[Federal Register Volume 79, Number 131 (Wednesday, July 9, 2014)]
[Rules and Regulations]
[Pages 39164-39193]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2014-15668]



[[Page 39163]]

Vol. 79

Wednesday,

No. 131

July 9, 2014

Part III





Federal Communications Commission





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47 CFR Parts 36, 54 and 69





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; Final Rule

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

[[Page 39164]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Parts 36, 54 and 69

[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: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) takes significant steps to continue the implementation of 
the 2011 universal service reforms. This document takes into account 
lessons learned and new marketplace developments to further the 
Commission's statutory mission of ensuring that all consumers have 
access to advanced telecommunications and information services.

DATES: Effective August 8, 2014, except for Sec.  54.310(e)(1) which 
contains new or modified information collection requirements that will 
not be effective until approved by the Office of Management and Budget. 
The Federal Communications Commission will publish a document in the 
Federal Register announcing the effective date for that paragraph.

FOR FURTHER INFORMATION CONTACT: Alexander Minard, Wireline Competition 
Bureau, (202) 418-0428 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Report 
and Order, Declaratory Ruling, Order, Memorandum Opinion and Order and 
Seventh Order on Reconsideration in WC Docket Nos. 10-90, 14-58, 07-
135; WT Docket No. 10-208; 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 Street 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 Further Notice of Proposed Rulemaking (FNPRM) that was 
adopted concurrently with the Report and Order, Declaratory Ruling, 
Order, Memorandum Opinion and Order and Seventh Order on 
Reconsideration are published elsewhere in this issue of the Federal 
Register.

I. Introduction

    1. With the Report and Order, Declaratory Ruling, Order, Memorandum 
Opinion and Order, Seventh Order on Reconsideration, and concurrently 
adopted Further Notice of Proposed Rulemaking (FNPRM), 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 they are 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 
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. The Report and Order adopts several rules to establish the 
foundation for the award of support in price cap areas where the price 
cap carrier declines the offer of model-based support. Specifically, 
the Commission concludes that all areas where the average cost per 
location equals or exceeds a specified cost benchmark are eligible for 
Phase II support in the competitive bidding process. The Commission 
sets a support term of 10 years for support awarded through the 
competitive bidding process. The Commission permits price cap carriers 
that decline model-based support to participate in the competitive 
bidding process that it expects to be prepared to conduct by the end of 
2015.
    5. The Commission also addresses more generally provider 
eligibility for support through the competitive bidding process and the 
Remote Areas Fund. The Commission permits entities to seek designation 
as eligible telecommunications carriers (ETCs) after notification they 
are winning bidders for the offer of Phase II Connect America funding. 
The Commission concludes that recipients of support through the 
competitive bidding process or the Remote Areas Fund must certify as to 
their financial and technical capabilities to provide the required 
services within the specified timeframe in the geographic area for 
which they seek support.
    6. The Commission issues a declaratory ruling to provide rate-of-
return carriers greater clarity regarding their obligations to extend 
broadband service upon reasonable request.
    7. In the Order, the Commission phases in support reductions 
associated with the 2014 rate floor of $20.46 over a multi-year period 
to provide time for incumbent carriers and state commissions to make 
any adjustments they deem necessary. In particular, the Commission 
defers any support reductions for lines that have rates of $14 or 
greater until January 2, 2015. Between January 2, 2015, and June 30, 
2016, the Commission implements support reductions only to the extent 
rates are below $16; between July 1, 2016 and June 30, 2017, the 
Commission implements support reductions only for lines with rates 
under $18 or the rate floor established by the 2016 rate survey, 
whichever is lower; and between July 1, 2017 and June 30, 2018, the 
Commission implements support reductions only for lines with rates 
under $20 or the 2017 rate floor, whichever is lower. Thus, the

[[Page 39165]]

impact of this rule is phased in over a four-year period.
    8. The Commission also reconsiders certain aspects of the USF/ICC 
Transformation Order in response to petitions from a variety of 
stakeholders. These modifications reflect our continuing commitment in 
the universal service reforms to efficiency and creating the 
appropriate incentives to invest and operate modern voice and 
broadband-capable networks. First, to provide a more measured 
transition for rate-of-return carriers that would have qualified under 
the prior rules for certain support known as Safety Net Additive (SNA) 
based on their significant network investment, the Commission permits 
such carriers to receive SNA for such investments made in 2010 and 
2011. Second, the Commission eliminates the high-cost loop support 
(HCLS) benchmarking rule so that rate-of-return carriers' support will 
no longer be limited by benchmarks calculated using quantile regression 
analysis (QRA).
    9. In addition, the Commission waives certain application fees that 
deter companies from rationalizing their service territory boundaries, 
deny a petition for reconsideration of the Commission's decision to 
impose broadband public interest obligations on recipients of high-cost 
support, while affirming that these conditions do not constitute common 
carrier regulation, and dismiss or deny two applications for review of 
the Wireline Competition Bureau's (Bureau) Phase II Service Obligations 
Order, 78 FR 70881, November 27, 2013.

