[Federal Register Volume 76, Number 154 (Wednesday, August 10, 2011)]
[Proposed Rules]
[Pages 49401-49408]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-20322]



47 CFR Parts 36, 54, 61, 64, and 69

[WC Docket No. 10-90; DA 11-1348]

Universal Service--Intercarrier Compensation Transformation

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.


SUMMARY: In this document, the Federal Communications Commission 
(Commission) seeks targeted comment on certain issues in the Universal 
Service--Intercarrier Compensation Transformation proceeding. The 
Commission has received several proposals in the record in this 
proceeding to which we would like to receive comment from interested 
parties. This opportunity for additional, targeted comment will 
facilitate comprehensive universal service and intercarrier 
compensation reform.

DATES: Comments on the Pubic Notice are due on or before August 24, 
2011, and reply comments are due on or before August 31, 2011.

ADDRESSES: You may submit comments, identified by WC Docket Nos. 10-90, 
07-135, 05-337, 03-109; GN Docket No. 09-51; CC Docket Nos. 01-92, 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://fjallfoss.fcc.gov/ecfs2/. Follow the instructions for submitting 
     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 notice process, see the SUPPLEMENTARY INFORMATION 
section of this document.

FOR FURTHER INFORMATION CONTACT: Katie King, Telecommunications Access 
Policy Division, Wireline Competition

[[Page 49402]]

Bureau, (202) 418-7400, Daniel Ball, Pricing Policy Division, Wireline 
Competition Bureau, (202) 418-1520 or Sue McNeil, Auctions and Spectrum 
Access Division, Wireless Telecommunications Bureau at (202) 418-0660, 
or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Public Notice in 
WC Docket No. 10-90, GN Docket No. 09-51, WC Docket No. 07-135, WC 
Docket No. 05-337, CC Docket No. 01-92, CC Docket No. 96-45, and WC 
Docket No. 03-109, DA 11-1348 released August 3, 2011. 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 http://www.bcpiweb.com. It is also available on the Commission's Web site at 
    Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's rules, 
interested parties may file comments and reply comments on or before 
the dates indicated on the first page of this document. 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 website for submitting 
    [cir] 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.
    [cir] 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.
    [cir] All hand-delivered or messenger-delivered paper filings for 
the Commission's Secretary must be delivered to FCC Headquarters at 445 
12th St., SW., Room TW-A325, Washington, DC 20554. 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.
    [cir] 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.
    [cir] U.S. Postal Service first-class, Express, and Priority mail 
should be addressed to 445 12th Street, SW., Washington, DC 20554.

    In addition, one copy of each pleading must be sent to the 
Commission's duplicating contractor, Best Copy and Printing, Inc, 445 
12th Street, SW., Room CY-B402, Washington, DC 20554; Web site: http://www.bcpiweb.com; phone: 1-800-378-3160. Furthermore, one copy of each 
pleading must be sent to Charles Tyler, Telecommunications Access 
Policy Division, Wireline Competition Bureau, 445 12th Street, SW., 
Room 5-A452, Washington, DC 20554; e-mail: [email protected].
    Filings and comments are also available for public inspection and 
copying during regular business hours at the FCC Reference Information 
Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 
20554. Copies may also be purchased from the Commission's duplicating 
contractor, BCPI, 445 12th Street, SW., Room CY-B402, Washington, DC 
20554. Customers may contact BCPI through its Web site: http://www.bcpiweb.com, by e-mail at [email protected], by telephone at (202) 
488-5300 or (800) 378-3160 (voice), (202) 488-5562 (tty), or by 
facsimile at (202) 488-5563.
    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) or (202) 418-0432 (TTY). 
Contact the FCC to request reasonable accommodations for filing 
comments (accessible format documents, sign language interpreters, 
CART, etc.) by e-mail: [email protected]; phone: (202) 418-0530 or TTY: 
(202) 418-0432.
    This matter 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 presentation and not merely a listing of the subjects discussed. 
More than a one or two sentence description of the views and arguments 
presented generally is required. Other rules pertaining to oral and 
written ex parte presentations in permit-but-disclose proceedings are 
set forth in section 1.1206(b) of the Commission's rules.


