[Federal Register Volume 77, Number 110 (Thursday, June 7, 2012)]
[Proposed Rules]
[Pages 33896-33944]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-13611]
[[Page 33895]]
Vol. 77
Thursday,
No. 110
June 7, 2012
Part IV
Federal Communications Commission
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47 CFR Part 54
Universal Service Contribution Methodology; a National Broadband Plan
for Our Future; Proposed Rule
Federal Register / Vol. 77, No. 110 / Thursday, June 7, 2012 /
Proposed Rules
[[Page 33896]]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 54
[WC Docket Nos. 06-122; GN Docket No. 09-51; FCC 12-46]
Universal Service Contribution Methodology; a National Broadband
Plan for Our Future
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: In this document, the Federal Communications Commission
(Commission) seeks public comment on approaches to reform and modernize
how Universal Service Fund (USF or Fund) contributions are assessed and
recovered. The Commission seeks comment on ways to reform the USF
contribution system in an effort to promote efficiency, fairness, and
sustainability. The Commission seeks comment on proposals in four key
areas regarding the contributions system: Who should contribute to the
Fund; how contributions should be assessed; how the administration of
the contribution system can be improved; and recovery of universal
service contributions from consumers.
DATES: Comments are due on or before July 9, 2012 and reply comments
are due on or before August 6, 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 notice, you should advise the contact listed
below as soon as possible.
ADDRESSES: You may submit comments, identified by WC Docket Nos. 06-
122; GN Docket No. 09-51, 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: Vickie Robinson, Wireline Competition
Bureau, (202) 418-2732 or Ernesto Beckford, Wireline Competition
Bureau, (202) 418-1523 or TTY: (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Further Notice of Proposed Rulemaking (NPRM) in WC Docket No. 06-122,
and GN Docket No. 09-51, FCC 12-46, adopted April 27, 2012, and
released April 30, 2012. 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. (BCPI), 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://www.fcc.gov.
Pursuant to Sec. Sec. 1.415 and 1.419 of the Commission's rules,
interested parties may file comments and reply comments on or before
the dates indicated on the first page of this document. Comments may be
filed using: (1) The Commission's Electronic Comment Filing System
(ECFS); (2) the Federal Government's eRulemaking Portal; or (3) by
filing paper copies. See Electronic Filing of Documents in Rulemaking
Proceedings, 63 FR 24121, May 1, 1998.
Electronic Filers: Comments may be filed electronically
using the Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs
or the Federal eRulemaking Portal: http://www.regulations.gov. Filers
should follow the instructions provided on the Web site for submitting
comments.
[cir] For ECFS filers, if multiple docket or rulemaking numbers
appear in the caption of this proceeding, filers must transmit one
electronic copy of the comments for each docket or rulemaking number
referenced in the caption. In completing the transmittal screen, filers
should include their full name, U.S. Postal Service mailing address,
and the applicable docket or rulemaking number. Parties may also submit
an electronic comment by Internet email. To get filing instructions,
filers should send an email to [email protected], and include the following
words in the body of the message, ``get form.'' A sample form and
directions will be sent in response.
[cir] Paper Filers: Parties who choose to file by paper must file
an original and four copies of each filing. If more than one docket or
rulemaking number appears in the caption of this proceeding, filers
must submit two additional copies for each additional docket or
rulemaking number.
Filings can be sent by hand or messenger delivery, by
commercial overnight courier, or by first-class or overnight U.S.
Postal Service mail (although we continue to experience delays in
receiving U.S. Postal Service mail). All filings must be addressed to
the Commission's Secretary, Office of the Secretary, Federal
Communications Commission.
[cir] The Commission's contractor will receive hand-delivered or
messenger-delivered paper filings for the Commission's Secretary at 236
Massachusetts Avenue NE., Suite 110, Washington, DC 20002. The filing
hours at this location are 8:00 a.m. to 7:00 p.m. All hand deliveries
must be held together with rubber bands or fasteners. Any envelopes
must be disposed of before entering the building.
[cir] Commercial overnight mail (other than U.S. Postal Service
Express Mail and Priority Mail) must be sent to 9300 East Hampton
Drive, Capitol Heights, MD 20743.
[cir] U.S. Postal Service first-class, Express, and Priority mail
should be addressed to 445 12th Street SW., Washington, DC 20554.
In addition, one copy of each pleading must be sent to the
Commission's duplicating contractor, Best Copy and Printing, Inc, 445
12th Street SW., Room CY-B402, Washington, DC 20554; Web site:
www.bcpiweb.com; phone: 1-800-378-3160. Furthermore, three copies of
each pleading must be sent to Charles Tyler, Telecommunications Access
Policy Division, Wireline Competition Bureau, 445 12th Street SW., Room
5-A452, Washington, DC 20554; email: [email protected].
Filings and comments are also available for public inspection and
copying during regular business hours at the FCC Reference Information
Center, Portals II, 445 12th Street SW., Room CY-A257, Washington, DC
20554. Copies may also be purchased from the Commission's duplicating
contractor, BCPI, 445 12th Street SW., Room CY-B402, Washington, DC
20554. Customers may contact BCPI through its Web site:
www.bcpiweb.com, by email at [email protected], by telephone at (202)
488-5300 or (800) 378-3160 (voice), (202) 488-5562 (tty), or by
facsimile at (202) 488-5563.
To request materials in accessible formats for people with
disabilities (Braille, large print, electronic files, audio format),
send an email to [email protected] or call the Consumer & Governmental
Affairs Bureau at (202) 418-0530 (voice) or (202) 418-0432 (TTY).
Contact the FCC to request
[[Page 33897]]
reasonable accommodations for filing comments (accessible format
documents, sign language interpreters, CART, etc.) by email:
[email protected]; phone: (202) 418-0530 or TTY: (202) 418-0432.
For further information regarding this proceeding, contact Vickie
Robinson, Deputy Chief, Telecommunications Access Policy Division,
Wireline Competition Bureau at (202) 418-2732, [email protected],
or Ernesto Beckford, Attorney Advisor, Wireline Competition Bureau at
(202) 418-1523, [email protected].
I. Summary
A. Who should contribute to Universal Service
1. Statutory Authority To Require Contributions
1. Under section 254(d) of the Act, the Commission has mandatory
authority to require contributions to the Fund, ``[E]very
telecommunications carrier that provides interstate telecommunications
services.'' In addition, the Commission has ``permissive'' authority
that extends to ``any * * * provider of interstate telecommunications *
* * if the public interest so requires.'' Over time, the Commission has
periodically exercised its permissive authority to extend contribution
obligations to particular classes of providers on a service-specific
basis. We seek comment on the scope of our permissive authority,
including how we should interpret the statutory terms that define that
authority.
a. ``Provider of Interstate Telecommunications''
2. We seek comment on how we should interpret the terms
``providing'' and ``telecommunications'' and whether it is appropriate
to revisit any previous Commission interpretations based on the
evolution of the industry and significant marketplace changes over the
last decade.
3. In exercising our permissive authority, we must determine
whether an entity is a ``provider'' of interstate telecommunications as
specified in section 254(d). Although Congress has not defined the
terms ``provide,'' ``provider,'' or ``provision,'' the Commission has
addressed these terms in several orders. First, the Commission has
concluded that ``provide'' is a different term from ``offer.'' The
Commission has drawn a distinction between what is ``offered'' from a
demand perspective (i.e., what the customer perceives to be the
integrated product), and what is ``provided'' from a supply perspective
i.e., what the provider is furnishing or supplying to the end user,
including not only the integrated product but also the discrete
components of the product). Second, the Commission has previously held
that ``provide'' is broader than ``offer.'' Under this view, an entity
may both ``provide'' and ``offer'' telecommunications, but an entity
may also provide telecommunications without offering
telecommunications. Many participants in today's marketplace do not
separately offer telecommunications to end users, but instead offer
integrated services that include both telecommunications (i.e.,
transmission) and non-telecommunications components. For such
integrated services, however, the service provider still ``provides''
telecommunications as part of the ``offering.'' The D.C. Circuit has
upheld the Commission's interpretation. In light of the marketplace
changes over the last decade, should the Commission revisit its
interpretation of what it means to ``provide'' or to be a ``provider
of'' telecommunications?
4. Telecommunications. The Act defines the term
``telecommunications'' as ``the transmission, between or among points
specified by the user, of information of the user's choosing, without
change in the form or content of the information as sent and
received.'' Here and in Section IV.C below, we seek comment on how we
should interpret each component of this definition for purposes of
potentially exercising our permissive authority.
b. ``If the Public Interest So Requires''
5. We seek comment on what factors we should consider in deciding
whether the public interest warrants exercising our permissive
authority. We seek comment generally on whether the public interest
would be served, and to what extent exercising our permissive authority
would achieve any or all of the goals set forth above--efficiency,
fairness, and sustainability. For example, is it in the public interest
to exercise permissive authority over a provider of telecommunications
if the telecommunications is part of a service that competes with or is
used by consumers or businesses in lieu of telecommunications services
that are subject to assessment? In the past, the Commission has stated
that the principle of competitive neutrality dictates that it should
assess contributions from entities that are not mandatory contributors,
but benefit from access to the PSTN. Is that consideration relevant in
today's marketplace? Should we assess providers of services that are
capturing a growing portion of overall communications spending as a
means of achieving sustainability? Should we consider whether those
services are being used in ways that may replace, partially or wholly,
services that are subject to mandatory assessment? Does the public
interest analysis differ depending on whether we are considering
consumer services or business/enterprise services? What other factors
should we take into account?
2. Determining Contribution Obligations on a Case-by-Case Basis With
Respect to Providers of Specific Services
6. We seek comment on whether and if so, to what extent, the
Commission should exercise its permissive authority contained in
section 254(d) of the Act to clarify or modify contribution
requirements for providers of several specific services, or if we
should otherwise modify or clarify the contribution obligations of such
services. As discussed above, the Commission has exercised its
permissive authority on several occasions to expand or clarify
contribution obligations on a service-specific basis. In the Universal
Service First Report and Order, 62 FR 32862, June 17, 1997, it required
private line service providers and payphone aggregators to contribute
to the Fund, reasoning that the services offered by these entities rely
on access to the PSTN and compete with services offered by mandatory
contributors to the Fund (i.e., common carriers). In 2006, the
Commission assessed interconnected VoIP services without reaching the
statutory classification of such services. The Commission concluded
that deciding the statutory classification was unnecessary, because
even if interconnected VoIP services did not fall under the mandatory
contribution provision of section 254(d), it was appropriate to assess
such services as an exercise of permissive authority. The Commission
determined that an immediate extension of contribution obligations to
interconnected VoIP service was warranted due to the growth in demand
for the Fund, the decline in the contribution base overall, and the
``robust growth in subscribership'' to interconnected VoIP services,
from 150,000 subscribers in 2003 to 4.2 million subscribers in 2005.
7. We seek comment on continuing this general approach of
addressing the contribution obligations of specific services on a
service-by-service basis. First, we seek comment on exercising
permissive authority with respect to certain services for which
contribution
[[Page 33898]]
obligations are currently subject to dispute. To the extent commenters
believe that any such services should be non-assessable, we also seek
comment on alternative approaches to clarifying contributions,
including forbearing from any applicable contribution obligations to
the extent these services are telecommunications services, and we seek
comment on the effect of such approaches on the contribution base and
the sustainability of the Fund. Second, we seek comment on exercising
permissive authority with respect to other services that are clearly
not currently assessable, but which various commenters have proposed
should be assessed.
8. In particular, we seek comment on exercising our permissive
authority to require contributions from providers of enterprise
communications services that include interstate telecommunications;
text messaging; one-way VoIP; and broadband Internet access services.
Each of these services has found a significant niche in today's
communications marketplace. The question of whether certain enterprise
communications services are currently assessable as telecommunications
services or non-assessable as information services has led to
significant disputes, uncertainty, and incentives for providers to
attempt to characterize their services in a particular way in order to
avoid contribution requirements, resulting in a pending request for
guidance from USAC regarding the treatment of certain services.
Likewise, the question of whether text messaging is currently
assessable has been disputed, and there is a pending request for
guidance from USAC regarding text messaging. In contrast, one-way VoIP
services and broadband Internet access services are clearly not in the
contribution base today, although various parties have argued they
should be assessed. We seek comment on these arguments.
9. We seek comment on addressing the contribution obligations of
such services, regardless of their statutory classification as
information services or telecommunications services, in order to
provide clarity for contributors and greater stability for the Fund. We
also seek comment on whether exercising our permissive authority would
ensure that competitive services are not unfairly disadvantaged by
disparate contribution obligations, while further simplifying the
requirements imposed on contributors.
10. We seek comment on adopting the following rule, in whole or in
part: Providers of the following are subject to contributions: * * *
Enterprise communications services that include a provision of
telecommunications; Text messaging service; One-way VoIP service; and
Broadband Internet access services.
11. Enterprise Communications Services Providers. We seek comment
on clarifying the contribution obligations of various enterprise
communications services that include the provision of
telecommunications, without classifying those services as
telecommunication services or information services, to advance our
proposed goals for contributions reform, namely, creating greater
efficiency, fairness, and sustainability of the Fund.
12. We note that, as stated above, the Act defines
telecommunications as ``the transmission, between or among points
specified by the user, of information of the user's choosing, without
change in the form or content of the information as sent and
received.'' The Commission has found that transmission is the heart of
telecommunications, and has classified data transmission services that
have ``traditionally'' and ``typically'' been used for basic
transmission purposes, such as ``stand-alone ATM service, frame relay,
gigabit Ethernet service, and other high-capacity special access
services,'' as telecommunications services.
13. We have not formally addressed enterprise communications
services such as Dedicated IP, VPNs, WANs, and other network services
that are implemented with various protocols such as Frame Relay/ATM,
MPLS and PBB for purposes of determining USF contribution obligations.
To the extent that such enterprise communications services would not
fall within the definition of telecommunications services, should we
exercise our permissive authority with respect to providers of those
services? Are such enterprise communications services substitutes for
other enterprise communications services that are subject to mandatory
contributions, and would such an exercise of permissive authority
increase clarity and fairness? If we were to exercise our permissive
authority over enterprise communications services that may be
information services, should we enumerate the specific services that
would be subject to a contribution obligation, or should we attempt to
craft a more general definition that would capture future generations
of such services that deliver similar functionality, regardless of
technology used, in order to promote the sustainability of the Fund?
What would be the appropriate transition period for such changes?
14. If we choose to exercise our permissive authority in this
fashion, how would that affect the size of the contribution base? To
what extent would assessing enterprise communications services bring
additional contributors into the system that do not otherwise
contribute today directly or indirectly? How would an assessment of
additional enterprise communications services affect the distribution
of contribution obligations among various industry segments? How would
such assessment affect the relative distribution of contribution
obligations between services provided to enterprise and residential
customers? How would such assessment affect the average contributions
of different categories of residential end users, such as low-volume
versus high-volume users, or vulnerable populations such as low-income
consumers?
15. To the extent we conclude that Dedicated IP, VPNs, WANs, or
other communications services for which contribution obligations have
been in dispute should not be subject to contribution obligations,
should we exercise our forbearance authority under section 10 of the
Act to exempt these services from mandatory contribution insofar as
they may be viewed as telecommunications services? How would that
impact the current contribution base, and the relative distribution of
contribution obligations between enterprise and residential consumers?
Do these services differ from other explicitly assessed enterprise
communications services in a way that makes their exemption from
contribution appropriate, and would the section 10 criteria otherwise
be met?
16. We note that the Commission has expressly declined to exercise
permissive authority over systems integrators for whom
telecommunications represents a small fraction (less than five percent)
of total revenues derived from systems integration services. To the
extent that we explicitly exercise our permissive authority to assess
enterprise communications services, should we also eliminate the system
integrators exemption, so that systems integrators would contribute
even if their telecommunications revenues were under the current
threshold? In the alternative, if we determine that we should clarify
that certain enterprise communications services are not subject to
contributions, should we modify the systems integrators exemption, and
if so how? How would our decision to clarify the contribution
obligations for any category of these services affect current
contributions?
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17. We seek comment on the size of the enterprise communications
services marketplace, including comment on the Telecommunications
Industry Association estimates, and whether this marketplace is likely
to grow or shrink in the future. If commenters believe the estimates
are too high or too low, they should provide specific data to more
accurately size this segment of the communications marketplace. We also
seek comment and data submissions on how assessing these services would
affect the contribution base under the different methodologies proposed
in the Notice. We seek comment and data on the extent to which service
providers are currently treating these services as assessable. We seek
comment on how revenues from such services should be apportioned into
assessable and non-assessable segments if the Commission continues with
a revenues-based methodology. We encourage commenters to provide
comments and data regarding the structure of typical enterprise
communications services contracts. In particular, we seek comment on
whether such contracts typically break out costs for different parts of
the services provided and, if so, how they generally do so.
18. Text Messaging Providers. We seek comment on whether text
messaging services should be assessed in light of our proposed goals
for contribution reform. To what extent is there a lack of clarity
within the industry over whether such services are subject to universal
service contributions? Would adopting a clear rule establishing that
text messaging is in the contribution base further the Commission's
efforts to promote fairness and competitive neutrality? If providers of
text messaging services were required to contribute, would that create
competitive distortions between text messaging service providers and
providers that offer applications that allow users to send messages
using a wireless customer's general data plan--applications that
consumers may increasingly view as a substitute to text messaging?
Given the rapid growth in the text messaging marketplace, a number of
stakeholders have suggested in recent years that text messaging
revenues should be added to the contribution base to enhance the
sustainability of the Fund. To what extent would including these
services in the contribution base add to the stability of the Fund? If
we modified our rules to explicitly assess text messaging, what would
be an appropriate transition period?
19. If we conclude text messaging services should be assessed,
should we exercise the Commission's permissive authority under section
254(d) of the Act to assess providers of these services, without
determining whether such services are telecommunications services or
information services? Alternatively, if we conclude that text messaging
services should not be assessed, should the Commission conclude that
even if such services are telecommunications services, we should
exercise our forbearance authority under section 10 of the Act to
exempt text messaging from contribution obligations?
20. We seek comment on the extent to which consumers are
substituting text messaging for traditional voice services and other
services that are subject to universal service contributions. Are there
any reasons to treat short message service (SMS) or multimedia
messaging service (MMS) differently for this analysis? Commenters
should provide data to support their assertions.
21. We also seek comment on whether wireless providers include
revenues generated through the use of common short codes in their text
messaging revenues. If common short code revenues are not reported as
part of the text messaging revenues, are there any reasons to treat
such revenues differently in calculating the universal service
contributions?
22. We seek comment on the size of the text messaging marketplace,
including the industry revenue figures referenced above, and whether
this marketplace is likely to grow or shrink in the future. Commenters
who disagree with the estimates above should submit specific revenue
data to support their assertions.
23. To the extent commenters advocate a position on whether text
messaging providers should be assessed, we view it as highly relevant
whether those commenters earn text message revenues themselves and, if
so, whether they have reported it as assessable in recent years. We
thus ask commenters to include in their comments their estimated recent
text messaging revenues, and the extent to which they reported those
revenues as assessable. If we explicitly assess text messaging
providers, how would that affect the size of the contribution base? How
would such assessment affect the distribution of contribution
obligations between services for enterprise and residential customers?
How would it affect the total average impact of contributions on
residential end users? How would it affect the distribution of
obligations between low-volume and high-volume users? How would an
assessment of text messaging providers affect the distribution of
contribution obligations among various industry segments?
24. We also seek comment and data submissions on how assessing
these providers of these services would affect the contribution base
under the different methodologies proposed in Section V below. We note
that to the extent that providers of text messaging also are providers
of assessable voice services, explicitly assessing text messaging would
not necessarily broaden the base; to the extent we were to adopt a non-
revenues-based contribution methodology. We also seek comment and data
on the extent to which service providers are currently treating these
services as assessable.
25. One-way VoIP Service Providers. We seek comment on whether the
Commission should exercise its permissive authority under section
254(d) to include in the contribution base providers of ``one-way''
VoIP with respect to such service offerings, regardless of the
statutory classification of such services. Such offerings would include
all services that provide users with the capability to originate calls
to the PSTN or terminate calls from the PSTN, but in all other respects
meet the definition of ``interconnected VoIP.'' We seek comment below
on a potential definition of such services for the purpose of USF
contributions: One-way VoIP service. A service that (1) enables real-
time, two-way voice communications; (2) requires a broadband connection
from the user's location; (3) requires Internet protocol-compatible
customer premises equipment; and (4) permits users generally to receive
calls that originate on the public switched telephone network or
terminate calls to the public switched telephone network.
26. To what extent does this rationale apply today to one-way VoIP
services? We note that one-way VoIP enables consumers to originate or
terminate calls on the PSTN. Would the public interest be served by
exercising permissive authority over one-way VoIP to further our
proposed goals of efficiency, fairness and sustainability?
27. In particular, we seek comment on whether competitive
neutrality concerns now support the inclusion of one-way VoIP services
within the contribution base. Some parties argue that the one-way VoIP
exemption is ``an enormous loophole'' that creates competitive
disparities. We seek comment on the extent of competition between one-
way VoIP and other services that are subject to assessment, and how
that should affect our analysis. Commenters are encouraged to provide
data to support
[[Page 33900]]
their analysis. If one-way VoIP providers are brought into the
contribution base, what would be the appropriate transition period?
28. We seek comment on the size of the one-way VoIP marketplace in
the United States, and whether this marketplace is likely to grow or
shrink in the future. How many providers of one-way VoIP are there, and
who are other major providers of such services? What are the overall
U.S. revenues for this group of providers, and how many customers do
they have? Commenters are encouraged to provide specific data to
support their assertions. We also seek comment and data submissions on
how assessing these services would affect the contribution base under
the different methodologies proposed in section V below.
29. If we assess one-way VoIP, how would that affect the size of
the contribution base? How would such assessment affect the
distribution of contribution obligations between services for
enterprise and residential customers? How would it affect the total
average impact of contributions on residential end users? How would it
affect the distribution of obligations between low-volume and high-
volume users, and how would it impact low-income consumers? How would
an assessment of one-way VoIP affect the distribution of contribution
obligations among various industry segments? We seek comment on the
relevance of precedent to the question of whether one-way providers
should contribute to universal service.
30. Broadband Internet Access Service Providers. The State Members
of the Federal-State Universal Service Joint Board (State Members of
the Joint Board) have proposed that the Commission include ``broadband
and services closely associated with the delivery of broadband'' in the
base, including Digital Subscriber Line (DSL), cable, and wireless
broadband Internet access. Other commenters also support extending
assessments to broadband Internet access.
31. In 2002, the Commission sought comment on whether and how
broadband Internet access service providers should contribute to
universal service. In the Wireline Broadband Internet Service Access
Order, 70 FR 60222, October 17, 2005, the Commission classified
wireline broadband Internet access as an information service. The
Commission also recognized, however, that wireline broadband Internet
access service includes a provision of telecommunications. In the
Wireline Broadband Internet Access Order, the Commission stated that it
intended to address contribution obligations for providers of broadband
Internet access in a comprehensive fashion in the future, either in
that docket or in this docket.
32. Some commenters have suggested that the Commission should
exercise its permissive authority to assess providers of broadband
Internet access services. Several parties, however, have expressed
concern that assessing broadband Internet access could discourage
broadband adoption. We seek comment on those concerns and invite
commenters to submit empirical data into the record of this proceeding
regarding the potential impact of assessing broadband Internet access
services on consumer adoption or usage of services. Would assessing
broadband Internet access service in the near term undermine the goals
of universal service? Could the Commission address such concerns by
phasing in contributions for mass market broadband Internet access
services over time?
33. In the USF/ICC Transformation Order, 76 FR 76623, December 8,
2011, we adopted new rules to ensure that robust and affordable voice
and broadband, both fixed and mobile, are available to Americans
throughout the nation. In this proceeding, we are looking to update and
modernize the method by which funds are collected to support universal
service. Some have expressed concern that assessing broadband Internet
access may indirectly raise the price of broadband Internet access for
some consumers. To what extent, if any, would assessing broadband
services discourage consumers from subscribing? To what extent, if any,
would that in turn slow down deployment of broadband infrastructure? We
seek comments and economic analyses that address the overall effect on
broadband deployment of assessing or not assessing broadband.
34. The State Members of the Joint Board recommend that both
telecommunications services and information services (such as broadband
Internet access services) should be assessed and suggest that if most
of the revenues currently reported on FCC Form 499 Line 418 were
assessed, that would reduce the contribution factor to approximately
two percent. They also suggest this would simplify billing ``since the
new federal USF surcharge rate would generally apply to an end user's
total bill.'' We seek comment on this recommendation of the State
Members of the Joint Board. Would such an approach make
telecommunications more affordable for consumers with lower overall
telecommunications expenditures? What is the relationship between
household income and the percentage of a household's telecommunications
bill subject to assessment under the current system, and what would it
be under the State Members' proposed approach? Would such an approach
affect consumer adoption of telecommunications services that are not
currently assessed? We ask commenters to provide any analysis and data
regarding their estimated reduction in the contribution factor, if we
were to require contributions based on the total bill. If we were to
assess broadband Internet access, to what extent would that reduce the
contribution factor if we maintain a revenue-based methodology?
35. If the Commission does assess broadband Internet access
service, now or at some point in the future, should the Commission
assess all forms of broadband Internet access, including wired
(including over cable, telephone, and power-line networks), satellite,
and fixed and mobile wireless? Should it assess mass market broadband
Internet access as well as enterprise broadband Internet access? As a
practical matter, how would the Commission differentiate between mass
market broadband Internet access, and other forms of broadband Internet
access, and would such a distinction create any distortions in the
marketplace?
36. We note that TIA estimates the wired broadband Internet access
marketplace to be $38.3 billion in 2011 and $40.3 billion in 2012, and
the marketplace for wireless data services to be $73.6 billion in 2011
and $89.8 billion in 2012. TIA also projects wireless data services to
be over $140 billion, or double that for wireless voice, by 2015. It is
not clear; however, from how TIA presents the data whether its
estimates include both enterprise as well as mass market broadband
Internet access. To what extent are any of these revenues in the
contribution base today? What proportion of those revenues should be
considered mass market broadband Internet access, if we were to retain
a revenues-based system but adopt an approach that would exempt mass
market broadband Internet access services from contribution
obligations? Under such an approach, how should we define ``mass
market''?
37. We also seek comment on whether exercising our permissive
authority with respect to broadband Internet access services would be
consistent with the Act and our potential goals for contributions
reform, namely, creating greater efficiency, fairness, sustainability,
and other goals that
[[Page 33901]]
commenters identify. If we assess broadband Internet access services,
how would that affect the size of the contribution base? How would such
assessment affect the distribution of contribution obligations between
enterprise and mass market customers if we assess only enterprise
broadband Internet access services, only mass market broadband Internet
access services, or all broadband Internet access services? How would
these different approaches to assessing broadband Internet access
services affect the total average contribution impact for mass market
end users? How would they affect the distribution of contribution
obligations between services offered to low-volume and high-volume
users, or between low-income and higher-income users? How would an
assessment of broadband Internet access services affect the
distribution of contributions among various industry segments? Would
assessing retail broadband Internet access service eliminate the
current competitive disparity that exists today between providers that
contribute on their broadband transmission (small rate of return
companies) and their competitors, who do not?
38. Listing of Services Subject to Universal Service Contribution
Assessment. Section 54.706 of our rules sets forth a non-exhaustive
list of services that are currently included in the contribution base.
Should we continue to specify in our codified regulations specific
services that are subject to assessment? Should that list be updated to
reflect marketplace changes over the last decade? Does it advance our
potential goals for reform of providing predictability and simplifying
compliance and administration to maintain a non-exhaustive list of
services that are subject to contributions, which by definition does
not provide clarity as to whether services not on the list are subject
to contribution obligations? Could we adopt a simpler approach that is
flexible enough to be applied to services that exist today and ones
that will emerge in the future, without a need to continually update
our codified rules? Should the Commission periodically set forth a list
of assessable services, similar to the eligible services list used for
the schools and libraries universal service support mechanism?
3. Determining Contribution Obligations Through a Broader Definitional
Approach
39. In the previous section, we inquired about using our section
254(d) permissive authority or other tools to modify or clarify the
contribution obligations of providers of specific services. In this
section, we seek comment on an alternative approach: exercising our
permissive authority to craft a general rule that would specify which
``providers of interstate telecommunications'' must contribute, without
enumerating the specific services subject to assessment. Like the
approach discussed above, such a rule would not require us to resolve
the statutory classification of specific services as information
services or telecommunications services in order to conclude that
contributions should be assessed. Such a rule could potentially produce
a more sustainable contribution system by avoiding the need to
continually update a list of specific services subject to assessment.
At the same time, such an approach leaves open the possibility of
carving out or excluding a specifically defined list of providers or
services, if inclusion of those providers or services is not in the
public interest.
