[Federal Register Volume 79, Number 131 (Wednesday, July 9, 2014)]
[Proposed Rules]
[Pages 39196-39240]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-15667]



[[Page 39195]]

Vol. 79

Wednesday,

No. 131

July 9, 2014

Part IV





 Federal Communications Commission





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47 CFR Part 54





 Connect America Fund, ETC Annual Reports and Certifications, 
Establishing Just and Reasonable Rates for Local Exchange Carriers; 
Universal Service Reform--Mobility Fund; Developing an Unified 
Intercarrier Compensation Regime; Proposed Rule

  Federal Register / Vol. 79 , No. 131 / Wednesday, July 9, 2014 / 
Proposed Rules  

[[Page 39196]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos. 10-90, 14-58, 07-135; WT Docket No. 10-208; CC Docket 
No. 01-92; FCC 14-54]


Connect America Fund, ETC Annual Reports and Certifications, 
Establishing Just and Reasonable Rates for Local Exchange Carriers; 
Universal Service Reform--Mobility Fund; Developing an Unified 
Intercarrier Compensation Regime

AGENCY: Federal Communications Commission.

ACTION: Proposed rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) proposes measures to update and further implement the 
framework adopted by the Commission in 2011. The Commission strives to 
adapt its universal service reforms to ensure those living in high-cost 
areas have access to services that are reasonably comparable to 
services offered in urban areas.

DATES: Comments are due on or before August 8, 2014 and reply comments 
are due on or before September 8, 2014. If you anticipate that you will 
be submitting comments, but find it difficult to do so within the 
period of time allowed by this document, you should advise the contact 
listed below as soon as possible.

ADDRESSES: You may submit comments, identified by either WC Docket No. 
10-90, WC Docket No. 14-58, WC Docket No. 07-135, WT Docket No. 10-208, 
or CC Docket No. 01-92, 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: Alexander Minard, Wireline Competition 
Bureau, or Suzanne Yelen, Wireline Competition Bureau, (202) 418-7400 
or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's 
Further Notice of Proposed Rulemaking (FNPRM) in WC Docket Nos. 10-90, 
14-58, 07-135, WT Docket No. 10-208, and CC Docket No. 01-92; FCC 14-
54, adopted on April 23, 2014 and released on June 10, 2014. The full 
text of this document is available for public inspection during regular 
business hours in the FCC Reference Center, Room CY-A257, 445 12th St. 
SW., Washington, DC 20554 or at the following Internet address: http://transition.fcc.gov/Daily_Releases/Daily_Business/2014/db0610/FCC-14-54A1.pdf. The Report and Order, Declaratory Ruling, Order, Memorandum 
Opinion and Order and Seventh Order on Reconsideration that was adopted 
concurrently with the FNPRM are published elsewhere in this issue of 
the Federal Register.
    Pursuant to Sec. Sec.  1.415 and 1.419 of the Commission's rules, 
47 CFR 1.415, 1.419, interested parties may file comments and reply 
comments on or before the dates indicated on the first page of this 
document. Comments may be filed using the Commission's Electronic 
Comment Filing System (ECFS). See Electronic Filing of Documents in 
Rulemaking Proceedings, 63 FR 24121, May 1, 1998.
    [ssquf] Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: http://fjallfoss.fcc.gov/ecfs2/.
    [ssquf] Paper Filers: Parties who choose to file by paper must file 
an original and one copy of each filing. If more than one docket or 
rulemaking number appears in the caption of this proceeding, filers 
must submit two additional copies for each additional docket or 
rulemaking number.
    Filings can be sent by hand or messenger delivery, by commercial 
overnight courier, or by first-class or overnight U.S. Postal Service 
mail. All filings must be addressed to the Commission's Secretary, 
Office of the Secretary, Federal Communications Commission.
    [ssquf] All hand-delivered or messenger-delivered paper filings for 
the Commission's Secretary must be delivered to FCC Headquarters at 445 
12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours are 
8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with 
rubber bands or fasteners. Any envelopes and boxes must be disposed of 
before entering the building.
    [ssquf] 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.
    [ssquf] U.S. Postal Service first-class, Express, and Priority mail 
must be addressed to 445 12th Street SW., Washington DC 20554.
    People with Disabilities: To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an email to [email protected] or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).

I. Introduction

    1. With this Further Notice of Proposed Rulemaking (FNPRM) and 
concurrently adopted Report and Order, Declaratory Ruling, Order, 
Memorandum Opinion and Order, and Seventh Order on Reconsideration, the 
Commission takes significant steps to continue the implementation of 
the landmark reforms unanimously adopted by the Commission in 2011 to 
modernize universal service for the 21st century. The Commission builds 
on the solid foundation created in 2011, taking into account what they 
have learned to date and new marketplace developments, to fulfill our 
statutory mission to ensure that all consumers ``have access to . . . 
advanced telecommunications and information services.''
    2. A core component of the 2011 reforms was the creation of the 
Connect America Fund to preserve and advance voice and robust broadband 
services, both fixed and mobile, in high-cost areas of the nation that 
the marketplace would not otherwise serve. Today, the Commission adopts 
rules that build on the framework established by the Commission in the 
USF/ICC Transformation Order, 76 FR 73830, November 29, 2011, while 
proposing targeted adjustments that the Commission believes are 
necessary to ensure that it's best utilizing the funds that consumers 
and businesses pay into the universal service system. In particular, 
the Commission is mindful that technological innovation is occurring at 
a rapid pace, and the marketplace has continued to evolve in the 
intervening years. The Commission must ensure that the reforms it 
implements now are not predicated on outdated assumptions.
    3. Meeting the infrastructure challenge of the 21st century will be 
a multi-year journey. It took the nation almost 50 years to bring 
electricity to 99 percent of rural farms; decades later, it took 35 
years to complete the original portion of the interstate highway

[[Page 39197]]

system. In just two years, the Commission's reforms have set the nation 
on a path that will bring new fixed broadband services to more than 1.6 
million Americans, new mobile services to historically unserved Tribal 
lands, and improved mobile coverage along our nation's roads. Achieving 
universal access to broadband will not occur overnight. Today, the 
Commission takes further steps to bring broadband service to every 
corner of the country.
    4. In the FNPRM, the Commission proposes measures to update and 
implement further the framework adopted by the Commission in 2011. The 
Commission strives to adapt our universal service reforms to ensure 
those living in high-cost areas have access to services that are 
reasonably comparable to services offered in urban areas. Consistent 
with that goal, in the FNPRM the Commission proposes to revise our 
current broadband performance obligations to require minimum speeds of 
10 Mbps downstream to ensure that the services delivered using Connect 
America funds are reasonably comparable to the services enjoyed by 
consumers in urban areas of the country. The FNPRM also proposes to 
apply uniformly the same performance obligations to all recipients of 
Phase II support and to rate-of-return carriers. In addition, the 
Commission seeks to further develop the record on the ability of Phase 
II recipients to satisfy their obligations using any technology or a 
combination thereof--whether wireline or wireless, fixed or mobile, 
terrestrial or satellite--that meets the performance standards for 
Phase II. The FNPRM also proposes to provide financial incentives for 
recipients of Phase II support to accelerate their network deployment.
    5. To target our finite universal service funds most effectively, 
the FNPRM proposes to exclude from eligibility for Phase II support 
those areas that are served by any provider that offers voice and 
broadband services meeting the Commission's service obligations--
whether those providers are subsidized or unsubsidized. The FNPRM seeks 
comment on the amount of frozen support to provide to incumbents that 
decline the offer of model-based support where no other provider wishes 
to serve, and on the obligations associated with such support. The 
FNPRM also proposes to define the public interest obligations that 
would apply to recipients of frozen support in the non-contiguous areas 
of the United States. The Commission also proposes several minor 
changes and clarifications regarding the implementation of the 
transition to model-based support to ease the administration of Connect 
America Phase II.
    6. In addition, the FNPRM seeks comment on several proposals 
regarding eligible telecommunications carrier (ETC) designation. It 
proposes to require entities that are winning bidders for the offer of 
Phase II support in the competitive bidding process to apply for ETC 
designation within 30 days of public announcement of winning bidders. 
It also proposes to adopt a rebuttable presumption that a state 
commission lacks jurisdiction over an entity seeking ETC designation if 
it fails to initiate a proceeding within 60 days.
    7. The FNPRM seeks comment on specific proposals for the design of 
the Phase II competitive bidding process that will occur in areas where 
price cap carriers decline model-based support. Through this public 
input, and what the Commission learns from the expressions of interest 
already submitted for rural broadband experiments, it should be 
prepared to make further decisions by the end of the year on the design 
of the competitive bidding process that will be used for Phase II in 
price cap territories where the price cap carrier declines the state-
level commitment.
    8. The FNPRM also addresses significant developments that have 
occurred since the adoption of the USF/ICC Transformation Order in the 
marketplace for mobile wireless services. Given the commercial 
deployment of 4G Long Term Evolution (LTE), the Commission proposes to 
retarget the focus of Mobility Fund Phase II. The Commission seeks 
comment on targeted measures that would address those areas of the 
country where LTE is not and, to the best of our knowledge, will not be 
available in the foreseeable future and would preserve existing mobile 
voice and broadband service where it would not otherwise exist without 
government support. The FNPRM also proposes to maintain existing 
support levels (i.e., 60 percent of baseline support) for wireless 
competitive ETCs for whom competitive ETC support exceeds one percent 
of their wireless revenues until a date certain after winning bidders 
are announced for the offer of Mobility Fund Phase II support, and to 
accelerate the phase-down for wireless competitive ETCs for whom high-
cost support is one percent or less of their wireless revenues. The 
FNPRM seeks comment on whether to take a different approach for 
wireline competitive ETCs and asks whether their phase-down in support 
should be determined by the timing of the Phase II competitive bidding 
process. The FNPRM also proposes to freeze support for carriers serving 
remote areas in Alaska, as of December 31, 2014, and to begin their 
phase-down in support on a date certain after the Mobility Fund Phase 
II auction or Tribal Mobility Fund Phase II auction.
    9. In the FNPRM, the Commission also focuses on developing and 
implementing a ``Connect America Fund'' for rate-of-return carriers. 
Specifically, they Commission seeks comment on reform proposals that 
would address a number of the identified shortcomings in the current 
support mechanisms that provide support to rate-of-return carriers. As 
a short term measure, the Commission proposes to apply the effect of 
the annual rebasing of the cap on support known as high-cost loop 
support (HCLS) equally on all recipients of HCLS, to address the 
problematic incentives of the current rule. As another near term 
reform, the Commission also proposes to prohibit recovery of new 
investment occurring on or after January 1, 2015, through either HCLS 
or interstate common line support (ICLS) in areas that are served by a 
qualifying competitor that offers voice and broadband service meeting 
the Commission's standards. As a longer term measure, the Commission 
seeks comment on limiting recovery of new investment through HCLS or 
ICLS as of a date certain, in conjunction with implementation of a 
Connect America Fund for rate-of-return carriers. The Commission 
proposes to adopt a stand-alone broadband support mechanism that meets 
defined parameters and seek to develop further the record on various 
industry proposals. Building on a proposal recently submitted by the 
Independent Telephone & Telecommunications Alliance (ITTA), the 
Commission proposes to provide rate-of-return carriers the option of 
participating in a two-step transition to Phase II model-based support 
and seek comment on alternative rate regulation measures and specific 
implementation issues. The Commission also seeks comment in the FNPRM 
on providing one-time funding for middle mile projects on Tribal lands 
in 2015. Such an approach could serve as a template for further 
implementation on a broader scale in subsequent years.
    10. In today's decision, the Commission also revisits some 
fundamental assumptions regarding implementation of the Remote Areas 
Fund. Part of ensuring that the Commission use its universal service 
funding wisely is developing effective and targeted mechanisms to 
address the challenges of serving the most remote, high-cost areas. 
Rather than prejudging

[[Page 39198]]

which areas are appropriately served through the Remote Areas Fund, the 
Commission concludes that participants in the Phase II competitive 
bidding process should be permitted to bid on any area where the 
estimated cost is at or above the funding benchmark adopted for the 
offer of model-based support to price cap carriers in Phase II of the 
Connect America Fund. The Commission concludes it would be prudent to 
defer full implementation of the Remote Areas Fund until 2016, after 
completion of the Phase II competitive bidding process. Only then will 
the Commission be in a position to identify which specific areas are 
appropriately served by alternative technologies, potentially with 
relaxed performance standards.
    11. Finally, the FNPRM proposes to codify a broadband certification 
requirement for recipients of funding that are subject to broadband 
performance obligations, seeks comment on specific levels of support 
reduction for non-compliance with service obligations, and proposes to 
modify our rules regarding reductions in support when parties miss 
filing deadlines in order to better calibrate the support reduction to 
coincide with the period of noncompliance.
    12. With the actions the Commission takes today and those planned 
for later this year, it expects to move forward to implement the offer 
of Phase II model-based support by the end of the year, as they noted 
in January. The Commission also expects to take further action to 
implement the rural broadband experiments it adopted in their January 
Tech Transitions Order, 79 FR 11327, February 28, 2014 and 79 FR 11366, 
February 28, 2014. Through these coordinated actions, the Commission 
expects to create incentives for both existing and new providers to 
extend robust, scalable next-generation voice and broadband networks 
that provide high-quality performance, whether through fiber, wireless, 
or other technology, as deep into high-cost areas as is feasible given 
the existing Connect America budget.

II. Further Notice of Proposed Rulemaking

A. Public Interest Obligations

    13. Evolving Speed Obligations. Consistent with the Commission's 
authority in section 254(e) of the Communications Act, the Commission 
supports the deployment of voice and broadband-capable networks in 
furtherance of the section 254(b) objective that residents in all parts 
of the country, including rural and high-cost areas, have access to 
advanced telecommunications and information services. In the USF/ICC 
Transformation Order, the Commission committed to initiating a 
proceeding no later than the end of 2014 to review the broadband 
service performance requirements established for the Connect America 
Fund. Today, the Commission initiates that proceeding. In particular, 
the Commission proposes to increase the minimum broadband speeds that 
it seeks to achieve with universal service funding to 10 Mbps 
downstream. The Commission seeks comment on this proposal, as well as 
the consequences and tradeoffs involved in raising the standard, 
including the ability to preserve and advance broadband service for 
consumers within the Connect America budget. The Commission also seeks 
comment on whether to increase the upstream speed requirement to 
something higher than 1 Mbps. The new speed standards would apply 
generally to all recipients of high-cost support that are subject to 
broadband public interest obligations: ETCs that elect model-based 
Phase II support, ETCs that receive Phase II support through the 
competitive bidding process, and rate-of-return ETCs that receive 
support through legacy mechanisms and CAF-ICC support.
    14. In the USF/ICC Transformation Order, the Commission established 
a speed benchmark for broadband of 4 Mbps/1 Mbps, with speeds for the 
later years of an anticipated 2012-2017 timeframe increasing to 6 Mbps 
downstream and 1.5 Mbps upstream (6 Mbps/1.5 Mbps). The marketplace for 
broadband has continued to evolve since the adoption of the USF/ICC 
Transformation Order. At the time of the adoption of the USF/ICC 
Transformation Order, Phase II model-based support was expected to 
begin in 2013 and run until 2017. With model-based support now likely 
to be disbursed in the 2015-2019 timeframe, it is appropriate to 
reevaluate the speed benchmark in light of the most recent data.
    15. The Commission proposes a new downstream speed standard of 10 
Mbps to further the statutory goal of ensuring that consumers in rural 
parts of the country have access to advanced telecommunications and 
information services that are reasonably comparable to those services 
available in urban areas. The most recent round of State Broadband 
Initiative (SBI) data show that nearly all persons living in urban 
areas have access to fixed broadband with downstream speeds of at least 
10 Mbps. SBI data as of June 2013 indicate that only two percent of the 
population residing in urban census blocks lack access to fixed 
broadband with speeds of 10 Mbps downstream/768 kbps upstream. In 
contrast, the SBI data indicate that 33 percent of the population 
residing in rural census blocks lack access to fixed broadband 
providing 10 Mbps/768 kbps speeds.
    16. SBI data also show that urban users have greater access to 
higher upstream speeds than rural users. Given the statutory goal of 
reasonable comparability, should the Commission set an upstream speed 
requirement for universal service purposes at a level higher than 1 
Mbps, such as 2 Mbps? The Commission specifically seeks comment on 
whether 1 Mbps upstream will provide sufficient bandwidth for 
residential consumers to take advantage of applications and services 
that advance critical public purposes such as education and healthcare. 
In the recent Rural Broadband Workshop, some parties suggested that 
upload speeds higher than 1 Mbps were necessary to support certain 
telehealth applications. To the extent commenters argue that the 
Commission should set a different upstream benchmark than 1 Mbps for 
universal service purposes, they should provide specific examples of 
the applications and services that require such upstream capability for 
residential consumers.
    17. In proposing to increase the current broadband downstream speed 
benchmark, the Commission is primarily focusing on the minimum standard 
for new deployments of broadband-capable infrastructure. Our goal is to 
ensure that Connect America funding is used efficiently, going forward, 
to deploy networks that are capable of scaling to higher speeds over 
time, as consumer demand warrants. By proposing a new speed benchmark, 
the Commission does not intend to suggest that ETCs must deliver such 
speeds immediately upon adoption of a new rule. Rather, consistent with 
the approach the Commission adopted for the current speed benchmark, it 
is proposing a standard that ETCs, current and future, would be 
expected to achieve over a period of years, as they utilize high-cost 
support to extend and upgrade networks in high-cost areas.
    18. In the USF/ICC Transformation Order, the Commission adopted a 
requirement that ETCs develop five-year service improvement plans and 
provide annual updates regarding those plans. Likewise, in the USF/ICC 
Transformation Order, the Commission established a five-year time frame 
for recipients of model-based support to meet the deployment milestones 
for Phase II. The Commission thus

[[Page 39199]]

recognized that broadband-capable infrastructure would not, and 
realistically could not, be ubiquitously deployed overnight, but rather 
that it would be deployed over a period of time. As such, the 
Commission emphasizes that there is no immediate consequence, and in 
particular no loss of universal service support, to the extent an 
existing ETC is not currently offering speeds that meet the current 4 
Mbps/1 Mbps benchmark throughout its entire service territory, nor 
would an ETC be immediately non-compliant with our rules if in the 
future it were to revise the downstream speed standard to, for 
instance, 10 Mbps in response to this FNPRM. Rather, our intent in 
proposing to revisit this standard is to establish a new minimum 
standard that the Commission build toward over time, recognizing that 
consumers increasingly will utilize applications and services that 
require greater bandwidth than our current standard.
    19. As discussed in the concurrently adopted Report and Order, 
under the framework adopted by the Commission in the USF/ICC 
Transformation Order, a rate-of-return carrier is required to deploy 
broadband-capable infrastructure to a customer upon reasonable request. 
If the Commission were to revise its broadband performance obligations 
to require higher speeds, such as 10 Mbps downstream, such new 
deployments would be required to meet the new benchmark. But a rate-of-
return carrier would only be required to meet that higher speed if the 
request for service was reasonable. A reasonable request is one where 
the carrier could cost-effectively extend a voice and broadband-capable 
network to that location. In determining whether a particular upgrade 
is cost effective, the carrier should consider not only its anticipated 
end-user revenues from the services to be offered over that network, 
both voice and retail broadband internet access, but also other sources 
of support, such as federal and, where available, state universal 
service funding. Under our proposal to increase the minimum downstream 
speed threshold, the Commission thus would not expect a rate-of-return 
carrier immediately to upgrade its entire existing infrastructure to 
provide 10 Mbps downstream and 1 Mbps upstream (10 Mbps/1 Mbps) to all 
current customers. Rather, the Commission proposes that rate-of-return 
carriers would take into account any revised speed standards when 
considering whether and where to upgrade existing plant in the ordinary 
course of business and would report on progress toward this goal in 
preparing annual updates to their five-year service improvement plans. 
The Commission seeks comment on this proposal. To the extent commenters 
believe it would take longer than five years to upgrade networks to 
meet the proposed new standard, they should specify what time frame 
they believe is realistic.
    20. In addition, if commenters believe that it would make more 
requests for service unreasonable, therefore requiring carriers to 
scale back their deployment plans, the Commission seeks comment on how 
to ensure that consumers in those areas receive service. For example, 
if a request for a higher speed service would be unreasonable but a 
request that meets our current standard would be reasonable, the 
Commission seeks comment on permitting the deployment at the lower 
speed standard. The Commission also seeks comment on whether carriers 
should be allowed to self-identify territories that they would not be 
able to serve (either alone or through a voluntary partnership) so that 
the Commission could extend broadband service to those consumers 
through a different mechanism.
    21. The Commission seeks comment on the costs and benefits of 
increasing the speed benchmark. Will it help or hinder our efforts to 
reach unserved consumers? Will the benefits gained by consumers in 
having access to higher speeds outweigh the increased cost of deploying 
a more robust network? What impact would it have on participation in 
the Phase II competitive bidding process and our ability to preserve 
and advance universal service in areas where a price cap carrier 
declines model-based support? Is it reasonable to assume that the same 
number of residents would be served in Phase II at speeds of 10 Mbps/1 
Mbps as would be served at 4 Mbps/1 Mbps? The Commission directs the 
Bureau to publish information within 15 days of release of this FNPRM 
regarding the number of locations that would be eligible for the offer 
of model-based support if the revised speed benchmark were used to 
determine the presence of an unsubsidized competitor and the number of 
locations that would be above the extremely high-cost threshold. The 
Commission encourages parties to address in their comments how changing 
the speed standard would affect the number of consumers that could be 
served.
    22. The Commission intends to take action on this proposed revision 
to the speed benchmark prior to extending the offer of support to price 
cap carriers so that they have clarity as to what is expected of them 
over the five-year Phase II term if they make state-level commitments 
to accept model-based support. Under the existing rules, Phase II 
state-level commitment funding recipients must provide broadband with 
speeds of 4 Mbps/1 Mbps to all locations and speeds of 6 Mbps/1.5 Mbps 
to a subset of locations as specified by the Bureau. If the Commission 
adopts our proposal to raise the minimum speed benchmark to 10 Mbps 
downstream, it proposes that the Bureau would no longer be required to 
specify a number of locations that would receive 6 Mbps downstream or 
1.5 Mbps upstream for recipients of model-based support. The Commission 
seeks comment on this proposal.
    23. If the Commission adopts the proposal to extend broadband 
downstream speeds to 10 Mbps, it seeks comment regarding whether it 
should provide a longer term for Connect America Phase II model-based 
support than the five-year term it adopted in the USF/ICC 
Transformation Order. For instance, should carriers accepting a state-
level commitment for five years have the ability to extend that term 
for additional two years, assuming verification of specified deployment 
milestones to deliver service with 10 Mbps downstream speed.
    24. Usage and Latency Standards. The Commission proposes to apply 
the same usage allowances and latency benchmarks that the Bureau 
implemented for price cap carriers that will accept the offer of model-
based support in the state-level commitment process to ETCs that will 
receive support through a competitive bidding process. Under this 
proposal, all Phase II recipients would be required to offer at least 
one plan with an initial minimum usage allowance of 100 GB, adjusted 
over time to take into account trends in consumer usage, at a price 
that is reasonably comparable to similar fixed wireline offerings in 
urban areas. The Commission also proposes to require recipients of 
support through the competitive bidding process to provide a roundtrip 
provider network latency of 100 ms or less. This latency is suitable to 
allow for existing real time applications, such as VoIP. The Commission 
seeks comment on these proposals.
    25. Parties that argue that standards should be relaxed for the 
Phase II competitive bidding process that will occur in areas where the 
price cap carrier declines model-based support should identify with 
specificity which standard should be relaxed and to what extent, and 
explain why relaxation of such standards is consistent with

[[Page 39200]]

achievement of our universal service objectives. For instance, to the 
extent parties argue that a 100 ms or less standard for roundtrip 
provider network latency is too stringent, they should identify what 
numerical standard should be used for the Phase II competitive bidding 
process. Likewise, to the extent parties argue that recipients of 
support through a competitive bidding process should not be required to 
offer at least one plan with a minimum usage allowance of 100 GB at a 
price that is reasonably comparable to comparable fixed wireline 
offerings in urban areas, they should identify what usage level instead 
would fulfill the statutory principle that consumers in high-cost areas 
should have access to ``reasonably comparable services'' at 
``reasonably comparable rates.''
    26. In the Phase II Service Obligations Order, 78 FR 70881, 
November 27, 2013, the Bureau stated that recipients of model-based 
support are permitted to offer their customers services other than 
those meeting the stated performance criteria. The Commission proposes 
a similar approach for ETCs awarded support in the competitive bidding 
process, so they would be free to offer an array of services, including 
those not meeting the proposed performance requirements, so long as at 
least one offering met all the necessary metrics. The Commission seeks 
comment on this proposal.
    27. The Commission also proposes to apply these usage allowance and 
latency standards to rate-of-return ETCs that are subject to broadband 
performance obligations. This would ensure that consumers have access 
to the same baseline level of broadband service regardless of whether 
they reside in a price cap or rate-of-return study area. Again, the 
Commission emphasizes that it does not expect that rate-of-return 
carriers would only provide broadband offerings to customers that meet 
these requirements. Rather, they would be free to offer an array of 
services of varying speeds, usage, and price to meet customer demand. 
If commenters argue that rate-of-return carriers should either be 
exempted from or be subject to relaxed usage allowance and latency 
standards, the Commission specifically seeks comment on how it can 
ensure that consumers in rate-of-return areas are not relegated to 
substantially less robust services than consumers living in price cap 
areas.
    28. Role of Alternative Technologies in Phase II. In reforming the 
universal service fund, the Commission established the Connect America 
Fund, focused on terrestrial, fixed broadband deployment, and the 
Mobility Fund, focused on mobile broadband deployment. Connect America 
Fund Phase II recipients were required to deploy networks capable of 
providing ``broadband service that is reasonably comparable to 
terrestrial fixed broadband service in urban America.'' The Commission 
did not explicitly prohibit the use of mobile or satellite technology 
in meeting Phase II obligations, as long as it provided performance 
comparable to terrestrial, fixed broadband. Relatedly, in providing 
funding for the Connect America Fund, the Commission excluded Phase II 
support for areas that were served by unsubsidized competitors; it 
limited the definition of unsubsidized competitor to terrestrial, fixed 
providers. The Commission stated that it would revisit this definition 
as satellite and mobile technologies developed over time.
    29. The Commission seeks to develop more fully the record on 
allowing Phase II recipients to satisfy their obligations using any 
technology or combination thereof--whether wireline or wireless, fixed 
or mobile, terrestrial or satellite--that meets the performance 
standards for Phase II. Specifically, any Phase II recipient satisfying 
its obligations would be required to meet the Phase II requirements for 
speed, latency, usage allowance, and pricing, as they exist today or 
may be modified in the future in response to this FNPRM. The Commission 
emphasizes that wireless providers are free, and indeed encouraged, to 
participate in Connect America Phase II, and fixed wireless already is 
an option for the delivery of service in Phase II under the framework 
established by the Commission in the USF/ICC Transformation Order. What 
is important from the consumer's perspective is the quality of the user 
experience and the price of the service offering, not the specific 
technology used to deliver service. Given that, the Commission seeks 
comment on whether, for purposes of Phase II implementation, it should 
allow the use of mobile or satellite technology that meets the Phase II 
requirements, while maintaining the service and pricing standards 
established by the Bureau for the offer of model-based support.
    30. In a similar vein, for the Phase II competitive bidding 
process, should the Commission exclude from eligibility for funding any 
area that is served by a competitor that meets the Commission's current 
standards for the offer of model-based support to price cap carriers, 
again presuming that the same service and pricing standards are met, 
regardless of technology? The Commission welcomes input on the extent 
to which mobile or satellite providers today meet those standards.
    31. The Commission seeks comment on how to ensure that the end-user 
experience is functionally equivalent whether the connection is 
provided through fixed or mobile means. Should the Commission require, 
for instance, that providers allow consumers subscribing to the service 
to attach or tether their mobile connections to other devices? This 
will allow consumers to use their mobile connections on traditionally 
fixed platforms, such as desktop computers, thus allowing access to the 
same applications and functionalities as consumers served through fixed 
connections. The Commission also seeks comment on the ability of a 
mobile connection to support multiple devices. Should the Commission 
adopt requirements that the mobile service allow users to be able to 
use multiple devices simultaneously? To the extent that additional 
devices or subscriptions are required to support multiple devices, 
should the Commission consider that in determining reasonable price 
comparability? The Commission additionally seeks comment on whether any 
other requirements should attach to Phase II support for mobile or 
satellite technologies to ensure they provide the end user with the 
same service qualities obtained when a fixed service is purchased. For 
example, mobile service can have a far greater variation in service 
quality as compared to fixed services, with service quality not only 
changing based on location within a tower's footprint, but also even 
whether the service is being used indoors rather than outdoors. How 
should the Commission address these issues to ensure that networks 
supported with universal service funds provide consumers with high-
quality broadband access regardless of the technology deployed? How 
should the Commission ensure that consumers are still able to use 
services that generally rely on fixed networks, such as medical 
monitoring or security systems? What would be the impact on businesses 
and anchor institutions if the Commission were to exclude from 
eligibility for Phase II support those areas that are served by mobile 
or satellite providers that meet the Phase II standards?
    32. Evolving Standards. In the concurrently adopted Report and 
Order, the Commission adopts a term of support of ten years for those 
ETCs that are awarded Phase II through a competitive bidding process. 
It is likely that the public's expectations for connectivity will 
evolve substantially over the next decade. Should the

[[Page 39201]]

Commission adjust the Phase II obligations for the later years of the 
ten-year term of support? To plan a network, recipients of support need 
to know ahead of time what will be expected of them. What is a 
reasonable requirement for entities receiving ten years of support? For 
example, would requiring Connect America Phase II recipient to deploy 
broadband at a higher speed tier for a discrete subset of locations 
ensure that the evolving expectations of consumers are met? Should the 
Commission require Connect America Phase II participants to provide 20 
Mbps downstream service to 20 percent of locations by year eight? 
Should the Commission set a higher (or lower) speed threshold? Should 
the Commission require recipients to meet the higher speed threshold at 
more or fewer locations? Or should the Commission decline to establish 
an additional concrete service obligation on Connect America Phase II 
recipients?
    33. Alternatively, should the Commission require recipients of such 
support to provide an evolving level of service over the funding period 
based on trends in consumer usage? For instance, should the Commission 
use FCC Form 477 and other Commission data, such as the Measuring 
Broadband America results, to monitor the service available in urban 
markets and create an index that would enable the Commission to modify 
service obligations (speed, usage allowance, latency, and price) based 
on trends in urban offerings and usage for all ETCs receiving support 
with a ten-year term? The Commission seeks comment on what, if any, 
other data sources it should rely on if it were to establish an 
evolving benchmark. Should the evolving standard be based on an average 
or median consumer's usage? Would use of this approach with an evolving 
standard affect the incentives for providers to accept support with a 
ten-year term and, ultimately, affect the deployment of broadband to 
consumers?
    34. Connections to Schools, Libraries, and Health Care Providers. 
In the USF/ICC Transformation Order, the Commission indicated its 
expectation that ETCs would offer broadband at speeds greater than 4 
Mbps/1 Mbps to community anchor institutions in rural and high-cost 
areas and that they would provide such offerings ``at rates that are 
reasonably comparable to comparable offerings to community anchor 
institutions in urban areas.'' The Commission did not have a record 
before it at the time to specify what specific speeds are appropriate 
for anchor institutions. The Commission seeks to develop the record 
more fully, and thus invite comment on how best to ensure that this 
expectation is fulfilled by ETCs, with specific reference to 
institutions and the charges, terms, and conditions of service provided 
to those institutions.
    35. Incentives for Faster Deployment. In the concurrently adopted 
Report and Order, the Commission adopts a term of ten years for funding 
Phase II projects through the competitive bidding process. The 
Commission already established a five-year term for Phase II recipients 
that receive support through the state-level commitment process. Phase 
II recipients are required to complete deployment to 85 percent of 
supported locations within three years of notification of funding 
authorization, with completion to all locations required within five 
years.
    36. The Commission proposes to provide financial incentives for 
recipients of Phase II support to accelerate their network deployment. 
Specifically, funds could be disbursed on an accelerated timetable if a 
recipient completed its deployment ahead of the required timeframe. For 
instance, for price cap carriers making a state-level commitment, all 
or some fraction of the remaining support for the five-year term that 
has not yet been disbursed after network completion is validated could 
be paid out over six months. How could a similar proposal be 
implemented for ETCs awarded support through a competitive bidding 
process? If the Commission adopts such a system, how should it 
structure the accelerated payout? The Commission proposes that if it 
were to adopt such a system, accelerated payment would not be made 
until the Universal Service Administrative Company (USAC) has validated 
the completion of network deployment. The Commission seeks comment on 
this proposal.

