[Federal Register Volume 76, Number 242 (Friday, December 16, 2011)]
[Proposed Rules]
[Pages 78384-78447]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-31924]



[[Page 78383]]

Vol. 76

Friday,

No. 242

December 16, 2011

Part III





 Federal Communications Commission





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47 CFR Part 54





Connect America Fund; A National Broadband Plan for Our Future; 
Establishing Just and Reasonable Rates for Local Exchange Carriers; 
High-Cost Universal Service Support; Proposed Rule

  Federal Register / Vol. 76 , No. 242 / Friday, December 16, 2011 / 
Proposed Rules  

[[Page 78384]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos. 10-90, 07-135, 05-337, 03-109; GN Docket No. 09-51; CC 
Docket Nos. 01-92, 96-45; WT Docket No. 10-208; FCC 11-161]


Connect America Fund; A National Broadband Plan for Our Future; 
Establishing Just and Reasonable Rates for Local Exchange Carriers; 
High-Cost Universal Service Support

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) seeks comment on several issues related to Eligible 
Telecommunications Carriers obligations, the funding mechanisms for 
rate-of-return, price cap and mobile carriers, and a Remote Areas Fund. 
The Commission also seeks comment on several issues related to bill-
and-keep, end user charges, IP-to-IP interconnection, and call 
signaling rules. This is information will help the Commission to 
comprehensively reform and modernize the universal service and 
intercarrier compensation systems to ensure that robust, affordable 
voice and broadband service, both fixed and mobile, are available to 
Americans throughout the nation.

DATES: Comments on the matters synopsized in paragraphs 1-303 of the 
Supplementary Information and proposed 47 CFR part 54, subparts L, M, 
and N are due on or before January 18, 2012 and reply comments on the 
matters synopsized in paragraphs 1-303 of the Supplementary Information 
and proposed 47 CFR part 54, subparts L, M, and N are due on or before 
February 17, 2012. Comments on the matters synopsized in paragraphs 
304-406 of the Supplementary Information are due on or before February 
24, 2012 and reply comments on the matters synopsized in paragraphs 
304-406 of the Supplementary Information are due on or before March 30, 
2012. If you anticipate that you will be submitting comments, but find 
it difficult to do so within the period of time allowed by this FNPRM, 
you should advise the contact listed below as soon as possible.

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; WT Docket No. 10-208; FCC 11-161, 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 
comments.
     People With Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by email: [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: Amy Bender, Wireline Competition 
Bureau, (202) 418-1469, Victoria Goldberg, Wireline Competition Bureau, 
(202) 418-7353, and Margaret Wiener, Wireless Telecommunications 
Bureau, (202) 418-2176 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Further Notice of Proposed Rulemaking (FNPRM) 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, WC Docket No. 03-109, and WT 
Docket No. 10-208; FCC 11-161, released November 18, 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 
http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-11-161A1.pdf.
    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 and reply 
comments on or before the dates indicated on the first page of this 
document. Comments may be filed using the Commission's Electronic 
Comment Filing System (ECFS). See Electronic Filing of Documents in 
Rulemaking Proceedings, 63 FR 24121, May 1, 1998.



0
Electronic Filers: Comments may be filed electronically using the 
Internet by accessing the ECFS: http://fjallfoss.fcc.gov/ecfs2/.

0
Paper Filers: Parties who choose to file by paper must file an original 
and one copy 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. All filings must be addressed to the Commission's Secretary, 
Office of the Secretary, Federal Communications Commission.

0
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 are 8 
a.m. to 7 p.m. All hand deliveries must be held together with rubber 
bands or fasteners. Any envelopes and boxes must be disposed of before 
entering the building.

0
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.

0
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 email to [email protected] or call the 
Consumer & Governmental Affairs Bureau at (202) 418-0530 (voice), (202) 
418-0432 (tty).

I. Further Notice of Proposed Rulemaking

A. Broadband Public Interest Obligations

i. Measuring Broadband Service
    1. In the USF/ICC Transformation Order, adopted concurrently with 
the FNPRM, the Commission adopts a rule requiring that actual speed and 
latency be measured on the access network of each eligible 
telecommunications carriers (ETC) from the end-user interface to the 
nearest Internet access point, and requires that ETCs certify to and 
report the results to the Universal Service Administrative Company

[[Page 78385]]

(USAC) on an annual basis. The Commission seeks comment on whether it 
should adopt a specific measurement methodology beyond what is 
described in the USF/ICC Transformation Order and the format in which 
ETCs should report their results.
    2. The Measuring Broadband America Report concludes that a 
standardized set of broadband measurements can be implemented across a 
range of ISPs and scaled to support detailed regional assessments of 
broadband deployment and performance. The Commission notes that 
commercial hardware and software as well as some free, non-commercial 
options are available. Should the Commission adopt a uniform 
methodology for measuring broadband performance? If so, should it be 
uniform across different technologies? The Commission notes that it has 
requested more information on measurement approaches for mobile 
broadband in Comment Sought on Measurement of Mobile Broadband Network 
Performance and Coverage, 75 FR 33303, June 11, 2010, and seeks to 
incorporate that proceeding's record. How should wireless providers 
measure speed? Should the Commission require fixed funding recipients 
to install SamKnows-type white boxes at consumer locations to monitor 
actual performance in a standardized way?
    3. Should the Commission specify a uniform reporting format? Should 
test results be recorded in a format that can be produced to USAC and 
auditable such that USAC or the state commissions may confirm that a 
provider is, in fact, providing broadband at the required minimum 
speeds?
    4. Should providers be required to provide the underlying raw 
measurement data to USAC? Are there legitimate concerns with 
confidentiality if such data are made public? Is it sufficient to have 
a provider certify to USAC that its network is satisfying the minimum 
broadband metrics and retain the results of its own performance 
measurement to be produced on request in the course of possible future 
audits?
    5. Should the Commission consider easing the performance measuring 
obligations on smaller broadband providers? If so, what would be the 
appropriate threshold for size of provider before granting relief for 
measuring broadband? If so, how can it ensure that their customers are 
receiving reasonably comparable service?
ii. Reasonably Comparable Voice and Broadband Services
    6. In the USF/ICC Transformation Order, the Commission directs the 
Wireline Competition Bureau (WCB) and Wireless Telecommunications 
Bureau (WTB) (together, the Bureaus) to develop and conduct a survey of 
voice and broadband rates to compare urban and rural voice and 
broadband rates. The Commission seeks comment on the components of the 
survey.
    7. With respect to determining reasonable comparability of voice 
service rates for universal service purposes, should the Commission 
separately collect data on fixed and mobile voice telephony rates? 
Should fixed and mobile voice services have different benchmarks for 
purposes of reasonable comparability?
    8. In the landline context, the Commission has previously surveyed 
the basic R-1 voice rate. What would the equivalent basic offering be 
in the mobile context? How should the Commission take into account 
packages that offer varying numbers of minutes of usage and/or 
additional features such as texting?
    9. With respect to determining reasonable comparability of 
broadband services, should the Commission separately collect data on 
fixed and mobile broadband pricing and capacity requirements (if any)? 
For purposes of that analysis, how should the Commission consider, if 
at all, data cards provided by mobile providers?
    10. For fixed broadband offerings subject to the Commission's 
initial Connect America Fund (CAF) requirements of 4 Mbps downstream/1 
Mbps upstream, should the Commission survey advertised rates for such 
service, or the closest available offering in urban areas? How should 
the Commission take into account promotional pricing that may require a 
specific contractual commitment for a period of time?
    11. Should fixed and mobile broadband services have different or 
the same benchmarks for purposes of reasonable comparability?
    12. The Commission also seeks comment on how to compare mobile 
broadband to fixed broadband as product offerings evolve over time.
    13. In the USF/ICC Transformation Order, the Commission also 
determines that rural rates for broadband service would be reasonably 
comparable to urban rates under 47 U.S.C. 254(b)(3) if rural rates fall 
within a reasonable range of the national average urban rate for 
broadband service. The Commission seeks comment on how specifically to 
define that reasonable range for broadband.
    14. The Commission notes that in the voice context, today it 
requires states to certify that basic R-1 voice rates for non-rural 
carriers are no more than two standard deviations above the national 
average R-1 rate. Would using two standard deviations be the 
appropriate measure for reasonable comparability in the broadband 
context, or should the Commission adopt a different methodology for 
establishing such a reasonable range? Do unregulated broadband prices 
show relatively small variations, making another methodology more 
appropriate? For example, would prices normalized to disposable income 
be appropriate?
    15. Should the Commission adopt a presumption that if a given 
provider is offering the same rates, terms and conditions (including 
capacity limits, in any) to both urban and rural customers, that is 
sufficient to meet the statutory requirement that services be 
reasonably comparable?
iii. Additional Requirements
    16. Some commenters propose to require CAF recipients to comply 
with certain interconnection requirements. The Commission seeks comment 
on whether the Commission should require CAF recipients to offer IP-to-
IP interconnection for voice service, beyond whatever framework it 
adopts more broadly. If so, what would the scope and nature of any such 
requirement be? Should any obligations be based on the requirements of 
47 CFR 251(a)(1), since, as ETCs, the providers subject to these 
requirements will be telecommunications carriers? How would any such 
obligations be enforced?
    17. The Commission also seeks additional comment on the proposal of 
Public Knowledge and the Benton Foundation that CAF recipients be 
required to make interconnection points and backhaul capacity available 
so that unserved high-cost communities could deploy their own broadband 
networks. How would such a requirement operate? Is it sufficient to 
require CAF recipients to negotiate in good faith with community 
broadband networks to determine a point of interconnection? If there 
are disputes, who should resolve them? Should there be reporting 
requirements associated with such an obligation (i.e., should CAF 
recipients be required to report annually on unfulfilled requests for 
interconnection from community broadband networks)? What benefits might 
such a requirement bring that the Commission's other universal service 
policies are not meeting? What would the costs of such a requirement 
be, on funding recipients and on administration of the requirement?
    18. The Commission also seeks comment on the proposal of Public 
Knowledge and the Benton Foundation

[[Page 78386]]

that the Commission should create a fund for a Technology Opportunities 
Program to assist communities with deploying their own broadband 
networks. How much money should the Commission set aside for such a 
program? Are there any legal impediments to the Commission running such 
a pilot program out of the universal service fund? The Commission 
acknowledges the important role that WISPs, non-profits, and other 
small and non-traditional communications providers play in extending 
broadband in rural America, including in areas where traditional 
commercial providers have not deployed. Are there other things the 
Commission should be doing to enable such entities to further extend 
broadband coverage, particularly in currently unserved areas?

B. Connect America Fund for Rate-of-Return Carriers

    19. In response to the USF/ICC Transformation NPRM, 75 FR 26906, 
May 13, 2010, the Rural Associations (NECA, NTCA, OPASTCO, ERTA, and 
WTA) proposed the creation of a new broadband-focused CAF mechanism 
that ultimately would entirely replace existing support mechanisms for 
rate-of-return carriers. Subsequently, the Rural Associations provided 
draft rules that provide additional context regarding the operation of 
their proposed CAF. The Commission now seeks focused comment on this 
proposal and asks whether and how it could be modified consistent with 
the framework adopted in the USF/ICC Transformation Order to provide a 
path forward for rate-of-return or carriers to invest in extending 
broadband to unserved areas. The Commission sets forth in Appendix G of 
the USF/ICC Transformation Order the draft rules, modified to take into 
account the rule changes adopted in the USF/ICC Transformation Order, 
and seeks comment on those draft rules. These rules, as modified, are 
not reproduced here, but are available in their entirety at http://transition.fcc.gov/Daily_Releases/Daily_Business/2011/db1122/FCC-11-161A1.pdf.
    20. Under the Rural Association Plan, loop costs would be allocated 
to the interstate jurisdiction based on the current 25 percent 
allocator or the individual carrier's broadband adoption rate, 
whichever is greater. This would have the practical effect of reducing 
over time the size of legacy support mechanisms, like HCLS, that offset 
some intrastate costs. The new interstate revenue requirement would 
also include certain key broadband-related costs (i.e., middle mile 
facilities and Internet backbone access). In conjunction with this 
proposal, the Rural Associations also propose that their authorized 
rate-of-return be reduced from 11.25 percent to 10 percent. CAF support 
would be provided under this new mechanism for any provider's broadband 
costs that exceeded a specified benchmark representing wholesale 
broadband costs in urban areas. In particular, under this proposal, CAF 
funding would be computed by subtracting the product of an urban 
broadband transmission cost benchmark times the number of broadband 
lines in service, from the actual company broadband network costs 
(which would be the sum of last mile, second mile, middle mile, and 
Internet connection costs). The broadband transmission benchmark would 
have a fixed component that would increase from $19.25 in the first 
year to $24.75 in the eighth year, and a variable component that is 
tied to an individual company's broadband take rate. In addition, there 
would be certain provisions to mitigate the impact on companies that 
would receive reduced support under the modified mechanism. The purpose 
of the transitional stability mechanism would be to ensure that no 
study area would experience a reduction in total support of more than 
five percent, on an annual basis, which would be funded by carriers 
that receive a net increase in support.
    21. The Rural Associations explain that their plan is calibrated to 
aim for a budget target of $2.05 billion in combined funding for USF 
and their suggested access restructure mechanism in the first year of 
implementation, and may grow to $2.3 billion by the sixth year. In the 
USF/ICC Transformation Order, the Commission adopts an overall budget 
target for rate-of-return companies of $2 billion over the next six 
years. Given that, how could the Commission best accommodate the Rural 
Association Plan within the Commission's budgetary framework? If 
savings are realized in other components of the CAF--for example, if 
competitive bidding leads to less support being disbursed through the 
CAF for price cap areas than has been budgeted for--should those 
savings be used to increase funding for rate-of-return carriers under 
the Rural Association Plan? Could the Commission more quickly 
transition existing support mechanisms to the framework proposed by the 
Rural Associations to stay within the overall budget? The Commission 
seeks year-by-year financial projections of any new mechanisms and the 
related impact on legacy support mechanisms, as well as the associated 
data and assumptions supporting those projections.
    22. With respect to plan specifics, the Commission seeks comment on 
the benefits and the costs of providing support for middle mile 
facilities and access to the Internet backbone under the Rural 
Associations' proposal. On average for smaller carriers, approximately 
what proportion of the costs to deploy broadband networks and provide 
broadband services are attributable to middle mile and Internet 
backbone costs today? Commenters are encouraged to provide factual 
information to support any projections they submit into the record. 
Consistent with the overall framework adopted in the USF/ICC 
Transformation Order to impose reasonable limits on recovery of loop 
expenses, how could the Commission impose a constraint on the recovery 
of middle mile costs under this proposal?
    23. The Rural Associations propose that costs be shifted to the 
interstate jurisdiction based on an individual carrier's Broadband Take 
Rate, which equals its total broadband lines divided by its total 
working access lines. Should this calculation be limited to residential 
lines? The Rural Associations define Broadband Line to include any line 
that supports voice and broadband, or only broadband, at a minimum 
speed of 256 Kbps downstream. The Commission seeks comment on that 
proposal, and asks whether broadband lines should be defined consistent 
with the broadband characteristics required in its public interest 
obligations. What would be the impact of a more stringent definition of 
a broadband line in this context? If the Commission were to adopt this 
proposal but shift costs to the interstate jurisdiction only for loops 
that provide speeds of at least 4 Mbps downstream and 1 Mbps upstream, 
how would that affect the financial projections regarding this 
proposal? Are there any legal, policy or practical implications to 
providing CAF support for lines where the end user customer does not 
subscribe to voice service from the ETC? The Rural Associations' Plan 
contemplates that rate-of-return carriers may offer standalone 
broadband; to the extent they do so, absent any other rule changes, 
what would be the impact on USF support for rate-of-return carriers? 
What rule changes would help provide appropriate incentives for 
investment in broadband-capable networks, while limiting unrestrained 
growth in support provided to rate-of-return companies?
    24. How does the Rural Associations' proposal to alter the current 
25 percent allocation of loop costs fit within, or inform, the Federal-
State Joint Board on

[[Page 78387]]

Jurisdictional Separations' ongoing work to reform the separations 
process? Are there components of the Rural Association plan that should 
be referred to the Separations Joint Board and examined directly in 
that ongoing process?
    25. In the USF/ICC Transformation Order, the Commission adopts a 
requirement that rate-of-return carriers offer speeds of 4 Mbps 
downstream and 1 Mbps upstream upon reasonable request. Should the 
Commission adopt a rule that rate-of-return carriers are not required 
to serve any location within their study area that is served by an 
unsubsidized competitor and will not receive support for those lines to 
the extent they choose to extend service to areas of competitive 
overlap? How would the Commission implement the Rural Associations' 
proposal in conjunction with such a rule? In particular, what would be 
the methodology for removing the broadband costs associated with areas 
of competitive overlap from the calculation of the proposed CAF 
support?
    26. Is a broadband urban wholesale benchmark the right approach to 
determine support under a new rate-of-return mechanism, or would 
another approach be more in keeping with the statute and prior 
precedent? How does comparing wholesale urban costs relate to the 
Commission's obligation to ensure that rural retail rates are 
reasonable? Should such a benchmark be based on the wholesale cost of 
providing broadband, or another metric? Can wholesale broadband costs 
be calculated reliably, particularly where wholesale broadband services 
are not typically offered in urban areas? As an alternative, should the 
relevant benchmark be set based on the price of comparable retail 
services in a sample of urban areas?
    27. The Rural Associations' benchmark proposal contemplates a fixed 
and variable component of the rural benchmark. How should the 
Commission establish the levels for those components, and should there 
be a company-specific component of the benchmark? If the benchmark is 
tied in any manner to the National Exchange Carrier Association (NECA) 
tariff rates or another industry metric, does that proposal bear any 
risks of gamesmanship by carriers to raise or lower individual rates to 
maximize universal service receipts?
    28. What information would the Commission need to require from 
carriers to evaluate and implement that Rural Association proposal? 
Prior to implementation, should the Commission, for instance, require 
carriers to submit analyses showing their broadband adoption trends for 
service at varying speeds for the last five years for us to develop 
reasonable projections regarding broadband penetration in the future? 
What information should the Commission obtain regarding their middle 
mile costs to better understand the implications of the proposal to 
include middle mile costs in support calculations?
    29. How would the proposed transitional stability plan mechanism 
operate? What would be the distributional impact of this proposal in 
terms of the number of companies that would see increases in support, 
compared to the number of companies that would see decreases in 
support?
    30. The Rural Associations propose that incremental broadband 
build-out commitments would be tied to an individual company's ability 
to receive incremental CAF support for new investment, subject to 
prospective capital investment constraints and the budget target 
adopted by the Commission. If the Commission were to adopt such an 
approach, what specific metrics or build-out milestones should be 
established, and what reporting and certifications should be imposed to 
improve the Commission's ability to enforce such commitments? How 
should CAF associated with intercarrier compensation reform be 
incorporated into any rate-of-return CAF mechanism? Would the public 
interest obligations for CAF associated with intercarrier compensation 
reform be updated to reflect any new obligations? The Commission seeks 
comment more broadly on how its universal service policies can best 
accelerate broadband deployment to consumers served by rate-of-return 
carriers, many of whom reside in rural America. In the long term, 
should universal service support for rate-of-return carriers be 
distributed through separate mechanisms from the mechanisms used to 
distribute support for other types of carriers, or is a uniform 
national approach preferable to achieve its universal service 
objectives? The Commission seeks comment on any other proposals to 
transition areas served by rate-of-return carriers to CAF, or any other 
analysis or recommendations that could facilitate this process.

C. Interstate Rate of Return Represcription

    31. As explained in the Order, rate-of-return carriers will 
continue to receive for some time a modified version of their legacy 
universal service support. The level of support they receive depends, 
in part, on the interstate rate of return allowed for plant in service. 
As a result, the Commission concluded it was necessary to evaluate the 
authorized interstate rate of return for rate-of-return carriers, which 
has not been updated in over 20 years. Three major associations 
representing rate-of-return carriers, as well as the State Members of 
the Federal-State Joint Board on Universal Service, have proposed a 
reduction in the current rate of return, which is currently set at 
11.25 percent, in the context of overall reform. The Commission agrees 
that it is appropriate at this time to reexamine the rate of return as 
part of comprehensive reform of the universal service fund. The 
Commission seeks comment more generally on how this prescription fits 
within the broader reform framework for rate-of-return carriers, and 
specifically in what manner this prescription process should be linked 
to other proposals in this FNPRM, including the separate CAF support 
mechanism for rate-of-return carriers.
    32. With respect to the prescription process itself, the 
Commission's statutory authority under 47 U.S.C. 205 provides the power 
to determine and prescribe those elements that make up the charge, 
including the interstate rate of return. The rate of return must be 
high enough to provide confidence in the financial integrity of the 
carrier, so that it can maintain its credit and attract capital. The 
return should also be commensurate with returns on investments in other 
enterprises having corresponding risks. On the other hand, the return 
should not be higher than necessary for this purpose.
    33. The Commission last prescribed the authorized interstate rate 
of return in 1990, reducing it from 12 percent to 11.25 percent. The 
Commission believes fundamental changes in the cost of debt and equity 
since 1990 no longer allow it to conclude that a rate of return of 
11.25 percent is necessarily just and reasonable as required by 47 
U.S.C. 201(b). The rate-of-return carrier associations proposed a 
reduction in the interstate rate of return from the current 11.25 
percent to 10 percent. The State Members of the Federal-State Joint 
Board proposed that the rate be reduced further to 8.5 percent. The 
State Members highlight that the interest rate on a three month 
Treasury Bill has fallen from 7.83 percent in 1990 to 0.15 percent in 
January 2011. Further, the Commission observes that the average 10-year 
treasury constant maturity rate has declined from approximately 8.1 
percent in January 1991 to

[[Page 78388]]

approximately 2 percent in September 2011.
    34. The Commission finds compelling evidence that its presently 
applied interstate rate-of-return, 11.25 percent, is no longer 
reflective of the cost of capital. The Commission believes updating the 
rate of return is necessary for rate-of-return carriers to both attract 
capital on reasonable terms in today's markets and encourage 
economically sound network investments. The Commission welcomes input 
from state regulators that may have insights from conducting intrastate 
rate of return represcriptions in recent years. The Commission also 
invites comment on how the Commission can ensure that the rate of 
return over time remains consistent with changes in the financial 
markets and cost of capital. The Commission seeks comment on means by 
which the rate of return can be adjusted automatically based on some 
set of financial triggers, and how any such triggers would operate.
    35. When it last initiated an interstate rate of return 
prescription proceeding in 1998, the Commission sought comment on the 
methods by which it could calculate incumbent LECs' costs of capital. 
The Commission seeks comment on the issues raised in the 1998 
Prescription Notice generally and asks parties to provide the data 
responsive to the previous requests. In particular, the Commission 
seeks comment on the following:
    36. WACC. Weighted average cost of capital (WACC) identifies the 
rate of return required to maintain the current value of a firm; 
alternatively, it is the minimum rate of return the firm needs to offer 
to investors to maintain access to its current supply of capital. WACC 
is the key component for prescribing the rate of return. The Commission 
seeks comment on how to calculate the WACC for the relevant companies. 
The Commission asks whether the formula to determine the WACC in 47 CFR 
65.301-305 is the proper framework for this represcription, and whether 
any modification or update to the formula or inputs is warranted or 
necessary. Specifically, the Commission's rules provide that WACC is 
the sum of the cost of debt, the cost of preferred stock, and the cost 
of equity, each weighted by its proportion in the capital structure. 
Does this remain the correct approach? Should the Commission augment, 
or replace, its WACC calculation with any other analysis or approaches? 
Looking to the WACC calculated for an entire company, rather than for a 
specific line of business, is appropriate, for example, when thinking 
about setting an allowed rate-of-return for an entire company. In 
contrast, this overall WACC would not in general inform a business as 
to whether to undertake a specific project. Typically, specific 
projects that have greater risk and therefore a greater cost of capital 
than the entire company are only undertaken when much higher rates of 
return are expected. Given that many rate-of-return companies have 
diversified beyond regulated voice services, for example to offer 
broadband, video, or wireless services, should the WACC be computed for 
only the regulated portion of the company's business, or at the level 
of the entire company? The Commission seeks comment on this analysis, 
and how, if at all, it should impact its rate-of-return calculation, 
and use of WACC for these purposes.
    37. Data. The Commission seeks comment on the appropriate data and 
methodologies the Commission should use to calculate the WACC. The 
Commission notes that some of the formulas in the rules rely on ARMIS 
data, which are no longer collected. In the absence of ARMIS data, what 
additional data should the Commission require and rely upon, and who 
should be required to file the data? Are there other publicly available 
data that could provide the necessary information? Does the absence of 
any particular data necessitate a different approach to any of the 
necessary calculations?
    38. Capital Structure. Under the Commission's WACC calculation, the 
estimated cost of debt, preferred stock, and equity of a company are 
all weighted relative to their proportion in the firm's capital 
structure. A firm's capital structure can be measured on a book basis 
or market basis. The Commission seeks comment on whether the formula in 
47 CFR 65.304 based on book values remains the correct approach, and 
whether any modification to the formula or inputs is warranted or 
necessary. Are there other components of the cost of capital that 
should be included in the capital structure, and should any of the 
elements listed in the rules be excluded?
    39. Surrogates. Because the vast majority of rate-of-return 
carriers are not publicly traded, the Commission must select an 
appropriate set of surrogate firms, for which financial data is 
available publicly, to use as a basis for the cost of capital analysis. 
To do so, the Commission must select a group of companies for which 
there is available financial data and that face similar risks to rate-
of-return carriers. The Commission's rules provide that the proper 
group of surrogates is all local exchange carriers with annual revenues 
equal to or above the indexed revenue threshold, which is $146 million 
this year. In the 1998 Prescription Notice the Commission sought 
comment on what group of companies should be selected as surrogates and 
tentatively concluded at that time that the Regional Bell Operating 
Companies' (RBOCs) risk most closely resembled the risk encountered by 
the rate-of-return carriers. The Commission seeks comment on whether 
that group should be used as surrogates here, or whether another group 
of providers, for example smaller publicly traded carriers, not 
including the RBOCs, would better serve this purpose. Should the 
surrogate group include publicly traded rate-of-return companies only, 
or a mixture of publicly traded rate-of-return companies and smaller 
price-cap companies? Commenters proposing a particular surrogate group 
should clearly define that group, identify the publicly available 
financial data for that group, and explain how that group best reflects 
the business risks and cost of capital of rate-of-return carriers.
    40. Cost of Debt. A firm's cost of debt can be estimated by 
dividing its total annual interest expense by its average outstanding 
debt measured on a historic book basis, or alternatively, on a market 
basis using the current yield to maturity. The Commission seeks comment 
on the cost of debt formula in 47 CFR 65.302 of the Commission's rules 
based on book values. The Commission had previously noted that the book 
basis is more objectively ascertainable, but may not fully reflect 
current investor expectations. The Commission seeks comment on that 
assessment, and the relative weight either the book or market approach 
should be given in its calculations. The Commission's rules provide 
that this measurement should occur for the most recent two years. Is 
this the correct time period, or is a longer or shorter period 
warranted?
    41. Cost of Preferred Stock. A firm's cost of preferred stock can 
be calculated by dividing the total annual preferred dividends by the 
total proceeds from the issuance of preferred stock. The Commission 
asks whether the formula in 47 CFR 65.303 remains the correct one, and 
whether any modification to the formula or inputs is warranted or 
necessary. The Commission's rules provide that this measurement should 
occur for the most recent two years. Is this the correct time period, 
or is a longer or shorter period warranted? Can the WACC calculation be 
simplified by ignoring the cost of preferred stock (and the amount of 
preferred stock in the capital structure) without significantly 
affecting the accuracy of the WACC?

[[Page 78389]]

    42. Cost of Equity. A firm's cost of equity can be estimated using 
a number of different approaches. The Commission's rules do not provide 
a specific formula for determining the cost of equity. In 1990, the 
Commission relied heavily on the discounted cash flow (DCF) 
methodology, which assesses a firm's stock price and dividend rate and 
forecasted growth rates to determine the cost of equity. There are a 
number of different variations of DCF, including historic and classic 
calculations. Alternatively, a firm's cost of equity can be calculated 
using the capital asset pricing model (CAPM). To use the CAPM, 
estimates of the risk free rate, the market risk premium, and the 
correlation of surrogate companies' common stock returns with the 
returns of the entire market of securities (or betas) must be made. The 
Commission seeks comment on these approaches, and asks whether any 
other methodologies should be incorporated into its analysis. For 
instance, should the Commission rely upon any cost of equity 
calculations made in state proceedings addressing intrastate rate of 
return, or other benchmarks based on the stock market as a whole, or a 
subset of companies or industries? Proponents of any particular 
methodology should detail their preferred approach and the relevant 
data required to perform the necessary calculations. Commenters should 
also justify the relative weight any particular methodology or 
comparison should have in the Commission's ultimate calculation. The 
Commission also seeks comment on the need, if any, to make adjustments 
with respect to flotation costs (i.e., costs of selling new securities 
in the market) or dividends.
    43. Zone of Reasonableness. The cost of equity, based on different 
methodologies and sets of reasonable assumptions and input values, as 
well as the WACC calculation can be used to develop a range from which 
the Commission can prescribe the new authorized interstate rate of 
return. This zone of reasonableness allows the Commission to take into 
account additional policy considerations before finalizing the new rate 
of return. The Commission seeks comment on the factors the Commission 
should consider in determining the rate of return from within that zone 
of reasonableness. The Commission asks how infrastructure deployment, 
particularly broadband deployment, and today's reforms should be 
accounted for in its analysis. Is the deployment of broadband 
significantly more risky than the voice telephony business, and does it 
have a significantly greater cost of capital? The Commission notes, for 
instance, that voice telephony has nearly universal penetration, while 
broadband adoption is more than 65 percent nationally. If some or all 
of the surrogates on which the WACC estimates are based are large 
companies such as Verizon and AT&T, should unique competitive and 
market conditions for rate-of-return carriers be reflected, and should 
any differences in diversification in rate-of-return carrier offerings 
compared to large carrier offerings, which now may include voice, 
video, wireless, and data services, be reflected, if at all? Should any 
allowances made in 1990, or proposed in 1998, apply here? The 
Commission also seeks comment on the need to make any adjustments to 
capture changes in the telecommunications market generally, and ask 
commenters proposing any such adjustments to explain why they are 
necessary to prescribe the allowable rate of return for multi-use plant 
that can provide voice, data, video and other services, in particular, 
and how any such adjustments should be structured. Lastly, the 
Commission asks whether any of these policy considerations should also 
be reflected in any other components of the WACC calculation, and, if 
so, in what manner.
    44. Preliminary Analysis. The Commission estimate, using recent 
public data, the WACC for AT&T and Verizon and find it in the range of 
6 to 8 percent. This range is consistent with other analysts' 
estimates. The Commission finds a similar range when considering other 
mid-size and competitive carriers. Even if the interest rate were to 
increase by 1.5 percent, which seems unlikely in today's economy, the 
WACC would remain in the range of approximately 7 to 8 percent. This 
preliminary analysis would conservatively suggest that the authorized 
interstate rate of return should be no more than 9 percent. The 
Commission seeks comment on this analysis and note that this 
preliminary analysis does not prejudge the Commission's ability to 
select a higher or lower rate of return in this proceeding.
    45. Impact on Universal Service Funding. The Commission proposes 
that any reduction in the rate of return be reflected in its universal 
service rules by reducing the HCLS cap by a corresponding amount, and 
repurposing that funding amount consistent with the CAF framework and 
budget. The Commission also proposes that ICLS support be reduced by a 
corresponding amount as well. The Commission seeks comment on these 
proposals and how to calculate any such reductions. The Commission 
seeks comment on whether any savings realized from reducing the rate of 
return should be used to establish a new CAF mechanism for rate of 
return companies that would support new broadband investment. How would 
a change in the rate of return impact the Rural Association's CAF 
proposal discussed in this FNPRM, and does this prescription process 
impact the timing or operation of that proposal or any other transition 
of rate-of-return carriers to CAF-based support? In the alternative, 
the Commission seeks comment on the potential benefits of retaining the 
HCLS cap at the same amount even if the rate of return is reduced, 
which would have the effect of allowing funding to be redistributed to 
lower cost rate-of-return carriers that are ineligible for HCLS support 
today. Are there any other changes to other universal service 
distribution mechanisms that should be made to reflect a change to the 
rate of return?
    46. Tribally-Owned and Operated Carriers. The Commission seeks 
comment on how to account for Tribally-owned and operated carriers in 
this prescription, and whether a different rate of return is warranted 
for these carriers. Tribal governments, and by extension, Tribally-
owned and operated carriers, play a vital role in serving the needs and 
interests of their local communities, often in remote, low-income, and 
underserved regions of the country. Tribally-owned and operated 
carriers serve cyclically impoverished communities with a historical 
lack of critical infrastructure. Reservation-based economies lack 
fundamental similarities to non-reservation economies and are among the 
most impoverished economies in the country. Tribal Nations also cannot 
collateralize trust land assets, and as a result, have more limited 
abilities to access credit and capital. The Commission seeks comment on 
how such considerations should be reflected in its analysis.
    47. Other Considerations. Finally, the Commission asks commenters 
to address any other changes that are needed to: (1) The data used in 
the prescription process; or (2) the calculations the Commission must 
perform to prescribe a new interstate rate of return. The Commission 
also invites commenters to provide any other relevant evidence or 
studies that could assist in this represcription.

D. Eliminating Support for Areas With an Unsubsidized Competitor

    48. In the USF/ICC Transformation Order, the Commission concludes 
that it will phase out all high-cost support

[[Page 78390]]

received by incumbent rate-of-return carriers over three years in study 
areas where an unsubsidized competitor, or combination of unsubsidized 
competitors, offering voice and broadband service that meets its 
performance obligations serves 100 percent of the residential and 
business locations in the incumbent's study area. The Commission seeks 
comment on a proposed methodology for determining the extent of 
overlap, a process for preliminary determinations of such overlap, a 
process for the affected ETC to challenge the accuracy of the purported 
overlap, with input from the relevant state commission and the public, 
and how to adjust support levels in situations with less than 100 
percent overlap.
    49. To determine what rate-of-return study areas have 100 percent 
overlap by an unsubsidized competitor, staff performed a preliminary 
analysis. The analysis relies on two sets of data: TeleAtlas Wire 
Center Boundaries (6/2010) and data from the State Broadband Initiative 
(SBI) program administered by NTIA as of December, 2010.
    50. First, staff identified which census blocks are in each rate-
of-return study area, including a census block in a study area if the 
centroid of that census block is within the TeleAtlas boundaries for a 
wire center associated with the study area. Next, staff identified 
study areas where a wired provider other than the incumbent local 
exchange carrier offered broadband service at speeds of at least 3 Mbps 
downstream/768 kbps upstream to all of the census blocks in the study 
area. Staff excluded all resellers as identified in the SBI data and 
included only xDSL, cable, and fiber technologies.
    51. The Commission seeks comment on whether this is an appropriate 
methodology for determining areas of overlap, which will result in 
adjustments to support levels for the rate-of-return ETC.
    52. The Commission's staff performed a preliminary analysis 
examining census blocks smaller than two square miles and identified 18 
rate-of-return study areas with 99 percent or greater overlap; and an 
additional 19 with greater than 95 percent overlap (a total of 37 study 
areas with greater than 95 percent overlap).
    53. This analysis has several potential limitations. TeleAtlas data 
may not represent the actual incumbent local exchange carrier footprint 
in all instances. In addition, TeleAtlas data generally assign all 
geographies to one incumbent provider's footprint or another; however, 
in reality, there are large, generally unpopulated areas not served by 
any incumbent carrier facilities. As such, this analysis may over-
estimate the rate-of-return ETC's footprint and under-estimate the 
extent to which the populated portions of that footprint are completely 
overbuilt by competitive networks.
    54. SBI data have their limitations as well, as the Commission 
acknowledged in its most recent Broadband Progress Report. In addition, 
SBI data only measure the availability of broadband capable of 
delivering at least 768 kbps downstream and 200 kbps upstream. There is 
no direct measure of the availability of voice service, but the 
Commission presumed that an unsubsidized xDSL, fiber, or cable 
competitor that has deployed a broadband network that meets the SBI 
standard also is offering voice services.
    55. The Commission notes that small blocks could be reported as 
served if as few as one location in that block has service or could 
have service within a typical service interval. The Commission seeks 
comment on whether this could lead us to count areas as served by an 
unsubsidized competitor even if a meaningful number of locations are, 
in fact, not served.
    56. The Commission seeks comment on how best to deal with data 
relating to large blocks. Since neither NTIA nor the Commission has 
access to the actual location of businesses or homes, SBI population 
estimates data relies on estimating home locations by random placement 
of locations along roads. While this will provide an accurate view of 
the fraction of large blocks that are served in aggregate, it will 
likely lead to over- or under-estimates in any small number of some 
large blocks. How can the Commission use such data to determine whether 
a large block is served or not?
    57. The Commission seeks comment on a process for identifying areas 
with greater than 75 percent overlap. The Commission proposes that WCB 
identify areas with greater than 75 percent overlap, utilizing the 
finalized methodology, and then publish the results of that analysis. 
The Commission proposes that WCB provide the affected ETC an 
opportunity to challenge the accuracy of the purported overlap and to 
take public comment for a period of time, such as 45 days. The 
Commission seeks comment on this proposal.
    58. Several commenters supported state involvement in a process to 
determine areas of overlap. How could state commissions play a role in 
determining the extent of overlap? For instance, after WCB performs the 
overlap analysis, should there be a period of time for the relevant 
state commission to comment on the analysis? What would be a reasonable 
time frame to request an evaluation from a state commission regarding 
such overlap? Alternatively, could the Commission establish a process 
in which state commissions advise us, by a date certain, which study 
areas served by rate-of-return carriers have unsubsidized facilities-
based competitors, and therefore should be subject to potential 
adjustments in high-cost support?
    59. The Commission also seeks comment on whether support levels 
would need to be adjusted in areas where there is less than 100 percent 
overlap by an unsubsidized facilities-based provider of terrestrial 
fixed voice and broadband service. To the extent support levels do need 
to be adjusted, the Commission seeks further comment on how to do so.
    60. In the August 3 Public Notice, 76 FR 49401, August 10, 2010, 
the Commission sought comment on how to allocate costs between the 
overlap areas and the ILEC-only areas, including whether the Commission 
should use a cost model to accomplish that allocation.
    61. In response to the August 3 Public Notice, NCTA recommended 
that the Commission should identify study areas served by rate-of-
return regulated incumbent LECs where (1) unsubsidized broadband 
providers serve more than 75 percent of homes; and (2) current high-
cost support exceeds projected support under the cost model for the 
remaining areas by more than 10 percent. During the interim period, in 
any study area that meets those criteria, the Commission should provide 
notice to the carrier that support will be reduced to the level 
suggested by the cost model unless it can demonstrate that a higher 
amount is necessary. The Commission seeks comment on this proposal.
    62. The Commission notes that in the USF/ICC Transformation Order, 
it directed WCB to develop and finalize a cost model for use in price 
cap territories. Would it be appropriate to use such a model, after 
appropriate public input, in the way described by NCTA to create a 
presumptive reduction in support levels for rate-of-return carriers? 
For purposes of determining whether model-determined support in the 
remaining areas (i.e., the areas of no overlap) exceeded current 
support by more than 10 percent, would the Commission need to allocate 
the current high-cost support between the areas of overlap and the 
areas where there is no overlap? To the extent that support would need 
to be allocated between

[[Page 78391]]

areas of overlap and no overlap, what criteria or standards would 
govern any such allocation? Should there be a rebuttable presumption 
that all costs are divided pro rata among access lines, and allocated 
to the census block in which that access line is located, so that 
absent an appropriate showing the recipient would receive the same 
support amounts per line, but only for those lines that fall outside 
the area of overlap? Cablevision suggests that only costs solely 
attributable to the non-competitive area should be supported, and that 
most of the costs of overhead (which presumably are largely associated 
with customers in the areas where there is competitive overlap) should 
not be recoverable. Would that be a workable approach? How should the 
Commission allocate costs associated with cable and wire facilities, 
and central office equipment, between competitive and non-competitive 
areas?
    63. NCTA suggests that there be a process in which a carrier 
subject to reductions could demonstrate that a higher amount is 
necessary. Should reductions commence within a specified time period, 
such as 120 days, absent a showing that additional support is 
necessary? What process should be established for rate-of-return 
carriers subject to potential support adjustments to contest any such 
adjustments? For instance, should they be required to show that the 
adjusted levels would be inadequate to continue to provide voice 
service to consumers, for example, using the criteria the Commission 
set forth in the USF/ICC Transformation Order for petitions for waiver? 
Should the Commission undertake a total company earnings review in 
those circumstances? Should the Commission seek input from the relevant 
state commission on whether support amounts should be adjusted, and how 
that would impact consumers in the relevant communities?
    64. If the Commission were to adopt any of these proposals to 
adjust support levels, over what time period should support levels be 
transitioned to new levels in situations where there is less than 100 
percent overlap?