40. For example, we seek comment on exercising our permissive
authority to adopt a rule such as the following: Any interstate
information service or interstate telecommunications is assessable if
the provider also provides the transmission (wired or wireless),
directly or indirectly through an affiliate, to end users.
41. This rule is intended to encompass only entities that provide
transmission to their users, whether using their own facilities or by
utilizing transmission service purchased from other entities. As
discussed above, the provision of ``telecommunications'' means, in
part, the provision of transmission capability. Under the approach
historically taken by the Commission, some, but not all, providers of
information services ``provide'' telecommunications. By statutory
definition, an information service provider offers the ``capability for
generating, acquiring, storing, transforming, processing, retrieving,
utilizing, or making available information via telecommunications.'' In
the past, the Commission has found that the telecommunications
component may be provided by the information services provider or the
customer. In other words, some information service providers
``provide'' the telecommunications required to utilize the information
service, but others require their customers to ``bring their own
telecommunications'' (in other words, to ``bring their own transmission
capability''). The rule set forth above is intended to include entities
that provide transmission capability to their users, whether through
their own facilities or through incorporation of services purchased
from others, but not to include entities that require their users to
``bring their own'' transmission capability in order to use a service.
This is consistent with Commission precedent where the Commission has
exercised its permissive authority to extend USF contribution
requirements to providers of telecommunications that are competing
directly with common carriers. We seek comment on whether the rule
would achieve this intended result. To the extent the rule above would
not achieve this intended result; we seek comment on how the rule could
be altered to achieve this result.
42. We seek comment on whether a rule such as the one above would
further our proposed goals of contributions reform by improving
efficiency, fairness, and the sustainability of the Fund. Would
adopting such a rule provide sufficient guidance to potential
contributors regarding their contribution obligation? Would such a rule
be simple to administer, monitor, and enforce? Would it create market
distortions or impede innovation?
43. The National Broadband Plan recommended that however the
Commission chooses to reform contribution methodology, it should take
steps to minimize opportunities for arbitrage as new products and
services are developed, so that there is no need to continuously update
regulations to catch up with changes in the market. Would a rule like
the one discussed above achieve these goals, minimizing opportunities
for arbitrage and eliminating the need to continuously update
regulations? Or, alternatively, would it result in new definitional
disputes and potential uncertainty?
44. Could the above rule be read to make content fees assessable
when content is provided by the provider of the interstate
telecommunications? For example, could an IP-based video-on-demand
service be assessable? We note that cable services are regulated under
Title VI of the Act, and that video service providers are currently
only required to contribute to the extent they provide interstate
telecommunications services or other assessable telecommunications. We
also note that many video-on-demand services are being provided through
Internet web sites, and thus are services that require the viewer to
bring their own ``telecommunications'' (i.e., Internet access). Could
the above definition lead to the assessment of any other services that
compete largely or primarily against services that remain non-
assessable? If
[[Page 33902]]
so, would this lead to competitive distortions? How could the
definition be altered to avoid this result?
45. As noted above, the Commission has determined that ``over-the-
top'' interconnected VoIP providers provide transmission to or from the
PSTN to end users, and has subjected these services to contribution
obligations. Even where a user obtains Internet access from an
independent third party to use an interconnected VoIP service, an over-
the-top interconnected VoIP provider must still supply termination to
the PSTN for outgoing calls (which is not covered by the Internet
access service), and origination from the PSTN for incoming calls
(which again is not covered by the Internet access service). Over-the-
top VoIP providers generally purchase this access to the PSTN from a
telecommunications carrier who accepts outgoing traffic from and
delivers incoming traffic to the interconnected VoIP provider's media
gateway. The Commission held that origination or termination of a
communication via the PSTN is ``telecommunications,'' and over-the-top
interconnected VoIP providers, like other resellers, are providing
telecommunications when they provide their users with the ability to
originate or terminate a communication via the PSTN, regardless of
whether they do so via their own facilities or obtain transmission from
third parties. Are there legal or policy considerations that would
warrant revisiting those rationales, if we were to exercise our
permissive authority as set forth above? Are there reasons to extend or
not extend the rationale above to other services that provide
origination or termination of a communication via the PSTN? Would
interconnected VoIP providers fall under the definition of an
assessable service set forth in this section? If the objective is to
include only entities that provide a physical connection (wired or
wireless), should we consider entities that provide PSTN origination or
termination to be included within that group? If not, should we alter
the proposed definition, or should we add some additional provisions
specifically including additional services, like interconnected VoIP or
other services that are substitutable for assessable services, for
assessment?
46. The State Members of the Joint Board have proposed an
alternative broad definition, recommending that the Commission exercise
its permissive authority to broaden the contributions base to include
``all services that touch the public communications network.'' The
State Members conclude, however, that contributions should not be
required for ``pure content delivered by non-telecommunications over
broadband facilities.'' They acknowledge that their proposed rule could
result in difficult line drawing problems when the same company sells
both broadband services and content. We seek comment on the State
Members' proposal.
47. Potential Exclusions. If we were to adopt a rule such as the
one above, we seek comment on whether we should adopt any additional
limitations.
48. Non-Facilities-Based Providers: The rule discussed above would
assess providers of interstate telecommunications whether or not they
own the physical facility, or hold license to the spectrum, that is
used to provide interstate telecommunications. In the alternative,
should we limit contribution obligations to facilities-based providers,
and if so, how should we define ``facilities-based''? For example,
would a provider be considered ``facilities-based'' for contributions
purposes if it provides service only partially over its own facilities?
Should we define ``facilities-based'' services for contributions
purposes as those provided over unbundled network elements, special
access lines, and other leased lines and wireless channels that the
provider obtains from another communications services provider? For
example, EarthLink has suggested that non-facilities-based providers of
Internet access service do not provide the ``transmission service.'' We
seek comment on this viewpoint. The Commission's contribution
methodology has never exempted non-facilities-based telecommunications
providers from their obligation to contribute, and the Act does not
itself distinguish between facilities-based and non-facilities-based
telecommunications providers for purposes of contribution obligations.
We note that the Commission has previously found resellers to be
telecommunications carriers supplying telecommunications services to
their customers even though they do not own or operate the transmission
facilities. Carriers that incorporate transmission obtained from other
providers into their own telecommunications services are currently
subject to contribution requirements under the mandatory contribution
requirement in section 254(d). Likewise, firms contribute today when
they resell private line service provided by other carriers. Are there
policy or administrative reasons not to exercise permissive authority
over entities that incorporate telecommunications purchased from others
into their own service offerings?
49. Broadband Internet Access: If we were to adopt a rule such as
the one above, should we exclude broadband Internet access service?
Several parties have expressed concern that assessing broadband
Internet access could discourage broadband adoption. As described
above, we seek comment on those concerns and invite commenters to
submit empirical data into the record of this proceeding regarding the
impact of assessing broadband Internet access services on consumer or
business adoption or usage of services. To what extent would assessment
of universal service contribution obligations potentially deter
adoption of such services? Is there less likelihood that assessment of
USF contributions would deter adoption of business broadband Internet
access services?
50. To the extent commenters believe that assessing mass market
broadband Internet access service in particular could discourage
broadband adoption or harm other Commission goals, we seek comment on a
specific exemption for mass market broadband Internet access services
(both fixed and mobile). If we were to take such an approach, how
should we define enterprise versus mass market services, and from an
administrative standpoint, how would carriers and USAC be able to
distinguish between the two? To what extent would such an exemption
potentially distort how business and residential broadband Internet
access is provided, as carriers may seek to characterize their
offerings as ``mass market'' to avoid contribution obligations?
51. Free or Advertising-Supported Services: If we were to adopt a
rule such as the one above, should we do so only with respect to
providers that offer service for a subscription fee? Given the broad
meaning of ``fee'' in other contexts, how would we frame an exclusion
for free or advertising-supported services? Would such an exclusion
potentially cause marketplace distortions vis-[agrave]-vis firms that
have business models that derive revenues from other sources, such as
advertising revenues? Would imposing contribution obligations on free
or advertising-supported services from contribution obligations
discourage innovative offerings? Commenters should provide specific
examples and supporting data regarding the business models of relevant
services.
52. Machine-to-Machine Connections: If we were to adopt a rule such
as the one above, should we exclude machine-to-machine services?
Machine-to-machine connections have grown
[[Page 33903]]
rapidly in recent years. Would it be consistent with our statutory
authority to exercise permissive authority over machine-to-machine
communications, such as smart meter/smart grids, remote health
monitoring, or remote home security systems? Should machine-to-machine
connections be treated the same as connections between or among people?
As discussed above, the Act defines the term ``telecommunications'' as
``the transmission, between or among points specified by the user, of
information of the user's choosing, without change in the form or
content of the information as sent and received.'' In the case of
machine-to-machine communications, who is the ``user'' that is
specifying where the information should go? Is there any precedent
outside the contribution methodology context that should inform our
interpretation of the statutory term here? Should we conclude that all
machine-to-machine connections that transmit information over the
Internet include interstate telecommunications? How would assessing
machine-to-machine communications impact marketplace innovation in this
arena?
53. Statutory Interpretation. Above, we asked whether a general
rule like that described in this section would provide sufficient
guidance to potential contributors regarding their contribution
obligation. The rule described in this section would not require us to
resolve the statutory classification of specific services as
information services or telecommunications services in order to
conclude that contributions should be assessed. The Commission would,
however, still be required to determine whether services involved the
provision of interstate ``telecommunications.'' We seek comment on
additional issues that may arise in interpreting the definition of
``telecommunications'' for contributions purposes as the communications
marketplace evolves. We also ask how resolution of these questions in
the context of USF contributions would impact other regulatory
obligations, such as regulatory fees or other assessments that utilize
the Telecommunications Reporting Worksheets.
54. First, we seek comment on how to interpret the statutory
requirement that a telecommunications transmission must be ``between or
among points specified by the user.'' In particular, we seek comment on
whether we should interpret ``the user'' to be a subscriber to the
service in question. For example, suppose that Bookseller A sells an
electronic reading device to Ms. Smith. The price of the device
includes a 3G wireless connection that allows Ms. Smith to connect to
Bookseller A's servers at any time and purchase e-books. Bookseller A,
in turn, purchases the wireless bandwidth for the connection from
Carrier B. In this instance, should we consider Ms. Smith to be the
``user'' of the service provided by Bookseller A? Alternatively, is
Bookseller A the ``user'' of the service provided by Carrier B? Under
the former view, would Bookseller A be viewed as ``providing
telecommunications'' to Ms. Smith, and therefore a contributor on that
service? Or should Carrier B be viewed as the entity that is providing
telecommunications to Bookseller A, and therefore the contributor? What
would be the potential effects in other regulatory contexts if the
Commission were to interpret the term ``user'' in a new way here?
55. We seek comment on what it means for the user to ``specify''
the ``points'' of transmission. Many communications services today
allow the user to specify the points of transmission--for example,
telephone and text messaging services generally allow a user to reach
any other user on the PSTN, and broadband Internet access services
generally allow users to access any location on the Internet. Certain
services, however, arguably do not allow the ``user'' to specify the
endpoints of the communication. To return to the e-books example above,
suppose that the free wireless connectivity on the reading device can
only be used to communicate between the device and Bookseller A's
server, and not to reach any other destination on the PSTN or the
Internet. In that case, is Ms. Smith, Bookseller A's customer,
``specifying'' the ``points'' of the transmission, or is Bookseller A?
56. We also seek comment on how to interpret the statutory
requirement in the definition of ``telecommunications'' that the
information transmitted must also be ``of the user's choosing.'' How
should we interpret this phrase? For example, suppose a doctor provides
a remote monitoring device to a patient that can send information back
to the doctor's office. The monitoring device is pre-programmed to
transmit only certain types of relevant medical data. Assuming that the
other statutory components of ``telecommunications'' are present, is
this an instance where the patient should be deemed the ``user'' that
is transmitting information ``of his or her choosing,'' or would the
fact that only information specified by the doctor or manufacturer that
provides the device to the patient is transmitted mean that this
communication does not meet the statutory definition of
``telecommunications''?
57. We also seek comment on whether, under a rule such as the one
described in this section, the Commission would have to interpret the
statutory requirement that the transmission must be ``without change in
the form or content of the information as sent and received.'' Although
information services often include a component that ``processes''
information in some way, the Commission has in the past recognized that
an information service can also include a separate
``telecommunications'' component. Furthermore, the Commission has
previously found that while all information services require the
transmission of information between customers and ``computers or other
processors,'' the form or content of the information is not altered
during these transmissions, and such transmissions constitute
``telecommunications.'' Would we be required to revisit any aspect of
these interpretations in light of changing technology and marketplace
developments?
58. Impact on the Contribution Base. We seek comment on the number
of additional contributors and impact on the contribution base if we
were to adopt the general definitional approach discussed in this
section, and whether those figures are likely to grow or shrink in the
future. How would the answer to this question differ if we were to
assess based on revenues, connections, numbers or some other
alternative? For each contribution methodology scenario, what services
and providers would contribute under such a rule that do not contribute
today? To what extent are they contributing today? What other services,
not already discussed above, might be included if we were to adopt the
general definitional approach discussed in this section? How would the
answer to these questions differ under the definitional approach
discussed in this section, as opposed to the service-by-service
approach discussed in the preceding section?
59. Finally, to the extent not already covered by the questions
above, we request clear and specific comments on the Commission's legal
authority and the type and magnitude of likely benefits and costs of
each of these variants of the suggested rule, and request that parties
claiming significant costs or benefits provide supporting analysis and
facts, including an explanation of how they were calculated and an
identification of all underlying assumptions.
[[Page 33904]]
B. How Contributions Should Be Assessed
60. We seek comment on how to simplify our contributions system,
consistent with the Act and our proposed goals for reform. Over the
last decade, the Commission has sought comment on a number of proposals
for alternative methodologies to the current revenues-based system,
including methodologies based on connections, numbers, and various
hybrid solutions. The record is mixed on whether we should make
modifications to our existing revenues-based system, or move to an
alternative system such as connections or numbers. Here, we seek
comment on reforming the current revenues-based system as well as ask
parties to update the record on these alternative methodologies. We
seek comment on how each option would further our proposed goals and
ask about potential implementation issues that are associated with
specific methodologies. We ask commenters to provide data to quantify
how potential rule changes would impact the Fund and reduce compliance
costs and burdens.
61. We request specific comments on the type and magnitude of
likely benefits and costs of each of the possible rules discussed in
this section, and request that parties claiming significant costs or
benefits provide supporting analysis and facts, including an
explanation of how any data were calculated and an identification of
all underlying assumptions.
1. Reforming the Current Revenues-Based System
62. We seek comment on whether we should retain the existing
revenues-based system, and if so, how we can reform the current system
to provide greater clarity to contributors, thereby promoting
efficiency, fairness, and sustainability. Specifically, we seek comment
on the pros and cons of retaining a revenues-based system. We ask
parties claiming significant costs or benefits of a revenues-based
system to provide supporting analysis and facts for such assertions,
including an explanation of how they were calculated and all underlying
assumptions.
63. What are the benefits or disadvantages of retaining a revenues-
based system for a transitional or indefinite period? Are there market
distortions caused by the existing revenues-based system? We solicit
comment on whether the modifications discussed below would sufficiently
address problems with the current revenues system. If we adopt any of
the potential reforms discussed in this section to modify the revenues
system, would such a system better serve our proposed reform goals than
a connections-based, numbers-based, or other alternative contribution
system? Would any of the potential reforms suggested in this section
also make sense for a connections-based, numbers-based, or other
alternative contribution system?
64. To the extent that we retain the current system, we seek
comment on rules to simplify how revenues are apportioned for
assessment, including the allocation of telecommunications service
revenues between the intrastate and interstate jurisdictions, and the
reporting of assessable revenues when a customer purchases a bundle of
services only some of which are assessable. We also seek comment on how
to assess revenues from information services and services that have not
been classified as information or telecommunications services. Such
adjustments could address some shortcomings in the current system that
stakeholders have raised and could reduce administrative burdens on
providers and USAC. We also seek comment on alternative approaches to
provide greater clarity regarding the respective obligations of
wholesalers and their customers, which has been subject to much
dispute. We seek comment on adopting a value-added revenues system that
would require contributions from each provider in the value chain, or,
in the alternative, substantially revising the reseller certification
process. Adopting a value-added revenues system or revising the
certification process could eliminate the complications and loopholes
associated with the current carrier's carrier reporting requirements.
In addition, we seek comment on measures to clarify our prepaid calling
card reporting requirements to ensure that competitors are contributing
in a consistent manner. Finally, we seek comment on eliminating the
international-only and the limited international revenues exemptions
and on modifying the de minimis exemption to reduce compliance burdens.
a. Apportioning Revenues From Bundled Services
65. We seek comment on modifying our bundled offering apportionment
rules to adopt more specific standards for determining what
apportionment methods are deemed reasonable for allocating revenues
from bundled offerings, or to eliminate carrier discretion in
determining how to apportion revenues from bundled offerings. We ask
whether doing so will further our proposed goals of making the
contributions system more efficient and fair, minimizing compliance
burdens, and reducing competitive distortions in the marketplace.
66. We are concerned that the lack of bright-line rules may
encourage providers to minimize their allocation of revenues in a
bundle to assessable services to reduce their contribution obligations
in order to gain a competitive edge. A number of commenters have
suggested, for instance, that this is a concern in the enterprise
market, where there is fierce competition to win contracts from large
corporate clients. We seek data from commenters regarding what are
common industry practices regarding the allocation of revenues from
bundled offerings. To what extent do contributors rely on market
studies of stand-alone services offered by other providers? To what
extent do contributors allocate revenues based on the allocated cost of
the underlying individual services? To what extent do contributors
allocate revenues based on revenue reporting requirements imposed by
other regulatory jurisdictions, such as cable franchising authorities
or state sales tax authorities?
67. We seek comment on adopting a revised apportionment rule that
would codify a modified version of the two safe harbors provided under
the CPE Bundling Order, 66 FR 19398, April 16, 2001, for apportioning
revenues from bundled service offerings and eliminate providers'
discretion on how to apportion revenues derived from bundled services.
Specifically, we seek comment on the following rule for USF
contributions purposes: If an entity bundles non-assessable services or
products (such as customer-premises equipment) with one or more
assessable services, it must either treat all revenues for that bundled
offering as assessable telecommunications revenues or allocate revenues
associated with the bundle consistent with the price it charges for
stand-alone offerings of equivalent services or products (with any
discounts from bundling assumed to be discounts in non-assessable
revenues).
68. We seek comment on whether this rule would simplify the process
of apportioning bundled revenues in a way that is transparent,
enforceable, and easily administrable. How would such a rule be
enforceable if the provider does not offer stand-alone equivalent
services? Would we need a separate rule to address such circumstances?
If so, how should that rule be structured? Would the benefits of
limiting the method by which providers determine
[[Page 33905]]
assessable revenues for bundled services outweigh any potential
benefits of allowing providers to present individualized showing, as
permitted under the current rule? We seek comment and examples of
instances where some providers of bundled services may be allocating
assessable revenues differently than their competitors, creating a
competitive disadvantage. Would eliminating the open-ended
apportionment option in favor of the rule above minimize competitive
disparities? Would the rule change incentives to offer (or not offer)
assessable services on an unbundled basis?
69. We seek comment on the technical aspects of such a rule. For
example, if we were to adopt such a rule, how much discretion should
carriers have in determining what constitutes a ``stand-alone offering
of equivalent service''? How could we prevent contributors from gaming
a stand-alone option to minimize their assessable revenues? Should
there be a requirement, for instance, that such a stand-alone offering
be generally available and actually subscribed to by a minimum number
of end users? If so, how and how many end users? Are there any
alternative ways to ensure that contributors are not creating a sham
stand-alone offering to minimize contribution obligations?
70. We also seek comment on whether such a rule would create
competitive disparities between providers that offer stand-alone
offerings of assessable services, and those that only sell bundled
services in the marketplace. Should we require carriers that do not
offer a stand-alone service themselves to rely on a market analysis of
services offered by other carriers in the marketplace or a tariffed
rate of another provider? If so, should we require such carriers to
submit any such market analyses used for imputation purposes or third
party tariffed rate to the Commission and to USAC? Should we require
that the stand-alone offering price be objectively verifiable by the
Commission or USAC, such as by reference to a public Web site or
tariffed offering? What measures would need to be in place for USAC to
be able to verify stand-alone pricing for business services, which are
often individually negotiated for individual customers? Is there any
reason to implement such a rule only for certain types of bundled
offerings and not others, or certain classes of customers and not
others? What is the least burdensome mechanism to ensure allocations
are objectively verifiable?
71. We seek comment on how the rule would impact the overall
contributions base, as well as the individual burden on consumers. What
would be the impact of the rule on providers serving consumers with
lower telecommunications expenditures (such as a voice only subscriber
with limited long distance calling) compared to providers serving
consumers with higher expenditures (such as a triple-play subscriber)?
How would such a rule affect consumers with lower telecommunications
expenditures compared to consumers with higher expenditures? What would
be the impact of such a rule on mobile providers, who increasingly are
deriving revenues from bundled voice-data packages, and their
consumers?
72. We also seek comment on alternative rule language as well as
alternative means of determining contribution obligations for bundled
service offerings. Parties that submit alternative proposals should
explain how such proposals further our proposed goals of reform and are
consistent with our legal authority. We ask commenters to quantify,
where possible, how their proposed rule would impact the contribution
base and total assessable revenues.
73. For each of these alternatives, we seek comment on how the
approach would impact the overall contribution base, as well as the
individual burden on contributors and consumers. We also seek comment
on what steps would need to be taken to implement the proposals above
or alternative proposals for apportioning revenues from bundled service
offerings for USF contribution purposes. How much time would parties
need to transition to a new method of apportioning revenues from
bundled offerings?
74. As discussed above, the Commission has the authority to assess
all providers of interstate telecommunications, if the public interest
warrants. Would a contribution methodology that assesses the full
retail revenues of bundled services that contain
``telecommunications,'' as that term is defined in the Act, without
safe harbors or the ability to present individualized showings, conform
to the statutory requirements? Given the growth in bundled service
offerings over the last decade, would adopting such a bright-line rule
make the contribution base more stable and thereby serve the public
interest? Would it further the principle of ``equitable and non-
discriminatory'' contributions by reducing potential competitive
distortions among providers and service offerings that apportion
revenues using different methodologies? Would a simplified approach
that assesses the total bill for bundled services promote
administrative efficiency and reduce compliance and enforcement
expenditures? Would it be appropriate to adopt such an approach even if
the Commission chose not to make every component of a bundled service
individually assessable, or would that create market distortions and
discourage bundled offerings?
b. Contributions for Services With an Interstate Telecommunications
Component
75. We seek comment on what revenues should be assessed to the
extent we choose to exercise our permissive authority over services
that provide interstate telecommunications. For example, to the extent
enterprise communications services that are implemented with MPLS
protocols are information services that provide interstate
telecommunications, we seek comment on whether we could and should
assess the full retail revenues of such enterprise communications
services, or instead should adopt a bright-line that would assess only
a fraction or percentage of the retail revenues.
76. Would it be consistent with our statutory authority under
section 254(d) to require contributions on the full retail revenues of
an information service that provides interstate telecommunications? Is
there a potential for competitive disparity, to the extent a non-
facilities-based provider of such services is assessed on its retail
revenues, and also may bear indirectly the cost of a universal service
contribution on underlying transmission that it purchases from a
wholesale provider? To what extent should the retail revenues derived
from information services have some nexus with the underlying
transmission component, in order for the full retail revenues to be
assessed? What are the advantages and disadvantages of assessing retail
information service revenues, if we were to exercise our permissive
authority?
77. Alternatively, should we assess only the telecommunications
(i.e., the transmission) component, and if so, how would we determine
what portion of the integrated service revenues should be associated
with the transmission component? For example, the MPLS Industry Group
proposes that revenues associated with the access transmission
components of all MPLS-enabled services be imputed on a uniform basis
and made subject to USF contributions obligations through Commission-
established ``MPLS
[[Page 33906]]
Assessable Revenue Component'' proxies. In other cases, the underlying
transmission is separately offered on a Title II basis, which could
provide a basis for assessing only the revenues associated with the
transmission component. We seek comment on the MPLS Industry Group
proposal. Is such a proposal workable for other similar services?
78. We seek comment on the following rule: If an entity offers an
assessable information service with an interstate telecommunications
component, it must treat all revenues for that information service as
assessable revenues, unless it offers the transmission underlying the
information service separately on a stand-alone basis. If it offers the
transmission on a stand-alone basis, it may treat as assessable
revenues an amount consistent with the price it charges for stand-alone
offerings of equivalent transmission.
79. We seek comment on whether this rule would simplify the process
of determining assessable revenues for information services in a way
that is transparent, enforceable, and easily administrable. How would
such a rule be enforceable if the provider did not offer the underlying
transmission on a stand-alone basis? In such circumstances, should we
craft a rule that looks at the general retail price of such
transmission services when offered on a stand-alone basis by other
providers? Would the proposed rule change incentives to offer (or not
offer) telecommunications transmission on an unbundled basis? Would
such a rule create competitive disparities between providers that
choose to offer transmission on a stand-alone basis (such as small
rate-of-return carriers that offer broadband Internet access) and
providers that do not offer transmission separately (such as cable
operators in the same geographic area as those rate-of-return
carriers)?
80. In the alternative, should we craft a rule, or a safe harbor,
that provides for assessment of a certain percentage of the retail
revenues of information services with a telecommunications
(transmission) component? Would it be legally permissible for the
Commission to assess a set percentage of the retail revenues, even when
such percentage might exceed the allocated revenues associated with the
underlying transmission in that information service? Would a set
percentage be easier to administer, reduce compliance costs, and
otherwise be in the public interest? Would it create competitive
distortions? Should the percentage vary depending on the type of
information service at issue? Is some other formula for determining the
assessable percentage of retail revenues of an information service
appropriate?
81. For each of these alternatives, we seek comment on how the
approach would impact the overall contributions base, as well as the
individual burden on contributors and consumers. We also seek comment
on what steps would need to be taken to implement the proposals above
or alternative proposals for apportioning revenues from information
services for USF contribution purposes. How much time would parties
need to transition to a new method of apportioning revenues from
information services with an interstate telecommunications component?
c. Allocating Revenues Between Inter- and Intrastate Jurisdiction
82. We seek comment on modifying or eliminating the requirement
that carriers are assessed based on interstate and international
revenues. While that requirement may have made sense when the
Commission initially implemented the Act, the marketplace has changed
dramatically since 1996 and will evolve with the continued deployment
of IP-based networks.
83. As a general matter, we seek comment on whether the Act compels
us to only assess a portion of revenues associated with services that
operate interstate, intrastate, and internationally. We also seek
comment on whether as a policy matter we should require that revenues
be allocated based on the jurisdiction that regulates the associated
service. Does this construct make sense in an environment where many
contributors are not rate regulated, and many of the services they
offer are only lightly regulated?
84. One approach would be to adopt a rule that requires all
providers that are subject to contributions to report and contribute on
all of the revenues derived from assessable services rather than
require providers to allocate revenues between the interstate and
intrastate jurisdictions. Since many services offered today are not
priced and sold separately as intrastate or interstate service, any
designated allocation between jurisdictions may be arbitrary to some
extent. In the TOPUC decision, the court found that the Commission did
not have jurisdiction to assess federal universal service contribution
on intrastate revenues. Given the changes in the marketplace, would the
TOPUC decision prohibit assessing a federal universal service fee on
the entire service?
85. The State Members of the Joint Board argue that the regulatory
jurisdiction over a service should not determine whether that service
contributes to universal service. They note that the states may
constitutionally impose sales taxes on both interstate and intrastate
telecommunications, and they suggest that the U.S. Constitution does
not prohibit there being both a federal universal service surcharge and
a state universal service surcharge on all services delivered over the
public communications network. They acknowledge that the 1999 TOPUC
decision limited the Commission from imposing universal service
surcharges on intrastate services, but they contend that TOPUC was
wrongly decided. We seek comment on the State Members' analysis and ask
commenters to address whether it would be consistent with section
254(d) for the Commission to require contributions on all revenues
derived from services delivered over a public network.
86. Would a rule that assesses all revenues from services that
operate interstate, intrastate, and internationally without allocation
for intrastate operations advance our proposed goals for reform? How
would such a rule impact the contribution base, today and in the
future? We note that the sum of interstate, international, and
intrastate revenues for all filers was $210 billion in 2010, while the
contribution base (the total of reported assessable revenues) for 2010
was $67 billion. If such a rule had been in place in 2010, i.e., a rule
that assesses all interstate, intrastate, and international revenues,
the contribution factor would have been roughly four percent, instead
of 14 percent on an annualized basis. Would such a system be
significantly simpler to administer, reducing the costs of complying
with our contribution rules? How would such a system affect states? How
would such an approach affect the allocation of the contribution
burden, especially between residential consumers and enterprise
consumers? For example, would residential consumers end up paying (in
USF pass through charges) a substantially higher portion of the USF
burden than they do today, compared to enterprise customers? If so, are
there ways to offset or limit this effect? Commenters are encouraged to
provide additional data and analysis regarding the impact of such a
rule change.