B. Flexibility in Meeting Deployment Obligations

    37. In developing the Connect America Cost Model, the Bureau 
concluded that census blocks shown as served on the National Broadband 
Map would be treated as presumptively served, and it determined that, 
for purposes of the Phase II challenge process, partially served census 
blocks would be treated as fully served. It did so primarily for 
administrative reasons, due to concern that conducting a challenge 
process at the sub-census block level would be time consuming and 
burdensome for all affected parties.
    38. In the concurrently adopted Report and Order, the Commission 
recognized the need to provide recipients of Phase II support 
flexibility to serve areas where the average cost is equal to or above 
the Connect America Phase II funding benchmark. The Commission 
concluded that allowing funding recipients in the competitive bidding 
process to deploy to locations that would be above the extremely high-
cost threshold would enable them to build integrated networks in 
adjacent census blocks as appropriate.
    39. For similar reasons, the Commission now seeks comment on two 
potential measures that would provide all recipients of Phase II 
funding, both in the state-level commitment process and competitive 
bidding process, greater flexibility to satisfy their deployment 
obligations.
    40. First, the Commission seeks comment on to permitting Phase II 
recipients (both price cap carriers accepting the state-level 
commitment and winners in a competitive bidding process) to specify 
they are willing to deploy to less than 100 percent of locations in 
their funded areas, with associated support reductions to the extent 
they elect to deploy to less than 100 percent of funded locations. If 
the Commission were to adopt such a proposal, it proposes to establish 
a minimum percentage of locations that must be served by a Phase II 
recipient. Would 95 percent of funded locations be an appropriate 
minimum? To the extent parties argue that the required percentage 
should be lower than 95 percent, they should identify with specificity 
the particular number. Should the Commission require the Phase II 
recipient to specify the number of locations it intends to deploy to at 
the time funding is first authorized, or should it provide it with 
flexibility to adjust its deployment commitments for some period of 
time after making a state-level commitment or being authorized to 
receive support through a competitive bidding process?
    41. The Commission seeks comment on how to adjust the support a 
Connect America Phase II recipient should receive if it were to adopt 
this proposal. One way to reduce support would be in direct proportion 
to the number of locations left unserved within a given state. Another 
way would reduce a provider's support based on the support the model 
attributed to serving each location. Is one methodology superior to the 
other? Is one method more administrable or does either create better 
incentives for deployment? Would the method that reduces support based 
on model-determined support be appropriate for Phase II recipients that 
are awarded support through a competitive bidding process? Are there 
other methodologies that would better

[[Page 39202]]

serve our universal service goals if the Commission were to adopt this 
proposal?
    42. Second, the Commission seeks comment on allowing Phase II 
recipients to substitute some number of unserved locations within 
partially served census blocks for locations within funded census 
blocks. Phase II funding recipients thus would have the option to 
deploy to some number of unserved locations within partially served 
census blocks in lieu of deploying to a number of locations in 
otherwise eligible census blocks. This approach could enable more 
effective network deployment and bring service to unserved consumers in 
those partially served census blocks. If the Commission were to adopt 
such an approach, should it establish a limit on the number of 
locations that could be substituted to meet the deployment obligation? 
For instance, should a price cap carrier or recipient of support 
through a competitive bidding process be able to substitute no more 
than five percent of its funded locations with unserved locations in 
partially served census blocks?
    43. The Commission seeks comment on whether the benefits of 
allowing the flexibility to serve in partially served census blocks 
outweigh the costs imposed on those that have invested private capital 
to deploy service nearby. The Commission seeks comment on how the 
substitution process would work given that Connect America Phase II 
recipients are most likely to substitute locations when the costs of 
serving the new locations is lower than the cost of serving the 
locations originally designated in funded census blocks. For example, 
the simplest substitution metric would require that the number of new 
locations equal or exceed the number of old locations (i.e., one-for-
one swaps). A more complicated substitution metric would require the 
modelled support for serving the new locations equal or exceed the 
modelled support for serving old locations. Is one methodology superior 
to the other? Is either more administrable or does either create better 
incentives for deployment? Are there other methodologies that would 
better serve our universal service goals if the Commission were to 
adopt this proposal?
    44. The Commission emphasizes that it is not proposing to overturn 
the Bureau's decision not to entertain sub-census block challenges in 
the Phase II challenge process. That was a reasonable decision given 
the anticipated number of challenges that may be filed regarding the 
list of census blocks potentially eligible for the offer of model-based 
support. Partially served census blocks will continue to be treated the 
same as fully served census blocks, and excluded from calculations of 
the offer of model-based support. Rather, the Commission is proposing 
to give funding recipients the flexibility to deploy to unserved 
locations that within census blocks that are deemed served, after they 
are awarded support either through the offer of model-based support or 
the competitive bidding process, subject to reasonable limitations to 
ensure that no overbuilding occurs.
    45. The Commission seeks comment on measures to ensure that this 
flexibility does not result in the overbuilding of those locations 
within such census blocks that are in fact served. For example, should 
the Phase II funding recipient be required to announce publicly the 
locations in any partially served census block it plans to deploy to, 
with sufficient specificity that would enable other providers to 
determine whether they serve such areas? Would it be sufficient to 
require an identification of the roads or addresses intended for 
deployment, or should the Commission also requires an announcement of 
the latitude/longitude coordinates for specific locations?
    46. To minimize the burden of monitoring intended deployment plans 
on other potentially impacted parties, the Commission proposes that the 
price cap carrier would be required to identify locations outside of 
its funded census blocks intended for potential deployment on an annual 
basis during the five-year term. This could occur, for instance, in 
conjunction with filing the annual FCC Form 481. After making such an 
announcement, the funding recipient would be required to wait a period 
of time before commencing construction to those locations. Is 90 days a 
sufficient period of time? The Commission seeks comment on whether a 
90-day notice process would enable any existing providers to inform the 
Phase II funding recipient that it already serves the locations in 
question with voice and broadband service meeting the Commission's 
standards. If no statement of service is received within 90 days, the 
funding recipient would be permitted to deploy to the locations. The 
funding recipient could disregard statements received after the 90-day 
window. What process should occur if another provider contends that it 
serves the locations, but the Phase II funding recipient wants to 
contest such assertions?
    47. If the Commission were to adopt such a rule, should it specify 
a format for the announcement of the planned deployment or the 
statement of service? Would it be sufficient that the announcement be 
posted to the Phase II funding recipient's Web site, or should the 
Commission require that the announcement be posted to ECFS? Should the 
Commission require that a copy of the announcement of intended 
deployment plans be sent to any existing voice and broadband provider 
shown as serving the area on the National Broadband Map? Should the 
Commission require that the statement of service be made under penalty 
of perjury? Should such statements be posted to ECFS in lieu of or in 
addition to submitting them to the funding recipient? What other 
requirements should the Commission consider that will meet our 
objectives of providing service to unserved consumers in high-cost 
areas, regardless of their location, while ensuring that the Commission 
does not inadvertently fund deployment to areas that are in fact 
served?

C. Eligibility of Areas for Phase II Support

    48. Discussion. The Commission now proposes to revisit the 
requirement that a competitor be ``unsubsidized'' to exclude a service 
area from receiving high-cost support, including Connect America 
support. The Commission asks whether it is the most efficient use of 
the Connect America budget to provide support in geographic areas where 
there is another facilities-based terrestrial provider of fixed 
residential voice and broadband services that meets our current 
requirements--whether that competitor is subsidized or not. Every 
dollar that is spent in such areas is a dollar not available to extend 
broadband to areas that lack it. The Commission therefore proposes to 
exclude from the offer of model-based support any census block that is 
served by a facilities-based terrestrial competitor offering fixed 
residential voice and broadband services that meet the Commission's 
service requirements. If the Commission adopts our proposal to increase 
the downstream benchmark to 10 Mbps, it proposes to exclude from 
Connect America Phase II those census blocks where there is a 
facilities-based terrestrial competitor offering fixed residential 
voice and broadband services meeting that new speed standard. The 
Commission seeks comment on these proposals.
    49. The Commission also seeks comment on excluding from the Phase 
II competitive bidding process any area that is served by a price cap 
carrier that offers fixed residential voice and broadband meeting the 
Commission's requirements. Consequently, if the

[[Page 39203]]

Commission adopts our proposal to establish a new downstream speed 
benchmark of 10 Mbps, Phase II funds would only be available in a 
competitive bidding process for any area lacking 10 Mbps/1 Mbps. The 
Commission asks whether it would make sense to include in the 
competitive bidding process those areas where a price cap carrier 
already offers voice and broadband service meeting the requisite 
standards, either the current standard or any new standards it may 
adopt in response to this FNPRM. If the Commission were to adopt such 
an approach, and a price cap carrier declined to elect a state-level 
commitment, another provider could receive Phase II support through the 
competitive bidding process to overbuild a price cap carrier's existing 
network. The Commission is skeptical that this is an efficient use of 
the budget for Phase II.
    50. If the Commission were to allow Connect America support to be 
used to overbuild the broadband network of a provider, even one that is 
subsidized, it would mean those support dollars would not be available 
to deploy broadband-capable infrastructure in areas that truly lack 
broadband. On the other hand, the Commission recognizes that excluding 
areas that currently may have fixed residential voice and broadband 
services may make it more difficult for bidders in a competitive 
process to develop bids for a network that is cost-effective to build; 
it is possible that the amount of support provided for the unserved 
census blocks alone may be insufficient to build out to those census 
blocks on a stand-alone basis. The Commission seeks comment on this 
analysis and how best to ensure that it extends broadband-capable 
infrastructure to those lacking it today.
    51. The Commission seeks comment on whether it should exclude from 
Phase II support only those areas where the current provider certifies 
that it is able and willing to continue providing terrestrial fixed 
residential voice and broadband services meeting the Commission's 
requirements for a specified period of time, such as five years. Some 
parties argue that a subsidized provider may cease to provide service 
once support is phased out, leaving consumers in such areas without 
service. Rather than assuming that existing providers will not exit 
those markets that they currently serve, regardless of whether they 
receive legacy support in such areas or not, requiring a certification 
could provide an additional assurance that consumers will receive the 
same level of service that they otherwise would have if the area were 
not receiving Phase II support. If the current provider is unwilling to 
make such a certification, then the area would not be precluded from 
receiving Phase II support.
    52. Finally, the Commission also seeks comment on the broader 
question of whether universal service funds are ever efficiently used 
when spent to overbuild areas where another provider has already 
deployed service. In this section, the Commission proposes to exclude 
support for areas already served by an existing provider meeting the 
requisite voice and broadband requirements; whether a provider receives 
universal service support should not necessarily be the determining 
factor. The Commission proposes to define such a provider that meets 
the voice and broadband requirements as a ``qualifying competitor.'' 
Second, the Commission seeks comment on whether our other rules that 
reduce or eliminate support in areas with unsubsidized competitors 
should be reframed as reducing or eliminating support in areas with 
qualifying competitors, whether subsidized or not. For example, should 
the 100 percent overlap rule apply only where unsubsidized competitors 
overlap an incumbent or also where any qualifying competitor overlaps 
the incumbent?

D. ETC Designation

    53. As noted in the concurrently adopted Report and Order, only 
ETCs designated pursuant to section 214(e) of the Act ``shall be 
eligible to receive specific Federal universal service support.'' 
Section 214(e)(2) gives states the primary responsibility for ETC 
designation. However, section 214(e)(6) provides that this Commission 
is responsible for processing requests for ETC designation when the 
service provider is not subject to the jurisdiction of the state public 
utility commission.
    54. Streamlining the process of seeking federal designation when 
states may lack jurisdiction is necessary for the efficient 
implementation of the Connect America Fund, so that the Commission may 
provide support for access to services in high-cost areas, including 
the most remote and costly areas of the nation, in an efficient and 
timely manner. The Commission believes that this can be accomplished 
within the Act's framework for state and federal action. Although the 
Commission has previously stated that it would act on ETC designation 
applications ``only in those situations where the carrier can provide 
the Commission with an affirmative statement from the state commission 
or a court of competent jurisdiction that the carrier is not subject to 
the state commission's jurisdiction'' and that the technology used 
(e.g., satellite service) ``does not per se place the carrier outside 
the parameters of the state commission designation authority under 
section 214(e)(2),'' the Commission tentatively concludes that a 
different approach is warranted to ensure successful implementation of 
the Connect America Fund, including the Remote Areas Fund.
    55. In the concurrently adopted Order, the Commission permits 
entities to seek ETC designation after being selected for the offer of 
Phase II Connect America funding. Here, the Commission proposes to 
adopt a requirement that a winning bidder must submit an application to 
become an ETC within 30 days of public notice that it is the winning 
bidder for the offer of support in those areas where it has not already 
been designated an ETC. The Commission also proposes that an applicant 
for Phase II support that fails to submit such an application within 30 
days would be deemed in default and therefore subject to default 
payments. The Commission proposes to require winning bidders to submit 
proof to the Commission that they have filed the requisite ETC 
designation application within the required timeframe to the extent 
filed with a state commission. The Commission seeks comment on these 
proposals.
    56. Second, the Commission proposes to adopt a rebuttable 
presumption that a state commission lacks jurisdiction over an ETC 
designation petition for purposes of Connect America Phase II 
competitive bidding or Remote Areas Fund if it fails to initiate a 
proceeding on that petition within 60 days of receiving it. The 
Commission seeks comment on whether it should adopt a similar 
rebuttable presumption if a state commission fails to decide a petition 
within a certain period of time, such as 90 days of initiating a 
proceeding on it. Under this proposal, a carrier may file for ETC 
designation with the Commission and point to the lack of state action 
within the prescribed time period as evidence that the petitioner is 
not subject to the jurisdiction of a state commission. In determining 
whether a state commission lacks jurisdiction over the applicant, 
Commission staff would weigh any statements that a state commission 
submits during the notice-and-comment period against the lack of action 
and the arguments of the applicants. The Commission seeks comment on 
this proposal.

[[Page 39204]]

    57. The Commission notes that this streamlined framework would not 
preempt a state's designation authority under section 214(e)(2) but 
instead is intended to be consistent with the framework of the 
Communications Act, while ensuring that applications will not remain 
pending before state commissions for an undefined period of time while 
carriers wait for an affirmative statement that there is no state 
jurisdiction. Nor would this action make ETC designation 
``nationwide,'' but instead would require approval by this agency on a 
case-by-case basis, based on reviewing the evidence of jurisdiction, as 
well as the fact that the individual state commission did not act 
within the requisite period. And the Commission recognizes that 
alternative technology service providers, such as satellite or fixed 
wireless service, have not traditionally been subject to state public 
utility commission regulations. If a state has a law expressly stating 
that it does not have jurisdiction over a relevant type of technology, 
Commission staff would consider such a statute relevant in its 
determination of Commission jurisdiction. To the extent states do 
assert jurisdiction over alternative technology service providers, 
given our shared commitment to expanding the availability of broadband 
to all Americans, the Commission expects that state commissions will 
act swiftly to conclude such proceedings in order to rule on the ETC 
application.
    58. Third, the Commission seeks comment on sunsetting ETC 
designations tied to participation in the Connect America Phase II 
competitive bidding process or the Remote Areas Fund after the funding 
term has expired and the entity has fulfilled its build-out and public 
interest obligations. As WISPA has explained, ``imposing continuing 
obligations that extend beyond the funding term would discourage 
participation by qualified companies that desire to compete for funding 
under the subject CAF program.'' The Commission seeks comment on 
whether sunsetting those ETC designations is consistent with the Act. 
The Commission notes that a carrier may not discontinue voice service 
without receiving authorization pursuant to section 214 and that 
sunsetting an ETC designation for federal purposes would not impact 
state obligations such as carrier of last resort obligations to the 
extent applicable. The Commission seeks comment on this proposal. Under 
such a proposal, how would the Commission ensure that rates remain 
affordable for low-income consumers? Should those ETCs be required to 
maintain their ETC designation for purposes of the Lifeline program 
throughout the areas for which they receive support, subject to 
existing procedures for relinquishment?
    59. At this time, the Commission does not propose to preempt state 
review of ETC designation applications or to deem applications granted 
after 30 days because there is nothing in the record before us that 
would warrant such a broad change from the existing framework. Rather, 
the Commission believes that the proposed changes to the current ETC 
process would be sufficient. The Commission seeks comment on this 
analysis.

E. Transitions to Phase II

    60. In this section, the Commission seeks to develop further the 
record on several transition issues relating to implementation of Phase 
II in areas currently served by price cap carriers. First, the 
Commission seeks comment on the amount of support to be provided to the 
incumbent ETC in areas that no other provider wishes to serve, and the 
associated obligations that go with such funding. Second, the 
Commission seeks comment on performance obligations to be associated 
with frozen support elected by price cap carriers serving non-
contiguous areas of the country. Third, the Commission proposes various 
minor changes and clarifications regarding the transition to Phase II.
1. Frozen Support in High-Cost Areas
    61. Discussion. The Commission clarifies that its decision to 
eliminate frozen support when there is a winner of a competitive 
bidding process applies only with respect to the geographic area--
however defined--where another provider is awarded Phase II support. 
The Commission needs a mechanism to determine the appropriate amount of 
frozen support to provide in those instances where a competitive ETC is 
awarded support to serve less than the entire area of the incumbent 
where the average cost exceeds the funding benchmark.
    62. The Commission seeks comment on how to calculate the amount of 
frozen support that should be provided to the price cap carrier in 
situations where another ETC is awarded support through a competitive 
bidding process to serve a portion, but not all, of the area that is 
subject to the state-level commitment. The Commission also seeks 
comment on providing frozen support on an interim basis to price cap 
carriers, in those areas determined by the model to be extremely high-
cost areas where there is no other voice provider, pending designation 
of other ETCs to serve such areas and further Commission proceedings.
    63. The Commission proposes a simplified methodology to calculate 
the amount of support to provide at least on an interim basis in high-
cost and extremely high-cost areas to the extent no other ETC is 
designated to serve such areas. In particular, the Commission proposes 
to use the Connect America Cost Model to develop a ratio of the cost of 
serving all blocks where the average cost per location is at or above 
the final funding benchmark adopted by the Bureau for determining the 
offer of model-based support to price cap carriers to the total cost of 
serving for the state. That ratio would then be multiplied by the total 
amount of Phase I frozen support for that carrier in the relevant 
state. Is this a reasonable interim methodology to use to calculate 
support to be provided for those areas that no other party wishes to 
serve? Are there other potential methodologies for providing a pro-rata 
amount of frozen high-cost support for such areas? What would be the 
budgetary impact of awarding such additional frozen support to 
incumbent providers in certain areas if the full Phase II budget is 
awarded through the combination of the offer of model-based support to 
price cap carriers and competitive bidding process?
    64. The Commission proposes to eliminate or modify the current 
requirement that the price cap carrier certify that all of its frozen 
support in 2015 and thereafter ``was used to build and operate-
broadband-capable networks used to offer the provider's own retail 
broadband services in areas substantially unserved by an unsubsidized 
competitor.'' The Commission seeks comment on whether, once the offer 
of model-based support is implemented, price cap carriers declining 
model-based support should instead be required to certify that they are 
using such support to continue to offer voice service in such high-cost 
and extremely high-cost areas that no other providers wish to serve. 
Should such frozen support be provided for a defined period of time, or 
until the occurrence of specific event, such as the designation of 
another ETC to serve the area in question? What would be an appropriate 
time frame to revisit both the nature of the obligations and the amount 
of frozen support to be provided to price cap carriers to serve such 
high-cost and extremely high-cost areas? In particular, should the 
Commission revisit these questions when it conducts further proceedings 
to determine next steps after the end of the term of Phase II support 
for those price cap carriers

[[Page 39205]]

that elect to receive model-based support?
    65. Both landline and mobile voice services meet the definition of 
voice telephony and both have been supported through the federal high-
cost and the Lifeline programs. In the Tech Transitions Order, the 
Commission noted that evolving technology transitions bring additional 
choices to consumers by supplementing the legacy copper circuit-
switched voice services and consumers may choose to ``cut-the-cord'' by 
using wireless voice services. Information from the Tech Transition 
experiments will allow the Commission and the public to evaluate how 
customers are affected by the historic technology transitions that are 
transforming our nation's voice communications services. The Commission 
notes also that the Commission will begin collecting more data 
regarding mobile availability on FCC Form 477, although such data 
collection will not begin until June 30, 2014. The Commission does know 
that in some areas of the country these alternatives may not be 
available. The Commission is committed to preserving universal service, 
consistent with the statute.
    66. The Commission asks commenters to provide specific data 
relating to the extent of mobile wireless coverage in the areas 
identified by the forward-looking cost model as high-cost or extremely 
high-cost. How would the Commission determine whether areas purportedly 
served by mobile voice providers are in fact served? What data sources 
should the Commission rely upon, if it were ultimately to conclude that 
interim frozen support is not necessary in areas where there is a 
mobile voice service provider? How should the Commission take into 
account the fact that mobile coverage may vary within a census block, 
with some customers receiving adequate coverage while other customers 
may not? Should the Commission refocus our vision for the Remote Areas 
Fund to preserve voice service for residential consumers in those price 
cap areas that do not have adequate signal strength for mobile service 
to be a reliable alternative?
2. Obligations of Incumbent LECs That No Longer Receive High-Cost 
Support
    67. Discussion. The Commission seeks to further develop the record 
on how to apply this statutory framework to situations where an 
incumbent LEC ETC no longer receives high-cost universal service 
support for a given geographic area or where a non-incumbent carrier 
has been selected for support through the competitive bidding process. 
At the outset, the Commission notes that most incumbent LEC ETCs are 
receiving CAF-ICC support and will continue to do so for several years. 
And the Commission also notes that the obligations of being an ETC are 
distinct from the more general section 214 obligation to receive 
Commission approval before discontinuing voice service to a community.
    68. The Commission seeks comment on whether ETCs should be deemed 
to only have a federal high-cost obligation for the geographic areas 
for which they receive support. Does such a reading comport with the 
statutory language in section 214--which specifies that ETCs ``shall, 
throughout the service area for which the designation is received--
offer the services that are supported by Federal universal service 
support mechanisms under section 254(c)''? The Commission notes that 
under such a statutory interpretation, if an incumbent LEC ETC no 
longer were receiving any form of high-cost support, it would 
effectively become Lifeline-only ETCs throughout its service territory 
with the continuing obligation to provide service to Lifeline 
customers, subject to existing ETC relinquishment procedures.
    69. What specific ETC obligations would an incumbent LEC be 
relieved of under such an interpretation of the statute? To the extent 
an incumbent LEC receives CAF-ICC support, how should the Commission 
determine the specific geographic areas that would be associated with 
that support?
3. Obligations of Carriers Serving Non-Contiguous Areas That Elect 
Frozen Support
    70. Discussion. The Commission proposes specific service 
obligations for non-contiguous carriers electing to continue to receive 
frozen support amounts. In the course of the model development process, 
the Bureau sought to develop the record on several of these issues. The 
Commission now invites parties to comment on specific proposals. The 
Commission also seeks comment on how it can monitor for compliance with 
these obligations.
    71. The Commission proposes that non-contiguous carriers electing 
to receive frozen support be subject to the same public interest 
service standards as those receiving model-based support, however 
modified in response to this FNPRM. In this FNPRM, the Commission seeks 
comment on whether it should increase the minimum broadband speed 
requirement for carriers that elect model-based Phase II support to 10 
Mbps downstream. If the Commission adopts this new standard, it 
proposes it should also apply to non-contiguous carriers that elect to 
continue to receive frozen support. To the extent non-contiguous 
carriers contend that they should be held to a lesser speed standard, 
they should propose with specificity the number or percentage of 
locations in their funded areas that would receive lesser service.
    72. Consistent with the USF/ICC Transformation Order, the 
Commission also proposes requiring non-contiguous carriers who continue 
receiving frozen support to offer both voice and broadband service at 
rates reasonably comparable to those services offered in urban areas. 
As with carriers accepting model-based support, the Commission proposes 
that non-contiguous carriers receiving frozen support would have two 
options for showing reasonable comparability: Reasonable comparability 
benchmarks as announced by the Wireline Competition Bureau based on the 
annual urban rate survey or a certification by the carrier that it is 
offering services meeting our voice and broadband requirements for the 
same or lower prices in rural areas as urban areas. The Commission 
seeks comment on whether there are any challenges unique to these non-
contiguous carriers that they would face in meeting this obligation and 
how the Commission should account for those challenges and also fulfill 
its statutory obligation to ensure reasonably comparable rates.
    73. In addition to speed and price obligations, the Commission 
proposes that non-contiguous carriers continuing to receive frozen 
support be subject to the same usage allowance specified by the Bureau 
for price cap carriers receiving model-based support. Specifically, the 
Commission proposes that these non-contiguous carriers must initially 
offer at least one service option that provides a minimum usage 
allowance of 100 GB per month at a rate that either meets the 
reasonable comparability benchmark announced by the Bureau or at a rate 
that is the same or lower than rates for its fixed wireline services in 
urban areas. The Commission also proposes that this minimum initial 
usage allowance should be adjusted over time to reflect trends in 
consumer usage over time. The Bureau permitted price cap carriers 
accepting model-based support to make this determination based on the 
usage level of 80 percent of all of its broadband subscribers, 
including those subscribers that live outside of Phase II-funded areas, 
while concluding that 100 GB would serve as a floor, even if 80 percent 
of the carrier's subscribers used less than 100 GB. The Commission

[[Page 39206]]

seeks comment on whether--in light of the potentially unique 
circumstances in non-contiguous areas--it would be appropriate to relax 
the 100 GB minimum usage allowance for non-contiguous carriers and 
instead allow them to meet their usage requirements based on a 
comparison to 80 percent of their entire subscriber base.
    74. The Commission also proposes that non-contiguous carriers be 
required to meet a roundtrip provider network latency of 100 
milliseconds or less. The Bureau noted in the Phase II Service 
Obligations Order that latency determinations for carriers serving non-
contiguous areas could be affected by the use of undersea cable, 
depending upon the type and length of cable. Therefore, it allowed 
carriers in non-contiguous areas of the United States who receive 
model-based support to conduct their latency network testing from the 
customer location to a point at which traffic is consolidated for 
transport to an Internet exchange point in the continental United 
States. The Commission proposes allowing non-contiguous carriers that 
choose to continue to receive frozen support to fulfill their latency 
requirements using the same measurement. The Commission previously 
recognized that satellite backhaul may limit the performance of 
broadband networks as compared to terrestrial backhaul, and it exempted 
fixed broadband providers that must rely on satellite backhaul 
facilities from the usage allowance and latency requirements as a 
result. The Commission proposes exempting non-contiguous carriers that 
choose to continue to receive frozen support from these requirements as 
well, provided they rely exclusively on satellite backhaul and certify 
annually that no terrestrial backhaul options exist.
    75. The Commission proposes that non-contiguous carriers receiving 
frozen support must not use such support in any areas where there is a 
terrestrial provider of fixed residential voice and broadband service 
that meets our Phase II performance requirements. To the extent a non-
contiguous carrier is unable to meet this requirement, the Commission 
proposes that it relinquish whatever amount of frozen support it is 
unable to use for the intended purpose. The Commission seeks comment on 
these proposals.
    76. The Commission seeks comment on the specific build out 
obligations that non-contiguous carriers receiving frozen support would 
have in those census blocks that do not currently have broadband 
service meeting the Commission's requirements. Specifically, should 
non-contiguous carriers receiving frozen support be required to deploy 
voice and broadband-capable networks and offer services meeting the 
above performance metrics to all locations in those funded areas, 
consistent with the state-level commitments required of carriers 
receiving model-based support? In the alternative, should these 
carriers be allowed to serve some subset of locations within their 
respective service areas where the average cost equals or exceeds the 
funding benchmark established by the Bureau? Should they also be 
required to extend broadband-capable networks to serve some specified 
number of locations in census blocks determined by the model to be 
above the extremely high-cost threshold?
    77. The Commission seeks comment on how to monitor and enforce 
compliance by non-contiguous carriers receiving frozen support once it 
has determined their specific service obligations. Are there any 
measures that must be in place to ensure that the Commission has the 
ability to monitor compliance with these service obligations? Are there 
any considerations specific to non-contiguous areas that the Commission 
should account for when determining whether these carriers have 
complied with their service obligations? Below, the Commission proposes 
potential support reductions for price cap carriers receiving model-
based support that fail to fulfill their service obligations. The 
Commission proposes that non-contiguous carriers receiving frozen 
support would be subject to similar reductions in support for failing 
to fulfill their service obligations. Should any adjustments to that 
framework be made?
    78. Finally, the Commission seeks comment on whether to specify a 
five-year term for those non-contiguous carriers that elect to receive 
frozen support, and whether there is a need to modify the term of 
support for such non-contiguous carriers. Are there any specific 
extenuating circumstances in non-contiguous areas that would require 
extending the term of frozen support for longer than five years?
    79. Recognizing there may be differing circumstances for each of 
the non-contiguous carriers, the Commission asks whether it should 
adopt tailored service obligations for each one that chooses to elect 
frozen support. To the extent non-contiguous carriers contend that they 
could not meet one or more of the public interest service standards set 
forth above, they should submit specific alternatives. However, the 
Commission notes that, for certain non-contiguous carriers, the amount 
of frozen support they would receive is greater than the amount of 
model-based support they would receive. The Commission expects, 
therefore, that any alternatives proposed by these carriers would 
reflect this level of support and would be consistent with the 
Commission's goal of ensuring universal availability of modern networks 
capable of providing voice and broadband service to homes, businesses, 
and community anchor institutions.
4. Other Issues Relating to the Phase II Transition
    80. The Commission proposes several minor changes and 
clarifications regarding the implementation of the transition to model-
based support to ease the administration of Connect America Phase II. 
First, the Commission proposes to align the five-year term for model-
based support provided to price cap carriers that elect to make a 
state-level commitment with calendar years, specifically, 2015 through 
2019. Second, the Commission proposes that a carrier accepting state-
level support pursuant to Connect America Phase II should receive the 
full amount of Phase II support in the initial year, rather than the 
transitional amount of support adopted in the USF/ICC Transformation 
Order. Third, the Commission proposes to clarify that for purposes of 
calculating the baseline for carriers in states where model-based 
support will be less than Phase I support, the baseline only includes 
Connect America Phase I frozen high-cost support, and not Phase I 
incremental support.
a. Aligning Connect America Phase II Funding and Calendar Years
    81. Under the recordkeeping and reporting rules established by the 
Commission, many accountability requirements operate on a calendar year 
basis. Aligning the funding years of Connect America Phase II with the 
reporting and recordkeeping years established in sections 54.313 and 
54.314 of the Commission's rules could lessen administrative burdens, 
for the Fund Administrator, states, and recipients.
    82. At this juncture, the Commission anticipates that while the 
offer of support may be extended before the end of 2014, the deadline 
for acceptance will be in 2015, 120 days later. The Commission proposes 
to disburse a lump sum amount to those carriers for whom model-based 
support in a given state will be greater than Connect America Phase I 
support, representing the additional amount of model-based support that 
would accrue for the