E. Limits on Reimbursable Capital and Operating Costs for Rate-of-
Return Carriers

    65. In the USF/ICC Transformation Order, the Commission adopts a 
rule to use benchmarks for reasonable costs to impose limits on 
reimbursable capital and operating costs for high-cost loop support 
received by rate-of-return companies. A specific methodology for 
calculating individual company caps for HCLS is set forth in Appendix H 
of the USF/ICC Transformation Order, which is available in its entirety 
at http://transition.fcc.gov/Daily_Releases/Daily_Business/2011/db1122/FCC-11-161A1.pdf, and is summarized herein at section I.E.1. The 
Commission seeks comment on using this methodology to impose limits on 
reimbursement from HCLS and proposes to implement this methodology for 
support calculations beginning July 1, 2012.
    66. Appendix H of the USF/ICC Transformation Order uses, the 
methodology of quantile regression analyses to generate a set of limits 
for each rate-of-return cost company study area. These would limit the 
values used in eleven of the twenty-six steps in NECA's Cost Company 
Loop Cost Algorithm, which is used to calculate the study area's total 
unseparated cost per loop, and ultimately its HCLS. The regression-
derived limits are set at the 90th percentile of costs for each 
individual step in NECA's Cost Company Loop Cost Algorithm, compared to 
similarly situated companies for each individual step. In other words, 
a company whose actual costs for a particular step in the algorithm are 
above the 90th percentile, compared to similarly situated companies, 
would be limited to recovering amounts that correspond to the 90th 
percentile of cost, i.e. the amount of cost that ninety percent of 
similarly situated companies are at or below when they submit costs for 
that particular step in the algorithm. The Commission seeks comment on 
whether the 90th percentile is the appropriate dividing line to 
disallow recovery of cost, or whether the Commission should establish a 
lower or higher threshold, such as the 85th percentile or the 95th 
percentile.
    67. For the dependent variable in the regression analysis, 
Commission staff limited its analysis to cost data filed by rural rate-
of-return companies that submit cost data, and excluded cost data filed 
by price cap carriers. For the independent variables, staff used 2010 
block-level Census data that it mapped to each study area. The 
independent variables included: number of loops, number of housing 
units (broken out by whether the housing units are in urbanized areas, 
urbanized clusters, and nonurban areas), as well as several geographic 
measures such as land area, water area, and the number of census blocks 
(all broken out by urbanized areas, urbanized clusters, and nonurban 
areas). The analysis thereby recognizes that many smaller study areas 
(those with lower populations to serve) and more rural geographies 
(those with lower population densities) legitimately have higher costs 
per line (i.e., compared to the national average cost per loop) than 
larger study areas that contain significant urban populations.
    68. As explained more fully in Appendix H of the USF/ICC 
Transformation Order, quantile regression has several advantages over 
other statistical techniques for identifying outliers. Although the 
Commission finds that quantile regression is an appropriate technique 
to use in setting benchmarks on reimbursable investment and expenses, 
the Commission invites further comment on alternative statistical 
techniques.
    69. This methodology utilized variables that are currently 
available to the Commission. The Commission acknowledges that in their 
analysis using proprietary cost data, the Nebraska Companies also 
included variables for frost index, wetlands percentage, soils texture, 
and road intersections frequency. As noted in the USF/ICC 
Transformation Order, the soils data from the Natural Resource 
Conservation Service (NRCS) that the Nebraska study used do not cover 
all the study areas used in its regressions (such as Puerto Rico, Guam, 
American Samoa, U.S. Virgin Islands, Northern Mariana Islands, and 
Alaska). The Commission seeks comment on sources of other soil data 
that completely cover all the study areas or how to deal with those 
study areas where the SSURGO data are missing or incomplete. To the 
extent any commenter advocates use of a methodology that includes 
additional independent variables, they should identify with specificity 
the data source and the completeness and cost of the additional data, 
if not publicly available.
    70. In the USF/ICC Transformation Order, the Commission concludes 
that support will be redistributed to those carriers whose unseparated 
loop cost is not limited by operation of the benchmark methodology. 
Based on 2010 NECA data filed with the Commission, and using an 
estimate of $455 for the national average cost per loop, it estimates 
this proposed methodology would reduce HCLS payments to about 280 rural 
rate-of-return cost study areas by an estimated $110 million, with 
approximately $55 million redistributed to approximately 340 cost 
company study areas whose unseparated loop cost is not limited by 
operation of the benchmark methodology. The Commission thus estimates 
that more study areas could see increases in HCLS than would see 
decreases.
    71. In the USF/ICC Transformation Order, the Commission concludes 
that it should also limit recovery of excessive

[[Page 78392]]

capital and operating costs through the interstate common line support 
mechanism. The Commission seeks comment on how specifically to 
implement such a limit for ICLS.
    72. Although the Commission currently does not receive detailed 
cost data for determining ICLS, the Commission believes the best 
approach for calculating benchmarks to limit reimbursable capital and 
operating costs for ICLS would be to use a methodology similar to the 
one developed for HCLS, and seeks comment on this proposal. In the USF/
ICC Transformation Order, the Commission modifies its rules to require 
NECA to provide to the Commission upon request underlying data 
collected from ETCs to calculate payments under the current support 
mechanisms, including ICLS. In the USF/ICC Transformation Order, the 
Commission directs NECA to file the detailed revenue requirement data 
it receives from carriers no later than thirty days after release of 
the USF/ICC Transformation Order so that WCB could evaluate whether it 
should adopt a methodology using these data.
    73. The Commission seeks comment on two other alternatives that 
would not use the detailed revenue data from NECA or require carriers 
to file additional data. First, the Commission could run a single 
regression using the total interstate revenue requirement for each 
carrier, but this approach does not distinguish between capital and 
operating costs. Second, the Commission could use the decrease in cost 
per loop resulting from the regressions used to limit HCLS to limit a 
carrier's interstate revenue requirement. While the Commission 
recognizes that there are some differences between the costs used to 
calculate unseparated loop costs and the common line revenue 
requirement, and between loops and access lines, the Commission seeks 
comment on whether they are equivalent enough for purposes of 
establishing benchmarks for reasonable costs.
    74. The Commission seeks comment generally on whether network 
operation and investment by Tribally-owned and operated carriers is 
significantly different from non-Tribal conditions to warrant special 
treatment for purposes of establishing benchmarks for permissible 
capital and operating costs. The Commission seeks comment on whether 
the 90th percentile is the appropriate dividing line to disallow 
recovery of costs, or whether it should establish a lower or higher 
threshold, such as the 85th percentile or the 95th percentile. The 
Commission seeks comment here on whether a different percentile is 
appropriate for Tribally-owned and operated carriers, or whether it 
should otherwise alter the methodology to take into account the unique 
circumstances of Tribally-owned and operated carriers that are just 
beginning to serve their communities.
1. Modeling Limits on Reimbursable Operating and Capital Costs
    75. Overview. This section summarizes the methodology set forth in 
Appendix H of the USF/ICC Transformation Order, which is available in 
its entirety at http://transition.fcc.gov/Daily_Releases/Daily_Business/2011/db1122/FCC-11-161A1.pdf, for determining carrier-specific 
limits on High Cost Loop Support (HCLS) payments to rate-of-return cost 
carriers with very high capital expenses (capex) and operating expenses 
(opex) relative to their similarly situated peers. The methodology 
operates within the current HCLS calculation algorithm, using 
information that is readily available to the Commission and to the 
public. This section describes both the econometric process used to 
establish carrier-specific limits to HCLS payments and the 
implementation process.
    76. This work significantly extends the analyses submitted by the 
Nebraska Rural Independent Companies, which use ordinary least squares 
regression analysis to develop a framework to predict capital and 
operating expenditures. The Nebraska study examines data for a subset 
of rural rate-of-return carriers, and uses proprietary data not 
available to the Commission or to the public. In contrast, the proposed 
methodology described herein uses data currently available to the 
Commission and sets forth a detailed and implementable mechanism for 
examining all rural rate-of-return cost study areas and limiting HCLS 
payments in those study areas that have costs higher than the vast 
majority of their similarly-situated peers. The Commission uses 
quantile regression for parameter estimation rather than ordinary least 
squares for reasons set forth below. In addition, because directly 
implementing caps for capex and opex cannot be accomplished without 
fundamentally altering the way HCLS support payments are calculated 
today, the methodology described can be implemented quickly within the 
current HCLS framework.
    77. Methodology for Imposing Limits. This methodology creates caps 
for 11 of the algorithm steps in NECA's 26-step Cost Company Loop Cost 
Algorithm. These algorithm steps are all functions of cost categories 
that are defined in NECA's Appendix B. The methodology calculates the 
maximum amount for each of the 11 algorithm steps as the 90th 
percentile cost for a similarly situated company. A company whose 
actual costs for a particular step in the algorithm are above the 90th 
percentile, compared to similarly situated companies, would be limited 
to recovering amounts that correspond to the 90th percentile of cost, 
i.e. the amount of cost that ninety percent of similarly situated 
companies are at or below when they submit costs for that particular 
step in the algorithm
    78. The methodology involves a quantile regression analysis using 
data from nearly all the rural rate-of-return cost carriers for each 
algorithm step. The quantile regression parameter estimates are used to 
calculate a cap equal to the 90th percentile prediction for each 
carrier for that algorithm step. This is repeated for each of the rest 
of the examined algorithm steps. Once all the 90th percentile caps are 
calculated, the lesser of the company's capped algorithm step value and 
the original value is inserted into the appropriate algorithm step, 
which then flows into the later algorithm steps as before. The 11 
algorithm steps in the analysis are identified below.
    79. The Commission considered using an ordinary least squares-based 
analysis to set the caps, but decided that quantile regression was 
preferable for two reasons. First, error terms in bivariate OLS models 
of each algorithm step on the loops variable exhibit 
heteroscedasticity. While ordinary least squares-based analyses such as 
weighted least squares can certainly deal with heteroscedasticity, it 
complicates efforts to deal with other problems such as outliers and 
non-Gaussian error terms.
    80. Further, ordinary least squares can produce biased parameter 
estimates in the presence of outliers. Ordinary least squares has 
methods available for dealing with outliers, such as excluding them 
from the analysis or using dummy variables to deal with them, but that 
requires exercise of judgment as to which observations are truly 
outliers. Also, given the data currently available to the Commission, 
distinguishing between study areas with high idiosyncratic costs (i.e., 
those that truly are the most expensive-to-serve areas) and others with 
excessively high cost (e.g., due to imprudent or unnecessarily large 
past investments) is challenging. Further complicating matters, some 
carriers may enjoy especially low costs compared to their peers for 
idiosyncratic reasons. While these observations would be outliers, they

[[Page 78393]]

would be masked by the virtue that they are somewhat ``too low'' and 
therefore it would be difficult to properly identify and deal with 
those outliers. Thus, simply looking only for observations that are too 
high may be insufficient. When using ordinary least squares, failing to 
account for all outliers (including the difficult-to-find outliers that 
are ``too low'') could bias the regression coefficients which would 
then bias payments to carriers. Quantile regression solves this 
problem.
    81. Use of Quantile Regression. Quantile regression, developed by 
Roger Koenker and Gilbert Basset in 1978, is a good solution to address 
these problems. It is similar to ordinary least squares regression, but 
where ordinary least squares minimizes the sum of squared residuals 
from the regression line, the median quantile regression minimizes the 
sum of absolute residuals from the regression line; for quantiles other 
than the median, quantile regression minimizes the sum of 
asymmetrically-weighted absolute residuals.
    82. While ordinary least squares requires the error terms be 
homoscedastic, quantile regression makes fewer assumptions about the 
error term than ordinary least squares, and so there is no need to 
correct for heteroscedasticity. Thus the quantile regression 
methodology is robust to error structures that are non-Gaussian or 
violate the assumption of the normal distribution of errors required 
for unbiased estimation using ordinary least squares.
    83. Quantile regression is also resistant to outliers, so the 
parameter estimates would be little changed by accounting for (or not) 
particular observations as outliers. That is, if one were to modify the 
analysis to account for any known outliers, then the Commission would 
not expect the list of study areas affected by the caps or the levels 
of those caps to change very much. Given the complexities of 
identifying outliers mentioned above, this is an attractive property.
    84. Another significant advantage of quantile regression is that it 
allows the independent variables to have different effects on the study 
areas in the different quantiles. Thus, for illustrative purposes, if 
the number of housing units in a rural area increased while holding 
everything else constant, the size of the study area's cost increase 
could differ based on which quantile it is in. Hypothetically, the 
marginal effect of a change could even be positive for a carrier in one 
quantile (such as the 90th percentile) and negative for a carrier in 
another (such as the 10th percentile). This is not allowed in ordinary 
least squares, which assumes that the marginal effect is the same on 
all carriers. Given that the Commission is examining carriers with high 
costs relative to other carriers, this is an especially helpful 
property.
    85. Setting the Quantile Threshold. This methodology uses the 90th 
percentile because carriers with costs exceeding 90 percent of their 
similarly-situated peers may raise questions about the prudence of such 
expenditures. In the Further Notice, the Commission seeks comment on 
whether to set the exact quantile to a lower or higher level such as 
the 85th percentile or the 95th percentile.
    86. All of the regressions were log-log: all dependent and most 
independent variables were logged using the natural log. For those 
variables that were logged, the Commission added one before taking the 
log so that observations with values equaling zero could be included in 
the analysis.
    87. While many of the measures of density are collinear, this is 
not problematic for this methodology because our goal is prediction, 
not statistical inference. Multicollinearity does not harm predictions.
    88. Dependent Variables. Consistent with the idea of limiting 
reimbursements for capex, the Commission creates caps for algorithm 
steps 1, 2, 17 and 18. Algorithm steps 1 and 2 represent the two 
categories of gross plant. Algorithm steps 17 and 18 represent the 
depreciation and amortization associated with the plant represented in 
algorithm steps 1 and 2.
    89. Consistent with the idea of limiting reimbursements for opex, 
the Commission creates caps for algorithm steps 7, 8, 13, 14, 15, 16, 
and 21. Algorithm steps 7 and 8 represent materials and supplies. 
Algorithm steps 13 and 14 represent maintenance. Algorithm steps 15 and 
16 represent network support and general support expenses. Algorithm 
step 21 represents benefits other than corporate operations expenses. 
By creating caps for these 11 algorithm steps, the Commission limits 
the reimbursements for capex and opex expenditures that exceed those of 
the vast majority of similarly-situated carriers.
    90. The Commissions excludes algorithm step 19 (corporate 
operations expense) from the regression analysis because limitations 
for that cost category have been separately adopted in the USF-ICC 
Transformation Order, and also excludes algorithm step 20 because it 
represents taxes. Additionally, the Commissions excludes algorithm step 
22 (rents) because the regression fit is so poor. Because the 
regressions are run independently, the exclusion of algorithm step 22 
from the methodology does not affect the other regressions.
    91. As mentioned above, some of the early algorithm steps calculate 
factors (based on the reported cost categories) that flow into later 
algorithm steps. While the Commission does not directly modify 
algorithm steps 3, 4, 5, 6, 9, 10, 19, 20, and 22, the Commission 
allows changes in algorithm steps 1 and 2 to flow through to these 
algorithm steps. For example, algorithm steps 1 and 2 flow into 
algorithm step 20, which accounts for operating taxes to be assigned to 
loop costs. Thus, a reduction to algorithm step 1 and/or 2 could lead 
to a reduction in algorithm step 20, which would be in accordance with 
the approach of limiting HCLS payments to study areas with very high 
capital expenses.
    92. As with the independent variables, the values of the algorithm 
steps in our analysis were logged to linearize the model. In two 
instances, a study area had a negative algorithm step value, which 
prevented us from taking the natural log for those two values. These 
two observations were omitted. The data from these two study areas were 
still included in all the other regressions. Where the algorithm step 
value was negative, the study area's original algorithm step value was 
retained.
    93. Independent Variables. The independent variables in this study 
are those that the Commission believes correlate with each carrier's 
costs, are currently available to the Commission, and exist for all 
study areas in the regression analysis. The independent variables in 
the methodology are proxies for scale, density, and terrain. Other than 
the number of loops the study area serves, all the independent 
variables are from the 2010 United States census. As with the algorithm 
step variables, the Commission took the natural logs of all the 
independent variables to linearize the model.
    94. Census block data were rolled up to study area boundaries using 
Tele Atlas data. There were 28 study areas without census block 
information that were excluded from this analysis. There are two 
significant advantages to using block-level census data. First, census 
blocks are most granular areas at which the Census Bureau publishes 
data, so using census blocks allows for the most accurate mapping of 
demographic data such as housing units to study areas. Second, census 
blocks are designated as being part of (in decreasing urbanness order) 
an urbanized area, urbanized

[[Page 78394]]

cluster or nonurban. In this fashion, the Commission allowed the 
nonurban (rural) independent variables to have different effects from 
the urban variables. For instance, the additional cost of serving an 
additional urban housing unit (holding all else constant) is likely to 
be different than the cost of serving an additional rural housing unit. 
Therefore, for each of the census-based independent variable in our 
analysis, the Commission rolled the data up based on whether they are 
in an urbanized area, urbanized cluster or rural area within the study 
area.
    95. Not all the variables are significant in each regression, and 
there are some variables (such as the log of land area in urbanized 
clusters) that are not significant in any of the regressions. The 
Commission chose to use all the variables in all the regressions so 
long as the parent variable (such as land area) had at least one child 
variable (such as land area in a non-urbanized area) that was 
significant for at least one of the regressions in the analysis. While 
this meant that some regressions had many insignificant variables, this 
was not a problem because the goal of the regression was not to 
determine statistically significant correlations, but instead to 
generate 90th percentile predictions, which are unaffected by the 
addition of insignificant variables.
    96. The Commission used two measures of scale, loops and housing 
units. The more loops the carrier is serving, the higher its expenses 
will be. The Commission uses the number of loops in NECA's October 2011 
filing. The NECA data do not disaggregate loop data by urbanized 
clusters, urbanized areas or non-urban areas, so the Commission 
includes an additional scale variable with the urbanness breakout: 
housing units.
    97. The Commission included two measures of density in our 
analysis, the weighted housing unit density and the number of census 
blocks in the study area. Because it is easier to wire businesses and 
homes when they are close to each other than when they are far apart, 
the Commission expects that costs will decrease with density. There are 
several ways one can measure density, however.
    98. The simple method, which merely divides the study area's number 
of housing units by total area (or just land area) does not take into 
account the possibility that large swaths of land in a study area may 
have absolutely no homes or businesses. So the Commission calculated 
the weighted average density for each study area using census block 
data.
    99. For each census block in each study area, the Commission 
calculated the block's density by dividing the number of housing units 
in the block by the area of the block. The Commission then set the 
weight for each block equal to the number of housing units in the block 
divided by the total number of housing units in the study area. Thus, 
blocks without any homes had no weight. Again, census data do not 
include the number of businesses in the block, so they could not be 
included in the density calculation.
    100. The Commission included land and percent water in each study 
area as a rough indicator of terrain-driven costs. The Commission 
expects that holding everything else constant, the more land area that 
a carrier has in its territory, the more expensive it is to serve. 
Similarly, the more water area in the study area, the more expensive it 
should be to serve, because roads are typically routed around such 
water, so the natural pathways for the carrier's cabling are longer 
than they otherwise would be.
    101. Results. The regression analysis was run for the four most 
recent years of data that NECA reported to the Commission: 2007-2010. 
The results for each year of data were very consistent with each other. 
The regression results from 2010 are available at http://transition.fcc.gov/Daily_Releases/Daily_Business/2011/db1122/FCC-11-161A1.pdf.
    102. Two versions of the quantile regression analysis are presented 
there: Table 1 includes the weighted density variable, and Table 2 
excludes it. Perhaps surprisingly, weighted density was significant in 
only one of the regressions in Table 1. One may think weighted density 
is insignificant in this model because of the inclusion of the other 
density measures (the three blocks variables), but weighted density is 
still insignificant when the blocks variables are omitted. (Further, 
the pseudo R\2\ drops when the Commission omits the blocks variables, 
so it keeps the blocks variables in the analysis and drops the weighted 
density variable.) The Commission therefore uses the model that 
excludes weighted density.
    103. As expected, the loops variable was the most influential 
independent variable in predicting the values for the algorithm steps. 
The remaining variables are significant in many of the regressions 
(both when including and excluding the weighted density variable), and 
so they remain in the regressions.
    104. As mentioned above, the study area's capped algorithm step 
values (or the original algorithm step values where they are lower than 
the capped algorithm step values) are inserted into the algorithm. 
These step values then flow into later algorithm steps that ultimately 
determine the Study Area Cost Per Loop value.
    105. In addition, WCB has released additional relevant data at: at 
http://fcc.gov/encyclopedia/rate-return-resources under the heading 
``Connect America Fund FNPRM Appendix H Data [zip file].''
    106. Implementation. This proposed methodology would be updated 
annually to establish limits on the Study Area Cost Per Loop values, 
which are used to determine eligibility for HCLS payments.

F. ETC Service Obligations

    107. The Commission seeks comment on what action may be appropriate 
to adjust ETCs' existing service obligations as funding shifts to new, 
more targeted mechanisms. The Commission's aim is to ensure that 
obligations and funding are appropriately matched, while avoiding 
consumer disruption in access to communications services.
    108. Under the new funding mechanisms established in the USF/ICC 
Transformation Order and proposed in the FNPRM, ETCs may receive 
reduced support in their existing service areas, and ultimately may no 
longer receive any federal high-cost support. The Commission seeks 
comment on whether such reductions should be accompanied by relaxation 
of those carriers' voice service obligations under 47 U.S.C. 214(e)(1) 
in some cases. For example, under the CAF Phase II process, an 
incumbent LEC that declines to undertake a state-level service 
commitment may lose some or all of its ongoing support in that state. 
Similarly, the Commission will gradually phase out all high-cost 
support received by incumbent rate-of-return carriers in study areas 
where an unsubsidized competitor--or a combination of unsubsidized 
competitors--offers voice and broadband service that meets the 
performance requirements for 100 percent of the residential and 
business locations in the incumbent's study area. Likewise, competitive 
ETCs that today receive support under the identical support rule will 
see funding in their existing service areas phased down over time as 
set forth in the USF/ICC Transformation Order, although those ETCs will 
be eligible for targeted funding to extend advanced mobile services 
through the Mobility Fund Phase I and Phase II. Some commenters have 
proposed that as these reductions occur, the Commission should relax or 
eliminate ETCs' voice service

[[Page 78395]]

obligations. The Commission seeks comment on this suggestion.
    109. In addition, even in service areas where ETCs retain existing 
support levels or receive greater funding under the Connect America 
Fund, that funding will increasingly be targeted at the census block 
level, or to other precisely defined geographic areas. For example, in 
the USF/ICC Transformation Order, the Commission directed WCB to 
develop a cost model to estimate on a granular level, such as the 
census block, the amount of support necessary for deployment of a 
broadband-capable wireline network in high-cost areas above a specified 
threshold, and to use the output of that model to calculate the support 
that incumbent price cap companies would receive if they undertake 
state-level broadband service commitments. These price cap ETCs will 
still be subject to voice service obligations under 47 U.S.C. 
214(e)(1), however, and the model-derived support amount will not 
include a separate estimate of support for the cost of providing voice 
service to locations below the specified threshold or those locations 
that will receive funding from the Remote Areas Fund that the 
Commission establishes in the USF/ICC Transformation Order. Likewise, 
competitive ETCs that bid for Phase I Mobility Fund support will be 
required to offer advanced mobile service in specific unserved census 
areas, but their state or federally-defined service territory may be 
substantially larger than their bid areas. The Commission seeks comment 
on whether, in situations such as these, some adjustment in affected 
ETCs' 47 U.S.C. 214(e)(1)obligation to offer service throughout their 
service area may be appropriate. Alternatively, the Commission seeks 
comment on whether it should adopt a federal framework for the process 
to be used in redefining service areas, by the states or the 
Commission, as appropriate. What specific modifications to 47 CFR 
54.207 would be appropriate? Should there be uniform procedures for 
service area redefinition for ETCs that are incumbent carriers, 
regardless of whether the incumbent is classified as a rural carrier or 
a non-rural carrier in a particular study area?
    110. The Commission proposes that existing ETC relinquishment and 
service area redefinition procedures, backstopped by the availability 
of forbearance from federal requirements, provide an appropriate case-
by-case framework in which to address these issues in the near term, 
but the Commission also seeks comment on other approaches. To the 
extent that carriers find that the ETC relinquishment and service area 
redefinition procedures prove insufficient, the Commission proposes 
that case-by-case federal forbearance would provide an appropriate 
remedy in the near term, as the Commission gains experience under the 
new universal service mechanisms established in the USF/ICC 
Transformation Order. Under section 10 of the Act, 47 U.S.C. 160, the 
Commission must forbear from applying any regulation or any provision 
of the Act to a telecommunications carrier. The Commission has forborne 
from the 47 U.S.C. 214(e)(1) requirement that ETCs offer service using 
at least some of their own facilities and the 47 U.S.C. 214(e)(5) 
requirement that the service area of a competitive ETC conform to the 
service area of any rural telephone company service. The Commission 
sees no reason why it could not likewise forbear from the 47 U.S.C. 
214(e)(1) requirement that carriers offer service throughout their 
service area if the statutory criteria for forbearance are met. In 
particular, the Commission notes that 47 U.S.C. 160 expressly grants it 
authority to tailor forbearance relief to any or some of 
telecommunications carriers' geographic markets, which the Commission 
believes would allow it forbear from enforcing a carrier's 47 U.S.C. 
214(e)(1) obligations in some parts of its service area, while 
maintaining those obligations elsewhere. The Commission seeks comment 
on its interpretation of 47 U.S.C. 160, and on its proposal to use 
case-by-case forbearance to adjust carriers' 47 U.S.C. 214(e)(1) 
service obligations under its new funding mechanisms as necessary and 
in the public interest.
    111. The Commission notes that some commenters have sought broader 
modifications to the 47 U.S.C. 214(e)(1) framework, and the Commission 
also seeks comment on these suggestions as alternatives or supplements 
to the case-by-case approach it proposed. In particular, some 
commenters suggest that the Commission adopt a rule under section 47 
U.S.C. 201 or 47 U.S.C. 254(f) providing that an ETC's 47 U.S.C. 
214(e)(1) service area should be limited to those specific geographies 
(e.g., wire centers) where the ETC is receiving universal service 
support.
    112. These commenters also suggest that the Commission grant 
blanket 47 U.S.C. 160 forbearance to the extent 47 U.S.C. 214(e)(1) 
requires ETCs to offer service in areas where they receive no universal 
service support. In the alternative, commenters suggest that the 
Commission reinterpret 47 U.S.C. 214(e)(1) to require the provision of 
service only in areas where those services actually are supported, 
contending that the requirement in 47 U.S.C. 214(e)(1) that ETCs offer 
the services that are supported suggests that the service obligation 
only attaches where support actually flows.
    113. The Commission seeks comment on each of these proposals. In 
particular: Do these approaches appropriately balance federal and state 
roles in the designation and oversight of ETCs? Are they in tension 
with the requirement in 47 U.S.C.214(e)(4) that ETCs may only be 
allowed to relinquish their designations in areas served by more than 
one eligible telecommunications carrier, i.e., areas where service will 
continue even if relinquishment is permitted? Are they in tension with 
the statutory language in 47 U.S.C. 214(e)(5) that the service area of 
a rural telephone company is its study area, unless the Commission and 
the states, establish a different definition? Are there ways to address 
this tension and ensure continued voice service to consumers in all 
areas of the country, while still taking steps to better align targeted 
funding with service obligations, as some commenters advocate? Is the 
proposed interpretation of 47 U.S.C. 214(e)(1) consistent with that 
section's requirement that carriers offer the services that are 
supported throughout the service area for which their ETC designation 
is received?
    114. If the Commission were to establish a general rule that 
service obligations should only attach in the specific geographies 
(e.g., wire centers) where the ETC is receiving universal service 
support, the Commission also seeks comment on what would be the 
appropriate geography to use. Should the Commission use geographies 
based on the actual network architectures of fund recipients, like wire 
centers? Or should the Commission pick technology-neutral geographies, 
such as census blocks, census tracts, or counties? How granular should 
the Commission's definition of the service requirement be? What would 
be the practical implications of an ETC having service obligations in 
certain census blocks and not others within a community (for instance 
having obligations outside of town, but not within the footprint of an 
unsubsidized provider that services only the town), and would that 
variation in obligation result in consumer confusion?
    115. Finally, the Commission also seeks comment on how to ensure 
that low-income consumers across America continue to have access to 
Lifeline service, both in urbanized areas that

[[Page 78396]]

will not, going forward, receive support from the new CAF, and in rural 
areas that will, over time, receive support from the CAF. As a 
practical matter, how can the Commission ensure that low-income 
consumers that only wish to subscribe to voice service continue to have 
the ability to receive Lifeline benefits? The Commission emphasizes its 
ongoing commitment to ensuring that low-income consumers in all regions 
of the county have access to telecommunications and information 
services. Some commenters have suggested that the Commission create 
Lifeline-only ETCs. As a matter of federal policy, would it thwart 
achievement of the objectives established by Congress to relieve an 
existing ETC of the obligation to provide Lifeline if there was no 
other ETC in that particular area willing to offer Lifeline services?

G. Ensuring Accountability

    116. The Commission proposes various alternative remedies available 
to it in the event an ETC fails to comply with its rules regarding 
receipt of high-cost universal service support.
    117. Financial Guarantees. The first alternative remedy the 
Commission proposes for non-compliance with its rules is a financial 
guarantee. The Commission proposes that a recipient of high-cost and 
CAF support should be required to post financial security as a 
condition to receiving that support to ensure that it has committed 
sufficient financial resources to complying with the public interest 
obligations required under its rules and that it does in fact comply 
with the public interest obligations set forth in Section VI of the 
USF/ICC Transformation Order. In particular, the Commission seeks 
comment on whether all ETCs should be required to obtain an irrevocable 
standby letter of credit (LOC) no later than January 1, 2013. The 
Commission's goal in proposing this requirement is to protect the 
integrity of the USF funds disbursed to the recipient and to secure 
return of those funds in the event of a default, even in the event of 
bankruptcy.
    118. The Commission seeks comment on applying post-auction 
procedures, including performance guarantees, to ETCs that apply for 
funding after a competitive bidding process. The Commission seeks 
comment on adopting financial performance guarantee requirements for 
ETCs that receive funding through processes other than competitive 
bidding.
    119. Should ETCs that will receive less than a specified amount of 
support be exempted from any requirement to provide an LOC? On what 
basis should the Commission adopt such a blanket exemption? For 
instance, should it be based on the aggregate amount of support 
provided on a study area basis, and at what dollar level should the 
Commission grant such an exemption?
    120. The Commission seeks comment on how to determine the amount of 
the LOC necessary to ensure compliance with the public interest 
obligations imposed in the USF/ICC Transformation Order, as well as the 
length of time that the LOC should remain in place. For example, the 
amount of the LOC could be determined on the basis of the ETC's 
estimated annual funding amount. Should the amount of an initial LOC, 
or a subsequent LOC, also ensure the continuing maintenance and 
operation of the network? The Commission also recognizes that a 
recipient's failure to fulfill its obligations may impose significant 
costs on the Commission and, potentially, on the USF itself if there is 
a need to provide additional support to another ETC to serve the area. 
Should the amount of an initial LOC or a subsequent LOC include an 
additional amount that would serve as a default payment? Under what 
circumstances should the ETC be required to replenish the LOC? For how 
long should an ETC be required to keep the LOC in place? Is there a 
finite time after which the LOC will no longer be necessary to 
safeguard the Fund?
    121. The Commission proposes that under the terms of the LOC, 
failure to satisfy essential terms and conditions upon which USF 
support was granted, including failure to timely renew the LOC, will be 
deemed a failure to properly use USF support and will entitle the 
Commission to draw the entire amount of the LOC to recover that support 
and any default payment. The Commission, for example, would draw upon 
the LOC when the recipient fails to meet its required deployment 
milestone(s) or other public interest obligations. Are there any 
situations in which the Commission should deem non-compliance to be 
non-material, and therefore not warrant a draw on the letter of credit? 
Should recipients be provided a period of time to cure non-performance 
before drawing on the letter of credit? The Commission proposes that 
failure to comply will be evidenced by a letter issued by the Chief of 
either WTB or WCB or their designee, which letter, attached to an LOC 
draw certificate shall be sufficient for a draw on the LOC.
    122. Penalties. The Commission seeks comment on alternatives to the 
financial guarantees including whether revocation of ETC designation, 
denial of certification resulting in prospective loss of support, or 
recovery of past support amounts is an appropriate remedy for failure 
to meet their public interest obligations. The Commission also seeks 
comment on the specific circumstances in which these alternatives might 
apply, if they are different than the specific circumstances in which 
financial guarantees would apply.
    123. The Commission also seeks comment on what specific triggers 
might lead to support reductions, how much support should be reduced, 
how best to implement support reductions, and how the review and appeal 
process should be revised. If the Commission adopts a framework for 
partial withholding of support, should it establish levels of non-
performance that would result in the loss of specific percentages of 
support? For example, should the Commission establish levels one 
through four of non-compliance, with corresponding loss of support of 
25, 50, 75, and 100 percent? If so, what criteria would the Commission 
use to determine a carrier's level of non-performance?
    124. USAC recovers support when recipients have received support to 
which they are not entitled, typically accomplishing the recovery 
through adjustments in future disbursements. Should the Commission 
adopt rules identifying what constitutes a material failure to perform, 
warranting recovery of past funding? For instance, should price cap 
companies be subject to a loss of prospective support for failure to 
meet intermediate build-out requirements? Should they be subject to 
recovery of past support amounts if they fail to meet the performance 
requirements at the end of the five-year term? Should there be a 
sliding scale for recovery of past amounts depending on the degree to 
which the carrier fails to meet a specified milestone? Should the 
Commission continue the current practice of offsetting any support 
adjustments against future disbursements?
    125. Should the Commission adopt rules that create self-executing 
reductions in support that would be administered by USAC? The 
Commission notes that under its current rules, any party that disputes 
action by USAC may seek review by the Commission. What additional 
processes, if any, should the Commission put in place for ETCs to 
dispute any support adjustments for non-performance?
    126. The Commission recognizes that, under 47 U.S.C. 214, ETC 
designation is a responsibility shared between the states and the 
Commission. The Commission welcomes input from its

[[Page 78397]]

state colleagues on the circumstances in which ETC designations have 
been revoked by states in the past, and what circumstances might 
warrant revocation under its reformed Connect America Fund. Should the 
Commission adopt a national framework for when ETC revocation is 
appropriate?
    127. The State Members of the Universal Service Joint Board suggest 
that denial of certification--which today results in loss of support 
for the coming year--is a draconian remedy that should be available if 
necessary, but avoidable if possible. The Commission seeks comment on 
what circumstances would justify such a result. The State Members also 
proposed in their comments that carriers should be disqualified from 
receiving support during periods in which they fail to provide adequate 
information to verify continuing eligibility to receive support and 
adequate to perform support calculations. The Commission seeks comment 
on this proposal and welcomes input from its state partners on how it 
can ensure there are significant consequences for material non-
compliance.
    128. An alternative approach might be to separately count 
compliance with each public interest obligation established in Section 
VI of the USF/ICC Transformation Order, with non-compliance with each 
individual obligation resulting in the ETC losing a set percentage of 
support for each obligation it fails to meet. Must non-compliance with 
an obligation be material? If so, how will the Commission define 
material for these purposes?

H. Annual Reporting Requirements for Mobile Service Providers

    129. In the USF/ICC Transformation Order, the Commission seeks to 
take several steps to harmonize and update its annual reporting 
requirements for recipients of USF support, including extending the 
current annual reporting requirements to all ETCs. All ETCs that 
receive high-cost support, except ETCs that receive support solely 
pursuant to Mobility Fund Phase I, which has separate annual reporting 
obligations, will be required to annually file the information required 
by new 47 CFR 54.313 with the Commission, USAC, and the relevant state 
commission, authority in a U.S. Territory, or Tribal government or 
authority, as appropriate. In the USF/ICC Transformation Order, the 
Commission also establishes new reporting requirements for the annual 
reports that will ensure that recipients are complying with the new 
broadband public interest obligations it adopts. Because Mobility Fund 
support will differ in some respects from support received under other 
USF high-cost support mechanisms, in the section of the USF/ICC 
Transformation Order adopting the first phase of the Mobility Fund, the 
Commission requires recipients of Mobility Fund support to file annual 
reports specific to that program. Mobility Fund recipients that receive 
support under other high-cost programs may file a separate Mobility 
Fund annual report or they may include the required information with 
respect to their Mobility fund support in a separate section of their 
annual reports filed pursuant to new 47 CFR 54.313.
    130. The Commission seeks comment here on whether there are certain 
requirements in its new annual reporting rule for ETCs, new 47 CFR 
54.313, that do not reflect basic differences in the nature and purpose 
of the support provided for mobile services. Specifically, the 
Commission seeks comment on whether it should revise 47 CFR 54.313 
reporting requirements or adopt new reporting requirements that would 
apply to support an ETC receives to provide mobile services. For 
example, new 47 CFR 54.313 requires ETCs to include in their annual 
reports, beginning with their April 1, 2014 report, information 
regarding their progress on their five-year broadband build-out plan. 
What type of similar information would be appropriate to require of 
mobile service providers who receive support from Phase I or Phase II 
of the Mobility Fund? ETCs are currently required to report annually on 
the number of requests for service from potential customers within the 
ETC's service areas that were unfulfilled during the past year. Should 
the Commission continue to require this information from mobile service 
providers in view of the fact that the measure of performance for ETCs 
receiving Mobility Fund support is coverage of the supported areas, and 
not the number of subscribers to the supported service?
    131. ETCs must also include in their annual reports detailed 
information on outages that meet certain minimum criteria described in 
the rule, including the geographic areas affected and the number of 
customers affected. For mobile service providers, how should the number 
of affected customers be counted? Should the number of affected 
customers be the number of customer billing addresses within the 
affected areas, the average number of customers served by the towers 
that are out-of-service during the outage, or some other measure?
    132. The Commission seeks comment on the annual reporting issues 
and on any other aspects of its annual reporting requirements that 
commenters believe do not reflect the nature of mobile services being 
offered and the objectives of the USF support they receive and that 
require a new annual reporting rule specifically directed to mobile 
service providers.

I. Mobility Fund Phase II

    133. The USF/ICC Transformation Order establishes an annual budget 
for Mobility Fund Phase II of $500 million, up to $100 million of which 
will be reserved to support Tribal lands, including Alaska. The 
Commission proposes rules to use the Mobility Fund Phase II to ensure 
4G mobile wireless services in areas where such service would not 
otherwise be available, and seeks comment on certain alternative 
approaches.
i. Overall Design
    134. The Commission proposes to use a reverse auction mechanism to 
distribute support to providers of mobile broadband services in areas 
where such services cannot be sustained or extended without ongoing 
support. The Commission proposes that the reverse auction be designed 
to support the greatest number of unserved road miles or other units 
within the overall Mobility Fund budget. Assigning support in this way 
would be consistent with its general decision to use market-driven 
policies to maximize the value of limited USF resources, and should 
enable us to identify those providers that will make most effective use 
of the budgeted funds, thereby benefiting consumers as widely as 
possible. The Commission discusses the proposed framework for the 
program and the auction mechanism and seeks comment on alternatives, 
including the use of a model to determine both the areas that would 
receive support and the level of support.
ii. Framework for Support Under Competitive Bidding Proposal
a. Identifying Geographic Areas Eligible for Support
    135. The Commission seeks to provide funding only in geographic 
areas where there is no private sector business case to provide mobile 
broadband and high quality voice-grade service. The Commission proposes 
to identify such areas by excluding all areas where unsubsidized 3G or 
better services are available. The Commission proposes to use census 
blocks as the minimum size geographic unit for identifying eligible 
areas.

[[Page 78398]]

    136. Identifying Areas Eligible for Support. The Commission 
proposes to identify areas eligible for support on a census block 
basis, which would permit us to target Phase II support more precisely 
than if the Commission were to use a larger area. As a proxy for 
identifying areas where private investment is likely to undertake to 
provide mobile broadband services, and thus, areas not eligible for 
support, the Commission proposes to use areas where an unsubsidized 
provider offers 3G or better service based upon the most recent 
available data prior to auction. Under this proposal, any census block 
where 3G or better service is available from at least one unsubsidized 
provider would not be eligible for support. Census blocks with 2G 
service available from an unsubsidized provider as well as census 
blocks where 3G service is provided only by subsidized provider(s) 
would be eligible. Specifically, the Commission would use American 
Roamer data to identify areas where there are mobile networks that 
offer service using EV-DO, EV-DO Rev A, UMTS/HSPA and HSPA+, LTE, and 
any other technologies offering equivalent speeds or better. The 
Commission may wish to prioritize support to areas that also lack 2G 
coverage, and American Roamer data could also be used for this purpose. 
As with Phase I, the Commission proposes to use the centroid method to 
establish whether service using particular technologies is available to 
a particular census block. Census blocks that do not have such service 
would be eligible for Phase II support. The Commission seeks comment on 
these proposals. In particular, the Commission seeks comment on whether 
there are other proxies for determining where private investment will 
deploy mobile broadband, other data sources, other technologies, or 
methods other than the centroid method that the Commission should 
consider in determining whether particular census blocks should be 
excluded from eligibility for support to promote its objectives.
    137. The Commission also seeks comment on how a cost model could be 
used to identify areas for which providers would be able to seek 
support in a Phase II auction. The Commission notes that US Cellular 
and MTPCS have filed analyses based on cost models for the deployment 
of wireless services. Elsewhere, the Commission seeks comment on their 
submissions. In particular, the Commission discusses at greater length 
how a cost model could be used both to identify areas where support 
should be offered and, as an alternative to competitive bidding, to 
determine the amount of support to be offered. The Commission invites 
comment on the possibility of using a mobile wireless cost model only 
to identify the areas that would be eligible for Phase II support, with 
the actual award of support through a reverse auction. The Commission 
also seeks comment on using other criteria--such as the availability of 
unsubsidized services to refine a model-based definition of areas for 
which providers will be eligible to seek support in the auction. For 
example, the Commission could make ineligible for Phase II support 
areas with unsubsidized providers, or areas where any provider has made 
a public or regulatory commitment to provide unsubsidized service, even 
if a cost model indicates that costs are high.
    138. Minimum Size Unit for Bidding and Support. The Commission 
proposes to identify eligible areas at the census block level and that 
the census block should be the minimum geographic building block for 
defining areas for which support is provided. Because census blocks are 
numerous and can be quite small, the Commission believes that the Phase 
II auction should provide for the aggregation of census blocks for 
purposes for bidding. The Commission could set out by rule a minimum 
area for bidding comprised of an aggregation of eligible census blocks. 
In addition, the auction procedures could provide for bidders to be 
able to make all-or-nothing package bids on combinations of bidding 
areas. Package bidding procedures could specify certain predefined 
packages, or could provide bidders greater flexibility in defining 
their own areas, here comprised of census blocks. The Commission seeks 
comment on possible approaches to aggregating census blocks.
    139. Under the Census Tract Approach, the Commission would define a 
minimum aggregation of blocks by rule, for example by aggregating 
eligible census blocks based on the census tract in which they lie, so 
that bidders would bid for support for all eligible census blocks 
within that tract. Under the Bidder-Defined Approach, the Commission 
would not require a minimum aggregation of census blocks, but would 
establish package bidding procedures that would allow bidders to group 
the specific census blocks on which they wanted to bid.
    140. Census Tract Approach. Under this approach the Commission 
would create a minimum unit for bidding that is larger than an 
individual block. For example, the Commission could use a census tract, 
so bidders would bid for support to serve all the eligible blocks 
within the census tract. The Commission asks for comment on whether 
tracts would be an appropriate unit here or whether there is some other 
minimum grouping of census blocks that would be preferable, such as 
block groups. Should the Commission use a different minimum geographic 
unit in areas where census blocks and/or census tracts are especially 
large? For example, if the Commission group blocks into tracts for 
bidding, should it consider making an exception if the particular tract 
is especially large, and use individual blocks or block groups for 
bidding in those cases, as the Commission has done in Alaska for 
Mobility Fund Phase I? Regardless of the minimum unit, there are a 
number of different auction designs that could be used. For example, 
one possibility would be to use a clock auction format with bidding on 
tracts. Without package bidding, bidders could manage aggregations of 
tracts through multiple rounds of bidding. For package bidding, the 
Commission could allow bidders to flexibly aggregate census tracts (or 
other units) of their choosing or it could allow bidders to place 
package bids on pre-defined packages of tracts. The Commission seeks 
comment on bidders' interest in and need for package bidding as it 
relates to its choice of a minimum unit for bidding and support. Under 
the Census Tract Approach bidders would be required to serve a 
specified percentage (e.g., 75 percent) of the units (or road miles, as 
proposed) in the unserved census blocks.
    141. Bidder-Defined Approach. Under this approach, the Commission 
would not specify a minimum aggregation of census blocks but would 
provide bidders with considerable flexibility to aggregate the specific 
census blocks they proposed to serve. Bidders would be able to make 
bids that specify a set of census blocks to be covered, and a total 
amount of support needed. The Commission seeks comment on whether there 
should be a boundary on bids under such procedures--for example, would 
it be useful to have a rule that all the census blocks in a given bid 
must be within a cellular market area (CMA)? Under this approach, a 
bidder could be permitted to submit several bids, up to a limit that 
would be specified in the auctions procedures. Bids by that bidder that 
contained some geographic overlap would be treated as mutually 
exclusive, i.e., only one could be awarded. Bids that do not overlap 
could win simultaneously. The Commission would use a computer 
optimization to identify the set of bids that maximizes the

[[Page 78399]]

number of eligible road miles (or other supported units) covered 
subject to the budget constraint. Under this general approach, there 
may be some limited scenarios where eligible road miles may be covered 
by multiple winners--i.e., whenever the optimization determines that 
the set of winning bids that would maximize the total road miles or 
other units covered within the budget requires limited duplicative 
coverage, the Commission would permit that coverage. The Commission 
seeks comment on whether such an approach could be sufficiently 
contained to ensure that it is truly making the most efficient use of 
the fund given limited resources. The Commission also notes that 
allowing overlap among providers could reduce the revenues a bidder 
expects from customers, and therefore could increase the support a 
bidder would seek. The Commission seeks comment on whether this is a 
significant concern, and whether it could be addressed by allowing 
bidders to make bids contingent on the overlap being less than some 
percentage. In addition providers would be required to serve all the 
units in the census block.
    142. In order to bid effectively, presumably bidders would need to 
match eligible census blocks to their business plans, and know the 
number of road miles (or other supported units) within each census 
block. Prior to an auction, WTB and WCB would provide information on 
the specific eligible census blocks and the units associated with each. 
The Commission could provide information through one or more bidder 
tools on its Web site. Those tools, for instance, could allow bidders 
to readily match up their own information on the geographic areas in 
which they are interested with the blocks available in the auction. 
Bidder tools could also make readily accessible to potential bidders 
various online data, including maps, regarding the unserved blocks in 
which they are interested--such as associated road mile or population 
(or other units) data so that bidders could consider potential per-unit 
bids for coverage of various possible geographic areas. Providing these 
tools could facilitate participation by small as well as large 
providers. The Commission seeks comment on whether there is additional 
information or help that the Commission should provide to bidders would 
need from the Commission or whether the tools needed for this matching 
and calculation can be developed by bidders.
    143. The Commission invites comment on any other advantages and 
disadvantages of the Census Tract and Bidder-Defined approaches from a 
provider's perspective. Commenters should address the minimum scale at 
which providers may want to incorporate Phase II support into their 
existing networks; the simplicity of the auction mechanism; the ability 
of providers to capture efficiencies, and to formulate and implement 
bidding strategies; and ease of administration.
    144. Prioritizing Areas. The Commission seeks comment on whether it 
should target areas currently without any mobile service for priority 
treatment under Phase II. For instance, should it provide a form of 
bidding credit that would promote the support of areas with no mobile 
service at all or only mobile service at lower than current generation 
or 3G levels?
    145. The Commission also seeks comment on whether it should 
prioritize coverage to any areas in which previously provided support 
is being phased down. To the extent that parties believe there is a 
risk of meaningful loss of coverage, the Commission welcomes comments 
on how to define the areas at risk, and how to address the risk. Once 
the areas are defined, they could be prioritized, for example, by 
making available bidding credits for these areas.
b. Establishing Bidding and Coverage Units
    146. The Commission proposes to base the number of bidding units 
and the corresponding coverage requirement on the number of road miles 
in each eligible geographic area. Requiring coverage of road miles 
directly reflects the Mobility Fund's goals of supporting mobile 
services, and indirectly reflects many other important factors--such as 
business locations, recreation areas, and work sites--since roads are 
used to access those areas. And while traffic data might be superior to 
simple road miles as a measure of actual consumer need for mobile 
coverage, the Commission has not found comprehensive and consistent 
traffic data across multiple states and jurisdictions nationwide. 
Because bidders are likely to take potential roaming and subscriber 
revenues into account when deciding where to bid for support under 
Phase II, the Commission expects that support will tend to be disbursed 
to areas where there is greater traffic. The Commission seeks comment, 
however, on the use of other units for bidding and coverage--such as 
population and workplaces--instead of or in combination with road 
miles.
    147. The Commission proposes to use the TIGER data collected by the 
Census Bureau to determine the number of road miles associated with 
each eligible geographic area. TIGER data is available nationwide on a 
standardized basis and can be disaggregated to the census block level. 
The Commission anticipates that the Bureaus would exercise their 
delegated authority to establish the units associated with each 
eligible census block and identify the specific road categories within 
TIGER considered--primary, secondary, local, etc.--to calculate the 
units associated with a given area. The Commission seeks comment on 
this proposal.
c. Maximizing Consumer Benefits
    148. The Commission's goal is to maximize the coverage of mobile 
broadband services supported with its annual Mobility Fund Phase II 
budget. In contrast to the former rules, under which multiple providers 
are entitled to an award of portable, per-subscriber support for the 
same area, the Commission expects that to maximize coverage within its 
budget it will generally be supporting a single provider for a given 
geographic area. The Commission would support more than one provider in 
an area only if doing so would maximize coverage. The Commission seeks 
comment on whether allowing overlap among providers would unduly 
compromise its objective to maximize consumer benefits. The Commission 
plans to take into account its experience implementing Mobility Fund 
Phase I to ascertain whether there are ways to further minimize overlap 
during the implementation of Mobility Fund Phase II. The Commission is 
mindful that its statutory obligation runs to consumers, rather than 
carriers, and that it must target limited public funds in a way that 
expands and sustains the availability of mobile broadband services to 
maximize consumer benefits. To further protect consumer interests, the 
Commission also proposes to adopt certain terms and conditions to 
promote leveraging of publicly funded investment by other providers 
operating in the same areas as a recipient of support under Phase II of 
the Mobility Fund. The Commission invites comment on this approach, 
which is consistent with one the Commission has taken elsewhere with 
respect to universal service support.
    149. The Commission also seeks comment on whether and to what 
extent recipients of Mobility Fund Phase II support should be permitted 
to partner with other providers to fulfill the public interest 
obligations associated with Phase II. For example, should the 
Commission permit eligible providers to seek support together, provided 
that they disclose any such arrangements when applying for a Mobility 
Fund