87. Another alternative would be to adopt bright-line rules for how
companies should allocate revenues between jurisdictions for broad
categories of services. If we were to adopt such rules, how narrowly or
broadly should we define the relevant
[[Page 33907]]
services? As shown in Chart 5 below, the percentage of end user
revenues that are reported as interstate/international have remained
relatively stable for the major subcategories of revenue that have been
reported on FCC Form 499 between 2004 and 2011. Should we adopt a
separate allocator for each major category of service presently
reported on Form 499 (fixed local services, mobile services, toll
services), or should we follow a simpler approach, for instance, with
just two allocation rules: one for voice and one for data services? For
instance, we could adopt a standard allocator for all voice revenues,
regardless of technology (fixed or mobile, traditional telephony or
interconnected VoIP). Under such an approach, we could specify that
voice revenues should be allocated according to a specified ratio, such
as 20 percent interstate and 80 percent intrastate. Should the
interstate allocation be higher or lower? Is there any policy
justification for setting a different percentage for voice based on the
type of carrier or technology used?
88. In other contexts, the Commission has recognized that Internet
access services are jurisdictionally interstate because end users
access Web sites across state lines. We seek comment whether a similar
finding should be made for USF contribution purposes. Specifically, if
we use our permissive authority to expand or clarify USF contribution
requirements to include enterprise communications services, text
messaging services, and broadband Internet access services (both fixed
and mobile), should we find that for USF contribution purposes,
revenues from such services should be reported as 100 percent
interstate? Alternatively, should we use an allocator lower than 100
percent interstate for contribution purposes, to preserve a revenue
base that could be assessed for state universal service funds?
89. What data should be considered when developing that fixed
percentage of interstate and intrastate revenues for services? Appendix
C presents in more detail the percentage of end user revenues that are
reported as interstate/international for each individual subcategory of
end user revenue reported on FCC Form 499 for the periods of 2004
through 2011. For 2011, filers reported $73.5B in total revenues for
fixed local revenues, with 30 percent allocated to the interstate
category and 0.6 percent allocated to the international category. For
mobile services, filers reported $106.6 billion in total revenues in
2011, with 22.8 percent allocated to the interstate category and 0.4
percent allocated to the international category. For toll services in
2011, filers reported $34.3 billion in total revenues, with 50.3
percent allocated to the interstate category, and 21.4 percent
allocated to the international category. We note that there is
significant variation in some of the individual subcategories of
revenues as currently reported on FCC Form 499. How should our decision
be informed by the interstate percentages reported for individual
subcategories of service as reported on the current Form 499, such as
fixed local exchange (line 404) and mobile services monthly and
activation charges (line 409)?
90. To what extent should we take into account ratios reported by
wireless carriers and interconnected VoIP providers in their traffic
studies? If we were to adopt a ratio applicable to the broad category
of ``mobile services,'' for instance, should we base the percentage for
mobile services, on the average (23 percent) or median (19 percent)
ratio that carriers have reported in their most recent traffic studies?
Commenters that support a different percentage should explain why
adoption of that alternative is preferable.
91. If we were to adopt such a rule specifying that a set
percentage of revenues should be reported as interstate for a category
of service, should carriers still be permitted to make a particularized
showing that a higher percentage of their traffic is intrastate? Should
the Commission adopt a mechanism to periodically update the percentage
and, if so, what would be the basis for updating the fixed percentage
factor? How would such a rule impact the contribution base, today and
in the future? Commenters are encouraged to provide additional data and
analysis regarding the impact of such a rule change.
92. Would adopting a fixed allocation method for categories of
services, or an across the board fixed allocation method, further our
proposed goals for contribution reform? Using a single allocation
factor for contribution purposes could potentially minimize competitive
distortions among providers offering similar services. Would a single
allocation factor help stabilize the contribution base by eliminating
incentives for providers to underreport their interstate
telecommunications revenues? Would a single allocation factor lessen
providers' compliance burdens by eliminating the need to perform
traffic studies or to maintain and update the methodology used to
establish their good-faith estimates? Would using a single allocation
factor potentially provide greater predictability?
93. We seek comment on whether, if we were to adopt a rule imposing
a fixed interstate allocator, we would be legally required to adopt a
procedure by which a provider could ``opt-out'' of using the single
allocation factor and instead make an individualized showing. We seek
comment on whether allowing any telecommunications provider to opt-out
would negate the administrative simplicity of adopting a single
allocator for purposes of universal service contributions. To the
extent that any commenter believes there should be a mechanism to
``opt-out'' of the fixed allocation factor, it should explain what
showing should be required to opt out, and what steps the Commission
should take to minimize competitive distortions that may arise if
alternative allocations are used for certain types of providers or for
certain types of traffic. For example, should a provider that opts out
of the fixed allocation factor be required to allocate revenues on a
customer-by-customer basis, given that each customer actually uses the
purchased telecommunications differently?
94. We also seek to develop a factual record on the regulatory
compliance costs stemming from the current requirement to allocate
revenue between the intrastate and interstate jurisdictions. We seek
comment and data submissions regarding the costs imposed on companies
today to separate their revenues in this fashion, and the costs
associated with performing a traffic study on an annual basis. We
encourage companies to provide estimates not only of the costs
associated with their legal and regulatory personnel, but also to
include any other costs that compliance with such requirements may pose
on other personnel, including accounting, billing, sales, network, IT,
and marketing staff, and any costs associated with hiring outside
resources, such as attorneys or consultants, to assist in implementing
such requirements or responding to any audits or investigations
relating to this aspect of our contribution rules.
95. To the extent commenters have concerns about any of these
proposals; they should present alternative methods for simplifying the
allocation of revenues between the interstate and intrastate
jurisdictions and explain how their proposals would meet the proposed
contribution reform goals set forth in this Notice. If we do not adopt
a fixed factor or factors to allocate telecommunications revenues, what
modifications should we consider making to the current rules?
[[Page 33908]]
96. If we continue to allow use of traffic studies to estimate the
allocation of interstate revenues, should we codify specific
requirements or provide greater detail in the Form 499 instructions for
how traffic is categorized in traffic studies to ensure that reporting
entities are conducting the studies in a competitively neutral manner?
We seek comment on current practices for classifying traffic for
traffic studies. We have some concerns that contributors may be using
different methodologies in conducting traffic studies, given the broad
variation in reported ratios. It is surprising, for instance, that nine
wireless providers report no interstate or international revenues at
all. Similarly, the fact that 47 VoIP filers report no interstate/
international revenues, while some others report ratios relatively
close (but slightly under) the current 64.9 percent safe harbor, also
suggests that VoIP providers may be classifying their traffic in
significantly different ways, and there may be a need to provide more
standardized guidance regarding how to perform a traffic study. We seek
comment on this analysis.
97. We seek comment on what steps would need to be taken to
implement the approaches above or alternative approaches to simplify
the allocation of interstate and intrastate revenues for federal USF
contribution purposes. We also seek comment on how much time, if any,
parties would need to transition to any new allocation method.
d. Contribution Obligations of Wholesalers and Their Customers
98. Value-Added Approach to Assessing Contributions. We seek
comment on whether we should modify the existing universal service
contribution methodology to assess ``value-added'' revenues rather than
``end-user'' revenues. Under this value-added approach, each
telecommunications provider in a service value chain (including both
wholesalers and resellers) would contribute based on the value the
provider adds to the service. Thus, in a revenue-based system, a
wholesaler would contribute on its wholesale revenues, and a reseller
of those services would contribute based on its retail mark-up.
99. Under this value-added revenues approach each provider in a
distribution or value chain would contribute based on the provider's
total interstate and international revenues, less a credit for any
telecommunications services or telecommunications purchased from other
contributors in the distribution or value chain. Contributors would
not, therefore, need to distinguish between revenues from end users and
revenues from other telecommunications providers.
100. We seek comment on the following potential rule change, which
could implement a value-added revenues system: A contributor must
contribute based on its projected assessable revenue less a credit for
telecommunications services or telecommunications purchased from other
contributors. Contributors shall report such revenues on the FCC Form
499-A and 499-Q Telecommunications Reporting Worksheets or such other
forms or filings as the Commission may prescribe from time to time.
Projected revenue information shall be subject to an annual true up, as
prescribed from time to time by the Commission in its
Telecommunications Reporting Worksheet instructions.
101. We ask whether the proposed value-added revenues approach
would meet the proposed goals of improving administrative efficiency,
while ensuring sustainability of the Fund. For example, how would a
value-added system further our proposed goals of simplifying
administration and oversight of the contribution system? Would a value-
added system reduce incentives to structure transactions to avoid
contribution obligations? Would adoption of a value-added system have
unintended consequences that undermine our proposed goals in reforming
the system? What records should contributors be required to retain to
demonstrate compliance with a value-added system? For example, if we
adopted the rule proposed above, should contributors be required to
retain (and/or report) back-up for the ``credit for telecommunications
services or telecommunications purchased from other contributors''?
102. As an alternative to reporting on the revenues earned minus
any amounts paid for telecommunications service inputs, should we
implement a value-added methodology in which carriers instead subtract
from their final contribution liability any pass-through charges paid
to other contributors? If so, should we require or permit
telecommunications providers to pass through an explicit universal
service line-item charge to customers that are also telecommunications
providers? Would a pass-through charge in these limited circumstances
enable telecommunications providers and USAC to verify the universal
service charges paid by one contributor to another for purposes of
calculating the credit the contributor should receive against its own
contribution obligation? Would mandated pass-through charges benefit
competition by eliminating the ability of wholesale providers to
distinguish service offerings based on whether or how they pass through
universal service charges to their reseller customers? Would allowing
providers to retain discretion over whether to recover their
contributions implicitly or via an explicit line-item charge further
our proposed goals of ensuring competitive neutrality and simplicity in
the USF contribution system? Under a value-added assessment system, how
should we treat transactions between wholesale providers and non-
carriers (e.g., retailers or distributors of prepaid calling cards), or
transactions between wholesale providers and entities that are
currently exempt from directly contributing to the Fund (e.g., non-
profit schools, non-profit libraries, non-profit colleges, non-profit
universities, and non-profit health care providers)?
103. If we adopt a value-added system based on credits for pass
through charges paid to other providers, we seek comment on whether we
should scale or otherwise limit the credit a telecommunications
provider receives to account for the fact that this system may exclude
some telecommunications revenues from assessment. We also seek comment
on the implementation of a value-added system. What would be an
appropriate time frame for implementing such a rule? For example, to
what extent would the existence of long-term contracts warrant delaying
implementation of a value-added revenues system? If we delay
implementation, what would be a reasonable period of time to transition
to this system?
104. We request clear and specific comments on the type and
magnitude of likely benefits and costs of the suggested rule, and
request that parties claiming significant costs or benefits provide
supporting analysis and facts, including an explanation of how data
were calculated and identification all underlying assumptions.
105. Value-Added Approach for Alternative Contribution
Methodologies. The value-added revenues system discussed above assumes
retaining a revenues-based contribution system. We seek comment below
on moving from a revenues-based contribution system to a system based
on assessing connections or numbers. Commenters should indicate whether
a value-added system could and should be developed for a connections-
based or numbers-based contribution system. If value-added is needed or
advisable for such other contribution systems, commenters
[[Page 33909]]
should explain the basis for such analysis, and should indicate how a
value-added system would work in such instances.
106. We note that one of the considerations in crafting the current
revenue-based system focused on end users was to avoid ``double
counting'' revenue. We ask commenters whether a connections or numbers-
based system may also raise concerns of double counting, and if so, how
a value-added proposal could be crafted to address this issue. More
generally, we seek comment on whether avoiding double counting remains
a significant policy concern, and if it should inform the structure of
a contributions methodology system.
107. In particular, we seek comment here on whether a value-added
system similar in concept to the value-added revenues proposal set
forth above for a revenues-based system may be desirable for
connections, and if so, how such a system would operate. If we were to
adopt a service-based definition of connections, there could be
situations in which a wholesaler sells a ``connection'' to a reseller
who adds value by separately selling more than one service over that
connection. For instance, to the extent Carrier A sells a connection to
Carrier B, and then Carrier B sells two connections to the retail
customer, would it simplify administration of a connections-based
system if both Carrier A and B are assessed based on the connections
provided to their respective customers, with Carrier B receiving a
credit for the number of connections it has purchased from a wholesale
provider so that, in this example, Carrier A and B would each be
assessed for one connection?
108. We also seek comment on how one might adopt a value-added
approach for a numbers-based methodology. Would a value-added approach
work in which each provider of interstate telecommunications in a
service value chain (including both wholesalers providers and their
customers) that provides a number to a customer would contribute on
that number, with a credit provided to the extent a carrier obtains
lines with numbers from another provider? Alternatively, would it make
sense to adopt a system in which a wholesaler could contribute on its
wholesale numbers at a lesser adjusted rate, and its customer could
contribute based on a higher per-unit rate for numbers associated with
services provided to retail customers, with an adjustment made for any
pass-through charges paid to the wholesale provider?
109. Reasonable Expectation Standard. We seek comment on potential
bright line rules that we could adopt that would provide greater
clarity to contributors as to what steps they must take to properly
report their assessable revenues and lessen the need to engage in such
fact-intensive inquiries, if we maintain a revenue-based contribution
methodology.
110. We seek comment and data submissions regarding the costs
imposed on companies today to separate their wholesale from their
retail revenues, and the costs associated with complying with the
requirement that they demonstrate a reasonable expectation that their
customers are contributing to USF. We encourage companies to provide
estimates not only of the costs associated with their legal and
regulatory personnel, but also to include any other costs that
compliance with such requirements may pose on other personnel,
including accounting, billing, sales, IT, and marketing staff, and any
costs associated with hiring outside resources, such as attorneys or
consultants, to assist in implementing such requirements or responding
to any audits or investigations relating to this aspect of our
contribution rules.
111. We seek comment on whether we should adopt a rule mandating
greater specificity in contributor certifications regarding the
services on which the certifying entity is contributing, so that
wholesalers are in a better position to determine which of their
revenues should be classified as carrier's carrier revenues. Many
contributors may obtain such certifications from their customers only
on an entity-wide basis, rather than on a service-specific basis,
because the model certification language provided in the instructions
beginning in 2007 does not specify service-specific certifications.
112. We seek comment on adopting a rule that would establish the
following language for customer certifications:
I certify under penalty of perjury that the company is
purchasing service which is incorporated into the company's
offerings. I also certify under penalty of perjury that either my
company contributes directly to the federal universal support
mechanisms for those offerings that incorporate this wholesale
service, or that each entity to which the company, in turn, sells
those offerings has provided the company with a certificate in the
form specified by Commission rules.
OR I certify under penalty of perjury that the company is
purchasing service for which is incorporated into the company's
offerings. I also certify under penalty of perjury that:
(check one)
The company contributes directly to the federal universal
service support mechanisms for those service offerings that
incorporate the wholesale service, or if the company resells the
service to another contributor, that the company has received a
certification from each customer in a form specified by Commission
rules that the customer will contribute directly based on revenues
from each such service.
The company contributes on [number] percent of the revenues for
services that incorporate the wholesale service, or has received a
certification from its customer stating that the customer will
contribute directly based on revenues from the service. On the
remaining [number] percent of the revenues of the service that
incorporates the wholesale service, the company does not directly
contribute, and it does not sell that service to another
contributor.
I also certify under penalty of perjury that the company will
notify [name of wholesale provider] within [30 or 60 days] if the
information provided in this certification changes.
113. Specificity as to Incorporation of Wholesale Services into a
Finished Service. It appears that under our current requirements,
certain revenues may be escaping assessment altogether, in situations
where a wholesaler does not contribute on revenues derived from
customers that it believes to be contributing when in fact the customer
is not contributing on those revenues. We seek comment on the magnitude
and prevalence of this problem. In these and other analogous
situations, should there be an affirmative obligation on the part of
the entity that purchases the wholesale telecommunications to specify
in its certification the extent to which the wholesale input is
incorporated into assessable services versus non-assessable services?
For instance, should we adopt the following rule: To the extent a
company purchases services that are incorporated into its own
offerings, with some of the offerings subject to universal service
contributions and some of the offerings not subject to universal
service contributions, the purchaser has an affirmative obligation to
provide information to its wholesale provider sufficient for the
wholesaler to allocate the revenues associated with its service as
carrier's carrier revenue or end-user revenue.
114. What burdens would such a rule impose on entities that
purchase wholesale telecommunications to incorporate into their
finished offerings, and what measures could be implemented to minimize
such burdens? If we were to adopt such a rule, what metric should the
purchasing entity use in developing the relevant allocations? For
instance, should it base the percentage on the number of circuits, the
revenues associated with individual circuits (to the extent that can be
determined), the average usage of a circuit, or something else?
[[Page 33910]]
115. We seek comment on whether to adopt a rule imposing an
affirmative obligation on entities purchasing wholesale
telecommunications that sign certifications to notify their wholesale
carrier within a specified period of time, such as 30 or 60 days, if
their contribution status changes over the course of the year. For
instance, we seek comment on the following rule: Providers who provide
contributor certifications to their wholesale carriers must notify
their wholesale carrier within [30 or 60] days if the contribution
status provided in the certifications changes.
116. Today, there may be situations where an entity certifies in
good faith at the beginning of the year that it is a contributor with
respect to the services provided to its retail customers, but
subsequently it ceases to be a contributor. This could occur, for
instance, if the entity purchases a special access circuit from a
wholesaler, and initially expects to provide special access to a retail
customer, but ultimately uses that circuit to provide broadband
Internet access service, which is not assessable under our current
rules. Or an entity purchasing wholesale telecommunications may expect
to contribute, but ultimately it turns out to be a de minimis
contributor due to lower than expected revenues. In both situations,
the wholesaler would not contribute on the services (because it has a
contributor certificate from its customer), but its customer ultimately
does not contribute, resulting in revenues not being subject to
contributions at any point in the value chain. Commenters should
address the time frame in which such notification should occur, and
what specific procedures should be followed. To the extent that parties
support elimination of certifications in favor of an alternative system
or a bright line, we ask them to provide specific details on how any
such alternatives would be implemented, administered, and enforced.
117. Another alternative on which we seek comment is whether we
should assess wholesalers at their point of sale, but not their
customers, so long as the wholesaler certifies that the contribution
has been or will be paid. Would such an approach be easier to
administer? Are there disadvantages to such an approach? Commenters
should indicate, to the extent possible, the reduction to the
contribution base if we were to adopt such an approach and how such an
approach would impact contribution burdens.
118. Improved Certification Requirements Compared to Value Added
Revenues System. Commenters are encouraged to compare and comment on
both the improved certification system and the value-added system
discussed immediately above in this Notice. Is there a particular
advantage over one approach over the other? Do aspects of both
approaches need to be adopted? If we adopt a value-added revenues
system, should we adopt modifications to our contributor certification
rules on an interim or transitional basis while we implement the value-
added approach?
119. Improved Certification Requirements for Alternative
Contribution Methodologies. We also seek comment on moving from a
revenues-based contribution system to a system based on assessing
connections or numbers. Commenters should indicate whether similar
contributor certification requirements as discussed above should be
developed for a connections-based or numbers-based contribution system.
If improved certification requirements are needed or advisable for such
other contribution systems, commenters should explain the basis for
such analysis, and should indicate how the contributor certifications
would work in such instances.
120. We ask commenters whether a connections or numbers-based
system may also raise concerns of double counting, and if so, how a
contributor certification could be crafted to address this issue. More
generally, we seek comment on whether avoiding double counting remains
a significant policy concern, and if it should inform the structure of
a contributions methodology system.
In particular, we seek comment here on whether improved contributor
certifications similar in concept to the proposals discussed above
might be desirable for connections, and if so, how such a system would
operate. If we were to adopt a service-based definition of connections,
there could be situations in which a wholesaler sells a ``connection''
to a customer who adds value by separately selling more than one
service over that connection. We also seek comment on how one might
adopt contributor certifications for a numbers-based system.
e. Contribution Obligations of Wholesalers and Their Customers
121. Reporting Prepaid Calling Card Revenues. Our rules require
prepaid calling card providers to contribute to the Fund based on their
end-user revenues. We seek comment on modifying existing rules to
provide clarity to the industry in response to requests from USAC and
record evidence suggesting different prepaid calling card providers may
be interpreting our rules in different ways, which may result in an
unlevel playing field for competitors of these services. We seek
comment on adopting a rule to require prepaid calling card providers to
report and contribute on all end-user revenues, and who should be
deemed the end user for purposes of such a rule. We ask whether prepaid
calling card providers should only report amounts paid by the entity to
which the provider directly sells the prepaid service. Alternatively,
we seek comment on adopting a rule to require prepaid calling card
providers to contribute based on the amounts paid by end users for
prepaid cards, whether the prepaid calling card is purchased by the end
user directly from the prepaid calling card provider or from a
marketing agent, distributor, or retailer. We also ask about the
application of the value-added contribution paradigm, discussed above,
to assessment of prepaid calling card service. In addition, we seek
comment on measures to standardize how providers report prepaid calling
card revenues, eliminating incentives or opportunities for providers to
avoid their USF contribution obligations. We also solicit comment on
whether adopting these reforms would further our proposed goals for
reform and the potential impact on the Fund if we were to adopt the
measures described below.
122. Defined Terms. We first seek comment on modifying the
definition of prepaid calling cards as explained below. The terms
``prepaid calling cards,'' and ``prepaid calling card providers'' are
defined in Sec. 64.5000 of our rules, as adopted by the Commission in
the Prepaid Calling Card Services Order, 71 FR 43667, August 2, 2006.
The definition of a prepaid calling card is fairly expansive,
encompassing not just physical cards that require the input of a
personal identification number (PIN) but also any ``device'' that
provides end users with the same or similar functionality. Although we
propose retaining these definitions, we seek comment on whether we
should add the phrase ``or service'' to the definition to make clear
that our prepaid calling card rules will encompass new ways to market
prepaid telecommunications services that do not involve using a PIN or
a device. Such a modification could read as follows (new language
underlined): (a) Prepaid calling card. The term ``prepaid calling
card'' means a card or similar device or service that allows users to
pay in advance for a specified amount of
[[Page 33911]]
calling, without regard to additional features, functions, or
capabilities available in conjunction with the calling service; (b)
Prepaid calling card provider. The term ``prepaid calling card
provider'' means any entity that provides telecommunications service to
consumers through the use of a prepaid calling card.
123. We also seek comment on whether we should define, for purposes
of prepaid calling cards, the term ``prepaid calling card distributor''
as we use it in the context of reporting prepaid calling card revenues.
The use of such term would acknowledge that prepaid calling cards are
often sold by means of marketing agents, distributors or retailers. We
seek comment on the following proposed definition: Prepaid calling card
distributor. A marketing agent, distributor, retailer, or other third
party that sells or resells prepaid calling cards on behalf of a
prepaid calling card provider.
f. Reporting Prepaid Calling Card Revenues
124. We also seek comment on alternative methods prepaid calling
card providers should use to report revenues from prepaid calling card
services. Today, prepaid calling card providers are required to report
and contribute on the end-user revenues from the sale of prepaid
calling card services. The current version of the Telecommunications
Reporting Worksheet instructions calls for reporting of such revenues
by the prepaid calling card provider, whether the end user purchases
the card from the prepaid calling card service provider or a marketing
agent, distributor, or retailer. Some stakeholders contend that this
method, which requires providers to report the ``face value'' of a card
as assessable revenue--not the amount actually paid by the provider's
end-user customer--is unrealistic considering that many cards do not
have a face value, and contributing providers often do not know and
have no control over the ultimate retail price of a calling card.
125. We first seek comment on limiting the contribution and
reporting requirements of prepaid calling card providers to report
amounts paid only by the person or firm to whom the provider directly
sells the prepaid card. Prepaid calling card providers that sell
directly to an end-user customer would, as now, easily identify and
report the assessable revenue amount. However, in situations where the
provider sells the card to an intermediate distributor or retailer,
rather than an end-user customer, under this paradigm we would require
the provider to report revenue actually received from the intermediate
distributor. This concept presumably would make it simpler for prepaid
providers to report accurate revenues because they would recognize
actual assessable revenue amounts from the sale to the end-user
customer or the intermediate distributor and would not be required to
estimate the amount paid by an end-user customer with whom the provider
has no retail relationship. This approach could benefit providers and
the Fund by permitting providers to report the revenue realized in a
more timely fashion. We seek comment on this alternative and ask
whether including an intermediate distributor or retailer in the
definition of an end user for the purpose of reporting prepaid calling
card revenue would create any competitive distortions or create
disparities among different types of contributors.
126. In the alternative, we seek comment on codifying in greater
detail the approach reflected in the existing Form 499 instructions. We
first specifically inquire how prepaid calling card providers should
report revenues from sales of prepaid calling card services to
marketing agents, distributors, or retailers. The Form 499 instructions
state that the revenue to be included in a provider's contribution
calculation is the amount actually paid by the end-user customer, not
the price paid to the prepaid calling card provider by intermediate
marketing agents, distributors, or retailers, even when the distributor
pays a different amount than the end user.
127. Should there be symmetry in the way that prepaid calling card
service transactions and other transactions are treated for USF
contribution purposes? For example, the Form 499 instructions also
state that payphone providers should not deduct from reported revenues
commission payments to owners of premises where payphones are located.
Should we also adopt a rule that payphone providers may deduct from
reported revenues discounts provided to intermediate distributors? We
seek comment on potential bright lines that would simplify
administration of contributions reporting for prepaid calling
providers.
128. Adopting a bright-line standard for reporting end-user
revenues could reduce or eliminate competitive disparities among
providers of similar services. We seek comment generally on adopting a
bright-line standard that contributors must use to report prepaid
calling card revenues. Would a bright-line standard create an incentive
for prepaid calling card providers to establish a process with their
marketing agents, distributors, and retailers to specifically identify
and report the actual prices paid by end users? Should we also consider
implementing a safe harbor for providers to estimate end-user revenues
when the price paid by the end-user customer cannot readily be
determined by the prepaid calling card provider?
129. If we adopt a bright-line standard, we seek comment on what
mark-up would be appropriate for prepaid calling card providers to use
in determining end-user revenues. Given this wide range of estimated
mark-ups, we seek comment on whether a standard mark-up of 50 percent
would be a reasonable mid-point between the various estimates that have
previously been suggested by commenters. We also seek comment on
whether a higher or lower standard mark-up would be more representative
of industry practice or would better serve in creating an incentive for
providers to work with their marketing agents, distributors and
retailers to identify the actual price paid by end-users. Adopting a
standard mark-up that falls at the higher end of the scale, for
example, may provide a greater incentive for prepaid calling card
providers to determine and report the actual prices paid by end users.
Parties should provide specific data to support their arguments.
130. To further ensure that all reporting entities are reporting
prepaid calling card revenues in a consistent manner under the current
system, we seek comment on requiring prepaid calling card providers to
report revenues derived from the sale of prepaid calling cards not
later than 60 days after the date the cards are sold by the prepaid
calling card provider to a prepaid calling card distributor. Adopting a
rule that creates an appropriate time limit for recognizing revenue
derived from the sale of prepaid calling cards could serve to further
reduce competitive distortions that arise from disparate
interpretations and application of our rules. We seek comment on this
analysis. We also seek comment on whether it is reasonable to expect
that most cards are sold within sixty days of the date the provider
bills the prepaid calling card distributor for the cards, taking into
account a 30-day billing cycle and an additional 30 days for the end
user to purchase the card.
131. We seek comment on whether these alternative ideas further our
proposed goal of ensuring that contribution assessments are fair. Would
such a rule be simple to administer? Are there policy reasons prepaid
calling card providers should be allowed to reduce or adjust reported
[[Page 33912]]
revenues based on discounts provided to prepaid calling card
distributors?
132. We also ask about the relationship between assessment of
prepaid calling card providers and the ``value-added'' approach to
assessing revenues discussed above. Under this approach, each
telecommunications provider in a service value chain (including
wholesalers, distributors, and reselling retailers) would contribute
based on the value the provider adds to the service. As applied to the
prepaid calling card marketplace, any firm that derives revenue from
the sale of prepaid calling card services would report and contribute
based on that revenue and would be permitted to take a credit based on
contributions made by other contributors in the chain. We seek comment
generally on this approach and inquire about the potential impact on
firms that are not already reporting revenue or contributing to the
Fund, such as retailers and other non-contributors. Should we consider
an exemption from any reporting and contribution obligations for
certain categories of retailers or distributors? If so, what would be
the basis for such an exemption? What would be the impact on other
contributors in the prepaid card chain, such as the service provider?
