lines, and have received a majority of competitive 
ETC support. These wireless competitive ETCs do not capture lines from 
the incumbent LEC to become a customer's sole service provider, except 
in a small portion of households. Thus, rather than providing a 
complete substitute for traditional wireline service, these wireless 
competitive ETCs largely provide mobile wireless telephony service in 
addition to a customer's existing wireline service.
    10. This has created a number of serious problems for the high-cost 
fund, and calls into question the rationale for the identical support 
rule. First, instead of competitive ETCs competing against the 
incumbent LECs for a relatively fixed number of subscriber lines, the 
certification of wireless competitive ETCs has led to significant 
increases in the total number of supported lines. Because the majority 
of households do not view wireline and wireless services to be direct 
substitutes, many households subscribe to both services and receive 
support for multiple lines, which has led to a rapid increase in the 
size of the fund. In addition, the identical support rule fails to 
create efficient investment incentives for competitive ETCs. Because a 
competitive ETC's per-line support is based solely on the per-line 
support received by the incumbent LEC, rather than its own network 
investments in an area, the competitive ETC has little incentive to 
invest in, or expand, its own facilities in areas with low population 
densities, thereby contravening the Act's universal service goal of 
improving the access to telecommunications services in rural, insular 
and high-cost areas. Instead, competitive ETCs have a greater incentive 
to expand the number of subscribers, particularly those located in the 
lower-cost parts of high-cost areas, rather than to expand the 
geographic scope of their networks.
    11. For these and other reasons, numerous parties and the Joint 
Board have recommended that the Commission consider abandoning the 
identical support rule and replacing it with a requirement that 
competitive ETCs receive support based on their own costs. Since 2004, 
several parties have recommended that the Commission make such a 
change. More

[[Page 11582]]

recently, on May 1, 2007, the Joint Board issued a recommended decision 
that ``recommend[ed] the Commission consider abandoning the identical 
support rule'' and also issued a public notice that sought comment on 
comprehensive high-cost reform, including ``whether the Commission 
should replace the current identical support rule with a requirement 
that competitive ETCs demonstrate their own costs in order to receive 
support.'' Federal State Joint Board on Universal Service, 22 FCC Rcd 
8998 (2007); Federal-State Joint Board on Universal Service Seeks 
Comment on Long Term, Comprehensive High-Cost Universal Service Reform, 
22 FCC Rcd 9023 (2007). The Joint Board also sought comment on other 
possible avenues of comprehensive high-cost reform.
    12. Given the near-unanimous support of Joint Board members for the 
Commission moving to eliminate the identical support rule, and for the 
reasons set forth above, we tentatively conclude that the goal of 
universal service will be better served if we eliminate the identical 
support rule and instead provide support based on the competitive ETCs' 
own costs. We tentatively conclude that such a change in policy is 
further justified by the failure of the identical support rule to 
reward investment in communications infrastructure in rural and other 
high-cost areas. Additionally, we tentatively conclude that we should 
require competitive ETCs that seek high-cost support to file cost data 
demonstrating their costs of providing service in high-cost service 
areas. We seek comment on whether this proposal is consistent with the 
goal of competitive neutrality, given that the majority of competitive 
ETCs generally do not sell services that consumers view as direct 
substitutes for wireline services. To the extent that commenters argue 
that elimination of the identical support rule would be inconsistent 
with the goal of competitive neutrality, we seek comment on whether 
such a minimal departure is compensated by the potential stabilization 
of the high-cost fund and improved investment incentives that would 
result from the rule change. We seek comment on the above analysis and 
on these proposals.