[[Page 78400]]

auction? The Commission invites comment on whether it should establish 
any limit on the number of geographic areas for which any one provider 
may be awarded Phase II support. If the Commission were to do so, what 
effect would this have on those mobile providers that focus on serving 
rural areas? Is there another basis on which it should limit the amount 
of Phase II support that goes to any one provider?
d. Term of Support
    150. The Commission proposes a fixed term of support of 10 years 
and, in the alternative, seeks comment on a shorter term. In 
considering the optimal term for ongoing support, the Commission seeks 
to balance providing adequate certainty to carriers to attract private 
investment and deploy services while taking into account changing 
circumstances. How should the timeframes for deployment and private 
investment be synchronized with the pace of new technology? What is the 
minimum period for making deployment practicable? In light of possible 
improvements in technology, would it be more practicable to provide for 
a longer term and require an increase in performance during the term? 
Or, would it be more appropriate to provide for a shorter term that 
reflects the likely life cycle of existing technologies? The Commission 
seeks comment on this proposal and on the option for a shorter term.
    151. The Commission also seeks comment on whether it is appropriate 
to establish any sort of renewal opportunity for support, and on what 
terms. For instance, should the Commission follow its licensing regime 
which allows for a renewal expectancy if buildout and service 
obligations have been met? Alternatively, should the Commission take 
into account the extent to which a recipient utilizes new technologies 
to exceed the minimum performance requirements established at the 
outset of the term of support? To what extent should the unforeseen 
development of new products and services in unsupported areas be taken 
into account when assessing a support recipient's performance and 
qualification for renewal?
e. Provider Eligibility Requirements
    152. With a narrow exception, discussed infra, the Commission 
proposes to require that parties seeking Mobility Fund Phase II support 
satisfy the same eligibility requirements that it has adopted with 
respect to Phase I. The Commission seeks comment on this proposal. Is 
there any reason to alter the requirements previously adopted in light 
of the differences between Phase I's one-time support and Phase II's 
ongoing support? Parties providing suggestions should be specific and 
explain how the eligibility requirements would serve the ultimate goals 
of Phase II. The Commission also seeks comment on ways the Commission 
can encourage participation by the widest possible range of qualified 
parties.
f. Public Interest Obligations
    153. Voice. The USF/ICC Transformation Order sets out general 
requirements applicable to all recipients of support from the CAF, 
including recipients of Mobility Fund support. Consistent with those 
requirements, recipients of Mobility Fund support will have to offer 
voice service that satisfies the public interest obligations shared by 
all recipients of CAF support. Likewise, all recipients of Mobility 
Fund support must offer a standalone voice service to the public.
    154. Mobile Broadband Performance Requirements and Measurement. 
Unlike requirement for voice service, recipients' public interest 
obligations with respect to broadband vary depending upon the 
particular public interest goal being met by the support provided. The 
Commission proposes that, as for Mobility Fund Phase I recipients that 
elect to offer 4G service, recipients of Mobility Fund Phase II support 
will be required to provide mobile voice and data services that meet or 
exceed a minimum bandwidth or data rate of 768 kbps downstream and 200 
kbps upstream, consistent with the capabilities offered by 
representative 4G technologies. The Commission further proposes that 
these data rates should be achievable in both fixed and mobile 
conditions, at vehicle speeds consistent with typical vehicle speeds on 
the roads covered. As the Commission notes in its USF/ICC 
Transformation Order regarding Phase I, the proposed measurement 
conditions may enable users to receive much better service when 
accessing the network from a fixed location or close to a base station. 
These minimum standards must be achieved throughout the cell area, 
include at the cell edge, at a high probability, and with substantial 
sector loading. The Commission seeks comment on these initial 
performance metrics. The Commission also seeks comment from providers 
of services used by people with disabilities, such as Internet-based 
telecommunications relay services, including video relay services 
(VRS), and point-to-point video communications or videoconferencing 
services, as to whether these performance metrics will be sufficient to 
support such services and communications.
    155. In order to assure that recipients offer service that enables 
the use of real-time applications, the Commission also proposes that 
round trip latencies for communications over the network be low enough 
for this purpose.
    156. The Commission further seeks comment on whether, and if so, in 
what ways these metrics should be modified during the term of support 
to reflect anticipated advances in technology. The Commission also 
seeks comment from providers of services used by people with 
disabilities as to whether or not and how these performance metrics 
should be modified over time to support such services and 
communications. In the USF/ICC Transformation Order the Commission 
notes the obligations applicable to certain CAF recipients will evolve 
over time. The Commission proposes that the performance characteristics 
required of Mobility Fund Phase II recipients likewise be required to 
evolve over time, to keep pace with mobile broadband service in urban 
areas. How exactly should those obligations evolve? Should the term of 
support provided be synchronized with anticipated changes in 
obligations?
    157. The Commission further proposes that recipients be required to 
meet certain deployment milestones in order to remain qualified for the 
ongoing support awarded in Phase II. Specifically, consistent with the 
approach the Commission is taking for Phase I support used to deploy 
4G, the Commission proposes that providers be required to construct a 
network offering the required service in the required area within three 
years. Commenters are invited to address the feasibility of the 
proposed three year deployment deadline, given the projected 
availability of 4G equipment and any other issues that may affect 
deployment, such as compliance with local, state, or federal laws and 
requirements, and weather. To the extent the Commission modifies 
recipients' public interest obligations over time, the Commission seeks 
comment on when such metrics must be achieved. Should the Commission 
also adopt interim deadlines for upgrading service to comply with 
revised requirements with respect to 50 percent of the covered area?
    158. If the Commission adopts the Census Tract Approach, it 
proposes to require Phase II recipients to provide coverage meeting 
their public service obligations to at least 75 percent of the road 
miles in all of the unserved census blocks for which they receive 
support. To the extent that a recipient covers

[[Page 78401]]

additional road miles or other units beyond the minimum requirement, 
the Commission proposes to provide support based on its bid unit up to 
100 percent of the units associated with the specific unserved census 
blocks covered by a bid. If the Commission adopts the Bidder-Defined 
Area approach, it proposes that Phase II recipients should be required 
to provide coverage meeting their public service obligations to a 
higher percentage, perhaps to all of the unserved units within the 
census blocks.
    159. The Commission proposes that recipients demonstrate that they 
have met relevant performance and coverage obligations by submitting 
drive test data, consistent with the industry norm and the provisions 
the Commission adopts for Phase I. The Commission seeks comment on how 
frequently such data should be submitted during the term of support.
    160. Collocation and Voice and Data Roaming Obligations. The 
Commission requires that Phase I recipients allow the collocation of 
additional equipment under certain circumstances and condition their 
receipt of support on compliance with voice and data roaming 
requirements. The Commission seeks comment on adopting similar 
requirements for Phase II recipients. Are there additional requirements 
the Commission might consider in order to ensure that publicly funded 
investment can be leveraged by other providers to the extent they may 
operate in areas that need universal service support?
    161. Reasonably Comparable Rates. The Commission seeks comment on 
how to implement, in the context of the Mobility Fund Phase II, the 
statutory principle that supported services should be made available to 
consumers in rural, insular, and high-cost areas at rates that are 
reasonably comparable to rates charged for similar services in urban 
areas. The Commission proposes that recipients be subject to the same 
requirements regarding comparable rates that apply to all recipients of 
CAF support.
    162. The Commission will consider rural rates for service supported 
by the Mobility Fund to be reasonably comparable to urban rates under 
47 U.S.C. 254(b)(3) if rural rates fall within a reasonable range of 
urban rates for reasonably comparable service. The Commission seeks 
additional comment here with respect to the evaluation of reasonably 
comparable voice and broadband services for purposes of Mobility Fund 
Phase II specifically.
    163. For purposes of the Mobility Fund, the Commission proposes to 
focus on mobile broadband service that meets the universal service 
performance characteristics. For instance, the Commission invites 
further comment as to whether there are additional sources of 
information or aspects of service to consider in light of the fact that 
Mobility Fund support is for mobile service over a geographic area. The 
Commission also seeks comment on whether the mobile nature of the 
service supported by Mobility Fund Phase II, or the pricing of mobile 
voice and broadband services, present any unique features for purposes 
of adopting a methodology for evaluating rates under its reasonable 
comparability standard. The Commission proposes to require recipients 
of funding under Mobility Fund Phase II to provide information 
regarding their pricing for mobile broadband service offerings.
iii. Auction Process Framework
    164. The Commission proposes general auction rules governing the 
auction process itself, including options regarding basic auction 
design, application process, information and competition, and auction 
cancellation.
    165. As the Commission did for Mobility Fund Phase I, it proposes 
to delegate to the Bureaus authority to establish detailed auction 
procedures consistent with the auction rules the Commission establishes 
here, take all other actions necessary to conduct a Phase II auction, 
and conduct program administration and oversight. Under this proposal, 
a public notice would be released announcing an auction date, 
identifying areas eligible for support through the auction and the road 
miles associated with each area, and seeking comment on specific 
detailed auction procedures to be used.
a. Auction Design
    166. The Commission proposes rules outlining various auction design 
options and parameters, while at the same time proposing that final 
determination of specific auction procedures to implement a specific 
design be delegated to the Bureaus as part of the subsequent pre-
auction notice and comment proceeding.
    167. The Commission proposes a rule providing that a Phase II 
auction may be conducted in a single round of bidding or in a multiple 
round format, or in multiple stages where an additional stage could 
follow depending upon the results of the previous stage. The Commission 
also proposes that maximum bid amounts, reserve prices, bid withdrawal 
provisions, bidding activity rules and other terms or conditions of 
bidding would be established by the Bureaus. Should reserve prices be 
set using the results of a wireless model for each state, similar to 
the CAF Phase II auction where price cap carriers decline the state-
level commitment? The Commission also proposes that the Bureaus may 
consider various procedures for grouping geographic areas within a 
bid--package bidding--that could be tailored to the needs of 
prospective bidders as indicated during the pre-auction notice and 
comment period.
    168. It appears that some form of package bidding will likely 
enhance the auction by helping bidders incorporate network-wide 
efficiencies into their bids. The Commission invites preliminary 
comment on whether package bidding may be appropriate for this auction 
and if so, why. The Commission asks for input on package bidding as it 
relates to its choice of the Census Tract or Bidder-Defined approaches. 
The Commission asks for any additional comments on the potential 
advantages and disadvantages of possible package bidding procedures and 
formats. The Commission asks for input on the reasons why certain 
package bidding procedures would be helpful or harmful to providers 
bidding in an auction, and what procedures might best meet its goal of 
maximizing the benefits of Phase II support for consumers. For example, 
regardless of whether the Commission adopt the Census Tract or Bidder-
Defined approach, should it impose some limits on the size or 
composition of package bids, such as allowing flexible packages of 
blocks or larger geographic units as long as the geographic units are 
within the boundaries of a larger unit such as a county or a license 
area (e.g., a CMA)? Or, if the Commission adopts the Census Tract 
approach, should it establish package bidding procedures that allow 
bidders to place package bids on predetermined groupings of areas that 
follow a particular hierarchy--such as blocks, tracts, and/or counties, 
which nest within the census geographic scheme?
b. Potential Bidding Preference for Small Businesses
    169. The Commission seeks comment on whether small businesses 
should be eligible for a bidding preference in a Phase II auction. If 
adopted, the preference would act as a reverse bidding credit that 
would effectively reduce the bid amount of a qualifying small business 
for the purpose of comparing it to other bids. The preference would be 
available with respect to all census blocks on which a qualified small 
business bids. Would a bidding credit be an effective way to

[[Page 78402]]

help address concerns regarding smaller carriers' ability to 
effectively compete at auction for support? Would such a bidding credit 
be consistent with the objective of the Phase II fund to support the 
greatest number of unserved road miles within the overall Mobility Fund 
budget? Should the Commission adopt a preference to assist small 
businesses even if the bidding credit results in less coverage achieved 
than would occur without the bidding credit?
    170. The Commission also seeks comment on the appropriate size of 
any potential small business bidding credit. The Commission notes that, 
in the spectrum auction context, the Commission typically awards small 
business bidding credits ranging from 15 to 35 percent, depending on 
varying small business size standards. The Commission seeks comment on 
what bidding credit percentage, if any, would be appropriate to 
increase the likelihood that the small business would have an 
opportunity to win support in the auction.
    171. The Commission also seeks comment on how it should define 
small businesses. In the context of the Commission's spectrum auctions, 
the Commission has defined eligibility requirements for small 
businesses seeking to provide wireless services on a service-specific 
basis, taking into account the capital requirements and other 
characteristics of each particular service in establishing the 
appropriate threshold.
    172. The Commission seeks comment on the use of a small business 
definition in the Mobility Fund Phase II context based on an 
applicant's gross revenues, as it has done in the spectrum auction 
context. Specifically, should a small business be defined as an entity 
with average gross revenues not exceeding $40 million for the preceding 
three years? Alternatively, should the Commission consider average 
gross revenues not exceeding $125 million for the preceding three 
years? In determining an applicant's gross revenues under what 
circumstances should the Commission attribute the gross revenues of the 
applicant's affiliates? The Commission also invites input on whether 
alternative bases for size standards should be established in light of 
the particular circumstances or requirements that may apply to entities 
biding for Mobility Fund Phase II support. Commenters should explain 
the basis for their proposed alternatives, including whether anything 
about the characteristics or capital requirements of providing mobile 
broadband service in unserved areas or other considerations require a 
different approach.
c. Application Process
    173. The Commission proposes a two-stage application process, 
similar to that used in spectrum license auctions, and as described 
more completely in the USF/ICC Transformation Order. Under this 
proposal, the Commission would require a pre-auction short-form 
application from potential auction participants. Commission staff would 
review the short-form applications to determine whether applicants had 
provided the necessary information to participate in an auction. 
Commission staff would then release a public notice indicating which 
short-form applications were deemed acceptable and which were deemed 
incomplete. Applicants whose short-form applications were deemed 
incomplete would be given a limited opportunity to cure defects and to 
resubmit correct applications. Only minor modifications to an 
applicant's short-form application would be permitted. The Commission 
would release a second public notice designating the applicants that 
qualified to participate in the Phase II auction. The Commission seeks 
comment on its proposal, and on any alternative approaches.
d. Information and Communications
    174. The Commission does not see circumstances specific to Phase II 
that warrant departure from its usual auction policies regarding 
permissible communications during the auction or the public release of 
certain auction-related information. Hence, the Commission proposes, in 
the interests of fairness and maximizing competition, to prohibit 
applicants from communicating with one another regarding the substance 
of their bids or bidding strategies. The Commission further proposes a 
rule to provide for auction procedures to limit public disclosure of 
auction-related information. Specific details regarding the information 
to be withheld would be identified during the pre-auction procedures 
process, upon delegated authority to the Bureaus.
e. Auction Cancellation
    175. The Commission proposes that it have discretion to delay, 
suspend, or cancel bidding before or after a reverse auction begins 
under a variety of circumstances, including natural disasters, 
technical failures, administrative necessity, or any other reason that 
affects the fair and efficient conduct of the bidding. The Commission 
seeks comment on this proposal, which is consistent with its approach 
in spectrum auctions, as well as Phase I of the Mobility Fund.
f. Post-Auction Long-Form Application Process for Mobility Fund Phase 
II
    176. The Commission proposes to apply the same post-auction long-
form application process adopted with respect to Phase I for Phase II 
support. Accordingly, applicants for Phase II support would be required 
to provide the same showing that they are legally, technically and 
financially qualified to receive Phase II support as required of 
applicants for Phase I support. In addition, the Commission proposes 
that a winning bidder for Phase II support will be subject to the same 
auction default payment adopted for winning bidders of Phase I support, 
if it defaults on its bid, including if it withdraws a bid after the 
close of the auction, fails to timely file a long form application, is 
found ineligible or unqualified to be a recipient of Phase II support, 
or its long-form application is dismissed for any reason after the 
close of the auction. In addition, the Commission proposes that a 
recipient of Phase II support be subject to the same performance 
default payment as recipients of Phase I support.
iv. Tribal Issues
    177. In view of the relatively low level of telecommunications 
deployment, and distinct connectivity challenges on Tribal lands, the 
Commission reaffirms its commitment to address Tribal needs and 
establishes a separate budget to provide ongoing USF support for 
mobility in such areas. In the USF/ICC Transformation Order the 
Commission establishes an annual budget of up to $100 million to 
provide ongoing support for mobile broadband services to qualifying 
Tribal lands. In addition, the Commission notes that the CAF will 
separately support broadband for homes, businesses, and community 
anchor institutions, including on Tribal lands.
    178. The Commission proposes to apply the same Tribal engagement 
obligation and a 25 percent bidding credit preference for Tribally-
owned or controlled providers in Phase II as it does for Phase I. To 
the extent the Commission adopts a cost model, discussed infra, are 
there particular measures the Commission should take to help ensure 
that the needs of Tribes are met? What modifications might be needed to 
the proposed Tribal engagement obligations? Are there other 
alternatives the Commission should consider?
    179. In addition, to afford Tribes an increased opportunity to 
participate at

[[Page 78403]]

auction, in recognition of their interest in self-government and self-
provisioning on their own lands, the Commission proposes to permit a 
Tribally-owned or controlled entity to participate at auction even if 
it has not yet been designated as an ETC. Consistent with the approach 
adopted in Phase I, the Commission proposes that a Tribally-owned or 
controlled entity that has an application for ETC designation pending 
at the relevant short form application deadline may participate in an 
auction to seek support for eligible census blocks located within the 
geographic area defined by the boundaries of the Tribal land associated 
with the Tribe that owns or controls the entity that has not yet been 
designated as an ETC.
    180. To the extent practicable, the Commission proposes to award 
ongoing support for mobile broadband services on Tribal lands on the 
same terms and conditions as it proposes for the ongoing support 
mechanism for Phase II in non-Tribal lands. The Commission recognizes 
that there are several aspects for which a more tailored approach may 
be appropriate, as evidenced in the record. The Commission proposes to 
apply in Phase II the specific provisions adopted in the context of the 
Tribal Mobility Fund Phase I. Are there any differences in its 
proposals to award ongoing support that would justify an alternative 
approach here? To the extent that providers in Alaska may be dependent 
on satellite backhaul for middle mile, should the Commission modify its 
Phase II performance obligations for some limited period of time, 
similar to what the Commission adopts more generally as a performance 
obligation for ETCs? Should a similar accommodation be made for areas 
in which there is no affordable fiber-based terrestrial backhaul 
capability? If so, how should the Commission define affordability for 
these purposes? Further, in areas with only satellite backhaul, should 
the Commission require funded deployments to be able to support 
continued local connectivity in case of failure in the satellite 
backhaul? How would such a requirement be structured to ensure 
continued public safety access?
    181. The Commission seeks comment on GCI's proposal that new mobile 
deployments be given some priority in Phase II. Commenters supporting 
such an approach should explain how such a priority mechanism could 
work, which deployments would be eligible for prioritization, and any 
other implementation issues. Similarly, the Commission seeks comment on 
GCI's proposal that priority be given to areas that do not have access 
to the National Highway System to account for the lack of roads and 
highways in many remote parts of Alaska. Are there alternative means in 
Phase II to account for remote areas, including those in Alaska, where 
roads and other infrastructure may be lacking?
    182. In addition, to afford Tribes an opportunity to identify their 
own priorities, the Commission seeks further comment on a possible 
mechanism that would allocate a specified number of priority units to 
Tribal governments. The priority units for each Tribe would be based 
upon a percentage of the total population in unserved blocks located 
within Tribal boundaries. Tribes would have the flexibility to allocate 
these units in whatever manner they choose. Tribes could elect to 
allocate all of their priority units to one geographic area that is 
particularly important to them, or to divide the total number of 
priority units among multiple geographic units according to their 
relative priority. By giving Tribes the opportunity to allocate a 
substantial number of additional units to particular unserved 
geographic areas within the boundaries of their Tribal lands, the 
Commission would allow Tribes to reduce the per-unit amount of bids 
covering those unserved areas, so as to increase the likelihood that 
these areas would receive funding through the proposed competitive 
bidding process.
    183. The Commission is mindful that the record developed to date 
suggests that the effectiveness of this approach depends, in part, on 
providing a significant number of priority units for Tribes to 
allocate. The Commission proposes that an allocation in the range of 20 
to 30 percent of the population in unserved areas on the Tribal land 
would provide Tribes a meaningful opportunity to provide input on where 
support could be effectively targeted. Commenters should address 
whether this approach should apply to both the general and Tribal 
Mobility Fund Phase II. The Commission also seeks comment on how such 
priority units should be awarded in Alaska, given the unique Alaska 
Native government structure and the large number of Alaska Native 
Villages likely to be clustered in any given geographic area. Should 
the Commission allocate priority units proportionately, according to 
the relative size and/or number of unserved units of all Alaska Native 
Villages in any given geographic area? Would a similar approach be 
warranted for Hawaiian Home Lands, or are there alternative approaches 
that best reflect conditions in Hawaii? Alternatively, the Commission 
seeks comment on whether the Tribal engagement obligations adopted for 
Phase I are sufficient to ensure that Tribal priorities are met with 
respect to ongoing support under Phase II. To the extent the Commission 
adopts its proposal for Tribal priority units, the Commission seeks 
comment on whether a Tribally-owned and controlled provider should also 
be eligible to receive a bidding credit within its Tribal land or if 
the Tribe must choose between one or the other. If the Commission 
offers a bidding credit to Tribally-owned and controlled providers 
seeking Phase II support, would a 25 percent bidding credit, like the 
one the Commission has adopted for Phase I be sufficient, or does it 
need to be set at a different level to achieve its objectives?
    184. The Commission also seeks comment on whether a different 
approach is warranted for Tribal lands in Alaska given the unique 
operating conditions in Alaska. The Commission proposes that carriers 
serving Alaska would be eligible for the same funding opportunities as 
carriers serving Tribal lands in the rest of that nation. Is this the 
right approach? In the alternative, should an amount of any Tribal 
funding be set aside only for carriers serving Alaska to ensure some 
minimal level of funding representative of the need in that state? The 
Commission seeks comment on the size of any Alaska-specific set aside, 
and the need to adjust the total Tribal component of Mobility Fund II 
to account for any Alaska-specific figure. The Commission also seeks 
comment on whether any Alaska-specific funding should be focused on 
middle mile connectivity, which is one of the core impediments to 3G 
and 4G service in Alaska. How could such a mechanism be structured to 
facilitate the construction of microwave and fiber-based middle mile 
facilities, which are lacking in portions of remote areas of Alaska?
v. Accountability and Oversight
    185. The Commission proposes to apply to Mobility Fund Phase II the 
same rules for accountability and oversight that will apply to all 
recipients of CAF support, including reporting, audit, and record 
retention requirements. Because Mobility Fund support will differ in 
some respects from support received under other USF high-cost support 
mechanisms, the Commission also proposes that recipients of Phase II 
support be required to include in their annual reports the same types 
of additional information that is required of recipients of Phase I 
support. Should any of these requirements be modified or omitted for 
recipients of Mobility Fund Phase II support? Are there

[[Page 78404]]

additional types of information that should be required?
vi. Economic Model-Based Process
    186. Instead of determining support for mobile wireless providers 
through competitive bidding, the Commission could determine support 
using a model that estimates the costs associated with meeting public 
interest obligations, as well as a provider's likely revenues from 
doing so. Regardless of which method is used, the objectives of the 
Mobility Fund's Phase II remain the same. That is, the Commission seeks 
to maximize the reach of mobile broadband services supported with its 
established budget in areas where there is no private sector business 
case for providing such services. Accordingly, commenters advocating 
for a model should address why a model-based approach would better 
serve this purpose than its proposal. The Commission seeks more 
detailed comment on the design of such a model and a framework for 
support in which a model might be used, as compared with its proposed 
market-based mechanism for determining the level and distribution of 
necessary support.
a. Model Design
    187. In considering this alternative to a market-based mechanism, 
the Commission seeks to develop a more detailed record than it has 
received to date regarding the possible design of a forward looking 
economic model of costs and revenues of mobile wireless services. 
Generally, the Commission observes that cost structures, revenue 
sources, and available data all may vary in the mobile service context 
from other services, such as fixed wireline voice or broadband. What 
components of a model for mobile wireless services are critical in 
accurately forecasting costs and revenues? Is the model more or less 
sensitive to certain potential errors than others? How does the pace of 
change in the mobile service industry affect the reliability of a model 
for projections of greater than five years, or seven years, or ten 
years?
    188. Two parties already have offered the results of a model-based 
analysis in selected states to argue for the benefits of a model-based 
approach for the Mobility Fund. Both US Cellular and MTPCS have pointed 
to a CostQuest Associates model for estimating costs and revenues 
related to mobile service. The Commission seeks comment generally on 
the model that US Cellular and MTPCS describe in their submissions.
    189. In their model-based analyses, both US Cellular and MTPCS 
estimated the costs of expanding their existing networks in order to 
provide service in unserved areas. Taking existing networks into 
account when modeling costs is sometimes referred to as a brownfield 
approach. A brownfield approach assumes that providers will make use of 
existing assets. The results of such an analysis may be unreliable if 
the provider controlling the relevant assets chooses not to receive 
support and uses those assets for other purposes. Moreover, the costs 
for one provider may be very different from the costs for another 
provider, due to differences in their access to existing assets. The 
Commission seeks comment on how best to construct a brownfield model 
when the goal is not to model the costs of individual mobile wireless 
provider, but of a generic provider in an area.
    190. The parties claim that CostQuest's model also enables users to 
determine the cost of offering wireless service without using existing 
assets. Modeling costs of providing service without pre-existing assets 
is sometimes referred to as a greenfield approach. A greenfield 
approach runs the risk of overestimating the necessary costs of 
providing service by failing to make efficient use of existing assets. 
The Commission seeks comment on the relative advantages of a brownfield 
or greenfield approach in the context of mobile services when 
determining which areas require support and when determining how much 
support is required.
    191. Modeling also raises concerns regarding the accuracy of data 
(inputs) used in the model. How critical is it that the model 
accurately forecast base station locations? In an efficient network 
providing mobile service, base station locations are interdependent--
the signal from one should overlap with another sufficiently to assure 
effective coverage but not so much as to create interference. 
Assumptions regarding any base station location in a network may be 
significant with respect to the final number and location of all base 
stations, and therefore the cost of the entire network. This is 
especially true with respect to pure greenfield models, which make 
assumptions about the possible locations of cell sites without being 
able to take account of actual constraints in locating such sites. The 
Commission seeks comment on the ways, if any, to assess the sensitivity 
of model-based results to potential errors regarding site location when 
estimating costs for providing mobile service. Would the use of a 
brownfield approach substantially reduce such sensitivity?
    192. The CostQuest model employed by US Cellular and MTPCS also 
assesses incremental revenues from expanded mobile coverage when 
determining an area's need for support. If a provider can count on 
generating revenue from the network expansion that meets or exceeds 
related costs, even the highest cost area may not require support. How 
could the Commission take into account revenues in a model used for 
mobile support? Could the Commission develop non-party-specific 
estimates of incremental revenues? Should the Commission consider 
potential revenues from non-supported services that could be offered 
over the network infrastructure that provides supported voice service, 
including the mobile broadband service required as a condition of 
Mobility Fund support, or other services, like subscription video 
services? What estimates could the Commission use with respect to the 
potential costs and revenues associated with the provision of such 
services?
    193. Notwithstanding their significance in determining the need for 
support, estimating revenues may be difficult, particularly over longer 
periods of time. Given difficulties in estimating consumer interest in 
particular service offerings at particular prices, errors in estimating 
revenues may be more likely to occur and, when they occur, more likely 
to result in larger errors in determining the appropriate level of 
support. The Commission seeks comment on the extent to which it might 
be able to achieve the appropriate balance between the inclusion of 
revenue estimates and the likely accuracy of the model's outcomes, and, 
if so, how the Commission would do so.
    194. A model might be used simply to determine what areas require 
support for the public interest obligations to be met, rather than 
determine that as well as the amount of support to be provided. The 
Commission seeks further comment on whether a mobile wireless model may 
be sufficiently reliable for more limited purposes. Could a model offer 
guidance on the appropriate level of support, such as determining a 
maximum that might be offered in a competitive bidding process in a 
particular area, without being sufficiently accurate to rely on for 
determining the actual level of support in that area?
b. Framework for Economic Model-Based Process
    195. If the Commission were to use an economic model to determine 
support levels, the goals and objectives of the Phase II Mobility Fund 
would continue to be to support next generation mobile service where 
support is needed in as

[[Page 78405]]

many areas as possible, given the limited funds available. The public 
interest obligations attaching to the receipt of support would remain 
the same. The Commission seeks comment on which, if any, elements of 
its proposed framework would need to change if it decides to use a 
model-based process for determining support.
    196. The Commission also seeks comment specifically on whether the 
granularity with which an economic model produces reliable cost and/or 
revenue estimates would have any impact on the geographic areas being 
made available for mobile services support. If a model is more likely 
to determine support amounts accurately only over an area larger than a 
census block, does it mean that the Commission should increase the 
minimum area for which support is offered? The Commission seeks comment 
on the minimum area for offering model-based support. Would a model be 
more accurate in estimating support for areas based on resident 
population instead of road miles? If so, would the Commission have to 
use resident population as a metric for offering support and measuring 
compliance with public interest obligations if the Commission adopts a 
model-based approach?
    197. In order to extend its limited budget to reach the widest 
possible coverage, the Commission generally expects to offer support to 
only one mobile services provider in an area. The Commission seeks 
comment on how to implement that principle under a model-based 
approach. In contrast to competitive bidding, the Commission notes the 
model-based approach does not include a mechanism for selecting among 
multiple parties. Should the Commission determine the party that 
receives support through a qualitative review of would-be providers? If 
so, what factors should that review take into account? Should the 
Commission reserve support for a particular area to the provider 
currently receiving universal service support that has the most 
extensive network within a defined area? What other method could the 
Commission use to select among providers? In addition, the Commission 
could use the results of a wireless model to set reserve prices in the 
context of competitive bidding. The Commission seeks comment here on 
how to use the results of a wireless model to distribute Mobility Fund 
Phase II, support consistent with its use of a wireline cost model in 
CAF-Phase II to target support to high-cost areas subject to its 
budget.
    198. The Commission notes that US Cellular and MTPCS proposed 
permitting multiple providers to receive support for service in the 
same area. Given the economics of the underlying terrestrial wireless 
technology, permitting multiple providers to receive support could 
increase the amount of support required per subscriber, as the number 
of subscribers per provider will decline. The Commission seeks comment 
on this concern.
    199. The Commission also seeks comment on whether using mobile 
model-based support would change the appropriate length of the term of 
support. Are there aspects of the model that link its estimates to 
particular time periods? Is that reason to offer the support for any 
particular length of time? Is it possible to estimate the cost of 
meeting the proposed increases in public interest obligations several 
years in advance? Particularly with respect to a mobile wireless model 
used to determine ongoing support for a term of years, how should the 
Commission address potential changes in circumstances or technology 
over time that would change modeled costs and/or revenues?
    200. Finally, commenters addressing the possible use of a model-
based approach should discuss whether the Commission would need to make 
any changes to the management and oversight of the program, as well as 
any other changes they believe it should make to the framework the 
Commission proposed for a competitive bidding mechanism.

J. Competitive Process in Price Cap Territories Where the Incumbent 
Declines To Make a State-Level Commitment

    201. The Commission adopts a framework for USF reform in areas 
served by price cap carriers where support will be determined using a 
combination of a forward-looking broadband cost model and competitive 
bidding to efficiently support deployment of networks providing both 
voice and broadband service over the next several years. In each state, 
each incumbent price cap carrier will be asked to undertake a state-
level commitment to provide affordable broadband to all high-cost 
locations in its service territory in that state, excluding locations 
served by an unsubsidized competitor, for a model-determined efficient 
amount of support. In areas where the incumbent declines to make that 
commitment, the Commission will use a competitive bidding mechanism to 
distribute support in a way that maximizes the extent of robust, 
scalable broadband service and minimizes total cost. The FNPRM 
addresses proposals for this competitive bidding process, which the 
Commission refers to here as the CAF auction for price cap areas.
i. Overall Design of the Competitive Bidding Process
    202. Consistent with the Commission's decision to use incentive-
driven policies to maximize the value of scarce USF resources, the 
Commission proposes to use a reverse auction mechanism to distribute 
support to providers of voice and broadband services in price cap areas 
where the incumbent ETC declines to accept model-determined support. 
Assigning support in this way should enable the Commission to identify 
those providers that will make most effective use of the budgeted 
funds, thereby extending services to as many consumers, businesses, and 
community anchor institutions as possible. The Commission proposes to 
use a competitive bidding mechanism to identify those eligible areas--
and associated providers--where supported services can be offered at 
the lowest cost per unit.
ii. Framework for Awarding Support Under Competitive Bidding
a. Identifying Geographic Areas Eligible for Competitive Bidding
    203. Identifying Eligible Areas. In any areas where the price cap 
ETC declines to make a state-level commitment, the Commission proposes 
to conduct competitive bidding to award support using the same areas 
identified by the CAF Phase II model as eligible for support. The 
Commission also seeks comment on other approaches to defining the areas 
to be used in this auction. The Commission could exclude areas that, 
based on the most recent data available, are served--at any speed, at 4 
Mbps downstream/1 Mbps upstream, or at 6 Mbps downstream/1.5 Mbps 
upstream. In addition, the Commission could use different cost 
thresholds for defining service, for example, including all unserved 
areas regardless of cost in the auction. As it did for the Mobility 
Fund, the Commission proposes to use census blocks as the minimum size 
geographic unit eligible for competitive bidding. Using census blocks 
will allow the Commission to target support based on the smallest 
census geography available. The Commission seeks comment on this 
proposal, as well as alternatives.
    204. Minimum Size Unit for Bidding and Support. The Commission 
proposes that the census block should be the minimum geographic 
building block for

[[Page 78406]]

defining areas for which support will be provided. Because census 
blocks are numerous and can be quite small, the Commission believes 
that it will need to provide at the auction for the aggregation of 
census blocks for purposes for bidding. There are a number of ways to 
permit such aggregation, including the possibility of adopting a rule 
regarding a minimum area for bidding comprised of an aggregation of 
eligible census blocks, such as tracts, and/or the use of auction 
procedures that provide for bidders to be able to make all-or-nothing 
package bids on combinations of bidding areas. As discussed elsewhere, 
two possible approaches for census block aggregation include a Census 
Tract-type approach and a Bidder-Defined approach. The Commission seeks 
comment here on whether a Census Tract-type approach, Bidder-Defined 
approach, or another approach would best meet the needs of bidders in 
the CAF auction for support in price cap areas.
    205. Prioritizing Areas. In addition, the Commission seeks comment 
on whether it should target areas currently without any broadband 
service for priority treatment in whatever competitive bidding 
mechanism it adopts. Should the Commission provide a form of bidding 
credit that would promote the support of such areas?
b. Establishing Bidding and Coverage Units
    206. In order to compare bids, the Commission proposes to assign a 
number of bidding units to each eligible census block. Consistent with 
the terms of the public interest obligations undertaken by bidders, the 
Commission proposes to base the number of units in each block on the 
number of residential and business locations it contains, using the 
2010 decennial census data. The Commission seeks comment on this 
proposal, and on any alternatives.
c. Maximizing Consumer Benefits
    207. The Commission's objective is to distribute the funds it has 
available to bring advanced services to as many consumers as possible 
in areas where there is no economic business case for the private 
sector to do so. Where the incumbent declines to make a state-level 
commitment to provide affordable broadband to all high-cost locations 
in its service territory in return for model-determined support in each 
state, the Commission proposes to use the competitive bidding mechanism 
described here, which will be open to any provider able to satisfy the 
public interest obligations associated with support. Thus, the 
Commission envisions that there may be more than one ETC that seeks 
such support for any given area. In contrast to the former rules, under 
which multiple providers are entitled to an award of portable, per-
subscriber support for the same area, the Commission expects that to 
maximize coverage within its budget it will generally be supporting a 
single provider for a given geographic area through this auction. As 
with Mobility Fund Phase II, the Commission would support more than one 
provider in an area only if doing so would maximize coverage. The 
Commission is mindful that its statutory obligation runs to consumers, 
rather than carriers, and that it must target its limited funds in a 
way that expands and sustains the availability of broadband services to 
maximize consumer benefits. The Commission also proposes that a 
competitive ETC would become ineligible to receive support for any area 
under its phase down of frozen legacy support formerly distributed 
pursuant to the identical support rule as soon as it began receiving 
CAF support for that same area.
    208. The Commission also seeks comment on whether and to what 
extent ETCs that receive such support through a competitive bidding 
process should be permitted to partner with other providers to fulfill 
their public interest obligations. The Commission invites comment on 
whether it should establish any limit on the geographic extent to which 
any one provider may be awarded such support. Is there another basis on 
which it should limit the amount of support that goes to any one 
provider?
d. Term of Support
    209. The Commission proposes a term of support for providers that 
receive support through this auction that is equal to that adopted for 
providers that accept state-level model-determined support. 
Accordingly, the Commission proposes a term of support of five years, 
subject to recipients complying with the obligations of the program. 
The Commission seeks comment on this proposal, and whether a longer 
time-period, e.g., ten years, would better serve its goals. The 
Commission also seeks comment on whether it is appropriate to establish 
any sort of renewal opportunity, and on what terms, including whether 
there should be any difference here from universal service support 
awarded under a state-level-commitment.
e. Provider Eligibility Requirements
    210. ETC Designation. For the same reasons that apply with respect 
to other CAF programs, the Commission generally proposes to require 
that applicants for support be designated as ETCs covering the relevant 
geographic area prior to participating in an auction. As a practical 
matter, this means that parties that seek to participate in the auction 
must be ETCs in the areas for which they will seek support at the 
deadline for applying to participate in the competitive bidding 
process. The Commission seeks comment on this proposal.
    211. Certification of Financial and Technical Capability. The 
Commission also proposes that each party seeking to receive support 
determined in this auction be required to certify that it is 
financially and technically capable of providing the required service 
within the specified timeframe in the geographic areas for which it 
seeks support. The Commission seeks comment on how best to determine if 
an entity has sufficient resources to satisfy its obligations. Should 
the Commission require that any entity finance a fixed percentage of 
any build-out with non-CAF or private funds? The Commission seeks 
comment on certification regarding an entity's technical capacity. Does 
the Commission need to be specific as to the minimum showing required 
to make the certification? Or can the Commission rely on its post-
auction review and performance requirements?
    212. Eligibility of Carriers Declining a State-Level Commitment 
Covering the Area. The Commission is not inclined to restrict the 
eligibility of carriers that could have accepted model-determined 
support for the area that will be auctioned, but seeks comment on this 
approach. What effect does the opportunity to seek support in a 
subsequent auction have on incentives to accept or decline a state-
level commitment in exchange for model-determined support? How should 
the differences in potential service areas be taken into account, given 
that potential bidders in the auction will not be required to bid on 
the entire territory of the price cap carrier in that state?
    213. Other Qualifications. The Commission seeks comment on other 
eligibility requirements for entities seeking to receive support in an 
auction after the price cap incumbent declines to make a state-level 
commitment. Parties providing suggestions should be specific and 
explain how the eligibility requirements would serve its objectives. At 
the same time that the Commission establish minimum qualifications 
consistent with these goals, are there ways the Commission can 
encourage participation by the widest possible

[[Page 78407]]

range of qualified parties? Are there any steps the Commission should 
take to encourage smaller eligible parties to participate in the 
bidding for support?
f. Public Interest Obligations
    214. Service Performance Requirements and Measurement. The 
Commission proposes that recipients of support awarded through this 
competitive bidding process be obligated to provide service meeting 
specified performance requirements. The Commission proposes that these 
performance requirements be the same as those required of providers 
that accept model-determined support. Under this proposal, the 
Commission seeks to maximize via competitive bidding (both within and 
across regions) the amount of broadband service being offered at the 
same full performance levels required for incumbent providers willing 
to undertake a state-level broadband commitment. The Commission seeks 
comment on this proposal.
    215. Alternatively, the Commission seeks comment on relaxing the 
minimum performance requirements sufficiently to expand the pool of 
technologies potentially eligible to compete for support. Under this 
approach, providers could offer different performance characteristics, 
such as download and/or upload speeds, latency, and limits on monthly 
data usage, and the Commission would score such quality differences in 
evaluating bids. That is, individual providers could propose different 
prices at which they would be willing to offer services at different 
performance levels, and the Commission would select the winning bids 
based on both the prices and the performance scores. To simplify the 
bidding process, the Commission could limit the set of performance 
levels that providers could bid to offer--for instance, to a standard 
broadband offering and a higher quality broadband offering. This 
general approach would give the Commission the option of making 
tradeoffs between supporting a higher quality service to fewer 
locations versus supporting a standard service for more locations. Such 
an approach should result in more competitive bidding by allowing more 
technologies to compete for funding (both within a region and across 
regions), thereby enabling the CAF budget to yield greater coverage at 
acceptable broadband performance standards than under the proposal. The 
Commission seeks comment on how it could best implement this 
alternative--including how to score different performance dimensions, 
and, whether providers should specify as part of their bids the retail 
prices they would charge consumers and, if so, how to include such 
prices in scoring the bids. Parties should further address how the 
Commission should assess the public interest tradeoffs between offering 
a higher quality to fewer customers and accepting a lower quality for 
some customers but serving more customers. The Commission also seeks 
comment on whether and how the possibility of obtaining support for a 
lower quality service would affect the incentives of incumbent 
providers to accept or decline a state-level broadband commitment. The 
Commission seeks comment from providers of services used by people with 
disabilities, such as Internet-based telecommunications relay services, 
including VRS, and point-to-point video communications or video 
conferencing services, as to the minimum performance requirements 
needed to support such services and communications.
    216. Requesting Locations. The Commission proposes that support 
recipients be required to provide subsidized service to as many 
locations as request service in their areas during the term of support. 
Alternatively, the Commission seeks comment on whether it should limit 
the number of locations that must be served in any area based on the 
number of locations identified at the time of the auction. Such a limit 
would be consistent with limiting the total amount of support 
available. However, it would not take into account changes in the 
number of eligible locations during the term for which support will be 
provided. In order to take growth into account while maintaining a 
limit on the total amount of support, should it provide for a presumed 
growth rate in the number of locations during the term of support? Or 
should the Commission simply require providers to serve whatever number 
of future locations there may be, effectively requiring providers to 
take into account their own estimates of such growth when bidding for 
support?
    217. Reasonably Comparable Rates. The Commission proposes that 
recipients of support through CAF auctions for price cap areas will be 
subject to the same requirements regarding comparable rates that apply 
to all recipients of CAF support.
    218. Deployment Deadlines. The Commission proposes that recipients 
be required to meet certain deployment milestones in order to remain 
qualified for the full amount of any award. The Commission proposes 
that deployment milestones that apply to ETCs through a competitive 
process be the same as those that apply to price cap ETCs that accept a 
state-level commitment. The Commission seeks comment on whether 
recipients of CAF auction support should instead be subject to 
different deployment deadlines.
iii. Auction Process Framework
    219. Consistent with its approach for the Mobility Fund, the 
Commission proposes to delegate to the Bureaus authority to establish 
detailed auction procedures, take all other actions to conduct this 
competitive bidding process, and conduct program administration and 
oversight consistent with any rules and policies the Commission 
establish in light of the record it receives based on the proposals 
made for this CAF auction process for support. The Commission seeks 
comment on this proposal.
a. Auction Design
    220. Consistent with its approach for the Mobility Fund, the 
Commission proposes certain general rules outlining various auction 
design options and parameters, while at the same time proposing that 
final determination of specific auction procedures to implement a 
specific design based on these rules be delegated to the Bureaus as 
part of the subsequent pre-auction notice and comment proceeding. Among 
other issues, the Commission proposes to give the Bureaus discretion to 
consider various procedures for grouping eligible areas to be covered 
with one bid--package bidding--that could be tailored to the needs of 
prospective bidders as indicated during the pre-auction notice and 
comment period.
    221. The Commission is inclined to believe that some form of 
package bidding may enhance the auction by helping bidders to 
incorporate efficiencies into their bids. While the Bureaus will 
establish specific procedures to address this issue later, the 
Commission invites preliminary comment on whether package bidding may 
be appropriate for this auction, and if so, why. The Commission asks 
for input on package bidding as it relates to its choice of a Census 
Tract-type or Bidder-Defined approach for the Mobility Fund Phase II. 
The Commission seeks comment on the potential advantages and 
disadvantages of possible package bidding procedures and formats in the 
context of awarding support to ensure the universal availability of 
modern networks capable of delivering broadband and voice service to 
homes, businesses, and community anchor institutions. The Commission 
asks for input on the

[[Page 78408]]

reasons why certain package bidding procedures would be helpful or 
harmful to providers bidding in an auction, and what procedures might 
best meet its goal of maximizing such universal availability. Should 
the Commission impose some limits on the size or composition of package 
bids, such as allowing flexible packages of blocks or larger geographic 
units as long as the geographic units are within the boundaries of a 
larger unit such as a county or a state? If the Commission adopts the 
Census Tract-type approach, it could establish package bidding 
procedures that allow bidders to place package bids on predetermined 
groupings of eligible areas that follow a particular hierarchy--such as 
blocks, tracts, counties, and/or states, which nest within the census 
geographic scheme.
    222. The Commission seeks preliminary comment on determining 
reserve prices for the auction based on the support amounts estimated 
by a forward looking broadband cost model.
b. Potential Bidding Preference for Small Businesses
    223. The Commission seeks comment on whether small businesses 
should be eligible for a bidding preference in a CAF auction for 
support in price cap areas and whether such a bidding preference would 
be consistent with the objective of providing such support. Consistent 
with the approach discussed for Mobility Fund Phase II, the preference 
would act as a reverse bidding credit that would effectively reduce the 
bid amount of a qualifying small business for the purpose of comparing 
it to other bids. The Commission also seeks comment on the size of any 
small business bidding credit that would be appropriate to increase the 
likelihood that the small business would have an opportunity to win 
support in the auction. The Commission also seeks comment on how it 
should define small businesses if it adopts a bidding credit for 
auctions to award support in price cap areas. For the reasons provided 
in its discussion of Mobility Fund Phase II, the Commission seeks 
comment on whether a small business should be defined as an entity with 
average gross revenues not exceeding $40 million for the preceding 
three years. Alternatively, should the Commission consider a larger 
size definition for this purpose, such as average gross revenues not 
exceeding $125 million for the preceding three years? In determining an 
applicant's gross revenues under what circumstances should it attribute 
the gross revenues of the applicant's affiliates? The Commission seeks 
comment on these definitions and invites input on alternatives.
c. Auction and Post-Auction Process
    224. Short-Form Application Process. The Commission proposes to use 
the same two-stage application process described in the USF/ICC 
Transformation Order for Phase I of the Mobility Fund. The Commission 
seeks comment on this proposal and on whether there are any reasons to 
deviate from the process already adopted for the Mobility Fund.
    225. Information and Communications. The Commission does not expect 
there to be circumstances specific to this auction that would indicate 
that it should deviate from the usual auction policies with respect to 
permissible communications during the auction or the public release of 
certain auction-related information. The Commission proposes to use the 
same rules and procedures regarding permissible communications and 
public disclosure of auction-related information as it does for the 
Mobility Fund. The Commission seeks comment on this proposal.
    226. Auction Cancellation. Consistent with its approach regarding 
the Mobility Fund, the Commission proposes to provide the Bureaus with 
discretion to delay, suspend, or cancel bidding before or after a 
reverse auction begins under a variety of circumstances. The Commission 
seeks comment on this proposal.
    227. Post-Auction Long-Form Application Process. The Commission 
proposes to apply the post-auction long-form application process for 
Mobility Fund Phase I to participants in auctions for price cap CAF. 
Accordingly, applicants that win competitive bidding in such auctions 
would be required to demonstrate in their long-form applications that 
they are legally, technically and financially qualified to receive the 
support. The Commission seeks comment on this approach.
    228. In addition, the Commission proposes that a winning bidder 
will be subject to an auction default payment, if it defaults on its 
bid, including if it withdraws a bid after the close of the auction, 
fails to timely file a long form application, is found ineligible or 
unqualified to be a recipient of support, or its long-form application 
is dismissed for any reason after the close of the auction. In 
addition, the Commission proposes that recipients of support will be 
subject to a performance default payment. The Commission proposes the 
same rules for both of these default payments as it has have adopted 
for Mobility Fund Phase I. The Commission seeks comment on these 
proposals.
iv. Tribal Issues
    229. The Commission seeks comment on whether to establish special 
provisions to help ensure service to Tribal lands. To the extent 
practicable, the Commission anticipates that support is best awarded 
using the same framework, and on the same terms and conditions, as it 
proposes for other areas where the price cap carrier declines to make a 
state-level commitment to provide services. The Commission recognizes, 
however, that there are several aspects for which a more tailored 
approach may be appropriate on Tribal lands, as evidenced in the record 
developed to date. The Commission seeks comment on whether to adopt 
revisions to identify eligible geographic areas and appropriate 
coverage units, consistent with the approach it took in the Tribal 
Mobility Fund Phase I. The Commission also proposes Tribal engagement 
requirements, preferences that reflect its unique relationship with 
Tribes, including a bidding credit of 25 percent for Tribally-owned and 
controlled recipients, and ETC designation provisions to allow a 
Tribally-owned or controlled entity to participate at auction provided 
that it has an application for ETC designation pending at the short-
form application stage. The Commission seeks comment on these issues. 
The Commission seeks comment on establishing a Tribal priority along 
the lines the Commission proposes for the Tribal Mobility Fund Phase 
II. The Commission believes that these measures would help to ensure 
service in a way that acknowledges the unique characteristics of Tribal 
lands and reflects and respects Tribal sovereignty. To the extent the 
Commission adopt its proposal for Tribal priority units, the Commission 
seeks comment on whether a Tribally-owned and controlled provider 
should also be eligible to receive a bidding credit within its Tribal 
land or if the Tribe must choose between one or the other. Would a 25 
percent bidding credit, like the one it has adopted for Phase I and 
proposed for Phase II of the Mobility Fund be sufficient, or does it 
need to be set at a different level? The Commission seeks comment on 
whether to adopt an alternative backstop support mechanism for any 
Tribal land in which the auction fails to attract a bidder.
v. Accountability and Oversight
    230. The Commission proposes that all recipients of CAF support 
awarded through a competitive process would be

[[Page 78409]]

subject generally to the same reporting, audit, and record retention 
requirements adopted in the USF-ICC Transformation Order. The 
Commission seeks comment on this proposal.
    231. In structuring support, the Commission is mindful that it must 
comply with the Anti-Deficiency Act (31 U.S.C. 1341(a)(1)(B)). 
Commenters are invited to address how to structure an award of support 
for a period of years to provide recipients with the requisite level of 
funding and certainty, while ensuring that the Commission's Anti-
Deficiency Act obligations are met.
vi. Areas That Do Not Receive Support
    232. Any areas that do not receive support either via a price cap 
carrier accepting a state-level commitment or via the subsequent 
auction would be eligible for support from the Remote Areas Fund 
budget.