    In order to comprehensively reform and modernize the universal 
service fund (USF) and intercarrier compensation (ICC) system in light 
of recent technological, market, and regulatory changes, on February 9, 
2011, the Commission released the Universal Service and Intercarrier 
Compensation Transformation Notice of Proposed Rulemaking (USF-ICC 
Transformation NPRM). The NPRM sought public comment on reforms to 
modernize USF and ICC for broadband, control the size of the USF as it 
transitions to support broadband, require accountability from companies 
receiving support, and use market-driven and incentive-based policies 
that maximize the value of scarce program resources for the benefit of 
consumers. Previously, on October 14, 2010, the Commission released the 
Universal Service Reform--Mobility Fund Notice of Proposed Rulemaking 
(Mobility Fund NPRM), 75 FR 67060, which proposed to expand mobile 
voice and data service availability by using a market-based mechanism 
to award one-time support from accumulated USF reserves. In response to 
the USF-ICC Transformation NPRM, a number of parties have offered 
specific proposals for reform, including a proposal by the State 
Members of the Federal-State Universal Service Joint Board (State 
Members), the ``RLEC Plan'' put forward by the Joint Rural 
Associations, and the ``America's Broadband Connectivity Plan'' filed 
by six Price Cap Companies

[[Page 49403]]

(``ABC Plan''). We seek comment on how these proposals comport with the 
Commission's articulated objectives and statutory requirements. We 
invite comment on specific aspects of the proposals and on additional 
issues that are not fully developed in the record.

I. Universal Service

A. Separate Support for Mobile Broadband
     Several parties propose that the Commission create two 
separate components of the Connect America Fund, one focused on 
ensuring that consumers receive fixed voice and broadband service 
(which could be wired or wireless) from a single provider of last 
resort in areas that are uneconomic to serve with fixed service, and 
one focused on providing ongoing support for mobile voice and broadband 
service in areas that are uneconomic to serve with mobile service 
(i.e., a Mobile Connect America Fund), with the two components together 
providing annual support under a defined budget. We seek comment on 
providing separate funding for fixed broadband (wired or wireless) and 
mobility. How should the Commission set the relative budgets of two 
separate components? How should the budgets be revised over time?
     In the USF/ICC Transformation NPRM, the Commission sought 
comment on phasing down high-cost support for competitive eligible 
telecommunications carriers (competitive ETCs) over 5 years and 
transitioning such support to the CAF. To what extent would projected 
savings associated with intercarrier compensation reform for wireless 
carriers as proposed in the ABC Plan help offset reductions in high-
cost support for competitive ETCs? We ask parties to substantiate their 
comments with data and remind parties that they may file data under the 
protective order issued in this proceeding.
B. Elimination of Rural and Non-Rural Carrier Distinctions
     In the USF/ICC Transformation NPRM, the Commission sought 
comment on two potential paths for the long term CAF: (1) Use a 
competitive, technology-neutral bidding process to determine CAF 
recipients; or (2) offer the current voice carrier of last resort a 
right of first refusal to serve the area for an amount of ongoing 
support determined by a cost model, with a competitive process if the 
incumbent refuses the offer. Several parties that jointly filed a 
letter proposing a path for reform propose a hybrid system in which 
support would be determined under a combination of a forward-looking 
cost model and competitive bidding in areas served by price cap 
companies, while companies that today are regulated under a rate of 
return methodology would continue to receive support based on embedded 
costs, albeit with greater accountability and cost controls. Similarly, 
the State Members suggest that a forward-looking model be used for 
price cap companies, while rate of return companies would have the 
option of receiving support under a model or based on embedded costs. 
We seek comment on the policy implications of eliminating the current 
references to rural and non-rural carriers in our rules and of adopting 
two separate approaches to determining support for carriers that 
operate in rural areas that are uneconomic to serve, based on whether a 
company is regulated under rate of return or price caps in the 
interstate jurisdiction.
C. CAF Support for Price Cap Areas
    1. Use of a Model.
    [cir] Both the State Members and the ABC Plan would use a forward-
looking model to determine support amounts for areas where there is no 
private sector business case to offer broadband. We seek comment on 
what information would need to be filed in the record regarding the 
CostQuest Broadband Analysis Tool (CQBAT model) for the Commission to 
consider adopting it, as proposed in the ABC Plan.
    [cir] The ABC Plan proposes using one technology to determine the 
modeled costs of 4 Mbps download/768 kbps upload service, while 
permitting support recipients to use any technology capable of meeting 
those requirements. Should the amounts determined by a model be 
adjusted to reflect the technology actually deployed? Is ten years an 
appropriate time frame for determining support levels, given statutory 
requirements for an evolving definition of universal service? Should 
the model reflect the costs of building a network capable of meeting 
future consumer demand for higher bandwidth that reasonably can be 
anticipated five years from now?
    2. Right of First Refusal (ROFR).
    [cir] The ABC Plan would give an incumbent local exchange carrier 
(LEC) the opportunity to accept or decline a model-determined support 
amount in a wire center if the incumbent LEC has already made high-
speed Internet service available to more than 35 percent of the service 
locations in the wire center. We seek comment on this proposal. Would 
aggregating census blocks to something other than a wire center be an 
improvement to the proposal? Is 35 percent a reasonable threshold? 
Should areas that are overlapped by an unsubsidized facilities-based 
provider be excluded when calculating the percentage? Is the 
opportunity to exercise a ROFR reasonable consideration for an 
incumbent LEC's ongoing responsibility to serve as a voice carrier of 
last resort throughout its study areas, even as legacy support flows 
are being phased down? Should any ROFR go to the provider with the most 
broadband deployment in the relevant area rather than automatically to 
the incumbent LEC? Alternatively, if there are at least two providers 
in the relevant area that exceed the threshold, should the Commission 
use competitive bidding to select the support recipient?
    3. Public Interest Obligations.
    [cir] Last year, the Federal-State Joint Board on Universal Service 
recommended that the Commission adopt a principle ``that universal 
service support should be directed where possible to networks that 
provide advanced services, as well as voice services.'' If that 
recommendation is adopted, how could the CQBAT model be improved to 
account for the costs of providing both broadband and voice service?
    [cir] The State Members propose that recipients of support meet 
specific broadband build-out milestones at years 1, 3 and 5 of 
deployment. A company that exceeded a specified minimum standard, but 
failed to meet the higher standard at a given milestone would receive a 
pro rata share of support. We seek comment on what specific interim 
milestones would be effective in ensuring that carriers receiving CAF 
support are building out broadband at a reasonable rate during the 
specified build-out period.
    [cir] The ABC Plan proposes that CAF recipients provide broadband 
service that meets specified bandwidth requirements to all locations 
within a supported area, but does not address the pricing of such 
services or usage allowances. Should the Commission adopt reporting 
requirements for supported providers regarding pricing and usage 
allowances to facilitate its ability to ensure that consumers in rural 
areas are receiving reasonably comparable services at reasonably 
comparable rates?
    4. Eligible Telecommunications Carrier (ETC) Requirements.
    [cir] The ABC Plan proposes a procurement model, in which 
recipients of CAF support incur service obligations only to the extent 
they agree to perform them in explicit agreements with the Commission, 
and CAF recipients are

