[Federal Register Volume 75, Number 88 (Friday, May 7, 2010)]
[Rules and Regulations]
[Pages 25113-25119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-10852]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket No. 05-337, CC Docket No. 96-45; FCC 10-57]


High-Cost Universal Service Support, Federal-State Joint Board on 
Universal Service, Lifeline and Link-Up

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) concludes that dramatic increases in telephone 
subscribership in Puerto Rico over the last several years make it 
unnecessary to adopt a new high-cost support mechanism for non-rural 
insular carriers as proposed by Puerto Rico Telephone Company. The 
Commission finds that the existing non-rural high-cost support 
mechanism, operating in conjunction with the Commission's other 
universal service programs, is successfully increasing telephone 
subscribership in Puerto Rico and satisfies the requirements of the 
Communications Act of 1934, as amended, with respect to Puerto Rico. 
The Commission believes that the public would be best served by our 
focusing on comprehensive universal service reform, rather than 
developing a new non-rural insular high-cost support mechanism within 
the existing legacy universal service system.

DATES: Effective June 7, 2010.

FOR FURTHER INFORMATION CONTACT: Ted Burmeister, Wireline Competition 
Bureau, Telecommunications Access Policy Division, (202) 418-7389 or 
TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's Order 
in WC Docket No. 05-337, CC Docket No. 96-45, WC Docket No. 03-109, FCC 
10-57, adopted April 16, 2010, and released April 16, 2010. This Order 
was also released with a companion Proposed Rule document that is 
published elsewhere in this Federal Register issue. 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 the Internet at

[[Page 25114]]

http://www.bcpiweb.com. It is also available on the Commission's Web 
site at http://www.fcc.gov.
    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).

Synopsis of the Order

I. Introduction

    1. In this Order, we conclude that dramatic increases in telephone 
subscribership in Puerto Rico over the last several years make it 
unnecessary to adopt a new high-cost support mechanism for non-rural 
insular carriers as proposed by Puerto Rico Telephone Company (PRTC). 
In 2005, the Commission considered creating a separate high-cost 
universal service support mechanism for non-rural insular areas. At 
that time, telephone subscribership in Puerto Rico (a non-rural insular 
area) was 73.8 percent, far below the national average of 94.8 percent. 
By 2008--the most recent year for which data are available--
subscribership in Puerto Rico had jumped to 91.9 percent. During the 
same period, Puerto Rico has experienced significant growth in 
disbursements from federal universal service support programs due in 
large part to changes the Commission made to its rules. Total high-cost 
support for Puerto Rico has risen from less than $140 million in 1998 
to more than $215 million in 2008, an increase of nearly 54 percent, 
and low-income support has jumped from $1.16 million in 2001 to $23.4 
million in 2008. Although subscription rates in Puerto Rico are still 
lower than the national average (98.2 percent in 2008), the substantial 
growth in universal service support and the commensurate increase in 
telephone subscribership represent significant changed circumstances 
since we issued the NPRM, 71 FR 1721, January 11, 2006, in 2005.
    2. In light of these positive developments, we find that the 
existing non-rural high-cost support mechanism, operating in 
conjunction with the Commission's other universal service programs, is 
successfully increasing telephone subscribership in Puerto Rico and 
satisfies the requirements of section 254 of the Communications Act of 
1934, as amended (the Act), with respect to Puerto Rico. Telephone 
subscribership in Puerto Rico is not yet at the same level as in the 
mainland United States, but the data before us indicate that the gap is 
closing rapidly and may well be eliminated entirely in the near future. 
The Commission, moreover, recently adopted a Joint Statement on 
Broadband that recommends comprehensive reform of universal service, 
and delivered to Congress a National Broadband Plan that recommends, 
among other things, transitioning legacy high-cost universal service 
support to a new high-cost program that would support broadband as well 
as voice services. We believe that the public would be best served by 
our focusing on comprehensive universal service reform, rather than 
developing a new non-rural insular high-cost support mechanism within 
the existing legacy universal service system. As we comprehensively 
reform universal service and implement the National Broadband Plan 
recommendations, we will strive to further increase telephone 
subscribership rates in Puerto Rico and to ensure that high-quality 
voice and broadband services are available in insular areas.