K. Remote Areas Fund

    233. The USF-ICC Transformation Order adopts a number of reforms 
aimed at ensuring universal availability of robust and affordable voice 
and broadband services to all Americans. A key element of these reforms 
is the Commission's dedication of an annual budget of at least $100 
million to ensure that the less than one percent of Americans living in 
remote areas where the cost of deploying traditional terrestrial 
broadband networks is extremely high can obtain affordable broadband. 
The Commission seeks comment on how best to implement the CAF for 
remote areas (Remote Areas Fund).
    234. The obstacles to ensuring that affordable voice and broadband 
service are available in extremely high-cost areas differ somewhat from 
the obstacles to ensuring that such services are available in other 
areas supported by the CAF. With respect to those latter areas the 
Commission focus has been on how best to facilitate the deployment of 
robust fixed and mobile broadband technologies where its universal 
service fund budget can support such deployment. In contrast, in 
extremely high-cost areas, available universal service support is 
unlikely to be sufficient for the deployment of traditional terrestrial 
networks supporting robust voice and broadband services. The CAF can 
help fulfill its universal service goals in these areas by taking 
advantage of services such as next-generation broadband satellite 
service or wireless internet service provider (WISP) service, which may 
already be deployed (or may be deployable with modest upfront 
investments) but may be priced in a way that makes service unaffordable 
for many consumers. In addition, the Commission recognizes that some of 
the most likely providers of service to these remote areas have cost 
structures, price structures, and networks that differ significantly 
from those of other broadband providers. For instance, the cost of 
terminal equipment and installation for satellite broadband often is 
greater than for other broadband offerings. The Commission asks 
commenters to focus in particular on these characteristics and explain 
what, if any, impact they should have on the structure of the Remote 
Areas Fund.
i. Program Structure
    235. The Commission seeks comment on how to structure the Remote 
Areas Fund. The Commission proposes that support for remote areas be 
structured as a portable consumer subsidy. Specifically, the Commission 
seeks comment on CAF support being used to make available discounted 
voice and broadband service to qualifying residences/households in 
remote areas, in a manner similar to its Lifeline and Link Up programs 
(together, Lifeline). As with Lifeline and Link Up, ETCs providing 
service in remote areas would receive subsidies only when they actually 
provide supported service to an eligible customer. Such a program 
structure would have the effect of making voice and broadband more 
affordable for qualifying consumers, thus promoting consumer choice and 
competition in remote areas. The Commission seeks further comment on 
how to implement such a proposal below.
    236. The Commission also seeks comment on an alternative structure 
for the Remote Areas Fund, which would use a competitive bidding 
process. Such a process could be conducted in one of three ways: (a) A 
per-subscribed-location auction, (b) a coverage auction, or (c) an 
auction of support that would include not only remote areas but also 
areas where the incumbent LEC declines to undertake a state-level 
commitment. The Commission seeks further comment on how it could 
implement such a proposal.
    237. Another alternative would be to structure CAF support for 
remote areas as a competitive proposal evaluation process, or Request 
for Proposal (RFP) process.
    238. The Commission also seeks comment generally on whether there 
are other ways to structure CAF support for remote areas. Are there 
other alternatives that the Commission should consider? Commenters 
should address considerations of timeliness, ease of administration, 
and cost effectiveness relative to the proposed portable consumer 
subsidy and auction approaches. For any proposed alternative, the 
Commission also seeks comment on whether its approach to management and 
oversight of this program.
ii. General Implementation Issues
a. Definition of Remote Areas
    239. The Commission intends to use a forward-looking cost model--
once finalized--to identify a small number of extremely high-cost areas 
in both rate-of-return and price cap areas that should receive support 
from the Remote Areas Fund. However, given its goal of implementing the 
program by the end of 2012, the Commission will not be able to use the 
model to identify, at least in the first instance, remote areas 
eligible for CAF support.
    240. The Commission therefore seeks comment on how to identify the 
areas eligible for the Remote Areas Fund while the model is 
unavailable. The Commission proposes to provide support to those census 
blocks in price cap territories that are identified by National 
Broadband Map data as having no wireline or terrestrial wireless 
broadband service available, subsidized or unsubsidized. The Commission 
seeks comment on this proposal. Could this test be used as a proxy for 
identifying extremely high-cost areas? Is the National Broadband Map 
data sufficiently granular? Given that it is reported voluntarily by 
broadband providers, may the data be considered reliable enough for 
this purpose? Is there a risk that use of that metric would result in 
overlap with areas that likely would be supported by Mobility Fund 
monies or by funding made available post-state-level commitment? Could 
any overlap be addressed by making areas ineligible to the extent they 
are supported by other CAF funds? Given the goal of increasing 
broadband availability quickly, might the benefits of permitting 
overlaps for some time period outweigh the costs? Are there other data 
sources that could be used in conjunction with National Broadband Map 
data to improve its identification of remote areas? Are there 
alternative methods to using National Broadband Map data that the 
Commission could use to identify those remote areas in which CAF 
support should be available? What would be the advantages and 
disadvantages of such methods?
    241. Should the Commission switch from its initial method of 
identifying remote areas eligible for support (e.g., by using National 
Broadband Map data) to

[[Page 78410]]

the forward-looking cost model once the model is available? How 
frequently should the Commission reexamine whether an area is 
appropriately classified as remote for the purposes of Remote Area Fund 
support? The National Broadband Map is updated approximately every six 
months--would that be an appropriate interval? Is a periodic 
reexamination of the classification of remote areas sufficient to 
ensure that Remote Areas Fund support is not provided in areas where 
other carriers are providing broadband supported by other CAF elements? 
Likewise, is it sufficient to ensure eligibility for the Remote Areas 
Fund for consumers in areas where a carrier that currently receives USF 
support ceases to provide broadband service because that support is no 
longer available in whole or in part?
    242. The Commission notes that whether the Remote Area Fund is 
distributed as one-time awards or as ongoing support may affect the 
impact of any reexamination of the classification of remote areas. If 
one-time awards were distributed, up to $100 million for a given year, 
additional money would be available in subsequent years. If ongoing 
support were awarded, and $100 million were committed for a term of 
years, it would foreclose the possibility of support for additional 
areas later identified as remote by the model. Therefore, regardless of 
the distribution mechanism (portable consumer subsidy, auction, or 
RFP), the Commission proposes to use one-time support until the model 
is complete. Thereafter, the Commission may decide to use one-time 
support, ongoing support, or a combination of the two.
b. Provider Qualifications
    243. ETC Designation. For the same reasons that apply with respect 
to other components of CAF, the Commission proposes to require that 
applicants for CAF support for remote areas be designated as ETCs 
covering the relevant geographic area as a condition of their 
eligibility for such support. The Commission seeks comment on this 
proposal.
    244. The Commission also seeks comment on the Commission's 
authority to designate satellite or other providers as ETCs pursuant to 
section 214(e)(6). Section 214(e)(6) authorizes the Commission to 
designate ETCs in the limited cases where a common carrier is not 
subject to the jurisdiction of a state commission. Under current 
procedures, when a carrier seeks ETC designation by the Commission, it 
must obtain from the relevant state an affirmative statement that the 
state lacks authority to designate that provider as an ETC. In order to 
streamline the implementation of CAF support for remote areas, should 
the Commission change its determination that carriers seeking non-
Tribal land ETC designation must first seek it from the state 
commissions? Likewise, to the extent that providers may seek to serve 
remote areas in multiple states, can and should the Commission 
establish a streamlined process whereby the Commission could grant 
providers a multi-state or nationwide ETC designation? What 
modifications, if any, should be made to its ETC regulations in light 
of the particular characteristics of CAF support for remote areas? 
Would forbearance from any of the existing obligations be appropriate 
and necessary?
    245. Certification of Financial and Technical Capability. The 
Commission also proposes that each party seeking to receive CAF support 
for remote areas be required to certify that it is financially and 
technically capable of providing the required service within the 
specified timeframe in the geographic areas for which it seeks support. 
The Commission seeks comment on what specific showings should accompany 
any such certification.
    246. Other Qualifications. The Commission seeks comment on other 
eligibility requirements for entities seeking to receive support for 
remote areas and how such requirements would advance its objectives. At 
the same time that the Commission establish minimum qualifications 
consistent with these goals, are there ways the Commission can 
encourage participation by the widest possible range of qualified 
parties, including smaller entities?
c. Term of Support
    247. The Commission seeks comment on whether to establish a term of 
support in conjunction with the Remote Areas Fund. To the extent the 
Commission adopts a structure that requires a term of support, the 
Commission proposes a five-year term, and seeks comment on alternative 
terms. The Commission also seeks comment on whether it is appropriate 
to establish any sort of renewal opportunity, and on what terms.
d. Public Interest Obligations
(i) Service Performance Criteria
(a) Voice
    248. The Commission requires all recipients of federal high-cost 
universal service support (whether designated as ETCs by a state 
commission or the Commission), as a condition of receiving federal 
high-cost universal service support, to offer voice telephony service 
on a standalone basis throughout their supported area. ETCs may use any 
technology in the provision of voice telephony service. Additionally, 
consistent with the section 254(b) principle that consumers in all 
regions of the Nation * * * should have access to telecommunications 
and information services * * * that are available at rates that are 
reasonably comparable to rates charged for similar services in urban 
areas, ETCs must offer voice telephony service, including voice 
telephony service offered on a standalone basis, at rates that are 
reasonably comparable to urban rates. The Commission finds that these 
requirements are appropriate to help ensure that consumers have access 
to voice telephony service that best fits their particular needs.
(b) Broadband
    249. Because different technologies, which may provide lower speeds 
and/or higher latencies, are likely to be used to serve locations in 
extremely high-cost areas than in other areas, and because it is not 
reasonably feasible to overcome this difference with the limited 
resources available through the CAF, the Commission proposes to tailor 
broadband performance requirements to the economic and technical 
characteristics of networks likely to exist in those remote areas. The 
Commission therefore proposes to modestly relax the broadband 
performance obligations for fixed voice and broadband providers to 
facilitate participation in the Remote Areas Fund by providers of 
technologies like next-generation satellite broadband and unlicensed 
localized fixed wireless networks, which may be significantly less 
costly to deploy in these remote areas. The Commission seeks comment on 
the appropriate performance requirements for broadband service to 
remote areas.
    250. Speed Requirement. The Commission notes that satellite 
broadband providers and WISPs are capable of offering service at speeds 
of at least 4 Mbps downstream and 1 Mbps upstream or intend to do so in 
the near future. The Commission proposes that broadband services 
eligible for CAF support for remote areas must, consistent with other 
CAF requirements, offer actual speeds of at least 4 Mbps downstream and 
1 Mbps upstream. The Commission seeks comment on this proposal. Are 
adjustments to those speeds appropriate given the nature of satellite 
service, WISP service, or other services? Is the availability of 
sufficient

[[Page 78411]]

backhaul capacity a limiting factor that must be taken into account in 
some circumstances?
    251. Latency. Consistent with other CAF requirements, the 
Commission proposes to require ETCs to offer service of sufficiently 
low latency to enable use of real-time applications, including VoIP. 
The Commission recognizes that providers that operate satellites in 
geosynchronous orbits will, as a matter of physics, have higher latency 
than most terrestrial networks, and seeks comment on how to 
operationalize that requirement. Would it be appropriate to set a 
latency standard, measured in milliseconds, for satellite services 
delivered in remote areas? If so, what should that standard be?
    252. Capacity. The Commission seeks comment on whether services 
supported by CAF for remote areas should have a minimum capacity 
requirement, and if so what that requirement should be. The Commission 
notes that both WildBlue and HughesNet currently limit daily or monthly 
usage by their residential subscribers. Upon launch of their new 
satellites, both providers may be able to adjust their usage limits.
    253. Other elements of CAF require that usage limits for broadband 
services must be reasonably comparable to usage limits for comparable 
residential broadband offerings in urban areas. Is this standard 
appropriate for satellite, WISP, and other broadband services in remote 
areas? Could the Commission establish a different capacity standard for 
services supported by CAF in remote areas that still enable consumers 
to utilize distance learning, remote medical diagnostics, video 
conferencing, and other critical applications, while allowing network 
operators the flexibility necessary to manage their networks? How would 
such a standard be operationalized?
(ii) Pricing
    254. Reasonably Comparable Rates. The fourth performance goal 
adopted in the USF-ICC Transformation Order is to ensure that rates are 
reasonably comparable for voice as well as broadband service, between 
urban and rural, insular, and high-cost areas. Rates must be reasonably 
comparable so that consumers in rural, insular, and high-cost areas 
have meaningful access to these services. The Commission proposes to 
utilize the standards discussed in the USF-ICC Transformation Order to 
determine whether rates for voice and broadband service in remote areas 
are reasonably comparable to those in urban areas. The Commission seeks 
comment on this proposal.
    255. Specifically, the Commission proposes to consider rates for 
voice service in remote areas to be reasonably comparable to urban 
voice rates under section 254(b)(3) if rates in remote areas fall 
within a reasonable range of urban rates for reasonably comparable 
voice service. Consistent with precedent, the Commission proposes to 
presume that a voice rate is within a reasonable range if it falls 
within two standard deviations above the national average.
    256. As with voice services, for broadband services, the Commission 
proposes to consider rates in remote areas to be reasonably comparable 
to urban rates under section 254(b)(3) if rates in remote areas fall 
within a reasonable range of urban rates for reasonably comparable 
broadband service. The Commission expects that the specific methodology 
to define that reasonable range that the Bureaus elsewhere have been 
directed to develop will be of equal use here.
    257. The Commission is committed to achieving its goal of ensuring 
that voice and broadband are available at reasonably comparable rates 
for all Americans. It is unlikely, however, that the Commission will be 
able to ensure that every residence/household in extremely high-cost, 
remote areas has access to subsidized voice and broadband service given 
the overall budget for the CAF. The Remote Areas Fund is, therefore, 
focused primarily on making voice and broadband affordable for 
consumers who would not otherwise have the resources to obtain it. The 
Commission seeks comment in the following sections on whether to 
implement a means test to ensure that those residences/households in 
remote areas that are most in need of support to make voice and 
broadband affordable are able to obtain it.
    258. The Commission recognizes that this approach would be 
different from the current Commission approach for advancing universal 
service in high-cost areas, which does not look at the income levels of 
individual consumers that are served by carriers that receive funding 
from the high-cost program. These past decisions, however, were made in 
the context of a high-cost fund that lacked a strict budget. The 
Commission has now established an annual budget of no more than $4.5 
billion for the high-cost fund. In the context of this budget, the 
Commission has considered how best to achieve its goals with respect to 
the relatively small number of extremely costly to serve locations. 
Supporting robust fixed terrestrial networks in these remote areas 
would be so expensive that it would impose an excessive burden on 
contributors to the fund, even recognizing the section 254(b)(3) 
comparability principle, which the courts and the Commission have held 
must be balanced against the other principles. Imposing such a burden 
on consumers that contribute to the universal service fund would 
undermine its universal service goals by raising the cost of 
communications services.
    259. The Commission seeks to ensure that consumers in extremely 
high-cost areas have a meaningful opportunity to obtain both voice and 
broadband connectivity, and has concluded that it should support the 
provision of some service to those who might otherwise have no service 
at all. The Commission believes this is a reasonable balancing of the 
section 254(b) principles in the context of remote areas that would be 
unreasonably expensive to serve by the means contemplated in the other 
CAF programs. In the USF-ICC Transformation Order, the Commission 
believes it can achieve this goal for these remote customers for 
approximately $100 million per year. It is appropriate to revisit, in 
this narrow context, the question of whether it should direct the 
limited available funds to support residences/households with limited 
means, rather than offering discounted rates to residences/households 
for which a somewhat higher price is unlikely to be a barrier to 
adoption.
    260. Subsidy Pass Through. To the extent the Remote Areas Fund is 
structured in a way that support is provided to ETCs on a per-
subscriber basis (e.g., as a portable consumer subsidy or as a per-
subscribed-location auction), the Commission proposes that ETCs be 
required to pass the subsidy it receives for a subscriber on to that 
subscriber--in its entirety--in the form of a discount. This 
requirement is consistent with Lifeline, and will help to ensure that 
consumers in remote areas have access to services at reasonably 
comparable rates. The Commission seeks comment on this proposal.
    261. Price Guarantees. The Commission seeks comment on how to 
ensure that providers do not raise their prices in response to the 
availability of the Remote Areas Fund subsidy. One proposal would be to 
require each ETC to establish an anchor price for its basic service 
offering--including installation and equipment charges--as a condition 
of eligibility to receive Remote Areas Fund support. Such an approach 
would provide ETCs with pricing flexibility for all but their basic 
service offerings, while ensuring that low-income

[[Page 78412]]

consumers have access to at least one product that is affordable. The 
Commission seeks comment on how to establish appropriate anchor prices. 
Would it be enough to require that the lowest discounted rate be 
reasonably comparable to rates in urban areas?
    262. Consumer Flexibility. The Commission proposes that consumers 
that receive discounts by virtue of Remote Areas Fund support should be 
permitted to apply that discount to any service package that includes 
voice telephony service offered by their ETC--not just to a basic 
package that is available at an anchor price or to other limited 
service offerings. Consumers in urban areas generally have the ability 
to purchase multiple service packages with varying levels of service 
quality at varying prices. It seems reasonable to afford a consumer in 
a remote area the same opportunity. The Commission seeks comment on 
this proposal.
iii. Portable Consumer Subsidy Issues
a. Subscriber Qualifications
    263. The Commission proposes that CAF support for remote areas be 
used to make available discounted voice and broadband service to 
qualifying residences/households in remote areas, in a manner similar 
to its Lifeline program. The Commission proposes to limit CAF support 
for remote areas to one subsidy per residence/household. The Commission 
further proposes that in order for an ETC to receive a subsidy for a 
residence/household (which subsidy will be used to provide that service 
to that residence/household at a discounted rate), the residence/
household be located in a remote area. Finally, the Commission seeks 
comment on whether to require that residences/households meet a means 
test.
    264. Eligibility Limited to One Per Residence/Household. The 
Commission proposes to limit support to a single subsidy per residence/
household in order to facilitate its statutory universal service 
obligations while preventing unnecessary expenditures for duplicative 
connections. A single fixed broadband connection should be sufficient 
for a single residence/household. The Commission seeks comment on this 
proposal.
    265. The Commission also seeks comment on how to implement this 
proposal in the context of CAF support for remote areas. First, the 
Commission proposes to adopt the use and definition of residence or 
household ultimately adopted by the Commission in connection with the 
Lifeline and Link Up Reform and Modernization NPRM, 76 FR 16482, March 
23, 2011. The Commission seeks comment on this proposal. The Commission 
also seeks comment on how best to interpret the one per residence/
household restriction in light of current service offerings and in the 
context of situations that may pose unique circumstances. How should 
the Commission or Administrator determine that CAF support for remote 
areas is being provided in a manner consistent with any definitions of 
household or residence ultimately adopted? Should providers be able to 
rely on the representation of the person signing up for the discounted 
service?
    266. The Commission seeks comment on the relationship between CAF 
support for remote areas and the Lifeline program. Should a consumer's 
decision to obtain services supported by the Remote Areas Fund affect 
or preclude their eligibility for Lifeline, or vice versa? What other 
issues must the Commission address in order to ensure that these 
programs are structured in a complementary fashion?
    267. Remote Area. The Commission proposes that CAF support for 
remote areas should be available only for service provided to 
residences/households located in extremely high-cost areas, consistent 
with the discussion above. The Commission seeks comment on this 
proposal.
    268. Limiting Support to New Subscribers. It is likely that there 
are residences/households located in remote areas that are capable of 
and willing to pay for satellite voice and broadband services at 
current prices. These residences/households do not, by definition, 
require assistance in overcoming the barrier to affordability in remote 
areas. The Commission therefore seeks comment on whether it is 
appropriate to limit Remote Areas Fund support to new subscribers only. 
If so, how would such a restriction be implemented? Can an ETC 
determine whether a potential new subscriber is a current or past 
subscriber to itself or to another ETC? Should residences/households be 
considered new customers some period of time after cancelling service 
with an ETC? If so, how long a period is appropriate?
    269. Means Test. The Commission seeks comment on whether to use a 
means test to identify qualifying locations for which support can be 
collected in each eligible remote area. It would appear that using a 
means test for determining qualifying residences/households is 
particularly appropriate in supporting services in extremely high-cost, 
remote areas that may be most cost-effectively served by satellite 
technology. This is because such service is readily available over 
broad areas, but often at higher prices to the end user than common 
terrestrial broadband services. In addition, by limiting its support to 
locations that meet a means test the Commission assure that it stretch 
the available funds as far as possible to support service to those that 
would not otherwise be able to afford it. The Commission seeks comment 
on whether an approach that provides a portable subsidy to only a 
subset of consumers in remote areas is consistent with the statutory 
principle that consumers in all regions of the Nation, including low-
income consumers * * * should have access to * * * advanced 
telecommunications and information services * * * at rates that are 
reasonably comparable to rates charged for similar services in urban 
areas. The Commission seeks comment on these proposals, and on any 
alternatives.
    270. The Commission seeks comment on what standard it would use for 
such a means test. For instance, would it be appropriate to set a 
threshold means test for residences/households of 200 percent of the 
poverty level as established annually, based on residence/household 
size? That would, for example, provide support for a family of four 
that has income of $44,700 or lower. What would be the relative 
advantages and disadvantages of setting a higher or lower level? Would 
it be appropriate to also specify other governmental programs that 
could serve as models or as proxies for a means test, as is done with 
the Commission's low-income program?
    271. Community Anchor Institutions and Small Businesses. The 
Commission seeks comment on whether small businesses and/or community 
anchor institutions also should be eligible for the Remote Areas Fund. 
How would the proposals set forth in this FNPRM need to be modified to 
administer a Remote Areas Fund that includes small businesses? How 
should small businesses be defined? Would small businesses receive the 
same subsidy as residences/households, or a different subsidy? As the 
Commission observed in the USF-ICC Transformation Order, community 
anchor institutions in rural America often are located near the more 
densely populated area in a given county--the small town, the county 
seat, and so forth--which are less likely to be extremely high-cost 
areas and therefore may not require support. If the Commission is to 
provide support to community anchor institutions, how should that term 
be defined?
b. Setting the Amount of the Subsidy
    272. The Commission seeks comment on how to set the CAF support 
amount

[[Page 78413]]

for remote areas for ETCs for voice and broadband services.
(i) Stand-Alone Voice Service
    273. The Commission seeks comment on how to set the CAF support 
amount for remote areas for stand-alone voice service. One proposal 
would be to adopt rules consistent with those that establish the tiered 
Lifeline support amounts for voice telephony service. Would these 
support amounts be sufficient to overcome the barrier to affordability 
for voice service faced by individuals in remote areas? Would a greater 
or lesser amount be more appropriate? If so, how would such an amount 
be calculated?
(ii) Voice and Broadband Service
    274. The Commission seeks comment on how to set the CAF support 
amount for remote areas for a bundle of voice and broadband (voice-
broadband) service. The Commission notes that current satellite 
services tend to have significantly higher monthly prices to end-users 
than many terrestrial fixed broadband services, and frequently include 
substantial up-front equipment and installation costs.
    275. Monthly Payments. The Commission seeks comment on the 
appropriate support amount for monthly satellite voice-broadband 
service charges. One proposal would be to provide a monthly amount 
equal to the difference between the retail price of a basic satellite 
voice-broadband service and an appropriate reference price for 
reasonably comparable service in urban areas. How would the appropriate 
reference price for satellite voice-broadband be calculated? How would 
the appropriate reference price for a reasonably comparable voice-
broadband service in urban areas be calculated? What performance 
criteria should be applied when selecting a service or services from 
which to derive the price? Should a discount be applied to the price of 
services which are of lower quality (e.g., have higher latency or 
stricter capacity limits)? Could the survey of urban broadband rates 
the Bureaus have been authorized to conduct provide the necessary data? 
How should the presence or absence of mandatory contract terms or other 
terms and conditions that may differ be taken into account? Are there 
other data sources available that could be relied upon to determine one 
or both reference prices?
    276. What other methods could be used to establish the appropriate 
support amount? Proposals should be detailed and specific, and 
commenters should be mindful of the need to balance the goal of 
ensuring access to affordable broadband in remote areas with the need 
to operate within the budget and minimize opportunities for waste, 
fraud and abuse.
    277. Installation and Equipment. The cost of purchasing or leasing 
terminal equipment and installation necessary for satellite service to 
be initiated often are greater than for other services. The Commission 
seeks comment on how and whether Remote Areas Fund support should be 
allocated to defray these startup costs.
    278. The Commission proposes that subscribers be required to pay, 
or provide a deposit of, a meaningful amount to help ensure that 
subscribers have the means to pay for the services to which they 
subscribe and to provide an incentive to comply with any terms of their 
service agreements regarding use and return of equipment. What would be 
an appropriate payment or deposit amount?
    279. By extension, the Commission proposes that the subsidy for 
installation services and equipment sale or lease be the difference 
between the payment or deposit amount described in the preceding 
paragraph and the ETC's routine charges for initiating service. The 
Commission seeks comment on whether this would result in an appropriate 
subsidy level. Should the Commission instead establish a fixed subsidy 
amount? If so, how should that subsidy amount be calculated? Should the 
subsidy be paid at the time service is initiated, or should smaller 
payments be made during the duration of the subscription? What other 
factors must be taken into account so as to ensure that the costs of 
installation and equipment do not serve as a barrier to affordable 
broadband service in remote areas while minimizing incentives for 
customer churn and opportunities for waste, fraud and abuse?
    280. Satellite Service Availability. The Commission recognizes that 
some of the most likely providers of service to remote areas are 
satellite providers. Are there issues relating to the nature of 
satellite service that could prevent potential subscribers from 
obtaining service? For example, WildBlue and HughesNet both require 
that subscribers have a clear view of the southern sky in order to 
obtain a signal. How many potential subscribers in remote areas may not 
be able to obtain a signal due to the nature of their dwelling unit 
(e.g., a multi-unit dwelling), terrain surrounding their dwelling unit 
(e.g., proximity to mountains), heavy foliage, or other obstructions? 
To what extent can such issues be resolved by antenna masts or other 
solutions? Should the cost of resolving such issues be subsidized by 
CAF support for remote areas? If so, how would the amount of such 
subsidy be calculated?
c. Terms and Conditions of Service
    281. The Commission notes that both WildBlue and HughesNet require 
subscribers to enter into a 24-month contract as a condition of 
service, and impose an early termination fee if service is terminated 
prior to the end of the contract term. Should ETCs be permitted to 
impose such contract terms when consumers subscribe to services 
supported by CAF for remote areas? Are there other terms or conditions 
that should be prohibited or restricted in connection with the 
provision of supported services? For example, should an ETC be 
permitted to require subscribers to pay by credit card, or to pass a 
credit check before service is initiated?
d. Budget
    282. The Commission seeks comment on how to ensure that it stay 
within the annual Remote Areas Fund budget under a portable consumer 
subsidy structure. Should support be available on a first come, first 
served basis, or should some other method be used to identify which 
applicants receive support? If, in a given funding year, support 
expenditures begin to approach the budgeted amount, should the 
Commission tighten the eligibility criteria to reduce demand (e.g., by 
lowering the threshold established for a means test, if adopted)? If 
so, how? What other tools or techniques can the Commission use to 
ensure that demand for CAF for remote areas support does not outstrip 
the budgeted supply?
    283. The Commission also seeks comment on what the Commission 
should do if requests for reimbursement from the Remote Areas Fund are 
lower than the budget. If, in a given funding year, support 
expenditures do not reach the budgeted amount, should the Commission 
modify its eligibility criteria to allow additional residences/
households in remote areas to obtain service supported by the Remote 
Areas Fund? If so, how?
iv. Auction Approaches
    284. As alternatives to its proposals the Commission could use one 
of several competitive bidding approaches to target the provision of 
CAF funding in extremely high-cost areas. Using an auction in which 
providers compete across areas for support from the Remote Areas Fund 
could enable us to identify those providers that would offer the 
services at least cost to the fund, so

[[Page 78414]]

as to maximize the number of locations that could be served within the 
budget. More specifically, the Commission seeks comment on three 
auction-related alternatives. If the Commission uses an auction 
framework, it would have to consider some additional questions 
regarding how to address aspects of the program that would be different 
under an auction approach than for its voucher proposal. Commenters 
advocating for auction options should discuss to what extent the choice 
of a particular auction approach should affect decisions about the 
general implementation issues discussed above including definition of 
remote areas, provider qualifications, and public interest obligations.
    285. Per-Subscribed Location Auction. This competitive bidding 
alternative would have much in common with the portable consumer 
subsidy proposal in that it would offer a subsidy based on service 
provided to qualifying locations. In contrast, however, under an 
auction approach, the subsidies would not necessarily be available in 
all the areas identified as extremely high-cost, but only in those 
areas for which winning bids were accepted. Further, in an auction for 
per-location support, only the providers submitting the winning bids 
would be eligible to collect the subsidy payments to serve qualifying 
locations in the area. And under an auction approach, the subsidy 
amount would be determined based on bids in the auction, and would not 
be set by the Commission.
    286. In a per-subscriber location auction, the Commission would 
establish a benchmark price level for services meeting the performance 
criteria defined for voice and broadband in extremely high-cost areas. 
Bidders would then indicate in the auction a subsidy amount at which 
they would be willing to offer services meeting its specifications 
while charging consumers no more than the benchmark price, which would 
represent a discount off the otherwise available price. The Commission 
seeks comment on how it should establish this price, and how to adjust 
it over time. Many of the same considerations discussed above with 
respect to the portable consumer subsidy would apply to the per-
subscriber-location auction, and the Commission asks commenters to 
address these issues.
    287. With respect to the choice of areas for competitive bidding 
under this option, the Commission seeks comment on whether it should 
use a geographic area other than census blocks as a minimum geographic 
unit for bidding, and how that choice relates to whether and how it 
might provide for bidding on packages of areas. In order to evaluate 
the effect of bids with respect to available funds, the Commission 
would determine the number of qualifying locations in each eligible 
census block based on 2010 decennial census data (e.g., those locations 
meeting a required means test).
    288. The Commission could design the auction to select one or 
possibly more than one provider that would be eligible to receive a 
subsidy amount to provide services in a given area, and the Commission 
seeks comment on these possible approaches. Enabling more than one 
provider to receive support could provide qualifying customers with the 
benefits of a choice of service providers. Selecting a single provider 
per area, however, could give the providers more certainty regarding 
potential customers, which may permit lower bids. The Commission also 
asks commenters to consider whether picking one provider or two or more 
would have an effect on auction competition and the auction's ability 
to drive subsidy prices to efficient levels. In this regard, the 
Commission asks commenters to indicate the likely impact on subsidy 
levels of picking one provider or two or more through an auction, as 
well as the concomitant effect on the number of locations that could be 
served within the budget.
    289. Coverage Auction. This competitive bidding option could be 
appropriate if the Commission finds that it needs to spur significant 
new deployment (e.g., launching a new satellite or directing a 
dedicated spot beam to a particular area) to make voice and broadband 
services available in extremely high-cost areas. Thus, a coverage 
auction would have much in common with its proposals for competitive 
bidding for Mobility Fund Phase II and price cap areas in which a 
state-level commitment was not made in that it would offer support to 
service providers in exchange for making service available at 
reasonably comparable rates to any requesting location within a 
particular geographic area. Similar to the other proposed CAF auctions, 
requesting locations would not be subject to a means test, and support 
would not be tied to the number of subscribers a provider serves. As a 
threshold matter, the Commission seeks comment on whether a coverage 
auction would displace private investment, given existing and planned 
capacity and coverage that may be achieved without support. If adequate 
capacity and coverage is unlikely to be achieved absent support, the 
Commission seeks input on how to structure a competitive auction, given 
the nature of competition among satellite broadband providers and the 
possibility of competition from providers using other technological 
platforms, such as WISPs.
    290. The Commission seeks comment on the appropriate geographic 
area to use as a minimum geographic unit for bidding, and how that 
choice relates to whether and how the Commission might provide for 
bidding on packages of areas. In order to evaluate the impact on 
available funds of bids made for different geographic areas the 
Commission would determine the number of potential locations in each 
eligible census block based on 2010 decennial census data. The 
Commission would anticipate that, in order to maximize the consumer 
benefits, it would generally be supporting a single provider for a 
given geographic area. The Commission would support more than one 
provider in an area only if doing so would maximize coverage.
    291. Combined Auction. This auction option would combine the 
budgets available for the post-state-level commitment competitive 
bidding process and for remote areas, relaxing the performance 
requirements applicable to providers of fixed services receiving CAF 
support in order to increase the number of technologies service 
providers could use. In such an auction, providers could offer 
different performance characteristics, such as download and/or upload 
speeds, latency, and limits on monthly data use, and the Commission 
would score such quality differences in evaluating bids. This would 
give the Commission the ability to make trade-offs between subsidizing 
a higher quality service to fewer customers versus subsidizing a lower 
quality for more customers. Additionally, such an approach should 
result in more competitive bidding and lower prices, by allowing more 
technologies to compete for funding (both for an area and across 
areas), thereby permitting the CAF budget to yield greater quality for 
a given coverage, expanded coverage, or some combination thereof. This 
could allow the auction to determine a more cost effective distribution 
of budgets for services that meet potentially different performance 
obligations, rather than having the Commission decide in advance how to 
distribute the budgets across different auctions.
    292. The Commission seeks comment on the appropriate geographic 
area to use as a minimum geographic unit for bidding, and how that 
choice relates to whether and how it might provide for bidding on 
packages of areas. The Commission also seeks comment on how to 
establish the number of units in

[[Page 78415]]

eligible geographic areas. For instance, should the Commission apply a 
means test to determine the number of qualifying locations that must be 
served? Further, the Commission seeks comment on whether and how to 
score different performance dimensions, and, whether providers should 
specify as part of their bids the retail prices they would charge 
consumers and, if so, how to include such prices in evaluating the 
bids. The Commission also asks whether it should prioritize areas 
currently lacking availability of any terrestrial broadband service at 
any speed by, for example, providing a form of bidding credit.
    293. Competitive Bidding Procedures. Should the Commission use any 
of its competitive bidding alternatives, the Commission would generally 
structure the procedures as it has done for Mobility Fund Phase I and 
proposed for Phase II and for the CAF auction for price cap areas. The 
Commission proposes to use the same general auction rules as adopted or 
proposed for other contexts, including rules on potential auction 
designs, and rules on governing an auction application phase, a bidding 
phase, and a post-auction process whereby selected providers would show 
they are legally, technically and financially qualified to receive the 
support. As with other adopted and proposed auctions for CAF 
components, the Commission proposes to delegate to the Bureaus 
authority to establish detailed auction procedures and take all other 
actions to implement a competitive bidding process and other program 
aspects of the subsidies for remote areas to be determined through 
competitive bidding.
    294. Auction Design. The Commission proposes to use the same 
general rules established for the Mobility Fund Phase I and proposed 
for the Mobility Fund Phase II, regarding various auction design 
options and parameters, which would form the basis for auction 
procedures to implement a specific design as part of the pre-auction 
notice and comment proceeding. The Commission contemplates that the 
specific procedures to be adopted for this auction would be identified 
in a public notice. Among other issues, the Commission proposes to give 
the Bureaus discretion to consider various procedures for grouping 
eligible areas to be covered with one bid--package bidding--that could 
be tailored to the needs of prospective bidders as indicated during the 
pre-auction notice and comment period. The Commission seeks comment on 
these proposals and invites commenters to identify any alternatives.
    295. Potential Bidding Preference for Small Businesses. The 
Commission also seeks comment on whether small businesses should be 
eligible for a bidding preference if it uses any of its competitive 
bidding alternatives to provide support from the Remote Areas Fund, and 
whether such a bidding preference would be consistent with the 
objective of providing such support. The preference would be similar to 
the small business preference on which the Commission seeks comment for 
auctions of Mobility Fund Phase II support, and would act as a reverse 
bidding credit that would effectively reduce the bid amount for the 
purpose of comparing it to other bids. The Commission also seeks 
comment on the appropriate size of any small business bidding credit. 
The Commission also seeks comment on how it should define small 
businesses. Specifically, for the reasons provided in its discussion of 
Mobility Fund Phase II, the Commission seeks comment on whether a small 
business should be defined as an entity with average gross revenues not 
exceeding $40 million for the preceding three years. Alternatively, 
should the Commission consider a larger size definition for this 
purpose, such as average gross revenues not exceeding $125 million for 
the preceding three years? In determining an applicant's gross revenues 
under what circumstances should the Commission attribute the gross 
revenues of the applicant's affiliates? The Commission seeks comment on 
these definitions and invites input on whether an alternative basis for 
a size standard should be established.
    296. Application, Auction and Post-Auction Process. The Commission 
proposes to use the same two-stage application process described more 
completely elsewhere. Similarly the Commission proposes to use the same 
rules and procedures regarding permissible communications and public 
disclosure of auction-related information, and regarding delay, 
suspension, or cancellation of bidding. The Commission also proposes to 
use the same rules regarding the post-auction long-form application 
process and the same rules regarding auction defaults and performance 
defaults.
    297. The Commission seeks comment on all of these proposals. 
Specifically, the Commission asks whether there are reasons related to 
the specific circumstances it seeks to address in remote areas that 
should cause us to deviate from the process established for the 
Mobility Fund.
v. Competitive Evaluation Approach
    298. The Commission seeks comment on structuring CAF for remote 
areas as a competitive proposal evaluation process, or RFP process. 
With this option the Commission would solicit proposals to provide 
broadband service in eligible areas, consistent with its technical 
requirements, and award support for a fixed term to those proposals 
that offered the best value in terms of meeting its stated criteria. 
Using such an RFP process, perhaps modeled after the Rural Utilities 
Service Broadband Initiatives Program, might permit the Commission more 
flexibility than an auction in balancing evaluation criteria--for 
example, with respect to quality standards such as capacity and 
latency, or quality and price.
vi. Other Issues
a. Certification and Verification of Eligibility
    299. The Commission's obligation to minimize waste, fraud and abuse 
in Commission programs suggests that it should require individuals who 
are eligible for CAF support for remote areas be required to certify as 
to their eligibility and periodically verify their continued 
eligibility. Given the Commission's experience in administering the 
Lifeline program, the Commission proposes to adopt the Lifeline 
certification and verification procedures proposed by the Commission in 
connection with the Lifeline and Link Up Reform and Modernization NPRM. 
The Commission seeks comment on this proposal and on whether any 
modifications would be necessary to reflect the differences between the 
Lifeline and Link Up programs and the Remote Areas Fund. Would other 
rules be more appropriate? To the extent that the proposals for 
Lifeline contemplate that states be permitted to implement additional 
verification procedures, should it consider permitting similar state-
specific procedures here? Should it consider the same uniform sampling 
methodology proposed for Lifeline? What other modifications to the 
Lifeline and Link Up rules might be necessary?
b. Accountability and Oversight
    300. Except for disbursing support, the Commission proposes to 
apply to its program of support for remote areas the same rules for 
accountability and oversight as it does for CAF. Thus, recipients of 
this support would be subject generally to the same reporting, audit, 
and record retention requirements that apply to recipients of CAF 
support. The Commission proposes to disburse

[[Page 78416]]

support for the remote areas budget on a quarterly, per-location served 
basis, beginning upon notification that a qualifying location has 
contracted with the designated support recipient for service consistent 
with the program technical requirements.
    301. The Commission proposes that providers notify the Commission 
quarterly of newly served locations by submitting a certification 
specifying the number of signed contracts for qualifying locations, 
along with a certification that each location meets the qualifying 
criteria (e.g., a means test) established in this proceeding. Signed 
contracts would be covered by the record retention requirements 
applicable to all recipients of CAF support.
    302. The Commission proposes that payments for newly acquired 
customers be submitted and paid quarterly. The Commission seeks comment 
on how often support for continuing qualifying customers should be paid 
out, e.g., in quarterly installments.
    303. In structuring an appropriate payment plan, the Commission is 
mindful that it must comply with the Anti-Deficiency Act. Commenters 
are invited to address how to structure an award of support that 
provides recipients with the requisite level of funding and certainty, 
while ensuring that the Commission's Anti-Deficiency Act obligations 
are met.

L. Introduction to Intercarrier Compensation

    304. In this portion of the FNPRM, the Commission seeks comment on 
additional topics that will guide the next steps to comprehensive 
reform of the intercarrier compensation system initiated in the USF-ICC 
Transformation Order.