[[Page 49404]]

free to use any technology, wireline or wireless, that meets specified 
bandwidth and service requirements. What specific rule changes to the 
Commission's rules, including part 54, subpart C of the Commission's 
rules, would be necessary to implement such a proposal?
    5. State Role.
    [cir] The State Members and other commenters propose an ongoing 
role for states in monitoring and oversight over recipients of 
universal service support. We seek comment on specific illustrative 
areas where the states could work in partnership with the Commission in 
advancing universal service, subject to a uniform national framework, 
and invite comments on other suggestions. For example:
     Were the Commission to adopt a ROFR mechanism, could the 
states determine whether a provider has already made a substantial 
broadband investment in a particular area, and therefore would be 
eligible to be offered support amounts determined under a forward-
looking model?
     Should ETCs be required to file copies of all information 
submitted to the Commission regarding compliance with public interest 
obligations with the states, as well as with USAC?
     The ABC Plan contemplates that CAF recipients would serve 
all business and residential locations within a supported area, but 
does not specifically address the obligation to serve newly built 
locations within a supported area over the ten-year term of the 
funding. Should states be charged with determining whether any charges 
for extending service to newly constructed buildings are reasonable, 
based on local conditions?
     Should states collect information regarding customer 
complaints, including complaints about unfulfilled service requests and 
inadequate service?
D. Reforms for Rate-of-Return Carriers
     In light of the RLEC Plan and the Joint Letter, as well as 
proposals by the State Members, we seek comment below on specific 
issues relating to universal service support for rate-of-return 
    [cir] Re-examining the Interstate Rate of Return. The Joint Letter 
proposes that CAF calculations for areas served by rate-of-return 
companies would be calculated using a 10 percent interstate rate of 
return. The State Members recommended that the rate of return for 
universal service calculations be set at 8.5 percent. We seek comment 
on what data the Commission would need to have in the record to enable 
it to waive the requirements in part 65 of the Commission's rules for a 
rate of return prescription proceeding, so that the Commission could 
quickly adopt a particular rate of return.
    [cir] Corporate Operations Expense Limitation Formula. We seek 
comment on applying the following formula to limit recovery of 
corporate operations expenses for high-cost loop support (HCLS), 
interstate common line support (ICLS), and local switching support 
    For study areas with 6,000 or fewer working loops, the monthly 
amount per loop shall be limited to;

$42.337-(.00328 x the number of working loops) or $50,000/the number of 
working loops, whichever is greater

    For study areas with more than 6,000 working loops, but fewer than 
17,888 working loops, the monthly amount per loop shall be limited to:

$3.007 + (117,990/number of working loops)

    For study areas with 17,888 or more working loops, the monthly 
amount per loop shall be limited to:

$9.52 per working loop.