II. Order

    3. In response to a proposal PRTC had submitted, the Commission's 
2005 NPRM sought comment on the adoption of a stand alone universal 
service support mechanism for non-rural insular carriers. PRTC argues 
that the Commission must adopt its proposed embedded cost-based 
mechanism because: (1) Section 254(b)(3) compels the agency to address 
the unique characteristics of non-rural insular carriers with regime 
that is distinct from the existing generally applicable non-rural high-
cost support mechanism; (2) the existing mechanism does not provide 
support that is sufficient to ensure reasonably comparable service and 
affordable rates in Puerto Rico; and (3) the forward-looking economic 
cost model that currently is used to determine PRTC's eligibility for 
high-cost model support does not accurately measure its costs. As 
discussed below, we conclude that the statute does not require us to 
adopt a separate insular support mechanism as proposed by PRTC.

1. Section 254 of the Act Does Not Require the Commission To Establish 
an Insular High-Cost Support Mechanism

    4. PRTC asserts that section 254(b)(3) of the Act imposes upon the 
Commission a clear, non-discretionary duty to adopt a separate 
universal service mechanism for insular areas. We disagree. Section 
254(b)(3) provides that ``[c]onsumers in all regions of the Nation * * 
* should have access to telecommunications and information services 
that are ``reasonably comparable'' in terms of price and quality to 
``those services provided in urban areas.'' That provision also gives 
examples of the ``consumers in all regions of the Nation'' that must 
have such reasonably comparable service; they ``include[e] low-income 
consumers and those in rural, insular and high cost areas.'' Nothing in 
the text or structure of the statute, however, requires the Commission 
to adopt a stand alone mechanism addressed to each of the enumerated 
examples of non-urban ``consumers in all regions of the Nation.'' 
Congress in section 254 sought to achieve a result--reasonably 
comparable rates and services--but did not mandate that the Commission 
employ specific mechanisms to achieve that result. Rather, the statute 
leaves to the Commission's discretion the task of developing one or 
more mechanisms successfully to implement the broad ``reasonable 
comparability'' goal of section 254(b)(3).
    5. The Commission has taken multiple actions to implement section 
254(b)(3)--both by expanding low-income (Lifeline and Link-Up) programs 
and by designing high-cost support mechanisms. Carriers in insular 
areas, just like carriers in non-insular areas, are eligible for 
support under the existing, generally applicable rural and non-rural 
high-cost support mechanisms. Indeed, carriers in Puerto Rico received 
$215.6 million in Interstate Common Line Support (a form of high-cost 
support) during 2008, and rural carriers in insular areas received 
$42.1 million in high-cost support. Likewise, Puerto Rico receives a 
substantial amount of low-income support--$23.4 million in 2008. As a 
result, Puerto Rico currently is the fourth largest recipient of 
federal high-cost support, the seventh largest recipient of federal 
low-income support, and the third largest net recipient of universal 
service dollars among the U.S. states and territories. Instead of 
creating a specifically tailored program for insular areas, we have 
chosen to date to comply with the principle in section 254(b)(3) by 
ensuring that carriers in insular areas are eligible for generally 
applicable support mechanisms.
    6. We must additionally disagree with PRTC's reading of the 2005 
NPRM. PRTC suggests that the language in the 2005 NPRM acknowledges, as 
a practical matter, the existence of a duty to address insular support 
separately from a single high-cost mechanism. The NPRM merely confirms, 
however, that in the Commission's view, section 254(b)(3) may authorize 
the adoption of a separate insular mechanism, but does

[[Page 25115]]

not mandate one. In particular, the Commission posited that ``[t]here 
would be no need for a rural insular mechanism because all rural 
insular carriers already receive rural high-cost support.'' And the 
Commission sought comment not on whether section 254(b) requires a 
separate mechanism for non-rural insular carriers, but whether that 
statute even ``provides the Commission with authority'' to adopt one.
    7. Although PRTC argues that we have failed to establish mechanisms 
to provide universal service support to non-rural insular areas, it 
appears that PRTC's primary objection is that it does not receive high-
cost model support under the non-rural mechanism. On three prior 
occasions, we have declined to adopt PRTC's view that the non-rural 
high-cost support mechanism fails adequately to take into account cost 
characteristics and other conditions in Puerto Rico. Consistent with 
those prior decisions, we conclude that we have met our obligation 
under section 254(b)(3) by ensuring that carriers in insular areas are 
eligible for generally applicable support mechanisms, and we address 
PRTC's other objection further below.