M. Transitioning All Rate Elements to Bill-and-Keep

    305. The Commission adopts a bill-and-keep pricing methodology as 
the default methodology that will apply to all telecommunications 
traffic at the end of the complete transition period. In the USF/ICC 
Transformation Order, the Commission finds that a bill-and-keep 
methodology has numerous consumer benefits, best addresses access 
charge arbitrage, and will promote the transition from TDM to all-IP 
networks. Although the Commission specifies the implementation of the 
transition for certain terminating access rates in the USF/ICC 
Transformation Order, the Commission did not do the same for other rate 
elements, including originating switched access, dedicated transport, 
tandem switching and tandem transport in some circumstances, and other 
charges including dedicated transport signaling, and signaling for 
tandem switching. The Commission seeks further comment to complete its 
reform effort, and establish the proper transition and recovery 
mechanism for the remaining elements. Commenters warn that failure to 
take action promptly on these elements could perpetuate inefficiencies, 
delay the deployment of IP networks and IP-to-IP interconnection, and 
maintain opportunities for arbitrage. The Commission agrees, and seeks 
to reach the end state for all rate elements as soon as practicable, 
but with a sensible transition path that ensures that the industry has 
sufficient time to adapt to changed circumstances. As a result, the 
Commission seeks comment on transitioning the remaining rate elements 
consistent with its bill-and-keep framework, and adopting a new 
recovery mechanism to provide for a gradual transition away from the 
current system.
    306. Origination. Other than capping interstate originating access 
rates and bringing dedicated switched access transport to interstate 
levels, the USF/ICC Transformation Order does not fully address the 
complete transition for originating access charges. Instead, it 
provides on an interim basis that interstate originating switched 
access rates for all carriers are to be capped at current levels as of 
the effective date of the rules adopted pursuant to the USF/ICC 
Transformation Order. As the Commission acknowledges in the USF/ICC 
Transformation Order, 47 U.S.C. 251(b)(5) does not explicitly address 
originating charges. The Commission determines, therefore, that such 
charges should be eliminated at the conclusion of the ultimate 
transition to the new intercarrier compensation regime. The Commission 
seeks comment on that final transition for all originating access 
charges.
    307. Beyond the interim steps set forth in the USF/ICC 
Transformation Order, the Commission seeks comment on the need for an 
additional multi-year transition for originating access as part of the 
final transition to bill-and-keep. Commenters warn that establishing 
separate transitions for different intercarrier charges invites 
opportunities for arbitrage. Should any final transition of originating 
access be made to coincide with the final transition for terminating 
access adopted? Should a separate transition schedule be established 
for originating access only after the transition the Commission adopts 
for terminating access is complete? If a separate transition schedule 
is established after the transition is complete, would a two-year 
transition beginning in year 2018 for price cap carriers and 2020 for 
rate of return carriers be an appropriate time period? If not, what 
other time period should be considered and when should it commence? 
Should rate of return carriers be given additional time to transition 
such rates? If so, how much? How should reductions of originating 
access rates be structured? Should rates be reduced in equal increments 
over a period of years? Should the timing of rate reductions vary by 
type of carrier? The Commission seeks comment on an appropriate 
schedule, and the timing of any necessary interim steps.
    308. The Commission seeks further comment as to what, if any, 
recovery would be appropriate for originating access charges and how 
such recovery should be implemented. For instance, should any recovery 
be limited to those incumbent LECs that do not provide retail long 
distance through affiliates? In addition, the Commission asks for 
comment on the legal basis for the Commission to provide or deny 
recovery for originating access. The Commission seeks comment on how to 
minimize any additional consumer burden associated with the transition 
of originated access traffic, and how best to promote IP-to-IP 
interconnection in this transition.
    309. The Commission also seeks the input of the states on how to 
transition to bill-and-keep for originating access charges. Although 
the Commission can exercise its authority to implement a transition, as 
it does in the USF/ICC Transformation Order the Commission could also 
defer to the states to create a transition to bill-and-keep for 
originating access. Since originating intrastate access rates are not 
capped for rate of return carriers, the Commission asks whether it 
should initially defer the transition to bill-and-keep for originating 
access to the states to implement. If so, how much guidance should the 
Commission provide states? Should the Commission provide the date that 
the transition must be complete? Should states also be responsible for 
determining any appropriate recovery mechanism?
    310. Relatedly, the Commission also seeks comment on the 
appropriate treatment of 8YY originated minutes. In the case of 8YY 
traffic, the role of the originating LEC is more akin to the 
traditional role of the terminating LEC in that the IXC carrying the 
8YY traffic must use the access service of the LEC subscribed to by the 
calling party. Stated differently, in the case of 8YY traffic, because 
the calling party chooses

[[Page 78417]]

the access provider but does not pay for the toll call, it has no 
incentive to select a provider with lower originating access rates. For 
this reason, the Commission asks parties to address whether it should 
distinguish between originating access reform for 8YY traffic and 
originating access reform more generally.
    311. The Bureaus has previously sought data and comment on the 
relative proportion of 8YY originated minutes to traditional originated 
minutes. In its response, the Nebraska Companies estimated that 
approximately 20-30 percent of originating traffic is to an 8YY number, 
while Texas Statewide Telephone Cooperative suggested that this figure 
could be as much as 50 percent. Are these figures commensurate with the 
average number of minutes that customers originate to 8YY numbers on 
other networks? The Commission again invites carriers to provide us 
with this data to help evaluate originating access reform, and the need 
for a distinct 8YY resolution. The Nebraska Companies further contend 
that a 251(b)(5) regime in which originating compensation does not 
exist, is unworkable in an environment of originating 8YY traffic and 
equal access obligations. The Commission seeks comment on this 
conclusion and any alternatives.
    312. Finally, the Commission seeks comment on other possible 
approaches to originating access reform, including implementation 
issues and its legal authority to adopt any such reforms.
    313. Transport and Termination. The initial transition described 
above does not fully address tandem switching and transport charges. 
For rate-of-return carriers, these charges are capped at interstate 
levels. For price cap carriers, where the terminating carrier owns the 
tandem in the serving area, these charges are subject to the transition 
established in the USF/ICC Transformation Order but the Commission does 
not address the transition for tandem switching and transport charges 
if the price cap carrier does not own the tandem in the serving area. 
Because the Commission's USF/ICC Transformation Order does not address 
the transition for all transport charges and the relationship between 
these charges and interconnection obligations more generally, the 
Commission seeks further comment on the proper transition for these 
charges. The Commission seeks comment on the proper scope of its reform 
and on the transition for these elements.
    314. Several commenters express concern about the treatment of 
transport and tandem services under the ABC Plan and Joint Letter. T-
Mobile asserts that as rates are reduced, ILECs will have powerful 
incentives to shift costs from end office functions to transport and 
tandem switching functions, requiring the Commission to devote 
additional time and effort to its scrutiny of ILEC tariff filings. 
Sprint raises concern that transport rate elements bear no relationship 
to the miniscule incremental cost of performing the traffic termination 
functions and that these rates serve as a disincentive for efficient 
interconnection and may have potential to extend arbitrage behavior. 
Competitive LECs argue that, even at interstate levels between the 
years 2013 to 2017, transport rates create significant opportunities 
for price cap ILECs to raise rivals' costs and, at the end state, 
price-cap ILECs would have the incentive to charge as high a price for 
that transport as possible. Commenters further argue that there are 
definitional ambiguities about the scope of transport that deserve 
clarification. The Commission agrees that such elements must be 
transitioned to bill-and-keep at the end state, as required by the USF/
ICC Transformation Order, and seeks comment on the final transition to 
bill-and-keep for these charges.
    315. The Commission invites comment regarding the appropriate 
transition for tandem switching and transport charges, and the need for 
any additional recovery mechanisms. At what point in time should tandem 
switching and transport charges be transitioned? Some commenters 
suggest that transport rates be reduced at a pace that coincides with 
its current transition for end office switching. Alternatively, tandem 
switching and transport rates could be reduced after the conclusion of 
the transition for end office switching. The Commission seeks comment 
on these proposals as well as other possible transition timeframes. 
Should the transition for these rate elements differ based upon the 
type of carrier? The Commission asks parties to comment on what, if 
any, unintended consequences may arise in connection with a longer 
transition for these charges, and whether any delay would impede the 
transition to IP-to-IP interconnection.
    316. The Commission also seeks comment on possible recovery for 
tandem switching and transport as part of its recovery mechanism. 
Should recovery be made available for these charges? If a tandem 
switching and transport provider renegotiates an agreement for these 
services in anticipation of reform, should any increased revenue it 
receives be offset against eligible recovery? Should any recovery for 
these rate elements differ based upon the type of carrier?
    317. The Commission notes that some of these issues are closely 
related to the network edge for purposes of delivering traffic. In the 
traditional access charge system, tandem switching and transport 
charges were typically assessed against interexchange carriers. 
Meanwhile, in the traditional reciprocal compensation system, the 
originating carrier was typically responsible for transport to the 
point of interconnection, which may be located at the end office of the 
called party's carrier. As the Commission moves to a new intercarrier 
compensation system governed by a 47 U.S.C. 251(b)(5) bill-and-keep 
methodology, the Commission invites parties to comment on the existing 
and future payment and market structures for dedicated transport, 
tandem switching, and tandem switched transport. EarthLink has 
suggested that charges such as tandem switching and transport charges 
could become obsolete in an all-IP world. Is this correct? If so, how 
should it impact possible reform?
    318. Transit. Currently, transiting occurs when two carriers that 
are not directly interconnected exchange non-access traffic by routing 
the traffic through an intermediary carrier's network. Thus, although 
transit is the functional equivalent of tandem switching and transport, 
transit refers to non-access traffic, whereas tandem switching and 
transport apply to access traffic. As all traffic is unified under 47 
C.F.R. 251(b)(5), the tandem switching and transport components of 
switched access charges will come to resemble transit services in the 
reciprocal compensation context where the terminating carrier does not 
own the tandem switch. In the USF/ICC Transformation Order, the 
Commission adopts a bill-and-keep methodology for tandem switched 
transport in the access context and for transport in the reciprocal 
compensation context. The Commission has not addressed whether transit 
services must be provided pursuant to 47 U.S.C. 251 of the Act; 
however, some state commissions and courts have addressed this issue.
    319. Commenters also express concern that, as a result of the 
reforms adopted in the USF/ICC Transformation Order, transit providers 
will have the ability and incentive to raise transit service rates both 
during the transition and at the end state of reform. Specifically, one 
commenter alleges that without regulation of transit, ILECs would have 
opportunities to exploit their termination dominance. Commenters also 
express concern with the end state for tandem switching and

[[Page 78418]]

transport for price cap carriers when the tandem owner does not own the 
end office, which, under 47 U.S.C. 251 framework is typically 
considered a transit service. As part of the transition for price cap 
carriers, the USF/ICC Transformation Order provides that bill-and-keep 
will be the pricing methodology for all traffic and includes the 
transition for transport and termination within the tandem serving area 
where the terminating carrier owns the serving tandem switch. However, 
the USF/ICC Transformation Order does not address the transition in 
situations where the tandem owner does not own the end office. NCTA 
states that in this regard the ABC Plan is unclear and may attempt to 
significantly undermine competition by suggesting that such services 
would fall outside of the regulatory regime. As a result, commenters 
suggest that these services are transit services and should be provided 
pursuant to 47 U.S.C. 251 at cost-based and reasonable rates.
    320. The Commission seeks comment on the need for regulatory 
involvement and the appropriate end state for transit service. Given 
that transit service includes the same functionality as the tandem 
switching and transport services subject to a default bill-and-keep 
methodology, should the Commission adopt any different approach for 
transit traffic given that providers pay for transit for IP services 
and transit may apply to get traffic to a network edge in a bill-and-
keep framework? The Commission invites parties to comment on the 
current market for these services. Does the transit market demonstrate 
the hallmarks of a competitive market? If transit services are not 
being offered competitively, how prevalent is this? How might the 
market evolve in light of the reforms adopted in the USF/ICC 
Transformation Order? If the Commission were to regulate these charges, 
what legal framework is appropriate and what pricing methodology would 
apply during the transition?
    321. Other Charges. The Commission's transition to a bill-and-keep 
framework may implicate other charges. For example, commenters have 
highlighted that the ABC Plan and Joint Letter fail to specify what 
transition applies to dedicated transport or to other flat-rated 
charges. The Commission invites parties to comment on any rate elements 
or charges that require additional reform. What transition should apply 
to these charges?

N. Bill-and-Keep Implementation

    322. In the USF/ICC Transformation NPRM the Commission also sought 
comment on issues related to the implementation of a bill-and-keep 
pricing methodology. Now that the end point to comprehensive 
intercarrier compensation reform has been determined, the Commission 
seeks comment on any interconnection and related issues that must be 
addressed to implement bill-and-keep in an efficient and equitable 
manner. The Commission expects that the reforms adopted will not upset 
existing interconnection arrangements or obligations during the 
transition.
    323. Points of Interconnection. Currently, under 47 U.S.C. 
251(c)(2)(B), an incumbent LEC must allow a requesting 
telecommunications carrier to interconnect at any technically feasible 
point. The Commission has interpreted this provision to mean that 
competitive LECs have the option to interconnect at a single point of 
interconnection (POI) per LATA. As a threshold matter, does the 
Commission need to provide new or revised POI rules at some later stage 
of the transition to bill-and-keep or provide one set of rules to be 
effective at the end of the six-year transition for price cap carriers 
and nine-year transition for rate-of-return carriers maintain the 
current regime until that time? For instance, do commenters anticipate 
potential arbitrage schemes emerging as a result of maintaining the 
current POI rules until the transition is complete, or will the defined 
transition path and accompanying rate reductions the Commission adopts 
in the USF/ICC Transformation Order prevent such practices?
    324. Also, 47 U.S.C. 251(c) does not currently apply to all rural 
LECs or non-incumbent LECs. How do commenters envision POIs functioning 
for these carriers? The Commission seeks to better understand the 
nature of interconnection arrangements with rural carriers today. For 
example, is interconnection typically pursuant to negotiated 
agreements, rules, or another type of framework? Is indirect 
interconnection the primary means of interconnection with small, rural 
carriers? If the Commission needs to mandate the use of POIs for rural 
LECs and non-incumbent LECs, should this requirement begin during or 
after the transition to the stated end point?
    325. The Commission seeks comment on whether the Commission needs 
to prescribe POIs under a bill-and-keep methodology. One possible 
approach could be to permit interconnection at any technically feasible 
point on the other providers' network with a default POI being used for 
compensation purposes when there is no negotiated agreement between the 
parties. What are the pros and cons of such an approach? To what extent 
does the Commission's regulatory authority over interconnection allow 
it to prescribe POIs? Alternatively, CenturyLink proposes the use of 
traffic volumes to dictate the number of POI locations for traffic 
exchanged with an ILEC (including traffic flowing in both directions). 
The Commission seeks comment on this proposal and any other 
alternatives concerning POI obligations under a bill-and-keep regime.
    326. The Commission seeks comment on how to promote IP-to-IP 
interconnection and facilitate the transition to all-IP networks. Some 
of these questions may affect the POI issues raised here. For instance, 
if the Commission were to adopt its proposal to require a carrier that 
desires TDM interconnection to pay the costs of any IP-TDM conversion, 
how would that affect commenters' opinions or responses to the POI 
questions herein? How would they be affected if the Commission adopted 
other IP-to-IP interconnection obligations?
    327. The Network Edge. A critical aspect to bill-and-keep is 
defining the network edge for purposes of delivering traffic. The edge 
is the point where bill-and-keep applies, a carrier is responsible for 
carrying, directly or indirectly by paying another provider, its 
traffic to that edge. Past proposals to treat traffic under a bill-and-
keep methodology typically assume the existence of a network edge, 
beyond which terminating carriers cannot charge other carriers to 
transport and terminate their traffic. In the USF/ICC Transformation 
NPRM the Commission recognized that there are numerous options for 
defining an appropriate network edge. For example, the edge could be 
the location of the called party's end office, mobile switching center 
(MSC), point of presence, media gateway, or trunking media gateway. The 
Commission has not received significant comment on the network edge 
issue up to this point.
    328. As discussed in the USF/ICC Transformation Order, the 
Commission believes states should establish the network edge pursuant 
to Commission guidance. The Commission seeks comment on this and other 
options for defining the network edge. Assuming that defining the 
network edge remains a critical aspect of the transition to bill-and-
keep, the Commission seeks comment on the appropriate network

[[Page 78419]]

edge and related issues. For instance, should the Commission adopt a 
competitively neutral location for the network edge, such as where 
interconnecting carriers have competitive alternatives--other than 
services or facilities provided by the terminating carrier--to 
transport traffic to the terminating carrier's network? In its 
comments, CTIA describes a Mutually Efficient Traffic Exchange (METE) 
proposal pursuant to which carriers would bear their own costs to 
deliver traffic to each other at specified network edges. Is this an 
appropriate way to define the network edge under a bill-and-keep 
approach? Do commenters have alternative suggestions on how best to 
define carrier obligations under a bill-and-keep approach? The 
Commission seeks comment on these questions and on any alternative 
proposals regarding the network edge.
    329. Role of Tariffs and Interconnection Agreements. The Commission 
believes that generally continuing to rely on tariffs while also 
allowing carriers to negotiate alternatives during the transition is in 
the public interest because it provides the certainty of a tariffing 
option, which historically has been used for access charges, while 
still allowing carriers to better tailor their arrangements to their 
particular circumstances and the evolving marketplace than would be 
accommodated by exclusively relying on one size fits all tariffs. The 
Commission seeks comment on whether the Commission needs to forbear 
from tariffing requirements in 47 U.S.C. 203 of the Act and 47 CFR Part 
61 to enable carriers to negotiate alternative arrangements pursuant to 
the USF/ICC Transformation Order.
    330. As carriers transition from the existing access charge regime 
to the 47 U.S.C. 251(b)(5) framework and bill-and-keep methodology 
adopted in the USF/ICC Transformation Order, the Commission believes 
they will rely primarily on negotiated interconnection agreements 
rather than tariffs to set the terms on which traffic is exchanged. 
Specifically, 47 U.S.C. 251(b)(5) imposes on all LECs the duty to enter 
reciprocal compensation arrangements, and 47 U.S.C. 252 outlines the 
responsibility of incumbent LECs to negotiate interconnection 
agreements upon receipt of a request for interconnection pursuant to 47 
U.S.C. 251. Although the Commission maintains a role for tariffing as 
part of the transition, the Commission believes the reliance on 
interconnection agreements is most consistent with the USF/ICC 
Transformation Order's application of reciprocal compensation duties to 
all carriers. The Commission seeks comment on this view. If so, do 
commenters believe the Commission needs to modify or eliminate any of 
its interconnection rules?
    331. Given the potential primary reliance on interconnection 
agreements, the Commission seeks comment on the possibility of 
extending its interconnection rules to all telecommunications carriers 
to ensure a more competitively neutral set of interconnection rights 
and obligations. The T-Mobile Order, Developing a Unified Intercarrier 
Compensation Regime; T-Mobile et al. Petition for Declaratory Ruling 
Regarding Incumbent LEC Wireless Termination Tariffs, CC Docket No. 01-
92, Declaratory Ruling and Report and Order, 70 FR 49401, March 30, 
2005 (T-Mobile Order), extended to CMRS providers the duty to negotiate 
interconnection agreements with incumbent LECs under the 47 U.S.C. 252 
framework to address interconnection and mutual compensation for non-
access traffic. The Commission seeks comment on whether it should 
extend the interconnection agreement process adopted in the T-Mobile 
Order to all telecommunications carriers, including competitive LECs or 
other interconnecting service providers such as interexchange carriers. 
Competitive LECs have requested that the Commission expand the scope of 
the T-Mobile Order and require CMRS providers to negotiate agreements 
with competitive LECs under the 47 U.S.C. 251/252 framework. In 
addition, rural incumbent LECs urged the Commission to extend the T-
Mobile Order to give ILECs the right to require all carriers to 
negotiate interconnection agreements under the 47 U.S.C. 252 framework. 
These requests stem largely from concerns about payment of intercarrier 
compensation charges. Thus, the Commission seeks comment on whether, in 
light of the reforms adopted herein, any further modification to its 
interconnection rules is still warranted for the end of the transition 
period, and the legal basis of any such modifications.
    332. Possible Arbitrage Under a Bill-and-Keep Methodology. The 
Commission notes that several commenters to the USF/ICC Transformation 
NPRM suggest that a bill-and-keep approach may promote arbitrage 
opportunities in the industry. For example, some commenters suggest 
that a bill-and-keep framework may promote traffic dumping on 
terminating carriers' networks. Based on the current record, the 
Commission disagrees with these concerns, which it finds speculative. 
Nonetheless, to the extent the Commission's predictive judgment is 
incorrect, it takes take this opportunity to establish a record to 
ensure that it is prepared to act swiftly to address any potential 
arbitrage situations. The Commission asks parties to provide more 
detail on traffic dumping and its negative effects. Have there been 
incidents of traffic dumping in the wireless industry that operates 
largely under bill-and-keep today? How should the Commission define 
traffic dumping for purposes of analyzing its effect on the network? 
Are there concerns of traffic congestion or other harm to the network? 
If so, the Commission notes in the USF/ICC Transformation Order that 
carriers may include traffic grooming language in their tariffs to 
address such concerns. Are there any additional measures the Commission 
can and should take to prevent such practices? Other commenters suggest 
that this practice could result in carriers having every incentive to 
keep traffic from terminating on their networks. Do commenters agree?

O. Reform of End User Charges and CAF ICC Support

    333. The Commission seeks comment on a number of questions related 
both to the recovery mechanism adopted in the USF/ICC Transformation 
Order as well as the pre-existing rules regarding subscriber line 
charges (SLCs). In particular, with respect to the recovery adopted in 
the USF/ICC Transformation Order, the Commission seeks comment on the 
long-term elimination of that transitional recovery mechanism beyond 
the provisions for reduction and elimination of elements of that 
recovery already adopted in the USF/ICC Transformation Order. In 
addition, some commenters question whether existing SLCs--which the 
Commission does not modify in the USF/ICC Transformation Order--are set 
at appropriate levels under pre-existing Commission rules or whether 
they should be reduced, particularly for price cap carriers where the 
Commission has not evaluated the costs of such carriers in nearly ten 
years. The Commission therefore seeks comment on the appropriate level 
and, longer-term, the appropriate regulatory approach to such charges, 
as carriers increasingly transition to broadband networks.
    334. ARC Phase-Out. As part of its recovery mechanism, the 
Commission allows incumbent LECs to impose a limited access replacement 
charge (ARC). Because the ARC is, among other constraints, limited to 
the recovery of

[[Page 78420]]

Eligible Recovery, and because the Commission defines Eligible Recovery 
to decline over time, the ARC will phase down and approach $0 under the 
terms of the USF/ICC Transformation Order. This will take some time, 
however, under the ten percent annual reductions in Price Cap Eligible 
Recovery, and smaller annual percentage reductions in Rate-of-Return 
Eligible Recovery. The Commission notes, by contrast, that intercarrier 
compensation-replacement CAF support for price cap carriers is subject 
to a defined sunset date. Should the Commission likewise adopt a 
defined sunset date for ARC charges? Should those charges sunset at the 
same time price cap carriers' intercarrier compensation-replacement CAF 
support sunsets, or at some other time? Similarly, as with intercarrier 
compensation-replacement CAF support for price cap carriers, should the 
ARC be phased out after the end of intercarrier compensation rate 
reforms or, given that it already is subject to an independent phase-
down, should it simply be eliminated? Would other modifications be 
appropriate for the ARC charges adopted in the USF/ICC Transformation 
Order, given carriers' transition to broadband networks and associated 
business plans relying more heavily on revenues from broadband 
services?
    335. CAF ICC Support Phase-Out. Although the intercarrier 
compensation-replacement CAF support for price cap carriers is already 
subject to a defined phase-out under the USF/ICC Transformation Order, 
should the Commission modify the phase-out period based on a price cap 
carrier's receipt of state-wide CAF Phase II support? If so, how and 
why? Should intercarrier compensation-replacement CAF support for rate-
of-return carriers be subject to a defined phase-out? If so, should it 
be modeled after the approach used for price cap carriers, or based on 
a different approach? Would other modifications be appropriate for the 
intercarrier compensation-replacement CAF support adopted in the USF/
ICC Transformation Order, given carriers' transition to broadband 
networks and associated business plans relying more heavily on revenues 
from broadband services?
    336. Treatment of Demand in Determining Eligible Recovery for Rate 
of Return Carriers. In years one through five, Rate-of-Return Eligible 
Recovery will decrease at five percent annually, with both ARC and ICC-
replacement CAF provided based on a true-up process. The Commission did 
so to enable such carriers time to adjust and transition away from the 
current system. But, the Commission believes that five years is a 
sufficient time to adjust and, for years six and beyond, the Commission 
seeks comment on how to modify the recovery baseline. The Commission 
seeks comment on decreasing Rate-of-Return Eligible Recovery by an 
additional percent each year for a maximum of five years, up to a 
maximum decrease of 10 percent. In addition, the Commission seeks 
comment on an alternative approach to the use of true-ups for 
determining recovery after five years. For example, in place of annual 
true-ups, should the Commission use the average MOU loss based on data 
reported by rate of return carriers in years one through five? If the 
Commission does so, should it be instead of or in addition to changing 
the baseline, should the Commission use the same 10 percent decline it 
uses for price cap carriers, or would commenter recommend another 
mechanism to replace the true-up process?
    337. Magnitude and Long-Term Role of SLCs. Some commenters contend 
that SLCs are not set appropriately today, particularly for price cap 
carriers whose costs are no longer evaluated. Moreover, given carriers' 
transition to business plans relying more heavily on broadband 
services, it is not clear what the appropriate role is for regulated 
end-user charges for voice service over the longer term. The Commission 
thus seeks comment on whether SLCs are set at appropriate levels today 
and whether, longer term, the Commission should retain such regulated 
charges under existing or modified rules, or if those charges should be 
eliminated.
    338. When the Commission increased the residential and single-line 
business SLC cap above $5.00 it first sought comment on whether an 
increase in the SLC cap above $5.00 is warranted and, if not, whether a 
decrease in common line charges is warranted. In light of the evolution 
of network technology over time and any other marketplace developments 
raised by commenters, the Commission seeks comment on whether the 
magnitude of carriers' revenues currently associated with the common 
line are appropriate, or too high (or low). In particular, as in the 
past, the Commission seeks forward-looking cost information associated 
with the provision of retail voice grade access to the public switched 
telephone network. In addition to other data or information that 
commenters wish to provide in this respect. The Commission further 
seeks comment on how the costs of the local loop have been allocated 
between its use for regulated voice telephone service and its use for 
other services, such as broadband Internet access, video, or other 
nonregulated services. Are carriers' regulated common line recovery 
bearing an appropriate share of the cost of the local loop, or too much 
(or too little)?
    339. More broadly, if carriers increasingly are moving to IP 
networks, to what extent is voice telephone service simply one of many 
applications on that network, such that regulated charges specific to 
voice might no longer be appropriate? In particular, should the 
Commission eliminate SLCs? If so, when should they be eliminated, and 
through what process? Should the Commission eliminate SLCs as of a date 
certain absent a showing by a carrier that such revenue is justified? 
If so, should the Commission require a showing comparable to that 
required under the Total Cost and Earnings Review, or some other 
showing? Likewise, to the extent that some carriers continue to receive 
revenue from a universal service mechanism specifically designed to 
address common line recovery, such as ICLS, as a supplement to SLC 
revenues, should that be eliminated or modified, as well? If so, when, 
and how, should that support be eliminated? If not, how would that 
continuing support mechanism operate in the absence of SLCs?
    340. Even if the overall magnitude of common line revenues are 
justified and SLCs are retained, the Commission seeks further comment 
on the operation of the SLCs and the specific levels of the SLC caps, 
including whether they should be modified in any respect. For example, 
should the Commission require greater disaggregation or deaveraging of 
SLCs, either in terms of classes of customers or services or in terms 
of geographic areas? If so, what is the appropriate scope of customers, 
services, or geography? Would new cap(s) be appropriate for the new 
categories of SLCs, and if so, at what level? Conversely, as part of 
its intercarrier compensation reform, the Commission allows the ARC to 
be set at the holding-company level. Would that, or another more 
aggregated or averaged approach be warranted, and if so, what?
    341. Advertising SLCs. As described in the USF/ICC Transformation 
Order, although the ARC is distinct from the SLC for regulatory 
purposes, the Commission expects incumbent LECs to include the new ARC 
charges as part of the SLC charge for billing purposes. However, 
commenters observe that SLC charges frequently are not included in the 
advertised price for incumbent LECs' services, making it more difficult 
for customers to evaluate and compare the price of service among 
different providers. Thus, the Commission seeks

[[Page 78421]]

comment on requiring incumbent LECs (and other carriers, if they charge 
a SLC or its equivalent) to include such charges in their advertised 
price for services subject to SLC charges. Could the Commission require 
that carriers include SLC charges (including ARCs) in their advertised 
price for services, or condition their ability to impose SLCs or ARCs 
or to receive CAF support on their doing so? Are there alternative 
approaches the Commission should take to ensure greater disclosure of 
such charges to customers in a way that advances price comparison and 
evaluation? Could the Commission adopt such requirements pursuant to 
its authority under 47 U.S.C. 201(b) of the Act or on another basis?

P. IP-to-IP Interconnection Issues

    342. As recommended by the National Broadband Plan, the Commission 
has set an express goal of facilitating industry progression to all-IP 
networks, and ensuring the transition to IP-to-IP interconnection is an 
important part of achieving that goal. As stated in recommendation 4.10 
of the National Broadband Plan, [t]he FCC should clarify 
interconnection rights and obligations and encourage the shift to IP-
to-IP interconnection. Likewise, in the USF/ICC Transformation NPRM the 
Commission sought comment on steps the Commission can take to promote 
IP-to-IP interconnection. The Commission received some comment on the 
issue but hope to develop a more complete record on IP-to-IP 
interconnection issues, in light of the reforms undertaken in the USF/
ICC Transformation Order. As the Commission states in the USF/ICC 
Transformation Order, the duty to negotiate in good faith has been a 
longstanding element of interconnection requirements under the 
Communications Act and does not depend upon the network technology 
underlying the interconnection, whether TDM, IP, or otherwise. 
Commission requirements implementing the duty to negotiate IP-to-IP 
interconnection in good faith could take their primary guidance from 
one or more of various provisions of the Communications law--47 U.S.C. 
4, 201, 251(a), or 251(c) of the Communications Act, or 706 of the 1996 
Act, 47 U.S.C. 1302. The Commission seeks comment on which of the 
available approaches is most consistent with its statutes as a whole 
and sound policy. The Commission therefore seeks comment on the 
implementation of the good faith negotiation requirement, and also 
seeks comment on any additional actions the Commission should take to 
encourage transitions to IP-to-IP interconnection where that is the 
most efficient approach.
    343. The comprehensive reforms the Commission adopted in its order 
on ICC-USF reform takes initial steps to eliminate barriers to IP-to-IP 
interconnection. In this regard, the Commission notes that the 
intercarrier compensation transition it adopts in the USF/ICC 
Transformation Order specifies default rates but leaves carriers free 
to negotiate alternative arrangements. The Commission concludes that 
the preexisting intercarrier compensation regime did not advance 
technology neutral interconnection policies because it provided LECs a 
more certain ability to collect intercarrier compensation under TDM-
based interconnection, with less certain compensation for IP-to-IP 
interconnection. Under the Commission's new framework, even if a 
carrier historically has relied on intercarrier compensation revenue 
streams, it need not wait until intercarrier compensation reform is 
complete to enter IP-to-IP interconnection arrangements. Rather, to the 
extent that certainty regarding intercarrier compensation is important 
to a particular carrier during the transition, it is free to negotiate 
appropriate compensation as part of an arrangement for IP-to-IP 
interconnection under the Commission's transitional framework.
    344. Some commenters express concern that additional protections 
are needed to ensure IP-to-IP interconnection, however. The Commission 
expects all carriers to negotiate in good faith in response to requests 
for IP-to-IP interconnection for the exchange of voice traffic, and 
that such good faith negotiations will result in interconnection 
arrangements between IP networks, and the Commission seeks comment on 
which of the various possible statutory provisions as well as standards 
and enforcement mechanisms it should adopt to implement its expectation 
that carriers negotiate in good faith. The Commission also seeks 
comment on actions the Commission could take to, at a minimum, 
encourage the transition to IP-to-IP interconnection where efficient. 
In particular, the Commission proposes that if a carrier that has 
deployed an IP network receives a request to interconnect in IP, but 
instead requires TDM interconnection, the costs of the IP-to-TDM 
conversion would be borne by the carrier that elected TDM 
interconnection. The Commission seeks comment on this proposal. The 
Commission also seeks comment on other measures that Commission might 
adopt to encourage efficient IP-to-IP interconnection.
    345. The Commission also seeks comment on proposals to require IP-
to-IP interconnection in particular circumstances under different 
policy frameworks. In this regard, the Commission observes that 47 
U.S.C. 251 of the Act is one of the key provisions specifying 
interconnection requirements, and that its interconnection requirements 
are technology neutral--they do not vary based on whether one or both 
of the interconnecting providers is using TDM, IP, or another 
technology in their underlying networks. The specific application of 
the interconnection requirements of 47 U.S.C. 251 depend upon factual 
circumstances and other considerations, and the Commission seeks 
comment on the resulting implications in the context of IP-to-IP 
interconnection, along with other legal authority that might bear on 
the Commission's ability to adopt any particular IP-to-IP 
interconnection policy framework. Moreover, the Commission seeks 
comment on how to carefully circumscribe the scope of traffic or 
services subject to any such framework to leave issues to the 
marketplace that appropriately can be resolved there.
    346. Finally, the Commission seeks comment on proposals that the 
Commission leave IP-to-IP interconnection to unregulated commercial 
agreements. Although the Commission has relied on such an approach in 
some contexts in the past, the Commission seeks comment on the factual 
basis for whether, and when, to adopt such an approach here.
i. Scope of Traffic Exchange Covered by an IP-to-IP Interconnection 
Policy Framework
    347. It is important that any IP-to-IP interconnection policy 
framework adopted by the Commission be narrowly tailored to avoid 
intervention in areas where the marketplace will operate efficiently. 
The Commission thus seeks comment on the scope of traffic exchange that 
should be encompassed by any IP-to-IP interconnection policy framework 
for purposes of this proceeding. The Commission stated in the USF/ICC 
Transformation Order that it expects carriers to negotiate in good 
faith in response to requests for IP-to-IP interconnection for the 
exchange of voice traffic. But, the Commission notes that various types 
of services can be transmitted in IP format, and commenters recognize 
that many pairs of providers are exchanging both VoIP traffic and other 
IP traffic with each

[[Page 78422]]

other. Further, different commenters appear to envision IP-to-IP 
interconnection policy frameworks encompassing different categories of 
services provided using IP transmission. The Commission seeks comment 
on those issues, along with any other recommendations commenters have 
for defining the scope of an IP-to-IP interconnection policy framework 
in this context. For any proposed scope of IP-to-IP interconnection, 
the Commission also seeks comment on whether it is necessary, or 
appropriate, to address classification issues associated with 
particular IP services.
    348. Some comments proposed that an IP-to-IP interconnection 
framework address the exchange of voice traffic. For some commenters, 
this would broadly encompass all VoIP traffic, whether referred to as 
packetized voice traffic, IP voice traffic, or simply VoIP. Is it 
technologically possible to adopt such an approach? Does it make sense 
as a policy matter to adopt an IP-to-IP interconnection framework 
focused specifically on voice service, and how would such an approach 
be implemented? For example, would this approach have the result of 
compelling providers to exchange VoIP traffic under a different 
technological or legal arrangement from what those providers use to 
exchange other IP traffic? Could the interconnection framework be 
structured to provide certain interconnection rights with respect to 
the exchange of VoIP traffic, while giving those providers the freedom 
to exchange other IP traffic in a consistent manner? What impact, if 
any, would such an approach have on any preexisting arrangements for 
the exchange of non-voice IP traffic?
    349. Other comments propose IP-to-IP interconnection frameworks 
that would encompass narrower categories of VoIP services, such as 
managed or facilities-based VoIP, as distinct from over the top VoIP. 
Are there advantages or disadvantages to focusing on this narrower 
universe of voice traffic as a technological, policy, or legal matter? 
For example, are there different costs or service quality requirements 
associated with such services such that those services would warrant 
distinct treatment? How would such traffic or services be defined? 
Would interconnection for other VoIP services be left unaddressed at 
this time? Or would they be subject to a different policy framework, 
and if so, what framework would be appropriate?
    350. Alternatively, other comments seem to anticipate that IP 
interconnection policies could encompass IP traffic other than voice. 
Would it be appropriate to encompass any non-voice IP traffic or 
services in such a framework, and how would they be defined? The 
Commission notes, for example, that it historically has not regulated 
interconnection among Internet backbone providers. If a different 
interconnection policy framework were adopted in this context, how 
would it be distinguishable? To what extent would an IP-to-IP 
interconnection policy framework address interconnection rights for 
both voice and non-voice traffic, or to what extent would providers 
simply have the freedom to use otherwise-available interconnection 
arrangements to exchange particular IP traffic or services?
ii. Good Faith Negotiations for IP-to-IP Interconnection
a. Standards and Enforcement for Good Faith Negotiations
    351. Building upon its statement in the USF/ICC Transformation 
Order that the duty to negotiate in good faith under the Act does not 
depend upon the network technology underlying the interconnection, 
whether TDM, IP, or otherwise, the Commission seeks comment on the 
particular statutory authority that provides the strongest basis for 
the right to good faith negotiations for IP-to-IP interconnection. As a 
threshold matter, however, the Commission seeks comment on the 
appropriate scope and nature of requirements for good faith 
negotiations generally that should apply, as well as the associated 
implementation and enforcement. For example, should the Commission 
focus on all carriers generally, or adopt differing standards for 
particular subsets of carriers such as terminating carriers, incumbent 
LECs, or carriers that may have market power in the provision of voice 
services, or should the Commission focus on some other scope of 
providers? Should the right to good faith negotiations for IP-to-IP 
interconnection be limited to traffic associated with particular types 
of services? How would the Commission determine whether or not a 
particular provider negotiated in good faith under such an approach? 
For example, should such claims be evaluated in the same manner as 
claims that a carrier failed to negotiate in good faith as required by 
47 U.S.C. 251(c)(1) of the Act, or regulatory frameworks from other 
contexts? Are there other criteria that commenters believe the 
Commission should address with respect to the standards and enforcement 
for good faith negotiations? For example, should enforcement occur at 
the Commission, state commissions, courts, or other forums?
    352. Would the Commission need to address or provide guidance 
regarding the contours of a range of reasonableness for IP-to-IP 
interconnection rates, terms, and conditions themselves to assess 
whether a party's negotiating positions are reasonable and in good 
faith? For example, would the Commission need to specify whether direct 
physical interconnection is required, or whether indirect 
interconnection could be sufficient in order to judge whether 
particular negotiations are in good faith? Are there other criteria or 
guidance regarding the substance of the underlying IP-to-IP 
interconnection that the Commission would need to specify to make 
enforcement of a good faith negotiation requirement more administrable?
    353. The Commission observes that certain statutory provisions may 
give the Commission either broader or narrower leeway to define the 
scope of entities covered by the requirement, the standards for 
evaluating whether negotiations are in good faith, and the associated 
enforcement mechanisms. Thus, in addition to seeking comment on the 
particular statutory authority the Commission should adopt for good 
faith negotiation requirements, commenters should discuss any 
limitations on the substance and enforcement of the good faith 
negotiation requirements arising from the particular statutory 
provision at issue, or what particular approaches to defining and 
enforcing good faith negotiations are appropriate in the context of the 
Commission's exercise of particular legal authority. In addition, the 
Commission seeks comment not only on any rules the Commission would 
need to adopt or revise, but also any forbearance from statutory 
requirements that would be needed to implement a particular framework 
for good faith negotiations for IP-to-IP interconnection.
b. Statutory Authority To Require Good Faith Negotiations
    354. In this section, the Commission notes that there are various 
sections of the Act upon which the right to good faith negotiations for 
IP-to-IP interconnection could be grounded, and seeks comment on the 
policy implications of selecting particular provisions of the Act. In 
the subsequent section, the Commission seeks comment on the possible 
legal authority commenters have cited in support of substantive IP-to-
IP interconnection obligations, including 47 U.S.C. 251(a)(1), 
251(c)(2), and other

[[Page 78423]]

provisions of the Act; section 706 of the 1996 Act, 47 U.S.C. 1302; as 
well as the Commission's ancillary authority under Title I. The 
Commission thus likewise seeks comment on those and other provisions as 
a basis for the right to good faith negotiations regarding IP-to-IP 
interconnection, as well as resulting implications for the scope and 
enforcement of that right.
    355. The Commission seeks comment on whether the Commission should 
utilize 47 U.S.C. 251(a)(1) as the basis for the requirement that all 
carriers must negotiate in good faith in response to a request for IP-
to-IP interconnection. Section 251(a)(1), 47 U.S.C. 251(a)(1), requires 
all telecommunications carriers to interconnect directly or indirectly. 
The requirements of this provision thus extend broadly to all 
telecommunications carriers, and are technology neutral on their face 
with respect to the transmission protocol used for purposes of 
interconnection. The Commission thus seeks comment on whether the 
Commission should rely upon 47 U.S.C. 251(a)(1) as the primary source 
of a right to good faith negotiations for IP-to-IP interconnection. 
Should the Commission create a specific enforcement mechanism and, if 
so, should the remedy be at the state level or with the Commission? The 
Commission notes that 47 U.S.C. 251(c)(1) of the Act expressly adopts a 
requirement for incumbent LECs, and requesting carriers seeking 
interconnection with them, to negotiate in good faith in accordance 
with 47 U.S.C. 252 to implement the requirements of 47 U.S.C. 251(b) 
and (c). Although the requirements of 47 U.S.C. 251(a)(1), standing 
alone, are not encompassed by that provision, the Commission does not 
believe that would preclude the Commission from concluding that a 
separate good faith negotiation requirement is required under 47 U.S.C. 
251(a)(1). What is the appropriate mechanism for enforcing a right to 
good faith negotiations for IP-to-IP interconnection under 251(a)(1)? 
Similarly, to the extent that the good faith negotiation requirement 
adopted for 47 U.S.C. 251(a)(1) interconnection must be distinct from 
that imposed by 47 U.S.C. 251(c)(1), would the Commission need to adopt 
a different approach to evaluating claimed breaches of good faith from 
the framework used under 47 U.S.C. 251(c)(1)? If so, what framework for 
evaluating such claims should the Commission adopt?
    356. The Commission also seeks comment on whether the requirement 
of good faith negotiations for IP-to-IP interconnection should be based 
on 47 U.S.C. 251(c)(2). Section 251(c)(2), 47 U.S.C. 251(c)(2), 
requires incumbent LECs to provide direct physical interconnection to 
requesting carriers when the criteria of 47 U.S.C. 251(c)(2)(A)-(D) are 
met. When 47 U.S.C. 251(c)(2) applies, it is subject to a statutory 
requirement of good faith negotiations under 47 U.S.C. 251(c)(1), with 
enforcement available through state arbitrations under 47 U.S.C. 252. 
Further, the Commission already has adopted guidance for evaluating 
claimed breaches of good faith negotiations under 47 U.S.C. 251(c)(1). 
Would that guidance remain appropriate for evaluating alleged failure 
to negotiate IP-to-IP interconnection in good faith under this 
provision? Under the terms of 47 U.S.C. 251(c), the Commission believes 
that the obligations of 47 U.S.C. 251(c)(2) apply only to incumbent 
LECs, and thus under the terms of the statute the associated duty to 
negotiate interconnection in good faith under 47 U.S.C. 251(c)(1) only 
would extend to incumbent LECs and requesting carriers seeking 
interconnection with them. The Commission notes, however, that good 
faith negotiations under the USF/ICC Transformation Order are expected 
of all carriers, not just incumbent LECs. As a result, would the 
Commission need to rely on additional statutory provisions for the 
basis of good faith negotiation requirements for IP-to-IP 
interconnection among other types of carriers?
    357. Alternatively, the Commission seeks comment on whether the 
obligation to negotiate in good faith for IP-to-IP interconnection 
arrangements should be grounded in 47 U.S.C. 201, particularly in 
conjunction with other provisions of the Act and the Clayton Act. The 
Commission previously interpreted 47 U.S.C. 2(a), 201 and 202 
collectively as requiring common carriers to negotiate the provision of 
their services in good faith and thus requiring LECs to negotiate 
interconnection in good faith with CMRS providers. It found it 
appropriate to extend the requirement of good faith negotiations not 
only to interconnection for the exchange of interstate services, but 
for intrastate services as well, reasoning that departures from its 
good faith requirement [in the context of intrastate services] could 
severely affect interstate communications by preventing cellular 
carriers from obtaining interconnection agreements and consequently 
excluding them from the nationwide public telephone network. The 
Commission further concluded that its authority to mandate good faith 
negotiations is also derived from 47 U.S.C. 309(a) and 314 of the Act 
and Section 11 of the Clayton Act, 15 U.S.C. 21, which require the 
Commission to remedy anticompetitive conduct, given that delays in the 
negotiating process could place a carrier at a competitive 
disadvantage. The Commission seeks comment on whether the Commission 
should adopt these provisions as the legal basis for a requirement of 
good faith negotiations among carriers regarding IP-to-IP 
interconnection. Would the considerations cited by the Commission in 
the context of LEC-CMRS interconnection likewise justify a right to 
good faith negotiations in this context? If so, what standards and 
processes should apply in evaluating and enforcing good faith 
negotiations under this provision? The Commission notes that 
interconnection with LECs for access traffic historically--and as 
preserved by 251(g)--was addressed through exchange access and related 
interconnection regulations, including through the purchase of tariffed 
access services. How should any right to good faith negotiation of IP-
to-IP interconnection for the exchange of access traffic be reconciled 
with those historical regulatory frameworks? Does the Commission's 
action in the accompanying USF/ICC Transformation Order to supersede 
the preexisting access charge regime and adopt a transition to a new 
regulatory framework affect this evaluation?
    358. In addition, the Commission seeks comment on the relative 
merits of section 706 of the 1996 Act, 47 U.S.C. 1302, as the statutory 
basis for carriers' duty to negotiate IP-to-IP interconnection in good 
faith. Some commenters suggest that section 706, 47 U.S.C. 1302, would 
provide the Commission authority to regulate IP-to-IP interconnection. 
Would the statutory mandate in section 706, 47 U.S.C. 1302, justify a 
requirement that carriers negotiate in good faith regarding IP-to-IP 
interconnection? If so, what standards and enforcement processes would 
be appropriate? If the Commission were to rely on section 706 of the 
1996 Act, 47 U.S.C. 1302, to impose a good faith negotiation 
requirement, would it also need to adopt associated complaint 
procedures, or could the existing informal and formal complaint 
processes, which derive from 47 U.S.C. 208, nonetheless be interpreted 
to extend more broadly than alleged violations of Title II duties? 
Could the Commission, relying on section 706, 47 U.S.C. 1302, extend 
the