II. Report and Order

A. Connect America Phase II Competitive Bidding Process

    10. In the USF/ICC Transformation Order, the Commission decided 
that, in areas where the price cap ETC refuses model-based support, 
support will be provided through a competitive bidding process. It 
adopted general rules to govern competitive bidding processes to award 
universal service support, codified in Subpart AA of Part 1 of the 
Commission's rules. The Commission sought comment in the USF/ICC 
Transformation FNPRM, 76 FR 78384, December 16, 2011, on a number of 
issues related to the design of the competitive bidding process, 
including which areas should be eligible, the term of support, and 
whether price cap carriers that decline model-based support should be 
permitted to participate in the competitive bidding process.
1. Eligible Areas
    11. Discussion. After reviewing the record before the Commission, 
and based on what it has learned over the last two years, it now 
concludes that it should provide more flexibility to parties in Phase 
II to design effective bids for areas where the average cost is equal 
to or above the Connect America Phase II funding benchmark. The work on 
the Connect America Cost Model has shown us that extremely high-cost 
areas are actually interspersed among high-cost areas. Indeed, many of 
the census tracts containing census blocks potentially eligible for the 
offer of model-based support (i.e., those census blocks where the 
average cost per location is equal to or exceeds the funding benchmark 
but is lower than the extremely high-cost threshold) also contain one 
or more census blocks where the average cost per location, as 
determined by the model, exceeds the extremely high-cost threshold. The 
Commission concludes that including both high-cost and extremely high-
cost areas in the competitive bidding process will enable parties to 
build integrated networks that span both types of areas in adjacent 
census blocks as appropriate. In other words, this approach allows 
potential providers to decide how best to upgrade or extend networks to 
serve these areas rather than having the Commission artificially pre-
determining which areas should be served through one mechanism and 
which should be served through a separate mechanism.
    12. Moreover, the Commission recognizes that the actual cost for a 
provider to serve census blocks that are above the extremely high-cost 
threshold may, in fact, be less than is predicted by the cost model. 
Potential service providers that have done the appropriate due 
diligence are in a better position to know local conditions on the 
ground and thus determine whether the support potentially available 
will enable them to meet the associated obligations. The Commission 
believes it would be the most efficient use of Phase II funding to 
provide support to areas above the specified funding threshold and then 
target the discrete budget for the Remote Areas Fund to those areas 
that remain unserved after the competitive bidding process.
    13. A price cap carrier that elects to make the state-level 
commitment is already free to deploy to locations that would be above 
the extremely high-cost threshold to satisfy a portion of its build out 
obligation. By making extremely high-cost areas eligible for support in 
the competitive bidding process, the Commission effectively provides 
participants in the competitive bidding process the same choice: They 
may elect or not elect to serve those areas that the model has 
determined to be extremely high-cost.
    14. The Commission does not decide at this time whether to use 
census blocks, or aggregations of census blocks such as census tracts, 
as the minimum size geographic unit eligible in the Phase II 
competitive bidding process. The Commission concluded we would 
entertain proposals in the rural broadband experiments in price cap 
territories at the census tract level, and the Commission currently is 
reviewing the expressions of interest received to date. The lessons 
learned from our review of the expressions of interest in the rural 
broadband experiments will give us better data and allow us to make a 
more informed decision on this issue later this year.
2. Term of Support
    15. Discussion. The Commission concludes that Connect America Phase 
II support awarded through the competitive bidding process should be 
available for ten years, subject to existing requirements and the 
availability of funds. In the recent Tech Transitions Order, 79 FR 
11327, February 28, 2014 and 79 FR 11366, February 28, 2014, the 
Commission adopted a framework for rural broadband experiments and 
concluded that it would provide support for any approved experiments 
for periods of up to ten years. While acknowledging the marketplace may 
change over time, the Commission recognized that ``some entities may be 
unwilling to make the necessary long-term investments to build robust 
future-proof networks in areas that are uneconomic to serve absent 
continued support beyond a five-year term.'' The Commission similarly 
found that, for the competitive bidding process for Connect America 
Phase II, providing support for a period of ten years may stimulate 
greater interest in the competitive bidding process, especially given 
the increased investment participants may need to bring to the table to 
meet the higher speed benchmark we propose below. Increased 
participation in the competitive bidding process will help ensure that 
funding is targeted efficiently to expand broadband-capable 
infrastructure throughout the country.
    16. The Commission does not find any compelling reason to limit the 
term of support awarded through a competitive bidding process to five 
years, as initially suggested by some commenters. Specifically, the