2. The Commission's Universal Service Programs Provide Support That Is 
Sufficient To Ensure Reasonably Comparable Service and Affordable Rates 
in Puerto Rico

    8. The Commission has long measured the success of its universal 
service policies on the basis of telephone penetration rates. In 
tentatively concluding that a non-rural insular mechanism should be 
adopted, the Commission in the NPRM relied heavily on an apparent 
decline in overall telephone subscribership in Puerto Rico during the 
period PRTC transitioned to the non-rural high-cost support mechanism. 
That assumption by the Commission may have been made on the basis of 
incomplete information at the time we issued the NPRM. In any event, it 
has been rebutted by marketplace developments over the four-plus years 
since we adopted the NPRM. During that period, Puerto Rico's telephone 
subscribership penetration rate has risen from approximately 73.8 
percent in 2005 to 91.9 percent in 2008. And over that same four-year 
period, the gap in telephone penetration between Puerto Rico and the 
nation as a whole has been dramatically narrowed--from a deficit of 21 
percentage points to one of just over six percentage points. Given this 
substantial change in circumstances since we issued the NPRM, we find 
that the non-rural high-cost support mechanism, acting in conjunction 
with our other universal service programs, produces sufficient support 
to achieve reasonably comparable service in Puerto Rico and non-insular 
areas consistent with section 254.
    9. PRTC argues that a decrease in wireline telephone subscribership 
in Puerto Rico demonstrates that the non-rural high-cost support 
mechanism provides insufficient support. We disagree. The Commission 
measures telephone subscribership based on access to telecommunications 
service, regardless of whether such access is provided by traditional 
wireline service or by newer technologies, including wireless. This 
approach is consistent with our current universal service policies, 
which make high-cost support ``portable'' to any carrier that serves a 
particular customer, regardless of the technology used. Thus, on this 
record, a decline in wireline subscribership (as measured solely by 
PRTC's loss of switched access lines) is not determinative given the 
overall increase in telephone subscribership in Puerto Rico. Commission 
data show that competitive local exchange carriers served approximately 
19 percent of all switched access lines in Puerto Rico as of June 2008, 
and the number of wireless subscribers in the Commonwealth more than 
doubled from approximately 1.1 million in 2001 to more than 2.4 million 
in 2007. Indeed, PRTC's own 2005 study concluded that ``universal 
service is a virtual reality,'' because 92.8 percent of households 
surveyed in Puerto Rico had wireline or wireless service, and 44 
percent of households had both. Accordingly, we believe it more likely 
that PRTC's line losses have resulted from customer migration to new 
service providers, not from the decisions of customers to terminate 
service entirely because high-cost support levels have rendered local 
service rates unaffordable. This decision to ``cut the cord'' reflects 
a trend occurring throughout the country.
    10. PRTC further asserts that several communities and many 
customers in Puerto Rico have no access to telecommunications 
infrastructure (and, thus, no service) because PRTC has found it too 
costly to deploy facilities without federal high-cost loop support. We 
find that this claim does not justify the creation of PRTC's preferred 
non-rural insular support mechanism, within the current high-cost 
support framework, for several reasons. First, it is not clear in the 
record before us how many households on Puerto Rico lack access to 
wireline infrastructure that delivers basic voice service. To the 
extent that PRTC believes unique circumstances in Puerto Rico warrant 
additional high-cost support in order to extend broadband 
infrastructure, those arguments are more appropriately raised in the 
context of upcoming proceedings to consider the recommendations of the 
National Broadband Plan to reform the legacy high-cost support 
mechanisms to support broadband. Second, establishing a non-rural 
insular mechanism would not guarantee that PRTC would deploy 
infrastructure to expand service. Third, we are not persuaded that 
areas unserved by PRTC are without access to basic local telephone 
service from any provider today. Data from American Roamer show that 
mobile wireless coverage in Puerto Rico is nearly ubiquitous, and that 
wireless subscribership has more than doubled since 2001.
    11. PRTC also claims that ``[a]bsent sufficient federal support, 
carriers are forced to choose between fully investing in network 
development and expansion and raising rates to levels that could 
further diminish subscribership levels.'' There are no data in the 
record supporting this position, however. As we found in 2003, PRTC 
offered no evidence that the elimination of its high-cost loop support 
caused rate shock or rate comparability problems. While PRTC asserts 
that any increase in rates would negatively affect telephone 
subscribership in Puerto Rico, PRTC has placed no rate data in the 
record. Moreover, recent rate data submitted by Verizon show that 
PRTC's local service rates fall well below the national average urban 
rate, demonstrating that these rates are reasonably comparable to the 
rates paid by consumers in non-insular areas. We further note that PRTC 
submitted a study of telephone subscribership, which it claims is 
``useful in demonstrating that increases in residential wireline 
rates'' in Puerto Rico ``would not be inconsistent with public policy. 
Moreover, the relevance of PRTC's earlier (2004-2006) claim that it 
cannot invest in its network without additional high-cost support is 
substantially diminished, if not extinguished, by its later (2007) 
commitment--unqualified with respect to universal service support--to 
the Commission that it would invest more than $1 billion over five 
years to improve communications and information services in Puerto 
Rico.
    12. In short, PRTC has not shown that the subscribership levels in 
Puerto Rico are related to excessively high local rates or that 
providing additional high-cost support would have any direct impact on 
facilities deployment or subscribership levels.