    [cir] Eliminating Support for Areas with an Unsubsidized 
Competitor. In responding to the NPRM, the RLEC Plan suggested that the 
Commission could establish a process to reduce an incumbent's support 
if another facilities-based provider proves that it provides sufficient 
broadband and voice service to at least 95 percent of the households in 
the incumbent's study area without any support or cross-subsidy. We 
seek comment on such a process, including how to allocate costs to the 
remaining portions of the incumbent's study area for purposes of 
determining universal service support. Would a cost model be a way to 
allocate costs between the subsidized and unsubsidized portion of a 
rate-of-return study area that overlaps substantially with an 
unsubsidized competitor? Could state commissions administer proceedings 
to consider such challenges, similar to the suggestion in the ABC Plan 
that state commissions could elect to determine which census blocks 
served by price cap companies have unsubsidized competitors, and 
therefore are not eligible for CAF support?
    [cir] Limits on Reimbursable Operating and Capital Costs. We seek 
comment on limiting reimbursable levels of capital investment and 
operating expenses for LSS.
E. Ensuring Consumer Equity
     Rate Benchmark. In the USF/ICC Transformation NPRM, the 
Commission sought comment on the use of a rate benchmark to encourage 
states to rebalance their rates and ensure that universal service does 
not subsidize carriers with artificially low rates. In response to the 
NPRM, one commenter suggested that we should develop a benchmark for 
voice service and reduce a carrier's high-cost support by the amount 
that its rate falls below the benchmark. Under such an approach, the 
Commission would reduce intrastate universal service support 
(specifically, HCLS for rural carriers and high-cost model support 
(HCMS) for non-rural carriers) dollar for dollar during the transition 
to CAF to the extent the company's local rates do not meet the 
specified benchmark. These reductions would not flow to other 
recipients. We seek comment on this proposal and proposed variations on 
it. Should we set the initial benchmark using the most recently 
available data that the Commission has regarding local rates? For 
example, according to the 2008 Reference Book of Rates, the average 
monthly charge for flat-rate service was $15.62 per month. Using the 
same data, the average monthly charge for flat-rate service, plus 
subscriber line charges of $5.74 per month, would total $21.36 per 
month. Should the benchmark rise over a period of three years, for 
instance, with an end point of $25-$30 (or some other amount) for the 
total of the local residential rate, federal subscriber line charge 
(SLC), state subscriber line charge, mandatory extended area service 
charges, and per-line contribution to a state's high cost fund, if one 
exists? Should this benchmark be the same as the ICC benchmark?
     Total company earnings review. The State Members 
recommended that a Provider of Last Resort Fund include a total company 
earnings review to limit a supported carrier from earning more than a 
reasonable return. We seek to further develop the record on the 
mechanics of conducting an earnings review to ensure that universal 
service is not providing excessive support to the detriment of 
consumers across the United States.
    [cir] We seek comment on the State Members' recommendation that, at 
least initially, the support mechanism should not factor in either the 
revenues or marginal costs of video operations to avoid the risk of 
subsidizing video operating losses attributable to unregulated 
programming costs.
    [cir] We seek comment on what total company rate of return should 
be used, what the mechanism should be for reducing support to the 
extent that total company rate of return is exceeded, and

[[Page 49405]]