[[Page 39207]]

beginning months of the year while the offer of support is under 
consideration, so that in calendar year 2015 those carriers will 
receive the appropriate yearly amount. Should such support be disbursed 
in the month after the acceptance of model-based support, or some other 
date? The Commission seeks comment on these proposals.
b. Transition Where Model-Based Support Is Greater Than Connect America 
Phase I Support
    83. In the USF/ICC Transformation Order, the Commission specified 
that price cap carriers electing the state-level commitment would 
receive five years of model-based support and established a process for 
transitioning support from Connect America Fund Phase I to Phase II in 
states where model-based support is greater than frozen support. 
Specifically, for a carrier accepting the state-level commitment, ``in 
the first year, the carrier will receive one-half the full amount the 
carrier will receive under CAF Phase II and one-half the amount the 
carrier received under CAF Phase I for the previous year (which would 
be the frozen amount if the carrier declines Phase I [incremental 
support] or the frozen amount plus the incremental amount if the 
carrier accepts Phase I [incremental support]); in the second year, 
each carrier accepting the state-wide commitment will receive the full 
CAF Phase II amount.'' In a Public Notice, the Bureau sought to develop 
further the record on various issues regarding implementation of this 
transition.
    84. The Commission now proposes to eliminate the transition year 
and disburse the full amount of model-based support in the initial year 
to those carriers for whom the amount of model-based support is greater 
than frozen support. The Commission expects this will reduce 
administrative burden on the Fund Administrator, as it will only need 
to program its systems once to disburse the appropriate monthly amounts 
over the five-year period, rather than first implementing a transition 
year, and then switching to the full model-determined amounts the 
second year. In addition, the Commission expects that this would 
provide greater certainty for carriers accepting a state-level 
commitment than deferring disbursement of part of the initial year's 
support until certain milestones are met, as suggested in the 
Additional Phase II Public Notice, 78 FR 76789, December 19, 2013. 
Given that in all relevant circumstances, the carriers will be 
receiving a support level that is higher than their prior frozen 
support for that state, the Commission proposes that there is no need 
for a transition year, and the public interest and the purposes of 
section 254 of the Act will be served by disbursing the new, model-
based level in the first year.
    85. The Commission therefore proposes that, for a carrier accepting 
a state-level commitment, in the first year the carrier will receive 
100 percent of the annualized amount the carrier will receive pursuant 
to Connect America Phase II, and no additional Connect America Phase I 
support. The Commission seeks comment on this proposal and our 
analysis.
c. Base Support Amount for Transition to Connect America Phase II
    86. As described above, the Commission noted ``[t]o the extent a 
carrier will receive less money from CAF Phase I than it will receive 
under frozen high-cost support, there will be an appropriate multi-year 
transition to the lower amount.'' It is not clear from the language 
whether the Commission intended the reference to ``CAF Phase I'' to 
encompass Phase I incremental support.
    87. The Commission proposes to clarify that for the purposes of 
transitioning from Connect America Phase I to Phase II, only Connect 
America Phase I frozen support is relevant. Specifically, the multi-
year phase down in support that the Commission adopts in the 
concurrently adopted Report and Order would only apply to frozen 
support and would not include Phase I incremental support. Incremental 
support was provided to carriers on a one-time basis in exchange for 
specific build-out commitments, in contrast to the ongoing frozen 
support. The Commission is unaware of any policy justification for 
providing any fraction of the one-time support on a recurring basis 
under the guise of a transition to Connect America Phase II. The 
Commission seeks comment on this proposed clarification.

F. Interplay Between Rural Broadband Experiments and Offer of Model-
Based Support

    88. More than 1,000 expressions of interest in rural broadband 
experiments have been filed by a wide range of entities. Although the 
Commission has not yet established selection criteria or a budget for 
those experiments, it is likely that there will be a number of well-
developed formal proposals. Such proposals provide strong evidence that 
at least some entities are prepared to extend robust broadband in a 
given high-cost area for an amount less than or equal to the amount of 
model-based support that would be provided to a price cap carrier 
through the state-level commitment process for that area. The 
Commission therefore seeks comment on whether such an indication of 
potential competitive entry through a formal proposal for an area 
should be grounds for removing that area from a carrier's state-level 
commitment (i.e., the carrier would not receive model-based support for 
that area and would have no obligation to meet the broadband 
performance obligations in that area).
    89. The Commission seeks comment on what conditions a rural 
broadband experiment formal proposal would have to meet in order to 
remove a geographic area from a price cap carrier's state-level 
commitment. In particular, the Commission seeks comment on the 
broadband performance, amount of support requested, and other 
conditions a rural broadband formal proposal should meet before the 
area it covers would be removed from the price cap carrier's state-
level commitment. For example, based on staff review thus far, it 
appears that the vast majority of the expressions of interest received 
to date are requesting one-time support, rather than recurring support. 
In order to remove a particular geographic area from the state-level 
commitment, should the amount of one-time support requested be 
annualized over a ten-year period, to provide an apples-to-apples basis 
for comparison to model-based support? Should the proposal be required 
to indicate a willingness to receive the amount of one-time support 
requested over a multi-year period, such as five or ten years? What 
other factors should the Commission consider before concluding a formal 
application is sufficiently meritorious to remove an area from a 
carrier's state-level commitment?
    90. From an administrative perspective, how would the Commission 
implement the removal of an area from a carrier's state-level 
commitment? Should the Commission remove all areas that are covered by 
formal rural broadband experiment proposals that meet the conditions 
discussed above that the Commission does not fund through the rural 
broadband experiment? What other criteria could the Commission use to 
determine whether an area should be removed from a carrier's state 
level commitment? To the extent a formal rural broadband experiment 
proposal covers an area that is served in part by a rate-of-return 
carrier and in part by a price cap carrier, should the proposal be 
required to indicate that the applicant will proceed if only funded in 
the price cap portion of the proposed service area,

[[Page 39208]]

in order to be sufficient to remove an area from the price cap carrier 
state-level commitment?
    91. If the Commission were to adopt such an approach, how would 
this affect the incentives of potential participants in the Phase II 
competitive bidding process to express their interest prior to the 
offer of support to price cap carriers? How would this affect the 
incentives of price cap carriers to accept or decline model-based 
support? How would it affect the timing and extent of the deployment of 
broadband-capable infrastructure in high-cost areas? Given that the 
vast majority of the expressions of interest proposing to extend fiber-
based technologies propose to deploy fiber-to-the-premise, would 
removing such areas from the state-level commitment result in greater 
deployment of broadband to high-cost areas than would be the case under 
the current Connect America framework?

G. Phase II Competitive Bidding Process

    92. In the concurrently adopted Report and Order, the Commission 
sets certain parameters for the Phase II competitive bidding process. 
In this section, the Commission seeks to develop further the record on 
additional issues relating to the competitive bidding process that will 
occur in Phase II.
    93. In the USF/ICC Transformation Order, the Commission adopted 
rules to apply generally for competitive bidding to award universal 
service support, codified in Subpart AA of Part I. In the USF/ICC 
Transformation FNPRM, 76 FR 78384, December 16, 2011, it proposed to 
use a reverse auction to distribute support to providers of voice and 
broadband services in price cap areas where the price cap carrier 
declined support. The Commission proposed to use such a mechanism to 
determine where services meeting the specified performance requirements 
can be offered ``at the lowest cost per unit'' with the relevant unit 
being the number of residential and business locations in a given 
census block. The Commission also sought comment on relaxing 
performance obligations and allowing bidders to offer to provide 
service with different performance characteristics, with the Commission 
considering these service quality attributes when it evaluates bids.
    94. The Commission recognizes the importance of specifying in 
advance objective, well-defined, and measurable criteria for selecting 
among entities that seek funding in a competitive bidding process. The 
record received in response to the USF/ICC Transformation FNPRM is not 
sufficiently well developed on this issue, however, for us to make 
final decisions at this time. But the Commission is nevertheless 
determined to finalize the details of the competitive bidding process 
so that it can occur shortly after the model-based elections take 
place. In the concurrently adopted Report and Order, the Commission 
adopts certain rules with respect to participation, the term of 
support, and the ETC designation process, and the Commission seeks 
further comment on other aspects of those rules elsewhere. Here, the 
Commission focuses on the mechanics of the competitive bidding process 
and seek comment on specific proposals.
    95. First, the Commission proposes that it adopts reserve prices 
based on the Connect America Cost Model so that the reserve price for a 
given geographic area in the competitive bidding (i.e., census tract or 
census block) equals the amount of support the model would have 
calculated for that same geographic unit in the state-level election 
process. To the extent the Commission ultimately decides that census 
tracts will be the minimum geographic unit for competitive bidding, it 
proposes that the reserve price for a given census tract would be the 
support associated with the requisite number of locations in census 
blocks within that tract that are eligible for funding. That support 
could be used to serve locations within census blocks where the average 
cost per location exceeds the extremely high-cost threshold established 
by the model. To the extent parties argue that the model should not be 
used to determine reserve prices either generally or in specific areas, 
they should articulate what instead should be used for a reserve price.
    96. Second, the Commission proposes bidders may bid for a package 
of geographic areas, either census blocks or census tracts. The 
Commission believes that such package bidding is likely necessary so 
that bidders may construct efficient networks and are not left to serve 
certain high-cost tracts without the scale to do so effectively.
    97. Third, the Commission proposes that the total of all bids 
accepted nationwide be no greater than the total Connect America Phase 
II budget that remains after the state-level election process. The 
Commission notes that because bidders can compete both for areas 
subject to the state-level election process as well as areas that are 
deemed extremely high-cost, there could be insufficient funds to 
support all bidders even if there is only one bid in each area. As 
such, the competitive bidding process is likely to result in both 
intra-area and inter-area competition for funding.
    98. Fourth, the Commission proposes that the competitive bidding 
process use a multi-round auction so that competitive bidders have the 
opportunity to reevaluate their bids in light of the actions of others. 
A multi-round process may be especially important here so that bidders 
can reevaluate their deployment objectives in light of the demonstrated 
willingness of other bidders to build out broadband in an area.
    99. Fifth, the Commission proposes that the competitive bidding 
process be implemented in a way that first identifies those 
provisionally winning bids that propose service that substantially 
exceeds the Commission's service standards, for an amount per location 
equal to or less than the model-determined amount of support for the 
relevant geographic areas. To the extent funding remains available, the 
Commission proposes that the next round of bidding would identify those 
bids proposing to provide service that meets the Commission's service 
standards, for an amount of support per location equal to or less than 
the model-determined amount. To the extent funding still remains 
available after these two determinations, the Commission proposes that 
the competitive bidding process would then identify winning bidders 
that are willing to provide service using relaxed performance standards 
for an amount of support equal to, or less than, the model-determined 
reserve price. The Commission seeks comment on the specific 
characteristics of services that would be deemed to be 
``substantially'' exceeding the Commission's standards. In order to 
qualify for such a preference, must a bidder commit to offering service 
that substantially exceeds our standards to 100 percent of all funded 
locations, or some lesser percentage? In addition, the Commission seeks 
comment on whether it should adopt any other limits on the priorities 
discussed above. For instance, should the auction be designed so that 
the Commission select all bids that substantially exceed the 
Commission's standards before selecting any bids for service that meets 
or falls below the Commission's standards? Should the Commission 
allocate funding in a way that provides geographic coverage across 
various states? The Commission also seeks comment on how it might 
incorporate into our auction design consideration of the expressed 
preferences of the affected community for service of a particular type 
or quality. What would be an appropriate form for such an indication?

[[Page 39209]]

    100. Rather than the multi-step approach proposed above, should the 
Commission consider bidding credits to effectuate priorities that 
advance our objectives? The Commission seeks to refresh the record on 
the use of bidding credits, including bidding credits for service to 
Tribal lands, and also ask whether to provide bidding credits to 
bidders that propose to offer service that substantially exceeds the 
Commission's standards.
    101. The Commission also seeks comments on concerns that a reverse 
auction will result in bidders competing to provide the minimally 
acceptable level of service. How can the Commission best ensure that 
any competitive bidding process it ultimately adopts will bring an 
evolving level of broadband service to consumers, businesses, and 
anchor institutions in rural America? The Commission now seeks to 
refresh the record and seek more focused comment on what objective 
metrics should be used when the Connect America Phase II competitive 
bidding process is implemented nationwide in price cap territories to 
the extent the offer of model-based support is declined. Specifically, 
what criteria should be adopted that will determine who is awarded 
support?
    102. Additionally, the Commission seeks comment on what specific 
rules and requirements must be in place before it makes the offer of 
model-based support to price cap carriers. As noted above, the 
Commission has already adopted rules for the award of universal service 
support through a competitive bidding process, codified in Subpart AA 
of Part 1. Those rules specify, among other things, that the following 
will be specified by public notice prior to the commencement of 
competitive bidding: (1) The dates and procedures for submitting 
applications to participate in the competitive bidding process; (2) the 
details of and deadlines for posting a bond or depositing funds with 
the Commission to provide funds to draw upon in the event of defaulting 
bids; (3) procedures for competitive bidding, including but not limited 
to whether package bidding will be allowed and reserve prices; and (4) 
the amount of default payments, not to exceed 20 percent of the amount 
of the defaulted bid amount. Typically, these matters would be 
specified only after the Commission knows the inventory of areas that 
will be subject to auction. The Commission seeks comment on which, if 
any, of these matters should be specified by public notice before it 
makes the offer of model-based support to price cap carriers. Are there 
other rules and requirements that should be specified in advance of the 
commencement of the Connect America Phase II competitive bidding 
process?

H. Mobility Fund Phase II

    103. Since the USF/ICC Transformation Order was adopted, there has 
been significant commercial deployment of mobile broadband services. 
According to some sources, nearly 99.5 percent of the U.S. population 
today (and the road miles associated with that population) is covered 
by some form of mobile broadband technology. Verizon asserts that its 
4G LTE network currently is available to 95 percent of the U.S. 
population--more than 500 markets covering approximately 303 million 
people. Similarly, AT&T has stated that at present its LTE deployment 
covers all major metropolitan areas, totaling nearly 280 million 
people, and it expects to cover approximately 300 million people by the 
summer of 2014.
    104. Discussion. Based on these marketplace developments, the 
Commission proposes to target the funds set aside to support mobile 
services in Mobility Fund Phase II on preserving and extending service 
in those areas that will not be served by the market without 
governmental support. The Commission emphasized in the USF/ICC 
Transformation Order that it did not intend to provide ongoing support 
for service to areas that are likely to be served absent support. Given 
marketplace developments over the last few years, the Commission seeks 
comment on how to ensure that Mobility Fund Phase II is focused on 
preserving service that otherwise would not exist and expanding access 
to 4G LTE in those areas that the market will not serve.
    105. Section 254(b) of the Act requires the Commission to base 
policies on the ``preservation and advancement of universal service.'' 
In recognition of this statutory directive, the Commission in the USF/
ICC Transformation Order adopted specific performance goals to preserve 
and advance the universal availability of voice service, including 
ensuring the universal availability of modern networks capable of 
providing advanced mobile voice and broadband services. The Commission 
reaffirms this commitment and therefore seek to target the Mobility 
Fund Phase II funding in a way that preserves mobile service where it 
only exists today due to support from the universal service fund and to 
extend service to areas unserved by 4G LTE.
    106. Given the experiences with Mobility Fund Phase I and Tribal 
Mobility Fund Phase I where demand for universal service support far 
exceeded the supply of available funding, the Commission recognizes 
that there is a need and desire on the behalf of providers to extend 
mobile service, consistent with our universal service goals. The 
Commission therefore proposes to focus competitive bidding for Mobility 
Fund Phase II support on extending mobile 4G LTE to the remaining U.S. 
population that will not have it available from either Verizon or AT&T. 
Consistent with this objective, the Commission proposes to distribute 
those funds within a defined budget so as to maximize the population 
that can be served with 4G LTE. The Commission proposes to identify 
areas eligible for support, i.e., areas where neither Verizon nor AT&T 
provide 4G LTE, but also seek comment below on whether this standard 
will preserve existing service in those situations where the network of 
a mobile provider covers both eligible and ineligible areas. The 
Commission also proposes to identify eligible areas using the most 
recently available data for this purpose as reported on Form 477. Our 
FCC Form 477 data collection was revised in June 2013; the Commission 
expects to begin collecting more granular data regarding mobile 
broadband service and new data regarding mobile voice service 
availability in September 2014. The Commission seeks comment on these 
proposals.
    107. Based on technological developments in the industry, our 
proposal would require that recipients of Mobility Fund Phase II 
support deploy 4G LTE. Is there another deployment standard the 
Commission should use? For example, in the USF/ICC Transformation 
Order, the Commission allowed winners of Mobility Fund Phase I support 
to elect to deploy 3G or 4G, with a shorter deployment deadline for 
those that elected 3G. The Commission originally proposed requiring 4G 
deployment for Mobility Fund Phase II. For those parties who argue that 
the Commission should employ a deployment standard other than 4G LTE, 
please explain how using that standard would help us address the other 
issues the Commission identifies in this section and help us meet our 
goals of preserving and extending service in those areas that will not 
be served by the market without governmental support. In identifying 
eligible areas under our proposed standard, if there are areas where a 
portion of a network overlaps in part with an area that has LTE 
coverage provided by AT&T and/or Verizon, how

[[Page 39210]]

should the Commission treat the eligibility of those areas so as to 
promote the preservation of service in the portion that does not 
overlap? Similar to the process used for Auctions 901 and 902, which 
awarded Mobility Fund Phase I support, the Commission expects that 
proposed eligible areas would be identified publicly prior to the 
commencement of bidding for Mobility Fund Phase II support and would be 
subjected to a challenge process to add or subtract areas from the 
original proposed eligible areas. What is the best way to verify in 
such a process that proposed ineligible areas are in fact served by LTE 
and that proposed eligible areas are indeed eligible because they lack 
LTE? In addition, the Commission asks commenters to describe whether 
and, if so how, it should modify other aspects of the original 
proposals for Mobility Fund Phase II competitive bidding to conform to 
this proposed new approach.
    108. Size of Retargeted Mobility Fund Phase II. Given marketplace 
developments, the areas requiring support to preserve and advance 
mobile services appear to be less extensive than the Commission 
anticipated in 2011. The Commission therefore proposes to adjust 
downward the budget for a retargeted Mobility Fund II. Based on 
February 2014 disbursement figures, the Commission estimates that 
wireless competitive ETCs currently are collectively receiving about 
$590 million in support on an annualized basis, with about $185 million 
of that support going to two of the largest national providers that 
have announced the commercial roll-out of LTE. Thus, the Commission 
estimates that about $400 million is going to smaller and regional 
wireless providers. This funding is not well-targeted, however, as it 
is supporting multiple networks with overlapping coverage in some 
areas, and in some areas supporting a network that overlaps with the 
coverage provided by one of the four national wireless providers that 
is not relying on federal universal service support to offer mobile 
services in that area. To the extent the Commission eliminates 
unnecessary support in such areas, it could target that support to 
those areas that will not be served with 4G LTE through commercial 
deployments.
    109. The Commission seeks to further develop the record on how much 
of that $400 million in competitive ETC support provided today to 
smaller and regional wireless providers is covering ongoing operating 
expenses, and how much of it is being used to extend service to 
unserved areas. To the extent commenters contend that the current 
funding is necessary to preserve existing service, they should identify 
with particularity those amounts and specify the extent to which such 
subsidized service overlaps with the coverage areas of one of the four 
national providers. To what extent is existing frozen support being 
provided to areas that are not expected to receive 4G LTE from either 
Verizon or AT&T?
    110. In re-evaluating the appropriate size of the Mobility Fund 
Phase II, should the Commission preserve the existing amount of funding 
dedicated to Tribal lands? In 2011, the Commission concluded that up to 
$100 million of the Mobility Fund Phase II budget should be targeted at 
Tribal lands throughout the nation, including remote areas in Alaska. 
Recognizing the continuing connectivity challenges facing Tribal lands, 
should the Commission proceed to conduct an auction to award up to $100 
million in ongoing support to mobile providers on Tribal lands 
throughout the nation? To what extent are Tribal lands in the 
geographic areas where AT&T and Verizon do not intend to extend 4G LTE? 
Should the Commission implement such an auction first, before 
determining how to proceed more generally with respect to Mobility Fund 
Phase II?
    111. If the Commission adjusts downward the budget for Mobility 
Fund Phase II, it proposes to reallocate those funds to the Remote 
Areas Fund or the competitive bidding process for Connect America Phase 
II. The Commission seeks comment on this proposal. The Commission 
expects wireless providers that meet the requisite service standards 
will participate in both the Remote Areas Fund and Connect America 
Fund. Wireless technology may well be the appropriate solution to serve 
many areas lacking broadband today, and the Connect America Phase II 
competitive bidding process and Remote Areas Fund will be implemented 
in a technologically neutral manner to allow the participation of as 
many entities as possible. Would re-allocating a portion of the 
Mobility Fund Phase II budget to either of these mechanisms be 
consistent with our overall reform objectives?
    112. The Commission specifically asks commenters whether, instead 
of maintaining the $500 million budget for Mobility Fund Phase II, it 
should use a portion of that budget, potentially including undisbursed 
funds remaining from Mobility Fund Phase I, to provide one-time support 
to those providers willing to extend mobile LTE to eligible unserved 
areas. If the Commission were to adopt such an approach, how much 
funding should it reserve for recurring annual support under a more 
narrowly focused Mobility Fund Phase II?
    113. Proposed Rules. The USF/ICC Transformation FNPRM included 
proposed rules for Phase II of the Mobility Fund. The Commission now 
seeks comment on revised proposed rules for Mobility Fund Phase II in 
light of the above proposals and the Commission's experience with 
administering Phase I of the Mobility Fund. The Commission seeks 
comment on these proposed rules in Appendix B.
    114. Timing of ETC Designation. As described in the concurrently 
adopted Order, the Commission adopts new rules to enable participants 
in the Connect America Phase II competitive bidding process to seek 
designation as an eligible telecommunications carrier after winning 
competitive bidding for Connect America Phase II support. The 
Commission seeks comment on whether to adopt this approach for Mobility 
Fund Phase II or to maintain the Commission's practice that parties 
must have ETC designations, subject to certain exceptions, before 
applying to participate in Mobility Fund competitive bidding. 
Participants in Mobility Fund competitive bidding have been able to 
obtain new designations prior to applying to participate in competitive 
bidding. There may, however, be benefits to permitting parties to 
participate in competitive bidding for Mobility Fund Phase II prior to 
seeking a designation, such as increased competition in the bidding. 
The Commission seeks comment on whether a greater number of qualified 
parties would participate in Mobility Fund Phase II if it only required 
that they seek designation after winning competitive bidding.

I. Phase-Down of Identical Support

    115. The Commission proposes to amend our identical support phase-
down rules in several ways. First, for each wireless competitive ETC 
for which competitive ETC funding exceeds 1 percent of its wireless 
revenues, the Commission proposes to maintain existing support levels 
until a specified date after the announcement of winning bidders for 
Mobility Fund Phase II ongoing support, with that date depending on 
whether it is a winning bidder of such support. While the Commission is 
not convinced that maintaining existing support levels for these 
providers is necessary to ensure that consumers continue to have access 
to mobile service, it lacks sufficient data at this time to adopt a 
more tailored approach. Second, the Commission proposes to accelerate 
the phase-down for those wireless carriers that it

[[Page 39211]]

presumes are not relying on such support to maintain existing service. 
In particular, the Commission proposes to adopt a rule that would 
eliminate competitive ETC frozen support for providers for whom such 
funding represents 1 percent or less of their wireless revenues. 
Finally, the Commission proposes to freeze support for wireless 
providers serving remote areas in Alaska as of December 31, 2014, and 
to maintain those frozen support levels until a specified date after 
winning bidders are announced for ongoing support under Tribal Mobility 
Fund Phase II or Mobility Fund Phase II, with that date depending on 
whether wireless providers become winning bidders of such support.
    116. Discussion. The Commission reaffirms the decision to eliminate 
the identical support rule. As the Commission stated at that time, the 
rule did not encourage the efficient deployment of service to areas 
that would otherwise be unserved and was therefore an ineffective use 
of universal service funds. Moreover, as discussed above, AT&T and 
Verizon's recent and ongoing mobile LTE deployments will reach the 
areas where the vast majority of all Americans live. Nevertheless, the 
Commission is concerned that some areas of the country may lose service 
if competitive ETC funding is further phased down before the rules for 
Mobility Fund Phase II are adopted. Thus, given our proposal to 
retarget Mobility Fund Phase II funds, for each wireless competitive 
ETCs for which competitive ETC support is more than 1 percent of its 
wireless revenues, the Commission proposes to maintain existing support 
levels (i.e., 60 percent of baseline support) until (1) the first month 
after the month in which its Mobility Fund Phase II ongoing support is 
authorized in the case of a winning bidder of such Mobility Fund Phase 
II support, or (2) the first month after the month in which a public 
notice announces winning bidders for Mobility Fund Phase II ongoing 
support in the case of a competitive ETC that is not a winning bidder 
of such Mobility Fund Phase II support. Support levels would then be 
reduced to 40 percent of the baseline for the next year, and then 20 
percent of the baseline for the subsequent year. The Commission seeks 
comment on this proposal and any alternatives. For instance, should the 
Commission resume the phase-down in support upon adoption of rules 
establishing the framework for Mobility Fund Phase II? Should the 
Commission resume the phase-down in support for all competitive ETCs 
the first month after any bidder is authorized to receive funding from 
Mobility Fund Phase II? Should the Commission resume the phase-down in 
support for all recipients of frozen support when 50 percent of 
Mobility Fund Phase II funding has been authorized, regardless of 
whether a particular competitive ETC is a winning bidder or not?
    117. Regardless of what the Commission ultimately adopts regarding 
the phase-down in frozen support for competitive ETCs, the Commission 
proposes to accelerate the phase-down for any wireless competitive ETC 
for whom high-cost support represents one percent or less of its 
wireless revenues, eliminating such support on December 31, 2014 or the 
effective date of the rule, whichever is later. A number of competitive 
ETCs currently are receiving very small amounts of support. Is it 
reasonable to assume that if a carrier's competitive ETC support is a 
tiny fraction of its revenues, that carrier is not relying on such 
support to maintain existing service? The Commission proposes to 
determine the requisite percentage based on reported revenues as 
submitted by the high-cost recipient or its affiliated holding company 
on the most recent FCC Form 499-A. The Commission seeks comment on this 
proposal. For purposes of implementing such a proposal for wireless 
competitive ETCs, should the Commission focus solely on reported 
wireless revenues or on total revenues reported on the FCC Form 499? 
The Commission notes that if it were to adopt this proposal, any 
provider could seek a waiver of the accelerated phase-down if the 
elimination of support would result in consumers losing access to 
existing service.
    118. The Commission seeks comment on whether to take a different 
approach for resumption of the phase-down in frozen support for 
wireline competitive ETCs. For instance, should the Commission maintain 
existing frozen support levels (i.e., 60 percent of baseline support) 
for wireline competitive ETCs until winning bidders are announced in 
the Phase II competitive bidding process? Or, should the Commission 
revise our rules and continue the phase down of support for these 
wireline competitive ETCs upon the effective date of a rule, unless 
they are the only provider of voice and broadband service meeting our 
current broadband performance obligations in an area?
    119. Finally, the Commission notes that because the USF/ICC 
Transformation Order froze their support at the study area level, most 
competitive ETCs stopped reporting line counts. However, the Commission 
delayed the phase-down by two years for remote areas in Alaska until 
June 30, 2014, or the implementation of Mobility Fund Phase II and 
Tribal Mobility Fund Phase II, whichever is later, to ``preserve newly 
initiated service and facilitate additional investment in still 
unserved and underserved areas.''
    120. The Commission now proposes to freeze the total amount 
provided to each competitive ETC serving remote areas in Alaska. This 
would simplify support calculations for the Administrator, while not 
disturbing existing support levels for existing competitive ETCs. 
Competitive ETCs would no longer be required to file line counts for 
remote areas of Alaska, thus alleviating the need for the Bureau to 
address on a case-by-case basis how competitive ETCs should report line 
counts in situations where the customer's billing address is either 
unavailable or does not accurately represent the location of where the 
service is actually provided. Under this proposal, the baseline for 
competitive ETC support in remote areas of Alaska would be set as of a 
date certain, such as December 31, 2014, or the effective date of the 
rule, whichever is later. The Commission seeks comment on this 
proposal.
    121. Above, the Commission proposes to maintain existing support 
levels for wireless competitive ETCs until after it adopts rules for 
Mobility Fund Phase II. Consistent with the framework established by 
the Commission in 2011, the Commission proposes to maintain the 
baseline frozen support for each competitive ETC serving remote areas 
in Alaska until (1) the first month after the month in which its 
Mobility Fund Phase II or Tribal Mobility Fund Phase II ongoing support 
is authorized in the case of a winning bidder of such Mobility Fund 
Phase II support, or (2) the first month after the month in which a 
public notice announces winning bidders for ongoing support under 
Mobility Fund Phase II or the Tribal Mobility Fund Phase II, whichever 
is later, for a competitive ETCs that is not winning bidder of such 
Mobility Fund Phase II or Tribal Mobility Fund Phase II support. Upon 
that date certain, the phase-down in support would commence under the 
schedule originally adopted by the Commission: 80 percent of the 
baseline in the first year; 60 percent of the baseline in the second 
year; 40 percent of the baseline in the third year; and 20 percent of 
the baseline in the fourth year. The Commission seeks comment on this 
proposal. To the extent parties argue for a different approach, they 
should

[[Page 39212]]

specify when the phase-down in support in remote Alaska should begin. 
Should remote areas in Alaska or any other areas in the United States 
be subject to exceptions or other conditions with respect to the phase-
down in frozen support?