[[Page 25116]]

    13. Although most of the increase in high-cost support 
disbursements to Puerto Rico is attributable to support received by 
other providers, notably PRTC's wireless affiliate and other mobile 
wireless service providers, those carriers (as much as PRTC) promote 
the universal service goals of the 1996 Act. The current universal 
service program does not embody a preference for service by any one 
carrier, or any one technology. Thus, the dramatic increase in high-
cost support for wireless competitive ETCs in Puerto Rico relative to 
PRTC, the only wireline ETC, is entirely consistent with the high-cost 
program, as it is currently designed. As the Fifth Circuit explained, 
``the purpose of universal service is to benefit the customer, not the 
carrier,'' so `` `[s]ufficient' funding of the customer's right to 
adequate telephone service can be achieved regardless of which carrier 
ultimately receives the subsidy.''
    14. A similar lack of evidence caused the Fifth Circuit Court of 
Appeals to reject a challenge to a cap the Commission had imposed on 
certain ILEC high-cost support mechanisms. The court in that case held 
that a single provider's reduced rate of return ``does not establish 
that the cap [on certain ILEC high-cost support mechanisms] fails to 
provide sufficient service'' to customers. ``[T]he Act only promises 
universal service, and that is a goal that requires sufficient funding 
of customers, not providers.'' So long as the mechanism in place 
enables ``customer[s] to receive basic telecommunications services, the 
FCC * * * is not further required to ensure sufficient funding of every 
local provider as well.'' Faced with record evidence showing that 
universal service for customers has dramatically improved since we 
adopted the NPRM in 2005, we reject PRTC's argument that the non-rural 
mechanism provides insufficient support to maintain affordable rates 
and reasonably comparable service in Puerto Rico.
    15. Comments challenging the sufficiency of universal service 
support in Puerto Rico also fail to give weight to efforts by the FCC, 
the Puerto Rico Telecommunications Regulatory Board (TRB), PRTC, and 
competitive ETCs that have significantly increased the number of 
recipients of federal low-income support in Puerto Rico since 2003 and, 
commensurately, increased telephone subscribership. The Commission has 
taken steps to improve the effectiveness of the low-income support 
mechanism by expanding the federal default eligibility criteria for 
Lifeline/Link-Up to include an income-based criterion and additional 
means-tested programs. And to target low-income consumers more 
effectively, the Commission adopted outreach guidelines for Lifeline/
Link-Up and issued a voluntary survey to gather data and information 
from states regarding the administration of the programs. Further, low-
income consumers in Puerto Rico receive the maximum amount of Lifeline 
assistance available ($13.50 per month) due to the substantial 
contribution ($3.50 per month) provided by the Commonwealth. 
Importantly, the Commission has found a positive correlation between 
the amount of state Lifeline support and telephone subscribership 
penetration rates. We also found that the transfer of PRTC to 
Am[eacute]rica M[oacute]vil in 2007 was in the public interest based, 
in part, on Am[eacute]rica M[oacute]vil's extensive experience in 
designing products specifically for rural and low-income populations. 
Finally, we note again that through the operation of market forces, the 
wireless subscription rate in Puerto Rico has grown substantially, with 
low-income customers subscribing to wireless service in ever-increasing 
numbers, so that the customers of wireless competitive ETCs received 
more than one-third of total low-income support in 2008.
    16. These combined public and private efforts have contributed to 
the dramatic growth in low-income support provided to the Commonwealth. 
Combined annual Lifeline and Link-Up support in Puerto Rico has grown 
from just over $1.16 million in 2001 to more than $23.4 million in 
2008, ranking Puerto Rico as the seventh largest recipient of low-
income support among the states and territories. This increase was 
driven by a dramatic expansion in the number of low-income support 
recipients, which grew from zero in 1997 to 188,000 in 2008. The 
Commission has previously attributed Puerto Rico's historically lagging 
telephone subscribership penetration rate to low per-capita income, not 
a high cost of service. PRTC acknowledges this fact. We therefore find 
the expansion of subsidies associated with the low-income support 
program significant given our prior finding that low-income support--
not high-cost support--is the federal program best suited to address 
issues of affordability and subscribership in Puerto Rico. On the basis 
of the record before us, we are unpersuaded that providing additional 
high-cost support through a non-rural insular mechanism is needed to 
address the underlying concern that PRTC identifies regarding low 
telephone subscribership in Puerto Rico. While we emphasize that there 
is still work to be done, this dramatic narrowing of the gap in 
telephone subscribership between Puerto Rico and non-insular areas 
reinforces our long-held view that low-income support, in combination 
with our other universal service programs, is an effective means to 
address affordability and subscribership in Puerto Rico. As indicated 
in the companion NPRM, we seek comment on whether, due to the 
extraordinarily low income levels in Puerto Rico, it is appropriate to 
amend our rules to allow eligible low-income consumers in Puerto Rico 
additional support through the Link Up Program to offset special 
construction charges incurred if additional facilities are required to 
provide them with access to voice telephone service.
    17. In summary, we agree with PRTC that ``the Commission has 
created a set of complementary universal service programs that work in 
conjunction to ensure that all consumers have access to affordable and 
reasonably comparable telecommunications services.'' Indeed, in 
responding to the Tenth Circuit's Qwest II decision, we concluded 
generally that the non-rural high-cost support mechanism, acting in 
combination with the Commission's other universal service programs, 
provides sufficient support to achieve the universal service objectives 
set forth in section 254 of the Act. These programs have produced 
almost ubiquitous access to telecommunications services and very high 
telephone subscribership rates throughout the United States, including 
Puerto Rico. We therefore do not agree with PRTC that its loss of high-
cost loop support from the legacy program that preceded the creation of 
the non-rural support mechanism rendered universal service support to 
Puerto Rico insufficient. As we recently explained, the Commission 
cannot reasonably evaluate the non-rural high-cost support mechanism in 
isolation. Sufficient support that satisfies the universal service 
objectives of Act--including reasonable comparability and 
affordability--can only be achieved through the totality of the 
Commission's universal service programs. Moreover, we reject PRTC's 
contention that the Commission views high-cost support and low-income 
support to be ``mutually exclusive.'' To the contrary, we simply find 
that PRTC is not entitled to federal high-cost model support under the 
non-rural mechanism because its costs do not meet the eligibility 
threshold and, on the basis of this record, that total support provided 
to Puerto Rico through