how often a total company earnings review should be conducted.
    [cir] We seek comment on what carriers should be required to submit 
to USAC, in a standard format, to facilitate a total company earnings 
review. For example, should we require submission of the audited 
financial statements for the incumbent LEC, a consolidated balance 
sheet and income statement for the incumbent LEC and its affiliates, a 
list of affiliates, a schedule showing dividends paid to shareholders 
or patronage refunds distributed to members of cooperatives for the 
last five years, a Cost Allocation Manual, an explanation of how 
revenues from bundled services are booked, a trial balance of accounts 
at a Class B accounting level or greater, and the number of retail 
customers served by the incumbent LEC and its affiliates for voice and 
broadband service?
F. Highest-Cost Areas
     The ABC Plan would rely on satellite broadband to serve 
extremely high-cost areas. We seek comment on a proposal by ViaSat to 
create a Competitive Technologies Fund to distribute support through a 
combination of a reverse auction and consumer vouchers to enable 
consumers in highest-cost areas to obtain service from wireless, 
satellite, or other providers.
     We also seek comment on what obligations are appropriate 
to impose on recipients of funding, as a condition of receiving 
support, to facilitate provisioning by others in areas the recipients 
are not obligated to serve. For example, Public Knowledge has proposed 
to require recipients to make interconnection points and backhaul 
capacity available so that unserved high-cost communities could deploy 
their own broadband networks. Should recipients' Acceptable Use 
Policies also be required to allow customers to share their broadband 
connections with unserved customers nearby, for example, through the 
use of WiFi combined with directional antenna technology?
G. CAF Support for Alaska, Hawaii, Tribal Lands, U.S. Territories, and 
Other Areas
     GCI has proposed an Alaska-specific set of universal 
service reforms that it asserts better reflect the operating conditions 
in Alaska and the lower level of broadband and mobile deployment in 
that state. We seek comment on this proposal for Alaska, and ask 
whether this, or a similar approach, would also be warranted for 
Hawaii, Tribal lands, the U.S. Territories, or other particular areas, 
and how we should consider such proposals in light of the Tribal lands 
exclusion from the current cap on high-cost support for competitive 
ETCs. We further seek comment on other proposals relating to Alaska and 
Hawaii that have been proposed in the record. We further seek comment 
on how such proposals could be improved, if the Commission were to 
adopt a plan to constrain the size of the CAF and access restructuring 
within a $4.5 billion annual budget, and whether, in the alternative, 
other modifications are warranted to the national policy to better 
reflect operating conditions in these areas.
H. Implementing Reform Within a Defined Budget
     The ABC Plan recommends a five-year transition for phasing 
down legacy funding, concomitant with a phase-in of potential CAF 
support, including potential access recovery associated with 
intercarrier compensation reform; the Joint Letter suggests several 
potential measures that could be taken to keep support totals within a 
budget, such as phasing in funding for mobility, deferring CAF funding 
for study areas served by particular price cap companies, or deferring 
reductions in intercarrier compensation. We seek comment on the 
implications of these and alternative proposals, including variations 
to the Commission's prior proposals regarding safety net additive (SNA) 
and LSS, for ensuring that total funding remains within a defined 
I. Interim Reforms for Price Cap Carriers
     As an interim step, Windstream, Frontier and CenturyLink 
suggest that the Commission could immediately target support that 
currently flows to price cap carriers to the highest-cost wire centers 
within their service territories, using a regression analysis based on 
the Commission's existing high-cost model to estimate wire center 
forward-looking costs for both rural and non-rural price cap carriers. 
We seek comment on this proposal and how it relates to other proposals 
in the record for comprehensive reform.
    [cir] In addition to combining and distributing HCLS and HCMS, 
should the Commission also include funds currently provided through LSS 
and SNA to price cap carriers? Should we also include funds currently 
provided to price cap carriers through interstate access support (IAS) 
and frozen ICLS?
    [cir] Should the Commission increase annual HCMS support by an 
additional amount, such as $100 to $200 million, to be repurposed from 
ongoing reductions in support for companies that have chosen to 
relinquish universal service funding? Should we impose a cap on the 
amount of support a carrier is eligible to receive for a wire center? 
For instance, should that cap be set at $250 per line per month, 
similar to the Commission's proposal for a cap in total support for all 
existing recipients?
    [cir] What public interest obligations for using funding for 
broadband-capable networks should apply to carriers receiving support 
under this approach? Should carriers receiving such support be 
prohibited from using the funds in areas that are served by an 
unsubsidized facilities-based broadband provider?
    [cir] Do any special circumstances exist in the states of Alaska 
and Hawaii, or Territories and Tribal lands generally, or other areas, 
that warrant a different approach for price cap carriers serving such 
areas, if the Commission were to adopt this interim measure?

II. Intercarrier Compensation

A. Federal-State Roles
    1. Federal Framework.
     The ABC Plan proposes that the Commission set the 
framework to reduce intrastate access rates, and recovery to the extent 
necessary for those reduced intrastate access revenues would come from 
the federal jurisdiction through a combination of federal SLC increases 
and federal universal service support.
    [cir] How would this aspect of the ABC Plan affect states in 
different stages of intrastate access reform--those that have 
undertaken significant reform and moved intrastate rates to parity with 
interstate rates, those in the process of reform, and states that have 
not yet initiated reform?
    [cir] The ABC Plan provides a uniform, consistent framework for 
reform across all states. We seek comment on whether the ABC Plan could 
be improved by providing states incentives to increase artificially low 
consumer rates or create state USFs for example through the use of a 
consumer monthly rate ceiling or benchmark or by requiring states to 
contribute a certain amount per line of recovery to offset intrastate 
rate reductions?
     In calculating access recovery, the ABC Plan proposes a 
$30 ``rate benchmark'' for price cap carriers, and the Rate-of-Return 
plan proposes a $25 benchmark, both of which are structured as a 
ceiling on consumer rate increases (via a federal SLC), to limit 
increases on consumer rates in states where such rates have already 
been raised as part of intrastate access reform. Is this ceiling 
sufficient to mitigate any