Should we also consider a more limited exemption such that we require
these companies only to report revenue derived from the card in order
to ensure the Fund is fully compensated? Finally, we seek comment on
what steps would need to be taken to implement any of the ideas
discussed above or any alternative proposals to modify the contribution
reporting requirements for prepaid calling card revenues. We also seek
comment on how much time parties would need to transition to any such
new rules.
g. International Telecommunications Providers
133. We seek comment on whether we should eliminate the limited
exemption for providers whose revenues are exclusively or predominantly
international. We seek comment on modifications to our current rules
regarding the contribution obligations of international providers.
134. Eliminating the ``International Only'' and the ``Limited
International Revenues'' Exemptions. We seek comment on whether the
Commission should eliminate the exemption for international-only
providers and Limited International Revenues Exemption (LIRE)-
qualifying providers, and our legal authority for doing so. In 1997,
the Commission interpreted section 254 of the Act, and specifically our
authority to assess all ``providers of interstate telecommunications,''
as drawing a three-way distinction between intrastate, interstate, and
international telecommunications. We seek comment on whether, in light
of the changes in the industry and telecommunications marketplace,
section 254's reference to interstate telecommunications in the context
of universal service contributions is better viewed as drawing a
jurisdictional line between the authority of the states (which have
authority over providers of intrastate telecommunications under section
254(f)) and the authority of the Commission (which has authority over
providers of interstate telecommunications under section 254(d)). Such
a reading of section 254 would parallel the Commission's reading of
other sections of that Act that divide responsibility between the state
and federal jurisdictions and include international services within the
Commission's jurisdiction. Alternatively, we seek comment on whether we
could rely on section 254(b)(4)'s principle of ``equitable and
nondiscriminatory contributions'' to require international-only and
LIRE-qualifying providers to contribute because these providers also
benefit from being able to originate or terminate traffic in the United
States. We note that the Act distinguishes ``foreign communication''
from both interstate and intrastate. Does that distinction affect the
Commission's authority to treat interstate and foreign
telecommunications in the same manner?
135. We also seek comment on whether the TOPUC decision limits our
ability to re-examine the international-only and LIRE exemptions today.
The Fifth Circuit in TOPUC held that the Commission's previous rule,
which had required providers with limited interstate telecommunications
revenues to contribute based on both their interstate and international
revenues but exempted providers without interstate telecommunications
revenues, was not ``equitable and nondiscriminatory.'' The court held
that the previous rule ``damage[d] some international carriers [i.e.,
limited-interstate-revenue providers] more than it harm[ed] others
[i.e., no-interstate-revenue providers].'' The court also found the
rule inequitable because it required limited-interstate-revenue
providers ``to incur a loss to participate in interstate service.'' The
court did not, however, make any findings or opine about the
Commission's jurisdiction to assess international revenues. Thus the
Commission should have significant discretion to revise its rules
regarding contributions on international revenues, consistent with the
Fifth Circuit decisions, so long as the new rule is equitable and
nondiscriminatory. We seek comment on this analysis and our ability to
eliminate the LIRE and to assess one hundred percent of a contributor's
interstate and international revenues, without a LIRE exemption.
136. Commenters that oppose the elimination of the ``international
only'' and the ``limited international revenues'' exemptions should
provide specific alternative rules and explain how their proposals will
support the proposed goals set forth in this Notice. We ask commenters
to provide data to quantify how our proposals or alternatives will
impact the Fund and reduce compliance costs and burdens.
137. Modifying the Limited International Revenues Exemption. If we
were to assess all international telecommunications revenues, as
suggested above, should we also eliminate the LIRE? In the alternative,
if we maintain an exemption for international-only providers, we seek
comment on whether modifying the LIRE and the contribution obligations
of LIRE-qualifying contributors may be appropriate.
138. Specifically, if we do not require LIRE-qualifying providers
to contribute on all of their end-user international telecommunications
revenues, we propose to require LIRE-qualifying providers to contribute
on at least a portion of those revenues. Moreover, the LIRE-qualifying
factor codified in our current rules (12 percent) may no longer provide
the ``adequate margin of safety'' it once did for providers that
primarily offer international services, given that the contribution
factor has remained above 12 percent over the past two years. We
therefore seek comment on ways to modify the LIRE-qualifying factor.
139. If we retain the LIRE, we seek comment on whether we should
modify the LIRE as follows: If the ratio of an entity's collected
interstate end-user telecommunications revenues to its combined
collected interstate and international end-user telecommunications
revenues is less than that year's LIRE-qualifying factor, that entity's
assessable revenues shall be its collected interstate end-user
telecommunications revenues plus an equal amount of its collected
international end-user telecommunications revenues, net of
contributions. (1) The LIRE-qualifying factor for a given year shall be
equal to the highest contribution factor
[[Page 33913]]
established for any quarter of the previous year plus three percent.
(2) For purposes of this subsection, an ``entity'' shall refer to the
entity that is subject to the universal service reporting requirements
and shall include all of that entity's affiliated providers of
interstate and international telecommunications and telecommunications
services.
140. We seek comment and (if appropriate) examples of how the LIRE
results in a competitive advantage for some providers. Providers that
qualify for the LIRE compete against non-qualifying providers that must
include all of their international revenues in calculating their
contribution base. LIRE-qualifying providers benefit from being able to
originate and terminate both interstate and international calls in the
United States. Further, we seek comment on whether the proposed
modification of the LIRE would advance the goal of fairness by treating
competitive providers in a like manner. Would it advance other of our
proposed goals for contribution reform, such as ensuring a stable
contribution base? Would requiring LIRE-qualifying providers to
contribute based on an amount of their international revenues equal to
their interstate revenues be a more equitable approach in today's
marketplace? Would the modification proposed above reduce the potential
regulatory advantage that LIRE-qualifying providers have over their
competitors? What impact would such a modification have on the Fund?
141. We also seek comment on whether we should set the LIRE-
qualifying factor based upon a formula rather than fixed percentage. A
fixed percentage assumes that the Commission can easily forecast
changes in the contribution base as well as changes in the demand for
universal service support. Neither of these assumptions has been valid
in recent years. The Commission has already had to increase the LIRE-
qualifying factor once to respond to the rising contribution factor.
Using a formula to establish the LIRE-qualifying factor should
eliminate the need for us to periodically rewrite our rules. Moreover,
a formula tied to the current contribution factor would also respond to
changes in the contribution factor. If, for example, future events
bring the contribution factor down, the LIRE-qualifying factor would
automatically decrease in future years, which should increase the
contribution base. Should we set the LIRE-qualifying factor one year at
a time to provide regulatory certainty for contributors? A three
percent increase tied to the current or anticipated contribution factor
is generally in line with previous increases to the LIRE. Would a three
percent increase, for example, over the previous year's highest
contribution factor, be sufficient to address unexpected events in the
future?
142. We seek comment on what steps would need to be taken to
implement the potential modifications outlined above or alternative
proposals to modify the contribution requirements for international-
only and predominantly international providers. We also seek comment on
how much time parties would need to transition to any modified or new
reporting requirements.
h. Reforming the De Minimis Exemption
143. We seek comment on streamlining the de minimis exemption to
ease administrative burdens. In particular, we seek comment on whether
we should modify the de minimis exemption to base the threshold on a
provider's assessable revenues rather than on the amount of its
contributions. We also seek comment on how we could potentially reform
our rules to minimize the filing requirements for companies that may be
subject to the exemption.
144. We seek comment on whether we should modify the Commission's
de minimis rules in an effort to reduce administrative burdens.
Specifically, we seek comment on revising the rule as follows to base
the de minimis threshold on a provider's assessable revenues rather
than on the amount of its contributions: If a potential contributor's
annual assessable revenues in any given year is $50,000 or less, that
contributor will not be required to submit a contribution or
Telecommunications Reporting Worksheet for that year unless it is
required to do so by our rules governing TRS, numbering administration,
or shared costs of local number portability. * * *A potential
contributor may--but need not--file the quarterly Telecommunications
Reporting Worksheet for the year after it qualifies as a de minimis
telecommunications provider.
145. Such a rule would set the de minimis threshold based on a
telecommunications provider's assessable revenues rather than what it
would have contributed. A potentially qualifying telecommunications
provider (and its underlying providers) should know with increased
certainty whether it will actually qualify as a de minimis
telecommunications provider as the exemption will no longer depend on
each year's quarterly contribution factors. We seek comment on this
analysis.
146. If we adopt this approach, is $50,000 the right cutoff for
assessable revenues to qualify for the de minimis exemption, or should
we adopt some other cutoff? We use $50,000 as a potential cut off
because today the de minimis exemption applies when the contribution
would be less than $10,000. If a contributor (under the existing de
minimis rule) has $50,000 in annual assessable revenues, and we assume
an average contribution factor for the year of 17 percent, that
contributor would qualify for the de minimis exception. We believe that
adopting a $50,000 revenues threshold would not change the number of
contributors that would qualify for the de minimis exemption, but would
simplify the application of the de minimis rule. Modifying the de
minimis exemption in this manner could be more equitable, could have a
smaller marginal impact, and may better align our requirements for
reporting and contributing without affecting those whose
``telecommunications activities are limited to such an extent that the
level of such carrier's contribution to the preservation and
advancement of universal service would be de minimis.'' We seek comment
on this analysis.
147. We also seek comment on whether such a rule would also reduce
the reporting obligations and regulatory uncertainty for de minimis
telecommunications providers with growing revenues. If so, we ask
commenters to quantify the savings. Should we make it optional for
contributors to file quarterly Telecommunications Reporting Worksheets
for a year after which a contributor qualified as de minimis? We seek
comment on whether we should adopt a rule that allows
telecommunications providers in that position to avoid filing quarterly
Telecommunications Reporting Worksheet in the first year for which they
are no longer a de minimis filer. Such a rule could strike a reasonable
balance between providing certainty to small (and growing) businesses
in the telecommunications marketplace and the need for all
telecommunications providers with a substantial presence to contribute
to universal service in an equitable manner. We note that such a rule
would not alter the obligation of telecommunications providers to file
the annual Telecommunications Reporting Worksheet.
148. We also seek comment on other reforms the Commission could
make to all of its de minimis rules--in the context of funding
universal service,
[[Page 33914]]
Telecommunications Relay Services (Interstate TRS), North American
Numbering Plan, Local Number Portability, and regulatory fees
administration programs--to relieve de minimis companies of the burden
of filing the annual Telecommunications Reporting Worksheet. We seek
comment on whether we should reform our rules for filing the annual
Telecommunications Reporting Worksheet and set the de minimis threshold
based on a metric that does not require completing the entire
worksheet. For example, should we establish an abbreviated form for
telecommunications providers with less than some cutoff value in gross
revenues? What metric should the Commission use for determining de
minimis status? We ask commenters to discuss whether and how
alternative metrics would be consistent with the language of section
254(d). What threshold should the Commission establish to permit filing
of the abbreviated form? How could we ensure that any revisions to
these de minimis rules will not undermine the stability of funding for
various federal regulatory programs or allow telecommunications
providers to evade contribution obligations? Commenters that oppose
such suggested rules should provide specific alternative rules and
explain how their proposals will support the goals of universal
service. We also seek comment on what changes, if any, may be needed in
our de minimis rules if we were to assess the international
telecommunications revenues of all telecommunications providers.
149. We seek comment on what steps would need to be taken to
implement any of the potential modifications detailed above or
alternative proposals to improve the contribution reporting
requirements for de minimis providers. We also seek comment on how much
time, if any, parties would need to transition to any new rules.
2. Assessing Contributions Based on Connections
150. We seek comment on moving from a revenues-based contribution
assessment system to a system based on connections. Nothing in the Act
requires contributions to be based on revenues, and the Commission has
explored a connections-based methodology in the past. We ask whether a
connections-based approach would better meet our proposed goals of
promoting efficiency, fairness, and sustainability in the Fund, as well
as other goals identified by commenters.
151. Under a connections-based system, providers would be assessed
based on the number of connections to a communications network provided
to customers. Providers would contribute a set amount per connection,
regardless of the revenues derived from that connection. Under various
proposals, there would be one standard monthly assessment for certain
kinds of connections, typically provided to individuals, and a higher
standard monthly assessment for higher speed or capacity connections,
typically provided to enterprise customers. There might be several
tiers for assessment based on speed or capacity. The standard
assessment and higher assessment levels for higher speed or capacity
connections would be calculated by applying a formula based on the USF
demand requirement and the number of connections, however that term is
defined. This contribution factor would apply equally for all
connections that fall into the same category, such that assessments
would no longer be based on revenues.
152. In 2001, the Commission first sought comment on replacing the
existing revenues-based methodology with one that assesses
contributions on the basis of a flat fee ``per unit'' charge. In early
2002, the Commission proposed an assessment mechanism based on the
number or speed of connections a contributor provides to a public
network. The Commission subsequently sought comment on various
iterations of a connections-based system, including hybrid systems that
would include a connections and revenues component.
153. Proponents of connections-based methodologies have argued that
a connections-based system may provide a more stable contribution base
than a revenue-based system because the number of connections has
historically been more stable than end-user interstate
telecommunications revenues. In addition, proponents have suggested
that connections-based assessments may mitigate the need to
differentiate between revenues from interstate and intrastate
jurisdictions and from telecommunications and non-telecommunications
services. Others have raised concerns that a connections-based system
would impose new costs on both industry and USAC in the form of new
data collection and reporting requirements, necessitating changes to
billing and reporting systems. Some have argued that a connections-
based system may be at least as complex to implement and administer as
a revenue-based system, with many operational details that would need
to be resolved. Despite several rounds of comment, the industry as a
whole has not reached consensus about whether connections-based
assessments are the best way to reform the contribution system: Some
providers have strongly opposed a connections system, others have been
agnostic about whether a connections-based system is the optimal
reform, and still others who once supported a move to a system that
includes a connections-based component appear to be re-evaluating their
position on this issue. In light of the varied connections-based
proposals, the evolution of the communications ecosystem, and the
comments received over the past decade, we now seek to refresh the
record on the operation of a connections-based system, as well as the
costs and benefits of such a system, as discussed below. We ask parties
claiming significant costs or benefits of a connections-based system to
provide supporting analysis and facts for such assertions, including an
explanation of how data were calculated and all underlying assumptions.
a. Legal Authority
154. Section 254(d) of the Act requires that ``[e]very
telecommunications carrier that provides interstate telecommunications
services shall contribute, on an equitable and nondiscriminatory basis,
to the specific, predictable, and sufficient mechanisms established by
the Commission to preserve and advance universal service.'' It also
gives the Commission broad permissive authority to require
contributions from a variety of providers. We seek to refresh the
record on whether a connections-based assessment would satisfy the
requirements of section 254(d). In responding to the specific questions
below, we invite commenters to address how a connections-based system
should be structured to fulfill the statutory requirement that
telecommunications service providers contribute on an equitable and
nondiscriminatory basis. If we were to adopt a connections-based
contribution methodology, should we also explicitly exercise our
permissive authority over specified providers to make clear that
connections provided by those providers would be assessed? How would we
ensure that all entities that contribute under a connections-based
system are providers of interstate telecommunications?
155. In 2002, the Commission proposed a hybrid revenues/
connections-based system that would require a mandatory minimum
contribution based on interstate telecommunications revenues for all
providers of interstate telecommunications. Under this proposal, all
non-de minimis
[[Page 33915]]
telecommunications carriers would contribute a mandatory minimum,
either based on a percentage of total interstate revenue, or based on
increasing percentages of telecommunications revenues or increasing
flat-fee amounts tied to their telecommunications revenues. Providers
with end-user customers would also be assessed on a flat fee basis for
residential, single line business, and mobile connections, and on a
tiered basis based on speed or capacity for multi-line businesses.
Providers with end-user assessments could offset their connections-
based assessment against their minimum contribution. In crafting this
proposal, the Commission was specifically addressing concerns that a
connections-based proposal would be inconsistent with section 254(d)'s
requirement that every provider of interstate telecommunications
service contribute. We seek to refresh the record on this proposal and
seek comment on whether, in fact, a mandatory contribution from every
interstate telecommunications carrier is required to satisfy the
requirements of section 254(d) that contributions be equitable and
nondiscriminatory.
156. We also seek specific comment on whether a connections-based
methodology is consistent with the Fifth Circuit's TOPUC decision,
which held that section 2(b) of the Act prohibits the Commission from
assessing revenues associated with intrastate telecommunications
service. The Fifth Circuit also interpreted the Act as limiting the
Commission's authority to assess international revenues, finding that
the Commission's contribution system may not inequitably and
discriminatorily assess providers more in universal service
contributions than the provider generates in interstate revenues. We
seek comment on the Commission's authority under a connections-based
system to assess international connections that either originate or
terminate in the United States and whether TOPUC would apply under such
a system. We also seek comment on whether, if we were to adopt a
connections-based system, we should adopt an exemption similar to the
LIRE under the current revenues-based system for connections that are
primarily international in nature, and if so, how to craft such an
exemption.
b. Defining ``Connections''
157. We seek comment on the definition of an assessable connection
that best meets our proposed goals of promoting efficiency, fairness,
and the sustainability of the Fund, as well as other goals identified
by commenters. As described below, the question of the appropriate
definition of an assessable connection is related to, but may be
distinct from, the questions raised in this Notice regarding what
providers and services should contribute to universal service.
158. Facilities-Based Definition. A facilities-based definition
focuses on the physical facility--either wired line or wireless
channel--that is provided by the contributor. Under a facilities-based
definition, the connection itself, and not the services that are
provided over the connection, would be assessed. For example, a
physical line to a residential home would be assessed as one
``assessable connection'' even if it provided multiple assessable
services to the customer. A multi-line business connection would
likewise be assessed based on speed or capacity of the facility and not
the services provided over the facility. A facilities-based approach
raises complexities, however, to the extent that the assessment varies
based on the speed of the facility, in circumstances where the physical
connection provides variable speed on demand.
159. If we were to adopt a facilities-based definition, would it be
appropriate to build on the definition that was suggested in late 2002:
a facility that provides end users with ``access to an interstate
public or private network, regardless of whether the connection is
circuit-switched, packet-switched, wireline or wireless, or leased
line''? For example, we seek comment on the following potential
definition of connection: Connection. A facility that provides end
users with access to any assessable service, whether circuit-switched,
packet-switched, wireline or wireless, leased line or provisioned
wireless channel. Alternatively, we seek comment on the following
potential definition of connection, building on the FCC Form 477:
Connection. A wired line or wireless channel used to provide end users
with access to any assessable service. Are there any significant
differences in what would qualify as ``connections'' under these
definitions?
160. We believe either definition could be used with either of the
two general approaches to defining assessable services described in
Section IV of this Notice. That is, either definition could be used
either if, as described in Section IV.B, we were to continue defining
assessable services as telecommunications services plus certain
enumerated other services, or if, as described in Section IV.C, we were
to adopt a more general definition of assessable services. We seek
comment on this analysis.
161. We also seek comment on the impact of adopting a facilities-
based definition of connection. How would adopting such a definition
affect the distribution of contribution obligations among different
industry sectors, or the relative contribution burden borne by mass
market versus enterprise customers? Would such a definition provide
predictability for contributors, while retaining sufficient flexibility
to accommodate the evolution of the telecommunications marketplace? Are
there variations on the definitions, or alternate definitions, that
would better meet our proposed goals for contribution reform?
162. Service-Based Definition. Under a service-based definition,
the definition of the connection ``unit'' would focus on the service or
services that are delivered over the facility. Under such a definition,
each interstate telecommunications service using the connection would
be assessed as one ``unit,'' as could any service that had an
interstate telecommunications component. For example, in contrast to
the facilities-based definition, if a customer purchases two services
that we have determined are assessable and that are delivered over the
same facility, the provider would be assessed for two connections.
Multi-line business services could likewise be assessed based on the
services that are provided over the connection. For example, we seek
comment on the following potential service-based definition of
connection: Connection. An assessable service provided to an end user.
163. As above, we seek comment on the impact of adopting this
definition of connection. How many total connections would there be
under this definition, given the different approaches to defining
assessable services in this Notice? Would this definition raise
questions regarding whether particular offerings were one ``service''
or multiple bundled services? For example, under such a definition,
should a subscriber purchasing both text messaging service and voice
service be counted as two connections or one? How would family plans or
other multi-user or multi-device scenarios be treated?
164. How would adopting this definition affect the distribution of
contribution obligations among different industry sectors, or the
relative contribution burden borne by mass market versus enterprise
customers? Would this definition provide predictability for
contributors, while retaining sufficient flexibility to accommodate the
evolution of the telecommunications marketplace? Are
[[Page 33916]]
there variations on this definition, or alternate definitions, which
would better meet our proposed goals for contribution reform?
165. We also seek comment on alternative service-based definition
that would focus on usage (i.e., how much throughput actually traverses
the connection in a given period).
166. Defining ``End User.'' We also seek comment on whether a
definition of connection should be limited to connections provided to
``end users.'' In prior years, the Commission sought comment on whether
to apply the same definition of end user that is used under the current
revenue-based system. As discussed above, under the existing system,
``end users'' include purchasers of retail interstate
telecommunications or telecommunications services that do not
contribute on their finished offerings. End users do not include
entities that purchase wholesale inputs and contribute on the services
they provide to other customers. Would including the use of the term
``end user'' in the definition of a connection perpetuate some of the
challenges we see under the current revenue-based system discussed
above, such as, for example, the difficulty of determining whether a
customer is an end user or reseller of specific services for purposes
of USF contribution obligations? How should we define end user if we
adopt a connections-based approach? Should we, for instance, define an
end user as a residential, business, institutional, or governmental
entity who uses the services provided for its own purposes, and does
not sell the service to other entities, or incorporate the service into
another service sold to other entities?
167. Would a system that requires each provider to ``pay its own
way''--that is, each provider would contribute based on the connection
it provides to another entity--be simpler from a compliance and
administrative perspective? In 2002, the Commission sought comment on a
proposal that would split connections-based contribution obligations
between switched access and interstate transport providers. Under such
an approach, a provider of both local and interexchange services to the
end user would be assessed two units per connection (one for access and
one for transport), while a provider that provided only local service
would be assessed one unit and the interexchange carrier would be
assessed one unit. We invite comment on whether a more general system
of this type that requires each provider of connections to contribute
would be simpler from a compliance and administration perspective than
a system that requires only the provider with the relationship to the
end user customer to contribute. For instance, as discussed above, if
we were to adopt a service definition of connection, and Carrier A
sells a private line to Carrier B, and Carrier B in turn uses that
circuit to provide both an enterprise communications service and VoIP
to its retail customer, should Carrier A be assessed one unit for that
high-speed line, while Carrier B is assessed one unit for the
communications service and a second unit for the VoIP service?
168. Connections Provided to Lifeline Subscribers. Today there are
approximately 14.8 million Lifeline subscribers. We seek comment on
whether the Commission has statutory authority to exclude from
assessment connections provided to Lifeline subscribers. Would it be
consistent with section 10 to forbear from imposing contribution
obligations on such connections? How would the exclusion of such
connections impact a connections-based regime? What would be the policy
justifications for excluding these connections from contribution
obligations? Alternatively, should such connections associated with
Lifeline services be assessed at a pro-rated or reduced rate, and if
so, what would be an appropriate amount?
c. Trends in Connections
169. We seek comment regarding trends in connections over time. We
seek data to project the number of connections that exist today under
the facilities-based definitions discussed above. If we were to adopt a
service-based definition, the number of connections would largely
depend on how narrowly or broadly we were to define the relevant
assessable services. We invite commenters to present data and their
underlying assumptions regarding the number of connections under the
alternative connection definitions discussed above.
170. The FCC Form 477 data collection provides some information
that may be useful in projecting the number of connections. As
discussed above, FCC Form 477 counts broadband connections separately
from connections that are used for local telephone service, which
provides some basis for estimating the number of connections if we were
to exercise our permissive authority over broadband Internet access
services and also adopted a definition of connections that counted
broadband separately from voice. Notably, because the form is designed
mainly to track residential connections, it does not capture many
connections provided to businesses, governmental entities, and other
large institutions.
171. There were 616 million connections reported under the FCC Form
477 connection categories in 2010: 117 million local landlines
(switched access lines), 32 million interconnected VoIP subscriptions,
285 million mobile telephone subscriptions, and 182 million broadband
connections. If one assumes continued growth in mobile subscriptions,
interconnected VoIP and broadband connections, the total number of
connections could grow to approximately 800 million connections under
the FCC Form 477 connection categories by 2015.
172. We seek comment on our analysis of the 477 data and invite
commenters to present their own analysis and underlying assumptions. In
particular, how many enterprise connections are there under different
definitions of connections and of assessable enterprise services? And
if we were to adopt a facilities-based definition of connections,
rather than the service-based approach used in Form 477, how many
connections are there, and what is the likely trend in the number of
connections over time? To what extent are the landlines or mobile
subscriptions reported in FCC Form 477 also providing broadband?
d. Assessment and Use of Speed or Capacity Tiers
173. Another key question is whether a connections-based assessment
should be based on speed or capacity tiers and how to define any such
tiers. In the past, the Commission's proposals have assumed a
connections-based methodology would classify connections into various
tiers, and each connection within a tier would be assessed the same
flat fee. We seek comment on how assessment based on speed or capacity
tiers would operate under a service or facilities-based definition of
``connection,'' and whether such an assessment structure would further
our proposed reform goals of promoting efficiency, fairness, and
sustainability of the Fund.
174. Determining the Per-Unit Assessment. In the past, the
Commission has sought comment on grouping residential, single-line
business, and mobile wireless connections together in a separate
category from multi-line business connections, and assessing each based
on a flat fee. Under such a system, the initial proposed amount for the
residential, single-line business, and mobile wireless connections has
been in the range of $1 per month. The residual USF demand would then
be met
[[Page 33917]]
through assessments on multi-line business connections based on the
number and capacity of the connections. We seek comment to refresh the
record on such an approach. How would the contribution amount for a
typical consumer vary under such an approach compared to the revenues-
based approach in place today?
175. If we were to adopt a connections-based approach, should
certain providers be eligible for special consideration or exemption?
We seek comment on whether a connections-based system that provides
special treatment for a myriad of services would meet our proposed
goals of ensuring sustainability of the Fund, while simplifying
compliance and administration. As noted above, a recent development is
the growth in machine-to-machine connections, enabling such innovations
as smart meter/smart grids, remote health monitoring, or supply chain
tracking. To the extent we were to exercise permissive authority over
some or all machine-to-machine connections, should they be assessed at
the same level, or flat rate, as other connections? If not, how should
they be assessed?
176. Another question that would need to be resolved under a
connections-based approach with tiers is whether and how to update the
tiers and/or assessment amounts as business and residential users move
to higher bandwidth services and new technologies and services develop.
In previous Notices, the Commission recognized that, to ensure an
appropriate amount of funds for universal service, it would need to
revisit and adjust the assessment amount periodically. Recently, the
Commission has taken significant strides to minimize future growth of
the Fund by adopting a budget in the recent USF Transformation Order
and a savings target in the Lifeline and Link-Up Reform and
Modernization Order. These measures to instill fiscal responsibility in
these programs are in addition to the caps on other universal service
support mechanisms (i.e., the schools and libraries and rural health
care mechanisms). We seek comment on how often we should revisit any
per-unit amount, if we were to adopt a connections-based proposal, in
light of these reforms. Would a semi-annual or annual review be
sufficient to meet the needs of the Fund? We also seek comment on
whether any re-evaluation of the assessment should happen on a set
schedule or an ad hoc basis, either on our own motion or at the request
of industry participants or USAC. What factors should we consider in
determining whether to adjust the assessment? When periodically
readjusting the unit amounts, should we aim to maintain the relative
proportion of contribution burdens between residential and business
consumers? How could that proportion be accurately determined?
177. Tiers. In 2002, the Commission proposed that contributions
from providers of multi-line business connections be a residual amount
calculated to meet the remaining universal service funding needs not
met by contributions for residential, single-line business, and mobile
connections. The Commission reasoned that this proposal would make
contribution obligations more predictable and understandable for
residential, single-line business, and mobile customers, and that
multi-line businesses may be better equipped to understand the
fluctuations in assessments from quarter to quarter. We seek comment on
whether this reasoning remains valid in today's marketplace.
178. In the past, the Commission sought comment on defining a
connection as either a residential/single-line business or a multi-line
business connection based on whether the residential/single-line
business or multi-line business subscriber line charge (SLC) is
assigned to the connection. We seek to update the record on whether
this delineation is an effective way to identify residential and
single-line business connections in today's market, particularly given
the growth in wireless and VoIP connections--which typically do not
charge SLCs or their equivalent. Not only is such a method for
distinguishing residential connections from business connections
possibly outdated today, but we are concerned it will become
increasingly more so as users move to alternative providers that do not
charge SLCs. We seek comment on whether, if we adopt a connections-
based approach, we should distinguish between residential/mass market
connections and business/enterprise connections. And, if so, we seek
comment on other objective measures aside from the SLC that we could
use to distinguish between these two categories of connections.