Determination of Costs for Competitive ETCs

    13. We tentatively conclude that competitive ETCs should file cost 
data showing their own per-line costs of providing service in a 
supported service area in order to receive high-cost universal service 
support. Specifically, we propose that each competitive ETC should file 
cost data with the Commission or the relevant state commission--
whichever approved, or subsequently approves, its ETC application--on 
an annual basis and line-count data on a quarterly basis. We further 
propose that competitive ETCs have the option of updating their cost 
data on a quarterly basis, as do rural incumbents today. Only if the 
cost data is approved by the relevant state commission or the 
Commission may the competitive ETC then file the cost data submission 
with the Universal Service Administrative Company (USAC). We seek 
comment on these tentative conclusions. Additionally, we invite parties 
to submit detailed cost data proposals or, in the case of competitive 
ETCs, actual cost data that would enable us to compare their costs for 
supported services in high-cost areas to those of incumbent LECs for 
those same areas. We note that Advocates for Regulatory Action 
submitted a proposal to replace the identical support rule with 
wireless carrier actual costs (the WiCAC Proposal), and we seek comment 
on that proposal.

Methods for Examining Competitive ETC Costs

    14. Consistent with our tentative conclusions above, a competitive 
ETC would be required to report sufficient cost information to allow 
the Commission or the state commissions to evaluate competitive ETC's 
costs for purposes of determining high-cost support. We seek comment on 
the manner in which competitive ETCs should be required to report their 
costs.
    15. Disaggregation. Incumbent LECs are required to separate their 
network costs into components pursuant to part 32 of the Commission's 
rules. Rural incumbent LECs receive high-cost loop support (HCLS) on a 
per-line basis based on costs assigned to the common line network 
component, and non-rural incumbent LECs receive high-cost model support 
(HCMS) on a per-line basis for the common line, local switching, and 
local transport network components. Although traditionally we have not 
regulated the manner in which non-dominant carriers record their costs 
and revenues, we seek comment here on whether we should require 
competitive ETCs seeking high-cost support to separate costs into 
network components in a similar manner, so that their costs can be 
compared to the incumbent LECs' cost benchmarks for purposes of 
determining whether competitive ETCs qualify for high-cost support. We 
further seek comment on whether the Commission should develop a system 
of accounts for competitive ETCs, including wireless carriers, that 
mirror the part 32 rules applicable to incumbent LECs. For example, the 
WiCAC Proposal would utilize 23 specific part 32 accounts to calculate 
wireless competitive ETC costs. We seek comment on the WiCAC Proposal's 
use of part 32 accounts specifically to determine wireless competitive 
ETC costs. We also seek comment generally on other possible methods of 
identifying the network components and associated costs in a wireless 
network that are equivalent to a wireline carrier's local loop, 
switching, and transport components. We also seek comment on whether, 
if we require disaggregation of costs into network components, 
competitive ETCs should be able to recover costs for different network 
components for non-rural service areas than for rural service areas. 
Finally, we seek comment on whether the Commission should consider any 
limitations on the total per-line support available to ETCs in a 
designated area.
    16. Geographic Disaggregation. We further seek comment on whether, 
because competitive ETCs will, in general, operate in multiple study 
areas of incumbent carriers, it will be necessary to disaggregate each 
competitive ETC's cost by relevant competitive ETC service area, and by 
the relevant incumbent LEC study area, wire center, or disaggregation 
zone. We seek comment on whether the default methodology for such 
geographic disaggregation should be to allocate costs (total or by 
individual network component) in proportion to the active telephone 
numbers employed or the number of customers served in each study area. 
As an alternative, if a competitive ETC can demonstrate that it has 
maintained separate cost accounts by individual study area, then these 
accounts can be used to report cost for each study area individually. 
We seek comment on these issues. We also seek comment on how to best 
ensure that a competitive ETC does not inflate the costs being 
allocated to high-cost areas as compared to lower cost areas for which 
the competitive ETC may not be seeking support. For example, should we 
require that a competitive ETC identify total costs for all study areas 
or wire centers as well as the specific costs which the competitive ETC 
is associating with the study or services areas or wire centers for 
which it is seeking support?
    17. Wireless-Specific Costs. We tentatively conclude that wireless 
spectrum costs should be included in high-cost support cost submissions 
only to the extent that the competitive ETC actually paid for the 
spectrum, either

[[Page 11583]]

through an auction or by purchasing it on the open market. We also 
tentatively conclude that a carrier should not be able to assign a 
market value or opportunity costs to spectrum. Thus, a wireless 
provider that obtained spectrum at auction would be able to include the 
price it paid for the spectrum at auction, but if a carrier obtained 
its spectrum through a lottery, it would not be able to recover any 
costs for the spectrum from the high-cost universal service mechanisms. 
Further, we tentatively conclude that wireless handsets should not be 
treated as an allowed expense, both because they are more akin to 
traditional customer-owned telephones in a wireline network than to the 
network interface device, and because the handsets are purchased by 
subscribers rather than leased to customers by carriers. We seek 
comment on these tentative conclusions.