[[Page 25117]]

the various universal service programs is sufficient to satisfy the 
objectives in section 254 of the Act.
    18. We acknowledge that in the 2005 NPRM, the Commission 
tentatively concluded that ``adopting a non-rural mechanism would have 
a limited impact on the universal service fund.'' PRTC estimates that a 
non-rural insular mechanism would provide PRTC with approximately $33 
million in additional annual support based on 2004 data, which amounts 
to less than one percent of the total high-cost program. We are not 
persuaded, however, that the relatively limited financial impact of 
PRTC's proposal compels us to adopt it. Because universal service is 
funded by contributions from telecommunications carriers, which 
typically pass their contributions on to consumers, we must take care 
to avoid ``excess subsidization of the universal service fund,'' which 
may actually ``detract from universal service by causing rates to 
unnecessarily rise, thereby pricing some consumers out of the market.'' 
Moreover, as the D.C. Circuit recently held, we ``must consider not 
only the possibility of pricing some customers out of the market 
altogether, but the need to limit the burden on customers who continue 
to maintain telephone service.'' In administering the universal service 
program, we take seriously our obligation to ``strike an appropriate 
balance between the interests of widely dispersed customers with small 
stakes and a concentrated interest group seeking to increase its 
already large stake.'' Given our conclusion on this record that 
universal service support for Puerto Rico is sufficient under the 
Commission's existing universal service programs, we find that any 
additional high-cost support provided to PRTC cannot be justified under 
those existing programs.

3. The Application of the Commission's Forward-Looking Cost-Based Model 
for Determining Non-Rural High-Cost Support Adequately Addresses PRTC's 
Circumstances

    19. The Commission determined in the Universal Service First Report 
and Order, 62 FR 32862, June 17, 1997, that non-rural carriers would 
receive support based on forward-looking economic costs (i.e., costs 
estimated by the Commission's cost model), that the definition of rural 
carriers would exclude carriers of PRTC's size, and that a separate 
support mechanism for carriers serving insular areas was not warranted. 
As a result, although PRTC receives significant levels of Interstate 
Common Line Support, it does not receive high-cost model support or any 
specially targeted insular support today. In the NPRM, the Commission 
sought comment on a PRTC proposal that the Commission adopt a non-rural 
insular high-cost support mechanism based on the existing rural high-
cost loop support mechanism, but with a cost threshold far below that 
currently used for rural telephone companies.
    20. PRTC's proposal is predicated, in part, on its long-standing 
contention that the extreme weather and terrain conditions and high 
shipping costs in insular areas make the cost characteristics of even 
large insular carriers more like those of rural carriers. In the 
Universal Service First Report and Order, the Commission rejected this 
argument as grounds for providing PRTC high-cost support on the basis 
of embedded costs, finding that, ``as a large telephone compan[y],'' 
PRTC ``should possess the economies of scale and scope to deal 
efficiently with the cost of providing service in their areas.'' We 
believe this reasoning still applies to PRTC. In approving license 
transfers associated with Am[eacute]rica M[oacute]vil's 2007 
acquisition of PRTC, for example, we found that Am[eacute]rica 
M[oacute]vil ``brings significant advantages of scale and scope to 
bear'' in providing telecommunications services to consumers.