179. We understand anecdotally that many companies are moving away
from purchasing mobile service directly for employees in favor of
providing employees with reimbursements for their personal mobile
monthly plans. To the extent we were to make a distinction between
residential and business connections, how should such connections be
classified as residential or multi-line business connections? How would
contributors distinguish such connections absent a corporate identifier
on the account? We seek comment on these issues and whether such a
distinction serves our proposed policy goals of administrative
efficiency, fairness, and sustainability.
180. Tier Structures. Over the years, the Commission and the
industry have proposed various tiers to calculate assessments for
multi-line business connections, with no one approach emerging as the
preferred alternative. In 2002, the Commission proposed a structure of
three tiers of up to 1.544 Mbps, 1.544 to 45 Mbps, and 45 Mbps or
higher for multi-line business connections. Later in 2002, the
Commission updated the proposed tiers to four tiers of up to 725 kbps,
726 kbps to 5 Mbps, 5.01 Mbps to 90 Mbps, and greater than 90 Mbps for
multi-line business connections. At that time, the Commission sought to
set the speed ranges so that then-common service offerings would fall
well within each tier in order to minimize market distortion.
Subsequently in 2008, the Commission proposed just two tiers of up to
64 kbps and over 64 kbps for business services. Commenters have also
proposed different sets of tiers. AT&T, for example, proposed three
tiers of up to 25 Mbps, over 25 Mbps up to and including 100 Mbps, and
over 100 Mbps for dedicated business connections.
181. In today's ever evolving marketplace, there is increased
demand for multi-line business connections to have more bandwidth. One
of the proposed goals of our reformed contribution system is to
simplify administration and reporting. Is there a way to structure the
speed tiers in a future-proof manner? Or, would a system based on
available speed tiers inevitably become outdated as the communications
industry continues to evolve? Is there a reasonable way to have tiers
automatically adjusted, for example by setting tiers based on
percentile, such that the slowest quartile of connections would fall
into one tier, the next quartile in another tier, etc.?
182. We seek comment on whether any of the previously proposed tier
structures would be appropriate in today's marketplace, and whether any
such tiers should be limited to business customers or whether they
should extend to residential or mass market connections as well. We
seek to refresh the record in light of recent actions taken in the USF-
ICC Transformation Order and FNPRM and other pending proceedings. For
instance, in establishing tiers, to what extent, if at all, should we
take into account the Commission's decision to establish 4
[[Page 33918]]
Mbps down/1 Mbps up as the minimum speed for fixed broadband
connections under the Connect America Fund? Should speed tiers for
universal service contribution purposes be based on actual speeds or
advertised speeds? Is one approach preferable to another for purposes
of auditing and enforcing compliance with our contributions rules?
183. To the extent commenters believe one of the previously
proposed tier structures is appropriate for today's market, we seek
detailed comments to support such a position. Additionally, we
encourage commenters to propose a tier structure that accounts for the
qualities of connections in the marketplace today. In the past, the
Commission sought comment on a tier structure based on speed. Should
tiers also be set based upon capacity, or the total volume of data that
can be sent and/or received over the connection by the end user over a
period of time? Commenters should explain why they propose tiers at the
particular capacity range and propose the appropriate assessment amount
for each tier. Commenters should also discuss how we can structure the
tiers so that they will accommodate future evolution. We seek to
minimize the potential for market distortion based on the tier
structure; commenters should address how their proposal addresses this
concern in their responses. Commenters proposing new tier structures
should also provide an analysis of the impact on the Fund and the
relevant burdens to residential and business consumers.
184. Would the current FCC Form 477 tier structure work in the
context of a USF connections-based assessment? For example, FCC Form
477 tracks facility-based broadband connections in ten different
technology categories (e.g., asymmetrical and symmetrical xDSL, cable
modem, fiber-to-the-home, mobile wireless) based on transfer rates
ranging from 200 kbps to greater than 100 mbps. We seek comment on
whether this categorization and tier structure as well as the other
data collection requirements in the FCC Form 477 could work for
universal service contribution purposes, or whether they could be
easily modified to satisfy the requirements of both the FCC Form 477
and any established USF contribution rules and requirements. If we were
to modify our FCC Form 477 data collection, should we also make
corresponding modifications to the tiers for purposes of USF
contributions?
185. While multi-line business connections may provide a specific
maximum level of speed or capacity, other connections provide
customers, through contractual agreements, with the option of utilizing
additional speed or capacity on a short-term basis. One of the
challenges of a tiered connections-based approach is how it would
address connections that provide varying speed at different points in
time. For example, should we consider how ``burstable'' bandwidth would
be assessed under a connections-based system? Burstable bandwidth
allows a connection to exceed its stated speed, usually up to a pre-
chosen maximum capacity for a period of time, such as during periods of
heavy network activity or peak network usage. We seek comment on what
rules should be adopted to address such situations, if we were to adopt
a connections-based system.
186. Some commenters argue that there is little correlation between
connection speed and telecommunications usage. These commenters ask
whether it is more appropriate to base the tiers on usage rather than
speed. Under prior connections-based proposals, contributors would be
assessed for multi-line business connections based on the maximum
amount of bandwidth they allocate to the connection, not the actual
amount of bandwidth used. Because customers often purchase excess
bandwidth for backup or future growth, some commenters argue that
assessing a connection at the maximum available speed taxes spare
bandwidth and could lead to poor network management practices. We seek
comment on this position. We also seek comment on how a provider would
measure the actual usage of a customer's connection and the burdens
associated with such reporting. Finally, we seek comment on how we
would audit actual usage.
e. Policy Arguments Related to Connections-Based Assessment
187. In 2002, the Commission outlined a number of potential
benefits of a connections-based assessment methodology: the number of
connections has been more stable than interstate revenues and therefore
connections-based assessment may provide a more predictable and
sufficient funding source for universal service; under a connections-
based approach, providers would not have to allocate revenues between
interstate and intrastate jurisdictions or between telecommunications
and non-telecommunications services; and under a connections-based end-
user approach, only one entity--the one with the direct relationship
with the end user--would be responsible for contributing, thereby
potentially reducing the complexities associated with collecting and
reporting USF fees. We seek comment to refresh the record on these
issues given the changes that have occurred in the telecommunications
marketplace since 2002 and the potential rule changes discussed in this
Notice. Is a connections-based contribution methodology consistent with
the proposed goals of having a contribution methodology that is
efficient, fair, and sustainable?
188. Distinguishing Telecommunications from Non-Telecommunications.
In 2002, the Commission and commenters suggested as a potential benefit
that a connections-based methodology might not require carriers to
distinguish between telecommunications and non-telecommunications
services, distinctions that may be increasingly difficult as the
marketplace evolves. We seek comment above on approaches to provide
clarity to contributors with respect to specific services, without the
need to classify those services as either information services or
telecommunications services. We also seek comment on assessing revenues
associated with information services. In light of those potential
approaches, is this potential advantage of a connections-based
methodology still relevant? If we were to adopt a facilities-based
connections approach, should we make an affirmative finding that each
connection within the scope of our definition ``provides interstate
telecommunications'' in order to subject that connection to assessment?
189. Jurisdictional Considerations. The Commission and industry
participants have suggested in the past that a connections-based system
might mitigate the need to differentiate between interstate and
intrastate jurisdictions. We seek comment on whether this remains a
relevant consideration.
190. In the connections-based methodology proposed in 2002, the
Commission stated that international-only and intrastate-only
connections would be exempt because they do not have an interstate
component. We seek comment on how specifically we would determine
whether a particular connection should be deemed to be intrastate-only
for contribution purposes, if we were to adopt a connections-based
methodology, and how such a rule could be applied. We note that today,
private lines with less than ten percent interstate traffic are deemed
to be jurisdictionally intrastate. For contribution purposes, the Form
499 instructions specify that if over ten percent of the traffic is
interstate, all of
[[Page 33919]]
the revenues for that line are classified as interstate. We seek
comment above in this Notice on a revenues-based approach that would be
simpler to administer, which would allocate revenues to the different
jurisdictions according to a set percentage. If we were to adopt a
connections-based approach, should we adopt a rule that any connection
that provides the capability to originate or terminate communications
that may cross state lines is subject to assessment, regardless of the
physical end points of the facility or the actual traffic carried on a
particular circuit?
191. To the extent we exercise our permissive authority to assess
broadband Internet access connections, we seek comment on whether such
connections should be presumed interstate for purposes of universal
service contributions. Should we conclude that any connection that
connects to an Internet point of presence should be deemed interstate
for federal USF contribution purposes? Would such a rule allow states
to assess connections (or revenues associated with connections) to
support state universal service funds? Would a connections-based system
increase compliance burdens if states continue to employ a revenues-
based assessment for state-based funds? What is a simple way to
determine jurisdiction for connections in a manner that is fair and
competitively neutral, and could such an approach reduce compliance
burdens on contributors?
192. Consumer Impact. In the past, certain contributors have argued
that a connections- or numbers-based contribution methodology would
disproportionately impact vulnerable populations, such as low-income
consumers and the elderly. How would moving to a connections-based
approach change the relative distribution of the contribution burden
between enterprise users and consumers, as well as among different
types of enterprise users and consumers? Is moving to a connections-
based approach where connections are assessed a flat rate (or a flat
rate within a tier) fair to low-income consumers and other users on
low-cost service plans? Are there modifications that could be made to a
connections-based methodology to make the level of assessment fairer to
consumers on low-cost service plans? If we were to adopt a connections-
based approach, would low-income households be likely to see a
contribution pass-through charge for a larger percentage of their
monthly telecommunications bill than higher-income households? Would
low-volume customers bear an assessment that constitutes a larger
percentage of their bill than high-volume users?
f. Implementation
193. Implementing a connections-based system would presumably
require new data collection and reporting requirements and, at least in
the near term, impose additional costs on both filers and USAC to
implement new reporting systems. A connections-based system could also
present complexities related to compliance and auditing, particularly
because connections are not generally reported for other governmental
purposes. Further, a move to a connections-based system may affect
other programs that currently report on the FCC Form 499, including
Interstate TRS, North American Numbering Plan, Local Number
Portability, and regulatory fees administration. Finally, a new system
would require some period of transition. We seek comment on all these
issues below.
194. Reporting. We seek comment on how to implement reporting
requirements under a connections-based contributions system. Under the
existing revenue-based contribution methodology, contributors report to
USAC their historical gross-billed, projected gross-billed, and
projected collected end-user interstate and international revenues
quarterly on the FCC Form 499-Q and their gross-billed and actual
collected end-user interstate and international revenues annually on
the FCC Form 499-A. USAC then bills contributors for their universal
service contribution obligations on a monthly basis based on the
contributors' quarterly projected collected revenue. Contributors
report actual revenues on the FCC Form 499-A, which USAC uses to
perform true-ups to the quarterly projected revenue data.
195. How should a connections-based system be implemented? In
particular, we seek comment on the specific changes necessary to enable
USAC to administer the Fund under a connections-based system. How would
contributors report the number and speed or capacity of their
connections under a connections-based assessment methodology? For a
service-based connections methodology, how should providers report the
service type? Should we continue to use a FCC Form 499 or use a
different system, and why? What would be the administrative impact of a
new reporting system on providers and on USAC as the administrator of
the Fund? Could we modify the FCC Form 477 to capture the data
necessary for a connections-based system, thus eliminating the need to
file separately for contribution purposes? What measures should we take
to ensure that providers would not be able to avoid their contribution
obligation? To what extent do connections fluctuate due to churn or
other factors, and, as a result, how often should providers report
their data to ensure the stability and sufficiency of the Fund? Should
we limit reporting requirements to twice a year, to coincide with the
requirement to report connections data on the FCC Form 477? We seek
comment on whether reporting only twice a year would satisfy our
proposed goal of a more simplified contribution system. We also seek
comment on the potential impact of a six-month reporting interval on
periodic adjustments to the per-connection assessment. Would such a
reporting schedule provide USAC and the Commission with the data
necessary to effectively administer the universal service programs? We
specifically seek comment and data on whether it is necessary to
monitor individual provider fluctuations through frequent reporting or
whether less frequent reporting would suffice.
196. Alternatively, we seek comment on the costs and benefits of
reporting at monthly or quarterly intervals. Since a more frequent
interval would likely provide a larger number of ``snapshots'' of a
contributor's connection counts over a year, would a more frequent
interval provide more accurate data and lead to more stability in the
Fund than would a six-month interval? Would a more frequent reporting
period make adjustments to the contributions requirements more
incremental? Would longer or shorter reporting intervals advantage or
disadvantage some types of providers more than others? In 2002, the
Commission sought comment on a monthly reporting system under which the
contributor would report the number and speed or capacity of their
connections at the end of each month on a new FCC Form 499-M. Under
that approach the new form would also serve as a contributor's monthly
bill. We seek comment on the costs and benefits of such an approach.
197. Costs Associated with Implementing a Connections System. We
seek comment on contributors' out-of-pocket costs for implementing a
new connections-based contribution methodology. Would contributors be
able to use their current billing and operating systems to report
connections for universal service contributions? If not, what would be
the incremental costs associated with modifying billing systems and
internal controls and processes to collect and track
[[Page 33920]]
connections for purposes of reporting and contributing to the Fund?
Would contributors have to implement entirely new systems to track the
type of data needed to report connections? Does the answer to this
question depend on whether the Commission adopts the FCC Form 477
connection categories as opposed to other categories of providers or
services whose connections are assessable? Are there cost savings that
could be realized by moving away from the current system, which
requires contributors to report revenues quarterly (projected) and
annually (actual) for USF purposes? Would those costs vary depending on
the definition of connections we adopt? We also seek comment on whether
the cost of updating billing and internal systems for this regulatory
purpose would outweigh any benefit achieved. What would be the
implications for reporting for other regulatory programs such as
regulatory fees, Interstate TRS, and the North American Numbering Plan?
Would increased operational costs negatively impact certain carriers
more as compared to other carriers (for example, smaller rate of return
companies that recover some of these costs from high-cost loop support,
which is capped)?
198. We specifically seek comment on any implementation costs
associated with other programs that rely on the data reported on the
FCC Form 499-A. For example, if we were to move to a connections-based
system for contributions, would there be additional costs associated
with reporting for the Interstate TRS Fund, North American Numbering
Plan, Local Number Portability, and regulatory fees administration
programs which currently rely on the FCC Form 499-A data? Would a
change in the contribution system to a connections-based approach only
be feasible and cost-effective if these other programs also changed to
a connections-based approach? We also ask whether adopting a
connections-based system would increase compliance burdens if states
continue to employ a revenues-based assessment.
199. We also seek to refresh the record on whether there are other
costs associated with a connections system, and in particular ask
providers if there are any new costs that were not foreseen when we
last asked for comments on this methodology. Would the cost of a new
assessment methodology increase for certain classes of customers or
certain industry segments? To what extent would this analysis change
depending on how a connection is defined and assessed? Do the
additional costs associated with implementation and reporting
requirements outlined below outweigh the benefits of moving to a
connections-based methodology?
200. Auditing. Audits are an essential tool for the Commission and
USAC to ensure program integrity and to detect and deter waste, fraud,
and abuse. Any new connections methodology must be auditable in order
to ensure that contributors are reporting accurately, and that the
system operates in an equitable and nondiscriminatory manner, maintains
stability in the contribution base, and minimizes market distortions
and gamesmanship. Auditing a connections-based system could be
difficult, however, if the manner in which providers track their
connections for business reasons does not overlap with the Commission's
definitions of ``connections'' and ``tiers.'' As previously noted,
unlike revenues, connections are not universally tracked, and thus
there are no standards or regular means of auditing a ``connection.''
In addition, unlike revenues, ``connections'' are not reported to other
federal agencies, such as the SEC, nor are connections routinely
tracked on a company's books. Because companies would be tracking
connections solely or primarily for the Commission, we seek comment on
how to structure a connections-based system to be auditable and
enforceable. How, in fact, would companies track their connections for
USF contribution reporting purposes? Would companies need to create
internal records solely for this purpose? How would an auditor verify
the accuracy of the internal records, especially in light of customer
churn and customer change orders? Because revenue is reported for other
governmental purposes there are, to some extent, inherent checks and
balances built into a revenues-based system. We seek comment on whether
any potential lack of checks and balances under a connections system is
a fatal flaw, or if it could be remediated. Proponents of a
connections-based system should provide specific details about how
contributors would report their data and how auditors could verify the
accuracy of connections data reported. In addition to audits, what
other steps should be taken under a connections-based system to detect
and deter waste, fraud, and abuse?
201. We seek comment on how, under a connections-based system, we
could create the proper incentives for providers to accurately report
connections data. What types of procedures are necessary to verify the
accuracy of the number of connections reported by a provider? How would
USAC measure the accuracy of the data, especially given customer churn
that may occur between reporting periods?
202. Effect on Other Programs. As in previous comment cycles, we
ask parties to provide comment on the impact of moving to a
connections-based approach on the Interstate TRS, North American
Numbering Plan, Local Number Portability, and regulatory fees
administration programs. The revenue information currently reported on
an annual basis in FCC Form 499-A is also used to calculate assessments
for these programs. We ask parties to provide comment on the best
approach for ensuring proper funding of these programs were we to move
to a connections-based methodology. Should contributors continue
reporting gross billed end-user revenues for purposes of these
programs, and if so, should they continue to report on an annual basis?
Could we dramatically simplify the FCC Form 499 for purposes of revenue
reporting in that instance, such as by eliminating the multi-line
breakout of reported revenues into sub-categories? We specifically seek
comment on whether to maintain revenue-based reporting for the
regulatory fee program if we move to a connections-based approach for
USF contributions and/or the other programs.
203. If we were to adopt a connections-based approach for the USF,
should we also move to a connections-based approach for Interstate TRS,
North American Numbering Plan, Local Number Portability, and regulatory
fees administration programs? If so, would a connections-based approach
for these programs vary, if at all, from a connections-based approach
for the USF? We specifically seek comment on how a connections-based
system could be implemented to satisfy the requirements of section 715
of the Act. This section requires that each interconnected VoIP service
provider and each provider of non-interconnected VoIP service shall
participate in and contribute to the Interstate Telecommunications
Relay Services Fund in a manner ``consistent with and comparable to the
obligations of other contributors to such Fund.'' Finally, are there
alternative ways to calculate contributions for the Interstate TRS,
North American Numbering Plan, Local Number Portability, and regulatory
fees programs?
204. Transition. A connections-based methodology would constitute a
substantial change from the current revenue-based system and would
likely require a transition period, especially if reporting entities
need to implement
[[Page 33921]]
new billing and accounting systems and a process for recording
connection counts in a manner that is auditable. We seek comment on
what steps would need to be taken to transition between the current
revenues-based system and a connections-based system and how much time
would be needed to ensure that the new process is applied in an
equitable manner.
205. If we were to adopt a connections-based methodology, the
Commission and USAC would likely need to go through multiple reporting
cycles to determine whether information is being reported consistently
and to determine whether contributors understand what information they
are being asked to report. In addition, contributors and USAC would
need time to update their billing and tracking systems to accommodate
the new methodology. Is a one-year transition period sufficient to
ensure that all affected parties would have adequate time to address
any implementation issues that arise? How much time would be necessary
for contributors, including new contributors, to adjust their record-
keeping and reporting systems in order to comply with new reporting
procedures? Are there new considerations that would favor a longer or
shorter transition period? Would there be a benefit in adopting
different transition periods for residential and business markets?
206. We also seek comment on the value of requiring dual reporting
during all or some of the transition time--where reporting entities
would continue to report and pay under the current revenues-based
system, while they also begin reporting under the new system. Would
having providers report under both systems for a specified amount of
time during the transition provide the opportunity for both providers
and USAC to address unforeseen implementation issues that are likely to
arise under the new reporting system? Should new filers begin reporting
sooner since USAC does not have any historical data on their revenues
and services?
3. Assessing Contributions Based on Numbers
207. We seek comment on moving away from the current revenues-based
contribution system and adopting a numbers-based contribution
methodology. The Commission has explored a numbers-based methodology in
the past, including as recently as 2008, when it sought comment on
using telephone numbers as the basis for a new contributions system. We
seek to refresh the record given developments in technology and
communications.
208. Under a numbers-based system, in its simplest form, providers
would be assessed based on their count of North American Numbering Plan
(NANP) phone numbers. There would be a standard monthly assessment per
phone number, such as $1 per month, with potentially higher and lower
tiers for certain categories of numbers based on how these numbers are
assigned or used. The monthly assessment per number would be calculated
by applying a formula based on the USF demand requirement and the
relevant count of numbers, however that term is defined. This
contribution factor would no longer be based on revenues.
209. In 2002, the Commission first sought comment on replacing the
existing revenues-based methodology with a system that would assess
providers on the basis of telephone numbers assigned to end users
(assigned numbers), while assessing special access and private lines
that do not have assigned numbers based on their speed. The Commission
also sought comment on how to treat multi-line switched business
services, such as Centrex and private branch exchange, and other types
of services, such as electronic fax services under a telephone-number
based approach. Thereafter, in the 2008 Comprehensive Reform FNPRM, 73
FR 66821, December 12, 2008, the Commission sought comment on a series
of proposals to adopt a new contribution methodology based on assessing
telephone numbers. The FNPRM contained three proposals, each with a
numbers-based assessment component. Two of the proposals (2008 Appendix
A Proposal and 2008 Appendix C Proposal) would have assessed USF
contributions based on telephone numbers used for residential services,
at a flat $1.00 per month charge for each number, and would have
assessed business services based on connections. The third proposal
(2008 Appendix B Proposal) would have assessed USF contributions based
on telephone numbers used for consumer and business services, at a flat
$.85 per month charge for each number.
210. We seek comment on whether a numbers-based methodology would
further our proposed reform goals of greater administrative efficiency,
fairness, and sustainability of the Fund. We also seek comment on the
costs and benefits of a numbers-based contribution methodology. We ask
parties claiming significant costs or benefits of a numbers-based
system to provide supporting analysis and facts for such assertions,
including an explanation of how data were calculated and all underlying
assumptions.
a. Legal Authority
211. We seek comment on our legal authority to adopt a numbers-
based contributions methodology. Section 254(d) of the Act requires
that ``[e]very telecommunications carrier that provides interstate
telecommunications services shall contribute on an equitable and
nondiscriminatory basis, to the specific, predictable, and sufficient
mechanisms established by the Commission to preserve and advance
universal service.'' Section 254(d) also provides the Commission with
permissive authority to require ``providers of interstate
telecommunications'' to contribute to the Fund. Title I of the Act
gives the Commission ancillary jurisdiction over matters reasonably
related to ``the effective performance of [its] various
responsibilities'' where the Commission has subject matter jurisdiction
over the service.
212. The Commission previously has sought comment on whether the
Commission's ``plenary authority'' over numbering in section 251(e)
provides additional authority to adopt a numbers-based methodology. The
Commission has ``exclusive jurisdiction over those portions of the NANP
that pertain to the United States.'' In the VoIP 911 Order, the
Commission relied on its section 251(e) authority to require
interconnected VoIP providers to provide E911 services. In so doing,
the Commission noted that it exercised its authority under section
251(e) because, among other reasons, ``interconnected VoIP providers
use NANP numbers to provide their services.''
213. We seek to refresh the record on the Commission's authority
pursuant to sections 254(d), 251(e), and Title I of the Act to
establish a numbers-based contributions methodology. Under a numbers-
based approach, some providers could be required to contribute directly
to the Fund that historically may have contributed indirectly or not at
all. We seek comment on whether the public interest would be served if
the Commission were to exercise its permissive authority to require
these providers to contribute to the Fund. What is the extent of the
Commission's ancillary authority under Title I of the Act? Does the
provision of a service that relies on the assignment of an assessable
number to an end user bring such a service offering under the
Commission's broad subject matter jurisdiction because it involves, in
some manner, ``interstate * * * communication by wire or radio? '' Does
[[Page 33922]]
the Commission's plenary authority over numbering under section 251 of
the Act support use of a numbers-based contribution methodology?
214. We invite commenters to address how a numbers-based system
should be structured to fulfill the statutory requirement that
telecommunications service providers contribute on an equitable and
nondiscriminatory basis. If we were to adopt a numbers-based
contribution methodology, should we also explicitly exercise our
permissive authority over providers of telecommunications or specified
services to make clear that providers of those services would be
assessed? How would we ensure that all entities that contribute under a
numbers-based system are providers of interstate telecommunications?
b. Defining Assessable Numbers for Contribution Purposes
215. We seek comment on which numbers should be assessed under a
numbers-based contribution methodology. We also seek comment on whether
defining assessable numbers or alternatives that commenters may suggest
would best further our proposed goals for contribution reform. We
specifically ask commenters to estimate the per-number assessment under
their preferred definition of assessable numbers and the scope of any
exemptions that they propose. We also ask parties to address the impact
of differing definitions of assessable numbers on who would contribute
in the future, compared to today.
216. Definition of Assessable Numbers. We seek comment on how the
Commission should define an ``assessable'' number for purposes of a
numbers-based contributions methodology. In other contexts, the
Commission has defined ``numbers'' for purposes of Commission reporting
requirements. For example, the Commission requires that each
telecommunications carrier that receives numbering resources from the
North American Numbering Plan Administrator (NANPA), the Pooling
Administrator, or another telecommunications carrier, report its
numbering resources in each of six defined categories of numbers set
forth in Sec. 52.15(f) of our rules. In the regulatory fee context,
the Commission has adopted the category of ``assigned numbers'' as the
starting point for determining how to assess fees on certain providers,
but found it necessary to modify that definition to account for
different regulatory contexts. Specifically, in assessing regulatory
fees for commercial mobile radio service (CMRS) providers that report
number utilization to NANPA based on the reported assigned number count
in their Numbering Resource Utilization and Forecast (NRUF) data, the
Commission requires these providers to adjust their assigned number
count to account for number porting. The Commission found that
adjusting the NRUF data to account for porting was necessary for the
data to be sufficiently accurate and reliable for purposes of
regulatory fee assessment. We seek comment on whether we should adopt
any of these definitions of numbers for purposes of defining an
``assessable number'' for USF contributions.
217. Specifically, we seek comment on the following definition of
assessable numbers: An ``Assessable Number'' is a NANP telephone number
that is in use by an end user and that enables the end user to receive
communications from or terminate communications to (1) an interstate
public telecommunications network or (2) a network that traverses (in
any manner) an interstate public telecommunications network in the
United States and its Territories and possessions. Assessable Numbers
include geographic as well as non-geographic telephone numbers (such as
toll-free numbers and 500-NXX numbers) as long as they meet the other
criteria described in this part for Assessable Numbers.
218. We seek comment on whether this definition furthers our
overall proposed goals of reform. Is the above definition sufficiently
broad to capture all types of numbers, including those associated with
services aimed primarily at international calls that either commence or
end in the United States and its Territories? Should we include in the
above definition of numbers toll-free numbers that are also part of the
North American Numbering Plan, but are governed by Sec. Sec. 52.101
through 52.111?
219. We also seek comment on alternatives. For instance, should we
define assessable numbers consistent with the definition of ``Assigned
numbers'' in Part 52: ``Assessable numbers are numbers working in the
Public Switched Telephone Network under an agreement such as a contract
or tariff at the request of specific end users or customers for their
use, or numbers not yet working but having a customer service order
pending. Numbers that are not yet working and have a service order
pending for more than five days shall not be classified as assessable
numbers.'' Would such a definition include NANP numbers assigned to
mobile broadband-only devices, such as 3G tablets or laptop cards? If
not, should we modify this definition, or would it be appropriate to
exclude numbers associated with such devices and services associated
with them? Commenters proposing alternative definitions of ``assessable
numbers'' should explain how their proposal satisfies our proposed
goals for contributions reform.
220. We note that any definition of assessable numbers may exclude
special access services and possibly other services that are clearly
assessed today, but that do not include a telephone number. In
addition, such a definition may exclude some of the services mentioned
in Section IV.B of this Notice. We seek comment on how such services
should be treated under a pure numbers-based approach.
221. Cyclical Numbers. We seek comment below on whether
contributors should report numbers on a monthly basis. If we were to
adopt such a rule, should numbers used for intermittent or cyclical
purposes (and that may not be fully in use at the time of a monthly
reporting obligation) be excluded or included from the definition of
Assessable Numbers?