[[Page 49406]]

potential impact on consumers in states that have already begun reforms 
(and thus are already paying increased local rates and/or state 
universal service contributions associated with such reform) relative 
to consumers in states that have not yet undertaken such reforms (for 
which all recovery would come through the federal mechanism in the ABC 
Plan)? Should there be different rate benchmarks for different carriers 
or should there be a single benchmark?
     In the ABC Plan, in calculating access recovery, the 
initial consumer monthly rate is taken as a snapshot in time as of 
January 1, 2012. In lieu of a snapshot, and in order to avoid deterring 
states from rebalancing local rates and/or establishing state USFs, 
should the rate used to determine access recovery be the ``higher of'' 
(1) The rate as of January 2012 and (2) the rate at future points 
before annual access recovery amounts are calculated? In this scenario, 
any increased consumer rates as a result of state reforms, would count 
toward the benchmark, more accurately reflecting the actual consumer 
burden at that time.
     A rate benchmark could also be used as an imputation for a 
certain level of end-user recovery for intrastate rate reductions, 
rather than as a ceiling on federal SLC increases. For instance, the Ad 
Hoc Telecommunications Users Committee proposes a local rate benchmark 
that could be imputed, rather than used as a ceiling, and commenters 
propose a range of possible benchmarks from $25-$30. Would an 
imputation approach better encourage states that currently depend on 
long distance consumers to help subsidize local phone service for their 
local consumers to bring consumer rates to levels more comparable to 
the national average? What would be the appropriate level for such a 
benchmark, and should it be phased in over time?
     Instead of or in addition to a rate benchmark, should 
states be responsible for contributing a certain dollar amount per line 
to aid in access recovery? The State Members, for example, suggest that 
states contribute $2 per line for purposes of universal service. In 
this scenario, a state would be responsible for recovery of $2 per line 
of reduced intrastate access revenues, which could be imputed to 
carriers before they become eligible for federal recovery. Does this 
approach appropriately balance the interests of consumers in states 
that already have implemented some reforms, with the associated burden 
of reform being born by consumers in those states, rather than federal 
recovery mechanisms? If so, should states that already have a state 
universal service fund be exempted completely from this per-line 
contribution, or only to the extent of, for example, the $2 per line 
state contribution to recovery?
    2. State-Federal Framework.
     In the alternative, the State Members propose that the 
states reform intrastate rates and that the Commission facilitate this 
reform through state inducements rather than a federal framework. We 
seek comment on this proposal.
    [cir] To address concerns that some states may not reform 
intrastate access charges, we seek comment on a framework, similar to a 
proposal in the USF/ICC Transformation NPRM, under which states have 
three years to develop an intrastate reform plan. Under this 
alternative, after three years, the Commission would set a transition 
for reducing intrastate access rates and deny any further federal 
recovery to offset reduced intrastate revenue.
    [cir] If the Commission adopts the state-federal framework approach 
advocated by the State Members, how can the Commission best incent 
states to reform intrastate access rates? Should the Commission match 
some federal universal service dollars to a state universal service 
fund for states that are using such a fund to reform intrastate access 
charges? Such matching could be structured in several different ways, 
including on a per-line basis (such as $1-2), as a percentage of the 
state contribution, or on an aggregate state basis. We seek further 
comment on how such a match should be structured to provide adequate 
inducements and maintain our commitment to control the size of the 
federal high cost fund.
     Under the framework of leaving reform of intrastate rates 
initially to the states, the Commission would begin immediate reforms 
of interstate access charges. We seek comment on a glide path for the 
Commission to reduce all interstate access rate elements. Should the 
length of the rate transition vary, providing three years for price cap 
carriers and five years for rate-of-return carriers, given that rate of 
return carriers' interstate access rates are higher at the outset? What 
should the transition be for competitive LECs? Would an approach that 
provides different transitions for different types of carriers, whether 
competitive, price cap or rate-of-return LEC raise any policy concerns? 
We also seek comment on whether the Commission should reduce 
originating interstate access rates and, if so, whether we should 
require the reductions at the same time or only after terminating rates 
have been reduced.
B. Scope of Reform
     We seek comment on the approach outlined in the ABC Plan 
to reform substantially terminating rates for end office switching 
while taking a more limited approach to reforming certain transport 
elements and originating access. Would any problematic incentives, such 
as arbitrage schemes, arise from or be left in place by such an 
approach, and if so, what could be done to mitigate them?
C. Recovery Mechanism
     We seek comment on the appropriate recovery mechanism for 
ICC reform, including the ABC Plan's and the Joint Letter's recovery 
proposals. We also seek comment on the relative merits and incentives 
for carriers associated with an alternative approach that provides more 
predictable recovery amounts, such as the alternative described below.
    1. Federal-State Role in Recovery.

    [cir] As noted above, the ABC Plan proposes to shift recovery for 
reduced intrastate access charge revenues to the federal jurisdiction. 
Could the Commission achieve more comprehensive reform of intercarrier 
compensation rate elements if recovery is achieved through a federal-
state partnership? We seek comment above on different means by which 
states could share responsibility for recovery of reduced intrastate 
access revenues.