    21. Even more significantly, record evidence in this proceeding 
reinforces our earlier decision. While PRTC claims that its costs are 
similar to those of rural carriers, PRTC's embedded costs are actually 
too low to make it eligible for support under the high-cost support 
mechanism that currently funds much smaller, rural telephone companies 
that do not enjoy the same economies of scale and scope. Only by 
lowering the rural mechanism's cost threshold significantly--from 
slightly more than $400 per loop to about $240 per loop (as proposed by 
PRTC)--would PRTC become eligible for the significant increase in high-
cost loop support (about $33 million annually) that it has requested. 
Thus, based on PRTC's own embedded cost data in the record before us, 
we find that PRTC has not justified a departure from our prior 
determinations that, for purposes of high-cost support, PRTC should be 
treated as a non-rural carrier due to its size and resulting economies 
of scale and scope.
    22. We also reject PRTC's claim that the non-rural forward-looking 
cost model fails accurately to represent insular costs. In particular, 
we do not find persuasive PRTC's arguments that it should receive high-
cost support based on its embedded costs because the forward-looking 
economic costs produced by the high-cost model are less than PRTC's 
actual costs. First, PRTC's arguments do not address the central 
purpose of using forward-looking economic costs in the non-rural 
support model, which is to estimate the costs that would be incurred by 
an efficient provider of service. The Commission previously found that 
``variability in historic costs among companies is due to a variety of 
factors and does not simply reflect how efficient or inefficient a firm 
is in providing the supported services.'' Indeed, in this proceeding, 
PRTC has merely asserted that its costs are higher because it serves an 
insular area and has not addressed whether inefficiencies may have 
contributed to the difference. Second, PRTC argues that the national 
average costs used in the model are inappropriate for estimating the 
costs of serving insular areas and states that ``it remains unclear the 
extent to which [PRTC's] costs were included in those national 
averages.'' In the Tenth Report and Order, 64 FR 67372, December 1, 
1999, the Commission considered the use of a variety of data sources to 
determine input values in the high-cost model, including surveys of 
non-rural carriers. To the extent that PRTC declined to respond to a 
voluntary survey seeking cost data from carriers, the Commission could 
not include PRTC's cost data. Finally, PRTC's argument relies on 
inaccurate premises. For example, PRTC argues that the model's use of 
customer addresses from Puerto Rico results in erroneous customer 
locations that generate inaccurate results. In fact, the road surrogate 
method used by the model assumes an even distribution of customers 
along roads and does not attempt to precisely assign customer location 
based on addresses. PRTC also complains that ``[a] comparison of the 
actual operating costs of other non-rural jurisdictions further calls 
attention to the disparate treatment of Puerto Rico.'' But it does not 
follow that the forward-looking cost model produces inaccurate results 
simply because Puerto Rico receives less high-cost model support than 
other jurisdictions. In any event, we find PRTC's ``analysis'' 
unpersuasive due to the manner in which it mixes statewide average 
embedded costs with support amounts from two different support 
mechanisms (i.e., the rural and non-rural support mechanisms) that are 
based on two different methodologies (i.e., embedded versus forward-
looking costs).
    23. PRTC's attacks on the accuracy of the forward-looking cost 
model are similar to arguments that the Commission rejected when it 
adopted