Cost Reporting Requirements

    18. To aid the Commission and state commissions in their review of 
competitive ETC cost submissions, we propose a general set of rules to 
govern the cost data submitted by competitive ETCs. We tentatively 
conclude that the competitive ETCs should use Generally Accepted 
Accounting Principles (GAAP) and, with the exceptions discussed below, 
the accounting methodologies should be the same as those used to 
provide information about the company's performance to external 
parties, such as investors and creditors. The cost of capital should be 
assumed to be 11.25 percent, which is the average cost of capital used 
in the Commission's forward-looking model and in other regulatory 
proceedings. Depreciation expense should be computed in a manner 
consistent with GAAP, and, in addition, the same depreciation schedules 
used by the competitive ETC in any other financial reports must be used 
for purposes of determining total network cost for universal service 
support purposes. Operating and maintenance expense should be based on 
actual expenses incurred. The allocation for corporate overhead should 
be comparable to the limitations imposed on rural and non-rural 
carriers. Specifically, for rural carriers the amount of corporate 
operations expenses included in determining high-cost loop support is 
the lesser of actual expenses or the amount calculated under the 
formulas in Sec.  36.622(a)(4) of the Commission's rules. 47 CFR 
36.622(a)(4). For non-rural carriers, the input value for common 
support services expenses is $7.32 per line, per month. Consistent with 
the approach under the HCMS rules, corporate operations expenses for 
competitive ETCs serving non-rural study areas would be the lesser of 
actual expenses or $7.32 per line, per month. Further, any costs not 
kept in separate books of account should be identified and allocated to 
the appropriate study area based on active telephone numbers employed 
or the number of customers served. All elements of the cost report will 
be subject to audit. We seek comment on these observations, proposals, 
and tentative conclusions.
    19. It may be necessary to adopt additional requirements concerning 
the manner in which competitive ETCs are allowed to report their costs. 
For example, although spectrum acquired through an auction or purchased 
on the open market may be a legitimate business expense, it is not 
clear that we should allow carriers to earn a return of 11.25 percent 
on these investments in perpetuity if spectrum costs are not 
depreciated. In addition to those issues identified above, other issues 
may arise due to fundamental differences between wireline and wireless 
network design. We seek comment on these issues. We also seek comment 
on whether we should adopt any additional requirements on the 
competitive ETC cost submissions.