J. Reforms in Rate-of-Return Study Areas

    122. Rate-of-return carriers play a significant and vital role in 
the deployment of 21st century networks throughout the country. The 
Commission recognizes that telephone service would not exist today in 
many rural and remote areas of the country without the concerted 
efforts of local companies to serve their communities. As the 
Commission moves forward with the Connect America Fund Phase II for 
price-cap carriers, it remains cognizant of the fact that many of the 
same marketplace and technological forces that led to the development 
of the Connect America Fund for price cap carriers are also affecting 
rate-of-return carriers. Access lines are declining; residential 
customers increasingly are cutting the cord; and both consumers and 
businesses are demanding broadband. Rate-of-return carriers are not 
insulated from competitive pressures, and they must be prepared to 
shift their business models for a new era. In light of these realities, 
the Commission seeks here to renew a dialogue regarding the best way to 
encourage continued investment in broadband networks throughout rural 
America to ensure that all consumers have access to reasonably 
comparable services at reasonably comparable rates. In short, the 
Commission seeks to establish a ``Connect America Fund'' for rate-of-
return carriers.
1. Near-Term Reforms for Rate-of-Return Carriers
    123. The Commission continues to have significant concerns 
regarding the structure and incentives created under the existing high-
cost mechanisms for rate-of-return carriers, such as the ``race to the 
top'' incentives that exist under HCLS and the ``cliff effect'' of the 
annual adjustment of the HCLS cap. The structure of the current HCLS 
mechanism creates problematic incentives: Some companies operating in 
high-cost areas receive all of their incremental additional investment 
through the federal support mechanism, while other companies operating 
in high-cost areas receive no support whatsoever from HCLS due to how 
support is reduced to fall within the overall HCLS cap.
    124. Support for rate-of-return carriers has been subject to the 
HCLS cap, which is rebased annually through a rural growth factor, for 
more than a decade. In 2001, the Commission modified the distribution 
of HCLS by rebasing the fund for rural telephone companies and 
retaining an indexed cap. Specifically, the Commission concluded that 
the total cap on HCLS would be adjusted annually by a rural growth 
factor equal to the sum of the annual percentage changes in the gross 
domestic product-chain priced index and the total number of working 
loops. Given decreases in working loops in rate-of-return study areas 
in recent years, resulting in reductions of the indexed cap, HCLS has 
been reduced substantially for many rate-of-return carriers while 
others incur almost no reduction. The Commission also adopted a rule 
that ensures that rural carriers receive the total amount of capped 
HCLS, regardless of the extent to which individual carriers' costs 
exceed the actual national average cost per-loop (NACPL) by the 
requisite percentages. Neither of these features of the HCLS rule was 
altered in the USF/ICC Transformation Order.
    125. As a near term measure that can be quickly implemented to 
mitigate both of these deficiencies, the Commission proposes to reduce 
support proportionally among all HCLS recipients by no longer adjusting 
the NACPL, but instead reducing the reimbursement percentages for all 
carriers. Under the proposed rule, reductions in support will be spread 
proportionally among all carriers, and carriers presently close to the 
NACPL will no longer run the risk of ``falling off the cliff'' in terms 
of their receipt of HCLS support. This rule could be implemented 
beginning January 1, 2015. The Commission seeks comment on this 
proposal and invite comment on other possible methods to address this 
issue.
    126. The HCLS rules require adjusting the NACPL annually so that 
total HCLS support equals the indexed cap. Currently, HCLS rules 
reimburse 65 percent of the loop costs in excess of 115 percent, but 
less than 150 percent of the NACPL and 75 percent of loop costs in 
excess of 150 percent of the NACPL. Because the NACPL is adjusted each 
year, many carriers are precluded from receiving any HCLS, and those 
carriers with costs close to the NACPL that is used to determine HCLS 
experience large percentage reductions in support. This gives those 
carriers with the highest loop costs relative to the national average 
minimal incentive to reduce costs. To curtail this ``race to the top,'' 
the Commission proposes to freeze the NACPL that is used to determine 
support and instead to reduce HCLS proportionately among all HCLS 
recipients by reducing the 65 percent and 75 percent reimbursement 
percentages by equivalent amounts to maintain aggregate support at the 
indexed cap. This effectively would freeze the NACPL at the capped 
amount as of December 31, 2014, or the effective date of the rule, 
whichever is later. In conjunction with this ``freezing'' of the NACPL, 
the Commission also proposes to reduce the NACPL and continue to use 
the 65 percent and 75 percent reimbursement percentages whenever 
calculated support using the 65 and 75 percentages will not exceed the 
indexed cap for HCLS in the aggregate. Under the first part of the 
proposed rule, reductions in support would be spread proportionally 
among all recipients of HCLS, and carriers presently close to the now 
frozen NACPL would no longer run the risk of ``falling off the cliff'' 
in terms of their receipt of HCLS support. Under the second part of the 
proposed rule, if there are other changes that would otherwise result 
in a lowering of the NACPL, carriers will receive support based on the 
65 and 75 percentage reimbursements.
    127. The Commission proposes as another near-term measure to adopt 
a rule that no new investment after a date certain (i.e., December 31, 
2014) may be recovered through HCLS and ICLS when such investment 
occurs in areas that are already served by a qualifying competitor. The 
Commission seeks comment on this proposal.
    128. The Commission proposes measures to monitor and enforce 
compliance with such a rule. Price cap carriers today are precluded 
from using support in areas that are served by an unsubsidized 
competitor. Support may be used to serve geographic areas that are 
partially served by an unsubsidized competitor; however, price cap 
carriers must certify that, with respect to the support dollars subject 
to this obligation, a majority of the served locations are unserved by 
an unsubsidized competitor. For purposes of determining whether this 
requirement is met, price cap carriers must be prepared to provide 
asset records demonstrating the existence of facilities that serve 
locations in census blocks where there is no unsubsidized competitor. 
The Commission proposes to take a similar approach if it adopts a rule 
precluding recovery of new investment in areas served by competitors 
through our universal service support mechanisms.
    129. In particular, to enforce a requirement that new investment 
recovered in whole or in part through

[[Page 39213]]

HCLS or ICLS not occur in areas where there is a competing provider, 
the Commission proposes that rate-of-return carriers be prepared to 
produce, in an audit or other inquiry, asset records and associated 
receipts to document that new investment for which recovery is sought 
through the federal support mechanisms, after a date certain, occurred 
only in census blocks that are not served by other providers. 
Recognizing concerns expressed in the record regarding the coverage 
indicated in the National Broadband Map, the Commission further 
proposes to create a safe harbor that would allow rate-of-return 
carriers to include new investment in cost studies used to determine 
HCLS or ICLS if they publicly post information on their Web site 
regarding deployment plans and wait a specified period of time, such as 
90 days. If no competing provider notifies the rate-of-return carrier 
that it serves the areas in question, the rate-of-return carrier may 
presume no other provider is serving those locations, and new 
investment in such areas may be eligible for cost recovery, consistent 
with any applicable rules for existing or future support mechanisms. 
The Commission seeks comment on these proposals and any alternatives 
that would provide a mechanism to provide clarity as to which new 
investments would be applicable for cost recovery through universal 
service support mechanisms, without creating undue burden on either 
rate-of-return carriers or potential qualifying competitors in their 
service areas.
    130. In the concurrently adopted Report and Order, the Commission 
codified the rules adopted by the Commission to eliminate support in 
study areas where there is a 100 percent overlap with an unsubsidized 
competitor. If the Commission adopts our proposal above to not provide 
support to areas with a ``qualifying competitor,'' should the 
Commission similarly modify the 100 percent overlap rule? The 
Commission also proposes to adopt a timeline for periodic determination 
of whether there is a 100 percent overlap, with the Bureau reviewing 
the study area boundary data in conjunction with data collected on the 
FCC Form 477 and the National Broadband Map every other year to 
determine whether and where 100 percent overlaps exist. The Commission 
also proposes to adjust the baseline for support reductions to be the 
amount of support received in the immediately preceding year before a 
determination is made that there is a 100 percent overlap, rather than 
2010 support amounts. The Commission seeks comment on these proposals.
2. Longer-Term Reforms for Rate-of-Return Carriers
    131. In the longer term, the Commission questions the continued 
viability of the HCLS and ICLS mechanisms in their current form and 
suggest that all affected stakeholders focus on creating a new Connect 
America Fund for cost recovery that will be consistent with the core 
principles for reform adopted by the Commission in 2011. For that 
reason, the Commission seeks comment on a rule under which no new 
investment would be included in cost studies used for the determination 
of HCLS and ICLS after a date certain, and HCLS and ICLS would become 
the mechanisms to recover only past investment occurring prior to that 
date certain. Over time, the amount recovered through HCLS and ICLS 
would diminish, and all new investment would be recovered through a new 
Connect America Fund for rate-of-return territories specifically 
designed to meet the Commission's overall objective to support voice 
and broadband-capable networks in areas that the marketplace would not 
otherwise serve and to ensure that consumers in rural, insular and 
high-cost areas have access to reasonably comparable services at 
reasonably comparable rates to consumers living in high-cost areas.
    132. If the Commission were to adopt such a rule, it would not 
implement the limitation on recovery of new investment through the 
existing mechanisms until the new Connect America Fund was in place and 
operational. The Commission welcomes stakeholder proposals for the 
design of this Connect America Fund to make more efficient use of 
universal service funds and encourage the deployment of broadband-
capable networks, working within the existing budget of $2 billion for 
rate-of-return territories. What timeline would be an appropriate 
target to set for the implementation of the Connect America Fund for 
rate-of-return territories and the limitation on recovery of investment 
in the old mechanisms? If the Commission were to wind down the existing 
HCLS and ICLS mechanisms and create a new Connect America Fund for use 
in rate-of-return territories, what action should the Commission then 
take in its pending rate represcription proceeding?
    133. The Commission proposes to adopt a stand-alone broadband 
funding mechanism for rate-of-return carriers and provide specific 
guidance on the desired implementation of such an approach. The 
Commission proposes that such a mechanism be designed to (a) calculate 
support amounts that remain within the existing rate-of-return budget, 
(b) distribute support equitably and efficiently, so that all rate-of-
return carriers have the opportunity to extend broadband service where 
it is cost-effective to do so, (c) distribute support based on forward-
looking costs (rather than embedded costs), and (d) ensure that no 
double recovery occurs by removing the costs associated with the 
provision of broadband Internet access service from the regulated rate 
base. The Commission seek comments on how to implement such a proposal 
for rate-of-return carriers. The Commission specifically seeks comment 
on what rules or rule parts would need to change (e.g., how should 
Parts 32, 64 and/or 69 change to ensure that costs associated with the 
provision of broadband Internet access service are not included in the 
regulated rate base), and whether such a mechanism should be designed 
in a way that provides support based on locations or total network 
costs, rather than subscriber access lines. The Commission seeks 
comment on whether, for instance, it should modify our cost allocation 
rules to require that costs associated with multi-use facilities used 
to deliver broadband Internet access service be allocated between 
regulated and non-regulated activities based on an actual revenue 
allocator (or a potential revenues allocator), in such fashion that the 
amount removed from the regulated rate base would not exceed the amount 
of support received via a stand-alone broadband funding mechanism, or 
some other method. The Commission also seeks comment on whether such a 
mechanism should be designed to support lines where a consumer also 
subscribes to voice service, and whether the collected-but-not-yet-
distributed support from the $2 billion annual budget for rate-of-
return territories currently in the broadband reserve account should be 
used to kick start such a mechanism. The Commission believes that such 
a proposal is consistent with the Commission's stated policy goals, 
would create incentives for continued broadband deployment in rate-of-
return territories, and would reduce incentives to skew customer 
purchasing decisions.
    134. The Commission also seeks to develop further the record on 
other proposals. NTCA has presented its own stand-alone broadband 
proposal, which relies on complicated cost-calculations based on 
embedded costs. The proposal also does not appear to account for the 
fact that when a carrier's voice line is

[[Page 39214]]

lost, the following-year both its HCLS and ICLS will likely increase on 
a per-line basis because fixed costs are now recovered over a smaller 
number of lines. Further, the proposal states that stand-alone 
broadband support would be developed based on annual projected costs 
followed by a true-up to actual costs developed using the existing HCLS 
rules. However, HCLS payments, under the current rules, are based on 
costs incurred two years previously. How would NTCA's proposal avoid 
recovery of costs from both HCLS and a stand-alone broadband support 
mechanism, given this timing difference? Also, under NTCA's proposal, 
there would be no definitive way to determine how HCLS is affected by 
voice line migration to broadband-only lines until true-ups are 
reconciled two years later. What impact would that have on the size of 
the fund, and what incentives would that create for cost reporting?
    135. The Commission also seeks to understand further the rationale 
for the assumed broadband subscriber line charge of $26 in NTCA's 
proposal. For the offer of model-based support in price cap 
territories, the Commission directed the Wireline Competition Bureau to 
set the funding threshold for model-based support taking into account 
``where the cost of service is likely to be higher than can be 
supported through reasonable end-user rates alone.'' The Commission 
expects end user rates for broadband-only lines to be higher than $26. 
If the Commission were to provide support for stand-alone broadband 
offered by rate-of-return carriers, should it provide such support only 
for costs that exceed the $52.50 funding benchmark established for 
price cap territories? To the extent parties argue that a lower figure 
should be used in rate-of-return areas, they should provide a detailed 
analysis of what figures the Commission should assume are reasonable 
end user rates for retail broadband internet access.
    136. The Commission also seeks comment on whether an approach that 
provides support for all costs over a pre-determined figure--whatever 
that dollar figure may be--would provide appropriate incentives for 
carriers to make efficient expenditures. By providing support for 100 
percent of incremental costs to all study areas with costs above the 
proposed $26 per line per month threshold, what is the incentive on the 
part of recipients to be efficient as they make new investments in the 
future? Would a better approach be one that provides a set amount of 
Connect America support for voice and broadband-capable infrastructure 
in the study area, potentially with the amount per study area adjusted 
over time in a manner consistent with the growth in broadband-only 
subscription rates, rather than a per-line amount?
    137. The Commission also seeks comment on how the proposal fits 
within the overall universal service support budget framework. Of the 
$4.5 billion budget for the Connect America Fund, the Commission 
concluded that ``up to $2 billion,'' including intercarrier 
compensation recovery would be available annually in rate-of-return 
territories. USAC's projected demand for rate-of-return carriers was at 
an annualized rate of $2.014 billion in 2013, with actual disbursements 
of $1.958 billion. According to NTCA's own projections, its stand-alone 
broadband proposal would result in support in excess of $2 billion 
flowing to rate-of-return carriers annually in 2015-2017 under a 
variety of assumptions.
    138. Finally, the NTCA proposal does not appear to have a mechanism 
to ensure that universal service is not subsidizing new investment 
occurring in areas served by an unsubsidized competitor. The Commission 
therefore seeks further comment on this issue, and alternative 
proposals that would better meet our reform objectives.
    139. In addition to its proposal concerning support for broadband-
only lines, NTCA submitted a plan to establish an annual investment 
budget for individual rate-of-return carriers called the ``Capital 
Budget Mechanism.'' NTCA states that this mechanism is intended to 
promote fiscal responsibility while also providing more predictable and 
transparent planning for investment in rate-of-return carrier networks. 
It includes a four-step framework for determining a budget for high-
cost supported future investment, as follows: (1) Determine current 
loop investment (i.e., total loop investment for each rate-of-return 
carrier study area), adjusted for inflation; (2) determine a ``future 
allowable loop investment'' for each rate-of-return carrier, based on 
the replacement of depreciated plant, precluding support to replace 
plant that is still used and useful; (3) use a trigger to identify 
alleged inefficiencies, which would enable prospective adjustment to a 
carrier's future allowable loop investment; and (4) establish an annual 
budget for each rate-of-return carrier by dividing each carrier's 
future allowable investment by a period of years to establish budget of 
supported additional investment each year. One critical shortcoming in 
the proposal as presented, however, is that there is no concrete plan 
for how the Commission would implement the trigger that ``identifies 
alleged inefficiencies.'' Absent specificity on this key point, the 
Commission is skeptical as to how the proposal could be put in place in 
the near term. The Commission therefore seeks to develop the record on 
this proposal and invite specific, actionable proposals for defining 
the relevant triggers. How would it work within the context of the 
Commission's current rules? How does this proposal fit within the 
budget for rate-of-return territories?
3. Voluntary Transition of Rate-of-Return Carriers to Incentive 
Regulation
    140. The Commission proposes to adopt rules that would allow rate-
of-return ETCs to elect to participate in a voluntary, two-phase 
transition to model-based universal service support, including 
participation in the Connect America Fund Phase II. The Commission also 
seeks comment on whether rate-of-return carriers should be allowed to 
transition on a voluntary basis to an alternative rate regulation 
approach. As an initial matter, the Commission asks parties to address 
whether the voluntary path to model-based support and the alternative 
rate regulation approach are linked, or whether they should be 
considered independent of each other. The Commission proposes to adopt 
a transition framework for voluntary participation in Connect America 
Phase II for rate-of-return carriers and seek comment on alternative 
rate regulation approaches and specific implementation details below.
    141. The Commission previously has sought comment in this docket on 
potential reforms that would provide support to rate-of-return carriers 
under mechanisms other than the current legacy mechanisms. The Bureau 
sought further to develop the record on facilitating voluntary 
participation in Phase II of the Connect America Fund in the May 2013 
Public Notice, 78 FR 34016, June 6, 2013.
    142. ITTA has proposed the most comprehensive plan in the record 
for such a transition (ITTA Plan). The ITTA Plan calls for, among other 
things, a voluntary, two-phase transition to a model-based support 
framework for rate-of-return ETCs. ITTA argues that the plan is 
designed to provide a viable path for rate-of-return carriers to move 
to model-based support. Any rate-of-return carrier would be free to 
participate at any time during either of the two phases of the plan. A 
participating carrier would also have the discretion to opt-in to 
model-based support for all of its study areas, or for a subset of its 
study areas.

[[Page 39215]]

    143. During the first phase of the ITTA Plan, an electing carrier's 
ICLS and HCLS would be frozen at current levels (i.e., as of December 
31 of the year prior to that carrier's election). Existing service 
obligations for rate-of-return carriers, such as the requirement to 
offer broadband service meeting the Commission's current requirements, 
with actual speeds of at least 4 Mbps downstream and 1 Mbps upstream 
``upon reasonable request'' would remain in effect.
    144. The second phase of the ITTA Plan for universal service 
support would begin after a rate-of-return carrier-specific support 
model is defined and established. According to ITTA, rate-of-return 
carriers that accept support under this model would assume the same 
service and public interest obligations as price cap carriers receiving 
Connect America Phase II model-based support. Model-based support would 
be made available for ten years to participating rate-of-return 
carriers. For those rate-of-return carriers choosing to participate in 
the second phase after it becomes operational, model-based support 
would be made available to such carriers for the remainder of the ten-
year timeframe left for carriers who elected to participate at the 
beginning of the second phase.
    145. The ITTA Plan proposes that rate-of-return carriers that 
decline support for certain study areas would be relieved of ETC status 
and obligations in those study areas where support is declined. Those 
study areas would then be opened up to a competitive bidding process 
similar to that used in areas where price cap carriers decline Connect 
America Phase II support. To the extent that the Phase II funding made 
available for a study area in the second phase is lower than frozen 
support, ITTA proposes that support would be transitioned down to the 
level determined appropriate by the rate-of-return-specific model over 
a five-year period.
    146. The ITTA Plan proposes an alternative rate regulation approach 
for rate-of-return carrier intercarrier compensation (ICC), special 
access, and broadband internet access services. Carriers could elect 
participation in the proposed alternative rate regulation plan at any 
time by study area. Electing carriers would continue to implement ICC 
rate reductions pursuant to the timeline adopted in the USF/ICC 
Transformation Order for rate-of-return carriers and, if eligible, 
would continue to charge an Access Recovery Charge and receive CAF-ICC 
support. Electing carriers choosing to participate in the NECA pool for 
special access services would move to an alternative rate regulation 
approach for special access cost determination employing principles 
taken from the average schedule process and settle with the pool based 
on the interstate special access revenue requirement established by the 
retention ratio. Electing carriers with company-specific special access 
tariffs would use their most recent tariff filing data to initialize 
their rates and be allowed to ``adjust their tariffs on a going-forward 
basis to take into account evolving circumstances.'' The ITTA Plan does 
not describe the alternative rate regulation that would govern non-
pooled special access services beyond saying that it would be a ``price 
cap-like structure.'' ITTA also does not indicate how common line rates 
of electing carriers would be affected going forward and whether such 
services would be subject to rate-of-return or an alternative 
regulatory mechanism. Finally, electing carriers that offer the 
transmission component of their broadband Internet access service as a 
Title II of the Act regulated service would have the option to elect to 
have that transmission component deregulated upon electing to 
participate in the ITTA Plan.
    147. Discussion. The Commission proposes to adopt a transition 
framework for a voluntary election by rate-of-return carriers to 
receive model-based support. The Commission tentatively concludes that 
such a framework could achieve important universal service benefits, 
creating a framework that creates incentives for deployment of voice 
and broadband-capable infrastructure. The Commission seeks comment on 
how to implement such a framework in a way that furthers these 
important public policy objectives, while ensuring that it also meets 
our statutory directives under sections 201(b) and 202. The Commission 
also asks commenters to address specifically how other proposals in 
this FNPRM, if adopted, would affect the ITTA Plan and incentives for 
rate-of-return carriers to voluntarily move to model-based support.
    148. Time Frame for Implementation. The ITTA Plan does not appear 
on its face to contemplate a specific time frame in which rate-of-
return carriers would elect to participate in the voluntary plan. 
Should the Commission allow rate-of-return carriers to transition in 
any year for the remaining years of the model-based support, or should 
it only open a window for such transitions, i.e., allowing carriers to 
elect to transition in 2015 only? Under either approach, the Commission 
specifically proposes that an electing carrier's ICLS and HCLS would be 
frozen at the amount received for a given study area as of December 31 
of the year prior to the election. The Commission seeks comment on this 
proposal.
    149. Should the Commission adopt a specific deadline for rate-of-
return carriers to elect this voluntary path to receive model-based 
support? For instance, should carriers be required to elect this path 
within 120 days of the Bureau adopting revisions to the Connect America 
Cost Model for use in determining support for rate-of-return carriers 
electing to receive model-based support? Put another way, should the 
Commission prohibit carriers from voluntarily transitioning to model-
based support if they do not do so within a Commission-defined window? 
To the extent parties argue a longer time period to make the election 
is necessary, they should specify what time frame would be appropriate.
    150. Impact on HCLS Cap. Consistent with the approach taken when 
the Commission transitioned price cap carriers and their rate-of-return 
affiliates to Connect America Phase I, the Commission proposes to 
rebase the high-cost loop cap to deduct the HCLS that electing rate-of-
return carriers would have received in the year after their election, 
had they not made the voluntary election to transition to the Connect 
America Fund. Specifically the Commission proposes to direct NECA to 
submit a revised 2015 HCLS cap within 30 days of any deadline for the 
election by a rate-of-return carrier to pursue this voluntary path to 
model-based support, and to make similar adjustments in subsequent 
years to the extent it permits carriers to make elections to pursue 
this voluntary path to model-based support after 2015. The Commission 
seeks comment on this proposal.
    151. State-level Election. The ITTA Plan proposes to allow 
participating rate-of-return carriers to make an election on a study 
area-by-study area basis. The Commission proposes instead that 
participating carriers be required to make a state-level election to 
receive model-based support, comparable to what is required of price 
cap carriers. Such an approach would prevent rate-of-return carriers 
from cherry picking the most attractive areas in their study areas, 
potentially those areas where model-support is greater than legacy 
support, leaving the least desirable areas for a competitive process. 
The Commission seeks comment on this proposal. Would requiring a state-
level commitment have a material impact on the incentives of rate-of-
return carriers to participate in this voluntary plan? If

[[Page 39216]]

the Commission were to adopt an approach, as proposed above, that would 
provide greater flexibility to Phase II participants regarding how they 
may meet their deployment obligations in funded areas, would that 
create a greater incentive for rate-of-return carriers to voluntarily 
elect to receive model-based support?
    152. Transition to Model-Based Support. The ITTA Plan proposes that 
carriers for whom frozen support is more than model-based support would 
transition to the lower model-based amount over a five-year period. In 
the concurrently adopted Report and Order, the Commission adopted a 
four-year transition for price cap carriers for whom model-based 
support is lower in a given state. The Commission proposes a similar 
approach for rate-of-return carriers that voluntarily elect to receive 
model-based support. In particular, in the first year, the carrier 
would receive, in addition to its Phase II support, 75 percent of the 
difference between the annualized amount of Connect America Phase II 
support that it accepted and the amount of its frozen high-cost 
support; in the second year, it would receive 50 percent of the 
difference; in third year, it would receive 25 percent of the 
difference; and then in the fourth year, it would receive model-based 
support. The Commission seeks comment on this proposal. Would adopting 
a four-year transition, rather than a five-year transition as proposed 
by ITTA, have a material impact on the incentives of rate-of-return 
carriers to participate in this voluntary plan?
    153. Impact on Budget. In the USF/ICC Transformation Order, the 
Commission adopted a $1.8 billion budget for price cap territories, and 
a $2 billion budget for rate-of-return territories. How would 
implementation of a voluntary plan for rate-of-return carriers to elect 
to receive model-based support impact rate-of-return carriers that do 
not participate in the voluntary plan, given the overall high-cost fund 
budget and the budget for rate-of-return areas in particular? 
Specifically, to the extent there are incentives for rate-of-return 
carriers to opt voluntarily into this plan only if model-based support 
is the same or greater than their current support under legacy 
mechanisms, would the net effect be to squeeze the remaining budget for 
rate-of-return territories that are served by rate-of-return carriers 
that do not opt into the plan? Are there any adjustments to the ITTA 
Plan or the Commission's proposal that could reduce any such squeeze? 
How would implementation of this plan meet the overall statutory 
principle of providing predictable and sufficient support and other 
statutory criteria such as the framework of section 214(e)? How could 
the Commission maintain the overall budget within a voluntary 
framework, with no way to determine how many carriers may elect to 
participate? Would one option be to allocate some defined amount from 
the existing broadband reserve account to the extent the voluntary 
election of certain carriers in rate-of-return territories to receive 
model-based support results in the overall support level for rate-of-
return territories exceeding the budgeted amount of $2 billion? Do 
commenters recommend any other adjustments to the ITTA Plan to minimize 
concerns about the budget or how it is allocated among rate-of-return 
carriers?
    154. Adjustments to the Model. In the concurrently adopted 
Declaratory Ruling, the Commission directed the Bureau to incorporate 
the results of the study area boundary data collection in the Connect 
America Cost Model and to make such other adjustments as appropriate 
for use of that model in rate-of-return territories. Here, the 
Commission asks commenters to address what specific changes should be 
implemented in the model before using it to calculate the offer of 
model-based support for rate-of-return carriers that voluntarily elect 
to receive model-based support.
    155. The ITTA Plan also suggests that a competitive bidding process 
be designed for rate-of-return areas where support is declined under 
the second phase of the proposal. What timeframe would be realistic to 
assume for further model development, and how would that affect the 
overall timing of implementation of the ITTA proposal? What are the 
advantages and disadvantages of holding the competitive bidding process 
for areas not elected by the rate-of-return carriers at a date 
subsequent to the Phase II competitive bidding process that will occur 
after the offer of model-based support to price cap carriers?
    156. Cost determination for special access services under the ITTA 
Plan. Rate-of-return carriers determine their interstate revenue 
requirement by allocating the costs assigned to the interstate 
jurisdiction by the separations procedures contained in Part 36 of the 
Commission's rules among the various access categories, one of which is 
special access, in accordance with the investment and expense 
allocation rules contained in Part 69 of the Commission's rules. As 
noted above, under the ITTA Plan, a rate-of-return carrier filing its 
own special access tariff would use the preceding year's special access 
data to initialize its costs and/or rates for participating in an 
alternative rate regulation plan. Parties should explain the scope and 
nature of any adjustments that would be allowed to take into account 
``evolving circumstances.'' While a retention ratio would produce a 
dollar amount reflective of the year for which the calculation was 
made, the ITTA Plan does not explain how the retention ratio would be 
used going forward. Would it be a fixed percentage, or would it be 
adjusted each year to reflect special access growth, special access 
rate changes, or other factors? Parties should address how this 
approach could be implemented going forward, as well as identifying 
other approaches that could be considered in an alternative regulatory 
framework for rate-of-return carriers. Parties should address how the 
proposed ITTA Plan would produce projections of costs and/or rates that 
would remain reasonable over time, and propose specific measures to 
ensure that it meets the Commission's overall objectives.
    157. The ITTA Plan allows carriers to elect participation by study 
area and to choose when to enter an alternative rate regulation plan. 
With this flexibility, the sensitivity of the retention ratio, or other 
costing determinant, to year-to-year differences could create the 
ability for carriers to time their election to maximize their retention 
ratio, or their cost base, to their benefit. Above the Commission 
proposes to require electing carriers to make a state-level election to 
receive model-based support. Would that lessen the incentive of 
participants to time strategically their elections to maximize their 
retention ratios or their cost base? Parties should comment on the 
sensitivity of any alternative costing measure and on means by which 
any gaming opportunities can be minimized. Parties should also address 
the need for any special conditions to check the ability of affiliated 
carriers to shift costs between study areas electing an alternative 
regulation plan and those that do not.
    158. Pricing for special access services under the ITTA Plan. The 
costs determined pursuant to an alternative rate regulation plan must 
be translated into special access rates. A single retention ratio 
produces overall special access costs, but does not address the 
allocation of those costs among special access services. Parties should 
address what rules or principles should govern the development of 
special access rates, whether individually or within the NECA pool, to 
ensure that they are just and reasonable and not unjustly 
discriminatory pursuant to sections