[[Page 78424]]

obligation to negotiate in good faith beyond carriers to include all 
providers of telecommunications? If so, should the Commission do so?
    359. The Commission also seeks comment on whether 47 U.S.C. 256 
provides a basis for the good faith negotiation requirement for IP-to-
IP interconnection. Although 47 U.S.C. 256(a)(2) says that the purpose 
of the section is to ensure the ability of users and information 
providers to seamlessly and transparently transmit and receive 
information between and across telecommunications networks, 47 U.S.C. 
256(c) provides that nothing in this section shall be construed as 
expanding or limiting any authority that the Commission may have under 
law in effect before February 8, 1996. Particularly in light of 47 
U.S.C. 256(c), is it reasonable to interpret 47 U.S.C. 256 as a basis 
for the good faith negotiation requirement? If so, what are the 
appropriate details and enforcement mechanism? Even if it is not a 
direct source of authority in that regard, should it inform the 
Commission's interpretation and application of other statutory 
provisions to require carriers to negotiate IP-to-IP interconnection in 
good faith?
    360. Alternatively, should the Commission rely upon ancillary 
authority as a basis for requiring that carriers negotiate in good 
faith in response to requests for IP-to-IP interconnection? Because it 
is communications by wire or radio, the Commission clearly has subject 
matter jurisdiction over IP traffic such as packetized voice traffic. 
Is the requirement that carriers negotiate in good faith in response to 
requests for IP-to-IP interconnection reasonably ancillary to the 
Commission's exercise of its authority under a statutory provision? If 
so, what standards and enforcement mechanisms should apply? If the 
Commission were to rely on ancillary authority to impose a good faith 
negotiation requirement, would it also need to adopt associated 
complaint procedures, or could the existing informal and formal 
complaint processes, which derive from 47 U.S.C. 208, nonetheless be 
interpreted to extend more broadly than alleged violations of Title II 
duties? Similarly, if the Commission relies on ancillary authority, 
could it extend the obligation to negotiate in good faith beyond 
carriers to include all providers of telecommunications? If so, should 
the Commission do so?
    361. Finally, the Commission seeks comment on whether the 
obligation for carriers to negotiate IP-to-IP interconnection in good 
faith should be grounded in other statutory provisions identified by 
commenters. If so, what statutory provisions, and what are the 
appropriate standards and enforcement mechanisms? Alternatively, should 
the Commission rely on multiple statutory provisions? If so, which 
provisions, and how would they operate in conjunction?
iii. IP-to-IP Interconnection Policy Frameworks
a. Alternative Policy Frameworks
    362. The Commission seeks comment on the appropriate role for the 
Commission regarding IP-to-IP interconnection. In particular, the 
Commission seeks specific comment on certain proposed policy 
frameworks. With respect to each such framework, the Commission seeks 
comment not only on the policy merits of the approach, but also the 
associated implementation issues. These include not only any rules the 
Commission would need to adopt or revise, but also any forbearance from 
statutory requirements that would be needed to implement the particular 
framework for IP-to-IP interconnection.
(i) Measures To Encourage Efficient IP-to-IP Interconnection
    363. At a minimum, the Commission believes that any action the 
Commission adopts in response to this FNPRM should affirmatively 
encourage the transition to IP-to-IP interconnection where it increases 
overall efficiency for providers to interconnect in this manner. The 
Commission seeks comment on possible elements of such a framework, as 
well as alternative approaches for encouraging efficient IP-to-IP 
interconnection.
    364. Responsibility for the Costs of IP-to-TDM Conversions. Some 
commenters have proposed that carriers electing TDM interconnection be 
responsible for the costs associated with the IP-TDM conversion. In 
particular, these commenters contend that carriers that require such 
conversion, sometimes despite the fact that they have deployed IP 
networks themselves, effectively raise the costs of their competitors 
that have migrated to IP networks. If a carrier that has deployed an IP 
network receives a request to interconnect in IP, but, chooses to 
require TDM interconnection, the Commission proposes to require that 
the costs of the conversion from IP to TDM be borne by the carrier that 
elected TDM interconnection (whether direct or indirect). The 
Commission seeks comment on how to define the scope of carriers with IP 
networks that should be subject to such a requirement. The Commission 
further seeks comment on what specific functions the carrier electing 
TDM interconnection should be financially responsible for under such a 
requirement. Should the financial responsibility be limited to the 
electronics or equipment required to perform the conversion? Or should 
the financial responsibility extend to other costs, such as any 
potentially increased costs from interconnecting in many locations with 
smaller-capacity connections rather than (potentially) less expensive 
interconnection in a smaller number of locations with higher-capacity 
connections? If there are disputes regarding payments, should the 
losing party bear the cost of those disputes?
    365. Would the Commission need to take steps to ensure the rates 
associated with those functionalities remain reasonable, and under what 
regulatory framework? For example, would ex ante rules or ex post 
adjudication in the case of disputes be preferable? Would the costs of 
the relevant functions need to be measured, and if so how? In the case 
of rates for such functionalities charged by incumbent LECs, should the 
otherwise-applicable rate regulations apply to such offerings? In the 
case of carriers other than incumbent LECs, how, if at all, would such 
rates be regulated? Would the ability of the carrier electing TDM 
interconnection to self-deploy the IP-to-TDM conversion technology or 
purchase it from a third party rather than paying the other provider 
constrain the rate the other provider could charge for such 
functionality? Would the Commission also need to regulate the terms and 
conditions of such services? If so, what is the appropriate regulatory 
approach?
    366. Would some pairs of carriers with IP networks that 
interconnect directly or indirectly in TDM today both choose to 
continue interconnecting in TDM? If so, how would the commission ensure 
that any requirements it adopted addressing financial responsibility 
for IP-to-TDM conversions did not alter the status quo in such 
circumstances? For example, could the obligation to pay these charges 
be triggered through a formal process by which one interconnected 
carrier requests IP-to-IP interconnection and, if the second 
interconnected carrier refuses (or fails to respond), the second 
carrier then would be required to bear financial responsibility for the 
IP-to-TDM conversion? Would the Commission need to specify a timeline 
for the process, including the time by which a carrier receiving a 
request for IP-to-IP interconnection either must respond or be deemed 
to have refused the request

[[Page 78425]]

(and thus become subject to the financial responsibility for the IP-to-
TDM conversion)? If so, what time periods are reasonable?
    367. What mechanism would be used to implement any such charges? 
Should carriers rely solely on agreements? Or should carriers tariff 
these rates, perhaps as default rates that apply in the absence of an 
agreement to the contrary? Should the carrier seeking to retain TDM 
interconnection be permitted to choose to purchase the conversion 
service from any available third party providers of IP-to-TDM 
conversions, rather than from the carrier seeking IP-to-IP 
interconnection? If so, how would that be implemented as part of the 
implementation framework?
(ii) Specific Mechanisms To Require IP-to-IP Interconnection
    368. The Commission seeks comment on certain other approaches for 
requiring IP-to-IP interconnection raised in the record.
    369. Scope of Issues To Address Under Different Policy Frameworks 
Requiring IP-to-IP Interconnection. The Commission seeks comment on the 
general scope of the Commission's appropriate role concerning IP-to-IP 
interconnection, subject to certain baseline requirements. For example, 
if the baseline only extended to certain terms and conditions, would 
providers have adequate incentives to negotiate reasonable IP-to-IP 
interconnection rates? What specific terms and conditions would need to 
be subject to the policy framework, and which could be left entirely to 
marketplace negotiations? Should any oversight of terms and conditions 
take the form of general guidelines, perhaps subject to case-by-case 
enforcement, rather than more detailed ex ante rules? Where in a 
provider's network would IP need to be deployed for it to be subject to 
such requirements? To inform its analysis of these issues, the 
Commission seeks comment on the physical location of IP POIs, with 
concrete examples of traffic and revenue flows, as well as who bears 
the underlying costs of any facilities used, whether in the original 
installation, or in maintenance and network management. What are the 
implementation costs of the provision of Session Initiation Protocol 
(SIP) at the point of interconnection, and the extent to which voice 
quality would be compromised without such provision? How would current 
policies, if maintained, provide efficient or inefficient incentives 
for point-of-interconnection consolidation, and/or the provision of 
efficient interconnection protocols, such as SIP? Would adopting a 
timetable for all-IP interconnection be necessary or appropriate, or 
would carriers have incentives to elect IP-to-IP (rather than TDM) 
interconnection whenever it is efficient to do so?
    370. In addition, would it be necessary or appropriate to address 
providers' physical POIs in the context of IP-to-IP interconnection? 
What factors should the Commission consider in evaluating possible 
policy frameworks for physical POIs, such as the appropriate burden 
each provider bears regarding the cost of transporting traffic? If the 
Commission were to address POIs, would the Commission need to mandate 
the number and/or location of physical POIs, or would general 
encouragement to transition to one POI per geographic area larger than 
a LATA be appropriate? If so, what should that larger area be? How, if 
at all, would any regulations of physical POIs impact the relative 
financial responsibilities of the interconnected carriers for 
transporting the traffic?
    371. The Commission also seeks comment on providers' incentives 
under a policy framework that involves some Commission oversight of IP-
to-IP interconnection rates, as well as terms and conditions. If an IP-
to-IP interconnection policy framework addresses interconnection rates, 
how should it do so? For example, would it be sufficient to require 
that all VoIP traffic be treated identically, including in terms of 
price? Would it be appropriate to require that interconnection for the 
exchange of VoIP traffic be priced the same as interconnection for the 
exchange of all other IP traffic? If the price for the interconnection 
arrangement itself is distinct from the compensation for the exchange 
of traffic, how should each be regulated? Would a differential between 
the costs/revenues in the pricing of IP-to-IP interconnection and 
traffic exchange relative to TDM interconnection and traffic exchange 
create inefficient incentives to elect one form of interconnection 
rather than the other? If so, should any charges for both the 
interconnection arrangement and traffic exchange under an IP-to-IP 
interconnection framework mirror those that apply when carriers 
interconnect in TDM? Or should the Commission adopt an alternative 
approach? For example, should the Commission provide for different rate 
levels or rate structures than otherwise apply in the TDM context? What 
is the appropriate mechanism for implementing any such framework? 
Should the regulated rates, terms, and conditions be defaults that 
allow providers to negotiate alternatives?
    372. Specific Proposals For IP-to-IP Interconnection. Some 
commenters contend that the Commission should require incumbent LECs to 
directly interconnect on an IP-to-IP basis under 47 U.S.C. 251(c)(2) of 
the Act. In addition to the 47 U.S.C. 251(c)(2) legal analysis upon 
which it seeks comment, the Commission seeks comment on the policy 
merits of such an approach. What requirements would the Commission need 
to specify under such an approach? In addition, by its terms, 47 U.S.C. 
251(c)(2) only imposes obligations on incumbent LECs. Is that focus 
appropriate, or would the Commission need to address the requirements 
applicable to other carriers, as well? If so, how could that be done 
under such an approach?
    373. Alternatively, should the Commission adopt a case-by-case 
adjudicatory framework somewhat analogous to the approach of 47 U.S.C. 
251(c)(2) and 252, where the Commission require IP-to-IP 
interconnection as a matter of principle, but leave particular disputes 
for case-by-case arbitration or adjudication? Under such an approach, 
would the Commission need to establish some general principles or 
guidelines regarding how arbitrations or adjudications will be 
resolved, and if so, with respect to what issues? Which providers 
should be subject to any such obligations--incumbent LECs, all carriers 
that terminate traffic, or a broader scope of providers? Should the 
states and/or the Commission provide arbitration or dispute resolution 
when providers fail to reach agreement, and what processes should 
apply? Does the Commission have legal authority to adopt such an 
approach?
    374. Other commenters propose that the Commission require IP-to-IP 
interconnection under 47 U.S.C. 251(a)(1). The Commission seeks comment 
on the possibility of designating one of the carriers as entitled to 
insist upon direct (rather than indirect) interconnection under 47 
U.S.C. 251(a)(1). However, if the Commission required IP-to-IP 
interconnection under 47 U.S.C. 251(a)(1) but permitted either carrier 
to insist upon indirect interconnection, could the Commission require 
the carrier making that election bear certain costs associated with 
indirect interconnection, such as payment to the third party for the 
indirect interconnection arrangement, bearing the cost of transporting 
the traffic back to its own network and customers from the point where 
the carriers are

[[Page 78426]]

indirectly interconnected, or other costs?
    375. As another alternative, T-Mobile and Sprint proposed that each 
service provider establish no more than one POI in each state using 
Session Initiation Protocol (SIP) to receive incoming packetized voice 
traffic and be required to provide at its own cost any necessary 
packet-to-TDM conversion for a short-term transition period. Then, in 
the longer term, the parties suggest that the Commission use the 
Technical Advisory Committee (TAC) to develop recommendations for the 
protocol for receiving packet-based traffic and to propose efficient 
regional packet-based interconnection points. T-Mobile and Sprint 
suggest acting on the TAC's recommendations after public notice and the 
opportunity for comment. The Commission seeks comment on T-Mobile and 
Sprint's proposal. If the Commission moves forward with an approach 
like T-Mobile/Sprint's, how much time should the Commission allow for 
each of the two time periods proposed? Based on the transition periods 
adopted in the USF/ICC Transformation Order, how would this two-step 
approach work?
    376. The Commission also seeks comment on XO's proposal to 
facilitate the move to IP-to-IP interconnection. XO recommends that the 
Commission require every telecommunications carrier to provide IP-based 
carrier-to-carrier interconnection (directly or indirectly) within 
[five] years, regardless of the technology the carrier uses to provide 
services to its end users. During the transition period parties could 
continue to negotiate an agreement with a third party to fulfill its 
interconnection obligations. XO suggests that if a carrier chose to 
continue delivering traffic to the TDM POI, it would continue to pay 
higher intercarrier compensation rates while the IP termination rate 
would be set lower to incentivize carriers to deliver traffic in an IP 
format and therefore deploy IP networks to avoid the costs of 
converting from TDM to IP. After the proposed five-year transition, XO 
recommends that terminating carriers would be able to refuse to accept 
traffic via TDM interconnection where IP interconnection is available. 
The Commission notes that it has adopted a different approach to 
intercarrier compensation for VoIP traffic in the USF/ICC 
Transformation Order than that recommended by XO. What impact would 
that have on XO's IP-to-IP interconnection proposal? In addition, is a 
five-year transition period to IP interconnection sufficient? Should 
the Commission allow providers to refuse TDM traffic as XO proposes? 
Are there any potential negative consequences for having different 
pricing for TDM and IP interconnection?
    377. The Commission also observes that many providers interconnect 
indirectly today, and some commenters anticipate that indirect 
interconnection will remain important in an IP environment, as well. If 
an IP-to-IP interconnection policy framework granted providers the 
right to direct IP-to-IP interconnection, would this reduce or 
eliminate providers' incentives to interconnect indirectly? 
Alternatively, if the policy framework gave providers flexibility to 
interconnect either directly or indirectly, would this result in demand 
for indirect IP-to-IP interconnection that gives some providers 
incentives to offer services that enable third parties to interconnect 
on an IP-to-IP basis?
(iii) Commercial Agreements Not Regulated by the Commission
    378. The Commission also seeks comment on proposals to adopt a 
policy framework that would leave IP-to-IP interconnection largely 
unregulated by the Commission.
    379. Incentives Under Unregulated Commercial Agreements. Has the 
Commission, through its actions in the USF/ICC Transformation Order, 
sufficiently eliminated disincentives to IP-to-IP interconnection 
arising from intercarrier compensation rules? Even if there were no 
disincentive arising from the intercarrier compensation rules, would 
some competitors seek to deny IP-to-IP interconnection on reasonable 
rates, terms, and conditions to raise their rivals' costs? Are there 
circumstances where a refusal to interconnect on an IP-to-IP basis 
would result in service disruptions?
    380. Specific Proposals for Unregulated Commercial Agreements. 
Verizon contends that [t]he efficient way to allow IP interconnection 
arrangements to develop would be to follow * * * the tremendously 
successful example of the Internet, which relies upon voluntarily 
negotiated commercial agreements developed over time and fueled by 
providers' strong incentives to interconnect their networks. As AT&T 
argues, the interdependence of IP networks, along with the multiplicity 
of indirect paths into any broadband ISP's network--for the 
transmission of a VoIP call or any other type of IP application--
deprive any such ISP of any conceivable terminating access `monopoly' 
over traffic bound for its subscribers. Thus, commenters contend that 
the government should avoid prescribing the terms that will govern 
complex and evolving relationships among private sector actors. In 
other contexts, the Commission has recognized that a provider might not 
always voluntarily grant another provider access to its network on just 
and reasonable rates, terms, and conditions and that, in certain 
circumstances, some regulatory protections might be warranted. Is 
interconnection in this context distinguishable, and if so, how? If 
not, how could the Commission identify the circumstances where a less 
regulated (or unregulated) approach might be warranted from those where 
some regulation is needed?
(iv) Other Proposals and Related Issues
    381. In addition to the specific proposals the Commission seeks 
comment on any alternative approaches that commenters would suggest. In 
addition to the policy merits of the approach, the Commission seeks 
comment on its legal authority to adopt the approach, and how that 
approach would be implemented, including any new rules or rule changes.
    382. The Commission also observes that there is a growing problem 
of calls to rural customers that are being delayed or that fail to 
connect. The Commission seeks comment on whether any issues related to 
those concerns are affected by carriers' interconnection on an IP-to-IP 
basis, or to any interconnection policy framework the Commission might 
adopt in that context. Are there components of, or modifications to, 
any such framework that the Commission should consider in light of 
concerns about calls being delayed or failing to connect?
b. Statutory Interconnection Frameworks
    383. The Commission anticipates that the Commission may need to 
take some steps to enable the efficient transition to IP-to-IP 
interconnection, and the Commission seeks comment on the contours of 
its statutory authority in this regard. Just as there are varied 
positions regarding the appropriate policy framework for IP-to-IP 
interconnection, so too are there varied positions on the application 
of various statutory provisions in this regard. The Commission 
therefore seeks comment on the appropriate interpretation of statutory 
interconnection requirements and other possible regulatory authority 
for the Commission to adopt a policy framework governing IP-to-IP 
interconnection. In addition, insofar as the Commission addresses IP-
to-IP interconnection through a statutory framework historically 
applied to TDM

[[Page 78427]]

traffic, the Commission seeks comment on whether any resulting changes 
will be required to the application of those historical TDM 
interconnection requirements, either through rule changes or 
forbearance.
    384. Section 251. The Commission agrees with commenters that 
nothing in the language of 47 U.S.C. 251 limits the applicability of a 
carrier's statutory interconnection obligations to circuit-switched 
voice traffic and that the language is in fact technology neutral. In 
addition, the Commission seeks comment on whether the provisions of 47 
U.S.C. 251 interconnection are also service neutral, or do they vary 
with the particular services (e.g., voice vs. data, telecommunications 
services vs. information services) being exchanged? If so, on what 
basis, and in what ways, do they vary? A number of commenters go on to 
contend that the Commission can regulate IP-to-IP interconnection 
pursuant to 47 U.S.C. 251 of the Act. If the Commission were to adopt 
IP-to-IP interconnection regulations under the 47 U.S.C. 251 framework, 
would those regulations serve as a default in the absence of a 
negotiated IP-to-IP interconnection agreement between parties? In 
addition to those overarching considerations regarding the application 
of 47 U.S.C. 251 generally, the Commission recognize that the scope of 
the interconnection requirements of 47 U.S.C. 251(a)(1) and 251(c)(2) 
are tied to factual circumstances or otherwise circumscribed in various 
ways, and the Commission seeks comment on the resulting implications in 
the context of IP-to-IP interconnection.
    385. Section 251(a)(1). Section 251(a)(1) of the Act, 47 U.S.C. 
251(a)(1), requires each telecommunications carrier to interconnect 
directly or indirectly with the facilities and equipment of other 
telecommunications carriers. The Commission previously has recognized 
that this provision gives carriers the right to interconnect for 
purposes of exchanging VoIP traffic. However, could a carrier satisfy 
its obligation under 47 U.S.C. 251(a)(1) by agreeing to interconnect 
directly or indirectly only in TDM, or could the Commission require IP-
to-IP interconnection in some circumstances?
    386. Section 251(a)(1), 47 U.S.C. 251(a)(1), does not expressly 
specify how a particular pair of interconnecting carriers will decide 
whether to interconnect directly or indirectly. How should the 
Commission interpret 47 U.S.C. 251(a)(1) in this regard? If the 
Commission were to require IP-to-IP interconnection under 47 U.S.C. 
251(a)(1), would this effectively require direct interconnection in 
situations where there was no third party that could facilitate 
indirect IP-to-IP interconnection? Would this be consistent with the 
Commission's prior interpretation of 47 U.S.C. 251(a)(1) that 
telecommunications carriers should be permitted to provide 
interconnection pursuant to 47 U.S.C. 251(a) either directly or 
indirectly, based upon their most efficient technical and economic 
choices? Should the Commission interpret 47 U.S.C. 251(a)(1) to allow 
the carrier requesting interconnection to decide whether 
interconnection will be direct or indirect or should the Commission 
otherwise formally designate one of the carriers as entitled to insist 
upon direct (rather than indirect) interconnection? If so, which 
carrier should be entitled to make that choice, and how would such a 
framework be implemented?
    387. In general, how would IP-to-IP interconnection be implemented 
under 47 U.S.C. 251(a)(1)? To what extent should the Commission specify 
ex ante rules governing the rates, terms, and conditions of IP-to-IP 
interconnection under 47 U.S.C. 251(a)(1), or could those issues be 
left to case-by-case evaluation in state arbitrations or disputes 
brought before the Commission? If the Commission did not address these 
issues through ex ante rules, what standards or guidelines would apply 
in resolving disputes?
    388. Section 251(c)(2). Section 251(c)(2), 47 U.S.C. 251(c)(2), 
requires incumbent LECs to provide, for the facilities and equipment of 
any requesting telecommunications carrier, interconnection with the 
local exchange carrier's network, subject to certain conditions and 
criteria. Such interconnection is for the transmission and routing of 
telephone exchange service and exchange access. Interconnection must be 
direct, and at any technically feasible point within the carrier's 
network that is at least equal in quality to that provided by the 
[incumbent LEC] to itself or to any subsidiary, affiliate, or any other 
party to which the carrier provides interconnection. Finally, incumbent 
LECs must provide interconnection under 47 U.S.C. 251(c)(2) on rates, 
terms, and conditions that are just, reasonable, and nondiscriminatory. 
The Commission seeks comment on whether the Commission should set a 
policy framework for IP-to-IP interconnection under 47 U.S.C. 
251(c)(2), including on the specific issues.
    389. The Commission seeks comment on the scope of an incumbent 
local exchange carrier for purposes of 47 U.S.C. 251(c)(2). The 
Commission has recognized that an entity that meets the definition of 
incumbent local exchange carrier in 47 U.S.C. 251(h) is treated as an 
incumbent LEC for purposes of the obligations imposed by 47 U.S.C. 251 
even if it also provides services other than pure telephone exchange 
service and exchange access. Thus, under the statute, an incumbent LEC 
retains its status as an incumbent LEC as long as it remains a local 
exchange carrier.
    390. To the extent that, at some point in the future, an entity 
that historically was classified as an incumbent LEC ceased offering 
circuit-switched voice telephone service, and instead offered only VoIP 
service, the Commission seeks comment on whether that entity would 
remain a local exchange carrier (to the extent that it did not 
otherwise offer services that were telephone exchange service or 
exchange access). The Commission notes that the Commission has not 
broadly determined whether VoIP services are telecommunications 
services or information services, or whether such VoIP services 
constitute telephone exchange service or exchange access. To what 
extent would the Commission need to classify VoIP services as 
telecommunications services or information services to resolve whether 
the provider remained a LEC? Under the reasoning of prior Commission 
decisions, the Commission does not believe that a retail service must 
be classified as a telecommunications service for the provider carrying 
that traffic (whether the provider of the retail service or a third 
party) to be offering telephone exchange service or exchange access. 
With specific respect to VoIP, the Commission notes that some providers 
contend that the classification of their retail VoIP service is 
irrelevant to determining whether telephone exchange service and/or 
exchange access is being provided as an input to that service. The 
Commission seeks comment on these issues.
    391. In addition, the record reveals that today, some incumbent 
LECs are offering IP services through affiliates. Some commenters 
contend that incumbent LECs are doing so simply in an effort to evade 
the application of incumbent LEC-specific legal requirements on those 
facilities and services, and the Commission would be concerned if that 
were the case. The Commission notes that the DC Circuit has held that 
the Commission may not permit an ILEC to avoid Sec.  251(c) obligations 
as applied to advanced services by setting up a wholly owned affiliate 
to offer those services. In reaching that conclusion, the court relied 
on the fact that the affiliate at issue was providing services with

[[Page 78428]]

equipment originally owned by its ILEC parent, to customers previously 
served by its ILEC parent, marketed under the name of its ILEC parent. 
That holding remains applicable here, but the Commission also seeks 
comment more broadly on when an affiliate should be treated as an 
incumbent LEC under circumstances beyond those squarely addressed in 
that decision. What factors or considerations should be weighed in 
making that evaluation? Alternatively, to what extent would those same, 
or similar, considerations be necessary to a finding that the affiliate 
is a successor or assign of the incumbent LEC within the meaning of 47 
U.S.C. 251(h)(1)? Could the affiliate be a successor or assign if it 
satisfies only a subset of those considerations or different 
considerations? As another alternative, even if an affiliate is not a 
successor or assign of the incumbent LEC under 47 U.S.C. 251(h)(1), 
would the Commission nevertheless be warranted to treat it as an 
incumbent LEC under 47 U.S.C. 251(h)(2)? To treat the affiliate as an 
incumbent LEC would require finding that it is a LEC, potentially 
implicating many of the same issues raised regarding the classification 
of a retail VoIP provider or its carrier partner as a LEC. Would such 
affiliates be classified as LECs or based on other factors? If an 
affiliate is treated as an incumbent LEC in its own right under 47 
U.S.C. 251(h)(1) or (h)(2), what are the implications for how 47 U.S.C. 
251(c) applies? For example, if a requesting carrier were entitled to 
IP-to-IP interconnection with that affiliate under 47 U.S.C. 251(c)(2), 
could it use that interconnection arrangement to exchange traffic only 
with the customers of the affiliate, or could it use that arrangement 
to exchange traffic with the original incumbent LEC?
    392. Section 251(c)(2)(A), 47 U.S.C. 251(c)(2)(A), requires that 
interconnection obtained under 251(c)(2) be for the transmission and 
routing of telephone exchange service and exchange access. The 
Commission seeks comment on whether traffic exchanged via IP-to-IP 
interconnection would meet those criteria. The Commission notes in this 
regard that some providers of facilities-based retail VoIP services 
state that they are providing those services on a common carrier basis, 
and expect that those services would include the provision of telephone 
exchange service and/or exchange access to the same extent as 
comparable services provided using TDM or other transmission protocols. 
Other providers of retail VoIP services assert that, regardless of the 
classification of the retail VoIP service, their carrier partners are 
providing telephone exchange service and/or exchange access. Although 
the record reveals that these carriers typically provide these services 
at least in part in TDM today, the Commission does not believe that 
their regulatory status should change if they simply performed the same 
or comparable functions using a different protocol, such as IP. The 
Commission seeks comment on these views, as well as on the need to 
address this question given its holdings that carriers that otherwise 
have 47 U.S.C. 251(c)(2) interconnection arrangements for the exchange 
of telephone exchange service and/or exchange access traffic are free 
to use those arrangements to exchange other traffic--including toll 
traffic and/or information services traffic--with the incumbent LEC, as 
well.
    393. In the Local Competition First Report and Order, 
Implementation of the Local Competition Provisions in the 
Telecommunications Act of 1996, CC Docket Nos. 96-98, 95-185, First 
Report and Order, 61 FR 45476, August 29, 1996 (Local Competition First 
Report and Order), the Commission held that an IXC that requests 
interconnection solely for the purpose of originating or terminating 
its interexchange traffic, not for the provision of telephone exchange 
service and exchange access to others is not entitled to 
interconnection under the language of 47 U.S.C. 251(c)(2)(A) because 
the IXC is not seeking interconnection for the purpose of providing 
telephone exchange service, nor is it offering access, but rather is 
only obtaining access for its own traffic. By contrast, some commenters 
assert that, in applying 47 U.S.C. 251(c)(2)(A), it is sufficient for 
the incumbent LEC to be providing telephone exchange service or 
exchange access, regardless of whether the requesting carrier is doing 
so. The Commission seeks comment on this view. Under this 
interpretation, are there any circumstances when a requesting carrier 
would not be entitled to interconnection under 47 U.S.C. 251(c)(2) 
because the incumbent LEC is not providing telephone exchange service 
or exchange access? For example, might Congress have anticipated that 
incumbent LECs eventually would offer interexchange services on an 
integrated basis? To what extent was the Commission's prior 
interpretation of the Local Competition First Report and Order 
motivated by commenters' concerns that an alternative outcome would 
permit IXCs to evade the pre-1996 Act exchange access rules, including 
the payment of access charges, which were preserved under 47 U.S.C. 
251(g)? Would those concerns be mitigated insofar as the Commission is 
superseding the pre-existing access charge regime in the USF/ICC 
Transformation Order? Are there other reasons why the new 
interpretation of 47 U.S.C. 251(c)(2)(A) is warranted?
    394. Section 251(c)(2)(B), 47 U.S.C. 251(c)(2)(B), requires 
interconnection at any technically feasible point within the carrier's 
network. The Commission observes that IP-to-IP interconnection 
arrangements exist in the marketplace today, and seeks comment on 
whether they demonstrate that IP-to-IP interconnection is technically 
feasible at particular points within a carrier's network. To what 
extent does the requirement that incumbent LECs modify their facilities 
to the extent necessary to accommodate interconnection or access to 
network elements inform the evaluation whether IP-to-IP interconnection 
is technically feasible at particular points in the network?
    395. Section 251(c)(2)(C), 47 U.S.C. 251(c)(2)(C), requires that 
the interconnection provided by an incumbent LEC be at least equal in 
quality to that provided by the incumbent LEC to itself or to any 
subsidiary, affiliate, or any other party to which the carrier provides 
interconnection. To what extent are incumbent LECs interconnecting on 
an IP-to-IP basis with a subsidiary, affiliate, or any other party 
today, and at what quality? The Commission previously has interpreted 
this language to require incumbent LECs to design interconnection 
facilities to meet the same technical criteria and service standards, 
such as probability of blocking in peak hours and transmission 
standards, that are used within their own networks. Consistent with 
this interpretation, to what extent must an incumbent LEC be using IP 
transmission in its own network before it could be required to provide 
IP-to-IP interconnection pursuant to this language, and to what extent 
is that occurring today? If the incumbent LEC is not otherwise 
interconnecting on an IP-to-IP basis with a subsidiary, affiliate, or 
any other party, could the Commission require it to provide IP-to-IP 
interconnection as long as the other criteria of 47 U.S.C. 251(c)(2) 
are met? Should such interconnection be understood to be equal in 
quality to what the incumbent LEC provides others--albeit in a 
different protocol--or should it be understood to be requiring a 
superior network?

[[Page 78429]]

    396. Section 251(c)(2)(D), 47 U.S.C. 251(c)(2)(D), requires that 
incumbent LECs provide interconnection on rates, terms, and conditions 
that are just, reasonable, and nondiscriminatory. In the Local 
Competition First Report and Order, the Commission found that minimum 
national standards for just, reasonable, and nondiscriminatory terms 
and conditions of interconnection will be in the public interest and 
will provide guidance to the parties and the states in the arbitration 
process and thereafter. If the Commission concludes that IP-to-IP 
interconnection is required under 47 U.S.C. 251(c)(2), should it follow 
a similar approach and adopt minimum national standards? If so, what 
should those standards be? If not, what standards would be used to 
resolve arbitrations regarding the implementation of 47 U.S.C. 
251(c)(2)?
    397. Sections 201 and 332. Historically, the Commission has imposed 
interconnection obligations pursuant to 47 U.S.C. 201. Section 201, 47 
U.S.C. 201, applies to interstate services, as well as to 
interconnection involving CMRS providers under 47 U.S.C. 332(c)(1)(B). 
Do sections 201 (and 332 in the case of CMRS providers), 47 U.S.C. 201, 
332, provide the Commission authority to mandate IP-to-IP 
interconnection, including for intrastate traffic either alone, or in 
conjunction with other provisions of the Act and the Clayton Act? If 
so, what standards or requirements would be appropriate, and how would 
those obligations be implemented? How should any IP-to-IP 
interconnection requirements regarding the exchange of access traffic 
be reconciled with the historical regulatory framework governing the 
exchange of such traffic with LECs, as well as with the Commission's 
action in the accompanying USF/ICC Transformation Order to supersede 
the preexisting access charge regime and adopt a transition to a new 
regulatory framework for intercarrier compensation for access traffic?
    398. Section 706 of the 1996 Act. Some commenters suggest that 
section 706, 47 U.S.C. 1302, would provide the Commission authority to 
regulate IP-to-IP interconnection. The Commission seeks comment on the 
relationship between the Commission's statutory mandate in section 706, 
47 U.S.C. 1302, and regulation of IP-to-IP interconnection. If section 
706, 47 U.S.C. 1302, provides Commission authority to regulate IP-to-IP 
interconnection, what standards or requirements would be appropriate, 
and how would those obligations be implemented? If the Commission were 
to rely on section 706 of the 1996 Act, 47 U.S.C. 1302, to require IP-
to-IP interconnection, would it also need to adopt associated complaint 
procedures, or could the existing informal and formal complaint 
processes, which derive from 47 U.S.C. 208, nonetheless be interpreted 
to extend more broadly than alleged violations of Title II duties?
    399. Section 256. There also is some record support for imposing 
IP-to-IP interconnection requirements under section 256 of the Act, 47 
U.S.C. 256. Section 256(a)(2), 47 U.S.C. 256(a)(2), says that the 
purpose of the section is to ensure the ability of users and 
information providers to seamlessly and transparently transmit and 
receive information between and across telecommunications networks. Do 
commenters agree that 47 U.S.C. 256 authorizes Commission regulation of 
IP-to-IP interconnection? In particular, to what extent could 47 U.S.C. 
256 provide a source of authority for such regulation given the 
statement in 47 U.S.C. 256(c) that nothing in this section shall be 
construed as expanding or limiting any authority that the Commission 
may have under law in effect before February 8, 1996? Even if it is not 
a direct source of authority in that regard, should it inform the 
Commission's interpretation and application of other statutory 
provisions to require IP-to-IP interconnection?
    400. Title I Authority over IP-to-IP Interconnection. Does the 
Commission have ancillary authority to regulate IP-to-IP 
interconnection? For example, Sprint notes that the Commission has 
subject matter jurisdiction over traffic such as packetized voice 
traffic, and asserts that regulation of IP-to-IP interconnection is 
reasonably ancillary to the Commission's authority under the Act. 
Sprint also asserts that its IP-to-IP interconnection proposals for the 
exchange of packetized voice traffic are incidental to, and would 
affirmatively promote, specifically delegated powers under 47 U.S.C. 
251-52 regarding network interconnection, intercarrier compensation, 
and dispute resolution. Sprint further argues that its proposed rules 
would advance other statutory policies regarding the promotion of 
competition, and the promotion of communications services, including 
advanced telecommunications services and the Internet, among other 
things. Thus, Sprint contends that even if packetized voice services 
are . . . classified as information services, the Commission still 
possesses the authority to adopt these rule proposals under its Title I 
ancillary authority. The Commission seeks comment on Sprint's analysis 
and other evaluations of whether the Commission has ancillary authority 
to regulate IP-to-IP interconnection in particular ways.
    401. Other Sources of Authority. The Commission also seeks comment 
on any other sources of Commission authority for adopting a policy 
framework for IP-to-IP interconnection. What is the scope and substance 
of the Commission's authority to address IP-to-IP interconnection under 
that authority?

Q. Further Call Signaling Rules for VoIP

    402. In the USF/ICC Transformation Order accompanying this FNPRM, 
the Commission adopts revised call signaling rules to address 
intercarrier compensation arbitrage practices that led to unbillable or 
phantom traffic. These rules apply to providers of interconnected VoIP 
service as that term is defined in the Commission's rules. The 
Commission also adopts a framework of intercarrier compensation 
obligations that applies to all VoIP-PSTN traffic, which is defined as 
traffic exchanged over PSTN facilities that originates and/or 
terminates in IP format and includes voice traffic from interconnected 
VoIP service providers as well as providers of one-way VoIP service 
that allow end users to place calls to, or receive calls from the PSTN, 
but not both (referred to herein as one-way VoIP service).
    403. The Commission recognizes that the scope of the intercarrier 
compensation obligations for VoIP providers adopted in the USF/ICC 
Transformation Order is broader than the definition of interconnected 
VoIP in its rules to which the call signaling obligations will apply. 
And, as with any instance where similar entities are treated 
differently under its rules, the Commission is concerned about creating 
additional arbitrage opportunities. But, the Commission also recognizes 
that there may be technical difficulties associated with applying its 
revised call signaling rules to one-way VoIP service providers. The 
August 3 Public Notice sought comment on the application of call 
signaling rules to one-way VoIP service providers. There was relatively 
little comment on this issue, with some commenters suggesting that the 
Commission should not delay adoption of other intercarrier compensation 
reforms pending resolution of this issue. Now that the rules applicable 
to VoIP service providers adopted in the USF/ICC Transformation Order 
provide additional context, the Commission seeks comment again on the 
need for signaling rules for one-way VoIP service providers.
    404. If call signaling rules apply to one-way VoIP service 
providers, how

[[Page 78430]]

could these requirements be implemented? Would one-way VoIP service 
providers have to obtain and use numbering resources? If call signaling 
rules were to apply signaling obligations to one-way VoIP service 
providers, at what point in a call path should the required signaling 
originate, i.e. at the gateway or elsewhere? Are there alternative 
approaches for how signaling rules could operate for originating 
callers that do not have a telephone number? In addition, would 
signaling rules be needed for all one-way VoIP service providers? Or, 
given the terminating carrier's need for the information provided under 
the Commission's signaling rules, is it sufficient to focus only on 
providers of one-way VoIP service services that allow users to 
terminate voice calls to the PSTN (but not those that only allow users 
to receive calls from the PSTN)?
    405. If one-way VoIP service 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? Would there need to be numbering 
resources specifically assigned in the context of one-way VoIP 
services? Are there other signaling issues that the Commission should 
consider with regard to one-way VoIP calls?

R. New Intercarrier Compensation Rules

    406. Finally, the Commission seeks comment on whether the new rules 
adopted in the USF/ICC Transformation Order may result in any conflicts 
or inconsistencies. This could include conflicts or inconsistencies 
within the newly adopted rules or conflicts or inconsistencies between 
the new rules and the Commission's existing rules. If commenters 
believe conflicts or inconsistencies are present, the Commission asks 
that they identify the specific rule or rules that may be affected, 
explain the perceived conflict or inconsistency, and proposes language 
to address the conflict or inconsistency. Also, the Commission seeks 
comment on whether the new and revised rules it adopts reflect all of 
the modifications to the intercarrier compensation regimes made in the 
USF/ICC Transformation Order. If not, the Commission asks that parties 
identify in their comments the potential problem areas and proposes 
specific language to address the possible oversight.

II. Procedural Matters

A. Initial Regulatory Flexibility Analysis

    407. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Commission has prepared this Initial Regulatory 
Flexibility Analysis (IRFA) of the possible significant economic impact 
on a substantial number of small entities by the policies and rules 
proposed in this FNPRM. Written comments are requested on this IRFA. 
Comments must be identified as responses to the IRFA and must be filed 
by the deadlines for comments on the FNPRM. The Commission will send a 
copy of the FNPRM, including this IRFA, to the Chief Counsel for 
Advocacy of the Small Business Administration (SBA). In addition, the 
FNPRM and IRFA (or summaries thereof) will be published in the Federal 
Register.

B. Need for, and Objectives of, the Proposed Rules

    408. The FNPRM seeks comment on a variety of issues relating to 
comprehensive reform of universal service and intercarrier 
compensation. As discussed in the USF-ICC Transformation Order 
accompanying the FNPRM, the Commission believes that such reform will 
eliminate waste and inefficiency while modernizing and reorienting 
these programs on a fiscally responsible path to extending the benefits 
of broadband throughout America. Bringing robust, affordable broadband 
to all Americans is the infrastructure challenge of the 21st century. 
To allow the Commission to help meet this challenge, the FNPRM asks for 
comment in a number of specific areas.
i. Universal Service
    409. First, for providers receiving Connect America Fund (CAF) 
support, the FNPRM seeks further comment on what public interest 
obligations should apply to the receipt of these funds. How should 
broadband service be measured, and how should ``reasonable 
comparability'' be determined for fixed and mobile voice and broadband 
services.
    410. The FNPRM also seeks comment on several proposed additional 
requirements, including whether the Commission should require CAF 
recipients to offer IP-to-IP interconnection for voice service, beyond 
whatever framework it adopts more broadly, whether CAF recipients be 
required to make interconnection points and backhaul capacity available 
so that unserved high-cost communities could deploy their own broadband 
networks, and whether the Commission should create a fund for a 
Technology Opportunities Program in order to assist communities with 
deploying their own broadband networks.
    411. In the USF-ICC Transformation Order, the Commission concludes 
that high-cost support received by incumbent rate-of-return carriers 
should be phased out over five years in study areas where an 
unsubsidized facilities-based provider offers voice and broadband 
services meeting the specified public interest obligations. The FNPRM 
seeks comment on the specific methodology that should be used to 
identify those areas, including the appropriateness of the preliminary 
analysis staff performed.
    412. The Commission also begins a represcription of the authorized 
interstate rate of return, and the FNPRM asks parties to identify what 
data the Commission should collect to complete the represcription, the 
current applicability of the formulas contained in the Commission's 
rules for performing necessary calculations, as well as whether the 
remaining Regional Bell Operating Companies (RBOCs) or some other group 
of carriers should be used as a surrogate for incumbent local exchange 
carriers (ILECs) that do not issue stock or borrow money solely to 
support interstate services.
    413. In the USF-ICC Transformation Order, the Commission adopts a 
rule to use benchmarks for reasonable costs to impose limits on 
reimbursable capital and operating costs for high-cost loop support 
received by rate-of-return companies, and concludes that it should also 
impose limits on reimbursable capital and operating costs for 
interstate common line support received by rate-of-return companies. In 
the FNPRM, the Commission seeks comments on a specific methodology for 
calculating individual company caps for HCLS set forth in Appendix H, 
and seeks comment on how specifically to implement such a limit for 
ICLS.
    414. In response to the USF/ICC Transformation NPRM, 76 FR 11632, 
March 2, 2011, several associations representing rural ILECs (Rural 
Associations) proposed the creation of a new broadband-focused CAF 
mechanism that ultimately would entirely replace existing support 
mechanisms for rate-of-return carriers. Subsequently, the Rural 
Associations provided draft rules that provide additional context 
regarding the operation of their proposed CAF. In the FNPRM, the 
Commission seeks comment on this proposal and ask whether and how it 
could be modified consistent with the framework adopted

[[Page 78431]]

in the USF-ICC Transformation Order to provide a path forward for rate-
of-return or carriers to invest in extending broadband to unserved 
areas.
    415. In the FNPRM, the Commission proposes that a recipient of 
high-cost and CAF support should be required to post financial security 
as a condition to receiving support to ensure that it has committed 
sufficient financial resources to complying with its public interest 
obligations under the Commission's rules. For example, should an 
irrevocable standby letter of credit be required, and if so, for what 
amount? Further, the FNPRM seeks comment on what penalties might be 
appropriate for failure to meet build-out requirements, service quality 
standards, or failure to provide information to verify continuing 
eligibility to receive support.
    416. The CAF will target funding to areas where federal support is 
needed to maintain and expand modern networks capable of delivering 
broadband and voice services. In the FNPRM, aiming to ensure that 
obligations and funding are appropriately matched while avoiding 
consumer disruption in access to communications services, the 
Commission seeks comment on what Commission action may be appropriate 
to adjust existing service obligations for eligible telecommunications 
carriers (ETCs) as funding shifts to new, more targeted support 
mechanisms.
    417. The FNPRM describes the Phase II of the Mobility Fund, which 
will provide ongoing support for mobile broadband and high quality 
voice-grade services. The Commission seeks comment on the overall 
design for this phase of the Mobility Fund, including the use of 
reverse auctions, or the possible use of a model. Funding in the second 
phase of the Mobility Fund is intended for geographic areas where there 
is no private sector business case to provide mobile broadband and high 
quality voice-grade services. Comment is sought on how best to: (1) 
Identify these areas; (2) establish bidding and coverage units; (3) 
maximize consumer benefits; (4) establish the term of support; (5) 
identify provider eligibility requirements; and (6) set public interest 
obligations.
    418. The FNPRM next proposes general auction rules for Phase II of 
the Mobility Fund to govern the initial auction process, including 
options for basic auction design, application procedures, permissible 
communications and public disclosure of auction-related information, 
auction defaults, and auction suspension or cancellation. The FNPRM 
reaffirms the Commission's commitment to address Tribal needs and seeks 
comment on how ongoing universal service support for mobile advanced 
services could be tailored to meet the needs in Tribal lands. The 
Commission seeks comment on the adoption for Mobility Fund Phase II of 
two bidding mechanisms intended to promote greater service on Tribal 
lands: a bidding credit for Tribally-owned or controlled entities and a 
mechanism that would allocate a specified number of ``priority units'' 
to particular unserved geographic areas within Tribal lands that would 
reduce the per-unit amount of bids covering those unserved areas. The 
Commission also seeks comment on the adoption of a small business 
bidding preference and the small business definition that should apply 
if it adopts such a bidding preference. In addition, comment is sought 
on accountability and oversight rules applicable to the second phase of 
the Mobility Fund. Finally, the FNPRM seeks comment on the use of an 
economic model to determine support for mobile wireless providers 
rather than competitive bidding, including possible model design and 
potential changes to the proposed framework for mobility support that 
could be necessary if support is determined using a model.
    419. In the USF-ICC Transformation Order, the Commission adopts a 
framework for USF support in areas served by price cap carriers where 
support will be determined using a combination of a forward-looking 
broadband cost model and competitive bidding. The FNPRM addresses 
proposals for this competitive bidding process, where applicable. 
Comment is sought on: (1) The use of a forward looking engineering cost 
model to identify areas eligible for competitive bidding; (2) 
establishing bidding and coverage units; (3) maximizing consumer 
benefits; (4) establishing the term of support; (5) identifying 
provider eligibility requirements; and (6) setting public interest 
obligations.
    420. The FNPRM next proposes general auction rules governing the 
auction process, including options for basic auction design, 
application procedures, permissible communications and public 
disclosure of auction-related information, auction defaults, and 
auction suspension or cancellation. The FNPRM also seeks comment on 
whether to establish special provisions to help ensure service in 
Tribal lands. The FNPRM seeks comment on the adoption for the 
competitive bidding process of a bidding credit for Tribally-owned or 
controlled entities and a Tribal priority units mechanism along the 
same lines proposed for Phase II of the Tribal Mobility Fund. The 
Commission also seeks comment on the adoption of a small business 
bidding preference and the small business definition that should apply 
if it adopts such a bidding preference. In addition, comment is sought 
on accountability and oversight rules that would apply to recipients of 
CAF support awarded through a competitive bidding process.
    421. In establishing a new Remote Areas Fund (RAF), the budget of 
which will be at least $100 million, the USF-ICC Transformation Order 
addresses the Commission's commitment to ensure that the less than one 
percent of Americans living in areas where the cost of deploying 
traditional terrestrial broadband networks is extremely high can obtain 
affordable broadband through other technology platforms. The FNPRM 
seeks comment on how RAF support should be provided and how the program 
should be implemented. Comment is sought on how to: (1) Identify 
geographic areas eligible for support; (2) establish bidding and 
coverage units; (3) maximize consumer benefits; (4) establish the term 
of support; (5) identify provider eligibility requirements; and (6) set 
public interest requirements. In addition, the FNPRM seeks comment on 
how best to structure the RAF general implementation issues, provider 
qualifications, and public interest obligations, such as service 
performance criteria and pricing. The FNPRM also seeks comment on 
related matters like portable consumer subsidy issues and service terms 
and conditions. In addition, the FNPRM requests comment on several 
auction approaches to target CAF funding in extremely high cost areas 
and general auction rules for an auction process, including options for 
basic auction design and for the auction and post-auction processes, as 
well as eligibility, accountability, and oversight issues. The FNPRM 
also seeks comment on the adoption of a bidding preference for small 
businesses if competitive bidding is used to provide support from the 
RAF and the size of any small business bidding credit should the 
Commission adopt one. The Commission seeks comment on the small 
business definition that should apply if it adopts such a small 
business preference for remote area support auctions.
ii. Intercarrier Compensation
    422. The USF-ICC Transformation Order adopts a bill-and-keep 
methodology as the default end state for all intercarrier compensation 
traffic. Although it specifies the transition for certain terminating 
access rates and caps all interstate and most intrastate

[[Page 78432]]

charges, it does adopt a transition to a bill-and-keep methodology for 
all ICC rates, including originating switched access, and certain 
transport rate elements. The FNPRM seeks comment on the appropriate 
transition to bill-and-keep for those rate elements not reduced in the 
USF-ICC Transformation Order, and asks what recovery, if any, should be 
provided. The FNPRM also asks whether Commission action is necessary to 
address concerns that have been raised regarding transit services, and 
are other charges implicated by the transition to bill-and-keep?
    423. The FNPRM seeks comment on any interconnection and related 
issues that must be addressed to implement bill-and-keep in an 
efficient and equitable manner. Specifically, comment is sought on 
points of interconnection, how they are established, what if anything, 
the Commission should do going forward, and the continued relevance of 
points of interconnection in a bill-and-keep regime. Likewise, comment 
is sought on defining the ``network edge,'' the point where bill-and-
keep applies and the point to which a provider is responsible for 
delivering its traffic to another provider. Comment is also sought on 
the role of tariffs and interconnection agreements for structuring 
intercarrier relationships moving forward, including the feasibility of 
extending our interconnection rules to all telecommunications carriers, 
including competitive LECs and IXCs, and asks questions about 
commenters' concerns about potential arbitrage that might occur under a 
bill-and-keep methodology.
    424. The FNPRM also seeks comment on the recovery mechanism adopted 
in the USF-ICC Transformation Order, as well as the pre-existing rules 
regarding subscriber line charges (SLCs). With respect to the recovery 
adopted in the USF-ICC Transformation Order, comment is sought about 
the elimination of the access replacement charge (ARC) at a date 
certain and, if so, when. The FNPRM also asks about modifying the 
baseline for recovery for rate-of-return carriers by, for example, 
increasing the percentage of reduction each year and also alternative 
approaches to the use of true-ups in calculating recovery for rate-of-
return carriers. And, the FNPRM asks if ICC CAF support for rate-of-
return carriers should be subject to a defined phase-out? In addition, 
parties are asked to comment on existing SLCs, which are not addressed 
here. In particular, the FNPRM asks about the appropriate cap for these 
charges, the long-term role, if any, for SLCs as carriers move to IP 
networks, and what, if anything, the Commission should do about how 
carriers advertise SLCs and ARCs.
    425. The FNPRM seeks comment on a number of issues regarding IP-to-
IP interconnection in light of the Commission's goal of facilitating 
industry progression to all-IP networks. In particular, the FNPRM seeks 
comments on implementation of the USF-ICC Transformation Order's 
statement that the Commission expects that all carriers will negotiate 
in good faith for IP-to-IP interconnection arrangements for the 
exchange of voice traffic, as well as associated implementation and 
enforcement. The FNPRM seeks comment on the appropriate statutory 
authority for our expectation of good faith negotiations, and other 
possible regulatory authority for the Commission to adopt a policy 
framework governing IP-to-IP interconnection. In addition, if the 
Commission addresses IP-to-IP interconnection through a statutory 
framework historically applied to TDM traffic, the FNPRM seeks comment 
on whether any resulting changes will be required to the application of 
those historical TDM interconnection requirements, either through rule 
changes or forbearance.
    426. Comment is also sought on the scope of the traffic exchange 
that should be encompassed by any IP-to-IP interconnection policy 
framework to avoid intervention in areas where the market will operate 
efficiently. The FNPRM seeks comment on the appropriate role for the 
Commission regarding IP-to-IP interconnection and seeks specific 
comment on certain proposed policy frameworks, including the policy 
merits of each approach, and associated implementation issues, 
including any forbearance from statutory requirements that would be 
needed to implement the particular framework for IP-to-IP 
interconnection.
    427. The FNPRM asks whether call signaling rules are needed for 
one-way VoIP providers, and if so, what they should be and how they 
should apply. And finally, parties are asked to comment on any 
conflicts or inconsistencies they believe are present as a result of 
the new rules adopted in the USF-ICC Transformation Order, either 
conflicts or inconsistencies within the new rules or between the new 
rules and existing Commission rules.