[[Page 25118]]

that model in the Tenth Report and Order. For example, in 
``explain[ing] why the model estimates higher costs in some states 
relative to others in a distribution that differs from carriers' book 
costs and from some observers' expectations,'' the Commission found 
that ``[i]n general, * * * the states where the model estimated the 
highest costs were those states in which the territory served by the 
non-rural carriers, which are typically larger carriers, included more 
rural areas than in other states.'' This analysis is entirely 
consistent with the data in the record, which show that PRTC's embedded 
costs fall below the threshold for support under the rural high-cost 
support mechanism. Simply stated, PRTC has not persuaded us that the 
model fails to accurately measure its costs because PRTC has not 
demonstrated that its actual costs share the cost characteristics of 
rural carriers, as opposed to non-rural carriers. We further note that 
the Tenth Circuit in Qwest I upheld that Order (and our use of the cost 
model) against a similar challenge from Qwest, explaining that ``while 
Qwest notes analytic problems with * * * the model it has not presented 
any evidence that the model overall produces such inaccurate results 
that it cannot form the basis of rational decision-making.'' Indeed, as 
the Tenth Circuit explained, ``[t]he model is meant to estimate the 
costs of providing service,'' so ``[i]t need not reflect physical 
reality in all aspects if it produces `reasonably accurate estimates,' 
as the FCC has found it does.'' PRTC has provided no new evidence on 
this record that compels reconsideration of our previous conclusion 
that the cost model provides a reasonable means of determining 
appropriate levels of high-cost support. To the contrary, as noted, the 
record demonstrates a significant increase in telephone subscribership 
in Puerto Rico in the years since the NPRM was issued.
    24. Nor do we believe that it would be in the public interest to 
transition PRTC from the non-rural mechanism to an entirely new high-
cost support mechanism based on embedded costs, even on an interim 
basis. As a general matter, we have determined that the appropriate 
basis for high-cost support is forward-looking economic cost and have 
moved away from the use of embedded costs for determining universal 
service support wherever possible. We intend to continue that process, 
and agree with GCI that adoption of PRTC's proposal would be a step in 
the wrong direction.