[[Page 39166]]

Commission is not persuaded by the American Cable Association's (ACA) 
arguments that the flexibility to re-evaluate the need for support 
after five years outweighs the benefits of a longer term that the 
Commission relies on above. While the Commission acknowledges that 
marketplace forces may bring new competitors to high-cost areas where 
Phase II support is provided, it makes the predictive judgment that 
such an outcome is unlikely to occur due to the high-cost nature of 
these areas; if those areas could be cost-effectively served without 
government support, it believes competitors would already be serving 
them. Nor is the Commission persuaded that the term of support should 
be the same for providers accepting Connect America Phase II support 
pursuant to the state-level commitment as for those subject to 
competitive bidding. As the Commission concluded in the Tech 
Transitions Order, there is no inherent reason why the terms associated 
with a competitive offer must be identical to the terms associated with 
the offer of model-based support. One reason why the Commission 
established a five-year term of support for areas subject to model-
based support was to move to competitive bidding processes in a timely 
manner in those areas where support initially would be awarded through 
the acceptance of state-level commitments. As noted by Windstream, this 
reason for limiting the duration of the support term is inapplicable 
when support is awarded in the first instance through a competitive 
bidding process.
3. Eligibility of Price Cap Carriers To Participate in Phase II 
Competitive Bidding
    17. The Commission concludes that a price cap carrier's decision 
not to accept model-based support should not preclude it from 
participating in the competitive bidding process. The Commission finds 
that maximizing the number of qualified eligible participants is likely 
to improve the quality of the competitive bids and the results of the 
process. Moreover, the Commission does not find persuasive the 
arguments made by several commenters that permitting price cap carriers 
to participate in the competitive bidding process would give them the 
ability to ``cherry pick'' the most desirable service areas. The 
Commission expects that a price cap carrier will determine whether to 
accept the offer of model-based support primarily based on its own 
analysis of whether the support offered for the state justifies 
undertaking the associated obligations. It is not unreasonable that a 
carrier might conclude that the total amount of state-level support 
would not meet the obligations in the carrier's specific circumstances, 
while also concluding that many or even all parts of the state are 
worth serving at some other support level. In addition, though a 
carrier could strategically decline the model-based support in the hope 
of favorably selecting only the most desirable service areas, that 
strategy would have risks. Indeed, the very desirability of certain 
service areas creates the possibility that the carrier might not be 
awarded those areas through the competitive bidding process or that the 
support amount for those areas will be bid down to a level that is less 
than what the model would have provided. In our predictive judgment, 
the costs of excluding price cap carriers that decline model-based 
support exceed the possible benefits. The Commission therefore declines 
to exclude price cap carriers from the competitive bidding process.