222. We define numbers used for cyclical purposes as numbers
designated for use that are typically ``working'' or in use by the end
user for regular intervals of time. These numbers include, for example,
an end-user's summer home telephone number that is in service for six
months out of the year. In the NRO III Order, 67 FR 6431, February 12,
2002, the Commission clarified that these types of numbers should
generally be categorized as ``assigned'' numbers if they meet certain
thresholds and that, if they do not meet these thresholds, they ``must
be made available for use by other customers'' (i.e., they are
``available'' numbers). Is there a bright-line way for providers to
determine, and for the Commission or USAC to verify and audit, which
numbers are cyclical versus which numbers are not cyclical? If not,
would excluding such numbers be consistent with our proposed goals for
contribution reform? What are the implications of excluding such
numbers in the contribution base? Would excluding these numbers be
consistent with the requirements of section 254(d)? What would be the
policy justifications for excluding or including these numbers in the
contribution base? For example, one policy reason for assessing
cyclical numbers would be that each cyclical number obtains the full
benefits of accessing the public network. If cyclical numbers are not
excluded from the definition of assessable numbers, should such numbers
be assessed at a pro-rated
[[Page 33923]]
or reduced rate? We ask commenters to provide data as to the count of
numbers that would fall into the category of cyclical numbers, and
explain how the Commission and USAC would verify and audit the use of
such numbers.
223. Assigned but Not Operational Numbers. Section 52.15 of our
rules define ``assigned numbers'' as numbers that have been assigned to
a customer (within a period of five days or less) but have not yet been
put into service. Since providers generally do not bill for services
that have yet to be provisioned and therefore are not compensated for
services during the pendency of the service order, should such numbers
be excluded from the definition of Assessable Numbers? We seek comment
on whether our definition of assessable numbers should include numbers
that are not yet operational to send or receive calls. Would it be
consistent with the ``equitable and non-discriminatory'' language in
section 254(d) to exclude these numbers? Would the exclusion of
assigned but not operational numbers have a material impact on the
contribution base and associated per month charge for assessable
numbers? What would be the policy justifications for excluding these
numbers from contribution obligations? In the alternative, should such
numbers be assessed at a pro-rated or reduced rate? We ask commenters
to provide data as to the volume of numbers that would fall into the
category of ``assigned but not operational numbers.''
224. Available but Not Assigned Numbers. We seek comment on whether
the definition of assessable numbers should include or exclude other
numbers that are held by service providers from the definition of
Assessable Numbers. In particular, should we exclude from the
definition of Assessable Numbers those numbers that meet the definition
of an Available Number, an Administrative Number, an Aging Number, or
an Intermediate Number as those terms are defined in Sec. 52.15(f) of
the Commission's rules? Carriers will not have an end user associated
with a number in any of these categories of numbers. For example, an
intermediate number is a number that is ``made available for use by
another telecommunications carrier or non-carrier entity for the
purpose of providing telecommunications service to an end user or
customer.'' Should the receiving provider be responsible for including
the number as an Assessable Number only when it provides the number to
an end user? We seek comment on whether a numbers-based approach should
assess Reserved Numbers. Would it be consistent with the ``equitable
and non-discriminatory'' language in section 254(d) to exclude these
numbers? Would the exclusion of available but not assigned numbers have
a material impact on the contribution base and associated per month
charge for assessable numbers? What would be the policy justifications
for excluding these numbers from contribution obligations? Should such
numbers be assessed at a pro-rated or reduced rate? We ask commenters
to provide data as to the volume of numbers that would fall into the
category of ``reserved numbers.''
225. Assigned but Non-Working Numbers. The 2008 proposals sought
comment on excluding non-working telephone numbers from the definition
of Assessable Number. Several commenters supported the Commission's
proposal that assigned but non-working numbers should be excluded from
contributions. Carriers report as assigned numbers for NRUF purposes
entire codes or blocks of numbers dedicated to specific end-user
customers if at least fifty percent of the numbers in the code or block
are working in the PSTN. Would it be consistent with the definition of
an Assessable Numbers above for carriers to exclude the non-working
numbers in these blocks in their Assessable Number counts, because the
non-working numbers portion of these blocks are not ``in use by an end
user''? We seek to update the record on whether a numbers-based
approach, if adopted, should assess non-working numbers. Would it be
consistent with the ``equitable and non-discriminatory'' language in
section 254(d) to exclude these numbers? Would the exclusion of non-
working numbers have a material impact on the contribution base and
associated per month charge for assessable numbers? What would be the
policy justifications for excluding these numbers from contribution
obligations? Would this create loopholes and make it difficult for the
Commission or USAC to audit a provider to determine if non-working
numbers were properly counted? In the alternative, should such numbers
be assessed at a pro-rated or reduced rate? We also seek comment on the
count of non-working numbers, as well as the trend for this category.
226. Numbers Used for Routing Purposes. We seek to update the
record on whether a NANP number used solely to route or forward calls
should be excluded from the definition of Assessable Number in a
numbers-based approach, if such routing number were provided for free,
and such number routes calls only to Assessable Numbers. Should these
numbers be assessed on a different basis, if such routing or forwarding
were provided for a fee, such as with remote call forward service or
foreign exchange service? We seek comment on whether such numbers
should be excluded under a numbers-based contribution system. Would it
be consistent with the ``equitable and non-discriminatory'' language in
section 254(d) to exclude these numbers? Would the exclusion of numbers
used for routing purposes have a material impact on the contribution
base and associated per month charge for assessable numbers? How would
the exclusion of routing numbers impact a numbers-based regime? What
would be the policy justifications for excluding these numbers from
contribution obligations? Should such numbers be assessed at a pro-
rated or reduced rate? We also seek data on numbers used for routing
purposes, including trend information for this category of numbers.
227. Toll-Free Numbers. We seek comment on whether a numbers-based
methodology should make special accommodations for toll-free numbers.
We seek comment on whether the proposed definition for assessable
number should exclude from assessment toll-free numbers. Would it be
consistent with the ``equitable and discriminatory language'' in
section 254(d) to exclude these numbers? How would the exclusion of
toll-free numbers impact a numbers-based regime? What would be the
policy justifications for excluding these numbers from contribution
obligations? Should such numbers be assessed at a pro-rated or reduced
rate? We also seek data on toll-free numbers, including trend
information for this category of numbers.
228. All Public or Private Interstate Networks. As more services
migrate to alternative networks that only partially traverse the PSTN,
we seek comment on whether there is a danger that a NANP numbers-based
contributions methodology in time could result in declines in the base,
and may conflict with our proposed reform goals of ensuring
sustainability in the Fund and promoting fairness in the USF
contribution assessment system? Or are NANP numbers being used in
association with new technologies that do not originate or terminate on
the PSTN? If so, do commenters expect that growth in these alternative
usages will outpace other declines? We seek comment generally on
whether a contribution system based on NANP numbers would be
sustainable as the marketplace evolves in the future.
[[Page 33924]]
229. Numbers Provided to End Users. We seek comment on which
providers should contribute to the Fund under a numbers-based
contribution methodology. We seek comment on whether the provider with
the retail relationship with the end user should have the contribution
obligation under a numbers-based approach. Would such a provider have
the most accurate and up-to-date information about how many Assessable
Numbers it currently has assigned to end users and how many are in use?
If we adopt a different approach for numbers used for consumer versus
enterprise services, would the provider with the retail relationship be
in the best position to distinguish consumer users from business users?
230. We seek comment on how a numbers-based approach should be
implemented with respect to wholesalers, resellers, and other providers
incorporating NANP numbers into retail services. Would a system that
assesses only numbers provided to end-users invite problems similar to
those that exist today under the current revenues-based system, whereby
some providers do not contribute for services provided? We note that in
some instances wholesalers may provide telecommunications services to
customers with numbers. For example, would a numbers-based system
create wholesale/reseller/retailer problems of the type discussed
earlier in this Notice?
c. Trends in Numbers
231. We seek comment and data on the count of numbers that would be
assessable under a number-based USF contribution assessment system.
Neustar, the administrator of the NANP, estimates that there are
currently 770 million numbers in active use in the United States. As
shown in Chart 7 below, one projection suggests there could be over 832
million numbers in active use by 2015. We seek comment on this estimate
and the underlying assumptions, and invite commenters to present their
own estimates for the growth or decline in the count of actively-used
numbers as well as any additional data regarding their own estimates
and the key drivers for such growth or decline. To what extent is the
growth in the volume of numbers due to new services and applications,
and to what extent is it due to greater penetration of phone service,
such as cell phone family plans and usage by younger children? Do
commenters believe the volume of numbers will increase in the
foreseeable future? Is the growth trend sustainable given anticipated
technology changes? What other factors will impact the continued growth
in the volume of numbers? What impact would the growth in numbers have
on future contribution assessments? To the extent commenters predict
the volume of numbers in use will decline over time rather than grow,
they should similarly identify the basis for their assumptions and
describe in detail their projections for the foreseeable future. What
challenges would a numbers-based contribution system face if the volume
of numbers were to shrink?
232. We seek to update the record on what the per-number charge
would be, given current and projected trends in numbers and overall
universal service demand. Commenters also should provide revised
estimates of the impact on different industry contributors, and
residential and business consumers, in light of current marketplace
developments. Commenters should indicate which definition of
``assessable numbers'' (and exclusions from assessable numbers) they
use in their projections.
d. Differential Treatment of Certain Types of Numbers
233. We seek comment on whether to provide differential treatment
or exclude altogether certain types of numbers from the definition of
Assessable Numbers under a numbers-based contribution methodology, and
whether doing so would further or undermine our proposed goals for
contributions reform. To the extent commenters contend certain types of
numbers should be assessed at a different rate, i.e. a percentage of
the basic per number assessment per month, we ask commenters to include
a policy rationale for their proposal. Is there a reason why certain
types of numbers should be assessed at some fraction, such as 33 or 50
percent, of other numbers based on usage? Would assessing numbers used
for certain types of services promote or discourage innovation?
234. Family Plan Numbers. Parties have argued in the past that
telephone numbers assigned to the additional handsets in family
wireless plans should be assessed at a reduced rate, either permanently
or for a transitional period. These commenters suggested that assessing
contributions at the full per-number rate would cause family plan
customers to experience ``rate shock.'' We seek to refresh the record
on this issue. We seek comment on whether a numbers-based approach
should count equally all numbers that are used for family plans. If we
were to adopt a differentiated approach for family plans, how would we
define a ``family plan'' that would be subject to such differential
treatment? Would this create incentives for service providers to
consolidate accounts and take other measures to characterize service
offerings as ``family plans''? Would such a rule be limited to mass
market consumers, and if so, how should we distinguish between mass
market plans and enterprise plans? Would differential treatment of such
numbers satisfy the statutory requirements that contributions by
telecommunications service providers be equitable and non-
discriminatory? What would be the policy justifications for assessing
such numbers at a pro-rated or reduced rate? We ask commenters to
provide data with underlying assumptions as to the count of numbers
that would fall into this category, specifically, how many phone
numbers are associated with a primary phone number in a family plan.
235. Services-Based Exceptions. Prior commenters have proposed that
we should exempt from any numbers-based contribution methodology
services provided by telematics providers, one-way service providers,
two-way paging services, and alarm companies. We seek to update the
record on these proposals, noting that since 2008, additional
marketplace developments have emerged that may similarly not fit neatly
into the numbers paradigm, including numbers assigned to devices
reliant on mobile broadband, such as data cards, e-readers, and tablet
computers. Should these types of numbers be assessed at a different
rate, e.g., a percentage of the basic per number monthly assessment?
Should a number assigned to a telematics device, where the customer is
not paying a monthly fee and the device can only make a ``call'' in an
emergency situation be assessed differently from a number assigned to a
consumer cell phone or a business landline? Would exclusion of numbers
associated with such services be consistent with the statutory
requirement that all carriers providing interstate telecommunications
services shall contribute on an equitable and non-discriminatory basis?
How would the exclusion of such numbers impact a numbers-based regime?
What would be the policy justifications for excluding these numbers
altogether from contribution obligations? We ask commenters to provide
data as to the volume of numbers that would fall into this category.
236. Numbers Provided to Lifeline Subscribers. We seek comment on
whether the Commission has statutory authority to exclude numbers
associated with service offerings provided to Lifeline subscribers,
given the
[[Page 33925]]
mandatory contribution obligation for telecommunications service
providers. To the extent such numbers are provided with
telecommunications services, would it be consistent with our section 10
authority to forebear from imposing contribution obligations on such
numbers?
237. We seek to update the record on whether it is appropriate to
not assess numbers for Lifeline subscribers, if we were to adopt a
numbers-based contribution methodology. We note that today there are
approximately 14.8 million Lifeline subscribers. How would the
exclusion of such numbers impact a numbers-based regime? What would be
the policy justifications for excluding these numbers from contribution
obligations? Alternatively, should such numbers associated with
Lifeline services be assessed at a pro-rated or reduced rate, and if
so, what would be an appropriate amount?
238. Free Services. We seek to refresh the record on whether
services offered on a free, or nearly-free basis should be excluded in
a numbers-based system. Since commercial providers of free or nearly-
free services generate revenue in other ways, such as through
advertising or through more sophisticated paid service offerings or
product offerings, should they be exempt from contribution obligations?
We ask commenters to provide estimates with supporting data regarding
the number of numbers that would fall into this category.
239. Community Voice Mail. We seek comment on whether a numbers-
based approach should assess numbers associated with services such as
community voicemail. Would exclusion of these numbers satisfy the
statutory requirements for universal service contributions from
providers of telecommunications services? How would the exclusion of
such numbers impact a numbers-based regime? What would be the policy
justifications for excluding these numbers from contribution
obligations? Should such numbers be assessed at a pro-rated or reduced
rate? We ask commenters to provide data as to the volume of numbers
that would fall into this category.
240. TRS and VRS Numbers. We seek to update the record on whether
we should exempt Internet-based telecommunications relay services
(TRS), including video relay services (VRS) and IP Relay services. Such
services are provided for free to people with hearing and speech
disabilities, under Congressional mandate. Would inclusion of these
numbers satisfy the statutory requirements for universal service
contributions? How would the exclusion of such numbers impact a
numbers-based regime? What would be the policy justifications for
excluding these numbers from contribution obligations? Should such
numbers be assessed at a pro-rated or reduced rate? We ask commenters
to provide data as to the volume of numbers that would fall into this
category.
241. Other Exemptions. Are there other types of numbers or services
that should be excluded from a numbers-based contribution mechanism, if
we were to adopt such an approach? For instance, should we adopt
exemptions for numbers used by non-profit health care providers,
libraries, colleges and universities, entities that typically
administer their own numbers? Would inclusion of these numbers satisfy
the statutory requirements for universal service contributions? How
would the exclusion of such numbers impact a numbers-based regime? What
would be the policy justifications for excluding these numbers from
contribution obligations? Should such numbers be assessed at a pro-
rated or reduced rate? We ask commenters to provide data as to the
volume of numbers that would fall into each category of proposed
exemptions.
e. Use of a Hybrid System With a Numbers-Component
242. We seek specific comment on adopting a hybrid numbers-
connections based methodology. The Commission sought comment in 2008
proposals on two hybrid approaches in which consumer numbers would be
assessed on a numbers-based methodology, and business lines would be
assessed on a connections-based methodology. The Commission has also
sought comment on a hybrid numbers-connections methodology that would
assess providers a flat fee for each assessable NANP telephone number
and assess services not associated with a telephone number as
connections. A hybrid numbers and connections system may have
advantages over a numbers-only system insofar as it captures services
that are provided without numbers. In other respects, however, such a
system might incorporate all of the potential disadvantages of both
numbers-based and connections-based systems. Moreover, regardless of
the particular methodologies used, hybrid systems may be more complex
and expensive to administer than a single system. Should carriers that
do not have working numbers or end-user connections continue to
contribute based on their interstate telecommunications revenues? We
ask parties to refresh the record and seek comment on this analysis.
243. To what extent would a hybrid system create competitive
distortions in the marketplace? Any system that would make distinctions
between mass market and enterprise users would require an ability for
contributors in the first instance, and USAC and this Commission, to
distinguish between the two, in order to ensure that contributions are
appropriately made. Would such a system advance our proposed reform
goals of administrative efficiency, fairness and sustainability? Would
a hybrid system satisfy the statutory requirements that contributions
be equitable and non-discriminatory? Would using a different
methodology for contributions for the provision of service to
businesses dissuade investment in higher speed and robust
communications facilities? Recognizing that the answer may depend on
the specific tiers that are adopted, and the assessment levels for each
tier, would such a system, potentially, unfairly advantage or
disadvantage purchasers of higher speed connections?
244. Commenters who support a numbers-connections methodology
should address the feasibility of the methodology in light of recent
industry developments and the continuing evolution of
telecommunications technology. Commenters should also address the
advantages and disadvantages of such a system. Are there any entities
that would be contributing for the first time, if we were to adopt a
hybrid approach? We specifically seek comment on whether a hybrid
numbers-connections methodology would better meet our goals for reform
in comparison to the options discussed above, including an improved
revenues system, a connections-based approach, and a numbers-based
contribution assessment system. We ask parties claiming significant
costs or benefits of a hybrid approach to provide supporting analysis
and facts for such assertions, including an explanation of how data
were calculated and all underlying assumptions.
f. Policy Arguments Related to Numbers-Based Assessment
245. We seek to refresh the record on the potential benefits of a
numbers-based contribution methodology. We also seek comment on whether
a numbers-based system (compared to a connections-based system or the
current revenues-based system) would be simpler to understand. Would it
be competitively neutral? Would a
[[Page 33926]]
numbers methodology be inequitable or discriminatory for low volume
users? Would a numbers-based system, be easier to audit for compliance?
Could such a system reduce compliance costs for contributors? Could it
also reduce marketplace distortions that may be present in either the
consumer or enterprise markets? We ask parties claiming significant
costs or benefits of a numbers-based system to provide supporting
analysis and facts for such assertions, including an explanation of how
data were calculated and all underlying assumptions.
246. Are there modifications that could be made to a numbers-based
methodology to make assessment fairer to consumers on low-cost service
plans? Would a numbers-based system shift the universal service
contributions from higher-volume users of communications services to
lower-volume users? Overall, would low-income households pay a larger
percentage of communications bills in contribution assessments than
higher income households compared to today?
247. Would adoption of a numbers-based contribution approach
discourage the emergence of innovative new functions and services, such
as ``follow-me'' services or unified communications applications? If
the Commission were to adopt a numbers-based contribution methodology,
how could it structure such a system so as not to inhibit innovation?
For example, should the Commission exempt numbers associated with
certain services to be exempt for a defined period of time, analogous
to the Commission's pioneer's preference rules?
248. Distinguishing Telecommunications from Non-Telecommunications.
Would a numbers-based methodology more easily accommodate new services
and technologies without requiring service providers or the Commission
to make service classification judgments? We seek comment on approaches
to provide clarity to contributors with respect to specific services,
without the need to classify those services as either information
services or telecommunications services. We also seek comment on
assessing revenues associated with information services. In light of
those potential approaches to determining who should contribute, would
a numbers-based methodology continue to offer advantages as a
relatively simple basis for assessing those providers' contributions?
To what extent have numbers become increasingly associated with
information services? Would a numbers-based assessment mechanism ensure
that contribution obligations are applied in a fair and predictable
manner to all interstate telecommunications providers?
249. Jurisdictional Considerations. The current revenues-based
system requires contributors to separately report revenues derived from
interstate, intrastate, and international services. We seek comment on
whether a numbers-based system might mitigate the need to differentiate
between interstate and intrastate jurisdiction.
250. Given that NANP numbers enable users to connect with other
users across state lines, is it reasonable to conclude that a numbers-
based methodology would be directed at interstate providers and
therefore consistent with the statutory requirements of section 254? We
seek specific comment on the implications of the Fifth Circuit's TOPUC
decision, which held that section 2(b) of the Act prohibits the
Commission from assessing revenues associated with intrastate
telecommunications service. Does TOPUC impose any limitations on a
numbers-based contribution system, particularly in light of the
Commission's authority over numbering in section 251? We also seek
comment on whether TOPUC raises any concerns related to assessing
international services. If so, we seek comment on whether a numbers-
based system should include an exemption similar to the limited
international revenues exemption under the current revenues-based
system for providers that are primarily international in nature, and if
so, how such an exemption should be crafted.
g. Implementation
251. Implementing a numbers-based system would require revised data
collection and reporting requirements. In this section, we seek comment
on how the Commission would transition to a numbers-based system. We
also ask whether adopting a numbers-based system would increase
compliance burdens if states that administer their own universal
service programs continue to employ revenues-based assessments.
252. Reporting of Numbers. We seek comment on how a numbers-based
system should be implemented and the transition process, should we
adopt such a system. In particular, we seek comment on the specific
changes necessary to enable USAC to collect contributions under a
numbers-based system. How would contributors report the assessable
numbers (and potentially speed or capacity under a numbers-connection
hybrid system) under a numbers-based assessment methodology? Should we
continue to use a FCC Form 499 (with changes), leverage the existing
NRUF reporting requirements, or develop a completely new data
collection? What would be the administrative impact of a new reporting
system on providers and on USAC as the administrator of the Fund? If
the Commission were to adopt a numbers-based methodology, should
contributors be required to report assessable numbers on a monthly
basis, quarterly basis, or some other period? Should we retain the same
quarterly and annual true up reporting periods for a numbers-based
system? Would a monthly reporting requirement create a burden that is
not outweighed by the simplification posed by a numbers-based system?
Should the information be reported as actual numbers, forecasted
numbers, or historical numbers? Would historical reporting
unnecessarily complicate the numbers reporting system? Is there any
information that would be particularly difficult to report on a monthly
basis? Would a more frequent reporting period be less likely to require
adjustments to the contributions requirements? Would longer or shorter
reporting intervals advantage or disadvantage some types of providers
more than others?
253. Costs Associated With Implementing a Numbers System. We seek
comment on what out-of-pocket costs contributors would incur to
implement a new numbers-based contribution methodology, both in the
short term to transition to a new system and on an annual basis once a
new system is in place. Commenters should explain the categories of
costs that would be incurred. To the extent possible, commenters should
quantify these costs and indicate how they compare to the costs of
complying with the existing revenues-based system. Would contributors
be able to use their current billing and operating systems to report
numbers for universal service contributions? If not, what would be the
incremental costs associated with modifying billing systems and
internal controls and processes to collect and track numbers for
purposes of reporting and contributing to the Fund? Would contributors
have to implement entirely new systems to track the type of data needed
to report assessable numbers? Are there cost savings that could be
realized by moving away from the current revenues-based system, which
requires contributors to report revenues quarterly (projected) and
annually (actual) for USF purposes, and potential efficiencies based on
other existing number reporting requirements for other
[[Page 33927]]
regulatory requirements? Would those costs vary depending on the
definition of assessable numbers? We also seek comment on whether the
cost of updating billing and internal systems for this narrow
regulatory purpose would outweigh any benefit achieved. Would increased
operational costs of moving to a numbers system negatively impact
certain carriers as compared to other carriers? Commenters should
provide data on any such increased costs.
254. We also seek comment and data on other costs associated with a
numbers-based system, and in particular ask providers if there are any
costs that are not discussed above. Would the cost of moving to a new
numbers system be relatively greater for certain classes of customers
or certain industry segments? To what extent would this analysis change
depending on how ``assessable numbers'' is defined and assessed? Do the
additional costs associated with implementation and the reporting
requirements outlined below outweigh the benefits of moving to a
numbers-based methodology?
255. Auditing. We seek comment on how to define an ``Assessable
Number'' to make it easier to audit to ensure that contributors are
reporting accurately, and that the system operates in an equitable and
nondiscriminatory manner, maintains stability in the contribution base,
and minimizes market distortions and gamesmanship. We seek comment on
whether we should allow carriers to self-certify which numbers are
assessable numbers for contributions purposes. We also seek comment on
whether we should modify the current recordkeeping requirements to
further improve the auditing process for both contributors and
auditors. Should we adopt additional rules or provide further guidance
regarding the types of records and supporting documentation that should
be maintained? Proponents of a numbers-based system should provide
specific details about how contributors would report their data and how
auditors could verify the accuracy of assessable numbers reported.
256. Effect on Other Programs. We ask parties to provide comment on
the impact of moving to a numbers-based approach on the Interstate TRS,
North American Numbering Plan, Local Number Portability, and regulatory
fees administration programs. We ask parties to provide comment on the
best approach for ensuring proper funding of these programs were we to
move to a numbers-based methodology. Should contributors continue
reporting gross billed end-user revenues for purposes of these
programs, and if so, should they continue to report on an annual basis?
Should we simplify the Form 499 for purposes of revenue reporting in
that instance? Are there alternative ways to calculate contributions
for these programs?
257. Transition. A numbers-based methodology would constitute a
change from the current revenue-based system and would likely require a
transition period, especially if reporting entities need to implement
new billing and accounting systems and a process for recording number
counts in a manner that is auditable. We seek to refresh the record on
whether a 12-month period would give contributors sufficient time to
adjust their record-keeping and reporting systems so that they may
comply with modified reporting procedures. Could such a transition be
implemented within a given calendar year, and if so, should it be tied
in some fashion to the current quarterly filing of Form 499-Q? We seek
comment on what steps would need to be taken to transition between the
current revenues-based system and a numbers-based system and how much
time would be needed to ensure that the new process is applied in an
equitable manner. Commenters should indicate whether the other changes
discussed in this Notice would require less or more time to implement.
258. Is a 12-month transition period sufficient to ensure that all
affected parties would have adequate time to address any implementation
issues that arise? How much time would be necessary for contributors,
including new contributors, to adjust their record-keeping and
reporting systems in order to comply with new reporting procedures? Are
there considerations that would favor a longer or shorter transition
period? Would there be a benefit in adopting different transitional
periods for residential and business markets?
259. We also seek comment on requiring dual reporting during all or
some of the transition time--where reporting entities would continue to
report and pay under the current revenues-based system, while they also
begin reporting under the new system. Would having providers report
under both systems for a specified amount of time during the transition
provide the opportunity for both providers and USAC to address
unforeseen implementation issues that are likely to arise under the new
reporting system? Should new filers begin reporting sooner since USAC
does not have any historical data on their revenues and services?
C. Improving the Administration of the Contribution System
260. We seek comment on potential rule changes that could be
implemented to provide greater transparency and clarity regarding
contribution obligations, reduce costs associated with administering
the contribution system, and improve the operation and administration
of the contributions system. For each issue, we seek comment on whether
and how the potential rule change could or should be implemented on an
accelerated timetable, in advance of other reforms under consideration
in this proceeding, as well as the potential reduction in compliance
costs associated with adopting each proposal.
261. We request clear and specific comments on the type and
magnitude of likely benefits and costs of each of the rules discussed
in this section, and request that parties claiming significant costs or
benefits provide supporting analysis and facts, including an
explanation of how data were calculated and identification all
underlying assumptions.
1. Updating the Telecommunications Reporting Worksheet
262. We seek comment on whether we should modify the process by
which the Telecommunications Reporting Worksheets (FCC Forms 499-A and
499-Q) are revised by soliciting public comment from interested parties
prior to adopting revisions to the Telecommunications Reporting
Worksheet and instructions. We also seek comment on whether to adopt a
rule specifying that the worksheets and instructions constitute binding
agency requirements.
263. We propose to adopt a formalized annual process for the Bureau
to update and adopt the Telecommunications Reporting Worksheets and
their accompanying instructions. We propose to amend Sec. 54.711 to
include the following proposed rule: Telecommunications Reporting
Worksheet Revisions. The Wireline Competition Bureau shall annually
issue a Public Notice seeking comment on the Telecommunications
Reporting Worksheets and accompanying instructions. No later than 60
days prior to the annual filing deadline, the Wireline Competition
Bureau shall issue a Public Notice attaching the finalized
Telecommunications Reporting Worksheet and instructions. Adopting such
a rule would respond to requests in the record asking that parties be
given prior notice of any proposed revisions to
[[Page 33928]]
the worksheet instructions, and an opportunity to comment on such
revisions. If the Bureau were to put instructions out for public
comment before they are adopted, at what point in the calendar year
should the Bureau place the proposed form and instructions on public
notice, and when should it be required to issue the revised form and
instructions? Would this proposed rule change support our proposed
reform goals of fairness and simplifying compliance and administration?
Parties are encouraged to provide information and data addressing how
such a rule would simplify compliance and administration.
264. In particular, we seek comment on whether releasing the form
after the calendar year is over makes it more difficult for
contributors to track the information that must be reported for the
prior year in a manner consistent with the prescribed format. If so,
commenters should provide specific examples of such burden, and
quantify such examples with data.
265. Should the Commission specify that contributors are required
to comply with the Form 499 instructions adopted pursuant to such a
process? Should the Bureau have delegated authority to make changes to
the Form and related instructions to the extent that they constitute
binding requirements, and if so, what should be the scope of its
authority?
266. If we do not adopt an annual process for publicizing the
updated form, should we require the Bureau to set out for comment the
proposed revisions to the Telecommunications Reporting Worksheets and
accompanying instructions before implementation of any significant
changes resulting from the reforms identified in this Notice? What is
the most efficient way to seek public input on how to implement these
changes in a straightforward and readable manner so that all reporting
entities can know their obligations and comply with our rules?