Calculation of Support

    20. As noted above, we seek comment on whether a competitive ETC 
should receive high-cost universal service support based on its own 
costs by applying the same benchmarks that are applied to the incumbent 
LEC's costs to determine its support. For example, in the case of a 
competitive ETC providing service in a non-rural study area, a cost per 
line would be developed, which would be compared to the benchmark 
threshold for support calculated by the High-Cost Proxy Model. For 
competitive ETCs providing service to rural study areas, a cost per 
line would be developed for each competitive ETC for each incumbent 
study area that it serves. Support could be determined by comparing the 
competitive ETC's cost per loop incurred to provide the supported 
services to the national average cost per loop developed by the 
National Exchange Carrier Association (NECA) pursuant to Sec.  36.613 
of the Commission's rules, as adjusted to accommodate the cap on 
incumbent high-cost loop support. 47 CFR 36.613. We seek comment on 
this methodology and other possible methodologies for providing support 
to competitive ETCs serving rural areas. Similarly, we seek comment on 
a methodology for developing support based on wireless costs for 
competitive ETCs serving non-rural areas. We also seek comment on 
whether we should develop a method of estimating wireless competitive 
ETCs' forward-looking economic costs analogous to the High-Cost Proxy 
Model the Commission currently uses to calculate HCMS.
    21. HCLS and HCMS both are calculated in terms of per-line support. 
Because a competitive ETC may have few or no lines when it first 
receives its ETC designation, performing a calculation of per-line 
support at the initial time of market entry likely would result in a 
considerable upward bias in the resulting support amount. We therefore 
seek comment on whether a competitive ETC should be required to project 
its subscribership for some future point in time when performing its 
cost submissions. To the extent that we require such subscribership 
projections, we seek comment on how far into the future a competitive 
ETC should be required to project (e.g., 3 years, 5 years). We also 
seek comment on whether, and when, it would be appropriate to switch 
from projected future subscribership to actual subscribership. Further, 
for wireless ETCs, we seek comment on whether subscribership should be 
based on the number of handsets or on some other statistic, such as 
individual billing accounts.
    22. We also seek comment on whether the Commission should examine 
wireless competitive ETC costs independently from wireline LEC costs 
for purposes of determining high-cost support. Wireless networks may be 
very different from wireline networks, potentially resulting in very 
different costs. We seek comment on methods for reviewing and 
determining wireless high-cost support on a separate basis from the 
existing wireline mechanisms, and whether adopting such a separate 
wireless high-cost support mechanism comports with the goal of 
competitive neutrality.
    23. We tentatively conclude that competitive ETCs should no longer 
receive Interstate Access Support (IAS) and Interstate Common Line 
Support (ICLS). IAS and ICLS were created by the Commission in order to 
maintain the Commission's cap on subscriber line charge (SLC) rates 
that incumbent LECs may charge end users, while eliminating the 
implicit support found in common line access charges, imposed by 
incumbent LECs on interexchange carriers, that previously preserved the 
lower SLC rates. Some parties previously have argued that, because 
competitive ETCs' rates generally are not regulated and they are not 
subject to SLC caps, they are able to recover their

[[Page 11584]]

revenues from end users and have no need to recover additional 
interstate revenues from access charges or from universal service, and 
therefore should not be eligible for support under IAS or ICLS. We 
tentatively conclude that permitting competitive ETCs to receive IAS or 
ICLS is inconsistent with how competitive ETCs recover their costs or 
set rates. We seek comment on these tentative conclusions.
    24. Similarly, we seek comment on whether competitive ETCs should 
no longer receive Local Switching Support (LSS). The Commission created 
LSS in the First Report and Order by removing the existing Dial 
Equipment Minutes weighting subsidy from the access rate structure and, 
instead, providing carriers explicit support from the universal service 
fund. LSS therefore includes a number of assumptions regarding 
switching costs, such as the economies of scope and scale, that are not 
likely to be accurate for competitive ETCs. We seek comment on whether 
LSS should no longer be available to competitive ETCs. Accordingly, if 
competitive ETCs no longer receive IAS, ICLS, and LSS, competitive ETCs 
would be permitted to receive high-cost support only for their local 
loop-equivalent costs, to the extent such costs can be shown to be 
high-cost. We seek comment on whether to limit competitive ETC support 
in this manner.

Ceiling on Competitive ETC Per-Line Support

    25. We seek comment on whether we should establish a ceiling on the 
per-line high-cost support that a competitive ETC may receive. An 
incumbent LEC's HCMS is limited by the forward-looking estimated costs 
produced by the model, even if the incumbent LEC's actual costs are 
higher. For competitive ETCs providing service in non-rural study 
areas, we seek comment on setting the ceiling at the per-line HCMS that 
the incumbent LEC receives in a particular wire center. For competitive 
ETCs providing service in rural areas, we seek comment on setting the 
ceiling at the amount that the incumbent LEC receives from HCLS or, in 
the alternative, at the sum of the per-line HCLS and LSS that the 
incumbent receives. Adopting a ceiling for competitive ETCs at the 
level of incumbent LEC support could avoid rewarding competitive ETCs 
for being inefficient and reduce incentives for competitive ETCs to 
inflate their costs. We seek comment on this analysis, as well as on 
whether there are any other approaches for adopting a ceiling for 
competitive ETC funding.