    2. Price Cap Carriers.

    [cir] For price cap carriers electing to receive support from the 
transitional access replacement mechanism, the ABC Plan's recovery 
proposal includes annual true-ups to adjust for possible increases or 
decreases in minutes of use. Although minutes of use for incumbent LECs 
have been declining, the ABC Plan's proposal establishing how VoIP 
minutes are included in the intercarrier compensation system 
prospectively and addressing phantom traffic could cause minutes of use 
to flatten or possibly even increase. In addition, the ABC Plan would 
treat all VoIP traffic as interstate, which potentially could reduce 
the minutes billed at intrastate access rates (depending upon existing 
payment practices). Thus the true-up approach could result in the need 
for additional recovery, including additional federal universal service 
funding. We seek comment on alternatives to the true-up process.
    [cir] For example, as an alternative to true ups, we seek comment 
on a baseline for recovery that would be 2011

[[Page 49407]]

access revenues subject to reform, reduced by 10% annually to account 
for decline in demand (i.e., 90% of 2011 revenues in year one (2012), 
81.0% in year two (2013), 72.9% in year three (2014), 65.6% in year 
four (2015), etc.). This (or a similar framework that may be suggested 
by commenters) would be a brightline, predictable approach that would 
not include true-ups, regardless of whether demand declines more 
quickly or more slowly. If carriers reduce costs or are more efficient, 
this approach would enable carriers to realize the benefits of these 

    3. Rate of Return Carriers.

    [cir] We seek comment below on an alternative approach for recovery 
(or other approaches that commenters might suggest) that would maintain 
the predictable revenue stream associated with rate of return 
principles while also providing carriers with better incentives for 
efficient investment and operations. This option would provide a fixed 
percentage of recovery (which could be 100%) of all reduced terminating 
access charges (both intrastate and interstate) based on year 2011 
revenues, but without true-ups to reflect changes in the revenue 
requirement historically used for interstate access charges. This 
recovery mechanism would lock in revenue streams, including intrastate 
access revenues, which have been declining annually for many interstate 
rate-of-return carriers. It thus provides more predictable revenue 
recovery while also providing incentives for carriers to reduce costs 
and realize the benefits of these cost savings. The eligible recovery 
amount would be recovered through end-user charges and universal 
service support as described in the Joint Letter's proposal. We also 
seek comment on the duration of recovery funding under this 
alternative. Should it be phased out over time following the completion 
of rate reforms, such as with the loss of demand?

    4. Reciprocal Compensation.

    [cir] The ABC Plan's proposal provides recovery for reductions in 
reciprocal compensation rates to the extent they are above $0.0007, but 
the ABC Plan estimates on the impact of the federal universal service 
fund do not include estimated recovery from reciprocal compensation. We 
ask whether providing federal universal service support for reductions 
in reciprocal compensation rates strikes the appropriate policy balance 
as we seek to control the size of the universal service fund, and 
whether there are alternatives to such an approach.