[[Page 39217]]

201(b) and 202 of the Act, respectively. In particular, parties should 
address the degree of flexibility to adjust rates carriers electing an 
alternative rate regulation plan should be allowed. Are there specific 
mechanisms that could or should be built into the cost determination 
process that could facilitate the development of special access rates? 
Parties should consider whether the proposed rules or principles would 
produce different incentives depending on whether the carrier 
participates in the NECA traffic-sensitive pool or tariffs its own 
special access rates.
    159. NECA pooling issues. The ITTA Plan would allow electing 
carriers to participate in the NECA traffic-sensitive pool. In light of 
the questions asked concerning the costing and pricing of special 
access services, the Commission invites parties to address the 
feasibility of pooling both carriers electing an alternative regulation 
plan and those remaining under traditional rate-of-return regulation 
within a single pool. What changes, if any, would need to be made to 
the pooling procedures to ensure that both groups of carriers were 
treated equitably? Parties should address how earning variations within 
the pool should be handled, whether pool entry and exit rules would 
need to be modified, and if there would be any effect on the banding 
processes that NECA uses to establish special access rates. Any party 
proposing that a carrier electing an alternative rate regulation plan 
should have additional flexibility to adjust rates should explain how 
that would be handled in the pooling process.
    160. Broadband internet access service deregulation. Rate-of-return 
carriers today offer the transmission component of their broadband 
Internet access service as a Title II regulated service. The ITTA Plan 
proposes that rate-of-return carriers would have the option to elect to 
offer the transmission component of their broadband Internet access 
service on a deregulated Title I basis upon electing to participate in 
the ITTA Plan. What impact would this aspect of the proposal have on 
achievement of the Commission's goals?
    161. Switched access services. The ITTA Plan proposes to continue 
the switched access transition and associated recovery mechanism for 
rate-of-return carriers unchanged. The Commission asks parties to 
comment on whether there are changes that should be made to the 
switched access transition process or recovery mechanism if changes 
similar to those proposed for common line or special access in the ITTA 
Plan were to be adopted. For example, should the five percent annual 
reduction in Base Period Revenue be accelerated, or should the CAF-ICC 
recovery of rate-of-return carriers be subjected to a phase-out at some 
point similar to that applicable to price cap carriers? To the extent 
parties disagree, they should identify the public interest rationale 
and specify the timing and amount of any such changes that they believe 
should be implemented.
    162. Other ratemaking issues. The Commission requests ITTA and 
other parties to clarify how an alternative rate regulation plan would 
adjust, if at all, the rates for common line rate elements going 
forward. The Commission also invites parties to comment on whether, if 
cost savings are achieved as a result of any changes adopted, a portion 
of such savings should be used to reduce access rates. Parties 
believing that such savings should be used to reduce access rates 
should identify the portion of any savings that should be used to 
reduce rates, as well as how the savings should be allocated among the 
various access services. The Commission also invites parties to comment 
on the regulatory treatment if an electing rate-of-return carrier in 
the future becomes affiliated with a price cap carrier. The Commission 
notes that the price cap rules require acquired entities to convert to 
price cap regulation within one year.
    163. Finally, how would adoption of some variant of the ITTA Plan 
further the Commission's goals? In the USF/ICC Transformation Order the 
Commission adopted a framework to provide ongoing support to areas 
served by price cap and rate-of-return carriers in order to, among 
other things, ``ensure universal availability of modern networks 
capable of providing voice and broadband service . . . [and] minimize 
the universal service contribution burden on consumers and 
businesses.'' How could this proposal, or one similar to it, further 
these and other important Commission goals?
4. Support for Middle Mile for Rate-of-Return Carriers
    164. In this section, the Commission seeks comment on potential 
measures to provide support for middle mile for rate-of-return 
carriers, recognizing that the cost of backhaul is an important 
component of the ability of such providers to offer broadband services 
to their customers at rates that are reasonably comparable to similar 
offerings in urban areas. The Commission proposes to focus initially on 
supporting middle mile infrastructure on Tribal lands. The Commission 
also invites longer term proposals for supporting middle mile 
connectivity in territories served by rate-of-return carriers.
    165. Discussion. The Commission proposes measures to address the 
challenges of extending middle mile projects on Tribal lands, including 
remote areas in Alaska. The Commission seeks comment on the ARC 
proposal and seek data on the availability of middle mile 
infrastructure more generally on Tribal lands, as well as the benefits 
and the costs of providing support for these types of infrastructure 
projects. The Commission encourages commenters to provide factual 
information to support any projections placed in the record.
    166. As an initial step, the Commission proposes to award $10 
million in one-time support for new middle mile construction in 2015 on 
Tribal lands. Depending on lessons learned, this approach then could be 
expanded further in subsequent years to address middle mile challenges 
facing rate-of-return carriers more generally.
    167. The Commission proposes to award the $10 million support for 
middle mile projects on Tribal lands pursuant to our existing rules for 
competitive bidding processes codified in Subpart AA of Part 1. Under 
such a competitive bidding process, the Commission would solicit 
proposals for middle mile projects designed to expand voice and 
broadband coverage to the greatest number of unserved locations on 
Tribal lands. The Commission proposes to award funds through a single 
round bidding process to those applicants proposing to bring new 
terrestrial broadband service to the greatest number of locations for a 
specified amount of funding. The Commission seeks comment on this 
proposal and alternatives.
    168. The Commission encourages multi-stakeholder partnerships in 
the creation of competitive proposals. The Commission is particularly 
interested in proposals that would encourage contributions from state 
and Tribal governments or entities. Should the Commission award a 
bidding credit to the extent there is an explicit commitment of 
matching funds from state or Tribal government or related entities? The 
Commission could, for instance, provide a 50 percent bidding credit to 
the extent state or Tribal entities provided matching funds dollar for 
dollar. Should the same bidding credit be available to applicants that 
can leverage other sources of funding for the project, such as funding 
from other federal agencies?
    169. The Commission seeks comment on whether support for the 
expansion of current middle mile construction

[[Page 39218]]

projects would be appropriate. The Commission proposes not to fund any 
terrestrial middle mile in areas that already have terrestrial middle 
mile, whether fiber or microwave-based. To prevent waste, fraud, and 
abuse, how does the Commission ensure that the funding proposed in this 
FNPRM is not used to overbuild existing middle mile facilities? What 
lessons can be learned from the BTOP to inform our decision regarding 
the award of funding for middle mile infrastructure?
    170. The Commission seeks comment on ARC's suggestion that the 
Commission should adopt some mechanism to ensure that recipients of 
middle mile funding should be required, as a condition of that funding, 
to provide access to that middle mile connectivity at a reasonable 
rate. For example, while allowing recipients of funding to enter into 
individually negotiated arrangements with other providers, should they 
be required to charge rates for middle mile connectivity that are no 
higher than rates for comparable connectivity in urban areas of the 
state? Should they be precluded from charging rates that are higher 
than the discounted rates available to recipients of funding under the 
E-rate or rural health care programs?
    171. To avoid waste, fraud, and abuse, the Commission seeks further 
comment on what reporting requirements it should require to ensure that 
middle mile infrastructure projects are financially viable and can be 
timely completed. The Commission proposes that any applicant certify to 
its financial and technical capability to build out such 
infrastructure. The Commission proposes the winning bidders be subject 
to a default payment in an amount equal to 20 percent of the defaulted 
bid, pursuant to section 1.21004 of our current competitive bidding 
rules. The Commission also seeks comment on oversight measures that 
will ensure that USAC has sufficient information to oversee project 
deployment and completion.

K. Accountability and Oversight

    172. In the USF/ICC Transformation Order, the Commission adopted 
several reforms to harmonize and update annual ETC requirements by 
establishing a ``uniform national framework for accountability'' that 
replaced the various data and certification filing deadlines that 
carriers were required to meet previously. The Commission concluded 
that such an accountability framework is ``critical to ensure 
appropriate use of high-cost support and to allow the Commission to 
determine whether it is achieving its goals efficiently and 
effectively.'' Among other things, the new framework incorporates 
annual unified reporting and certification procedures.
    173. Here, the Commission seeks comment on issues related to this 
framework that are applicable to all Connect America Fund recipients 
that are required to offer broadband service as a condition of 
receiving high-cost support. These recipients include price cap 
carriers accepting the state-level commitment in exchange for model-
based support, recipients of the Phase II competitive bidding process, 
and rate-of-return carriers that receive high-cost loop support, 
interstate common line support, or CAF-ICC support. The Commission 
first seeks comment on codifying a broadband reasonable comparability 
certification requirement for all ETCs receiving Connect America 
support. The Commission also seeks comment on modifying the reduction 
in support for late-filed section 54.313 and 54.314 reports and 
certifications. Finally, the Commission seeks comment on the 
consequences it should impose if ETCs do not meet the Commission's 
service obligations for voice or broadband service.
1. Reasonably Comparable Rates Certification for Broadband
    174. Discussion. The Commission proposes to codify a broadband 
reasonable comparability certification requirement that will apply 
generally to all ETCs that are required to offer broadband service as a 
condition of receiving ongoing high-cost Connect America Fund support 
in areas served by price cap and rate-of-return carriers. The 
Commission proposes to amend section 54.313(a) to include a new section 
12 requiring recipients to submit in their annual section 54.313 report 
(FCC Form 481):

    A letter certifying that the pricing of the company's broadband 
services is no more than the applicable benchmark as specified in a 
public notice issued by the Wireline Competition Bureau, or is no 
more than the non-promotional prices charged for comparable fixed 
wireline services in urban areas.

    175. Recognizing that ETCs receiving Connect America Fund support 
are free to offer a variety of broadband service offerings, for 
purposes of this certification the Commission proposes that they would 
only need to certify that one plan meets the reasonable comparability 
benchmark specified annually by the Wireline Competition Bureau in a 
Public Notice in order to make the requisite certification.
    176. The Commission seeks comment on when it should begin to 
require Connect America recipients to submit their broadband reasonable 
comparability certification. Carriers that accept the state-level 
commitment are required to certify that they are providing broadband 
service that meets the required public service obligations to 85 
percent of their supported locations by the end of the third year of 
support. However, throughout the five-year term as they increasingly 
deploy broadband to supported locations and connect customers, the 
Commission expects that they will offer broadband service that at least 
meets the Commission's requirements. Similarly, the Commission expects 
that while the Commission will impose build-out requirements for Phase 
II competitive bidding recipients, recipients will offer broadband 
service that at least meets the Commission's requirements throughout 
their support term. Thus, the Commission proposes requiring price cap 
carriers that accept the state-level commitment and recipients of the 
Phase II competitive bidding process to submit their first 
certification with the first annual report they are required to submit 
after accepting support, and then each year with their annual report 
thereafter. Under the proposed timeline for the offer of model-based 
support to price cap carriers, this would mean that price cap carriers 
accepting model-based support would be required to make their first 
such certification in the annual report filed on July 1, 2016. The 
Commission also proposes that rate-of-return carriers, which are 
currently required to provide broadband that meets the Commission's 
public service obligations upon reasonable request, should submit such 
a certification. Because rate-of-return carriers are already required 
to be providing broadband service upon reasonable request as a 
condition of their support, the Commission proposes that they begin to 
submit such a certification with the first annual report after the 
requirement has received Paperwork Reduction Act (PRA) approval from 
the Office of Management and Budget, and then each year with their 
annual report thereafter.
    177. The Commission seeks comment on this proposal and whether any 
adjustments need to be made to either certification requirement to 
account for differences between price cap carriers and rate-of-return 
carriers and other potential recipients of funding awarded through the 
Phase II competitive bidding process.

[[Page 39219]]

2. Reduction in Support for Late Filing
    178. Discussion. In general, deadlines set in Commission rules are 
strictly enforced, and the new framework adopted in the USF/ICC 
Transformation Order was intended to ensure that the consequences of 
non-compliance are appropriate rather than unduly harsh. On further 
consideration, however, the Commission has concerns that the rules 
adopted may not be appropriately calibrated to meet our objectives. The 
Commission continues to recognize the importance of ensuring compliance 
with the reporting deadlines adopted in the USF/ICC Transformation 
Order. USAC, which processes a large amount of data, requires that the 
data be timely filed so that it can calculate support amounts. But the 
Commission must also balance these concerns with ensuring that the 
support reduction it imposes on carriers is a proportionate response to 
their failure to meet deadlines and not unduly punitive given the 
nature of the non-compliance. The Commission therefore proposes to 
modify the reduction in support for late-filed section 54.313 and 
54.314 reports and certifications to better calibrate the reduction of 
support with the length in delay of the filing.
    179. Under the current rules, a carrier that misses a section 
54.313 and 54.314 filing deadline by only a few days loses an entire 
quarter of support. The Commission proposes to adopt a rule that would 
impose a minimum support reduction for any late filing, which would be 
applied even in those instances when the filing is only a few days 
late. In particular, the Commission proposes that deadlines for filing 
reports shall be strictly enforced, with a minimum reduction of support 
in an amount equivalent to seven days of support, and to the extent the 
deadline is missed by more than seven days, support would be reduced on 
a pro-rata daily basis equivalent to the period of non-compliance. If 
the Commission were to adopt these proposed rule changes, a carrier 
that files a report or certification within 14 days of the deadline 
would lose 14 days of support, a carrier that files a report or 
certification two months after a deadline would lose two months of 
support, and so on. The Commission thus proposes to modify section 
54.313(j) to read as follows:

    (1) In order for a recipient of high-cost support to continue to 
receive support for the following calendar year, or retain its 
eligible telecommunications carrier designation, it must submit the 
annual reporting information required by this section annually by 
July 1 of each year. Eligible telecommunications carriers that file 
their reports after the July 1 deadline shall receive a reduction in 
support pursuant to the following schedule: (a) Eligible 
telecommunications carriers that file after the July 1 deadline, but 
by July 8, will have their support reduced in an amount equivalent 
to seven days in support; (b) Eligible telecommunications carriers 
that file on or after July 9 will have their support reduced on a 
pro-rata daily basis equivalent to the period of non-compliance.

    180. The Commission also proposes to modify the rule regarding 
certifications for use of support, section 54.314(d), to read as 
follows:

    (1) In order for an eligible telecommunications carrier to 
receive federal high-cost support, the State or the eligible 
telecommunications carrier, if not subject to the jurisdiction of a 
State, must file an annual certification, as described in paragraph 
(c) of this section, with both the Administrator and the Commission 
by October 1 of each year. If states or eligible telecommunications 
carriers file the annual certification after the October 1 deadline, 
the carriers subject to the certification shall receive a reduction 
in support pursuant to the following schedule: (a) Eligible 
telecommunications carriers subject to certifications filed after 
the October 1 deadline, but by October 8 will have their support 
reduced in an amount equivalent to seven days in support; (b) 
Eligible telecommunications carriers subject to certifications filed 
on or after October 9 will have their support reduced on a pro-rata 
daily basis equivalent to the period of non-compliance.

    181. Recognizing that some ETCs quickly rectify their failure to 
meet a filing deadline, thereby minimizing the negative impact on the 
administration of the Connect America Fund, should the Commission also 
provide a one-time grace period for ETCs that miss the filing deadline 
by only a few days? The Commission proposes that any ETC that misses 
the deadline but files within three days after the deadline would not 
receive a reduction in support. But if the ETC filed on the fourth day 
after the deadline, it would be subject to the seven day minimum 
support reduction, and then after seven days, its support would be 
reduced on a pro-rata daily basis equivalent to the period of non-
compliance, as described in the prior paragraph. If the Commission were 
to adopt this proposed one-time grace period, an ETC that files a 
report or certification within two days of the deadline would not lose 
support, an ETC that files a report or certification within five days 
of the deadline would lose seven days of support, and an ETC that files 
a report or certification within 14 days of the deadline would lose 14 
days of support, and so on. The Commission proposes only providing this 
grace period once for a given holding company, regardless of the number 
of affiliated operating companies that may individually be designated 
as an ETC. If an ETC misses the deadline a subsequent year, the seven 
day minimum support reduction would apply even if it files within three 
days of the deadline. The Commission also proposes to apply the grace 
period at the holding company level, so that a grace period would not 
be available to another operating company of that holding company that 
holds the ETC designation to serve a different study area.
    Finally, the Commission proposes that if an ETC (or another ETC 
with the same holding company) misses the deadline for a second time, 
it will be responsible for the reduction in support that would have 
occurred the first year that the deadline was missed if there had been 
no grace period. For example, if an ETC missed the deadline by two days 
the first year, it would not lose support due to the grace period. But, 
if another ETC within the same holding company (or the same ETC) misses 
the deadline again a subsequent year by eight days, it would be subject 
to a loss of support for eight days, pluss the seven day minimum 
reduction of support that would have applied to its affiliate ETC the 
prior year if there had been no grace period, for a reduction in 
support that totals 15 days.
    182. The proposed rule would amend the rule for annual reporting by 
recipients of high-cost support, section 54.313(j) to add a new 
subsection (2):

    (2) Grace period. An eligible telecommunications carrier that 
submits the annual reporting information required by this section 
after July 1 but before July 5 will not receive a reduction in 
support if the eligible telecommunications carrier and all other 
eligible telecommunications carriers owned by the same holding 
company as the eligible telecommunications carrier have not missed 
the July 1 deadline in any prior year. The next time that either the 
eligible telecommunications carrier that had previously benefitted 
from the grace period or an eligible telecommunications carrier 
owned by the same holding company misses the July 1 deadline, that 
eligible telecommunications carrier will be subject to a reduction 
of seven days in support in addition to the reduction of support it 
will receive pursuant to (j)(1) of this section.

    183. The proposed rule also would amend the rule for certification 
regarding use of support, section 54.314(d), to add a new subsection 
(2):

    (2) Grace period. If an eligible telecommunications carrier or 
state submits the annual certification required by this section 
after October 1 but before October 5, the eligible 
telecommunications carrier subject to the certification will not 
receive a reduction in support if the eligible

[[Page 39220]]

telecommunications carrier and all other eligible telecommunications 
carriers owned by the same holding company as the subject eligible 
telecommunications carrier have not missed the October 1 deadline in 
any prior year. The next time that either the eligible 
telecommunications carrier that had previously benefitted from the 
grace period or an eligible telecommunications carrier owned by the 
same holding company misses the October 1 deadline, that eligible 
telecommunications carrier will be subject to a reduction of seven 
days in support in addition to the reduction of support it will 
receive pursuant to (d)(1) of this section.

    184. The Commission also proposes to cease the practice of 
providing waivers to parties that commit to implement improved internal 
controls to ensure compliance in the future as it has done previously. 
As a practical matter, parties invariably seek waivers of the filing 
requirements when they miss the deadline and addressing such waiver 
requests diverts staff from other Commission priorities. While waivers 
may have been justified in the past when the consequence for failure to 
meet a deadline was the loss of entire year of support, going forward 
the Commission does not believe it serves the public interest to 
absolve an ETC of any consequence when it fails to meet a Commission-
mandated requirement merely due to administrative or clerical 
oversight. All ETCs should have policies and procedures in place to 
ensure compliance with Commission reporting requirements, and promising 
to do better in the future should not become a routine basis for grant 
of a waiver of a filing deadline. The Commission thus seeks comment on 
whether it should revisit our prior findings that good cause for waiver 
is present when parties commit to implement improved internal controls 
to ensure compliance in the future. More generally, the Commission 
seeks comment on these proposals to modify our rules and practices 
regarding filing deadlines and alternatives identified by commenters.
    185. The Commission also seeks comment on whether it should apply 
our proposals described above to reduce support for late-filed section 
54.313 and 54.314 reports and certifications to recipients of Mobility 
Fund Phase II support, and if so, whether any of the specific proposals 
it makes today for Mobility Fund Phase II warrant a modification of our 
approach to reductions of support.
3. Support Reductions for Non-Compliance With Service Obligations
    186. Discussion. Providers should face predictable consequences for 
performance noncompliance. Under existing Commission rules, eligible 
telecommunications carriers lose a quarter of support in the following 
calendar year for each quarter they are late in filing their annual 
reports, while the Commission proposes above to adjust the support 
reduction for late filing to be proportionate to the degree a filing is 
late. Similarly, here the Commission proposes that recipients of high-
cost support should face a proportional loss of support, depending on 
the degree of non-compliance with established standards.
    187. One alternative would be to give providers an opportunity to 
improve performance prior to withholding support in certain 
circumstances. For example, if there were an audit finding or other 
determination that a provider failed to meet performance measurements 
for a certain number of months consecutively (such as two months) or a 
certain number of months during a one-year period (such as three 
months), the provider could be required to submit a plan to USAC 
describing how it will come into compliance within a certain period 
(such as six months). If a provider does not meet its performance 
standards during the requisite period, it would then lose a certain 
percentage of funding (such as five percent) for each month until 
performance improves. Monitoring would continue throughout this process 
until the provider had demonstrated compliance with the performance 
measures for four consecutive months or five months out of a six month 
period. If performance did not improve within one year, an additional 
five percent of funding would be lost for each month until the provider 
consistently meets performance requirements or is no longer receiving 
high-cost funding. The Commission seeks comment on this proposal and 
alternative options for the mechanics of how it could operate.
    188. Another alternative would be to adopt quickly-increasing 
support reductions to heighten provider incentives to meet performance 
standards. For example, if there were an audit finding or other 
determination that a provider failed to meet performance measurements 
for a certain number of months consecutively (such as two months) or a 
certain number of months during a one-year period (such as three 
months), the provider could lose five percent of its funding for each 
of the next six months. If performance levels were not being met after 
six months, the provider would lose 25 percent of its funding for each 
of the next six months.
    189. The Commission also seeks to develop more fully the record on 
consequences for failing to meet the Commission's reasonable 
comparability benchmarks. Under longstanding precedent, the Commission 
presumes that a voice rate is within a reasonable range if it falls 
within two standard deviations of the national average. In the USF/ICC 
Transformation Order, the Commission concluded it would ``consider 
rural rates for broadband services to be `reasonably comparable' to 
urban rates under section 254(b)(3) if rural rates fall within a 
reasonable range of urban rates for reasonably comparable broadband 
service.'' What should be the appropriate remedy if a recipient of 
high-cost support is unable to certify that either its voice or 
broadband services meet the Commission's reasonable comparability 
benchmarks, or if there is an audit finding or other determination that 
the provider in fact failed to offer at least one plan meeting the 
reasonable comparability benchmark? Given that the Commission has 
concluded that the reasonable comparability benchmark for voice is a 
presumption, not an absolute mandate, what should be the process for an 
ETC to rebut that presumption? If the ETC is unable to rebut the 
presumption, should it face a reduction of support, such as five 
percent of monthly funding, until the situation is remedied? Should the 
Commission take other action if ETCs fail to offer service at 
reasonably comparable rates? Would other support reductions for 
noncompliance be more effective?
    190. The Commission also seeks comment on whether it should apply 
any of our proposals described above for reducing support for non-
compliance with service obligations to recipients of Mobility Fund 
Phase II support, and whether any of the specific proposals it makes 
today for Mobility Fund Phase II would warrant a modification of our 
approach to such reductions of support.

III. Procedural Matters

A. Paperwork Reduction Act Analysis

    191. The FNPRM contains proposed new information collection 
requirements. The Commission, as part of its continuing effort to 
reduce paperwork burdens, invites the general public and OMB to comment 
on the proposed information collection requirements contained in this 
document, as required by the PRA. In addition, pursuant to the Small 
Business Paperwork Relief Act, the Commission seeks specific comment on 
how it might further reduce the information collection burden for small 
business concerns with fewer than 25 employees.

[[Page 39221]]

B. Congressional Review Act

    192. The Commission will send a copy of this Further Notice of 
Proposed Rulemaking to Congress and the Government Accountability 
Office pursuant to the Congressional Review Act.

C. Initial Regulatory Flexibility Act Analysis

    193. As required by the Regulatory Flexibility Act of 1980, as 
amended (RFA), the Commission has prepared this present 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 Further Notice of Proposed 
Rulemaking (FNPRM). 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 FNPRM provided on the first page 
of this document. The Commission will send a copy of the FNPRM, 
including this IRFA, to the Chief Counsel for Advocacy of the Small 
Business Administration (SBA). In addition, the FNPRM and IRFA (or 
summaries thereof) will be published in the Federal Register.
1. Need for, and Objectives of, the Proposed Rules
    194. In the FNPRM, the Commission proposes measures to update and 
implement further the framework adopted by the Commission in 2011. The 
Commission strives to adapt our universal service reforms to ensure 
those living in high-cost areas have access to services that are 
reasonably comparable to services offered in urban areas. Consistent 
with that goal, in the FNPRM the Commission proposes to revise our 
current broadband performance obligations to require minimum speeds of 
10 Mbps downstream to ensure that the services delivered using Connect 
America funds are reasonably comparable to the services enjoyed by 
consumers in urban areas of the country and seek comment on whether to 
increase the upstream speed requirement to something higher than 1 
Mbps. The FNPRM also proposes to apply uniformly the same performance 
obligations to all recipients of Phase II support and to rate-of-return 
carriers. In addition, the Commission seeks to further develop the 
record on the ability of Phase II recipients to satisfy their 
obligations using any technology or a combination thereof--whether 
wireline or wireless, fixed or mobile, terrestrial or satellite--that 
meets the performance standards for Phase II. The FNPRM also proposes 
to provide financial incentives for recipients of Phase II support to 
accelerate their network deployment.
    195. The Commission proposes to apply the same usage allowances and 
latency benchmarks that the Bureau implemented for price cap carriers 
that will accept the offer of model-based support in the state-level 
commitment process to ETCs that will receive support through a 
competitive bidding process.
    196. To target our finite universal service funds most effectively, 
the FNPRM proposes to exclude from eligibility for Phase II support 
those areas that are served by any provider that offers voice and 
broadband services meeting the Commission's service obligations--
whether those providers are subsidized or unsubsidized.
    197. The FNPRM seeks comment on several proposals regarding ETC 
designation. It proposes to require entities that are winning bidders 
for the offer of Phase II support in the competitive bidding process to 
apply for ETC designation within 30 days of public announcement of 
winning bidders. It also proposes to adopt a rebuttable presumption 
that a state commission lacks jurisdiction over an entity seeking ETC 
designation if it fails to initiate a proceeding within 60 days.
    198. The FNPRM seeks comment on the amount of frozen support to 
provide to incumbents that decline the offer of model-based support 
where no other provider wishes to serve, and on the obligations 
associated with such support. It proposes to eliminate or modify the 
requirement that a price cap carrier certify that all of its frozen 
support is used to build and operate a broadband-capable network used 
to offer the provider's own retail broadband service in areas 
substantially unserved by an unsubsidized competitor. The FNPRM also 
proposes to define the public interest obligations that would apply to 
recipients of frozen support in the non-contiguous areas of the United 
States. The Commission also proposes several minor changes and 
clarifications regarding the implementation of the transition to model-
based support to ease the administration of Connect America Phase II.
    199. The FNPRM seeks comment on specific proposals for the design 
of the Phase II competitive bidding process that will occur in areas 
where price cap carriers decline model-based support.
    200. The FNPRM also addresses significant developments that have 
occurred since the adoption of the USF/ICC Transformation Order in the 
marketplace for mobile wireless services. Given commercial deployment 
of 4G Long Term Evolution (LTE), the Commission proposes to retarget 
the focus of Mobility Fund Phase II to extend 4G LTE to those areas of 
the country where it is not and, to the best of our knowledge, will not 
be available in the foreseeable future and would preserve existing 
mobile voice and broadband service where it would not otherwise exist 
without government support. The FNPRM also proposes to maintain 
existing support levels (i.e., 60 percent of baseline support) for 
wireless competitive ETCs for whom competitive ETC support exceeds one 
percent of their wireless revenues until a date certain after the 
auction for Mobility Fund Phase II support, and to eliminate support 
for wireless competitive ETCs for whom high-cost support is one percent 
or less of their wireless revenues. The FNPRM seeks comment on whether 
to take a different approach for wireline competitive ETCs and asks 
whether their phase-down in support should be determined by the timing 
of the Phase II competitive bidding process. The FNPRM also proposes to 
freeze support for carriers serving remote areas in Alaska, many of 
which are small entities, as of December 31, 2014, and to begin their 
phase-down in support on a date certain after the Mobility Fund Phase 
II auction or Tribal Mobility Fund Phase II auction.
    201. In the FNPRM, the Commission also focuses on developing and 
implementing a ``Connect America Fund'' for rate-of-return carriers. As 
a short term measure, the Commission proposes to apply the effect of 
the annual rebasing of the cap on support known as high-cost loops 
support (HCLS) equally on all recipients of HCLS. As another near term 
reform, the Commission also proposes to prohibit recovery of new 
investment occurring on or after January 1, 2015, through either HCLS 
or interstate common line support (ICLS) in areas that are served by a 
qualifying competitor that offers voice and broadband service meeting 
the Commission's standards. The Commission proposes that such rate-of-
return carriers, many of which are small entities, document their 
compliance with this requirement in the course of an audit or other 
inquiry, and to create a safe harbor that an area is presumed unserved 
if the rate-of-return carrier announces an intention to make new 
investment and no other provider notifies the rate-of-return carrier 
that it serves the area.
    202. As a longer term measure, the Commission is seeking comment on 
limiting recovery of new investment