Other Issues

    26. We also seek comment regarding the sufficiency of the 
Commission's existing use certifications with respect to competitive 
ETCs. Section 254(e) of the Act requires that ``[a] carrier that 
receives [universal service support] shall use that support only for 
the provision, maintenance, and upgrading of facilities and services 
for which the support is intended.'' Currently, the Commission requires 
each state to file an annual certification stating that all federal 
high-cost universal service support provided to LECs or competitive 
ETCs within the state will be used only for the purposes for which the 
support is intended. The Commission also requires that each LEC or 
competitive ETC receiving IAS or ICLS must file a certification that 
the high-cost support received pursuant to those mechanisms will be 
used for the intended purpose. Some parties contend, however, that 
wireless competitive ETCs are not using their universal service support 
to promote universal service goals. We seek comment on whether these 
certifications, as well as the Commission's rules requiring competitive 
ETCs to submit five-year build out plans (beginning October 1, 2006), 
provide sufficient protection against misuse of universal service 
support by competitive ETCs. We request that parties arguing that 
stronger protections are necessary identify with specificity any 
recommended additional protections.

Procedural Matters

    27. Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's 
rules, 47 CFR 1.415, 1.419, interested parties may file comments on or 
before April 3, 2008 and reply comments are due on or before May 5, 
2008. Comments may be filed using: (1) The Commission's Electronic 
Comment Filing System (ECFS), (2) the Federal Government's eRulemaking 
Portal, or (3) by filing paper copies. See Electronic Filing of 
Documents in Rulemaking Proceedings, 63 FR 24121, May 1, 1998.
     Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/ 
or the Federal eRulemaking Portal: http://www.regulations.gov. Filers 
should follow the instructions provided on the Web site for submitting 
comments.
     For ECFS filers, if multiple docket or rulemaking numbers 
appear in the caption of this proceeding, filers must transmit one 
electronic copy of the comments for each docket or rulemaking number 
referenced in the caption. In completing the transmittal screen, filers 
should include their full name, U.S. Postal Service mailing address, 
and the applicable docket or rulemaking number. Parties may also submit 
an electronic comment by Internet e-mail. To get filing instructions, 
filers should send an e-mail to [email protected], and include the following 
words in the body of the message, ``get form.'' A sample form and 
directions will be sent in response.
     Paper Filers: Parties who choose to file by paper must 
file an original and four copies of each filing. If more than one 
docket or rulemaking number appears in the caption of this proceeding, 
filers must submit two additional copies for each additional docket or 
rulemaking number.
     Filings can be sent by hand or messenger delivery, by 
commercial overnight courier, or by first-class or overnight U.S. 
Postal Service mail (although we continue to experience delays in 
receiving U.S. Postal Service mail). All filings must be addressed to 
the Commission's Secretary, Office of the Secretary, Federal 
Communications Commission.
     The Commission's contractor will receive hand-delivered or 
messenger-delivered paper filings for the Commission's Secretary at 236 
Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing 
hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be 
held together with rubber bands or fasteners. Any envelopes must be 
disposed of before entering the building.
     Commercial overnight mail (other than U.S. Postal Service 
Express Mail and Priority Mail) must be sent to 9300 East Hampton 
Drive, Capitol Heights, MD 20743.
     U.S. Postal Service first-class, Express, and Priority 
mail must be addressed to 445 12th Street, SW., Washington, DC 20554.
    People with Disabilities: To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an e-mail to [email protected] or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).

Ex Parte Requirements

    28. These matters shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. 47 CFR 
1.1200-1.1216. Persons making oral ex parte presentations are reminded 
that memoranda summarizing the presentations must contain summaries

[[Page 11585]]

of the substance of the presentations and not merely a listing of the 
subjects discussed. More than a one- or two-sentence description of the 
views and arguments presented is generally required. 47 CFR 
1.1206(b)(2). Other requirements pertaining to oral and written 
presentations are set forth in Sec.  1.1206(b) of the Commission's 
rules. 47 CFR 1.1206(b).