2. Revising the Frequency of Adjustments to the Contribution Factor
267. If the Commission continues a revenues-based system or
alternative system that will use a contribution factor, we seek comment
on modifying the frequency of changes to the contribution factor.
Presently, the contribution factor is revised on a quarterly basis. We
seek comment on revising the contribution factor less frequently, such
as annually. We seek comment on whether we should revise our rules, for
example, to use reserves, to the extent necessary, to meet any
quarterly fluctuation in demand. Would such a method better serve our
proposed reform goals of increasing efficiency, fairness, and
sustainability of the Fund? If we were to adopt a rule requiring annual
adjustments to the contribution factor, should we wait to implement
such a rule until 2013, when the Commission expects to have the
information needed to be in the position to determine an appropriate
budget for the Lifeline program?
268. Would adjusting the contribution factor on an annual basis
advance our proposed reform goals of increasing administrative
efficiency, fairness and sustainability? Does the fluctuation in the
contribution factor create revenue reporting difficulties for
stakeholders? Does it cause difficulties in marketing services to
consumers? Does the fluctuation from one quarter to the next in the
contribution factor make it difficult for contributors to anticipate
their likely contribution obligations for the year, or for end-user
customers to forecast the total cost of their communications packages,
including any universal service pass through charges? To the extent
there are reasons to adjust the factor more often than annually, would
it be an improvement to the current system to make such adjustments
every six months?
269. Another option to reduce fluctuations in the contribution
factor caused by prior period adjustments is to extend the period of
time during which such prior period adjustments are taken into account
for subsequent adjustments to the contribution factor. For example, we
could require that prior period adjustments be leveled out over a
period of two subsequent quarters under a rule that provides as
follows: If the contributions received by the Administrator in a
quarter exceed or are inadequate to meet the actual expenses for that
quarter, the Administrator shall adjust its projected expenses for the
following two quarters to account for the excess or inadequate payments
(and any associated costs) unless instructed to do otherwise by the
Commission. The contribution factor for the following two quarters will
take into consideration the projected costs of the support mechanism
for those two quarters, and the excess or insufficient contributions
carried over from the previous quarter.
270. We seek comment on whether accounting for prior-period
adjustments over a longer period, such as two quarters rather than one,
could reduce the amount and severity of the fluctuation in the
contribution factor from one period to the next. By providing USAC with
more than one quarter to account for these adjustments, the increases
and decreases may help to offset each other, and thereby reduce the
period to period fluctuations in the contribution factor.
271. We seek comment on the merits and technical aspects of a rule
change to address quarter to quarter fluctuations in the contribution
factor. What would be the benefits of modifying our rules as discussed
above, and would such a change have any negative or positive impact on
administration of the Fund? What are the potential unintended
consequences of extending the period of time during which prior period
adjustments are taken into account? Would authorizing USAC to make
prior period adjustments over an even longer period be appropriate, and
if so, over how many quarters? If we were to move to an alternative to
the current revenue-based system, should we similarly direct USAC to
account for any fluctuations in demand over a period of time longer
than one quarter in order to minimize quarterly variation in the
contribution obligation associated with the assessable unit of measure?
3. Pay-and-Dispute Policy
272. We propose to adopt either as Commission policy or a codified
rule the current USAC practice commonly referred to as the ``pay-and-
dispute'' policy. This policy requires contributors that wish to
challenge a USAC invoice to keep their accounts current while disputing
the amounts billed in order to avoid late fees, interest, and
penalties. We seek comment on whether adopting ``pay-and-dispute'' as a
policy or rule supports our proposed reform goals, including ensuring
predictability and sustainability of the Fund, simplifying compliance
and administration, and fairness.
273. We propose to amend Sec. 54.713 of our rules to adopt a pay-
and-dispute rule as follows: If a universal service fund contributor
fails to make full payment of the monthly amount established by the
contributor's applicable Form 499-A or Form 499-Q, or the monthly
invoice provided by the Administrator, on or before the date due, the
payment is delinquent. Late fees, interest charges, and penalties for
failure to remit any payment by the date due shall apply regardless of
whether the obligation to pay that amount is appealed or otherwise
disputed unless the Administrator or the Commission (pursuant to Sec.
54.719) finds the disputed charges are the result of clear error by the
Administrator.
274. Although the Bureau has consistently upheld USAC's
[[Page 33929]]
implementation of the pay-and-dispute requirement, contributors
continue to challenge USAC's use of the pay-and-dispute requirement in
specific instances by withholding payment pending resolution of a
disputed charge. Adopting as a Commission policy or rule or, at a
minimum, affirming the pay-and-dispute requirement could lessen
administrative burdens for both USAC and Commission staff, while also
putting all contributors on notice of the procedures for appealing
contested invoices. We seek comment on whether adopting the pay-and-
dispute requirement serves our proposed reform goals. We specifically
seek other proposals that create the proper incentive for contributors
to pay their invoices in a timely manner. We seek comment on whether
adopting USAC's pay-and-dispute requirement is consistent with the
Commission's DCIA rules. We also seek comment on any other changes to
our rules that would ensure better compliance with our rules and the
Debt Collection Improvement Act.
4. Oversight and Accountability
275. We seek comment on various issues relating to oversight and
accountability for the contributions system. To ensure that data
actually reported closely approaches our best estimate of industry-wide
assessable services, should we establish a performance goal of reducing
the number of contributors that do not satisfy their contributions
obligations? If so, what information should we rely upon to track that
goal?
276. USAC employs several practices to identify entities that
should register and contribute to the Fund. For example, during
contributor audits, USAC obtains a list of resellers from the auditee
and identifies companies that have not registered. USAC contacts these
companies to determine why they are not registered or contributing to
the Fund. USAC also contacts companies that it independently identifies
from industry news sources and whistleblowers. We seek comment on
additional steps that could be taken to identify those
telecommunications providers that are not meeting their contribution
requirements. What measures could the Commission direct USAC to take to
ensure industry-wide compliance with our contribution rules?
277. We seek comment on the extent to which potential rule changes
that could simplify the contribution system discussed in this Notice
could help ensure that contribution assessments are made and collected
in accordance with Commission rules and requirements. Further, we seek
comment on how we could measure the benefits of simplification in the
contribution system. What information would we need, and what would be
an appropriate performance goal?
278. USAC Audits. We seek comment on processes and procedures that
USAC could implement to make the contributor audit process more
efficient. We seek public comment on how to most efficiently use our
administrative resources to ensure that contributions are made in
accordance with the Commission's rules and requirements, while
minimizing compliance burden on companies subject to audit. We seek
comment on whether we should require USAC to produce an updated audit
plan for OMD and the Bureau for USF contribution purposes. How many
audits should USAC initiate (at a minimum) each year? How should USAC
ensure that audits encompass a representative sample of the industry?
279. Timely and Efficient Reporting. We seek comment on whether we
should adopt as a performance goal that a specified percentage of
reporting entities file their Worksheets on time. We seek comment on
what additional outreach and training USAC may need to do to encourage
more reporting entities to file their Worksheets on time and
electronically. We also seek comment on any revisions to our rules that
would create the proper incentives for timely filing. We seek comment
on this analysis and the time frame in which we should implement and
monitor our progress towards meeting such a goal, if adopted.
280. Prompt Payment and Collection of Contribution Obligations. We
seek comment on adopting several performance goals related to that
task. First, we seek comment on adopting a performance goal of
decreasing the aggregate number and dollar amount of delinquent
contributions payments. Second, we seek comment on adopting performance
goals of reducing the percentage of contributors that are delinquent in
payments, the percentage of contributors delinquent more than 30 days,
and the percentage of contributors delinquent more than 90 days. We
seek comment on these performance goals and also on the specific
targets that USAC and the Commission should strive to reach. We seek
comment on what additional outreach and training USAC may need to do to
encourage more contributors to pay their debts on time, and whether any
revisions to our rules would encourage timely payment. We seek comment
on what allowances we can and should make in consideration of any
economic conditions impacting the industry.
281. We seek comment on whether these measures would assist the
Commission with monitoring either the costs of compliance for
contributors or the contributions burden on consumers and businesses,
especially when coupled with other proposals in this Notice. We seek
specific comment on whether any particular reforms identified in this
Notice would help or hinder oversight over the contribution system. We
also invite parties to suggest additional or alternative goals and
measures for assessing the performance of the contribution system.
5. Paper-Filing Fees
282. We propose to adopt a filing fee for contributors that choose
to submit the Telecommunications Reporting Worksheets by paper rather
than electronically. In order to increase efficiency in program
administrative, we propose to amend Sec. 54.711 to require that
reporting entities file the Telecommunications Reporting Worksheet
electronically: Electronic Filings. Reporting entities must file the
Telecommunications Reporting Worksheet electronically. The
Administrator shall assess a $25 fee on reporting entities for filing
paper copies of the quarterly Telecommunications Reporting Worksheet.
The Administrator shall assess a $50 fee on reporting entities for
filing paper copies of the annual Telecommunications Reporting
Worksheet. The Administrator shall not assess a paper-filing fee on
reporting entities that electronically file their Telecommunications
Reporting Worksheet, but such entities must also submit either a paper
or electronic certification attesting to the accuracy of the
information reported therein under penalty of perjury.
283. Based on information provided by USAC, the proposed paper-
filing fees would be set at a level so as to compensate the Fund for
the additional costs incurred by USAC to manually process these paper
filings and encourage more reporting entities to file electronically.
We seek comment on this analysis.
284. We seek comment on the merits and technical aspects of a rule
change assessing a paper filing fee. What is the potential impact on
contributors and the Fund if we adopt a paper filing fee? We seek
specific comment on setting the appropriate size of a paper filing fee
so that reporting entities would have an appropriate incentive to file
electronically and in a timely manner. We seek comment on any other
changes
[[Page 33930]]
to our rules that would ensure better compliance with our rules and the
Debt Collection Improvement Act. The above proposed rule requires
electronic filers to submit either a paper or electronic certification
attesting the accuracy of the electronic filing. We seek comment on
what procedures we should adopt to facilitate the certification to be
done electronically, per the E-Sign Act. In addition, we seek comment
on what modifications, if any, USAC should make to its electronic
filing system to ensure that it is accessible to persons with
disabilities. In lieu of imposing a filing fee, is there a different
approach that would incent contributors to file electronically?
6. Filer Registration and Deregistration
285. We seek comment on tightening our registration requirements so
that all telecommunications providers with FCC Form 499-A reporting
obligations (whether they are common carriers or not) have the
obligation to register within thirty days of commencing service. We
propose to amend Sec. 54.706 to include the following proposed rule:
(f) Registration Requirements. Every common carrier subject to the
Communications Act of 1934, as amended, and every entity required to
submit a Telecommunications Reporting Worksheet shall register with the
Commission in accordance with the provisions of 47 CFR 64.1195(a) thru
(c) and the Instructions to the Telecommunications Reporting Worksheet
within thirty days of the commencement of provision of service.
286. Deregistration Requirements. We also propose to require
registered entities that no longer meet the requirements to register to
file a deregistration with the Commission. A deregistration requirement
could ensure that the Commission's Form 499 Filer Database is current
and complete. Currently, if a contributor has previously filed a Form
499-A or Form 499-Q, but has not notified USAC that it no longer
providers telecommunicates services, USAC estimates the provider's
quarterly revenues and sends an invoice to that provider for its
estimated contributions. This may create confusion and generate late
fees for providers that no longer provide service. A formal
deregistration requirement could streamline USAC's and the Commission's
processes by eliminating unnecessary invoices and removing entities
that no longer provide service from the Commission's database. We
propose to amend Sec. 54.706 to include the following proposed rule:
(g) Deregistration Requirements. If a registrant stops providing
interstate and international telecommunications to others, it shall
deregister with the Commission within thirty days of its last provision
of telecommunications. To deregister, a registrant must comply with the
Instructions to the Telecommunications Reporting Worksheet.
287. Would adoption of such a rule simplify the process of billing
contributors, and thereby lessen USAC's administrative costs? Would
adoption of such a rule further other proposed reform goals?
288. Wholesale-Reseller Confirmation Requirements. We seek comment
on adopting a value-added revenue system to address recurring USF
contribution issues that arise in instances where wholesale carriers
provide services to other carriers. To the extent that we do not adopt
a value-added system, however, we seek comment on requiring all
registrants that provide telecommunications to other carriers to check
the registration status of their customers. We seek comment on whether
imposing such an obligation could ``deter [registrants] from providing
service to resellers that have not registered with the Commission,
which will, in turn, make it more difficult for `bad actor' resellers
to stay in business.'' We propose to amend Sec. 54.706 to include the
following proposed rule: Customer Confirmation Requirements. A
telecommunications carrier or provider providing telecommunications to
other carriers or providers shall have an affirmative duty to ascertain
whether a customer that is required to register has in fact registered
with the Commission prior to offering service to that customer.
289. Would adoption of each of the above proposed rules increase
the likelihood that all potential contributors register with the
Commission and comply with universal service contribution reporting
obligations? What are the costs and benefits of imposing such an
obligation on FCC registrants, and how would that vary if the
Commission adopts other rule changes discussed in this Notice? For
instance, if the Commission were to require contributions from
wholesalers, would that lessen the potential policy rationale for
ensuring the reseller is registered with the Commission?
D. Recovery of Universal Service Contributions From End Users
290. We seek comment on issues relating to recovery of universal
service contributions from customers. We request clear and specific
comments on the type and magnitude of likely benefits and costs of each
of the rules discussed in this section, and request that parties
claiming significant costs or benefits provide supporting analysis and
facts, including an explanation of how they were calculated and
identification of all underlying assumptions.
291. The statutory framework established by Congress in the Act
governs the recovery of universal service contributions by
telecommunications service providers. Although a contributor may
generally recover its universal service contributions from its
customers, the Commission has placed two restrictions on doing so.
First, a ``federal universal service line-item charge'' may not
``exceed the interstate telecommunications portion of that customer's
bill times the relevant contribution factor.'' Second, eligible
telecommunications carriers (ETCs) that are incumbent LECs may not pass
through a federal universal service line-item charge to their Lifeline
subscribers except to recover ``contribution costs associated with the
provision of interstate telecommunications services that are not
supported by the Commission's universal service mechanisms.'' In
practice, this means that incumbent ETCs historically have not been
permitted to pass through to Lifeline subscribers the contribution
costs associated with the subscriber line charge (which is deemed 100
percent interstate), but they may pass through contribution costs
associated with other interstate services, such as long distance
calling. There is no comparable restriction for competitive ETCs that
serve Lifeline subscribers.
1. Pass-Through of USF Contributions as Separate Line Item Charge
292. We seek comment on ways to improve transparency relating to
the amount of universal service contribution charges that are being
passed through by the carriers to their customers.
293. Providing Clarity in Customer Bills. Under today's system, the
contribution factor is typically applied to only a fraction of the
total end user revenues derived from a customer. Currently, Sec.
54.712(a) only addresses line items on customer bills and does not
address situations in which there is no billing relationship. Moreover,
our rules do not require contributors to indicate how the universal
service charge on a customer's bill is calculated. In many instances,
customer bills include a line item for USF, but do not indicate the USF
contribution factor used to determine such line item, or the portion of
the bill to which the
[[Page 33931]]
contribution factor was applied. We seek comment on whether we should
limit the flexibility currently afforded contributors in the recovery
of universal service obligations or adopt measures to provide greater
transparency regarding such recovery to enable consumers to make
informed choices regarding their service. For example, we could adopt a
rule that contributors must identify on the consumer bill the portion
of the bill (whether based on revenues or another unit) that is subject
to assessment. This could enable end users to determine whether they
are being properly charged a USF pass-through charge. What
modifications, if any, would we need to make to Sec. 54.712 of the
existing rules, which prohibits a carrier from charging more than the
interstate portion of the bill times the relevant contribution factor.
294. We seek comment on the value of making the burden of the
universal service contribution plain, and whether this can be obtained
without distorting the pricing strategies of individual providers.
Would it be possible to require that the advertised price include the
universal service contribution, while allowing the continued
publication of the universal service contribution as a line item in
end-users' bills? What additional rules should the Commission adopt to
provide clarity to customers regarding USF pass-through charges? How
should these rules be enforced? What benefits to consumers and/or cost
burden to providers would such rules result in?
295. Advertising USF Charges. Should we also mandate that carriers
disclose at the time of initial service subscription the amount of the
quoted rate or other assessable units that would be subject to
assessment? 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?
296. Mass Market Customers vs. Business Customers. If we were to
adopt either of these rules, should the rule apply broadly to all
customers, or be limited to mass market customers, who typically have
less leverage than businesses, institutions and governmental entities
that purchase communications services? If we were to adopt such a
distinction, how should we define ``mass market'' for these purposes?
297. Eliminating Line Items. An alternative approach to the rules
described above would be to limit carrier flexibility to recover their
universal service contributions from end users through a line-item or
``surcharge'' on end-user bills. Under such an approach, while
contributors would retain the flexibility to include the cost of
contributing to the universal service fund in determining their overall
rate structure, they would not be permitted to represent any line item
on end-user customer bills as a federal universal service charge. For
instance, Sec. 54.712 of the Commission's rules, which currently
specifies that line items may not exceed the assessable portion of the
bill times the contribution factor, could be replaced with the
following rule: Federal universal service contribution costs may not be
recovered by contributors as a separate line-item charge on a
customer's bill.
298. We seek comment on the relative advantages of any of these
potential changes over our current rules regarding the recovery of
universal service contributions. In particular, we invite commenters to
address whether such rules would benefit consumers by requiring
contributors to quote prices for their services that are subject to USF
obligations. What cost/burdens would this impose on service providers,
and how can such cost/burdens be mitigated? We additionally ask
commenters to address whether such rules would result in bills that are
simpler and easier to understand. We particularly seek comment from
consumer groups on the benefits or disadvantages of such a rule. We
also seek comment on whether a rule limiting the pass through of USF
charges would unnecessarily reduce carriers' pricing flexibility,
resulting in fewer options for consumers.
299. We seek comment on our authority to impose these constraints
on contributors' recovery of universal service contributions from their
customers. We seek comment on whether sections 4(i), 201, 202, and 254
of the Act, or other statutory provisions, provide sufficient authority
to adopt these proposals. Could the Commission adopt such requirements
pursuant to its authority to regulate common carrier billing practices
under section 201(b) of the Act? Because sections 201 and 202 of the
Act only apply to ``common carriers'' or ``telecommunications
carriers,'' could the Commission make these rules applicable to the
broader category of ``telecommunications providers'' under its
authority to regulate universal service contribution obligations
pursuant to section 254(d) of the Act?
300. We also ask commenters to address whether any of these rules
would raise First Amendment or other constitutional concerns, and, if
so, how we should address those concerns. Would such rules be
consistent with the Commission's other policies and regulations,
including the Commission's goals of promoting competition,
deregulation, innovation, and universal service?
2. Segregation of USF Pass-Through Charges
301. When a telecommunications provider files bankruptcy, the funds
collected by the provider from end-user customers to recover universal
service contribution costs are often claimed as part of the bankruptcy
estate for the benefit of all the carrier's creditors, rather than for
the benefit of the Fund. From 2001 through 2011, the USF was unable to
collect, due to provider bankruptcies, $80 million of the $90.7 million
in funds that such providers had collected as universal service line
items. The Fund collected the remaining $10.7 million through
participation in the providers' bankruptcy cases, but only after
significant delays and the expenditure of attorneys' fees.
302. We seek comment on whether we should take steps to ensure
contributions are made by contributors that become insolvent. Should we
adopt a rule specifying that telecommunications providers that impose
line items on their customers for federal universal service
contributions are acting on behalf of the Fund? Would such a codified
rule strengthen the position of USAC and the Commission in bankruptcy
proceedings?
303. One potential solution to this problem would be to amend Sec.
54.712 of our rules to require contributors that recover their
contribution obligation from end-users to segregate those end-user
payments in dedicated trust accounts for the sole benefit of the USF.
We seek comment on whether the Commission should adopt such a
requirement, and the particulars of its implementation. Should we, for
instance, require the account to be interest-bearing? Should we require
that USAC have access to or be a co-signatory on each account? In the
event of late payment, should we permit contributors to use the trust
funds to pay interest, penalties and/or costs assessed against the
contributor under our rules for late payment? How would such a
requirement best be enforced? We also seek comment on alternative means
of ensuring payment of contribution amounts to the Fund in cases of
insolvency and financial distress, and their advantages and
disadvantages.
[[Page 33932]]
3. Limiting Pass-Through of USF Charges to Lifeline Subscribers
304. We seek comment on rule changes to provide a more level
playing field among incumbent ETCs and competitive ETCs regarding their
recovery of universal service pass-through charges. In particular, we
propose to extend the current rules that apply only to incumbent
carriers by amending Sec. 54.712 to prohibit competitive ETCs from
recovering USF charges for Lifeline offerings from Lifeline subscribers
as follows: Lifeline Subscribers. Eligible telecommunications carriers
covered by Sec. 69.131 and Sec. 69.158 are subject to the limitations
on universal service end user charges set forth therein. All other
eligible telecommunications carriers shall not recover federal
universal service contribution costs from Lifeline services to Lifeline
subscribers. This limitation does not apply to services to Lifeline
subscribers that are not supported by Lifeline, such as per-minute or
other additional charges beyond the service for which the customer
receives Lifeline support.
Such a rule could offer an easily administrable bright-line rule: ETCs
would be free to pass along contribution costs through a line-item (or
prepaid charge in the case of prepaid cards or services) only if the
Lifeline subscriber chooses to purchase additional services beyond the
basic Lifeline service. We seek comment on this analysis.
305. Would it be appropriate to bar competitive ETCs from passing
through universal service contribution costs associated with their
basic Lifeline offering, comparable to the restriction that exists
today for incumbent carriers? Would such a rule result in competitive
ETCs reducing the number of minutes provided in a Lifeline offering? We
note that competitive ETCs are not required to allocate their costs and
tariff their basic local exchange service (as incumbent LECs generally
must), and there may be no reliable way to determine whether a
competitive ETC is effectively recovering the contribution costs
associated with the eligible Lifeline service included in the package.
How would the Commission treat Lifeline service offerings by
competitive ETCs?
306. We seek to develop the record on carrier practices today
regarding recovery of USF contribution costs for Lifeline offerings
from Lifeline subscribers. We seek comment and data on the extent to
which ETCs that offer prepaid services supported by the Lifeline
program effectively recover from their Lifeline subscribers the cost of
their universal service contributions associated with that Lifeline
plan. Do they recover those costs by adjusting the number of minutes
provided for the established Lifeline rate? Do competitive ETCs
providers that have monthly billing arrangements with Lifeline
subscribers pass through USF contribution costs for Lifeline offerings?
307. We seek comment on the potential impact of a rule prohibiting
recovery of contribution costs for Lifeline offerings on Lifeline
service providers and their Lifeline subscribers. Given the
Commission's steps in the last decade to increase telephone penetration
on Tribal lands via the low-income program, we are particularly
interested in comment from Tribal governments and Tribally-owned and
operated Lifeline service providers on the impact of such a rule on
Tribal lands and their Lifeline subscribers. Commenters that oppose
such a rule should provide specific alternative rules and explain how
their proposals would support the goals of universal service.
308. We seek comment on whether we need to update our rules
applicable to both incumbent and competitive ETCs in light of the
emergence of Lifeline offerings that may permit the Lifeline subscriber
to make calls across state lines as well as within the state. For
instance, should we adopt a rule that expressly prohibits all ETCs from
recovering any contribution costs associated with a Lifeline offering
that provides all-distance calling from their Lifeline subscriber?
309. Finally, we also seek comment on the impact on low-income
subscribers generally, i.e., those subscribers that would be eligible
for Lifeline, even if they do not participate in the program, of the
different contribution methodologies discussed in above. What is the
average amount of USF pass-through charge imposed and collected today
for low-income consumers?
II. Procedural Matters
A. Ex Parte Presentations
310. Ex Parte Rules. The proceeding this Notice initiates shall be
treated as a ``permit-but-disclose'' proceeding in accordance with the
Commission's ex parte rules. Persons making ex parte presentations must
file a copy of any written presentation or a memorandum summarizing any
oral presentation within two business days after the presentation
(unless a different deadline applicable to the Sunshine period
applies). Persons making oral ex parte presentations are reminded that
memoranda summarizing the presentation must (1) list all persons
attending or otherwise participating in the meeting at which the ex
parte presentation was made, and (2) summarize all data presented and
arguments made during the presentation. If the presentation consisted
in whole or in part of the presentation of data or arguments already
reflected in the presenter's written comments, memoranda or other
filings in the proceeding, the presenter may provide citations to such
data or arguments in his or her prior comments, memoranda, or other
filings (specifying the relevant page and/or paragraph numbers where
such data or arguments can be found) in lieu of summarizing them in the
memorandum. Documents shown or given to Commission staff during ex
parte meetings are deemed to be written ex parte presentations and must
be filed consistent with rule Sec. 1.1206(b). In proceedings governed
by rule Sec. 1.49(f) or for which the Commission has made available a
method of electronic filing, written ex parte presentations and
memoranda summarizing oral ex parte presentations, and all attachments
thereto, must be filed through the electronic comment filing system
available for that proceeding, and must be filed in their native format
(e.g., .doc, .xml, .ppt, searchable .pdf). Participants in this
proceeding should familiarize themselves with the Commission's ex parte
rules.
B. Initial Regulatory Flexibility Analysis
311. 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 Notice. Written public 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 Notice. The Commission will
send a copy of the Notice, including this IRFA, to the Chief Counsel
for Advocacy of the Small Business Administration (SBA). In addition,
the Notice and IRFA (or summaries thereof) will be published in the
Federal Register.
1. Need for, and Objectives of, the Proposed Rules
312. In the Notice, we seek public comment on approaches to reform
and modernize how Universal Service Fund (USF or Fund) contributions
are assessed and recovered. We seek comment on ways to reform the USF
[[Page 33933]]
contribution system in an effort to promote efficiency, fairness, and
sustainability. We seek comment in four key areas regarding the
contributions system: (1) Who should contribute to the Fund; (2) how
contributions should be assessed; (3) how the administration of the
contribution system can be improved; and (4) recovery of universal
service contributions from consumers.
313. First, we seek comment on who should contribute to the Fund.
Specifically, we seek comment on how we could exercise our permissive
authority to define what services or providers should be subject to
contribution obligations, either by: (1) Clarifying or modifying on a
service-by-service basis whether particular services or providers are
required to contribute to the Fund; or (2) adopting a more general rule
that would specify which interstate telecommunications providers must
contribute without enumerating the specific services subject to
assessment.
314. Second, we seek comment on how contributions should be
assessed. In particular, what methodology we should use to determine
the relative contribution obligation among those providers who are
required to contribute. In particular, we seek to refresh the record
and update proposals to assess based on revenues, connections, numbers,
or a hybrid approach. For each alternative, we ask parties to address
the current and projected impact on the relative contribution burden
for consumers and businesses in light of marketplace trends.
315. Third, we seek comment on how to improve the administration of
the contribution system. We seek comment on potential rule changes that
could be implemented to provide greater transparency and clarity
regarding contribution obligations, reduce costs of administering the
program, and improve the operation and administration of the program.
Specifically, we seek comment on potential rule changes in six areas
that should improve administration: (1) Updating the Telecommunications
Reporting Worksheet and its instructions; (2) revising the frequency of
adjustments to the contribution factor; (3) codifying the pay-and-
dispute policy; (4) improving oversight and accountability; (5)
mandating electronic filing of the Telecommunications Reporting
Worksheet with a fee for paper filer; and (6) implementing a filer
registration and deregistration requirement for all parties required to
file the Telecommunications Reporting Worksheet.
316. Finally, we seek comment on whether the Commission could
promote fairness and transparency by modifying the methods by which
providers recover the costs of universal contributions from consumers.
Specifically, we seek comment on the following questions: (1) whether
to limit the flexibility of contributors to pass through contribution
costs as a separately stated line item on customer bills; (2) whether
to implement measures to ensure contributions are made by contributors
that become insolvent; and (3) whether to prohibit competitive carriers
from recovering universal service contributions for Lifeline offerings
from Lifeline subscribers.
2. Legal Basis
317. The legal basis for any action that may be taken pursuant to
the Notice is contained in sections 1, 2, 4(i), 4(j), 201, 202, 218-
220, 254, and 303(r) of the Communications Act of 1934, as amended, and
section 706 of the Telecommunications Act of 1996, as amended.
3. Description and Estimate of the Number of Small Entities to Which
the Proposed Rules Will Apply
318. 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.
Nationwide, there are a total of approximately 29.6 million small
businesses, according to the SBA.
319. 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 a total of 3,188
firms in this category, that operated for the entire year. Of this
total, 3144 firms employed 999 or fewer employees, and 44 firms
employed 1000 employees or more. Thus, under this size standard, the
majority of firms can be considered small entities that may be affected
by rules adopted pursuant to the Notice.