[[Page 39222]]

through HCLS or ICLS as of a date certain, in conjunction with 
implementation of a Connect America Fund for rate-of-return carriers. 
The Commission proposes to adopt a stand-alone broadband support 
mechanism that meets defined parameters and seek to develop further the 
record on various industry proposals. Building on a proposal recently 
submitted by ITTA, the Commission proposes to provide rate-of-return 
carriers the option of participating in a two-step transition to Phase 
II model-based support and seek comment on alternative rate regulation 
measures and specific implementation issues. The Commission also seeks 
comment in the FNPRM on providing one-time funding for middle mile 
projects on Tribal lands in 2015.
    203. Finally, the FNPRM proposes to codify a broadband 
certification requirement for recipients of funding that are subject to 
broadband performance obligations, seeks comment on specific levels of 
support reduction for non-compliance with service obligations, and 
proposes to modify our rules regarding reductions in support when 
parties miss filing deadlines in order to better calibrate the support 
reduction to coincide with the period of noncompliance.
2. Legal Basis
    204. The legal basis for any action that may be taken pursuant to 
the FNPRM is contained in sections 1, 2, 4(i), 5, 201-206, 214, 218-
220, 251, 252, 254, 256, 303(r), 332, 403, and 405 of the 
Communications Act of 1934, as amended, and section 706 of the 
Telecommunications Act of 1996, 47 U.S.C. Sec. Sec.  151, 152, 154(i), 
155, 201-206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 403, 405, 
1302, and sections 1.1, 1.2, 1.3, 1.115, 1.421, 1.427, and 1.429 of the 
Commission's rules, 47 CFR 1.1, 1.2, 1.3, 1.115, 1.421, 1.427, and 
1.429.
3. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply
    205. 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.
    206. Small Businesses. Nationwide, there are a total of 
approximately 27.5 million small businesses, according to the SBA.
    207. Wired Telecommunications Carriers. The SBA has developed a 
small business size standard for Wired Telecommunications Carriers, 
which consists of all such companies having 1,500 or fewer employees. 
According to Census Bureau data for 2007, there were 3,188 firms in 
this category, total, that operated for the entire year. Of this total, 
3144 firms had employment of 999 or fewer employees, and 44 firms had 
employment of 1000 employees or more. Thus, under this size standard, 
the majority of firms can be considered small.
    208. Local Exchange Carriers (LECs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to local exchange services. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to Commission data, 1,307 carriers reported 
that they were incumbent local exchange service providers. Of these 
1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 
301 have more than 1,500 employees. Consequently, the Commission 
estimates that most providers of local exchange service are small 
entities that may be affected by the rules and policies proposed in the 
FNPRM.
    209. Incumbent Local Exchange Carriers (incumbent LECs). Neither 
the Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to incumbent local exchange 
services. The closest applicable size standard under SBA rules is for 
Wired Telecommunications Carriers. Under that size standard, such a 
business is small if it has 1,500 or fewer employees. According to 
Commission data, 1,307 carriers reported that they were incumbent local 
exchange service providers. Of these 1,307 carriers, an estimated 1,006 
have 1,500 or fewer employees and 301 have more than 1,500 employees. 
Consequently, the Commission estimates that most providers of incumbent 
local exchange service are small businesses that may be affected by 
rules adopted pursuant to the FNPRM.
    210. The Commission has included small incumbent LECs in this 
present RFA analysis. As noted above, a ``small business'' under the 
RFA is one that, inter alia, meets the pertinent small business size 
standard (e.g., a telephone communications business having 1,500 or 
fewer employees), and ``is not dominant in its field of operation.'' 
The SBA's Office of Advocacy contends that, for RFA purposes, small 
incumbent LECs are not dominant in their field of operation because any 
such dominance is not ``national'' in scope. The Commission has 
therefore included small incumbent LECs in this RFA analysis, although 
it emphasizes that this RFA action has no effect on Commission analyses 
and determinations in other, non-RFA contexts.
    211. Competitive Local Exchange Carriers (competitive LECs), 
Competitive Access Providers (CAPs), Shared-Tenant Service Providers, 
and Other Local Service Providers. Neither the Commission nor the SBA 
has developed a small business size standard specifically for these 
service providers. The appropriate size standard under SBA rules is for 
the category Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 1,442 carriers reported that they were 
engaged in the provision of either competitive local exchange services 
or competitive access provider services. Of these 1,442 carriers, an 
estimated 1,256 have 1,500 or fewer employees and 186 have more than 
1,500 employees. In addition, 17 carriers have reported that they are 
Shared-Tenant Service Providers, and all 17 are estimated to have 1,500 
or fewer employees. In addition, 72 carriers have reported that they 
are Other Local Service Providers. Of the 72, seventy have 1,500 or 
fewer employees and two have more than 1,500 employees. Consequently, 
the Commission estimates that most providers of competitive local 
exchange service, competitive access providers, Shared-Tenant Service 
Providers, and Other Local Service Providers are small entities that 
may be affected by rules adopted pursuant to the FNPRM.
    212. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to interexchange services. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to Commission data, 359 companies reported 
that their primary telecommunications service activity was the 
provision of interexchange services. Of these 359 companies, an 
estimated 317 have 1,500 or fewer employees and

[[Page 39223]]

42 have more than 1,500 employees. Consequently, the Commission 
estimates that the majority of interexchange service providers are 
small entities that may be affected by rules adopted pursuant to the 
FNPRM.
    213. Prepaid Calling Card Providers. Neither the Commission nor the 
SBA has developed a small business size standard specifically for 
prepaid calling card providers. The appropriate size standard under SBA 
rules is for the category Telecommunications Resellers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 193 carriers have reported that they are 
engaged in the provision of prepaid calling cards. Of these, an 
estimated all 193 have 1,500 or fewer employees and none have more than 
1,500 employees. Consequently, the Commission estimates that the 
majority of prepaid calling card providers are small entities that may 
be affected by rules adopted pursuant to the FNPRM.
    214. Local Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 213 carriers have reported 
that they are engaged in the provision of local resale services. Of 
these, an estimated 211 have 1,500 or fewer employees and two have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of local resellers are small entities that may be affected by 
rules adopted pursuant to the FNPRM.
    215. Toll Resellers. The SBA has developed a small business size 
standard for the category of Telecommunications Resellers. Under that 
size standard, such a business is small if it has 1,500 or fewer 
employees. According to Commission data, 881 carriers have reported 
that they are engaged in the provision of toll resale services. Of 
these, an estimated 857 have 1,500 or fewer employees and 24 have more 
than 1,500 employees. Consequently, the Commission estimates that the 
majority of toll resellers are small entities that may be affected by 
rules adopted pursuant to the FNPRM.
    216. Other Toll Carriers. Neither the Commission nor the SBA has 
developed a size standard for small businesses specifically applicable 
to Other Toll Carriers. This category includes toll carriers that do 
not fall within the categories of interexchange carriers, operator 
service providers, prepaid calling card providers, satellite service 
carriers, or toll resellers. The closest applicable size standard under 
SBA rules is for Wired Telecommunications Carriers. Under that size 
standard, such a business is small if it has 1,500 or fewer employees. 
According to Commission data, 284 companies reported that their primary 
telecommunications service activity was the provision of other toll 
carriage. Of these, an estimated 279 have 1,500 or fewer employees and 
five have more than 1,500 employees. Consequently, the Commission 
estimates that most Other Toll Carriers are small entities that may be 
affected by the rules and policies adopted pursuant to the FNPRM.
    217. 800 and 800-Like Service Subscribers. Neither the Commission 
nor the SBA has developed a small business size standard specifically 
for 800 and 800-like service (toll free) subscribers. The appropriate 
size standard under SBA rules is for the category Telecommunications 
Resellers. Under that size standard, such a business is small if it has 
1,500 or fewer employees. The most reliable source of information 
regarding the number of these service subscribers appears to be data 
the Commission collects on the 800, 888, 877, and 866 numbers in use. 
According to our data, as of September 2009, the number of 800 numbers 
assigned was 7,860,000; the number of 888 numbers assigned was 
5,588,687; the number of 877 numbers assigned was 4,721,866; and the 
number of 866 numbers assigned was 7,867,736. The Commission does not 
have data specifying the number of these subscribers that are not 
independently owned and operated or have more than 1,500 employees, and 
thus 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, the Commission estimates 
that there are 7,860,000 or fewer small entity 800 subscribers; 
5,588,687 or fewer small entity 888 subscribers; 4,721,866 or fewer 
small entity 877 subscribers; and 7,867,736 or fewer small entity 866 
subscribers.
    218. Wireless Telecommunications Carriers (except Satellite). Since 
2007, the SBA has recognized wireless firms within this new, broad, 
economic census category. Prior to that time, such firms were within 
the now-superseded categories of Paging and Cellular and Other Wireless 
Telecommunications. Under the present and prior categories, the SBA has 
deemed a wireless business to be small if it has 1,500 or fewer 
employees. For this category, census data for 2007 show that there were 
1,383 firms that operated for the entire year. Of this total, 1,368 
firms had employment of 999 or fewer employees and 15 had employment of 
1,000 employees or more. Similarly, according to Commission data, 413 
carriers reported that they were engaged in the provision of wireless 
telephony, including cellular service, Personal Communications Service 
(PCS), and Specialized Mobile Radio (SMR) Telephony services. Of these, 
an estimated 261 have 1,500 or fewer employees and 152 have more than 
1,500 employees. Consequently, the Commission estimates that 
approximately half or more of these firms can be considered small. 
Thus, using available data, the Commission estimates that the majority 
of wireless firms can be considered small.
    219. 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

[[Page 39224]]

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.
    220. Advanced Wireless Services. In 2008, the Commission conducted 
the auction of Advanced Wireless Services (AWS) licenses. This auction, 
which as designated as Auction 78, offered 35 licenses in the AWS 1710-
1755 MHz and 2110-2155 MHz bands (AWS-1). The AWS-1 licenses were 
licenses for which there were no winning bids in Auction 66. That same 
year, the Commission completed Auction 78. A bidder with attributed 
average annual gross revenues that exceeded $15 million and did not 
exceed $40 million for the preceding three years (``small business'') 
received a 15 percent discount on its winning bid. A bidder with 
attributed average annual gross revenues that did not exceed $15 
million for the preceding three years (``very small business'') 
received a 25 percent discount on its winning bid. A bidder that had 
combined total assets of less than $500 million and combined gross 
revenues of less than $125 million in each of the last two years 
qualified for entrepreneur status. Four winning bidders that identified 
themselves as very small businesses won 17 licenses. Three of the 
winning bidders that identified themselves as a small business won five 
licenses. Additionally, one other winning bidder that qualified for 
entrepreneur status won 2 licenses.
    221. 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 35843, 
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.
    222. Paging (Private and Common Carrier). In the Paging Third 
Report and Order, 64 FR 33762, June 24, 1999, the Commission developed 
a small business size standard for ``small businesses'' and ``very 
small businesses'' for purposes of determining their eligibility for 
special provisions such as bidding credits and installment payments. A 
``small business'' is an entity that, together with its affiliates and 
controlling principals, has average gross revenues not exceeding $15 
million for the preceding three years. Additionally, a ``very small 
business'' is an entity that, together with its affiliates and 
controlling principals, has average gross revenues that are not more 
than $3 million for the preceding three years. The SBA has approved 
these small business size standards. According to Commission data, 291 
carriers have reported that they are engaged in Paging or Messaging 
Service. Of these, an estimated 289 have 1,500 or fewer employees, and 
two have more than 1,500 employees. Consequently, the Commission 
estimates that the majority of paging providers are small entities that 
may be affected by our action. An auction of Metropolitan Economic Area 
licenses commenced on February 24, 2000, and closed on March 2, 2000. 
Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven companies 
claiming small business status won 440 licenses. A subsequent auction 
of MEA and Economic Area (``EA'') licenses was held in the year 2001. 
Of the 15,514 licenses auctioned, 5,323 were sold. One hundred thirty-
two companies claiming small business status purchased 3,724 licenses. 
A third auction, consisting of 8,874 licenses in each of 175 EAs and 
1,328 licenses in all but three of the 51 MEAs, was held in 2003. 
Seventy-seven bidders claiming small or very small business status won 
2,093 licenses. A fourth auction of 9,603 lower and upper band paging 
licenses was held in the year 2010. Twenty-nine bidders claiming small 
or very small business status won 3,016 licenses.
    223. 220 MHz Radio Service--Phase I Licensees. The 220 MHz service 
has both Phase I and Phase II licenses. Phase I licensing was conducted 
by lotteries in 1992 and 1993. There are approximately 1,515 such non-
nationwide licensees and four nationwide licensees currently authorized 
to operate in the 220 MHz band. The Commission has not developed a 
small business size standard for small entities specifically applicable 
to such incumbent 220 MHz Phase I licensees. To estimate the number of 
such licensees that are small businesses, the Commission applies the 
small business size standard under the SBA rules applicable to Wireless 
Telecommunications Carriers (except Satellite). Under this category, 
the SBA deems a wireless business to be small if it has 1,500 or fewer 
employees. The Commission estimates that nearly all such licensees are 
small businesses under the SBA's small business size standard that may 
be affected by rules adopted pursuant to the FNPRM.
    224. 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, 62 
FR 15978, April 3, 1997, the Commission adopted a small business size 
standard for ``small'' and ``very small'' businesses for purposes of 
determining their eligibility for special provisions such as bidding 
credits and installment payments. This small business size standard 
indicates that a ``small business'' is an entity that, together with 
its affiliates and controlling principals, has average gross revenues 
not exceeding $15 million for the preceding three years. A ``very small 
business'' is an entity that, together with its affiliates and 
controlling principals, has average gross revenues that do not exceed 
$3 million for the preceding three years. The SBA has approved these 
small business size standards. Auctions of Phase II licenses commenced 
on September 15, 1998, and closed on October 22, 1998. In the first 
auction, 908 licenses were auctioned in three different-sized 
geographic areas: three nationwide licenses, 30 Regional Economic Area 
Group (EAG) Licenses, and 875 Economic Area (EA) Licenses. Of the 908 
licenses auctioned, 693 were sold. Thirty-nine small businesses won 
licenses in the first 220 MHz auction. The second auction included 225 
licenses: 216 EA licenses and 9 EAG licenses. Fourteen companies 
claiming small business status won 158 licenses.
    225. 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

[[Page 39225]]

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.
    226. 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.
    227. In addition, there are numerous incumbent site-by-site SMR 
licensees and licensees with extended implementation authorizations in 
the 800 and 900 MHz bands. The Commission does not know how many firms 
provide 800 MHz or 900 MHz geographic area SMR pursuant to extended 
implementation authorizations, nor how many of these providers have 
annual revenues of no more than $15 million. One firm has over $15 
million in revenues. In addition, the Commission does not know how many 
of these firms have 1500 or fewer employees. The Commission assumes, 
for purposes of this analysis, that all of the remaining existing 
extended implementation authorizations are held by small entities, as 
that small business size standard is approved by the SBA.
    228. Broadband Radio Service and Educational Broadband Service. 
Broadband Radio Service systems, previously referred to as Multipoint 
Distribution Service (``MDS'') and Multichannel Multipoint Distribution 
Service (``MMDS'') systems, and ``wireless cable,'' transmit video 
programming to subscribers and provide two-way high speed data 
operations using the microwave frequencies of the Broadband Radio 
Service (``BRS'') and Educational Broadband Service (``EBS'') 
(previously referred to as the Instructional Television Fixed Service 
(``ITFS'')). In connection with the 1996 BRS auction, the Commission 
established a small business size standard as an entity that had annual 
average gross revenues of no more than $40 million in the previous 
three calendar years. The BRS auctions resulted in 67 successful 
bidders obtaining licensing opportunities for 493 Basic Trading Areas 
(``BTAs''). Of the 67 auction winners, 61 met the definition of a small 
business. BRS also includes licensees of stations authorized prior to 
the auction. At this time, the Commission estimates that of the 61 
small business BRS auction winners, 48 remain small business licensees. 
In addition to the 48 small businesses that hold BTA authorizations, 
there are approximately 392 incumbent BRS licensees that are considered 
small entities. After adding the number of small business auction 
licensees to the number of incumbent licensees not already counted, the 
Commission finds that there are currently approximately 440 BRS 
licensees that are defined as small businesses under either the SBA or 
the Commission's rules. The Commission has adopted three levels of 
bidding credits for BRS: (i) A bidder with attributed average annual 
gross revenues that exceed $15 million and do not exceed $40 million 
for the preceding three years (small business) is eligible to receive a 
15 percent discount on its winning bid; (ii) a bidder with attributed 
average annual gross revenues that exceed $3 million and do not exceed 
$15 million for the preceding three years (very small business) is 
eligible to receive a 25 percent discount on its winning bid; and (iii) 
a bidder with attributed average annual gross revenues that do not 
exceed $3 million for the preceding three years (entrepreneur) is 
eligible to receive a 35 percent discount on its winning bid. In 2009, 
the Commission conducted Auction 86, which offered 78 BRS licenses. 
Auction 86 concluded with ten bidders winning 61 licenses. Of the ten, 
two bidders claimed small business status and won 4 licenses; one 
bidder claimed very small business status and won three licenses; and 
two bidders claimed entrepreneur status and won six licenses.
    229. In addition, the SBA's Cable Television Distribution Services 
small business size standard is applicable to EBS. There are presently 
2,032 EBS licensees. All but 100 of these licenses are held by 
educational institutions. Educational institutions are included in this 
analysis as small entities. Thus, the Commission estimates that at 
least 1,932 licensees are small businesses. Since 2007, Cable 
Television Distribution Services have been defined within the broad 
economic census category of Wired Telecommunications Carriers; that 
category is defined as follows: ``This industry comprises 
establishments primarily engaged in operating and/or providing access 
to transmission facilities and infrastructure that they own and/or 
lease for the transmission of voice, data, text, sound, and video using 
wired telecommunications networks. Transmission facilities may be based 
on a single technology or a combination of technologies.'' The SBA 
defines a small business size standard for this category as any such 
firms having 1,500 or fewer employees. The SBA has developed a small 
business size standard for this category, which is: all such firms 
having 1,500 or fewer employees. According to Census Bureau data for 
2007, there were a total of 955 firms in this previous category that 
operated for the entire year. Of this total, 939 firms had employment 
of 999 or fewer employees, and 16 firms had employment of 1000 
employees or more. Thus, under this size standard, the majority of 
firms can be considered small and may be affected by rules adopted 
pursuant to the FNPRM.
    230. 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

[[Page 39226]]

defined as an entity that, together with its affiliates and controlling 
principals, has average gross revenues that are not more than $3 
million for the preceding three years. The SBA approved these small 
size standards. The Commission conducted an auction in 2002 of 740 
Lower 700 MHz Band licenses (one license in each of the 734 MSAs/RSAs 
and one license in each of the six Economic Area Groupings (EAGs)). Of 
the 740 licenses available for auction, 484 licenses were sold to 102 
winning bidders. Seventy-two of the winning bidders claimed small 
business, very small business or entrepreneur status and won a total of 
329 licenses. The Commission conducted a second Lower 700 MHz Band 
auction in 2003 that included 256 licenses: 5 EAG licenses and 476 
Cellular Market Area licenses. Seventeen winning bidders claimed small 
or very small business status and won 60 licenses, and nine winning 
bidders claimed entrepreneur status and won 154 licenses. In 2005, the 
Commission completed an auction of 5 licenses in the Lower 700 MHz 
Band, designated Auction 60. There were three winning bidders for five 
licenses. All three winning bidders claimed small business status.
    231. In 2007, the Commission reexamined its rules governing the 700 
MHz band in the 700 MHz Second Report and Order, 72 FR 48814, August 
24, 2007. The 700 MHz Second Report and Order revised the band plan for 
the commercial (including Guard Band) and public safety spectrum, 
adopted services rules, including stringent build-out requirements, an 
open platform requirement on the C Block, and a requirement on the D 
Block licensee to construct and operate a nationwide, interoperable 
wireless broadband network for public safety users. An auction of A, B 
and E block licenses in the Lower 700 MHz band was held in 2008. Twenty 
winning bidders claimed small business status (those with attributable 
average annual gross revenues that exceed $15 million and do not exceed 
$40 million for the preceding three years). Thirty three winning 
bidders claimed very small business status (those with attributable 
average annual gross revenues that do not exceed $15 million for the 
preceding three years). In 2011, the Commission conducted Auction 92, 
which offered 16 Lower 700 MHz band licenses that had been made 
available in Auction 73 but either remained unsold or were licenses on 
which a winning bidder defaulted. Two of the seven winning bidders in 
Auction 92 claimed very small business status, winning a total of four 
licenses.
    232. 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).
    233. 700 MHz Guard Band Licensees. In the 700 MHz Guard Band Order, 
65 FR 17594, April 4, 2000, the Commission adopted a small business 
size standard for ``small businesses'' and ``very small businesses'' 
for purposes of determining their eligibility for special provisions 
such as bidding credits and installment payments. A ``small business'' 
is an entity that, together with its affiliates and controlling 
principals, has average gross revenues not exceeding $40 million for 
the preceding three years. Additionally, a ``very small business'' is 
an entity that, together with its affiliates and controlling 
principals, has average gross revenues that are not more than $15 
million for the preceding three years. An auction of 52 Major Economic 
Area (MEA) licenses commenced on September 6, 2000, and closed on 
September 21, 2000. Of the 104 licenses auctioned, 96 licenses were 
sold to nine bidders. Five of these bidders were small businesses that 
won a total of 26 licenses. A second auction of 700 MHz Guard Band 
licenses commenced on February 13, 2001 and closed on February 21, 
2001. All eight of the licenses auctioned were sold to three bidders. 
One of these bidders was a small business that won a total of two 
licenses.
    234. Cellular Radiotelephone Service. Auction 77 was held to 
resolve one group of mutually exclusive applications for Cellular 
Radiotelephone Service licenses for unserved areas in New Mexico. 
Bidding credits for designated entities were not available in Auction 
77. In 2008, the Commission completed the closed auction of one 
unserved service area in the Cellular Radiotelephone Service, 
designated as Auction 77. Auction 77 concluded with one provisionally 
winning bid for the unserved area totaling $25,002.
    235. Private Land Mobile Radio (``PLMR''). PLMR systems serve an 
essential role in a range of industrial, business, land transportation, 
and public safety activities. These radios are used by companies of all 
sizes operating in all U.S. business categories, and are often used in 
support of the licensee's primary (non-telecommunications) business 
operations. For the purpose of determining whether a licensee of a PLMR 
system is a small business as defined by the SBA, the Commission uses 
the broad census category, Wireless Telecommunications Carriers (except 
Satellite). This definition provides that a small entity is any such 
entity employing no more than 1,500 persons. The Commission does not 
require PLMR licensees to disclose information about number of 
employees, so the Commission does not have information that could be 
used to determine how many PLMR licensees constitute small entities 
under this definition. The Commission notes that PLMR licensees 
generally use the licensed facilities in support of other business 
activities, and therefore, it would also be helpful to assess PLMR 
licensees under the standards applied to the particular industry 
subsector to which the licensee belongs.
    236. As of March 2010, there were 424,162 PLMR licensees operating 
921,909 transmitters in the PLMR bands below 512 MHz. The Commission 
notes that any entity engaged in a commercial activity is eligible to 
hold a PLMR license, and that any revised rules in this context could 
therefore potentially impact small entities covering a great variety of 
industries.
    237. Rural Radiotelephone Service. The Commission has not adopted a 
size standard for small businesses specific to the Rural Radiotelephone 
Service. A significant subset of the Rural Radiotelephone Service is 
the Basic Exchange Telephone Radio System (BETRS). In the present 
context, the Commission will use the SBA's small business size standard 
applicable to Wireless Telecommunications Carriers (except Satellite), 
i.e., an entity employing no more than 1,500 persons. There are 
approximately 1,000 licensees in the Rural Radiotelephone Service, and 
the Commission estimates that there are 1,000 or fewer small entity 
licensees in the Rural Radiotelephone Service that may be affected by 
the rules and policies proposed herein.
    238. Air-Ground Radiotelephone Service. The Commission has not 
adopted a small business size standard specific to the Air-Ground 
Radiotelephone Service. The Commission will use SBA's small business 
size standard applicable to Wireless Telecommunications Carriers 
(except Satellite), i.e., an entity employing no more than 1,500 
persons. There are approximately 100 licensees in the Air-Ground 
Radiotelephone Service, and the Commission estimates that almost all of 
them qualify as small under the SBA small business size

[[Page 39227]]

standard and may be affected by rules adopted pursuant to the FNPRM.
    239. Aviation and Marine Radio Services. Small businesses in the 
aviation and marine radio services use a very high frequency (VHF) 
marine or aircraft radio and, as appropriate, an emergency position-
indicating radio beacon (and/or radar) or an emergency locator 
transmitter. The Commission has not developed a small business size 
standard specifically applicable to these small businesses. For 
purposes of this analysis, the Commission uses the SBA small business 
size standard for the category Wireless Telecommunications Carriers 
(except Satellite), which is 1,500 or fewer employees. Most applicants 
for recreational licenses are individuals. Approximately 581,000 ship 
station licensees and 131,000 aircraft station licensees operate 
domestically and are not subject to the radio carriage requirements of 
any statute or treaty. For purposes of our evaluations in this 
analysis, the Commission estimates that there are up to approximately 
712,000 licensees that are small businesses (or individuals) under the 
SBA standard. In addition, between December 3, 1998 and December 14, 
1998, the Commission held an auction of 42 VHF Public Coast licenses in 
the 157.1875-157.4500 MHz (ship transmit) and 161.775-162.0125 MHz 
(coast transmit) bands. For purposes of the auction, the Commission 
defined a ``small'' business as an entity that, together with 
controlling interests and affiliates, has average gross revenues for 
the preceding three years not to exceed $15 million dollars. In 
addition, a ``very small'' business is one that, together with 
controlling interests and affiliates, has average gross revenues for 
the preceding three years not to exceed $3 million dollars. There are 
approximately 10,672 licensees in the Marine Coast Service, and the 
Commission estimates that almost all of them qualify as ``small'' 
businesses under the above special small business size standards and 
may be affected by rules adopted pursuant to the FNPRM.
    240. Fixed Microwave Services. Fixed microwave services include 
common carrier, private operational-fixed, and broadcast auxiliary 
radio services. At present, there are approximately 22,015 common 
carrier fixed licensees and 61,670 private operational-fixed licensees 
and broadcast auxiliary radio licensees in the microwave services. The 
Commission has not created a size standard for a small business 
specifically with respect to fixed microwave services. For purposes of 
this analysis, the Commission uses the SBA small business size standard 
for Wireless Telecommunications Carriers (except Satellite), which is 
1,500 or fewer employees. The Commission does not have data specifying 
the number of these licensees that have more than 1,500 employees, and 
thus is unable at this time to estimate with greater precision the 
number of fixed microwave service licensees that would qualify as small 
business concerns under the SBA's small business size standard. 
Consequently, the Commission estimates that there are up to 22,015 
common carrier fixed licensees and up to 61,670 private operational-
fixed licensees and broadcast auxiliary radio licensees in the 
microwave services that may be small and may be affected by the rules 
and policies adopted herein. The Commission notes, however, that the 
common carrier microwave fixed licensee category includes some large 
entities.
    241. Offshore Radiotelephone Service. This service operates on 
several UHF television broadcast channels that are not used for 
television broadcasting in the coastal areas of states bordering the 
Gulf of Mexico. There are approximately 55 licensees in this service. 
The Commission is unable to estimate at this time the number of 
licensees that would qualify as small under the SBA's small business 
size standard for Cellular and Other Wireless Telecommunications 
services. Under that SBA small business size standard, a business is 
small if it has 1,500 or fewer employees.
    242. 39 GHz Service. The Commission created a special small 
business size standard for 39 GHz licenses--an entity that has average 
gross revenues of $40 million or less in the three previous calendar 
years. An additional size standard for ``very small business'' is: An 
entity that, together with affiliates, has average gross revenues of 
not more than $15 million for the preceding three calendar years. The 
SBA has approved these small business size standards. The auction of 
the 2,173 39 GHz licenses began on April 12, 2000 and closed on May 8, 
2000. The 18 bidders who claimed small business status won 849 
licenses. Consequently, the Commission estimates that 18 or fewer 39 
GHz licensees are small entities that may be affected by rules adopted 
pursuant to the FNPRM.
    243. 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.
    244. 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, 64 FR 
59656, November 3, 1999, the Commission established a small business 
size standard for a ``small business'' as an entity that, together with 
its affiliates and persons or entities that hold interests in such an 
entity and their affiliates, has average annual gross revenues not to 
exceed $15 million for the preceding three years. A ``very small 
business'' is defined as an entity that, together with its affiliates 
and persons or entities that hold interests in such an entity and its 
affiliates, has average annual gross revenues not to exceed $3 million 
for the preceding three years. These size standards will be used in 
future auctions of 218-219 MHz spectrum.
    245. 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

[[Page 39228]]