Initial Regulatory Flexibility Analysis

    29. As required by the Regulatory Flexibility Act (RFA), see 5 
U.S.C. 603, the Commission has prepared this Initial Regulatory 
Flexibility Analysis (IRFA) of the possible significant economic impact 
on small entities by the policies and rules proposed in the NPRM. 
Written public comments are requested on this IRFA, which is set forth 
below. Comments must be identified as responses to the IRFA and must be 
filed on or before April 3, 2008. The Commission will send a copy of 
the NPRM, including this IRFA, to the Chief Counsel for Advocacy of the 
Small Business Administration (SBA). 5 U.S.C. 603(a).

Need for, and Objectives of, the Proposed Rules

    30. Over the last few years, the size of the universal service fund 
has grown rapidly, threatening the sustainability of the fund. This 
growth has been driven largely by the increase in high-cost universal 
service support for competitive eligible telecommunications carriers 
(ETCs). The increase in high-cost support to competitive ETCs is, in 
turn, a product of the growing number of competitive ETC lines (due to 
both new designations of competitive ETCs and growth in subscribership 
to wireless services), the availability of support for multiple lines 
per household, and the identical support rule, which provides that each 
competitive ETC receives the same per-line support amount that the 
incumbent local exchange carrier (LEC) receives. In the NPRM, the 
Commission tentatively concludes that the identical support rule should 
be eliminated because it bears no relationship to the amount of money 
competitive ETCs have invested in rural and other high-cost areas of 
the country. The Commission seeks comment on its tentative conclusion 
to provide support based on a competitive ETC's own costs as a means of 
constraining the growth of the universal service fund and providing 
appropriate investment incentives for competitive ETCs.

Legal Basis

    31. The legal basis for any action that may be taken pursuant to 
the NPRM is contained in sections 1, 2, 4(i), 4(j), 201 through 205, 
214, 254, and 403 of the Communications Act of 1934, as amended, and 
Sec. Sec.  1.1, 1.411 through 1.419, and 1.1200 through 1.1216 of the 
Commission's rules. 47 U.S.C. 151, 152, 154(i) through (j), 201 through 
205, 214, 254, 403; 47 CFR 1.1, 1.411 through 1.419, 1.1200 through 
1.1216.

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

    32. 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, if adopted. 5 U.S.C. 604(a)(3). The RFA 
generally defines the term ``small entity,'' 5 U.S.C. 601(6), as having 
the same meaning as the terms ``small business,'' 5 U.S.C. 601(3), 
``small organization,'' 5 U.S.C. 601(4), and ``small governmental 
jurisdiction.'' 5 U.S.C. 601(3). 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. 5 U.S.C. 
601(3). 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). 15 U.S.C. 632. 
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.'' 5 U.S.C. 601(4). 
Nationwide, as of 2002, there were approximately 1.6 million small 
organizations.
    33. The most reliable source of information regarding the total 
numbers of certain common carrier and related providers nationwide, as 
well as the number of commercial wireless entities, is the data that 
the Commission publishes in its Trends in Telephone Service report. The 
SBA has developed small business size standards for wireline and 
wireless small businesses within the three commercial census categories 
of Wired Telecommunications Carriers, Paging, and Cellular and Other 
Wireless Telecommunications. 13 CFR 121.201. Under these categories, a 
business is small if it has 1,500 or fewer employees. Below, using the 
above size standards and others, we discuss the total estimated numbers 
of small businesses that might be affected by our actions.

Wireline Carriers and Service Providers

    34. We have included small incumbent local exchange carriers (LECs) 
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.'' 15 U.S.C. 632. The SBA's Office of Advocacy contends that, 
for RFA purposes, small incumbent LECs are not dominant in their field 
of operation because any such dominance is not ``national'' in scope. 
We have therefore included small incumbent LECs in this RFA analysis, 
although we emphasize that this RFA action has no effect on Commission 
analyses and determinations in other, non-RFA contexts.
    35. Incumbent LECs. Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable 
to incumbent LECs. The closest applicable size standard under SBA rules 
is for Wired Telecommunications Carriers. Under that size standard, 
such a business is small if it has 1,500 or fewer employees. 13 CFR 
121.201. According to Commission data, 1,307 carriers reported that 
they were engaged in the provision of local exchange services. Of these 
1,307 carriers, an estimated 1,019 have 1,500 or fewer employees, and 
288 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.
    36. Competitive LECs, 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. 13 CFR 121.201. According 
to Commission data, 859 carriers reported that they were engaged in the 
provision of either competitive LEC or CAP services. Of these 859 
carriers, an estimated 741 have 1,500 or fewer employees, and 118 have 
more than 1,500 employees. In addition, 16 carriers have reported that 
they are