B. Provider Eligibility Requirements

    18. In response to the proposals in the USF/ICC Transformation 
FNRPM, a number of parties raised concerns that requiring ETC 
designation before participating in the Phase II competitive bidding 
process was a barrier to participating in the auction, urging the 
Commission to allow providers to obtain ETC designation later in the 
process. Similarly, a number of parties urged the Commission to remove 
barriers to participation in the Remote Areas Fund.
    19. Discussion. Under the statute, only ETCs designated pursuant to 
section 214(e) of the Communications Act of 1934, as amended (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. Support is disbursed only after the 
provider receives an ETC designation.
    20. The Commission seeks to encourage as many different types of 
providers as possible to participate in the competitive bidding process 
that will award support to serve high-cost and extremely high-cost 
areas. Likewise, the Commission seeks to encourage participation in the 
Remote Areas Fund. Recognizing that there may be areas of the country 
that the incumbent price cap carriers do not wish to serve, it is time 
to take steps to establish a framework that will enable other providers 
to become ETCs.
    21. The Commission reaffirms that entities selected to receive 
support from Connect America Phase II or the Remote Areas Fund must 
obtain ETC designation from either a state public utility commission 
pursuant to section 214(e)(2), or the Commission pursuant to section 
214(e)(6), of the Act. The Commission declines at this time to adopt 
the suggestion of certain parties that it either forbear from ETC 
designation requirements, or that it preempt states from issuing ETC 
designations. Rather, to address concerns in the record and to 
encourage participation in the competitive process as well as the 
Remote Areas Fund, the Commission adopts a more liberal process for the 
timing of ETC designation.
    22. After consideration of the record, the Commission concludes 
that potential applicants in the Phase II competitive bidding process 
need not be ETCs at the time they initially apply for funding at the 
Commission. Rather, the Commission is persuaded that it should permit 
entities to obtain ETC designation after the announcement of winning 
bidders for the offer of Phase II Connect America funding, which it 
believes will encourage greater participation in the competitive 
process by a wider range of entities. ETC status must be confirmed 
before funding awarded through the competitive process is disbursed. 
The Commission finds that maximizing the number of qualified 
participants in the competitive bidding process is likely to improve 
the overall quality of the process. Some qualified potential bidders 
may be hesitant to invest resources to apply for an ETC designation 
absent any sense of whether they are likely to be awarded Phase II 
support. Other potential bidders may have concerns about triggering 
obligations as an ETC pending the result of the competitive bidding 
process or for areas for which they are not ultimately awarded support. 
Moreover, unlike entities that are already ETCs, entities that do not 
yet have ETC designation would risk making public their bidding 
strategy if required to seek ETC designation in the states where they 
intend to bid. On balance, the Commission concludes that the benefits 
of encouraging greater participation in the Phase II competitive 
bidding process outweigh any potential risk that winning bidders do not 
meet the necessary requirements to be designated an ETC.
    23. The Commission acknowledges that it declined to take that 
approach for the Mobility Fund Phase I and Tribal

[[Page 39167]]

Mobility Fund Phase I. There, the Commission adopted the general 
requirement for those auctions that parties obtain ETC designation 
prior to filing the short-form application in part to ensure that 
applicants filing to participate in the auction were serious bidders. 
Based on our experience with the Mobility Fund Phase I and our review 
of the record, however, the Commission now concludes that a different 
approach is warranted for the Connect America Phase II competitive 
bidding process. The Commission is not persuaded by arguments that the 
ETC designation must be received prior to the competitive bidding 
process in order to ensure that only financially and technically 
qualified providers participate in the competitive bidding process. 
While the Commission acknowledges the possibility that in some cases a 
winning bidder may not meet the requirements for designation as an ETC, 
it presumes that prospective bidders will have the appropriate 
incentives to undertake the necessary due diligence in advance of the 
competitive bidding process to understand the requirements for ETC 
designation from the relevant state, or this Commission, should the 
state lack jurisdiction. The Commission notes that if a winning bidder 
fails to receive an ETC designation, it will be ineligible to receive 
any payments of support and will be considered in default of its 
obligations, with the penalties that entails. This risk should be an 
adequate deterrent for prospective bidders to ensure, in advance of 
bidding, that they meet the necessary requirements and have sufficient 
resources to meet their obligations. Moreover, nothing the Commission 
decides today precludes any prospective bidder from filing an ETC 
application in advance of the competitive bidding process, should it 
choose to do so.
    24. In the Mobility Fund Phase I, the Commission expressly 
permitted potential bidders to obtain conditional ETC designation prior 
to filing the short-form application. Given our decision to permit 
entities to seek ETC designation after public notice of the winning 
bidders for the offer of Phase II support, the Commission does not 
anticipate many parties would seek conditional ETC designation prior to 
applying for funding. To the extent a party chooses to do so, however, 
and a state or this Commission issues a conditional ETC designation 
prior to the auction, the Commission expects that the ETC designation 
in such situations will be finalized quickly as a pro forma matter 
after announcement of the winning bidders for Phase II support.
    25. The Commission seeks comment in the concurrently adopted FNPRM 
on implementation issues relating to ETC designation, including the 
timeframe in which a winning bidder must seek ETC designation before 
being deemed in default.
    26. Financial and Technical Qualifications. The Commission adopts 
the concurrently adopted FNPRM proposal that recipients of support 
through the Phase II competitive bidding process and the Remote Areas 
Fund certify as to their financial and technical capabilities to 
provide the required services within the specified timeframe in the 
geographic area for which they seek support. The Commission implemented 
such a requirement for Mobility Fund Phase I and Tribal Mobility Fund 
Phase I, and it concludes it is equally appropriate for recipients of 
support through the Phase II competitive bidding process and the Remote 
Areas Fund. It would not be administratively efficient to conduct a 
competitive bidding process with participation from entities that are 
not prepared to make such commitments. Likewise, while the Commission 
does not determine the details of the Remote Areas Fund at this time, 
it concludes that entities receiving support through that mechanism 
should similarly be financially and technically qualified to provide 
the required services.