    5. Originating Access.

    [cir] If the Commission were to address originating access as part 
of comprehensive reform, should the Commission treat originating access 
revenues differently from terminating access revenues for recovery 
purposes since, in many cases, the originating incumbent LEC's 
affiliate is offering the long distance service? For example, is it 
necessary to provide any recovery for the originating access that an 
incumbent LEC historically charged for originating calls from the 
retail long distance customers of its affiliate?
    [cir] Alternatively, should recovery for such originating access 
take the form of a flat per-customer charge imposed on the incumbent 
LEC's long distance affiliate for each of its presubscribed customers? 
Should such a flat originating access replacement charge be used for 
recovery of all originating access revenues more generally? How would 
any of these approaches be implemented? Should any flat originating 
access replacement charge differ by end-user customer class (such as 
residential vs. business), by level of demand, or otherwise?
    [cir] We seek the following data to help us evaluate originating 
access reform:
     Separately for price cap and rate-of-return incumbent 
LECs, the number of (1) Long distance minutes that the average customer 
originates; (2) 8YY minutes that the average customer originates; and 
(3) long distance and 8YY minutes that the average customer receives 
(terminating minutes); and
     Whether the ratio of originated long distance minutes to 
originated 8YY minutes varies materially with the level of the 
customers' expenditure on telecommunications services.
D. Impact on Consumers
     We seek comment on how to ensure that consumers realize 
benefits of reduced long distance and wireless rates as part of 
intercarrier compensation reform. The ABC Plan attaches a paper by 
Professor Jerry Hausman analyzing the consumer benefits of intercarrier 
compensation reform. Should the potential realization of consumer pass 
through benefits from intercarrier compensation reform be left to the 
market, as Professor Hausman asserts, or should any steps be taken to 
ensure that such benefits are realized by consumers? If so, what steps 
should be taken?
     The ABC Plan permits incumbent carriers to increase the 
consumer SLC up to $9.20 before increasing the multiline business SLC, 
although multiline business SLCs potentially could increase once 
consumer SLCs reach that level. To decrease the potential burden on 
consumers and the federal universal service fund, should multiline 
business customers also see a modest SLC increase and, if so, how much?
     The ABC Plan permits incumbent carriers to increase 
consumer SLC rates $0.50-0.75 per year for five years or until the 
consumer's rate reaches the rate benchmark of $30. Similarly, the Joint 
Letter permits incumbent carriers to increase consumer SLC rates $0.75 
per year for six years or until the consumer's rate reaches the rate 
benchmark of $25. Professor Hausman's paper indicates that companies 
are constrained by competition, which could mean that companies may not 
be able to increase SLC rates on consumers. We seek comment on the 
actual likely consumer impact of SLC increases, in the aggregate and 
with as much granularity (e.g., by company, by type of state, by 
specific state) as can be provided. We also seek comment on proposals 
that the need for any recovery should be based on the carrier's showing 
of need based on its operations more broadly.
     We seek the following data to help us quantify consumer 
benefits from intercarrier compensation reform:
    [cir] If ICC termination rates that currently exceed $0.0007 are 
reduced to $0.0007, the services where pass through is likely to occur 
(perhaps, for example, long distance, wireless service, 8YY services 
and monthly line rentals) and the likely extent of that pass through; 
    [cir] Estimates of demand elasticities for those services where 
pass through is likely to occur.
     Implementation. We seek comment on the implementation of 
the ABC Plan's proposal for VoIP intercarrier compensation. Under that 
proposal, VoIP access traffic would be subject to intercarrier 
compensation rates different from rates applied to other access traffic 
during the first part of the transition.
    [cir] How would VoIP traffic subject to the ICC framework be 
identified for purposes of the proposed tariffing regime?
    [cir] Would it be feasible to use call record information or 
factors or ratios to identify the portion of overall traffic that is 
(or reasonably is considered to be) relevant VoIP traffic, perhaps 
subject to certification or audits?
    [cir] Should the Commission identify a ``safe harbor'' percentage 
of VoIP traffic for use in this context? If so, what should be the 
factual basis for such a safe harbor? For example, Global Crossing 
estimates ``that on average

[[Page 49408]]

roughly fifty to sixty percent of the traffic [on its network] is 
VoIP.'' Would that, or other data, provide a basis for a safe harbor?
    [cir] Are there alternative mechanisms besides tariffs that could 
be used to determine the amount of VoIP traffic exchanged between two 
carriers for purposes of the VoIP ICC framework, and if so, what would 
be the relative merits of such an approach?
     Call Signaling. In the USF/ICC Transformation NPRM the 
Commission proposed to apply new call signaling rules designed to 
address phantom traffic to telecommunications carriers and 
interconnected VoIP providers. Some commenters have expressed concerns 
about whether and how the proposed rules would apply to one-way 
interconnected VoIP providers. In particular, we seek to further 
develop the record regarding possible implementation of any new call 
signaling rules that apply to one-way interconnected VoIP providers.
    [cir] If call signaling rules apply to one-way interconnected VoIP 
providers, how could these requirements be implemented? Would one-way 
interconnected VoIP providers be required to obtain and use numbering 
resources? If not, how could the new signaling rules operate for 
originating callers that do not have a telephone number?
    [cir] If one-way interconnected VoIP providers were permitted to 
use a number other than an actual North American Numbering Plan (NANP) 
telephone number associated with an originating caller in required 
signaling, would such use lead to unintended or undesirable 
consequences? If so, should other types of carriers or entities also be 
entitled to use alternate numbering?
    [cir] Would there need to be numbering resources specifically 
assigned in the context of one-way VoIP services? Are there other 
signaling issues that we should consider with regard to one-way VoIP 
    [cir] If call signaling rules were to apply signaling obligations 
to one-way interconnected VoIP providers, at what point in a call path 
should the required signaling originate, i.e., at the gateway or 
    [cir] To what extent are such requirements necessary to implement 
the ABC Plan's and Joint Letter's proposals that billing for VoIP 
traffic be based on call detail information? More broadly, what 
particular call detail information would be used for this purpose? What 
are the relative advantages or disadvantages of treating such call 
detail information as dispositive for determining whether access 
charges or reciprocal compensation rates apply?

Federal Communications Commission.
Marcus Maher,
Deputy Chief, Pricing Policy Division, Wireline Competition Bureau.
[FR Doc. 2011-20322 Filed 8-9-11; 8:45 am]