4. Comprehensive Reform and the National Broadband Plan

    25. The Commission has long recognized the need for comprehensive 
review and possible reform of universal service reform, and has sought 
comment on various proposals for comprehensive reform of the high-cost 
support mechanisms, rural as well as non-rural. Since the Commission 
originally adopted the non-rural high-cost mechanism in 1999, the 
telecommunications marketplace has undergone significant changes. While 
in 1996 the majority of consumers subscribed to separate local and long 
distance providers, today the majority of consumers subscribe to local/
long distance bundles offered by a single provider. In addition, the 
vast majority of subscribers have wireless phones as well as wireline 
phones, and an increasing percentage of consumers are dropping their 
wireline phones in favor of wireless or broadband-based (voice over 
Internet protocol) phone services. Finally, an increasing percentage of 
carriers are converting their networks from circuit-switched to 
Internet protocol (IP) technology.
    26. On March 16, 2010, the Commission adopted a Joint Statement on 
Broadband, which sets forth the overarching vision and goals for U.S. 
broadband policy and recommends comprehensive reform of universal 
service. The Commission also delivered to Congress the National 
Broadband Plan, which contains specific recommendations for reform. The 
National Broadband Plan recommends that all Americans should have 
access to affordable broadband service and proposes a comprehensive 
reform program to shift the high-cost universal service program from 
primarily supporting voice communications to supporting broadband 
platforms that enable many applications, including voice. As set forth 
in the National Broadband plan, a new Connect America Fund would 
provide universal service support in areas where there is no private 
sector business case to offer broadband platforms that are capable of 
delivering high-quality voice services because providers cannot earn 
enough revenue to cover the costs of deploying and operating broadband 
infrastructure and services.
    27. The recommendations to transition the existing high-cost 
universal service mechanisms to a new broadband program further cause 
us to conclude that PRTC's requested reform, limited only to non-rural 
insular areas, should not be undertaken at this time. While we believe 
that we have fully addressed the insular support questions raised in 
the NPRM, we anticipate that our efforts to reform universal service 
support will be advanced further through future proceedings that follow 
from the National Broadband Plan. The Commission will release a notice 
of proposed rulemaking later this year that will address the high-cost 
universal service recommendations of the National Broadband Plan. We 
encourage parties with information about any unique cost 
characteristics of providing broadband service in insular areas, such 
as Puerto Rico, to participate in these forthcoming proceedings and 
submit any relevant data. Doing so will ensure that the Commission has 
the information necessary to determine the cost of deploying and 
operating a broadband infrastructure in insular areas.
    28. In the interim, we find that it will further the public 
interest if PRTC remains subject to the non-rural support mechanism 
until comprehensive universal service reform is adopted, consistent 
with the recommendations contained in the National Broadband Plan. If 
PRTC were to receive additional support for voice service pursuant to 
its proposed non-rural insular mechanism, it likely would be more 
difficult to transition that support to focus on areas unserved or 
underserved by broadband.

III. Procedural Matters

A. Procedural Matters Related to the Order

1. Paperwork Reduction Analysis
    29. This order does not contain new, modified, or proposed 
information collections subject to the Paperwork Reduction Act of 1995, 
Public Law 104-13. In addition, therefore, it does not contain any new, 
modified, or proposed ``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).
2. Final Regulatory Flexibility Act Certification
    30. As we are adopting no rules in this order, no regulatory 
flexibility analysis is required.
3. Congressional Review Act
    31. The Commission will not send a copy of this order in a report 
to Congress and the Government Accountability Office pursuant to the 
Congressional Review Act because no rules are being adopted at this 
time.

[[Page 25119]]

B. Ex Parte Presentations

    32. This proceeding shall be treated as a ``permit-but-disclose'' 
proceeding in accordance with the Commission's ex parte rules. Persons 
making oral ex parte presentations are reminded that memoranda 
summarizing the presentations must contain summaries 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. Other requirements 
pertaining to oral and written presentations are set forth in Sec.  
1.1206(b) of the Commission's rules.

List of Subjects in 47 CFR Part 54

    Communications common carriers, High-Cost universal support, 
Reporting and recordkeeping requirements, Schools, Telecommunications, 
Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.
[FR Doc. 2010-10852 Filed 5-6-10; 8:45 am]
BILLING CODE 6712-01-P