320. 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
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 may be
affected by rules adopted pursuant to the Notice.
321. 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 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 entities that may be affected by rules
adopted pursuant to the Notice.
322. We have 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. We have therefore included
small incumbent LECs in this RFA analysis, although we emphasize that
this RFA action has no effect on Commission analyses and determinations
in other, non-RFA contexts.
323. 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
[[Page 33934]]
specifically for these service providers. 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, 1,442 carriers reported
that they were engaged in the provision of either competitive local
exchange services or competitive access provider services. Of these
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 these 72 carriers, an
estimated 70 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
Notice.
324. 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 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 Notice.
325. Prepaid Calling Card Providers. Neither the Commission nor the
SBA has developed a small business size standard specifically for
prepaid calling card providers. The closest applicable size standard
under SBA rules is for Telecommunications Resellers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 193 providers have reported that they are
engaged in the provision of prepaid calling cards. Of these providers,
an estimated 193, or all such providers, 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 Notice.
326. 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 Notice.
327. 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 Notice.
328. Payphone Service Providers (PSPs). Neither the Commission nor
the SBA has developed a small business size standard specifically for
payphone services providers. The appropriate size standard under SBA
rules is for the category Wired Telecommunications Carriers. Under that
size standard, such a business is small if it has 1,500 or fewer
employees. According to Commission data, 535 carriers have reported
that they are engaged in the provision of payphone services. Of these,
an estimated 531 have 1,500 or fewer employees and four have more than
1,500 employees. Consequently, the Commission estimates that the
majority of payphone service providers are small entities that may be
affected by rules adopted pursuant to the Notice.
329. Operator Service Providers (OSPs). Neither the Commission nor
the SBA has developed a small business size standard specifically for
operator service providers. The appropriate size standard under SBA
rules is for the category Wired Telecommunications Carriers. Under that
size standard, such a business is small if it has 1,500 or fewer
employees. According to Commission data, 33 carriers have reported that
they are engaged in the provision of operator services. Of these, an
estimated 31 have 1,500 or fewer employees and two have more than 1,500
employees. Consequently, the Commission estimates that the majority of
OSPs are small entities that may be affected by rules adopted pursuant
to the Notice.
330. 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 the majority of Other Toll Carriers are small entities
that may be affected by the rules adopted pursuant to the Notice.
331. 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 this 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. We do not have data
specifying the number of these subscribers that are not independently
owned and operated or have more than 1,500 employees, and thus are
unable at this time to estimate with greater precision the number of
toll-free subscribers that would qualify as small businesses under the
SBA size standard. Consequently, we estimate that there are 7,860,000
or fewer small entity 800 subscribers; 5,588,687 or fewer small entity
888 subscribers;
[[Page 33935]]
4,721,866 or fewer small entity 877 subscribers; and 7,867,736 or fewer
small entity 866 subscribers.
2. Wireless Telecommunications Service Providers
332. 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 employed 999 or fewer employees and 15 employed 1000
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, we estimate that the majority of wireless
firms can be considered small entities that may be affected by the
rules adopted pursuant to the Notice.
333. 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.
334. 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 two licenses.
335. 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.
336. Paging (Private and Common Carrier). In the Paging Third
Report and Order, 64 FR 33762, June 4, 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 majority of paging providers are small entities that
may be affected by rules adopted pursuant to the Notice. 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.
[[Page 33936]]
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.
337. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service
has both Phase I and Phase II licenses. Phase I licensing was conducted
by lotteries in 1992 and 1993. There are approximately 1,515 such non-
nationwide licensees and four nationwide licensees currently authorized
to operate in the 220 MHz band. The Commission has not developed a
small business size standard for small entities specifically applicable
to such incumbent 220 MHz Phase I licensees. To estimate the number of
such licensees that are small businesses, we apply the small business
size standard under the SBA rules applicable to 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 Notice.
338. 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, we
adopted a small business size standard for ``small'' and ``very small''
businesses for purposes of determining their eligibility for special
provisions such as bidding credits and installment payments. This small
business size standard indicates that a ``small business'' is an entity
that, together with its affiliates and controlling principals, has
average gross revenues not exceeding $15 million for the preceding
three years. A ``very small business'' is an entity that, together with
its affiliates and controlling principals, has average gross revenues
that do not exceed $3 million for the preceding three years. The SBA
has approved these small business size standards. Auctions of Phase II
licenses commenced on September 15, 1998, and closed on October 22,
1998. In the first 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 nine EAG licenses.
Fourteen companies claiming small business status won 158 licenses.
339. 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.
340. 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.
341. In addition, there are numerous incumbent site-by-site SMR
licensees and licensees with extended implementation authorizations in
the 800 and 900 MHz bands. We do 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, we do not know how many of these firms have 1,500 or fewer
employees. We assume, 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.
342. 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, we estimate 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, we find that
there are currently approximately 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
[[Page 33937]]
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 four licenses; one bidder claimed very small business status and
won three licenses; and two bidders claimed entrepreneur status and won
six licenses.
343. 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, we estimate 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 1000 employees or more. Thus,
under this size standard, the majority of firms can be considered small
entities that may be affected by rules adopted pursuant to the Notice.
344. 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: Five 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 five 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.
345. In 2007, the Commission reexamined its rules governing the 700
MHz band in the 700 MHz Second Report and Order. 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.
346. 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).
347. 700 MHz Guard Band Licenses. In the 700 MHz Guard Band Order ,
we adopted a small business size standard for ``small businesses'' and
``very small businesses'' for purposes of determining their eligibility
for special provisions such as bidding credits and installment
payments. A ``small business'' 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 of the licenses auctioned were sold to
three bidders. One of these bidders was a small business that won a
total of two licenses.
348. 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
[[Page 33938]]
Radiotelephone Service, designated as Auction 77. Auction 77 concluded
with one provisionally winning bid for the unserved area totaling
$25,002.
349. 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, we use 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. We note 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.
350. As of March 2010, there were 424,162 PLMR licensees operating
921,909 transmitters in the PLMR bands below 512 MHz. We note 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.
351. 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, we 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 rules proposed in
the Notice.
352. Air-Ground Radiotelephone Service. The Commission has not
adopted a small business size standard specific to the Air-Ground
Radiotelephone Service. We will use SBA's small business size standard
applicable to 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 we estimate 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 Notice.
353. 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. Census data for
2007, which supersede data contained in the 2002 Census, show that
there were 1,383 firms that operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15 firms had more than 100 employees.
Most applicants for recreational licenses are individuals.
Approximately 581,000 ship station licensees and 131,000 aircraft
station licensees operate domestically and are not subject to the radio
carriage requirements of any statute or treaty. For purposes of our
evaluations in this analysis, we estimate that there are up to
approximately 712,000 licensees that are small businesses (or
individuals) under the SBA standard. In addition, between December 3,
1998 and December 14, 1998, the Commission held an auction of 42 VHF
Public Coast licenses in the 157.1875-157.4500 MHz (ship transmit) and
161.775-162.0125 MHz (coast transmit) bands. For purposes of the
auction, the Commission defined a ``small'' business as an entity that,
together with controlling interests and affiliates, has average gross
revenues for the preceding three years not to exceed $15 million
dollars. In addition, a ``very small'' business is one that, together
with controlling interests and affiliates, has average gross revenues
for the preceding three years not to exceed $3 million dollars. There
are approximately 10,672 licensees in the Marine Coast Service, and the
Commission estimates that almost all of them qualify as ``small''
businesses under the above special small business size standards and
may be affected by rules adopted pursuant to the Notice.
354. 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 rules
adopted pursuant to the Notice. We note, however, that the common
carrier microwave fixed licensee category includes some large entities.
355. Offshore Radiotelephone Service. This service operates on
several UHF television broadcast channels that are not used for
television broadcasting in the coastal areas of states bordering the
Gulf of Mexico. There are presently approximately 55 licensees in this
service. We are unable to estimate at this time the number of licensees
that would qualify as small under the SBA's small business size
standard for Cellular and Other Wireless Telecommunications Carriers
(except Satellite). Under that SBA small business size standard, a
business is small if it has 1,500 or fewer employees. Census data for
2007, which supersede data contained in the 2002 Census, show that
there were 1,383 firms that operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15 firms had more than 100 employees.
Thus under this category and the associated small business size
standard, the majority of firms can be considered small.
356. 39 GHz Service. The Commission created a special small
business size
[[Page 33939]]
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 Notice.
357. 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.
358. 218-219 MHz Service. The first auction of 218-219 MHz spectrum
resulted in 170 entities winning licenses for 594 Metropolitan
Statistical Area (MSA) licenses. Of the 594 licenses, 557 were won by
entities qualifying as a small business. For that auction, the small
business size standard was an entity that, together with its
affiliates, has no more than a $6 million net worth and, after federal
income taxes (excluding any carry over losses), has no more than $2
million in annual profits each year for the previous two years. In the
218-219 MHz Report and Order and Memorandum Opinion and Order, we
established a small business size standard for a ``small business'' as
an entity that, together with its affiliates and persons or entities
that hold interests in such an entity and their affiliates, has average
annual gross revenues not to exceed $15 million for the preceding three
years. A ``very small business'' is defined as an entity that, together
with its affiliates and persons or entities that hold interests in such
an entity and its affiliates, has average annual gross revenues not to
exceed $3 million for the preceding three years. These size standards
will be used in future auctions of 218-219 MHz spectrum.
359. 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.
360. 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.
361. 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, we estimate
that the majority of these licensees are Internet Access Service
Providers (ISPs) and that most of those licensees are small businesses.
362. 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. For this service, the Commission uses the SBA small business size
standard of ``Cellular and Other Wireless Telecommunications Carriers
(except satellite),'' which is 1,500 or fewer employees. We believe
that there are only two licensees in the 24 GHz band that were
relocated from the 18 GHz band, Teligent and TRW, Inc. It is our
understanding that Teligent and its related companies have fewer 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.
363. 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.
3. International Service Providers
364. 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 we 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.
365. The first category of Satellite Telecommunications ``comprises
establishments primarily engaged in providing point-to-point
telecommunications services to other
[[Page 33940]]
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, we estimate that the majority
of Satellite Telecommunications firms are small entities that might be
affected by rules adopted pursuant to the Notice.
366. 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, we
estimate that the majority of Other Telecommunications firms are small
entities that might be affected by our action.
4. Cable and OVS Operators
367. 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 employed 999 or fewer employees, and 16
firms employed 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 Notice.
368. 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 11 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 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. Thus, under this second size standard, most cable 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 Notice.
369. 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. We note
that the Commission neither requests nor collects information on
whether cable system operators are affiliated with entities whose gross
annual revenues exceed $250 million, and therefore we are unable to
estimate more accurately the number of cable system operators that
would qualify as small under this size standard.
370. 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 employed 999 or
fewer employees, and 16 firms employed 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, we
note that the Commission 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.
5. Internet Service Providers
371. 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 of
1,500 or fewer employees. According to Census Bureau data from 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 1000 employees or more.
Consequently, we estimate that the majority of these firms are small
entities that may be affected by rules adopted pursuant to this Notice.
6. Other Internet-Related Entities
372. Internet Publishing and Broadcasting and Web Search Portals.
[[Page 33941]]
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 employed 499 or fewer employees, and 23 firms
employed 500 employees or more. Consequently, we estimate that the
majority of these firms are small entities that may be affected by
rules adopted pursuant to the Notice.
373. 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, we estimate that the majority of these firms are small
entities that may be affected by rules adopted pursuant to the Notice.
374. 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, we estimate that the majority
of these firms are small entities that may be affected by rules adopted
pursuant to the Notice.
7. Other Entities
375. Responsible Organizations (RespOrgs). Toll-free numbers are
assigned on a first-come, first-served basis by entities referred to as
``Responsible Organizations'' or ``RespOrgs.'' These entities, which
may or may not be telephone companies, have access to the SMS/800
database, which contains information regarding the status of all toll-
free numbers. RespOrgs are certified by the SMS/800 database
administrator, which manages toll-free service. Most RespOrgs are
telephone carriers or companies. Other companies that apply for RespOrg
status are enhanced voice mail providers, VoIP carriers, call tracking
and marketing analytics firms, or vanity number firms. Neither the
Commission nor the SBA has developed a small business size standard
specifically for RespOrgs. There are 404 RespOrgs certified by SMS/800.
Consequently, we estimate that there are not more than 404 RespOrgs
that are small entities.
4. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities
376. The transition to a simplified contribution system could
affect all telecommunications providers, including small entities, and
may include new administrative processes. The Commission seeks comment
on various reporting, recordkeeping, and other compliance requirements
that may apply to all telecommunications providers, including small
entities. We seek comment on any costs and burdens on small entities
associated with the proposed rules, including data quantifying the
extent of such costs or burdens.
377. Apportioning Revenues from Bundled Services. Under the current
Fund contribution system, revenues from telecommunications offerings
are subject to contribution assessment while revenues from information
services and consumer-premises equipment (CPE) are excluded from the
contribution base. A telecommunications provider must therefore
apportion its revenues between telecommunications and non-
telecommunications sources for purposes of contribution assessment.
Telecommunications providers can currently apportion their bundled
revenues pursuant to two safe harbor methods established by the
Commission. In addition to the safe harbors, a telecommunications
provider could apportion its bundled revenues using any reasonable
alternative method. In the Notice, we seek comment on ways to simplify
the apportionment of bundled offerings. We seek comment on a bright-
line rule that codifies a modified version of the two safe harbors. If
adopted, this change would affect how telecommunications providers
apportion and report revenues from bundled services.
378. Contributions for Services with an Interstate
Telecommunications Component. We seek comment on what revenues should
be assessed to the extent we choose to exercise our permissive
authority over services that provide interstate telecommunications. We
seek comment on whether we could and should require contributions on
the full retail revenues of an information service that provides
interstate telecommunications. We also seek comment on whether to
assess only the telecommunications (i.e., the transmission) component
and, if so, how we would we determine what portion of the integrated
service revenues should be associated with the transmission component.
We also ask whether we should craft a rule, or safe harbor, that
provides for assessment of a certain percentage of retail revenues of
information services with a telecommunications (transmission)
component. If adopted, this change would affect all providers of
services that contain an interstate telecommunications component.
379. Allocating Revenues Between Inter- and Intrastate
Jurisdictions. We also seek comment on whether the Act compels us to
only assess a portion of revenues associated with services that operate
interstate, intrastate, or internationally. In the Notice, we seek
comment on whether to (1) adopt a rule that requires all providers
subject to contributions to report and contribute on all revenues
derived from assessable services rather than require providers to
allocate revenues between the interstate and intrastate jurisdictions;
(2) adopt a bright line rule for how companies should allocate revenues
between jurisdictions for broad categories of services; or (3) find
that for USF contribution purposes, revenues from such services should
be reported as 100 percent interstate. If adopted, this change would
affect how telecommunications providers allocate and report mixed
jurisdiction revenues.
[[Page 33942]]
380. Contribution Obligations of Wholesalers and Their Customers.
We seek comment on modifying the existing Fund contribution methodology
to assess value-added revenues rather than end-user revenues. Under a
value-added approach, each telecommunications provider in a service
chain would contribute based on the value it ``adds'' to the service.
Alternatively, we seek comment on whether we should mandate greater
specificity in contributor certifications to their wholesalers. If
adopted, this change would affect how revenues are reported.
381. Reporting Prepaid Calling Card Revenues. In the Notice, we
seek comment on adopting a rule to require prepaid calling card
providers to report and contribute on all end-user revenues, and who
should be deemed the end user for purposes of such a rule. We seek
comment on rules standardizing the reporting of prepaid calling card
revenues. We propose rules requiring all telecommunications providers
(as well as telecommunications carriers) to register with the
Commission, and rules requiring entities that provide
telecommunications to others for resale to check the registration
status of the their customers. We believe these rules will provide
reporting entities with enhanced certainty regarding their
contributions obligations. If adopted, this change would affect
telecommunications providers that are wholesalers and resellers of
prepaid calling cards.
382. International Telecommunications Providers. We seek comment on
eliminating the exemption for international-only providers and limited
international revenues exemption (LIRE)-qualifying providers. We also
seek comment on modifying the LIRE exemption by requiring LIRE-
qualifying providers to contribute on at least a portion of its
revenues. If adopted, this change would affect international-only
telecommunications providers and telecommunications providers who may
have previously relied on the LIRE exemption.
383. Reforming the De Minimis Exemption. The Commission has
authority to exempt a carrier or class of carriers from Fund
contribution requirements if their contributions would be de minimis.
Currently, de minimis status is determined on a providers' annual
contribution amount. In the Notice, we seek comment on simplifying the
exemption by basing it on a provider's annual assessable revenues. This
should simplify the process by which entities may determine if they
qualify for the de minimis exception. If adopted, this change would
affect de minimis telecommunications providers.
384. Assessing Contributions Based on Connections. In this Notice,
we seek comment on whether we should adopt a contribution system based
on connections. Under a connections-based system, providers could be
assessed based on the number, speed, or capacity of connections to a
communications network provided to customers. Providers would
contribute a set amount per connection, regardless of the revenues
derived from that connection. We seek comment on whether a connections-
based approach would better meet our proposed goals of promoting
efficiency, fairness, and sustainability in the Fund, as well as other
goals identified by commenters. If adopted, this change would affect
all telecommunications providers.
385. Assessing Contributions Based on Numbers. We also seek comment
on whether we should adopt a contributions system based on numbers.
Under a numbers-based system, in its simplest form, providers would be
assessed based on their count of North American Numbering Plan
telephone numbers. There would be a standard monthly assessment per
telephone number, such as $1 per month, with potentially higher and
lower tiers for certain categories of numbers based on how these
numbers are assigned or used. The monthly assessment per number would
be calculated by applying a formula based on the USF demand requirement
and the relevant count of numbers, however that term is defined. We
seek comment on whether a numbers-based approach would better meet our
proposed goals of promoting efficiency, fairness, and sustainability in
the Fund, as well as other goals identified by commenters. If adopted,
this change would affect all telecommunications providers.
386. Assessing Contributions Based on a Hybrid Methodology With a
Numbers Component. In this Notice, we also seek comment on whether we
should consider a hybrid approach that combines a telephone numbers
component with a connections component. Under such an approach,
providers could be assessed a flat fee for each assessable NANP
telephone number and assessed a fee based on the connection for
services not associated with a NANP telephone number. We seek comment
on whether a hybrid approach would better meet our proposed goals for
reforming the contributions methodology. If adopted, this change would
affect all telecommunications providers.
387. Pass-Through of USF Contributions as a Separate Line Item
Charge. In this Notice, we seek comment on ways to improve the
transparency for customers relating to the amount of universal service
contribution charges that are being passed through by the providers to
their customers. We seek comment on whether to: (1) Require greater
clarity on customer bills regarding how the USF charge was calculated;
(2) require providers to disclose at initiation of service the amount
of the quoted rate or assessable units would be USF-assessable; and (3)
if we were to adopt either of these rules, apply them to all customers,
or limit the rules to mass market customers. We seek comment on whether
to prohibit contributors from recovering contribution costs as a
separate line item on the customer bill. We also seek comment on
whether we should take steps to ensure that contributions are made by
contributors that become insolvent, specifically by requiring
contributors that recover their contribution obligation from end-users
to segregate those end-user payments in dedicated trust accounts for
the sole benefit of the USF. Finally, we propose to level the playing
field between incumbent LECs and competitive LECs by adopting a rule
that would prohibit competitive ETCs from recovering USF contribution
costs for their Lifeline offerings from Lifeline subscribers. If
adopted, this change would affect competitive telecommunications
providers that serve Lifeline customers.
388. Other Reporting Changes. We propose requiring all
telecommunications providers (as well as telecommunications carriers)
to register with the Commission, and propose rules requiring
registrants that provide telecommunications to others for resale to
check the registration status of their customers. We also propose that
telecommunications providers file electronically their quarterly and
annual Telecommunications Reporting Worksheet, with a fee for those
that file by paper. We believe these rules will provide reporting
entities enhanced certainty regarding their contribution obligations.
5. Steps Taken To Minimize the Significant Economic Impact on Small
Entities, and Significant Alternatives Considered
389. 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
[[Page 33943]]
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.''
390. As indicated in the Notice, we seek to reform the contribution
system. We believe our proposed rules will provide reporting entities
enhanced certainty regarding their contribution obligations, which is
especially important for small businesses that may not have the
resources of larger business to comply with complex rules.
391. We believe that adopting a simplified and clearly defined
apportionment method will provide greater predictability to all
telecommunications providers and customers. The Notice seeks comment on
a modified version of the two safe harbors available for apportioning
revenues from bundled service offerings. We believe that providing a
bright line rule for providers reduces the administrative burden for
small entities.
392. We seek comment on whether we should modify the contribution
methodology to assess ``value-added'' revenues rather than ``end user''
revenues. Under this approach, each telecommunications provider in a
service value chain (including both wholesalers and resellers) would
contribute based on the value in the providers adds to the service. We
also seek comment on modifying the current reseller certification
process to provide greater clarity regarding contribution obligations
when wholesale inputs are incorporated into other services that are not
telecommunications services. We believe that either of these approaches
would simplify the reporting process for all parties, and provide
greater certainty. For each approach, we seek comment on ways to
streamline the overall reporting requirements for all parties. In
addition, these potential rule changes would increase the Commission's
administration and oversight of the contributions system in the
wholesaler-reseller context.
393. We believe that our registration and deregistration proposals
for all parties required to file the Telecommunications Reporting
Worksheet will help ensure that the Commission's FCC Form 499-A Filer
Database is current and complete. One of the purposes of registration
is that it allows the Commission to better monitor registered providers
for compliance with our rules and regulations. In addition, a filer
registration requirement provides transparency to the public, making
available important information including the relevant regulatory
contact information. We recognize that the proposed registration and
deregistration process may impose a small one-time burden on parties
that were not previously required to register, but we believe the
benefit of having a current and complete database may outweigh the
burden.
394. We seek comment on modifying the de minimis exemption to base
the threshold on assessable revenues rather than the amount of
contributions. We believe this will simplify the contributions system
and reduce the administrative burden for small entities. We also seek
comment on whether this proposal might also reduce the reporting
obligations and regulatory uncertainty for de minimis
telecommunications providers that have growing revenues. Specifically,
we seek comment on whether to make it optional for a telecommunications
provider to file quarterly Telecommunications Reporting Worksheets for
a year after which the provider qualifies as de minimis. We believe
these changes might simplify the reporting obligations of small
entities and reduces their administrative burden.
395. We seek comment on updating the Telecommunications Reporting
Worksheets (FCC Forms 499-A and 499-Q) and its instructions.
Specifically, we seek comment on whether we should modify the process
by which these forms are revised by soliciting public comment from
interested parties prior to adopting revisions to the forms or the
instructions. We believe these changes would provide greater clarity to
contributors and simplify compliance and the administration of the
contributions process.
396. We note that in past contribution reform proceedings some
parties have proposed alternative contribution methodologies based on
numbers, connections, or a combination of numbers and connections. To
the extent that parties believe that alternative systems would better
promote our goals for contribution reform, we seek comment on the
benefits of such systems relative to our proposed improved revenues
system and ask for specific proposals on how such systems could be
implemented.
397. The Notice seeks comment from all interested parties. The
Commission is aware that some of the proposals or approaches 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 or approaches outlined in the Notice. We invite
comment on how these proposals or approaches might be made less
burdensome for small entities but still in keeping with our goals for
contribution reform. We also invite commenters to discuss the benefits
of such changes on small entities and to weigh these benefits against
the burdens for telecommunications providers that might also be small
entities. The Commission expects to consider the economic impact on
small entities, as identified in comments filed in response to the
Notice, in reaching its final conclusions and taking action in this
proceeding.
6. Federal Rules That May Duplicate, Overlap, or Conflict With the
Proposed Rules
398. None.
C. Paperwork Reduction Act Analysis
399. This document contains proposed new or modified information
collection requirements. The Commission, as part of its continuing
effort to reduce paperwork burdens, invites the general public and the
Office of Management and Budget (OMB) to comment on the information
collection requirements contained in this document, as required by the
Paperwork Reduction Act of 1995, Public Law 104-13. In addition,
pursuant to the Small Business Paperwork Relief Act of 2002, Public Law
107-198, see 44 U.S.C. 3506(c)(4), we seek specific comment on how we
might further reduce the information collection burden for small
business concerns with fewer than 25 employees.
D. Filing Requirements
400. 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 proposed rules are due on or before
July 9, 2012 and reply comments are due on or before August 6, 2012.
Written comments on the Paperwork Reduction Act proposed information
collection requirements must be submitted by the public, Office of
Management and Budget (OMB), and other interested parties on or before
August 6, 2012. All filings should refer to CC Docket No 06-122 and GN
Docket No. 09-51. 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.
[[Page 33944]]
List of Subjects in 47 CFR Part 54
Communications Common Carriers, Reporting and Record Keeping
Requirements, Telecommunications, Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Proposed Rules
For the reasons discussed in the preamble, the Federal
Communications Commission proposes to amend 47 CFR part 54, 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), and 1302 unless otherwise noted.
2. Amend Sec. 54.706 by adding paragraphs (f), (g), and (h) to
read as follows:
Sec. 54.706 Contributions.
* * * * *
(f) Registration Requirements. Every common carrier subject to the
Communications Act of 1934, as amended, and every entity required to
submit a Telecommunications Reporting Worksheet shall register with the
Commission in accordance with the provisions of 47 CFR 64.1195(a)
through (c) and the Instructions to the Telecommunications Reporting
Worksheet within thirty days of the commencement of provision of
service.
(g) Deregistration Requirements. If a registrant stops providing
interstate and international telecommunications to others, it shall
deregister with the Commission within thirty days of its last provision
of telecommunications. To deregister, a registrant must comply with the
Instructions to the Telecommunications Reporting Worksheet.
(h) Customer Confirmation Requirements. A telecommunications
carrier or provider providing telecommunications to other carriers or
providers shall have an affirmative duty to ascertain whether a
customer that is required to register has in fact registered with the
Commission prior to offering service to that customer.
3. Amend Sec. 54.711 by adding paragraphs (d) and (e) to read as
follows:
Sec. 54.711 Contributor reporting requirements.
* * * * *
(d) Telecommunications Reporting Worksheet Revisions. The Wireline
Competition Bureau shall annually issue a Public Notice seeking comment
on the Telecommunications Reporting Worksheets and accompanying
instructions. No later than 60 days prior to the annual filing
deadline, the Wireline Competition Bureau shall issue a Public Notice
attaching the finalized Telecommunications Reporting Worksheet and
instructions.
(e) Electronic Filings. Reporting entities must file the
Telecommunications Reporting Worksheet electronically. The
Administrator shall assess a $25 fee on reporting entities for filing
paper copies of the quarterly Telecommunications Reporting Worksheet.
The Administrator shall assess a $50 fee on reporting entities for
filing paper copies of the annual Telecommunications Reporting
Worksheet. The Administrator shall not assess a paper-filing fee on
reporting entities that electronically file their Telecommunications
Reporting Worksheet, but such entities must also submit either a paper
or electronic certification attesting to the accuracy of the
information reported therein under penalty of perjury.
4. Amend Sec. 54.712 by adding paragraph (b) to read as follows:
Sec. 54.712 Contributor recovery of universal service costs from end
users.
* * * * *
(b) Lifeline Subscribers. Eligible telecommunications carriers
covered by Sec. Sec. 69.131 and 69.158 are subject to the limitations
on universal service end user charges set forth therein. All other
eligible telecommunications carriers shall not recover federal
universal service contribution costs from Lifeline services to Lifeline
subscribers. This limitation does not apply to services to Lifeline
subscribers that are not supported by Lifeline, such as per-minute or
other additional charges beyond the service for which the customer
receives Lifeline support.
5. Amend Sec. 54.713 by revising paragraph (b) to read as follows:
Sec. 54.713 Contributor's failure to report or to contribute.
* * * * *
(b) If a universal service fund contributor fails to make full
payment of the monthly amount established by the contributor's
applicable Form 499-A or Form 499-Q, or the monthly invoice provided by
the Administrator, on or before the date due, the payment is
delinquent. Late fees, interest charges, and penalties for failure to
remit any payment by the date due shall apply regardless of whether the
obligation to pay that amount is appealed or otherwise disputed unless
the Administrator or the Commission (pursuant to Sec. 54.719) finds
the disputed charges are the result of clear error by the
Administrator. All such delinquent amounts shall incur from the date of
delinquency, and until all charges and costs are paid in full, interest
at the rate equal to the U.S. prime rate (in effect on the date of the
delinquency) plus 3.5 percent, as well as administrative charges of
collection and/or penalties and charges permitted by the applicable law
(e.g., 31 U.S.C. 3717 and implementing regulations).
* * * * *
[FR Doc. 2012-13611 Filed 6-6-12; 8:45 am]
BILLING CODE 6712-01-P