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.
    246. 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.
    247. 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 1,270 licenses have been 
granted and more than 7,433 sites have been registered. The Commission 
has not developed a definition of small entities applicable to 3650-
3700 MHz band nationwide, non-exclusive licensees. However, the 
Commission estimates that the majority of these licensees are Internet 
Access Service Providers (ISPs) and that most of those licensees are 
small businesses.
    248. 24 GHz--Incumbent Licensees. This analysis may affect 
incumbent licensees who were relocated to the 24 GHz band from the 18 
GHz band, and applicants who wish to provide services in the 24 GHz 
band. The applicable SBA small business size standard is that of 
``Cellular and Other Wireless Telecommunications'' companies. This 
category provides that such a company is small if it employs no more 
than 1,500 persons. The Commission believes that there are only two 
licensees in the 24 GHz band that were relocated from the 18 GHz band, 
Teligent and TRW, Inc. It is our understanding that Teligent and its 
related companies have less than 1,500 employees, though this may 
change in the future. TRW is not a small entity. Thus, only one 
incumbent licensee in the 24 GHz band is a small business entity.
    249. 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.
    250. Satellite Telecommunications. Since 2007, the SBA has 
recognized satellite firms within this revised category, with a small 
business size standard of $15 million. The most current Census Bureau 
data are from the economic census of 2007, and the Commission will use 
those figures to gauge the prevalence of small businesses in this 
category. Those size standards are for the two census categories of 
``Satellite Telecommunications'' and ``Other Telecommunications.'' 
Under the ``Satellite Telecommunications'' category, a business is 
considered small if it had $15 million or less in average annual 
receipts. Under the ``Other Telecommunications'' category, a business 
is considered small if it had $25 million or less in average annual 
receipts.
    251. The first category of Satellite Telecommunications ``comprises 
establishments primarily engaged in providing point-to-point 
telecommunications services to other establishments in the 
telecommunications and broadcasting industries by forwarding and 
receiving communications signals via a system of satellites or 
reselling satellite telecommunications.'' For this category, Census 
Bureau data for 2007 show that there were a total of 512 firms that 
operated for the entire year. Of this total, 464 firms had annual 
receipts of under $10 million, and 18 firms had receipts of $10 million 
to $24,999,999. Consequently, the Commission estimates that the 
majority of Satellite Telecommunications firms are small entities that 
might be affected by rules adopted pursuant to the FNPRM.
    252. The second category of Other Telecommunications ``primarily 
engaged in providing specialized telecommunications services, such as 
satellite tracking, communications telemetry, and radar station 
operation. This industry also includes establishments primarily engaged 
in providing satellite terminal stations and associated facilities 
connected with one or more terrestrial systems and capable of 
transmitting telecommunications to, and receiving telecommunications 
from, satellite systems. Establishments providing Internet services or 
voice over Internet protocol (VoIP) services via client-supplied 
telecommunications connections are also included in this industry.'' 
For this category, Census Bureau data for 2007 show that there were a 
total of 2,383 firms that operated for the entire year. Of this total, 
2,346 firms had annual receipts of under $25 million. Consequently, the 
Commission estimates that the majority of Other Telecommunications 
firms are small entities that might be affected by our action.
    253. Cable and Other Program Distribution. Since 2007, these 
services have been defined within the broad economic census category of 
Wired Telecommunications Carriers; that category is defined as follows: 
``This industry comprises establishments primarily engaged in operating 
and/or providing access to transmission facilities and infrastructure 
that they own and/or lease for the transmission of voice, data, text, 
sound, and video using wired telecommunications networks. Transmission 
facilities may be based on a single technology or a combination of 
technologies.'' The SBA has developed a small business size standard 
for this category, which is: All such firms having 1,500 or fewer 
employees. According to Census Bureau data for 2007, there were a total 
of 955 firms in this previous category that operated for the entire 
year. Of this total, 939 firms had employment of 999 or fewer 
employees, and 16 firms had employment of 1000 employees or more. Thus, 
under this size standard, the majority of firms can be considered small 
and may be affected by rules adopted pursuant to the FNPRM.
    254. Cable Companies and Systems. The Commission has developed its 
own small business size standards, for the purpose of cable rate 
regulation. Under the Commission's rules, a ``small cable company'' is 
one serving 400,000 or fewer subscribers, nationwide. Industry data 
indicate that, of 1,076 cable operators nationwide, all but eleven are 
small under this size standard. In addition, under the Commission's 
rules, a ``small system'' is a cable system serving 15,000 or fewer 
subscribers. Industry data indicate that, of 7,208 systems nationwide, 
6,139 systems have under 10,000 subscribers, and an additional 379 
systems have 10,000-19,999 subscribers. Thus, under this second size 
standard, most cable systems are small and may be affected

[[Page 39229]]

by rules adopted pursuant to the FNPRM.
    255. Cable System Operators. The Act also contains a size standard 
for small cable system operators, which is ``a cable operator that, 
directly or through an affiliate, serves in the aggregate fewer than 1 
percent of all subscribers in the United States and is not affiliated 
with any entity or entities whose gross annual revenues in the 
aggregate exceed $250,000,000.'' The Commission has determined that an 
operator serving fewer than 677,000 subscribers shall be deemed a small 
operator, if its annual revenues, when combined with the total annual 
revenues of all its affiliates, do not exceed $250 million in the 
aggregate. Industry data indicate that, of 1,076 cable operators 
nationwide, all but ten are small under this size standard. The 
Commission notes that it neither requests nor collects information on 
whether cable system operators are affiliated with entities whose gross 
annual revenues exceed $250 million, and therefore it is unable to 
estimate more accurately the number of cable system operators that 
would qualify as small under this size standard.
    256. Open Video Services. The open video system (``OVS'') framework 
was established in 1996, and is one of four statutorily recognized 
options for the provision of video programming services by local 
exchange carriers. The OVS framework provides opportunities for the 
distribution of video programming other than through cable systems. 
Because OVS operators provide subscription services, OVS falls within 
the SBA small business size standard covering cable services, which is 
``Wired Telecommunications Carriers.'' The SBA has developed a small 
business size standard for this category, which is: All such firms 
having 1,500 or fewer employees. According to Census Bureau data for 
2007, there were a total of 955 firms in this previous category that 
operated for the entire year. Of this total, 939 firms had employment 
of 999 or fewer employees, and 16 firms had employment of 1000 
employees or more. Thus, under this second size standard, most cable 
systems are small and may be affected by rules adopted pursuant to the 
Notice. In addition, the Commission notes that it has certified some 
OVS operators, with some now providing service. Broadband service 
providers (``BSPs'') are currently the only significant holders of OVS 
certifications or local OVS franchises. The Commission does not have 
financial or employment information regarding the entities authorized 
to provide OVS, some of which may not yet be operational. Thus, again, 
at least some of the OVS operators may qualify as small entities.
    257. Internet Service Providers. Since 2007, these services have 
been defined within the broad economic census category of Wired 
Telecommunications Carriers; that category is defined as follows: 
``This industry comprises establishments primarily engaged in operating 
and/or providing access to transmission facilities and infrastructure 
that they own and/or lease for the transmission of voice, data, text, 
sound, and video using wired telecommunications networks. Transmission 
facilities may be based on a single technology or a combination of 
technologies.'' The SBA has developed a small business size standard 
for this category, which is: All such firms having 1,500 or fewer 
employees. According to Census Bureau data for 2007, there were 3,188 
firms in this category, total, that operated for the entire year. Of 
this total, 3144 firms had employment of 999 or fewer employees, and 44 
firms had employment of 1000 employees or more. Thus, under this size 
standard, the majority of firms can be considered small. In addition, 
according to Census Bureau data for 2007, there were a total of 396 
firms in the category Internet Service Providers (broadband) that 
operated for the entire year. Of this total, 394 firms had employment 
of 999 or fewer employees, and two firms had employment of 1000 
employees or more. Consequently, the Commission estimates that the 
majority of these firms are small entities that may be affected by 
rules adopted pursuant to the FNPRM.
    258. Internet Publishing and Broadcasting and Web Search Portals. 
Our action may pertain to interconnected VoIP services, which could be 
provided by entities that provide other services such as email, online 
gaming, web browsing, video conferencing, instant messaging, and other, 
similar IP-enabled services. The Commission has not adopted a size 
standard for entities that create or provide these types of services or 
applications. However, the Census Bureau has identified firms that 
``primarily engaged in (1) publishing and/or broadcasting content on 
the Internet exclusively or (2) operating Web sites that use a search 
engine to generate and maintain extensive databases of Internet 
addresses and content in an easily searchable format (and known as Web 
search portals).'' The SBA has developed a small business size standard 
for this category, which is: All such firms having 500 or fewer 
employees. According to Census Bureau data for 2007, there were 2,705 
firms in this category that operated for the entire year. Of this 
total, 2,682 firms had employment of 499 or fewer employees, and 23 
firms had employment of 500 employees or more. Consequently, the 
Commission estimates that the majority of these firms are small 
entities that may be affected by rules adopted pursuant to the FNPRM.
    259. Data Processing, Hosting, and Related Services. Entities in 
this category ``primarily . . . provid[e] infrastructure for hosting or 
data processing services.'' The SBA has developed a small business size 
standard for this category; that size standard is $25 million or less 
in average annual receipts. According to Census Bureau data for 2007, 
there were 8,060 firms in this category that operated for the entire 
year. Of these, 7,744 had annual receipts of under $24,999,999. 
Consequently, the Commission estimates that the majority of these firms 
are small entities that may be affected by rules adopted pursuant to 
the FNPRM.
    260. All Other Information Services. The Census Bureau defines this 
industry as including ``establishments primarily engaged in providing 
other information services (except news syndicates, libraries, 
archives, Internet publishing and broadcasting, and Web search 
portals).'' Our action pertains to interconnected VoIP services, which 
could be provided by entities that provide other services such as 
email, online gaming, web browsing, video conferencing, instant 
messaging, and other, similar IP-enabled services. The SBA has 
developed a small business size standard for this category; that size 
standard is $7.0 million or less in average annual receipts. According 
to Census Bureau data for 2007, there were 367 firms in this category 
that operated for the entire year. Of these, 334 had annual receipts of 
under $5.0 million, and an additional 11 firms had receipts of between 
$5 million and $9,999,999. Consequently, the Commission estimates that 
the majority of these firms are small entities that may be affected by 
our action.
4. Description of Projected Reporting, Recordkeeping, and Other 
Compliance Requirements for Small Entities
    261. In this FNPRM, the Commission seeks public comment on 
additional steps for its comprehensive universal service reform. The 
transition to the reforms could affect all carriers including small 
entities, and may include new administrative processes. In proposing 
these reforms, the Commission seeks comment on various

[[Page 39230]]

reporting and other compliance requirements that may apply to all 
carriers, including small entities. The Commission seeks comment on any 
costs and burdens on small entities associated with the proposed rules, 
including data quantifying the extent of those costs or burdens.
    262. For example, in the FNPRM, the Commission seeks further 
comment on the design of the Phase II competitive bidding process in 
which small entities may participate. It is likely that the rules the 
Commission ultimately adopts for the competitive bidding process will 
impose obligations on small entities deciding to participate.
    263. In defining the areas eligible for Phase II support, the 
Commission seeks comment on excluding from eligibility areas served by 
any provider that offers voice and broadband meeting the Commission's 
requirements--regardless of whether the provider is subsidized or 
unsubsidized. The Commission seeks comment on requiring competitors 
(including small entities) that wish to contest the eligibility of an 
area to certify to the Commission that they are able and willing to 
continue providing voice and broadband service meeting the Commission's 
requirements for a period of time, such as five years.
    264. The Commission seeks comment on methods of providing funding 
recipients with increased flexibility in making their deployments. 
First, the Commission seeks comment on permitting Phase II recipients 
to specify that they are willing to deploy to less than 100 percent of 
locations in exchange for some lesser amount of funding. In such a 
process, the recipients may be required to state the percent or number 
of locations that they are willing to serve. Second, the Commission 
seeks comment on requiring Connect America funding recipients to make a 
statement announcing their intent to deploy to unserved locations in 
partially served census blocks. Such recipients may potentially also be 
required to send a copy of that statement to any provider currently 
shown on the National Broadband Map as serving that census block.
    265. Moreover, the Commission seeks comment on near term measures 
for reforms to rate-of-return carriers' support mechanism. As a part of 
this short-term reform, the Commission proposes adopting a rule that no 
new investment may be recovered through HCLS or ICLS as of a date 
certain when such investment occurs in areas that are already served by 
a competing provider of voice and broadband services meeting our 
requirements. In the FNPRM, the Commission proposes to require rate-of-
return carriers, many of which are small entities, to be prepared to 
document with asset records and associated receipts that new investment 
for which recovery is sought through federal support mechanisms is 
occurring only in census blocks that are not served by other providers. 
It also proposes that rate-of-return carriers be required to announce 
an intention to make new investment and wait 90 days before such 
investment may properly be eligible for cost recovery through the 
universal service support mechanisms. The FNPRM also proposes a 
transition framework for rate-of-return carriers to elect to receive 
support based on a forward looking cost model.
    266. The Commission anticipates that rate-of-return carriers are 
likely to be subject to other accountability measures depending on 
which reforms the Commission ultimately adopts. The Commission also 
seeks comment on setting aside $10 million of support for the 
construction of middle mile networks on Tribal lands. If such a program 
is implemented and small entities choose to participate, they would be 
subject to the trial's rules, including any accountability obligations 
the Commission chooses to adopt after considering comments submitted in 
response to the FNPRM.
    267. The Commission also seeks comment on requiring entities 
participating in the Phase II competitive bidding process to submit an 
application to become an ETC within 30 days of notification that they 
are the winning bidders for those areas where they have not already 
been designated as ETCs. This proposal is intended to facilitate the 
ability of non-incumbent carriers, many of which are small entities, to 
participate in the Connect America Fund and the Remote Areas Fund. The 
Commission also proposes to adopt a rebuttable presumption that if a 
state commission fails to initiate an ETC designation proceeding within 
60 days, the entity may file for ETC designation with the Commission 
and point to the lack of state action within the prescribed time period 
as evidence that the petitioner is not subject to the jurisdiction of a 
state commission. The Commission also proposes to require winning 
bidders to submit proof to the Commission that they have filed the 
requisite ETC designation application within the required timeframe to 
the extent filed with a state commission.
    268. The Commission also seeks comment on several proposals related 
to the ``uniform national framework for accountability'' that was 
established in the USF/ICC Transformation Order. The Commission 
proposes to codify a certification requirement for ETCs that are 
required to provide broadband service as a condition of receiving 
ongoing high-cost support in areas served by price cap and rate-of-
return carriers. ETCs would be required to certify that the pricing of 
one of their broadband service plans is no more than the applicable 
benchmark specified by the Wireline Competition Bureau, or is no more 
than the non-promotional prices charged for comparable fixed wireline 
service in urban areas. The Bureau also proposes a revised framework 
for reductions in support that ETCs will receive for failing to file 
their section 54.313 and 54.314 filings on time and seeks comment on 
what penalties it should impose for ETCs that do not meet the 
Commission's public service obligations.
    269. The Commission seeks comment on proposals for specific service 
obligations for carriers serving non-contiguous areas electing to 
continue to receive frozen support amounts. The Commission seeks 
comment on how it can monitor for compliance with these obligations.
    270. The Commission also proposes rules for Mobility Fund II, in 
which small entities might choose to participate. The proposed rules 
would impose a number of obligations including the requirement that 
participating entities secure a letter of credit, the requirements for 
the contents of the applications to participate and for winning 
bidders, and various certifications and reporting requirements.
5. Steps Taken To Minimize the Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    271. The RFA requires an agency to describe any significant, 
specifically small business, alternatives that it has considered in 
reaching its proposed approach, which may include the following four 
alternatives (among others): ``(1) The establishment of differing 
compliance or reporting requirements or timetables that take into 
account the resources available to small entities; (2) the 
clarification, consolidation, or simplification of compliance and 
reporting requirements under the rules for such small entities; (3) the 
use of performance rather than design standards; and (4) an exemption 
from coverage of the rule, or any part thereof, for such small 
entities.''
    272. The FNPRM seeks comment from all interested parties. The 
Commission is aware that some of the proposals under consideration may 
affect small

[[Page 39231]]

entities. Small entities are encouraged to bring to the Commission's 
attention any specific concerns they may have with the proposals 
outlined in the FNPRM.
    273. The Commission expects to consider the economic impact on 
small entities, as identified in comments filed in response to the 
FNPRM, in reaching its final conclusions and taking action in this 
proceeding. The reporting, recordkeeping, and other compliance 
requirements in the FNPRM could have an impact on both small and large 
entities. The Commission believes that any impact of such requirements 
is outweighed by the accompanying public benefits. Further, these 
requirements are necessary to ensure that the statutory goals of 
section 254 of the Act are met without waste, fraud, or abuse.
    274. The Commission has made an effort to anticipate the challenges 
faced by small entities in complying with its rules. For example, when 
proposing new speed obligations, the Commission recognizes that ETCs, 
including small entities, may not be able to meet revised speed 
standards immediately. Noting that rate-of-return carriers, which are 
often small entities, are required to deploy broadband upon reasonable 
request, the Commission emphasizes that rate-of-return carriers would 
only be required to meet the higher speed if the request for service is 
reasonable--meaning that the carrier could cost effectively extend 
voice and broadband-capable network to that location, given its 
anticipated end-user revenues and other sources of support. The 
Commission also seeks comment on the timeframe for rate-of-return 
carriers to upgrade their networks to a faster speed benchmark. Related 
to the other performance standards the Commission proposes to impose--
particularly usage and latency standards--the Commission also requests 
that parties identify whether the requirements are too stringent and 
offer alternative proposals.
    275. The Commission also seeks comment on how the obligations for 
carriers serving non-contiguous areas should be adjusted when 
determining support obligations for those that select frozen support in 
lieu of model-based support.
    276. The Commission proposes to allow Phase II recipients to meet 
their deployment obligations using any technology that meets the 
performance requirements. If adopted, this would give participants, 
including small entities, additional flexibility in satisfying their 
obligations. The Commission also seeks comment on two potential 
measures that would provide all recipients of Phase II funding, both in 
the state-level commitment process and competitive bidding process, 
greater flexibility to satisfy their deployment obligations. These 
include proposing to permit Phase II recipients to specify that they 
are willing to deploy to less than 100 percent of locations in their 
funded areas, with associated support reductions, and to allow Phase II 
recipients to substitute some number of unserved locations within 
partially served census blocks for locations within funded census 
blocks.
    277. The Commission also proposes to retarget the focus of Mobility 
Fund Phase II to the U.S. population that will not have 4G LTE through 
commercial deployments and those areas where support is needed to 
preserve existing mobile voice and broadband service that would not 
otherwise exist without governmental support. The FNPRM proposes 
adjusting downward the budget for a retargeted Mobility Fund II. While 
this could affect small mobile providers, the Commission notes that if 
Mobility Fund Phase II is retargeted as proposed, support could be 
available for small entities that are the only providers serving 
populations in portions of the country.
    278. The Commission proposes targeted measures to maintain 
competitive ETC funding until after the Mobility Fund Phase II auction. 
Thus, the Commission proposes to maintain 60 percent competitive ETC 
baseline support for those wireless ETCs whose competitive ETC support 
exceeds one percent of their wireless revenues, until a specified date 
after the Mobility Fund Phase II ongoing support. While the Commission 
proposes to eliminate competitive ETC support for wireless ETCs for 
whom high-cost support represents less than one percent of their 
wireless revenues, it notes that such carriers can take advantage of 
the waiver process if the elimination of support would result in 
consumers losing access to existing mobile voice or broadband service. 
The FNRPM also proposes to freeze competitive ETC support for 
competitive ETCs serving remote areas of Alaska, many of which are 
small entities, which would provide greater certainty to individual 
carriers regarding their support amounts. The FNRPM also proposes a 
delayed time table for phasing down that frozen support compared to 
other competitive ETCs.
    279. The FNPRM proposes to exclude from eligibility for Phase II 
support those areas served by a provider that offers voice and 
broadband services meeting the Commission's requirements regardless of 
whether the competitor is subsidized or unsubsidized. The Commission 
also seeks comment on excluding from eligibility providers that are 
offering qualifying service regardless of what technology is used to 
deliver that service. If adopted, these proposals could limit the 
overbuilding of areas served by other providers, some of which may be 
small entities.
    280. For rate-of-return carriers, the Commission seeks comment on 
short-term and long-term reforms to ensure that funds provided to rate-
of-return carriers are disbursed efficiently and in the public 
interest. Recognizing the need to eliminate the inefficiencies of the 
universal service support mechanisms for rate-of-return carriers, the 
FNPRM proposes to modify the current HCLS mechanism by reducing the 
reimbursement percentages for all carriers and to limit the ability of 
rate-of-return carriers to recover new investment through HCLS in areas 
where other providers are offering voice and broadband. The Commission 
also proposes a funding mechanism that would provide support for rate-
of-return carriers' broadband-only lines and seeks comment on various 
industry proposals for longer term reforms. The Commission anticipates 
taking into account the unique challenges faced by rate-of-return 
carriers when determining which reforms to adopt.
    281. In the FNPRM, the Commission seeks comment on specific 
proposals for the design of the Phase II competitive bidding process 
and the rules for a retargeted Mobility Phase II. The Commission asks a 
variety of questions about how these mechanisms should be designed, and 
proposes rules for Mobility Fund Phase II. The Commission anticipates 
that small entities will comment and provide data on the challenges 
they face and proposals for how to design the mechanisms to accommodate 
small entities. The Commission anticipates taking these comments and 
any alternatives proposed into consideration when making final 
decisions on how the mechanisms will be designed and what rules it will 
adopt for entities receiving support from these mechanisms.
    282. The Commission proposes a broadband reasonably comparable rate 
certification on all ETCs that receive ongoing high-cost support in 
areas served by price cap carriers and rate-of-return carriers, but it 
also seeks comment on modifying the reduction in support for late 
filing. Although the Commission notes that filing deadlines will be 
strictly enforced, it proposes to adjust the reduction of support for 
all ETCs, including small entities, and provide a grace period to 
ensure it is not unduly punitive given the nature of non-compliance. 
The Commission also seeks comment on support reductions it

[[Page 39232]]

should impose for failure to meet its service obligations and considers 
alternatives that would give all ETCs, including small entities, an 
opportunity for cure before support reductions are imposed.
6. Federal Rules That May Duplicate, Overlap, or Conflict With the 
Proposed Rules
    283. None.

D. Ex Parte Presentations

    284. Permit-But-Disclose. The proceeding this Further Notice of 
Proposed Rulemaking and concurrently adopted Report and Order, 
Declaratory Ruling, Order, Memorandum Opinion and Order and Seventh 
Order on Reconsideration, 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 1.1206(b). In proceedings governed by 
rule 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.

E. Filing Requirements

    285. Comments and Replies. Pursuant to sections 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 the Commission's Electronic 
Comment Filing System (ECFS).
     Electronic Filers: Comments may be filed electronically 
using the Internet by accessing the ECFS: http://fjallfoss.fcc.gov/ecfs2/.
    [ssquf] Paper Filers: Parties who choose to file by paper must file 
an original and one copy of each filing. Because more than one docket 
number appears in the caption of this proceeding, filers must submit 
two additional copies for each additional docket number.
     Filings can be sent by hand or messenger delivery, by 
commercial overnight courier, or by first-class or overnight U.S. 
Postal Service mail. All filings must be addressed to the Commission's 
Secretary, Office of the Secretary, Federal Communications Commission.
    [cir] All hand-delivered or messenger-delivered paper filings for 
the Commission's Secretary must be delivered to FCC Headquarters at 445 
12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours are 
8:00 a.m. to 7:00 p.m. All hand deliveries must be held together with 
rubber bands or fasteners. Any envelopes and boxes must be disposed of 
before entering the building.
    [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 
must be addressed to 445 12th Street SW., Washington, DC 20554.
    286. People with Disabilities. To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an email to [email protected] or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).
    287. Availability of Documents. Comments, reply comments, and ex 
parte submissions will be publically available online via ECFS. These 
documents will also be available for public inspection during regular 
business hours in the FCC Reference Information Center, which is 
located in Room CY-A257 at FCC Headquarters, 445 12th Street SW., 
Washington, DC 20554. The Reference Information Center is open to the 
public Monday through Thursday from 8:00 a.m. to 4:30 p.m. and Friday 
from 8:00 a.m. to 11:30 a.m.
    288. Additional Information. For additional information on this 
proceeding, contact Alexander Minard of the Wireline Competition 
Bureau, Telecommunications Access Policy Division, 
[email protected], (202) 418-7400, or Suzanne Yelen of the 
Wireline Competition Bureau, Industry Analysis and Technology Division, 
[email protected], (202) 418-7400.

IV. Ordering Clauses

    289. Accordingly, it is ordered, pursuant to the authority 
contained in sections 1, 2, 4(i), 5, 201-206, 214, 218-220, 251, 252, 
254, 256, 303(r), 332, 403, and 405 of the Communications Act of 1934, 
as amended, and section 706 of the Telecommunications Act of 1996, 47 
U.S.C. 151, 152, 154(i), 155, 201-206, 214, 218-220, 251, 252, 254, 
256, 303(r), 332, 403, 405, 1302, and sections 1.1, 1.2, 1.3, 1.115, 
1.421, 1.427, and 1.429 of the Commission's rules, 47 CFR 1.1, 1.2, 
1.3, 1.115, 1.421, 1.427, and 1.429, that this Further Notice of 
Proposed Rulemaking and concurrently adopted Report and Order, 
Declaratory Ruling, Order, Memorandum Opinion and Order and Seventh 
Order on Reconsideration IS ADOPTED, effective thirty (30) days after 
publication of the text or summary thereof in the Federal Register, 
except for (1) those rules and requirements involving Paperwork 
Reduction Act burdens, which shall become effective immediately upon 
announcement in the Federal Register of OMB approval, (2) the waiver of 
sections 1.1105, 54.318(b), and 54.318(i) of the Commission's rules to 
the extent described herein which shall become effective upon release 
pursuant to sections 1.4(b)(2) and 1.103 of the Commission's rules (47 
CFR 1.4(b)(2), 1.103), and (3) the elimination of the benchmarking 
rule, which shall become effective as of the first month following 
publication of a summary of this order in the Federal Register. It is 
our intention in adopting these rules that if any of the rules that we 
retain, modify, or adopt herein, or the application thereof to any 
person or circumstance, are held to be unlawful, the remaining portions 
of the rules not deemed unlawful, and the application of such rules to 
other persons or circumstances, shall remain in effect to the fullest 
extent permitted by law.
    290. It is further ordered that, pursuant to the authority 
contained in

[[Page 39233]]

sections 1, 2, 4(i), 5, 201-206, 214, 218-220, 251, 252, 254, 256, 
303(r), 332, and 403 of the Communications Act of 1934, as amended, and 
section 706 of the Telecommunications Act of 1996, 47 U.S.C. 151, 152, 
154(i), 155, 201-206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 
403, 1302, and sections 1.1, 1.2, 1.3, 1.115, 1.421, 1.427, and 1.429 
of the Commission's rules, 47 CFR 1.1, 1.2, 1.3, 1.115, 1.421, 1.427, 
1.429, notice is hereby given of the proposals and tentative 
conclusions described in this Further Notice of Proposed Rulemaking.
    291. It is further ordered that the Commission shall send a copy of 
this Further Notice of Proposed Rulemaking and concurrently adopted 
Report and Order, Declaratory Ruling, Order, Memorandum Opinion and 
Order and Seventh Order on Reconsideration to Congress and the 
Government Accountability Office pursuant to the Congressional Review 
Act, see 5 U.S.C. 801(a)(1)(A).
    292. It is further ordered, that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Further Notice of Proposed Rulemaking and concurrently 
adopted Report and Order, Declaratory Ruling, Order, Memorandum Opinion 
and Order and Seventh Order on Reconsideration, including the Initial 
Regulatory Flexibility Analysis and the Final Regulatory Flexibility 
Analysis, to the Chief Counsel for Advocacy of the Small Business 
Administration.

List of Subjects in 47 CFR Part 54

    Communications common carriers, Reporting and recordkeeping 
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

0
1. The authority citation for part 54 continues to read as follows:

    Authority: Sections 1, 4(i), 5, 201, 205, 214, 219, 220, 254, 
303(r), and 403 of the Communications Act of 1934, as amended, and 
section 706 of the Communications Act of 1996, as amended; 47 U.S.C. 
151, 154(i), 155, 201, 205, 214, 219, 220, 254, 303(r), 403, and 
1302 unless otherwise noted.

0
2. Amend Sec.  54.5 by removing the definition ``Unsubsidized 
competitor'' and adding the definition ``Qualifying competitor'' in 
alphabetical order to read as follows:


Sec.  54.5  Terms and definitions.

* * * * *
    Qualifying competitor. A ``qualifying competitor'' is a facilities-
based provider of residential terrestrial fixed voice and broadband 
service. The broadband service provided must satisfy the specifications 
set forth in Sec.  54.309.
* * * * *
0
3. Amend Sec.  54.202 by adding paragraph (d) to read as follows:


Sec.  54.202  Additional requirements for Commission designation of 
eligible telecommunications carriers.

* * * * *
    (d) If a state fails to initiate a proceeding on an entity's 
application for eligible telecommunications carrier designation within 
60 calendar days from the date the application is filed, that applicant 
may presume the state lacks jurisdiction and may file an application 
for eligible telecommunications carrier designation with the Commission 
pursuant to section 214(a)(6).
0
4. Revise Sec.  54.307 to read as follows:


Sec.  54.307  Support to a competitive eligible telecommunications 
carrier.