C. Legal Basis

    428. The legal basis for any action that may be taken pursuant to 
the FNPRM is contained in sections 1, 2, 4(i), 201-205, 214, 218-220, 
251, 252, 254, 256, 303(r), 332, 403, and 706 of the Communications Act 
of 1934, as amended, 47 U.S.C. 151, 152, 154(i), 201-205, 214, 218-220, 
251, 252, 254, 256, 303(r), 332, 403, and 706, and sections 1.1 and 
1.1421 of the Commission's rules, 47 CFR Sec. Sec.  1.1, 1.421.

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

    429. 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 proposed rules, if adopted. The RFA generally defines 
the term ``small entity'' as having the same meaning as the terms 
``small business,'' ``small organization,'' and ``small governmental 
jurisdiction.'' In addition, the term ``small business'' has the same 
meaning as the term ``small-business concern'' under the Small Business 
Act. A ``small-business concern'' is one which: (1) Is independently 
owned and operated; (2) is not dominant in its field of operation; and 
(3) satisfies any additional criteria established by the SBA.
    430. Small Businesses. Nationwide, there are a total of 
approximately 27.5 million small businesses, according to the SBA.
    431. Wired Telecommunications Carriers. The SBA has developed a 
small business size standard for Wired Telecommunications Carriers, 
which consists of all such companies having 1,500 or fewer employees. 
According to Census Bureau data for 2007, there were 3,188 firms in 
this category, total, that operated for the entire year. Of this total, 
3,144 firms had employment of 999 or fewer employees, and 44 firms had 
employment of 1,000 employees or more. Thus, under this size standard, 
the majority of firms can be considered small.
    432. Local Exchange Carriers (LECs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to local exchange services. 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. According to Commission data, 1,307 carriers reported 
that they were incumbent local exchange service providers. Of these 
1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 
301 have more than 1,500 employees. Consequently, the Commission 
estimates that most providers of local exchange service are small 
entities that

[[Page 78433]]

may be affected by the rules and policies proposed in the FNPRM.
    433. Incumbent Local Exchange Carriers (incumbent LECs). Neither 
the Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to incumbent local exchange 
services. 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. According to 
Commission data, 1,307 carriers reported that they were incumbent local 
exchange service providers. Of these 1,307 carriers, an estimated 1,006 
have 1,500 or fewer employees and 301 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 
rules adopted pursuant to the FNPRM.
    434. The Commission has included small incumbent 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.'' 
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. The Commission has 
therefore included small incumbent LECs in this RFA analysis, although 
it emphasizes that this RFA action has no effect on Commission analyses 
and determinations in other, non-RFA contexts.
    435. Competitive Local Exchange Carriers (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. 
According to Commission data, 1,442 carriers reported that they were 
engaged in the provision of either competitive local exchange services 
or competitive access provider services. Of these 1,442 carriers, an 
estimated 1,256 have 1,500 or fewer employees and 186 have more than 
1,500 employees. In addition, 17 carriers have reported that they are 
Shared-Tenant Service Providers, and all 17 are estimated to have 1,500 
or fewer employees. In addition, 72 carriers have reported that they 
are Other Local Service Providers. Of the 72, seventy have 1,500 or 
fewer employees and two have more than 1,500 employees. Consequently, 
the Commission estimates that most providers of competitive local 
exchange service, competitive access providers, Shared-Tenant Service 
Providers, and Other Local Service Providers are small entities that 
may be affected by rules adopted pursuant to the FNPRM.
    436. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to interexchange services. 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. According to Commission data, 359 companies reported 
that their primary telecommunications service activity was the 
provision of interexchange services. Of these 359 companies, an 
estimated 317 have 1,500 or fewer employees and 42 have more than 1,500 
employees. Consequently, the Commission estimates that the majority of 
interexchange service providers are small entities that may be affected 
by rules adopted pursuant to the FNPRM.
    437. Prepaid Calling Card Providers. Neither the Commission nor the 
SBA has developed a small business size standard specifically for 
prepaid calling card providers. The appropriate size standard under SBA 
rules is for the category Telecommunications Resellers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 193 carriers have reported that they are 
engaged in the provision of prepaid calling cards. Of these, an 
estimated all 193 have 1,500 or fewer employees and none have more than 
1,500 employees. Consequently, the Commission estimates that the 
majority of prepaid calling card providers are small entities that may 
be affected by rules adopted pursuant to the FNPRM.
    438. Local Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 213 carriers have reported 
that they are engaged in the provision of local resale services. Of 
these, an estimated 211 have 1,500 or fewer employees and two have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of local resellers are small entities that may be affected by 
rules adopted pursuant to the FNPRM.
    439. Toll Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 881 carriers have reported 
that they are engaged in the provision of toll resale services. Of 
these, an estimated 857 have 1,500 or fewer employees and 24 have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of toll resellers are small entities that may be affected by 
rules adopted pursuant to the FNPRM.
    440. Other Toll Carriers. Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable 
to Other Toll Carriers. This category includes toll carriers that do 
not fall within the categories of interexchange carriers, operator 
service providers, prepaid calling card providers, satellite service 
carriers, or toll resellers. 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. 
According to Commission data, 284 companies reported that their primary 
telecommunications service activity was the provision of other toll 
carriage. Of these, an estimated 279 have 1,500 or fewer employees and 
five have more than 1,500 employees. Consequently, the Commission 
estimates that most Other Toll Carriers are small entities that may be 
affected by the rules and policies adopted pursuant to the FNPRM.
    441. 800 and 800-Like Service Subscribers. Neither the Commission 
nor the SBA has developed a small business size standard specifically 
for 800 and 800-like service (toll free) subscribers. The appropriate 
size standard under SBA rules is for the category Telecommunications 
Resellers. Under that size standard, such a business is small if it has 
1,500 or fewer employees. The most reliable source of information 
regarding the number of these service subscribers appears to be data 
the Commission collects on the 800, 888, 877, and 866 numbers in use. 
According to our data, as of September 2009, the number of 800 numbers 
assigned was 7,860,000; the number of 888 numbers assigned was 
5,588,687; the number of 877 numbers assigned was 4,721,866; and the 
number of 866 numbers assigned was 7,867,736. The

[[Page 78434]]

Commission does not have data specifying the number of these 
subscribers that are not independently owned and operated or have more 
than 1,500 employees, and thus is unable at this time to estimate with 
greater precision the number of toll free subscribers that would 
qualify as small businesses under the SBA size standard. Consequently, 
it estimates that there are 7,860,000 or fewer small entity 800 
subscribers; 5,588,687 or fewer small entity 888 subscribers; 4,721,866 
or fewer small entity 877 subscribers; and 7,867,736 or fewer small 
entity 866 subscribers.
    442. Wireless Telecommunications Carriers (except Satellite). Since 
2007, the SBA has recognized wireless firms within this new, broad, 
economic census category. Prior to that time, such firms were within 
the now-superseded categories of Paging and Cellular and Other Wireless 
Telecommunications. Under the present and prior categories, the SBA has 
deemed a wireless business to be small if it has 1,500 or fewer 
employees. For this category, census data for 2007 show that there were 
1,383 firms that operated for the entire year. Of this total, 1,368 
firms had employment of 999 or fewer employees and 15 had employment of 
1,000 employees or more. Similarly, according to Commission data, 413 
carriers reported that they were engaged in the provision of wireless 
telephony, including cellular service, Personal Communications Service 
(PCS), and Specialized Mobile Radio (SMR) Telephony services. Of these, 
an estimated 261 have 1,500 or fewer employees and 152 have more than 
1,500 employees. Consequently, the Commission estimates that 
approximately half or more of these firms can be considered small. 
Thus, using available data, the Commission estimates that the majority 
of wireless firms can be considered small.
    443. Broadband Personal Communications Service. The broadband 
personal communications service (PCS) spectrum is divided into six 
frequency blocks designated A through F, and the Commission has held 
auctions for each block. The Commission defined ``small entity'' for 
Blocks C and F as an entity that has average gross revenues of $40 
million or less in the three previous calendar years. For Block F, an 
additional classification for ``very small business'' was added and is 
defined as an entity that, together with its affiliates, has average 
gross revenues of not more than $15 million for the preceding three 
calendar years. These standards defining ``small entity'' in the 
context of broadband PCS auctions have been approved by the SBA. No 
small businesses, within the SBA-approved small business size standards 
bid successfully for licenses in Blocks A and B. There were 90 winning 
bidders that qualified as small entities in the Block C auctions. A 
total of 93 small and very small business bidders won approximately 40 
percent of the 1,479 licenses for Blocks D, E, and F. In 1999, the 
Commission re-auctioned 347 C, E, and F Block licenses. There were 48 
small business winning bidders. In 2001, the Commission completed the 
auction of 422 C and F Broadband PCS licenses in Auction 35. Of the 35 
winning bidders in this auction, 29 qualified as ``small'' or ``very 
small'' businesses. Subsequent events, concerning Auction 35, including 
judicial and agency determinations, resulted in a total of 163 C and F 
Block licenses being available for grant. In 2005, the Commission 
completed an auction of 188 C block licenses and 21 F block licenses in 
Auction 58. There were 24 winning bidders for 217 licenses. Of the 24 
winning bidders, 16 claimed small business status and won 156 licenses. 
In 2007, the Commission completed an auction of 33 licenses in the A, 
C, and F Blocks in Auction 71. Of the 14 winning bidders, six were 
designated entities. In 2008, the Commission completed an auction of 20 
Broadband PCS licenses in the C, D, E and F block licenses in Auction 
78.
    444. Advanced Wireless Services. In 2008, the Commission conducted 
the auction of Advanced Wireless Services (``AWS'') licenses. This 
auction, which as designated as Auction 78, offered 35 licenses in the 
AWS 1710-1755 MHz and 2110-2155 MHz bands (``AWS-1''). The AWS-1 
licenses were licenses for which there were no winning bids in Auction 
66. That same year, the Commission completed Auction 78. A bidder with 
attributed average annual gross revenues that exceeded $15 million and 
did not exceed $40 million for the preceding three years (``small 
business'') received a 15 percent discount on its winning bid. A bidder 
with attributed average annual gross revenues that did not exceed $15 
million for the preceding three years (``very small business'') 
received a 25 percent discount on its winning bid. A bidder that had 
combined total assets of less than $500 million and combined gross 
revenues of less than $125 million in each of the last two years 
qualified for entrepreneur status. Four winning bidders that identified 
themselves as very small businesses won 17 licenses. Three of the 
winning bidders that identified themselves as a small business won five 
licenses. Additionally, one other winning bidder that qualified for 
entrepreneur status won 2 licenses.
    445. Narrowband Personal Communications Services. In 1994, the 
Commission conducted an auction for Narrowband PCS licenses. A second 
auction was also conducted later in 1994. For purposes of the first two 
Narrowband PCS auctions, ``small businesses'' were entities with 
average gross revenues for the prior three calendar years of $40 
million or less. Through these auctions, the Commission awarded a total 
of 41 licenses, 11 of which were obtained by four small businesses. To 
ensure meaningful participation by small business entities in future 
auctions, the Commission adopted a two-tiered small business size 
standard in the Narrowband PCS Second Report and Order, 65 FR 35875, 
June 6, 2000. A ``small business'' is an entity that, together with 
affiliates and controlling interests, has average gross revenues for 
the three preceding years of not more than $40 million. A ``very small 
business'' is an entity that, together with affiliates and controlling 
interests, has average gross revenues for the three preceding years of 
not more than $15 million. The SBA has approved these small business 
size standards. A third auction was conducted in 2001. Here, five 
bidders won 317 (Metropolitan Trading Areas and nationwide) licenses. 
Three of these claimed status as a small or very small entity and won 
311 licenses.
    446. Paging (Private and Common Carrier). In the Paging Third 
Report and Order, 64 FR 33762, June 24, 1999, the Commission developed 
a small business size standard for ``small businesses'' and ``very 
small businesses'' for purposes of determining their eligibility for 
special provisions such as bidding credits and installment payments. A 
``small business'' is an entity that, together with its affiliates and 
controlling principals, has average gross revenues not exceeding $15 
million for the preceding three years. Additionally, a ``very small 
business'' is an entity that, together with its affiliates and 
controlling principals, has average gross revenues that are not more 
than $3 million for the preceding three years. The SBA has approved 
these small business size standards. According to Commission data, 291 
carriers have reported that they are engaged in Paging or Messaging 
Service. Of these, an estimated 289 have 1,500 or fewer employees, and 
two have more than 1,500 employees. Consequently, the Commission 
estimates that the

[[Page 78435]]

majority of paging providers are small entities that may be affected by 
our action. An auction of Metropolitan Economic Area licenses commenced 
on February 24, 2000, and closed on March 2, 2000. Of the 2,499 
licenses auctioned, 985 were sold. Fifty-seven companies claiming small 
business status won 440 licenses. A subsequent auction of MEA and 
Economic Area (``EA'') licenses was held in the year 2001. Of the 
15,514 licenses auctioned, 5,323 were sold. One hundred thirty-two 
companies claiming small business status purchased 3,724 licenses. A 
third auction, consisting of 8,874 licenses in each of 175 EAs and 
1,328 licenses in all but three of the 51 MEAs, was held in 2003. 
Seventy-seven bidders claiming small or very small business status won 
2,093 licenses. A fourth auction of 9,603 lower and upper band paging 
licenses was held in the year 2010. Twenty-nine bidders claiming small 
or very small business status won 3,016 licenses.
    447. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service 
has both Phase I and Phase II licenses. Phase I licensing was conducted 
by lotteries in 1992 and 1993. There are approximately 1,515 such non-
nationwide licensees and four nationwide licensees currently authorized 
to operate in the 220 MHz band. The Commission has not developed a 
small business size standard for small entities specifically applicable 
to such incumbent 220 MHz Phase I licensees. To estimate the number of 
such licensees that are small businesses, the Commission applies the 
small business size standard under the SBA rules applicable to Wireless 
Telecommunications Carriers (except Satellite). Under this category, 
the SBA deems a wireless business to be small if it has 1,500 or fewer 
employees. The Commission estimates that nearly all such licensees are 
small businesses under the SBA's small business size standard that may 
be affected by rules adopted pursuant to the FNPRM.
    448. 220 MHz Radio Service--Phase II Licensees. The 220 MHz service 
has both Phase I and Phase II licenses. The Phase II 220 MHz service is 
subject to spectrum auctions. In the 220 MHz Third Report and Order, 
the Commission adopted a small business size standard for ``small'' and 
``very small'' businesses for purposes of determining their eligibility 
for special provisions such as bidding credits and installment 
payments. This small business size standard indicates that a ``small 
business'' is an entity that, together with its affiliates and 
controlling principals, has average gross revenues not exceeding $15 
million for the preceding three years. A ``very small business'' is an 
entity that, together with its affiliates and controlling principals, 
has average gross revenues that do not exceed $3 million for the 
preceding three years. The SBA has approved these small business size 
standards. Auctions of Phase II licenses commenced on September 15, 
1998, and closed on October 22, 1998. In the first auction, 908 
licenses were auctioned in three different-sized geographic areas: 
three nationwide licenses, 30 Regional Economic Area Group (EAG) 
Licenses, and 875 Economic Area (EA) Licenses. Of the 908 licenses 
auctioned, 693 were sold. Thirty-nine small businesses won licenses in 
the first 220 MHz auction. The second auction included 225 licenses: 
216 EA licenses and 9 EAG licenses. Fourteen companies claiming small 
business status won 158 licenses.
    449. Specialized Mobile Radio. The Commission awards small business 
bidding credits in auctions for Specialized Mobile Radio (``SMR'') 
geographic area licenses in the 800 MHz and 900 MHz bands to entities 
that had revenues of no more than $15 million in each of the three 
previous calendar years. The Commission awards very small business 
bidding credits to entities that had revenues of no more than $3 
million in each of the three previous calendar years. The SBA has 
approved these small business size standards for the 800 MHz and 900 
MHz SMR Services. The Commission has held auctions for geographic area 
licenses in the 800 MHz and 900 MHz bands. The 900 MHz SMR auction was 
completed in 1996. Sixty bidders claiming that they qualified as small 
businesses under the $15 million size standard won 263 geographic area 
licenses in the 900 MHz SMR band. The 800 MHz SMR auction for the upper 
200 channels was conducted in 1997. Ten bidders claiming that they 
qualified as small businesses under the $15 million size standard won 
38 geographic area licenses for the upper 200 channels in the 800 MHz 
SMR band. A second auction for the 800 MHz band was conducted in 2002 
and included 23 BEA licenses. One bidder claiming small business status 
won five licenses.
    450. The auction of the 1,053 800 MHz SMR geographic area licenses 
for the General Category channels was conducted in 2000. Eleven bidders 
won 108 geographic area licenses for the General Category channels in 
the 800 MHz SMR band qualified as small businesses under the $15 
million size standard. In an auction completed in 2000, a total of 
2,800 Economic Area licenses in the lower 80 channels of the 800 MHz 
SMR service were awarded. Of the 22 winning bidders, 19 claimed small 
business status and won 129 licenses. Thus, combining all three 
auctions, 40 winning bidders for geographic licenses in the 800 MHz SMR 
band claimed status as small business.
    451. In addition, there are numerous incumbent site-by-site SMR 
licensees and licensees with extended implementation authorizations in 
the 800 and 900 MHz bands. The Commission does not know how many firms 
provide 800 MHz or 900 MHz geographic area SMR pursuant to extended 
implementation authorizations, nor how many of these providers have 
annual revenues of no more than $15 million. One firm has over $15 
million in revenues. In addition, the Commission does not know how many 
of these firms have 1,500 or fewer employees. The Commission assumes, 
for purposes of this analysis, that all of the remaining existing 
extended implementation authorizations are held by small entities, as 
that small business size standard is approved by the SBA.
    452. Broadband Radio Service and Educational Broadband Service. 
Broadband Radio Service systems, previously referred to as Multipoint 
Distribution Service (``MDS'') and Multichannel Multipoint Distribution 
Service (``MMDS'') systems, and ``wireless cable,'' transmit video 
programming to subscribers and provide two-way high speed data 
operations using the microwave frequencies of the Broadband Radio 
Service (``BRS'') and Educational Broadband Service (``EBS'') 
(previously referred to as the Instructional Television Fixed Service 
(``ITFS'')). In connection with the 1996 BRS auction, the Commission 
established a small business size standard as an entity that had annual 
average gross revenues of no more than $40 million in the previous 
three calendar years. The BRS auctions resulted in 67 successful 
bidders obtaining licensing opportunities for 493 Basic Trading Areas 
(``BTAs''). Of the 67 auction winners, 61 met the definition of a small 
business. BRS also includes licensees of stations authorized prior to 
the auction. At this time, the Commission estimates that of the 61 
small business BRS auction winners, 48 remain small business licensees. 
In addition to the 48 small businesses that hold BTA authorizations, 
there are approximately 392 incumbent BRS licensees that are considered 
small entities. After adding the number of small business auction 
licensees to the number of incumbent licensees not already counted, the 
Commission finds that there are currently approximately

[[Page 78436]]

440 BRS licensees that are defined as small businesses under either the 
SBA or the Commission's rules. The Commission has adopted three levels 
of bidding credits for BRS: (i) A bidder with attributed average annual 
gross revenues that exceed $15 million and do not exceed $40 million 
for the preceding three years (small business) is eligible to receive a 
15 percent discount on its winning bid; (ii) a bidder with attributed 
average annual gross revenues that exceed $3 million and do not exceed 
$15 million for the preceding three years (very small business) is 
eligible to receive a 25 percent discount on its winning bid; and (iii) 
a bidder with attributed average annual gross revenues that do not 
exceed $3 million for the preceding three years (entrepreneur) is 
eligible to receive a 35 percent discount on its winning bid. In 2009, 
the Commission conducted Auction 86, which offered 78 BRS licenses. 
Auction 86 concluded with ten bidders winning 61 licenses. Of the ten, 
two bidders claimed small business status and won 4 licenses; one 
bidder claimed very small business status and won three licenses; and 
two bidders claimed entrepreneur status and won six licenses.
    453. In addition, the SBA's Cable Television Distribution Services 
small business size standard is applicable to EBS. There are presently 
2,032 EBS licensees. All but 100 of these licenses are held by 
educational institutions. Educational institutions are included in this 
analysis as small entities. Thus, the Commission estimates that at 
least 1,932 licensees are small businesses. Since 2007, Cable 
Television Distribution Services have been defined within the broad 
economic census category of Wired Telecommunications Carriers; that 
category is defined as follows: ``This industry comprises 
establishments primarily engaged in operating and/or providing access 
to transmission facilities and infrastructure that they own and/or 
lease for the transmission of voice, data, text, sound, and video using 
wired telecommunications networks. Transmission facilities may be based 
on a single technology or a combination of technologies.'' The SBA 
defines a small business size standard for this category as any such 
firms having 1,500 or fewer employees. The SBA has developed a small 
business size standard for this category, which is: all such firms 
having 1,500 or fewer employees. According to Census Bureau data for 
2007, there were a total of 955 firms in this previous category that 
operated for the entire year. Of this total, 939 firms had employment 
of 999 or fewer employees, and 16 firms had employment of 1,000 
employees or more. Thus, under this size standard, the majority of 
firms can be considered small and may be affected by rules adopted 
pursuant to the FNPRM.
    454. Lower 700 MHz Band Licenses. The Commission previously adopted 
criteria for defining three groups of small businesses for purposes of 
determining their eligibility for special provisions such as bidding 
credits. The Commission defined a ``small business'' as an entity that, 
together with its affiliates and controlling principals, has average 
gross revenues not exceeding $40 million for the preceding three years. 
A ``very small business'' is defined as an entity that, together with 
its affiliates and controlling principals, has average gross revenues 
that are not more than $15 million for the preceding three years. 
Additionally, the Lower 700 MHz Band had a third category of small 
business status for Metropolitan/Rural Service Area (``MSA/RSA'') 
licenses, identified as ``entrepreneur'' and defined as an entity that, 
together with its affiliates and controlling principals, has average 
gross revenues that are not more than $3 million for the preceding 
three years. The SBA approved these small size standards. The 
Commission conducted an auction in 2002 of 740 Lower 700 MHz Band 
licenses (one license in each of the 734 MSAs/RSAs and one license in 
each of the six Economic Area Groupings (EAGs)). Of the 740 licenses 
available for auction, 484 licenses were sold to 102 winning bidders. 
Seventy-two of the winning bidders claimed small business, very small 
business or entrepreneur status and won a total of 329 licenses. The 
Commission conducted a second Lower 700 MHz Band auction in 2003 that 
included 256 licenses: 5 EAG licenses and 476 Cellular Market Area 
licenses. Seventeen winning bidders claimed small or very small 
business status and won 60 licenses, and nine winning bidders claimed 
entrepreneur status and won 154 licenses. In 2005, the Commission 
completed an auction of 5 licenses in the Lower 700 MHz Band, 
designated Auction 60. There were three winning bidders for five 
licenses. All three winning bidders claimed small business status.
    455. In 2007, the Commission reexamined its rules governing the 700 
MHz band in the 700 MHz Second Report and Order, 72 FR 48814, August 
24, 2007. The 700 MHz Second Report and Order revised the band plan for 
the commercial (including Guard Band) and public safety spectrum, 
adopted services rules, including stringent build-out requirements, an 
open platform requirement on the C Block, and a requirement on the D 
Block licensee to construct and operate a nationwide, interoperable 
wireless broadband network for public safety users. An auction of A, B 
and E block licenses in the Lower 700 MHz band was held in 2008. Twenty 
winning bidders claimed small business status (those with attributable 
average annual gross revenues that exceed $15 million and do not exceed 
$40 million for the preceding three years). Thirty three winning 
bidders claimed very small business status (those with attributable 
average annual gross revenues that do not exceed $15 million for the 
preceding three years). In 2011, the Commission conducted Auction 92, 
which offered 16 Lower 700 MHz band licenses that had been made 
available in Auction 73 but either remained unsold or were licenses on 
which a winning bidder defaulted. Two of the seven winning bidders in 
Auction 92 claimed very small business status, winning a total of four 
licenses.
    456. Upper 700 MHz Band Licenses. In the 700 MHz Second Report and 
Order, the Commission revised its rules regarding Upper 700 MHz band 
licenses. In 2008, the Commission conducted Auction 73 in which C and D 
block licenses in the Upper 700 MHz band were available. Three winning 
bidders claimed very small business status (those with attributable 
average annual gross revenues that do not exceed $15 million for the 
preceding three years).
    457. 700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order, 
65 FR 17594, April 4, 2000, the Commission adopted a small business 
size standard for ``small businesses'' and ``very small businesses'' 
for purposes of determining their eligibility for special provisions 
such as bidding credits and installment payments. A ``small business'' 
is an entity that, together with its affiliates and controlling 
principals, has average gross revenues not exceeding $40 million for 
the preceding three years. Additionally, a ``very small business'' is 
an entity that, together with its affiliates and controlling 
principals, has average gross revenues that are not more than $15 
million for the preceding three years. An auction of 52 Major Economic 
Area (MEA) licenses commenced on September 6, 2000, and closed on 
September 21, 2000. Of the 104 licenses auctioned, 96 licenses were 
sold to nine bidders. Five of these bidders were small businesses that 
won a total of 26 licenses. A second auction of 700 MHz Guard Band 
licenses commenced on February 13, 2001 and closed on February 21, 
2001. All eight

[[Page 78437]]

of the licenses auctioned were sold to three bidders. One of these 
bidders was a small business that won a total of two licenses.
    458. Cellular Radiotelephone Service. Auction 77 was held to 
resolve one group of mutually exclusive applications for Cellular 
Radiotelephone Service licenses for unserved areas in New Mexico. 
Bidding credits for designated entities were not available in Auction 
77. In 2008, the Commission completed the closed auction of one 
unserved service area in the Cellular Radiotelephone Service, 
designated as Auction 77. Auction 77 concluded with one provisionally 
winning bid for the unserved area totaling $25,002.
    459. Private Land Mobile Radio (``PLMR''). PLMR systems serve an 
essential role in a range of industrial, business, land transportation, 
and public safety activities. These radios are used by companies of all 
sizes operating in all U.S. business categories, and are often used in 
support of the licensee's primary (non-telecommunications) business 
operations. For the purpose of determining whether a licensee of a PLMR 
system is a small business as defined by the SBA, the Commission uses 
the broad census category, Wireless Telecommunications Carriers (except 
Satellite). This definition provides that a small entity is any such 
entity employing no more than 1,500 persons. The Commission does not 
require PLMR licensees to disclose information about number of 
employees, so the Commission does not have information that could be 
used to determine how many PLMR licensees constitute small entities 
under this definition. The Commission notes that PLMR licensees 
generally use the licensed facilities in support of other business 
activities, and therefore, it would also be helpful to assess PLMR 
licensees under the standards applied to the particular industry 
subsector to which the licensee belongs.
    460. As of March 2010, there were 424,162 PLMR licensees operating 
921,909 transmitters in the PLMR bands below 512 MHz. The Commission 
notes that any entity engaged in a commercial activity is eligible to 
hold a PLMR license, and that any revised rules in this context could 
therefore potentially impact small entities covering a great variety of 
industries.
    461. Rural Radiotelephone Service. The Commission has not adopted a 
size standard for small businesses specific to the Rural Radiotelephone 
Service. A significant subset of the Rural Radiotelephone Service is 
the Basic Exchange Telephone Radio System (``BETRS''). In the present 
context, The Commission will use the SBA's small business size standard 
applicable to Wireless Telecommunications Carriers (except Satellite), 
i.e., an entity employing no more than 1,500 persons. There are 
approximately 1,000 licensees in the Rural Radiotelephone Service, and 
the Commission estimates that there are 1,000 or fewer small entity 
licensees in the Rural Radiotelephone Service that may be affected by 
the rules and policies proposed herein.
    462. Air-Ground Radiotelephone Service. The Commission has not 
adopted a small business size standard specific to the Air-Ground 
Radiotelephone Service. The Commission will use SBA's small business 
size standard applicable to Wireless Telecommunications Carriers 
(except Satellite), i.e., an entity employing no more than 1,500 
persons. There are approximately 100 licensees in the Air-Ground 
Radiotelephone Service, and the Commission estimates that almost all of 
them qualify as small under the SBA small business size standard and 
may be affected by rules adopted pursuant to the FNPRM.
    463. Aviation and Marine Radio Services. Small businesses in the 
aviation and marine radio services use a very high frequency (VHF) 
marine or aircraft radio and, as appropriate, an emergency position-
indicating radio beacon (and/or radar) or an emergency locator 
transmitter. The Commission has not developed a small business size 
standard specifically applicable to these small businesses. For 
purposes of this analysis, the Commission uses the SBA small business 
size standard for the category Wireless Telecommunications Carriers 
(except Satellite), which is 1,500 or fewer employees. Most applicants 
for recreational licenses are individuals. Approximately 581,000 ship 
station licensees and 131,000 aircraft station licensees operate 
domestically and are not subject to the radio carriage requirements of 
any statute or treaty. For purposes of our evaluations in this 
analysis, the Commission estimates that there are up to approximately 
712,000 licensees that are small businesses (or individuals) under the 
SBA standard. In addition, between December 3, 1998 and December 14, 
1998, the Commission held an auction of 42 VHF Public Coast licenses in 
the 157.1875-157.4500 MHz (ship transmit) and 161.775-162.0125 MHz 
(coast transmit) bands. For purposes of the auction, the Commission 
defined a ``small'' business as an entity that, together with 
controlling interests and affiliates, has average gross revenues for 
the preceding three years not to exceed $15 million dollars. In 
addition, a ``very small'' business is one that, together with 
controlling interests and affiliates, has average gross revenues for 
the preceding three years not to exceed $3 million dollars. There are 
approximately 10,672 licensees in the Marine Coast Service, and the 
Commission estimates that almost all of them qualify as ``small'' 
businesses under the above special small business size standards and 
may be affected by rules adopted pursuant to the FNPRM.
    464. Fixed Microwave Services. Fixed microwave services include 
common carrier, private operational-fixed, and broadcast auxiliary 
radio services. At present, there are approximately 22,015 common 
carrier fixed licensees and 61,670 private operational-fixed licensees 
and broadcast auxiliary radio licensees in the microwave services. The 
Commission has not created a size standard for a small business 
specifically with respect to fixed microwave services. For purposes of 
this analysis, the Commission uses the SBA small business size standard 
for Wireless Telecommunications Carriers (except Satellite), which is 
1,500 or fewer employees. The Commission does not have data specifying 
the number of these licensees that have more than 1,500 employees, and 
thus is unable at this time to estimate with greater precision the 
number of fixed microwave service licensees that would qualify as small 
business concerns under the SBA's small business size standard. 
Consequently, the Commission estimates that there are up to 22,015 
common carrier fixed licensees and up to 61,670 private operational-
fixed licensees and broadcast auxiliary radio licensees in the 
microwave services that may be small and may be affected by the rules 
and policies adopted herein. The Commission notes, however, that the 
common carrier microwave fixed licensee category includes some large 
entities.
    465. Offshore Radiotelephone Service. This service operates on 
several UHF television broadcast channels that are not used for 
television broadcasting in the coastal areas of states bordering the 
Gulf of Mexico. There are approximately 55 licensees in this service. 
The Commission is unable to estimate at this time the number of 
licensees that would qualify as small under the SBA's small business 
size standard for Cellular and Other Wireless Telecommunications 
services. Under that SBA small business size standard, a business is 
small if it has 1,500 or fewer employees.
    466. 39 GHz Service. The Commission created a special small 
business size

[[Page 78438]]

standard for 39 GHz licenses--an entity that has average gross revenues 
of $40 million or less in the three previous calendar years. An 
additional size standard for ``very small business'' is: an entity 
that, together with affiliates, has average gross revenues of not more 
than $15 million for the preceding three calendar years. The SBA has 
approved these small business size standards. The auction of the 2,173 
39 GHz licenses began on April 12, 2000 and closed on May 8, 2000. The 
18 bidders who claimed small business status won 849 licenses. 
Consequently, the Commission estimates that 18 or fewer 39 GHz 
licensees are small entities that may be affected by rules adopted 
pursuant to the FNPRM.
    467. Local Multipoint Distribution Service. Local Multipoint 
Distribution Service (``LMDS'') is a fixed broadband point-to-
multipoint microwave service that provides for two-way video 
telecommunications. The auction of the 986 LMDS licenses began and 
closed in 1998. The Commission established a small business size 
standard for LMDS licenses as an entity that has average gross revenues 
of less than $40 million in the three previous calendar years. An 
additional small business size standard for ``very small business'' was 
added as an entity that, together with its affiliates, has average 
gross revenues of not more than $15 million for the preceding three 
calendar years. The SBA has approved these small business size 
standards in the context of LMDS auctions. There were 93 winning 
bidders that qualified as small entities in the LMDS auctions. A total 
of 93 small and very small business bidders won approximately 277 A 
Block licenses and 387 B Block licenses. In 1999, the Commission re-
auctioned 161 licenses; there were 32 small and very small businesses 
winning that won 119 licenses.
    468. 218-219 MHz Service. The first auction of 218-219 MHz spectrum 
resulted in 170 entities winning licenses for 594 Metropolitan 
Statistical Area (MSA) licenses. Of the 594 licenses, 557 were won by 
entities qualifying as a small business. For that auction, the small 
business size standard was an entity that, together with its 
affiliates, has no more than a $6 million net worth and, after federal 
income taxes (excluding any carry over losses), has no more than $2 
million in annual profits each year for the previous two years. In the 
218-219 MHz Report and Order and Memorandum Opinion and Order, the 
Commission established a small business size standard for a ``small 
business'' as an entity that, together with its affiliates and persons 
or entities that hold interests in such an entity and their affiliates, 
has average annual gross revenues not to exceed $15 million for the 
preceding three years. A ``very small business'' is defined as an 
entity that, together with its affiliates and persons or entities that 
hold interests in such an entity and its affiliates, has average annual 
gross revenues not to exceed $3 million for the preceding three years. 
These size standards will be used in future auctions of 218-219 MHz 
spectrum.
    469. 2.3 GHz Wireless Communications Services. This service can be 
used for fixed, mobile, radiolocation, and digital audio broadcasting 
satellite uses. The Commission defined ``small business'' for the 
wireless communications services (``WCS'') auction as an entity with 
average gross revenues of $40 million for each of the three preceding 
years, and a ``very small business'' as an entity with average gross 
revenues of $15 million for each of the three preceding years. The SBA 
has approved these definitions. The Commission auctioned geographic 
area licenses in the WCS service. In the auction, which was conducted 
in 1997, there were seven bidders that won 31 licenses that qualified 
as very small business entities, and one bidder that won one license 
that qualified as a small business entity.
    470. 1670-1675 MHz Band. An auction for one license in the 1670-
1675 MHz band was conducted in 2003. The Commission defined a ``small 
business'' as an entity with attributable average annual gross revenues 
of not more than $40 million for the preceding three years and thus 
would be eligible for a 15 percent discount on its winning bid for the 
1670-1675 MHz band license. Further, the Commission defined a ``very 
small business'' as an entity with attributable average annual gross 
revenues of not more than $15 million for the preceding three years and 
thus would be eligible to receive a 25 percent discount on its winning 
bid for the 1670-1675 MHz band license. One license was awarded. The 
winning bidder was not a small entity.
    471. 3650-3700 MHz band. In March 2005, the Commission released a 
Report and Order and Memorandum Opinion and Order that provides for 
nationwide, non-exclusive licensing of terrestrial operations, 
utilizing contention-based technologies, in the 3650 MHz band (i.e., 
3650-3700 MHz). As of April 2010, more than 1270 licenses have been 
granted and more than 7433 sites have been registered. The Commission 
has not developed a definition of small entities applicable to 3650-
3700 MHz band nationwide, non-exclusive licensees. However, the 
Commission estimates that the majority of these licensees are Internet 
Access Service Providers (ISPs) and that most of those licensees are 
small businesses.
    472. 24 GHz--Incumbent Licensees. This analysis may affect 
incumbent licensees who were relocated to the 24 GHz band from the 18 
GHz band, and applicants who wish to provide services in the 24 GHz 
band. The applicable SBA small business size standard is that of 
``Cellular and Other Wireless Telecommunications'' companies. This 
category provides that such a company is small if it employs no more 
than 1,500 persons. The Commission believes that there are only two 
licensees in the 24 GHz band that were relocated from the 18 GHz band, 
Teligent and TRW, Inc. It is our understanding that Teligent and its 
related companies have less than 1,500 employees, though this may 
change in the future. TRW is not a small entity. Thus, only one 
incumbent licensee in the 24 GHz band is a small business entity.
    473. 24 GHz--Future Licensees. With respect to new applicants in 
the 24 GHz band, the size standard for ``small business'' is an entity 
that, together with controlling interests and affiliates, has average 
annual gross revenues for the three preceding years not in excess of 
$15 million. ``Very small business'' in the 24 GHz band is an entity 
that, together with controlling interests and affiliates, has average 
gross revenues not exceeding $3 million for the preceding three years. 
The SBA has approved these small business size standards. These size 
standards will apply to a future 24 GHz license auction, if held.
    474. Satellite Telecommunications. Since 2007, the SBA has 
recognized satellite firms within this revised category, with a small 
business size standard of $15 million. The most current Census Bureau 
data are from the economic census of 2007, and the Commission will use 
those figures to gauge the prevalence of small businesses in this 
category. Those size standards are for the two census categories of 
``Satellite Telecommunications'' and ``Other Telecommunications.'' 
Under the ``Satellite Telecommunications'' category, a business is 
considered small if it had $15 million or less in average annual 
receipts. Under the ``Other Telecommunications'' category, a business 
is considered small if it had $25 million or less in average annual 
receipts.
    475. The first category of Satellite Telecommunications ``comprises 
establishments primarily engaged in providing point-to-point 
telecommunications services to other

[[Page 78439]]

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 2007 show that there were a total of 
512 firms that operated for the entire year. Of this total, 464 firms 
had annual receipts of under $10 million, and 18 firms had receipts of 
$10 million to $24,999,999. Consequently, the Commission estimates that 
the majority of Satellite Telecommunications firms are small entities 
that might be affected by rules adopted pursuant to the FNPRM.
    476. The second category of Other Telecommunications ``primarily 
engaged in providing specialized telecommunications services, such as 
satellite tracking, communications telemetry, and radar station 
operation. This industry also includes establishments primarily engaged 
in providing satellite terminal stations and associated facilities 
connected with one or more terrestrial systems and capable of 
transmitting telecommunications to, and receiving telecommunications 
from, satellite systems. Establishments providing Internet services or 
voice over Internet protocol (VoIP) services via client-supplied 
telecommunications connections are also included in this industry.'' 
For this category, Census Bureau data for 2007 show that there were a 
total of 2,383 firms that operated for the entire year. Of this total, 
2,346 firms had annual receipts of under $25 million. Consequently, the 
Commission estimates that the majority of Other Telecommunications 
firms are small entities that might be affected by our action.
    477. Cable and Other Program Distribution. Since 2007, these 
services have been defined within the broad economic census category of 
Wired Telecommunications Carriers; that category is defined as follows: 
``This industry comprises establishments primarily engaged in operating 
and/or providing access to transmission facilities and infrastructure 
that they own and/or lease for the transmission of voice, data, text, 
sound, and video using wired telecommunications networks. Transmission 
facilities may be based on a single technology or a combination of 
technologies.'' The SBA has developed a small business size standard 
for this category, which is: all such firms having 1,500 or fewer 
employees. According to Census Bureau data for 2007, there were a total 
of 955 firms in this previous category that operated for the entire 
year. Of this total, 939 firms had employment of 999 or fewer 
employees, and 16 firms had employment of 1000 employees or more. Thus, 
under this size standard, the majority of firms can be considered small 
and may be affected by rules adopted pursuant to the FNPRM.
    478. Cable Companies and Systems. The Commission has developed its 
own small business size standards, for the purpose of cable rate 
regulation. Under the Commission's rules, a ``small cable company'' is 
one serving 400,000 or fewer subscribers, nationwide. Industry data 
indicate that, of 1,076 cable operators nationwide, all but eleven are 
small under this size standard. In addition, under the Commission's 
rules, a ``small system'' is a cable system serving 15,000 or fewer 
subscribers. Industry data indicate that, of 7,208 systems nationwide, 
6,139 systems have under 10,000 subscribers, and an additional 379 
systems have 10,000-19,999 subscribers. Thus, under this second size 
standard, most cable systems are small and may be affected by rules 
adopted pursuant to the FNPRM.
    479. Cable System Operators. The Act also contains a size standard 
for small cable system operators, which is ``a cable operator that, 
directly or through an affiliate, serves in the aggregate fewer than 1 
percent of all subscribers in the United States and is not affiliated 
with any entity or entities whose gross annual revenues in the 
aggregate exceed $250,000,000.'' The Commission has determined that an 
operator serving fewer than 677,000 subscribers shall be deemed a small 
operator, if its annual revenues, when combined with the total annual 
revenues of all its affiliates, do not exceed $250 million in the 
aggregate. Industry data indicate that, of 1,076 cable operators 
nationwide, all but ten are small under this size standard. The 
Commission notes that it neither requests nor collects information on 
whether cable system operators are affiliated with entities whose gross 
annual revenues exceed $250 million, and therefore is unable to 
estimate more accurately the number of cable system operators that 
would qualify as small under this size standard.
    480. Open Video Services. The open video system (``OVS'') framework 
was established in 1996, and is one of four statutorily recognized 
options for the provision of video programming services by local 
exchange carriers. The OVS framework provides opportunities for the 
distribution of video programming other than through cable systems. 
Because OVS operators provide subscription services, OVS falls within 
the SBA small business size standard covering cable services, which is 
``Wired Telecommunications Carriers.'' The SBA has developed a small 
business size standard for this category, which is: all such firms 
having 1,500 or fewer employees. According to Census Bureau data for 
2007, there were a total of 955 firms in this previous category that 
operated for the entire year. Of this total, 939 firms had employment 
of 999 or fewer employees, and 16 firms had employment of 1000 
employees or more. Thus, under this second size standard, most cable 
systems are small and may be affected by rules adopted pursuant to the 
Notice. In addition, the Commission notes that it has certified some 
OVS operators, with some now providing service. Broadband service 
providers (``BSPs'') are currently the only significant holders of OVS 
certifications or local OVS franchises. The Commission does not have 
financial or employment information regarding the entities authorized 
to provide OVS, some of which may not yet be operational. Thus, again, 
at least some of the OVS operators may qualify as small entities.
    481. Internet Service Providers. Since 2007, these services have 
been defined within the broad economic census category of Wired 
Telecommunications Carriers; that category is defined as follows: 
``This industry comprises establishments primarily engaged in operating 
and/or providing access to transmission facilities and infrastructure 
that they own and/or lease for the transmission of voice, data, text, 
sound, and video using wired telecommunications networks. Transmission 
facilities may be based on a single technology or a combination of 
technologies.'' The SBA has developed a small business size standard 
for this category, which is: all such firms having 1,500 or fewer 
employees. According to Census Bureau data for 2007, there were 3,188 
firms in this category, total, that operated for the entire year. Of 
this total, 3144 firms had employment of 999 or fewer employees, and 44 
firms had employment of 1000 employees or more. Thus, under this size 
standard, the majority of firms can be considered small. In addition, 
according to Census Bureau data for 2007, there were a total of 396 
firms in the category Internet Service Providers (broadband) that 
operated for the entire year. Of this total, 394 firms had employment 
of 999 or fewer employees, and two firms had employment of 1000 
employees or more. Consequently, the Commission estimates that the 
majority of these firms are small entities that may be affected by 
rules adopted pursuant to the FNPRM.