C. Transition Into Phase II

    27. In this section, the Commission addresses issues relating to 
the transition from existing support to Connect America Phase II.
1. Transition Where Model-Based Support Is Less Than Connect America 
Phase I Support
    28. Discussion. The Commission concludes that, where a carrier 
chooses to accept model-based support that is less than its Connect 
America Phase I frozen support, the transition shall occur over a 
three-year period of time. Any carrier exercising its right to make a 
state-level commitment will effectively be making a decision that the 
model-based support is sufficient to meet its obligations in the areas 
for which it is making a commitment. However, the Commission generally 
prefers to avoid flash cuts in support that would dramatically affect 
consumers. According to our estimates, some carriers in some states 
will receive significantly less support than they receive today under 
Connect America Phase I. It appears that seven carriers would face 
reductions in their current support in 30 states if they accept the 
offer of model-based support. Because some states have more than one 
carrier with a reduction, there could be 52 discrete situations in 
which a carrier's frozen support in a particular state would be less 
than its Phase I frozen support if all price cap carriers accepted 
model-based support. Of these 52 situations, there are 12 situations 
where there would be reductions greater than $5 million per year. While 
the specific figures for individual carriers may change after 
completion of the Phase II challenge process, the Commission is 
persuaded of the need for an appropriate transition to lower support 
levels.
    29. The Commission's desire to avoid flash cuts has led it to adopt 
transitions of varying lengths for various reforms adopted in the USF/
ICC Transformation Order, including a four-year period for the phase-
down of identical support for competitive ETCs and a three-year phase-
down of support in rate-of-return areas where there is a 100 percent 
overlap with an unsubsidized competitor. Given that carriers accepting 
model-based support have made a business decision that such support is 
adequate to meet their obligations, the Commission does not agree that 
a transition comparable to the phase-down in support for competitive 
ETCs is required. To take that approach would effectively mean the 
price cap carrier would not be receiving model-based support until the 
last year of the five-year term. Rather, the Commission is persuaded 
that a transition occurring over three years for carriers accepting 
state-level Connect America Phase II support that is less than the 
frozen high-cost support is sufficient.
    30. Accordingly, the Commission adopts the following transition: In 
all years, a carrier accepting state-level support pursuant to Connect 
America Phase II that is less than the Connect America Phase I frozen 
high-cost support will receive the full amount of Connect America Phase 
II support. Assuming the Commission adopts the proposal in the 
concurrently adopted FNPRM to make the funding term for Connect America 
Phase II coincide with calendar years, in 2015 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 Connect America Phase I 
frozen high-cost support that it received in 2014. In 2016, it would 
receive 50 percent of the difference; in 2017, it would receive 25 
percent of the difference; in 2018 and in 2019, it would receive only 
Connect

[[Page 39168]]

America Phase II state-level support. For administrative convenience, 
this phase-down will apply to all carriers accepting a lower amount of 
state-level support, even if the absolute or relative size of the 
reduction is small.
2. Transition Where Competitive Eligible Telecommunications Carrier 
Receives Support Based on Competitive Bidding Process
    31. The Commission concludes that competitive ETCs awarded Connect 
America Phase II support through the competitive bidding process will 
cease to receive legacy phase-down support for those specific areas 
upon commencement of Connect America Phase II support. The Commission 
previously concluded that, with respect to any price cap carrier that 
declines the offer of model-based support, the carrier's Phase I 
support will terminate when support is provided to another provider for 
that area through the competitive bidding process. Similarly, the 
Commission also determined that a competitive ETC's legacy phase-down 
support would be terminated in any area for which it is awarded 
Mobility Fund Phase II support upon commencement of support. For 
similar reasons, the Commission finds that any competitive ETC that is 
authorized to receive Phase II support through a competitive bidding 
process will no longer receive frozen legacy support for the area in 
question. Given the carrier's explicit endorsement of the support 
amount in its bid, the Commission sees no need for additional support 
to ease the transition to Connect America Phase II.