    (a) Competitive eligible telecommunications carriers will, 
beginning January 1, 2012, receive support as described in this 
paragraph.
    (1) Baseline support amount. Each competitive eligible 
telecommunication carrier will have a ``baseline support amount'' equal 
to its total 2011 support in a given study area, or an amount equal to 
$3,000 times the number of reported lines for 2011, whichever is lower. 
Each competitive eligible telecommunications carrier will have a 
``monthly baseline support amount'' equal to its baseline support 
amount divided by twelve.
    (i) ``Total 2011 support'' is the amount of support disbursed to a 
competitive eligible telecommunication carrier for 2011, without regard 
to prior period adjustments related to years other than 2011 and as 
determined by the Administrator on January 31, 2012.
    (ii) For the purpose of calculating the $3,000 per line limit, the 
average of lines reported by a competitive eligible telecommunication 
carrier pursuant to line count filings required for December 31, 2010, 
and December 31, 2011, shall be used. The $3,000 per line limit shall 
be applied to support amounts determined for each incumbent study area 
served by the competitive eligible telecommunications carrier.
    (2) Monthly support amounts. Competitive eligible 
telecommunications carriers shall receive the following support 
amounts, except as provided in paragraphs (b)(3), (c), and (d) of this 
section.
    (i) From January 1, 2012, to June 30, 2012, each competitive 
eligible telecommunications carrier shall receive its monthly baseline 
support amount each month.
    (ii) From July 1, 2012 to June 30, 2013, each competitive eligible 
telecommunications carrier shall receive 80 percent of its monthly 
baseline support amount each month.
    (iii) Beginning July 1, 2013, until a date specified by public 
notice, each competitive eligible telecommunications carrier shall 
receive 60 percent of its monthly baseline support amount each month.
    (iv) Each competitive eligible telecommunications carrier that is 
not a winning bidder for Mobility Fund Phase II support shall receive 
40 percent of its monthly baseline support amount each month for twelve 
months, beginning the first month after the month in which a public 
notice announces winning bidders for Mobility Fund Phase II support, 
and then 20 percent of its monthly baseline support amount each month 
for the subsequent twelve months. Thereafter, it shall not receive 
universal service support pursuant to this section.
    (v) If a competitive eligible telecommunications carrier becomes 
eligible to receive high-cost support pursuant to the Mobility Fund 
Phase II, it will cease to be eligible for phase-down support in the 
first month after the month in which its Mobility Fund Phase II support 
is authorized.
    (b) Delayed phase down for remote areas in Alaska. Certain 
competitive eligible telecommunications carriers serving remote areas 
in Alaska shall have their support phased down on a later schedule than 
that described in paragraph (a)(2) of this section.
    (1) Remote areas in Alaska. For the purpose of this paragraph, 
``remote areas in Alaska'' includes all of Alaska except;
    (i) The ACS-Anchorage incumbent study area;
    (ii) The ACS-Juneau incumbent study area;
    (iii) The Fairbanks zone 1 disaggregation zone in the ACS-Fairbanks 
incumbent study area; and
    (iv) The Chugiak 1 and 2 and Eagle River 1 and 2 disaggregation 
zones of the Matanuska Telephone Association incumbent study area.
    (2) Carriers subject to delayed phase down. A competitive eligible 
telecommunications carrier shall be subject to the delayed phase down 
to the extent that it serves remote areas in

[[Page 39234]]

Alaska, and it certified that it served covered locations in its 
September 30, 2011, filing of line counts with the Administrator.
    (3) Interim support for remote areas in Alaska. From January 1, 
2012, until December 31, 2014, competitive eligible telecommunications 
carriers subject to the delayed phase down for remote areas in Alaska 
shall continue to receive the support, as calculated by the 
Administrator, that each competitive telecommunications carrier would 
have received under the frozen per-line support amount as of December 
31, 2011, capped at $3,000 per year, provided that the total amount of 
support for all such competitive eligible telecommunications carriers 
shall be capped pursuant to paragraph (b)(3)(i) of this section.
    (i) Cap amount. The total amount of support available on an annual 
basis for competitive eligible telecommunications carriers subject to 
the delayed phase down for remote areas in Alaska shall be equal to the 
sum of ``total 2011 support,'' as defined in paragraph (a)(1)(i) of 
this section, received by all competitive eligible telecommunications 
carriers subject to the delayed phase down for serving remote areas in 
Alaska.
    (ii) Reduction factor. To effectuate the cap, the Administrator 
shall apply a reduction factor as necessary to the support that would 
otherwise be received by all competitive eligible telecommunications 
carriers serving remote areas in Alaska subject to the delayed phase 
down. The reduction factor will be calculated by dividing the total 
amount of support available amount by the total support amount 
calculated for those carriers in the absence of the cap.
    (4) Baseline for delayed phase down. Beginning January 1, 2015, 
each competitive eligible telecommunications carrier subject to the 
delayed phase down shall receive the annualized monthly support amount 
it received for December 2014. Competitive eligible telecommunications 
carriers subject to the delayed phase down described in paragraph (b) 
of this section shall no longer be required to file line counts 
beginning January 1, 2015.
    (5) Monthly support amounts for carriers subject to delayed phase 
down. Competitive eligible carriers subject to the delayed phase down 
for remote areas in Alaska shall receive the following support amounts, 
except as provided in paragraphs (c) and (d) of this section.
    (i) Commencing in the first month after the month in which a public 
notice announces winning bidders for ongoing support from Mobility Fund 
Phase II or Tribal Mobility Fund Phase II, each competitive eligible 
telecommunications carrier subject to delayed phase down that is not a 
winning bidder in Mobility Fund Phase II or Tribal Mobility Fund Phase 
II shall receive 80 percent of its monthly baseline support amount each 
month for twelve months; 60 percent of its monthly support for the next 
12 months; 40 percent of its monthly support for the next twelve 
months; and 20 percent of its monthly support for the next twelve 
months. Thereafter, it shall not receive universal service support 
pursuant to this section.
    (ii) If a competitive eligible carrier subject to delayed phase 
down is a winning bidding for Mobility Fund Phase I or Tribal Mobility 
Fund Phase II support, it will cease to be eligible for phase-down 
support in the first month after the month in which its Mobility Fund 
Phase II or Tribal Mobility Fund Phase II support is authorized.
    (c) Further reductions. If a competitive eligible 
telecommunications carrier ceases to provide services to high-cost 
areas it had previously served, the Commission may reduce its baseline 
support amount.
    (d) Accelerated phase down. Any wireless competitive eligible 
telecommunications carrier shall cease receiving competitive eligible 
telecommunications carrier support effective January 1, 2015, to the 
extent its annualized support in 2014 represented 1 percent or less of 
its wireless revenues for 2014 as reported on FCC Form 499-A.
0
5. Revise Sec.  54.309 to read as follows:


Sec.  54.309  Connect America Fund Phase II Public Interest 
Obligations.

    Recipients of Connect America Phase II support (whether awarded 
through the offer of model-based support to price cap carriers or 
through a competitive bidding process) are required to offer broadband 
service at actual speeds of at least 10 Mbps downstream/1 Mbps 
upstream, with latency suitable for real-time applications, including 
Voice over Internet Protocol, and usage capacity that is reasonably 
comparable to comparable offerings in urban areas, at rates that are 
reasonable comparable to rates for comparable offerings in urban areas. 
For purposes of determining reasonable comparability of rates, 
recipients are presumed to meet this requirement if they offer rates at 
or below the benchmarks to be announced annually by public notice 
issued by the Wireline Competition Bureau.
0
6. Amend Sec.  54.310 by revising paragraphs (c) and (e) to read as 
follows:


Sec.  54.310  Connect America Fund for Price Cap Territories--Phase II.

* * * * *
    (c) Deployment Obligation. Recipients of Connect America Phase II 
support must complete deployment to 85 percent of supported locations 
within three years of notification of Phase II support authorization 
and up to 100 percent of supported locations within five years of 
notification of Phase II support authorization. For purposes of meeting 
the obligation to deploy to the requisite number of supported 
locations, recipients may serve unserved locations in census blocks 
with costs above the extremely high-cost threshold instead of locations 
in eligible census blocks, provided that they meet the public interest 
obligations set forth in Sec.  54.309 for those locations and provided 
that the total number of locations covered is greater than or equal to 
the number of the eligible census blocks for which funding is 
authorized.
* * * * *
    (e) Provider eligibility. Any eligible telecommunications carrier 
is eligible to receive Connect America Phase II support in eligible 
areas. An entity may obtain eligible telecommunications carrier 
designation after public notice of winning bidders in a competitive 
bidding process for the offer of Phase II Connect America support. An 
applicant in the competitive bidding process shall certify that it is 
financially and technically qualified to provide the services supported 
by Connect America Phase II in order to receive such support. An entity 
that is a winning bidder must submit an application to become an 
eligible telecommunications carrier no later than 30 calendar days 
following the public announcement of the winning bidders for the offer 
of Phase II Connect America support. To the extent an applicant in the 
competitive bidding process seeks eligible telecommunications carrier 
designation prior to notification of winning bidders for Phase II 
Connect America support, its designation as an eligible 
telecommunications carrier may be conditional subject to the receipt of 
Phase II Connect America support.
0
7. Add Sec.  54.311 to subpart D to read as follows:


Sec.  54.311  Voluntary election by rate-of-return carriers to receive 
model-based support.

    (a) Frozen high-cost support. Rate-of-return carriers may 
voluntarily elect to have their support frozen as the first step to a 
voluntary transition to receive

[[Page 39235]]

Phase II model-based support. Each carrier making such an election will 
have a ``baseline support amount'' equal to its support in the 
immediately prior year in a given study area, or an amount equal to 
$3,000 times the number of reported lines for the prior calendar year, 
whichever is lower. Each such carrier will have a ``monthly baseline 
support amount'' equal to its baseline support amount divided by 
twelve. Upon election to receive frozen support, on a monthly basis, 
eligible carriers will receive their monthly baseline support amount.
    (1) The ``baseline support amount'' is the amount of support 
disbursed to a rate-of-return carrier in the prior calendar year, 
without regard to prior period adjustments related to years other than 
that calendar year and as determined by USAC in the month following 
election of frozen support.
    (2) For the purpose of calculating the $3,000 per line limit, the 
average of lines reported by the rate-of-return carrier pursuant to 
line count filings required for two immediately preceding years shall 
be used.
    (3) A carrier receiving frozen high cost support under this rule 
shall be deemed to be receiving Interstate Common Line Support equal to 
the amount of support that the carrier was eligible for under that 
mechanism in the preceding year.
    (b) Connect America Phase II support may be made available in rate-
of-return territories for census blocks identified as eligible by 
public notice. The number of supported locations will be identified for 
each area eligible for support by public notice. Rate-of-return 
carriers that voluntarily elect to transition to Phase II model-based 
support shall elect to make a state-level commitment to receive such 
support. Such electing carriers will be subject to the public interest 
obligations set forth in Sec.  54.309.
    (c) Upon electing to receive model-based support, rate-of-return 
carriers will be subject to the transition specified in Sec.  54.310(f) 
to the extent frozen support is less than Phase II model-based support 
for a given state.
0
8. Amend Sec.  54.313 by revising paragraph (a) introductory text, 
adding paragraph (a)(12), and revising paragraphs (c), (f)(1) 
introductory text, (f)(1)(i), and (j) to read as follows:


Sec.  54.313  Annual reporting requirements for high-cost recipients.

    (a) Any recipient of high cost support shall provide:
* * * * *
    (12) A letter certifying that the pricing of the company's 
broadband services is no more than the applicable benchmark as 
specified in a public notice issued by the Wireline Competition Bureau, 
or is no more than the non-promotional prices charged for comparable 
fixed wireline services in urban areas.
* * * * *
    (c) In addition to the information and certification in paragraph 
(a) of this section, price cap carriers that receive frozen support 
pursuant to Sec.  54.312(a) shall provide by July 1, 2016 and 
thereafter a certification that all frozen high-cost support the 
company received in the previous year was used to build and operate 
broadband-capable networks used to offer the provider's own retail 
broadband service in areas substantially unserved by a qualifying 
competitor as defined in Sec.  54.5.
* * * * *
    (f) * * *
    (1) Beginning July 1, 2016. A progress report on its five-year 
service quality plan pursuant to Sec.  54.202(a) that includes the 
following information:
    (i) A letter certifying that it is taking reasonable steps to 
provide upon reasonable request broadband services at actual speeds of 
at least 10 Mbps downstream/1 Mbps upstream, with latency suitable for 
real-time applications, including Voice over Internet Protocol, and 
usage capacity that is reasonably comparable to comparable offerings in 
urban areas, at rates that are reasonable comparable to rates for 
comparable offerings in urban areas, and that requests for such service 
are met within a reasonable amount of time; and
* * * * *
    (j) Filing deadlines--(1) Annual reporting information deadline. In 
order for a recipient of high-cost support to continue to receive 
support for the following calendar year, or retain its eligible 
telecommunications carrier designation, it must submit the annual 
reporting information required by this section annually by July 1 of 
each year. Eligible telecommunications carriers that file their reports 
after the July 1 deadline shall receive a reduction in support pursuant 
to the following schedule:
    (i) Eligible telecommunications carriers that file after the July 1 
deadline, but by July 8, will have their support reduced in an amount 
equivalent to seven days in support;
    (ii) Eligible telecommunications carriers that file on or after 
July 9 will have their support reduced on a pro-rata daily basis 
equivalent to the period of non-compliance.
    (2) Grace period. An eligible telecommunications carrier that 
submits the annual reporting information required by this section after 
July 1 but before July 5 will not receive a reduction in support if the 
eligible telecommunications carrier and all other eligible 
telecommunications carriers owned by the same holding company as the 
eligible telecommunications carrier have not missed the July 1 deadline 
in any prior year. The next time that either the eligible 
telecommunications carrier that had previously benefitted from the 
grace period or an eligible telecommunications carrier owned by the 
same holding company misses the July 1 deadline, that eligible 
telecommunications carrier will be subject to a reduction of seven days 
in support in addition to the reduction of support it will receive 
pursuant to (j)(1) of this section.
* * * * *
0
9. Amend Sec.  54.314 by revising paragraph (d) to read as follows:


Sec.  54.314  Certification of support for eligible telecommunications 
carriers.

* * * * *
    (d) Filing deadlines--(1) Certification of support deadline. In 
order for an eligible telecommunications carrier to receive federal 
high-cost support, the state or the eligible telecommunications 
carrier, if not subject to the jurisdiction of a state, must file an 
annual certification, as described in paragraph (c) of this section, 
with both the Administrator and the Commission by October 1 of each 
year. If states or eligible telecommunications carriers file the annual 
certification after the October 1 deadline, the carriers subject to the 
certification shall receive a reduction in support pursuant to the 
following schedule:
    (i) Eligible telecommunications carriers subject to certifications 
filed after the October 1 deadline, but by October 8, will have their 
support reduced in an amount equivalent to seven days in support;
    (ii) Eligible telecommunications carriers subject to certifications 
filed on or after October 9 will have their support reduced on a pro-
rata daily basis equivalent to the period of non-compliance.
    (2) Grace period. If an eligible telecommunications carrier or 
state submits the annual certification required by this section after 
October 1 but before October 5, the eligible telecommunications carrier 
subject to the certification will not receive a reduction in support if 
the eligible telecommunications carrier and all other eligible 
telecommunications carriers owned by the same holding company as the 
subject eligible telecommunications carrier have not

[[Page 39236]]

missed the October 1 deadline in any prior year. The next time that 
either the eligible telecommunications carrier that had previously 
benefitted from the grace period or an eligible telecommunications 
carrier owned by the same holding company misses the October 1 
deadline, that eligible telecommunications carrier will be subject to a 
reduction of seven days in support in addition to the reduction of 
support it will receive pursuant to paragraph (d)(1) of this section.
    (3) Newly designated eligible telecommunications carriers. 
Notwithstanding the deadlines in paragraph (d) of this section, a 
carrier shall be eligible to receive support as of the effective date 
of its designation as an eligible telecommunications carrier under 
section 214(e)(2) or (e)(6) of the Act, provided that it files the 
certification described in paragraph (b) of this section or the state 
commission files the certification described in paragraph (a) of this 
section within 60 days of the effective date of the carrier's 
designation as an eligible telecommunications carrier. Thereafter, the 
certification required by paragraphs (a) or (b) of this section must be 
submitted pursuant to the schedule in paragraph (d) of this section.
0
10. Add Sec.  54.319 to read as follows:


Sec.  54.319  Elimination of high-cost support in areas with 100 
percent coverage by a qualifying competitor.

    (a) Universal service support shall be eliminated in an incumbent 
local exchange carrier study area where a qualifying competitor, or 
combination of qualifying competitors, as defined in Sec.  54.5, offers 
to 100 percent of residential and business locations in the study area 
voice and broadband service at speeds of at least 10 Mbps downstream/1 
Mbps upstream, with latency suitable for real-time applications, 
including Voice over Internet Protocol, and usage capacity that is 
reasonably comparable to comparable offerings in urban areas, at rates 
that are reasonably comparable to rates for comparable offerings in 
urban areas.
    (b) After a determination there is a 100 percent overlap, the 
incumbent local exchange carrier shall receive the following amount of 
high-cost support:
    (1) In the first year, two-thirds of the lesser of the incumbent's 
total high-cost support in the immediately preceding calendar year or 
$3,000 times the number of reported lines as of year-end for the 
immediately preceding calendar year;
    (2) In the second year, one-third of the lesser of the incumbent's 
total high-cost support in the immediately preceding calendar year or 
$3,000 times the number of reported lines as of year-end for the 
immediately preceding calendar year;
    (3) In the third year and thereafter, no support shall be paid.
    (c) The Wireline Competition Bureau shall update its analysis of 
where there is a 100 percent overlap on a biennial basis.
0
11. Add Sec.  54.905 to subpart K to read as follows:


Sec.  54.905  Prohibition on recovery of new investment through 
interstate common line support in areas served by a qualifying 
competitor.

    (a) Effective January 1, 2015, no new investment shall be recovered 
through interstate common line support in areas served by a qualifying 
competitor as defined in Sec.  54.5.
    (b) An incumbent local exchange carrier may presume that an area is 
unserved by a qualifying competitor after publicly posting, for 90 
days, information on its Web site regarding its intent to make new 
investment in the area in question, if it does not receive notification 
from a qualifying provider that it serves locations within the area 
where new investment is proposed.
0
12. Add Sec. Sec.  54.1011, 54.1012, 54.1013, 54.1014, 54.1015, 
54.1016, 54.1017, 54.1018, 54.1019, and 54.1020 to subpart L to read as 
follows:

Subpart L--Mobility Fund

Sec.
* * * * *
54.1011 Mobility Fund--Phase II.
54.1012 Geographic areas eligible for support.
54.1013 Provider eligibility.
54.1014 Service to Tribal lands.
54.1015 Application process.
54.1016 Public interest obligations.
54.1017 Letter of credit.
54.1018 Mobility Fund Phase II disbursements.
54.1019 Annual reports.
54.1020 Record retention for Mobility Fund Phase II.


Sec.  54.1011  Mobility Fund--Phase II.

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


Sec.  54.1012  Geographic areas eligible for support.

    (a) Mobility Fund Phase II support may be made available for census 
blocks or other areas identified as eligible by public notice.
    (b) Coverage units for purposes of conducting competitive bidding 
and disbursing support based on designated population will be 
identified by public notice for each area eligible for support.


Sec.  54.1013  Provider eligibility.

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


Sec.  54.1014  Service to Tribal lands.

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

[[Page 39237]]

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


Sec.  54.1015  Application process.

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

[[Page 39238]]

applicant that constitute an assignment or change of control, or the 
identity of the applicant, or the certifications required in the 
application.
    (v) After receipt and review of the applications, a public notice 
shall identify each winning bidder that may be authorized to receive 
Mobility Fund Phase II support, after the winning bidder submits a 
Letter of Credit and an accompanying opinion letter as required by 
Sec.  54.1016, in a form acceptable to the Commission, and any final 
designation as an Eligible Telecommunications Carrier that any 
Tribally-owned or -controlled applicant may still require. Each such 
winning bidder shall submit a Letter of Credit and an accompanying 
opinion letter as required by Sec.  54.1016, in a form acceptable to 
the Commission, and any required final designation as an Eligible 
Telecommunications Carrier no later than 10 business days following the 
release of the public notice.
    (vi) After receipt of all necessary information, a public notice 
will identify each winning bidder that is authorized to receive 
Mobility Fund Phase II support.


Sec.  54.1016  Public interest obligations.

    (a) Deadline for construction. A winning bidder authorized to 
receive Mobility Fund Phase II support shall, no later than three years 
after the date on which it was authorized to receive support, submit 
data covering the area for which support was received demonstrating 
mobile transmissions supporting voice and data to and from the network 
covering 75 percent of the designated population in the area deemed 
uncovered, or an applicable higher percentage established by public 
notice prior to the competitive bidding, and meeting or exceeding the 
following:
    (1) Outdoor minimum data transmission rates of 800 kbps uplink and 
2000 kbps downlink;
    (2) Transmission latency low enough to enable the use of real time 
applications, such as VoIP.
    (b) Coverage test data. Coverage data submitted in compliance with 
a recipient's public interest obligations shall demonstrate coverage of 
the population designated in the public notice detailing the procedures 
for the competitive bidding that is the basis of the recipient's 
support. Any drive tests or scattered site tests submitted in 
compliance with a recipient's public interest obligations shall be in 
compliance with standards set forth in the public notice detailing the 
procedures for the competitive bidding that is the basis of the 
recipient's authorized support. Any drive tests shall demonstrate 
required transmission rates at vehicle speeds appropriate for the roads 
covered by the tests.
    (c) Collocation obligations. During the period when a recipient 
shall file annual reports pursuant to Sec.  54.1019, the recipient 
shall allow for reasonable collocation by other providers of services 
that would meet the technological requirements of Mobility Fund Phase 
II on newly constructed towers that the recipient owns or manages in 
the area for which it receives support. In addition, during this 
period, the recipient may not enter into facilities access arrangements 
that restrict any party to the arrangement from allowing others to 
collocate on the facilities.
    (d) Voice and data roaming obligations. During the period when a 
recipient shall file annual reports pursuant to Sec.  54.1019, the 
recipient shall comply with the Commission's voice and data roaming 
requirements that were in effect as of October 27, 2011, on networks 
that are built through Mobility Fund Phase II support.
    (e) Liability for failing to satisfy public interest obligations. A 
winning bidder authorized to receive Mobility Fund Phase II support 
that fails to comply with the public interest obligations in this 
paragraph or any other terms and conditions of the Mobility Fund Phase 
II support will be subject to repayment of the support disbursed 
together with an additional performance default payment. Such a winning 
bidder may be disqualified from receiving any further Mobility Fund 
Phase II support or other USF support. The additional performance 
default amount will be a percentage of the Mobility Fund Phase II 
support that the applicant has been and is eligible to request be 
disbursed to it pursuant to Sec.  54.1018. The percentage will be 
determined as specified in the public notice detailing competitive 
bidding procedures prior to the commencement of competitive bidding. 
The percentage will not exceed twenty percent.


Sec.  54.1017  Letter of credit.

    (a) Before being authorized to receive Mobility Fund Phase II 
support, a winning bidder shall obtain an irrevocable standby letter of 
credit which shall be acceptable in all respects to the Commission. 
Each winning bidder authorized to receive Mobility Fund Phase II 
support shall maintain the standby letter of credit or multiple standby 
letters of credit in an amount equal to the amount of Mobility Fund 
Phase II support that the winning bidder has been and is eligible to 
request be disbursed to it pursuant to Sec.  54.1018 plus the 
additional performance default amount described in Sec.  54.1016(e), 
until at least 120 days after the winning bidder receives its final 
distribution of support pursuant to this section.
    (1) The bank issuing the letter of credit shall be acceptable to 
the Commission. A bank that is acceptable to the Commission is:
    (i) Any United States Bank;
    (A) That is among the 50 largest United States banks, determined on 
the basis of total assets as of the end of the calendar year 
immediately preceding the issuance of the letter of credit,
    (B) Whose deposits are insured by the Federal Deposit Insurance 
Corporation, and
    (C) That has a long-term unsecured credit rating issued by Standard 
& Poor's of A- or better (or an equivalent rating from another 
nationally recognized credit rating agency); or
    (ii) An agricultural credit bank in the United States that serves 
rural utilities and is a member of the United States Farm Credit 
System;
    (A) That has total assets equal to or exceeding the total assets of 
any of the 50 largest United States banks, determined on the basis of 
total assets as of the end of the calendar year immediately preceding 
the issuance of the letter of credit,
    (B) Whose deposits are insured by the Farm Credit System Insurance 
Corporation, and
    (C) That has a long-term unsecured credit rating issued by Standard 
& Poor's of A- or better (or an equivalent rating from another 
nationally recognized credit rating agency); or
    (iii) Any non-U.S. bank that;
    (A) Is among the 50 largest non-U.S. banks in the world, determined 
on the basis of total assets as of the end of the calendar year 
immediately preceding the issuance of the letter of credit (determined 
on a U.S. dollar equivalent basis as of such date),
    (B) Has a branch office in the District of Columbia or such other 
branch office agreed to by the Commission,
    (C) Has a long-term unsecured credit rating issued by a widely-
recognized credit rating agency that is equivalent to an A- or better 
rating by Standard & Poor's, and
    (D) Issues the letter of credit payable in United States dollars.
    (2) [Reserved]
    (b) A winning bidder for Mobility Fund Phase II support shall 
provide with its Letter of Credit an opinion letter from its legal 
counsel clearly stating, subject only to customary assumptions, 
limitations, and qualifications, that in a proceeding under Title 11 of 
the United States Code, 11 U.S.C. 101 et seq. (the ``Bankruptcy 
Code''), the bankruptcy

[[Page 39239]]

court would not treat the letter of credit or proceeds of the letter of 
credit as property of the winning bidder's bankruptcy estate under 
section 541 of the Bankruptcy Code.
    (c) Authorization to receive Mobility Fund Phase II support is 
conditioned upon full and timely performance of all of the requirements 
set forth in Sec.  54.1016, and any additional terms and conditions 
upon which the support was granted.
    (1) Failure by a winning bidder authorized to receive Mobility Fund 
Phase II support to comply with any of the requirements set forth in 
Sec.  54.1015 or any other term or conditions upon which support was 
granted, or its loss of eligibility for any reason for Mobility Fund 
Phase II support will be deemed an automatic performance default, will 
entitle the Commission to draw the entire amount of the letter of 
credit, and may disqualify the winning bidder from the receipt of 
Mobility Fund Phase II support or additional USF support.
    (2) A performance default will be evidenced by a letter issued by 
the Chief of either the Wireless Bureau or Wireline Bureau or their 
respective designees, which letter, attached to a standby letter of 
credit draw certificate, and shall be sufficient for a draw on the 
standby letter of credit for the entire amount of the standby letter of 
credit.


Sec.  54.1018  Mobility Fund Phase II disbursements.

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


Sec.  54.1019  Annual reports.

    (a) A winning bidder authorized to receive Mobility Fund Phase II 
support shall submit an annual report no later than July 1 in each year 
for the ten years after it was so authorized. In addition to the 
information required by Sec.  54.313, each annual report shall include 
the following, or reference the inclusion of the following in other 
reports filed with the Commission for the applicable year:
    (1) Electronic shapefiles of the outdoor minimum data transmission 
rates requirement coverage polygons illustrating the area newly reached 
by mobile services at a minimum resolution of 100 meters;
    (2) A list of relevant census blocks previously deemed unserved, 
with total resident population and resident population residing in 
areas newly reached by mobile services (based on Census Bureau data and 
estimates);
    (3) If any such testing has been conducted, data received or used 
from drive tests, or scattered site testing, analyzing network coverage 
for mobile services in the area for which support was received;
    (4) Certification that the winning bidder offers service in 
supported areas at rates that are within a reasonable range of rates 
for similar service plans offered by mobile wireless providers in urban 
areas;
    (5) Any applicable certifications and showings required in Sec.  
54.1014; and
    (6) Updates to the information provided in Sec.  54.1015(b)(2)(v).
    (b) The party submitting the annual report must certify that they 
have been authorized to do so by the winning bidder.
    (c) Each annual report shall be submitted to the Office of the 
Secretary of the Commission, clearly referencing WT Docket No. 10-208; 
the Administrator; and the relevant state commissions, relevant 
authority in a U.S. Territory, or Tribal governments, as appropriate.


Sec.  54.1020  Record retention for Mobility Fund Phase II.

    A winning bidder authorized to receive Mobility Fund Phase II 
support and its agents are required to retain any documentation 
prepared for, or in connection with, the award of Mobility Fund Phase 
II support for a period of not less than 10 years after the date on 
which the winning bidder receives its final disbursement of Mobility 
Fund Phase II support.
0
13. Amend Sec.  54.1309, as added elsewhere in this issue of the 
Federal Register, effective August 8, 2014, by revising paragraph (a) 
and adding paragraph (d) to read as follows:


Sec.  54.1309  National and study area average unseparated loop costs.

    (a) Until December 31, 2014, the national average unseparated loop 
cost per working loop, except as provided in paragraph (c) of this 
section, is equal to the sum of the Loop Costs for each study area in 
the country as calculated pursuant to Sec.  54.1308(a) divided by the 
sum of the working loops reported in Sec.  54.1305(h) for each study 
area in the country. The national average unseparated loop cost per 
working loop shall be calculated by the National Exchange Carrier 
Association.
* * * * *
    (d) Effective January 1, 2015, the national average unseparated 
loop cost per working loop shall be frozen at the amount in effect as 
of December 31, 2014, or lowered to the extent the expense adjustment 
(additional interstate expense allocation) calculated by the sum of 
paragraphs (d)(1) and (2) of this section does not exceed the maximum 
allowable support calculated pursuant to section 54.1302(a) of this 
subpart.
    (1) Sixty-five percent of the study area average unseparated loop 
cost per working loop as calculated pursuant to Sec.  54.1309(b) in 
excess of 115 percent of the national average for this cost but not 
greater than 150 percent of the national average for this cost pursuant 
to Sec.  54.1309(d) multiplied by the number of working loops reported 
in Sec.  54.1305(h) for all study areas with less than 200,000 working 
loops.; and
    (2) Seventy-five percent of the study area average unseparated loop 
cost per working loop as calculated pursuant to Sec.  54.1309(b) in 
excess of 150 percent of the national average for this cost pursuant to 
Sec.  54.1309(d) multiplied by the number of working loops reported in 
Sec.  54.1305(h) for all study areas with less than 200,000 working 
loops.
0
14. Revise Sec.  54.1310, as added elsewhere in this issue of the 
Federal Register, effective August 8, 2014, to read as follows:


Sec.  54.1310  Calculation of Expense Adjustment--Additional Interstate 
Expense Allocation.

    (a) Beginning January 1, 2015, for study areas reporting 200,000 or 
fewer working loops pursuant to Sec.  54.1305(h), the expense 
adjustment (additional interstate expense allocation) is equal to the 
sum of paragraphs (b)(1) and (2) of this section multiplied by the 
ratio of the maximum allowable support calculated pursuant to section 
54.1302(a) to the aggregate sum of paragraphs (b)(1) and (2) of this 
section for all study areas reporting 200,000 or

[[Page 39240]]

fewer working loops pursuant to Sec.  54.1305(h).
    (b) Until December 31, 2014, for study areas reporting 200,000 or 
fewer working loops pursuant to Sec.  54.1305(h), the expense 
adjustment (additional interstate expense allocation) is equal to the 
sum of paragraphs (b)(1) through (2) of this section.
    (1) Sixty-five percent of the study area average unseparated loop 
cost per working loop as calculated pursuant to Sec.  54.1309(b) in 
excess of 115 percent of the national average for this cost but not 
greater than 150 percent of the national average for this cost as 
calculated pursuant to Sec.  54.1309 multiplied by the number of 
working loops reported in Sec.  54.1305(h) for the study area; and
    (2) Seventy-five percent of the study area average unseparated loop 
cost per working loop as calculated pursuant to Sec.  54.1309(b) in 
excess of 150 percent of the national average for this cost as 
calculated pursuant to Sec.  54.1309 multiplied by the number of 
working loops reported in Sec.  54.1305(h) for the study area.
    (c) Beginning January 1, 2015, the expense adjustment shall be 
adjusted each year to reflect changes in the amount of high-cost loop 
support resulting from adjustments calculated pursuant to Sec.  
54.1306(a) made during the previous year. If the resulting amount 
exceeds the previous year's fund size, the difference will be added to 
the amount calculated pursuant to Sec.  54.1310(a). If the adjustments 
made during the previous year result in a decrease in the size of the 
funding requirement, the difference will be subtracted from the amount 
calculated pursuant to Sec.  54.1310(a) for the following year.
0
15. Add Sec.  54.1311 to Subpart M, as added elsewhere in this issue of 
the Federal Register, effective August 8, 2014, to read as follows:


Sec.  54.1311  Prohibition on recovery of new investment through high-
cost loop support in areas served by a qualifying competitor.

    (a) Effective January 1, 2015, no new investment shall be recovered 
through high-cost loop support in areas served by a qualifying 
competitor as defined in section 54.5.
    (b) An incumbent local exchange carrier may presume that an area is 
unserved by a qualifying competitor after publicly posting, for 90 
days, information on its Web site regarding its intent to make new 
investment in the area in question, if it does not receive notification 
from a qualifying provider that it serves locations within the area 
where new investment is proposed.

[FR Doc. 2014-15667 Filed 7-8-14; 8:45 am]
BILLING CODE 6712-01-P