[[Page 11586]]

``Shared-Tenant Service Providers,'' and all 16 are estimated to have 
1,500 or fewer employees. In addition, 44 carriers have reported that 
they are ``Other Local Service Providers.'' Of the 44, an estimated 43 
have 1,500 or fewer employees, and one has more than 1,500 employees. 
Consequently, the Commission estimates that most competitive LECs, 
CAPs, ``Shared-Tenant Service Providers,'' and ``Other Local Service 
Providers'' are small entities that may be affected by our action.

Wireless Carriers and Service Providers

    37. 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.'' 13 CFR 121.201. 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.
    38. 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. 13 CFR 121.201. Under that SBA small 
business size standard, a business is small if it has 1,500 or fewer 
employees. According to Commission data, 432 carriers reported that 
they were engaged in the provision of wireless telephony. We have 
estimated that 221 of these are small under the SBA small business size 
standard.

Satellite Service Providers

    39. 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.
    40. 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.

Description of Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    41. This NPRM seeks comment on whether to calculate support for 
competitive ETCs based on their own costs. If the Commission ultimately 
adopts such a method for determining high-cost support for competitive 
ETCs, it will likely require competitive ETCs to begin recording and 
reporting their cost data in order to receive high-cost support. 
Specifically, the NPRM seeks comment on how such costs should be 
identified and reported, and proposes that the costs must be reported 
to the Commission or the relevant state authority for approval before 
submission to the universal service administrator for use in 
calculating and disbursing support.

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

    42. 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 and 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 part thereof, for small 
entities. See 5 U.S.C. 603(c).
    43. This NPRM seeks comment generally on how competitive ETCs 
should identify and report their costs and how to calculate their high-
cost universal service support. Furthermore, the NPRM specifically 
seeks comment on whether less stringent cost accounting requirements 
should apply to smaller competitive ETCs. The NPRM seeks comment on 
whether the methods for determining competitive ETC costs discussed 
therein would significantly economically affect smaller competitive 
ETCs. If so, the NPRM seeks comment on alternative methods for smaller 
competitive ETCs to submit information that would allow the Commission 
and the state commissions adequately to assess these companies' costs 
for purposes of determining high-cost support. The Commission expects 
to consider the economic impact on small entities, as identified in 
comments filed in response to the NPRM, in reaching its final 
conclusions and taking action in this proceeding. Moreover, the NPRM 
seeks comment on whether to eliminate or retain the existing identical 
support rule, but tentatively concludes that the existing rule 
threatens the sufficiency of the universal service fund. The NPRM seeks 
comment on whether replacing the existing rule with a support mechanism 
that provides support to competitive ETCs based on their own costs may 
have a significant economic impact on some competitive ETCs, and, if 
so, seeks comment on alternative methods for smaller competitive ETCs 
to report their costs to the Commission and the state commissions.

Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules

    44. None.

[[Page 11587]]

Ordering Clauses

    45. Accordingly, It is ordered that, pursuant to the authority 
contained in sections 1, 2, 4(i), 4(j), 201-205, 214, 254, and 403 of 
the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i)-
(j), 201-205, 214, 254, 403 and Sec. Sec.  1.1, 1.411-1.419, and 
1.1200-1.1216 of the Commission's rules, 47 CFR 1.1, 1.411-1.419, 
1.1200-1.1216, this Notice of Proposed Rulemaking is adopted.
    46. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Notice of Proposed Rulemaking, including the Initial 
Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of 
the Small Business Administration.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
 [FR Doc. E8-4148 Filed 3-3-08; 8:45 am]
BILLING CODE 6712-01-P