[[Page 78440]]

    482. Internet Publishing and Broadcasting and Web Search Portals. 
Our action may pertain to interconnected VoIP services, which could be 
provided by entities that provide other services such as email, online 
gaming, web browsing, video conferencing, instant messaging, and other, 
similar IP-enabled services. The Commission has not adopted a size 
standard for entities that create or provide these types of services or 
applications. However, the Census Bureau has identified firms that 
``primarily engaged in (1) publishing and/or broadcasting content on 
the Internet exclusively or (2) operating Web sites that use a search 
engine to generate and maintain extensive databases of Internet 
addresses and content in an easily searchable format (and known as Web 
search portals).'' The SBA has developed a small business size standard 
for this category, which is: all such firms having 500 or fewer 
employees. According to Census Bureau data for 2007, there were 2,705 
firms in this category that operated for the entire year. Of this 
total, 2,682 firms had employment of 499 or fewer employees, and 23 
firms had employment of 500 employees or more. Consequently, the 
Commission estimates that the majority of these firms are small 
entities that may be affected by rules adopted pursuant to the FNPRM.
    483. Data Processing, Hosting, and Related Services. Entities in 
this category ``primarily * * * provid[e] infrastructure for hosting or 
data processing services.'' The SBA has developed a small business size 
standard for this category; that size standard is $25 million or less 
in average annual receipts. According to Census Bureau data for 2007, 
there were 8,060 firms in this category that operated for the entire 
year. Of these, 7,744 had annual receipts of under $24,999,999. 
Consequently, the Commission estimates that the majority of these firms 
are small entities that may be affected by rules adopted pursuant to 
the FNPRM.
    484. All Other Information Services. The Census Bureau defines this 
industry as including ``establishments primarily engaged in providing 
other information services (except news syndicates, libraries, 
archives, Internet publishing and broadcasting, and Web search 
portals).'' Our action pertains to interconnected VoIP services, which 
could be provided by entities that provide other services such as 
email, online gaming, web browsing, video conferencing, instant 
messaging, and other, similar IP-enabled services. The SBA has 
developed a small business size standard for this category; that size 
standard is $7.0 million or less in average annual receipts. According 
to Census Bureau data for 2007, there were 367 firms in this category 
that operated for the entire year. Of these, 334 had annual receipts of 
under $5.0 million, and an additional 11 firms had receipts of between 
$5 million and $9,999,999. Consequently, the Commission estimates that 
the majority of these firms are small entities that may be affected by 
our action.

E. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities

    485. In this FNPRM, the Commission seeks public comment on 
additional steps to complete its comprehensive universal service and 
intercarrier compensation reform. The transition to complete the reform 
of the universal service programs and new intercarrier compensation 
rules could affect all carriers, including small entities, and may 
include new administrative processes. In proposing these reforms, the 
Commission seeks comment on various reporting, recordkeeping, and other 
compliance requirements that may apply to all carriers, including small 
entities. The Commission seeks comment on any costs and burdens on 
small entities associated with the proposed ruled, including data 
quantifying the extent of those costs or burdens.
1. Universal Service
    486. In the Order, the Commission adopts a rule requiring that 
actual speed and latency be measured on each ETCs access network from 
the end-user interface to the nearest Internet access point, as well as 
a rule that requires ETCs to certify to and report the results to USAC 
on an annual basis. In this FNPRM, the Commission seeks comment on 
whether the Commission should adopt a specific measurement methodology 
beyond what is described in the Order and the format in which ETCs 
should report their results. Specifically, the Commission seeks comment 
on whether it should specify a uniform reporting format, such as a 
format that can be produced to the Universal Service Administrative 
Company (``USAC'') and auditable such that USAC or the state 
commissions may confirm that a provider is, in fact, providing 
broadband at the required minimum speeds. The Commission also seeks 
comment on whether providers should be required to provide the 
underlying raw measurement data to USAC and, if so, whether there are 
legitimate concerns with the confidentiality of such data. In the 
alternative, the Commission seeks comment on whether it would be 
sufficient to have a provider certify to USAC that its network is 
satisfying the minimum broadband metrics and retain the results of its 
own performance measurement to be produced on request in the course of 
possible future audits.
    487. In the Order, the Commission also directs the Wireline 
Competition Bureau and Wireless Telecommunications Bureau to develop 
and conduct a survey of voice and broadband rates in order to compare 
urban and rural voice and broadband rates. In this FNPRM, the 
Commission seeks comment on the components of the survey.
    488. In this FNPRM, the Commission seeks comment on the Rural 
Association's proposed creation of a new broadband-focused CAF 
mechanism that ultimately would entirely replace existing support 
mechanisms for rate-of-return carriers. The Commission seeks comment on 
what information it would need to require from carriers in order to 
evaluate and implement this proposal.
    489. Under the Order, rate-of-return carriers will continue to 
receive for some time a modified version of their legacy universal 
service support. In this FNPRM, the Commission seeks comment on the 
appropriate data and methodologies the Commission should use to 
calculate the weighted average cost of capital used to identify the 
rate-of-return required to maintain the current value of a firm.
    490. The Commission proposes to apply to recipients of Mobility 
Fund Phase II support, CAF support, and Remote Areas Fund support the 
same rules for accountability and oversight. Thus recipients of USF 
support through any of these funding mechanisms would be required to 
meet the same reporting, audit, and record retention requirements. 
Because of differences between Mobility Fund support and other USF high 
cost support mechanisms, the Commission proposes that Mobility Fund 
Phase II support recipients include the same additional information in 
their annual reports as Mobility Fund Phase I support recipients. This 
information includes maps with service area and population information, 
linear road mile coverage, and drive test data, as well as updated 
project information. To minimize waste, fraud, and abuse, the 
Commission proposes to require individuals who are eligible for CAF 
support for remote areas to certify that they are eligible and

[[Page 78441]]

periodically verify their continued eligibility.
    491. Where the Commission uses competitive bidding to award 
Mobility Fund II support, support in areas where the price cap ETC 
declines to make a state-level commitment, or support for remote areas, 
the Commission proposes to use a two-stage application process, 
including ownership disclosure requirements, similar to that used in 
spectrum auctions and adopted for Mobility Fund Phase I.
    492. The Commission also seeks comment in the FNPRM on whether 
there are specific requirements in the existing annual reporting rule 
for ETCs that should be modified to reflect basic differences in the 
nature and purpose of the support provided for mobile services. The 
Commission further seeks comment on any other aspects of its annual 
reporting requirements that should be modified to better reflect the 
nature of mobile services being offered and the objectives of the USF 
support provided for them.
2. Intercarrier Compensation
    493. In the FNPRM, the Commission seeks comment and data on issues 
that must be addressed to complete its comprehensive reform of the 
intercarrier compensation system. These issues include the appropriate 
path or transition to modernize the existing rules as needed to bring 
all intercarrier compensation to the ultimate end point of bill-and-
keep, if and how carriers should be allowed to recover revenues that 
might be reduced by any additional intercarrier compensation reforms, 
and data to analyze the effects of proposed reforms and need for 
revenue recovery.
    494. Compliance with a transition to a new system for all 
intercarrier compensation may impact some small entities and may 
include new or reduced administrative processes. For carriers that may 
be affected, obligations may include certain reporting and 
recordkeeping requirements to determine and establish their eligibility 
to receive recovery from other sources as intercarrier compensation 
rates are reduced. Additionally, these carriers may need to modify some 
administrative processes relating to the billing and collection of 
intercarrier compensation to comply with any new or revised rules the 
Commission adopts as a result of the FNPRM.
    495. Modifications to the rules to address potential arbitrage 
opportunities or additional call signaling rules for VoIP traffic also 
will affect certain carriers, potentially including small entities. To 
the extent that the Commission further modifies the rules adopted in 
the Order as a result of the FNPRM, providers might be required to 
modify or adopt administrative, recordkeeping, or other processes to 
implement those changes. Moreover, the FNPRM considers possible rule 
modifications to require IP-to-IP interconnection, which may require 
service providers to modify some administrative processes. Further, 
possible rule modifications to address potential arbitrage, if adopted, 
may affect certain carriers. For example, carriers that engage in such 
arbitrage may be subject to revised tariff filing or other 
requirements. However, these impacts are mitigated by the certainty and 
reduced litigation that should occur as a result of the reforms 
adopted, including arbitrage loopholes that the Commission has closed 
in the Order.

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

    496. The RFA requires an agency to describe any significant, 
specifically small business, alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives (among others): ``(1) The establishment of differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rules for such small entities; (3) the 
use of performance rather than design standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for such small 
entities.''
    497. The FNPRM seeks comment from all interested parties. The 
Commission is aware that some of the proposals under consideration may 
impact small entities. Small entities are encouraged to bring to the 
Commission's attention any specific concerns they may have with the 
proposals outlined in the FNPRM.
    498. The Commission expects to consider the economic impact on 
small entities, as identified in comments filed in response to the 
FNPRM, in reaching its final conclusions and taking action in this 
proceeding. The reporting, recordkeeping, and other compliance 
requirements in the FNPRM could have an impact on both small and large 
entities. The Commission believes that any impact of such requirements 
is outweighed by the accompanying public benefits. Further, these 
requirements are necessary to ensure that the statutory goals of 
Section 254 of the Act are met without waste, fraud, or abuse.
    499. In the FNPRM, the Commission seeks comment on several issues 
and measures that may apply to small entities in a unique fashion. 
Specifically, the FNPRM seeks comment on whether small businesses 
should be eligible for a bidding preference if competitive bidding is 
used to provide Mobility Fund Phase II support, support in areas where 
the price cap ETC declines to make a state-level commitment, or support 
for remote areas. Entities seeking the small business bidding 
preference would be required to provide information about their gross 
revenues. The Commission believes that the benefits to small businesses 
of a bidding preference, if adopted, would significantly outweigh the 
burden of any additional information disclosure requirements. In 
addition, the Commission seeks comment on the data it will need to 
complete its represcription of the authorized interstate rate of 
return. Although data is requested from the industry generally, small 
carriers may be differently affected by the ultimate prescription of a 
new rate of return.
    500. The FNPRM seeks comment on several issues relating to bill-
and-keep implementation, including how points of interconnection 
obligations will function for rural and non-incumbent LECs, definition 
of the network edge, and the future role of tariffs and interconnection 
agreements, The Commission also seeks comment on the appropriate 
sequence and timing of intercarrier rate reductions for those rate 
elements not covered by its Order adopting of bill-and-keep as the 
ultimate end-point for reform, particularly for originating switched 
access, dedicated transport, tandem switching and tandem transport in 
some circumstances. The Commission seeks comment on the potential 
impact to small entities of reduced intercarrier rates for these 
additional rate elements, including whether a different transition 
period might be appropriate for particular classes of carriers.
    501. The FNPRM also seeks comment on how recovery of reduced 
intercarrier compensation revenues in the future would impact carriers, 
and how recovery, if any, for those reduced revenues should be 
addressed. The Commission asks if the recovery approach adopted should 
be different depending on the type of carrier or regulation. The 
Commission also invites comment on specific recovery considerations for 
rate-of-return carriers and whether any cost or revenue recovery 
mechanism could provide rate-of-return carriers with greater incentives 
for efficient operation.

[[Page 78442]]

    502. Finally, the Commission seeks comment on whether separate 
consideration for small entities is necessary or appropriate for each 
of the following issues discussed in the FNPRM: the potential impact of 
additional call signaling rules governing VoIP traffic; the potential 
impact of rules relating to potential future arbitrage, including 
revised tariff-filing requirements; and the potential impact of rules 
relating to IP-to-IP interconnection and related issues. Specifically 
with regard to the IP-to-IP interconnection, the FNPRM seeks comment on 
the scope of traffic exchange that should be included, responsibility 
for costs of IP-to-TDM conversions, and the statutory framework and 
appropriate scope of any IP-to-IP interconnection obligation.

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

    503. None.

H. Paperwork Reduction Act Analysis

    504. The FNPRM contains proposed new information collection 
requirements. The new requirements will be submitted to the Office of 
Management and Budget (OMB) for review under section 3507(d) of the 
Paperwork Reduction Act (PRA). The Commission, as part of its 
continuing effort to reduce paperwork burdens, invites the general 
public and OMB to comment on the information collection requirements 
contained in this document, as required by PRA. In addition, pursuant 
to the Small Business Paperwork Relief Act of 2002, the Commission 
seeks specific comment on how it might ``further reduce the information 
collection burden for small business concerns with fewer than 25 
employees.''

I. Filing Requirements

    505. Comments and Reply Comments. Pursuant to Sec. Sec.  1.415 and 
1.419 of the Commission's rules, interested parties may file comments 
and reply comments. Comments on the matters synopsized in paragraphs 1-
303 of the Supplementary Information and proposed 47 CFR part 54, 
subparts L, M, and N are due on or before January 18, 2012 and reply 
comments on the matters synopsized in paragraphs 1-303 of the 
Supplementary Information and proposed 47 CFR part 54, subparts L, M, 
and N are due on or before February 17, 2012. Comments on the matters 
synopsized in paragraphs 304-406 of the SUPPLEMENTARY INFORMATION are 
due on or before February 24, 2012 and reply comments on the matters 
synopsized in paragraphs 304-406 of the Supplementary Information are 
due on or before March 30, 2012. All filings should refer to CC Docket 
No. 01-92, WC Docket Nos. 10-90, 07-135, and 05-337 and GN Docket No. 
09-51, and WT Docket No. 10-208. 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.

List of Subjects in 47 CFR Part 54

    Communications Common Carriers, Reporting and recordkeeping 
requirements, Telecommunications, Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

    For the reasons discussed in the preamble, the Federal 
Communications Commission proposes to amend 47 CFR part 54 to read as 
follows:

PART 54--UNIVERSAL SERVICE

    1. The authority citation for part 54 continues to read as follows:

    Authority:  47 U.S.C. 151, 154(i), 201, 205, 214, 219, 220, 254, 
303(r), 403, and 1302 unless otherwise noted.

    2. Revise subpart L to part 54 to read as follows:
Subpart L--Mobility Fund
Sec.
54.1011 Mobility Fund--Phase II.
54.1012 Geographic areas eligible for support.
54.1013 Provider eligibility.
54.1014 Service to Tribal Lands.
54.1015 Application process.
54.1016 Public interest obligations.
54.1017 Letter of credit.
54.1018 Mobility Fund Phase II Disbursements.
54.1019 Annual reports.
54.1020 Record retention for Mobility Fund Phase II.

Subpart L--Mobility Fund


Sec.  54.1011  Mobility Fund--Phase II.

    The Commission will use competitive bidding, as provided in part 1, 
subpart AA, of this chapter, to determine the recipients of support 
available through Phase II of the Mobility Fund and the amount(s) of 
support that they may receive for specific geographic areas, subject to 
applicable post-auction procedures.


Sec.  54.1012  Geographic areas eligible for support.

    (a) Mobility Fund Phase II support may be made available for census 
blocks or other areas identified as eligible by public notice.
    (b) Except as provided in Sec.  54.1014, coverage units for 
purposes of conducting competitive bidding and disbursing support based 
on designated road miles will be identified by public notice for each 
area eligible for support.


Sec.  54.1013  Provider eligibility.

    (a) Except as provided in Sec.  54.1014, an applicant shall be an 
Eligible Telecommunications Carrier in an area in order to receive 
Mobility Fund Phase II support for that area. The applicant's 
designation as an Eligible Telecommunications Carrier may be 
conditional subject to the receipt of Mobility Fund support.
    (b) An applicant shall have access to spectrum in an area that 
enables it to satisfy the applicable performance requirements in order 
to receive Mobility Fund Phase II support for that area. The applicant 
shall certify, in a form acceptable to the Commission, that such access 
at the time it applies to participate in competitive bidding and at the 
time that it applies for support and that it will retain such access 
for ten (10) years after the date on which it is authorized to receive 
support.
    (c) An applicant shall certify that it is financially and 
technically qualified to provide the services supported by Mobility 
Fund Phase II in order to receive such support.


Sec.  54.1014  Service to Tribal Lands.

    (a) A Tribally-owned or -controlled entity that has pending an 
application to be designated an Eligible Telecommunications Carrier may 
participate in an auction by bidding for support in areas located 
within the boundaries of the Tribal land associated with the Tribe that 
owns or controls the entity. To bid on this basis, an entity shall 
certify that it is a Tribally-owned or -controlled entity and identify 
the applicable Tribe and Tribal lands in its application to participate 
in the competitive bidding. A Tribally-owned or -controlled entity 
shall receive any Mobility Fund Phase II support only after it has 
become an Eligible Telecommunications Carrier.
    (b) In any auction for support solely in Tribal lands, coverage 
units for purposes of conducting competitive bidding and disbursing 
support based on designated population will be identified by public 
notice for each census block eligible for support.
    (c) Tribally-owned or -controlled entities may receive a bidding 
credit with respect to bids for support within the boundaries of 
associated Tribal lands. To qualify for a bidding credit, an applicant 
shall certify that it is a Tribally-owned or -controlled entity and

[[Page 78443]]

identify the applicable Tribe and Tribal lands in its application to 
participate in the competitive bidding. An applicant that qualifies 
shall have its bid(s) for support in areas within the boundaries of 
Tribal land associated with the Tribe that owns or controls the 
applicant reduced by twenty-five (25) percent or purposes of 
determining winning bidders without any reduction in the amount of 
support available.
    (d) A winning bidder for support in Tribal lands shall notify and 
engage the Tribal governments responsible for the areas supported.
    (1) A winning bidder's engagement with the applicable Tribal 
government shall consist, at a minimum, of discussion regarding:
    (i) A needs assessment and deployment planning with a focus on 
Tribal community anchor institutions;
    (ii) Feasibility and sustainability planning;
    (iii) Marketing services in a culturally sensitive manner;
    (iv) Rights of way processes, land use permitting, facilities 
siting, environmental and cultural preservation review processes; and
    (v) Compliance with Tribal business and licensing requirements.
    (2) A winning bidder shall notify the appropriate Tribal government 
of its winning bid no later than five (5) business days after being 
identified by public notice as a winning bidder.
    (3) A winning bidder shall certify in its application for support 
that it has substantively engaged appropriate Tribal officials 
regarding the issues specified in paragraph (d)(1) of this section, at 
a minimum, as well as any other issues specified by the Commission, and 
provide a summary of the results of such engagement. A copy of the 
certification and summary shall be sent to the appropriate Tribal 
officials when it is sent to the Commission.
    (4) A winning bidder for support in Tribal lands shall certify in 
its annual report, pursuant to Sec.  54.1019(a)(5), and prior to 
disbursement of support, pursuant to Sec.  54.1018, that it has 
substantively engaged appropriate Tribal officials regarding the issues 
specified in paragraph 54.1014(d)(1) of this section, at a minimum, as 
well as any other issues specified by the Commission, and provide a 
summary of the results of such engagement. A copy of the certification 
and summary shall be sent to the appropriate Tribal officials when it 
is sent to the Commission.


Sec.  54.1015  Application process.

    (a) Application to Participate in Competitive Bidding for Mobility 
Fund Phase II Support. In addition to providing information specified 
in Sec.  1.21001(b) of this chapter and any other information required 
by the Commission, an applicant to participate in competitive bidding 
for Mobility Fund Phase II support shall:
    (1) Provide ownership information as set forth in Sec.  1.2112(a) 
of this chapter;
    (2) Certify that the applicant is financially and technically 
capable of meeting the public interest obligations of Sec.  54.1016 in 
each area for which it seeks support;
    (3) Disclose its status as an Eligible Telecommunications Carrier 
in any area for which it will seek support or as a Tribal entity with a 
pending application to become an Eligible Telecommunications Carrier in 
any such area, and certify that the disclosure is accurate;
    (4) Describe the spectrum access that the applicant plans to use to 
meet obligations in areas for which it will bid for support, including 
whether the applicant currently holds a license for or leases the 
spectrum, and certify that the description is accurate and that the 
applicant will retain such access for at least ten (10) years after the 
date on which it is authorized to receive support;
    (5) Make any applicable certifications required in Sec.  54.1014.
    (b) Application by winning bidders for Mobility Fund Phase II 
support.
    (1) Deadline. Unless otherwise provided by public notice, winning 
bidders for Mobility Fund Phase II support shall file an application 
for Mobility Fund Phase II support no later than 10 business days after 
the public notice identifying them as winning bidders.
    (2) Application Contents. (i) Identification of the party seeking 
the support, including ownership information as set forth in Sec.  
1.2112(a) of this chapter.
    (ii) Certification that the applicant is financially and 
technically capable of meeting the public interest obligations of Sec.  
54.1016 in the geographic areas for which it seeks support.
    (iii) Proof of the applicant's status as an Eligible 
Telecommunications or as a Tribal entity with a pending application to 
become an Eligible Telecommunications Carrier in any area for which it 
seeks support and certification that the proof is accurate.
    (iv) A description of the spectrum access that the applicant plans 
to use to meet obligations in areas for which it is winning bidder for 
support, including whether the applicant currently holds a license for 
or leases the spectrum, and certification that the description is 
accurate and that the applicant will retain such access for at least 
ten (10) years after the date on which it is authorized to receive 
support.
    (v) A detailed project description that describes the network, 
identifies the proposed technology, demonstrates that the project is 
technically feasible, discloses the budget and describes each specific 
phase of the project, e.g., network design, construction, deployment 
and maintenance.
    (vi) Certifications that the applicant has available funds for all 
project costs that exceed the amount of support to be received from 
Mobility Fund Phase II and that the applicant will comply with all 
program requirements.
    (vii) Any guarantee of performance that the Commission may require 
by public notice or other proceedings, including but not limited to the 
letters of credit required in Sec.  54.1017, or a written commitment 
from an acceptable bank, as defined in Sec.  54.1017(a)(1), to issue 
such a letter of credit.
    (viii) Certification that the applicant will offer service in 
supported areas at rates that are within a reasonable range of rates 
for similar service plans offered by mobile wireless providers in urban 
areas for a period during the term of the support the applicant seeks.
    (ix) Any applicable certifications and showings required in Sec.  
54.1014.
    (x) Certification that the party submitting the application is 
authorized to do so on behalf of the applicant.
    (xi) Such additional information as the Commission may require.
    (3) Application Processing. (i) No application will be considered 
unless it has been submitted in an acceptable form during the period 
specified by public notice. No applications submitted or demonstrations 
made at any other time shall be accepted or considered.
    (ii) Any application that, as of the submission deadline, either 
does not identify the applicant seeking support as specified in the 
public notice announcing application procedures or does not include 
required certifications shall be denied.
    (iii) An applicant may be afforded an opportunity to make minor 
modifications to amend its application or correct defects noted by the 
applicant, the Commission, the Administrator, or other parties. Minor 
modifications include correcting typographical errors in the 
application and supplying non-material information that was 
inadvertently omitted or was

[[Page 78444]]

not available at the time the application was submitted.
    (iv) Applications to which major modifications are made after the 
deadline for submitting applications shall be denied. Major 
modifications include, but are not limited to, any changes in the 
ownership of the applicant that constitute an assignment or change of 
control, or the identity of the applicant, or the certifications 
required in the application.
    (v) After receipt and review of the applications, a public notice 
shall identify each winning bidder that may be authorized to receive 
Mobility Fund Phase II support, after the winning bidder submits a 
Letter of Credit and an accompanying opinion letter as required by 
Sec.  54.1016, in a form acceptable to the Commission, and any final 
designation as an Eligible Telecommunications Carrier that any 
Tribally-owned or -controlled applicant may still require. Each such 
winning bidder shall submit a Letter of Credit and an accompanying 
opinion letter as required by Sec.  54.1016, in a form acceptable to 
the Commission, and any required final designation as an Eligible 
Telecommunications Carrier no later than 10 business days following the 
release of the public notice.
    (vi) After receipt of all necessary information, a public notice 
will identify each winning bidder that is authorized to receive 
Mobility Fund Phase II support.


Sec.  54.1016  Public interest obligations.

    (a) Deadline for Construction. A winning bidder authorized to 
receive Mobility Fund Phase II support shall, no later than three (3) 
years after the date on which it was authorized to receive support, 
submit data from drive tests covering the area for which support was 
received demonstrating mobile transmissions supporting voice and data 
to and from the network covering 75% of the designated coverage units 
in the area deemed uncovered, or an applicable higher percentage 
established by public notice prior to the competitive bidding, and 
meeting or exceeding the following:
    (1) Outdoor minimum data transmission rates of 200 kbps uplink and 
768 kbps downlink at vehicle speeds appropriate for the roads covered;
    (2) Transmission latency low enough to enable the use of real time 
applications, such as VoIP.
    (b) Coverage Test Data. Drive tests submitted in compliance with a 
recipient's public interest obligations shall cover roads designated in 
the public notice detailing the procedures for the competitive bidding 
that is the basis of the recipient's support. Scattered site tests 
submitted in compliance with a recipient's public interest obligations 
shall be in compliance with standards set forth in the public notice 
detailing the procedures for the competitive bidding that is the basis 
of the recipient's authorized support.
    (c) Collocation Obligations. During the period when a recipient 
shall file annual reports pursuant to Sec.  54.1019, the recipient 
shall allow for reasonable collocation by other providers of services 
that would meet the technological requirements of Mobility Fund Phase 
II on newly constructed towers that the recipient owns or manages in 
the area for which it receives support. In addition, during this 
period, the recipient may not enter into facilities access arrangements 
that restrict any party to the arrangement from allowing others to 
collocate on the facilities.
    (d) Voice and Data Roaming Obligations. During the period when a 
recipient shall file annual reports pursuant to Sec.  54.1019, the 
recipient shall comply with the Commission's voice and data roaming 
requirements that were in effect as of October 27, 2011, on networks 
that are built through Mobility Fund Phase II support.
    (e) Liability for Failing To Satisfy Public Interest Obligations. A 
winning bidder authorized to receive Mobility Fund Phase II support 
that fails to comply with the public interest obligations in this 
paragraph or any other terms and conditions of the Mobility Fund Phase 
II support will be subject to repayment of the support disbursed 
together with an additional performance default payment. Such a winning 
bidder may be disqualified from receiving Mobility Fund Phase II 
support or other USF support. The additional performance default amount 
will be a percentage of the Mobility Fund Phase II support that the 
applicant has been and is eligible to request be disbursed to it 
pursuant to Sec.  54.1018. The percentage will be determined as 
specified in the public notice detailing competitive bidding procedures 
prior to the commencement of competitive bidding. The percentage will 
not exceed twenty percent.


Sec.  54.1017  Letter of credit.

    (a) Before being authorized to receive Mobility Fund Phase II 
support, a winning bidder shall obtain an irrevocable standby letter of 
credit which shall be acceptable in all respects to the Commission. 
Each winning bidder authorized to receive Mobility Fund Phase II 
support shall maintain the standby letter of credit or multiple standby 
letters of credit in an amount equal to the amount of Mobility Fund 
Phase II support that the winning bidder has been and is eligible to 
request be disbursed to it pursuant to Sec.  54.1018 plus the 
additional performance default amount described in Sec.  54.1016(e), 
until at least 120 days after the winning bidder receives its final 
distribution of support pursuant to this section.
    (1) The bank issuing the letter of credit shall be acceptable to 
the Commission. A bank that is acceptable to the Commission is
    (i) Any United States Bank that
    (A) Is among the 50 largest United States banks, determined on the 
basis of total assets as of the end of the calendar year immediately 
preceding the issuance of the letter of credit,
    (B) Whose deposits are insured by the Federal Deposit Insurance 
Corporation, and
    (C) Who has a long-term unsecured credit rating issued by Standard 
& Poor's of A- or better (or an equivalent rating from another 
nationally recognized credit rating agency); or
    (ii) Any non-U.S. bank that
    (A) Is among the 50 largest non-U.S. banks in the world, determined 
on the basis of total assets as of the end of the calendar year 
immediately preceding the issuance of the letter of credit (determined 
on a U.S. dollar equivalent basis as of such date),
    (B) Has a branch office in the District of Columbia or such other 
branch office agreed to by the Commission,
    (C) Has a long-term unsecured credit rating issued by a widely-
recognized credit rating agency that is equivalent to an A- or better 
rating by Standard & Poor's, and
    (D) Issues the letter of credit payable in United States dollars.
    (2) [Reserved]
    (b) A winning bidder for Mobility Fund Phase II support shall 
provide with its Letter of Credit an opinion letter from its legal 
counsel clearly stating, subject only to customary assumptions, 
limitations, and qualifications, that in a proceeding under Title 11 of 
the United States Code, 11 U.S.C. 101 et seq. (the ``Bankruptcy 
Code''), the bankruptcy court would not treat the letter of credit or 
proceeds of the letter of credit as property of the winning bidder's 
bankruptcy estate under section 541 of the Bankruptcy Code.
    (c) Authorization to receive Mobility Fund Phase II support is 
conditioned upon full and timely performance of all of the requirements 
set forth in Sec.  54.1016, and any additional terms and conditions 
upon which the support was granted.

[[Page 78445]]

    (1) Failure by a winning bidder authorized to receive Mobility Fund 
Phase II support to comply with any of the requirements set forth in 
Sec.  54.1015 or any other term or conditions upon which support was 
granted, or its loss of eligibility for any reason for Mobility Fund 
Phase II support will be deemed an automatic performance default, will 
entitle the Commission to draw the entire amount of the letter of 
credit, and may disqualify the winning bidder from the receipt of 
Mobility Fund Phase II support or additional USF support.
    (2) A performance default will be evidenced by a letter issued by 
the Chief of either the Wireless Bureau or Wireline Bureau or their 
respective designees, which letter, attached to a standby letter of 
credit draw certificate, and shall be sufficient for a draw on the 
standby letter of credit for the entire amount of the standby letter of 
credit.


Sec.  54.1018  Mobility Fund Phase II disbursements.

    (a) A winning bidder for Mobility Fund Phase II support will be 
advised by public notice whether it has been authorized to receive 
support. The public notice will detail disbursement and will be made 
available.
    (b) Mobility Fund Phase II support will be available for 
disbursement to a winning bidder authorized to receive support on a 
quarterly basis for ten (10) years following the date on which it is 
authorized.
    (c) Prior to each disbursement request, a winning bidder for 
support in a Tribal land will be required to certify that it has 
substantively engaged appropriate Tribal officials regarding the issues 
specified in Sec.  54.1014(d)(1), at a minimum, as well as any other 
issues specified by the Commission and to provide a summary of the 
results of such engagement.
    (d) Prior to each disbursement request, a winning bidder will be 
required to certify that it is in compliance with all requirements for 
receipt of Mobility Fund Phase II support at the time that it requests 
the disbursement.


Sec.  54.1019  Annual reports.

    (a) A winning bidder authorized to receive Mobility Fund Phase II 
support shall submit an annual report no later than April 1 in each 
year for the five years after it was so authorized. Each annual report 
shall include the following, or reference the inclusion of the 
following in other reports filed with the Commission for the applicable 
year:
    (1) Electronic Shapefiles site coverage plots illustrating the area 
newly reached by mobile services at a minimum scale of 1:240,000;
    (2) A list of relevant census blocks previously deemed unserved, 
with road miles and total resident population and resident population 
residing in areas newly reached by mobile services (based on Census 
Bureau data and estimates);
    (3) If any such testing has been conducted, data received or used 
from drive tests, or scattered site testing in areas where drive tests 
are not feasible, analyzing network coverage for mobile services in the 
area for which support was received;
    (4) Certification that the winning bidder offers service in 
supported areas at rates that are within a reasonable range of rates 
for similar service plans offered by mobile wireless providers in urban 
areas;
    (5) Any applicable certifications and showings required in Sec.  
54.1014; and
    (6) Updates to the information provided in Sec.  54.1015(b)(2)(v).
    (b) The party submitting the annual report must certify that they 
have been authorized to do so by the winning bidder.
    (c) Each annual report shall be submitted to the Office of the 
Secretary of the Commission, clearly referencing WT Docket No. 10-208; 
the Administrator; and the relevant state commissions, relevant 
authority in a U.S. Territory, or Tribal governments, as appropriate.


Sec.  54.1020  Record retention for Mobility Fund Phase II.

    A winning bidder authorized to receive Mobility Fund Phase II 
support and its agents are required to retain any documentation 
prepared for, or in connection with, the award of Mobility Fund Phase 
II support for a period of not less than ten (10) years after the date 
on which the winning bidder receives its final disbursement of Mobility 
Fund Phase II support.
    3. Add subpart M to part 54 to read as follows:
Subpart M--Connect America Fund Phase II Competitive Bidding
Sec.
54.1101 Connect America Fund (CAF) Phase II Competitive Bidding.
54.1102 Geographic areas eligible for support.
54.1103 Provider eligibility.
54.1104 Service to Tribal Lands.
54.1105 Application process.
54.1106 Public interest obligations and annual reports.
54.1107 Connect America Fund (CAF) Phase II Competitive Bidding 
Disbursements.

Subpart M--Connect America Fund Phase II Competitive Bidding


Sec.  54.1101  Connect America Fund (CAF) Phase II Competitive Bidding.

    The Commission will use competitive bidding, as provided in part 1, 
subpart AA, of this chapter, to determine the recipients of support 
available through Connect America Fund Phase II Competitive Bidding and 
the amount(s) of support that they may receive for specific geographic 
areas, subject to applicable post-auction procedures.


Sec.  54.1102  Geographic areas eligible for support.

    (a) CAF Fund Phase II Competitive Bidding support may be made 
available for census blocks or other areas identified as eligible by 
public notice.
    (b) Except as provided in Sec.  54.1104, coverage units for 
purposes of conducting competitive bidding and disbursing support based 
on the number of residential and business locations will be identified 
by public notice for each area eligible for support.


Sec.  54.1103  Provider eligibility.

    (a) Except as provided in Sec.  54.1104, an applicant shall be an 
Eligible Telecommunications Carrier in an area in order to receive CAF 
Phase II Competitive Bidding support for that area. The designation may 
be conditional subject to the receipt of CAF Phase II Competitive 
Bidding support.
    (b) An applicant shall certify that it is financially and 
technically qualified to provide the services supported by CAF Phase II 
Competitive Bidding support in order to receive such support.


Sec.  54.1104  Service to Tribal Lands.

    (a) A Tribally-owned or -controlled entity that has pending an 
application to be designated an Eligible Telecommunications Carrier may 
participate in an auction by bidding for support in areas located 
within the boundaries of the Tribal land associated with the Tribe that 
owns or controls the entity. To bid on this basis, an entity shall 
certify that it is a Tribally-owned or -controlled entity and identify 
the applicable Tribe and Tribal lands in its application to participate 
in the competitive bidding. A Tribally-owned or -controlled entity 
shall receive any CAF Phase II Competitive Bidding support only after 
it has become an Eligible Telecommunications Carrier.
    (b) Tribally-owned or -controlled entities may receive a bidding 
credit with respect to bids for support within the boundaries of 
associated Tribal lands. To qualify for a bidding credit, an applicant 
shall certify that it is a Tribally-owned or -controlled entity and

[[Page 78446]]

identify the applicable Tribe and Tribal lands in its application to 
participate in the competitive bidding. An applicant that qualifies 
shall have its bid(s) for support in areas within the boundaries of 
Tribal land associated with the Tribe that owns or controls the 
applicant reduced by twenty-five (25) percent or purposes of 
determining winning bidders without any reduction in the amount of 
support available.
    (c) A winning bidder for support in Tribal lands shall notify and 
engage the Tribal governments responsible for the areas supported.
    (1) A winning bidder's engagement with the applicable Tribal 
government shall consist, at a minimum, of discussion regarding:
    (i) A needs assessment and deployment planning with a focus on 
Tribal community anchor institutions;
    (ii) Feasibility and sustainability planning;
    (iii) Marketing services in a culturally sensitive manner;
    (iv) Rights of way processes, land use permitting, facilities 
siting, environmental and cultural preservation review processes; and
    (v) Compliance with Tribal business and licensing requirements.
    (2) A winning bidder shall notify the appropriate Tribal government 
of its winning bid no later than five (5) business days after being 
identified by public notice as a winning bidder.
    (3) A winning bidder shall certify in its application for support 
that it has substantively engaged appropriate Tribal officials 
regarding the issues specified in paragraph (c)(1) of this section, at 
a minimum, as well as any other issues specified by the Commission, and 
provide a summary of the results of such engagement. A copy of the 
certification and summary shall be sent to the appropriate Tribal 
officials when it is sent to the Commission.
    (4) A winning bidder for support in Tribal lands shall certify in 
its annual report, pursuant to Sec.  54.1106, and prior to disbursement 
of support, pursuant to Sec.  54.1107, that it has substantively 
engaged appropriate Tribal officials regarding the issues specified in 
paragraph (c)(1) of this section, at a minimum, as well as any other 
issues specified by the Commission, and provide a summary of the 
results of such engagement. A copy of the certification and summary 
shall be sent to the appropriate Tribal officials when it is sent to 
the Commission.


Sec.  54.1105  Application process.

    (a) Application to Participate in CAF Phase II Competitive Bidding. 
In addition to providing information specified in Sec.  1.21001(b) of 
this chapter and any other information required by the Commission, an 
applicant to participate in competitive bidding for CAF Phase II 
support shall:
    (1) Provide ownership information as set forth in Sec.  1.2112(a) 
of this chapter;
    (2) Certify that the applicant is financially and technically 
capable of meeting the public interest obligations of Sec.  54.1106 in 
each area for which it seeks support;
    (3) Disclose its status as an Eligible Telecommunications Carrier 
in any area for which it will seek support or as a Tribal entity with a 
pending application to become an Eligible Telecommunications Carrier in 
any such area, and certify that the disclosure is accurate.
    (4) Make any applicable certifications required in Sec.  54.1104 of 
this chapter.
    (b) Application by Winning Bidders for CAF Phase II Support.
    (1) Deadline. Unless otherwise provided by public notice, winning 
bidders for CAF Phase II support shall file an application for CAF 
Phase II support no later than 10 business days after the public notice 
identifying them as winning bidders.
    (2) Application Contents. (i) Identification of the party seeking 
the support, including ownership information as set forth in Sec.  
1.2112(a) of this chapter.
    (ii) Certification that the applicant is financially and 
technically capable of meeting the public interest obligations of Sec.  
54.1106 in the geographic areas for which it seeks support.
    (iii) Proof of the applicant's status as an Eligible 
Telecommunications Carrier or as a Tribal entity with a pending 
application to become an Eligible Telecommunications Carrier in any 
area for which it seeks support and certification that the proof is 
accurate.
    (iv) Certification that the applicant will offer service in 
supported areas at rates that are within a reasonable range of rates 
for similar service plans offered by providers in urban areas for a 
period extending until 5 years after the date on which it is authorized 
to receive support.
    (v) Any applicable certifications and showings required in Sec.  
54.1104.
    (vi) Certification that the party submitting the application is 
authorized to do so on behalf of the applicant.
    (vii) Such additional information as the Commission may require.
    (3) Application Processing. (i) No application will be considered 
unless it has been submitted in an acceptable form during the period 
specified by public notice. No applications submitted or demonstrations 
made at any other time shall be accepted or considered.
    (ii) Any application that, as of the submission deadline, either 
does not identify the applicant seeking support as specified in the 
public notice announcing application procedures or does not include 
required certifications shall be denied.
    (iii) An applicant may be afforded an opportunity to make minor 
modifications to amend its application or correct defects noted by the 
applicant, the Commission, the Administrator, or other parties. Minor 
modifications include correcting typographical errors in the 
application and supplying non-material information that was 
inadvertently omitted or was not available at the time the application 
was submitted.
    (iv) Applications to which major modifications are made after the 
deadline for submitting applications shall be denied. Major 
modifications include, but are not limited to, any changes in the 
ownership of the applicant that constitute an assignment or change of 
control, or the identity of the applicant, or the certifications 
required in the application.
    (v) A tribally-owned or -controlled winning bidder that was not as 
an Eligible Telecommunications Carrier shall provide its final 
designation as an Eligible Telecommunications Carrier.
    (vi) After receipt of all necessary information, the Commission 
shall release a public notice identifying each winning bidder that is 
authorized to receive CAF Phase II support.


Sec.  54.1106  Public interest obligations and annual reports.

    A winning bidder authorized to receive CAF Phase II shall satisfy 
all public interest obligations and annual reporting requirements of 
Sec.  54.313.


Sec.  54.1107  Connect America Fund (CAF) Phase II Competitive Bidding 
Disbursements.

    (a) A winning bidder for CAF Phase II Competitive Bidding support 
will be advised by public notice whether it has been authorized to 
receive support. The public notice will detail how disbursement will be 
made available.
    (b) CAF Phase II Competitive Bidding support will be available for 
disbursement to each winning bidder authorized to receive support on a 
quarterly basis for five (5) years after it is authorized to receive 
support.
    (c) Prior to each disbursement request, a winning bidder for 
support in a Tribal land will be required to certify that it has 
substantively engaged appropriate

[[Page 78447]]

Tribal officials regarding the issues specified in Sec.  54.1104(c)(1), 
at a minimum, as well as any other issues specified by the Commission 
and to provide a summary of the results of such engagement.
    (d) Prior to each disbursement request, a winning bidder will be 
required to certify that it is in compliance with all requirements for 
receipt of CAF Phase II Competitive Bidding support at the time that it 
requests the disbursement.
    4. Add subpart N to part 54 to read as follows:
Subpart N--Remote Areas Fund
Sec.
54.1201 Remote Areas Fund.
54.1202 Geographic areas eligible for support.
54.1203 Provider eligibility.
54.1204 Public interest obligations and annual reports.
54.1205 Remote areas fund disbursements.

Subpart N--Remote Areas Fund


Sec.  54.1201  Remote Areas Fund.

    This subpart sets forth procedures for determining the recipients 
of universal service support pursuant to the Remote Areas Fund and the 
amount(s) of support that each recipient respectively may receive.


Sec.  54.1202  Geographic areas eligible for support.

    Remote Areas Fund support may be made available for census blocks 
or other areas identified by public notice.


Sec.  54.1203  Provider eligibility.

    (a) An applicant applying for Remote Areas Fund support must be 
designated an Eligible Telecommunications Carrier in any area for which 
it will seek support. The designation may be conditional subject to the 
receipt of Remote Areas Fund support.
    (b) An applicant applying for Remote Areas Fund support must 
certify that is financially and technically qualified to provide the 
supported services.


Sec.  54.1204  Public interest obligations and annual reports.

    (a) Except as expressly provided in this paragraph or otherwise by 
the Commission, an applicant authorized to receive Remote Areas Fund 
support shall satisfy all public interest obligations and annual 
reporting requirements of Sec.  54.313 for applicants receiving CAF 
Phase II support.
    (b) An applicant for Remote Areas Fund support must pass the per 
location support received along to the subscriber at the qualifying 
location as a discount on the price of service. Provided, however, that 
the subscriber must pay, or provide a deposit of, an amount sufficient 
to assure that the subscriber is able to pay for the services to which 
they subscribe and to provide an incentive to comply with any terms of 
the service agreements regarding use and return of equipment.


Sec.  54.1205  Remote Areas Fund Disbursements.

    (a) An applicant for Remote Areas Fund support will be advised by 
public notice that it is authorized to receive support. Procedures by 
which applicants authorized to receive support may obtain disbursements 
will be provided by public notice.
    (b) Remote Areas Fund support will be available for disbursement to 
an applicant authorized to receive support on a quarterly basis for 
five (5) years following its authorization.
    (c) Remote Areas Fund support will be disbursed in an amount 
calculated based on the number of newly served residences or households 
within an eligible area. For purposes of this paragraph, ``residence'' 
and ``household'' shall use the same definition applied in the Lifeline 
Program. Applicants for Remote Areas Fund support must certify the 
number of qualifying locations newly served in the most recent quarter, 
specifying the number of signed contracts for qualifying locations, and 
certify that each location meets the qualifying criteria established by 
the Commission.
    (d) Prior to each disbursement request, an applicant authorized to 
receive support will be required to certify that it is in compliance 
with all requirements for receipt of Remote Areas Fund support at the 
time that it requests the disbursement.

[FR Doc. 2011-31924 Filed 12-15-11; 8:45 am]
BILLING CODE 6712-01-P