D. Elimination of Support in Areas With 100 Percent Overlap

    32. In the USF/ICC Transformation Order, the Commission adopted a 
rule to eliminate support in incumbent local exchange carrier (LEC) 
study areas where an unsubsidized competitor or combination of 
unsubsidized competitors offers voice and broadband that meet our 
service obligations throughout the service area. The Commission hereby 
codifies that rule and the three-year phase-down of support adopted 
therein.
    33. The Commission sought comment on the methodology used for 
determining whether an incumbent LEC is 100 percent overlapped by an 
unsubsidized competitor, and it directed the Bureau ``to publish a 
finalized methodology for determining areas of overlap and a list of 
companies for which there is a 100 percent overlap.'' Now that the 
study area boundary data collection has been completed, the Commission 
expects the Bureau will implement that directive in the months ahead.
    34. The Commission proposes in the concurrently adopted FNPRM that 
the Bureau should review 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 year immediately 
preceding the determination of 100 percent overlap, rather than 2010 
support amounts.

E. Rule Amendments

    35. Sections 54.313 and 54.314 of the Commission's rules require 
that all reports and certifications filed pursuant to these sections be 
filed with the Commission's Office of the Secretary in WC Docket No. 
10-90. The Commission takes this opportunity to amend the Code of 
Federal Regulations to direct all section 54.313 and 54.314 filers to 
file their reports and certifications with the Office of the Secretary 
in the newly-opened WC Docket No. 14-58.
    36. The Commission also takes this opportunity to make several rule 
amendments. First, the Commission moves the rules regarding HCLS and 
safety net additive, which currently are located in subpart F of Part 
36, into a new subpart M in Part 54 in order to consolidate all high-
cost rules in Part 54, and make conforming changes throughout Part 54. 
In the course of moving those rules, the Commission also deletes those 
portions that are no longer applicable due to the passage of time and 
other changes previously implemented in the USF/ICC Transformation 
Order. The Commission notes that section 1.1105 of the Commission's 
rules requires a filing fee in connection with petitions for waiver of 
rules contained in Part 36. While consolidation of the high-cost rules 
into one part may constitute a substantive rule change requiring notice 
and comment because of the required filing fee, the Commission utilizes 
the good cause exemption for when notice and comment are 
``impracticable, unnecessary, or contrary to the public interest.'' 
Previously, the Commission issued a blanket waiver of the filing fee 
for carriers seeking a waiver of the HCLS benchmark rule contained in 
Part 36, but did not do so for the remainder of the universal service 
rules in Part 36 because that issue was not before it. However, the 
Commission finds that parties seeking waiver of any of the universal 
service rules included in subpart F of Part 36 similarly should not be 
subject to a filing fee, because parties seeking a waiver of other 
high-cost universal service rules in Part 54 are not subject to any 
filing fee. In moving subpart F of Part 36 to Part 54, the Commission 
notes that parties seeking waiver of the moved rules will no longer be 
subject to a filing fee. The Commission finds that it is in the public 
interest to consolidate all high-cost universal service rules into one 
part and to maintain consistency regarding filing fees throughout all 
of Part 54 of the Commission's rules and, therefore, that it is 
unnecessary, under the circumstances, to seek comment on otherwise non-
substantive change to the Commission's rules. Second, the Commission 
deletes other codified universal service rules that no longer are 
applicable because they govern time periods or support mechanisms that 
no longer are in existence.

III. Declaratory Ruling

    37. In contrast, in the areas served by price cap carriers the 
Commission concluded it would target support to high-cost areas, and 
support would be disbursed through a combination of a forward-looking 
model and a competitive bidding mechanism. Price cap carriers accepting 
model-based support must deploy voice and broadband-capable networks to 
all supported locations that are deemed ``high-cost'' and not served by 
an unsubsidized competitor, but they are not required to extend 
broadband in extremely high-cost areas as determined by the forward-
looking cost model.
    38. The Commission expressly recognized that there are some areas 
of the country where it is cost prohibitive to extend broadband using 
terrestrial wireline technology and, that in some areas, satellite or 
fixed wireless technologies may be more cost-effective options to 
extend service. It established a Remote Areas Fund with a budget of at 
least $100 million annually to address those areas that are not served. 
It envisioned that this dedicated funding would not be available in 
those remote areas in rural America that already have broadband meeting 
the Commission's performance requirements that it sought comment on in 
the USF/ICC Transformation FNPRM. The Commission stated in the USF/ICC 
Transformation FNRPM that it intended ``to use a forward-looking cost 
model--once finalized--to identify a small number of extremely high-
cost areas in both rate-of-return and price cap areas that should 
receive support from the Remote Areas Fund.'' It sought comment in the 
USF/ICC

[[Page 39169]]

Transformation FNPRM on various issues relating to the Remote Areas 
Fund, including performance requirements, eligibility standards, which 
areas would be eligible for support, and measures to combat waste and 
improve accountability. It noted that ``pending development of the 
record and resolution of these issues, rate-of-return carriers are 
simply required to extend broadband upon reasonable request.''
    39. Since the issuance of the USF/ICC Transformation Order, a 
number of rate-of-return carriers have informally sought guidance from 
Commission staff as to what they are required to do under the 
``reasonable request'' standard and what should be addressed in their 
five-year service improvement plans. Commenters recognize that it is 
not reasonable to extend service in extremely high-cost areas, but the 
question remains how that standard might be applied in particular 
situations. Some carriers have informally expressed concern that state 
commissions might conclude that high-cost support is not being used for 
its intended purpose, as required by section 54.7 of the Commission's 
rules, if a carrier fails to extend broadband service upon request in 
particular situations or fails to meet deployment targets contained in 
their five-year service improvement plans. Concerns also have been 
expressed that support could be withheld, or recovery of support 
previously disbursed could be sought, for failure to meet this 
standard. Moreover, certain state commissions have informally indicated 
to Commission staff that they feel they do not have jurisdiction over 
broadband services and thus cannot determine where or whether it is 
appropriate for a carrier to extend broadband service upon reasonable 
request.
    40. Discussion. The Commission now concludes it would be 
appropriate to issue a declaratory ruling regarding which requests 
should be deemed unreasonable under our current rules and policies to 
provide greater clarity to all affected stakeholders.
    41. The Commission acknowledges there is some ambiguity in the USF/
ICC Transformation Order on this topic. The Commission suggested that 
to the extent states retain jurisdiction over voice service, they would 
have jurisdiction to monitor the responsiveness of rate-of-return 
carriers to requests for service over a broadband-capable voice 
network. The Commission did not address, however, what standards might 
apply in those states where the public service commission lacks 
jurisdiction to address such matters, nor did it provide any guidance 
as a matter of federal policy as to what factors might be relevant to 
the extent a state does have jurisdiction. Moreover, when the 
Commission stated its expectation that rate-of-return carriers would 
``follow pre-existing state requirements, if any, regarding service 
line extensions in their highest-cost areas,'' it did not distinguish 
the situation in which a carrier is extending new facilities to serve a 
location in the first instance (such as extending a line to a newly 
built home in a high-cost area) from the situation in which the carrier 
has existing facilities in place to provide voice service (i.e., a 
copper line) to a particular location and the customer is requesting 
that line be upgraded to provide broadband service as well as voice 
service. The Commission therefore concludes that it would be beneficial 
to enunciate more clearly our requirements for the extension of 
broadband services where the rate-of-return carrier already has a 
facility in place to provide voice service.
    42. Rate-of-return carriers evaluating a request to extend 
broadband service should consider whether it would be reasonable to 
make the necessary upgrades in light of anticipated end-user revenues 
from the retail provision of broadband service and other sources of 
revenues, including but not limited to federal or state universal 
service funding projected to be available under current rules. In 
considering end-user revenues, carriers should take into account the 
reasonable comparability benchmark for broadband services. If the 
incremental cost of undertaking the necessary upgrades to a particular 
location exceed the revenues that could be expected from that upgraded 
line, a request would not be reasonable.
    43. A request to upgrade an existing voice line to provide 
broadband service would not be reasonable if it would require new 
investments that would cause total high-cost support, excluding CAF-
ICC, to exceed $250 per line per month in a given study area. The 
Commission determined in the USF/ICC Transformation Order that 
``support drawn from limited public funds in excess of $250 per-line 
monthly (not including any new CAF support resulting from ICC reform) 
should not be provided without further justification.'' The Commission 
subsequently determined in the Third Order on Reconsideration, 77 FR 
30904, May 24, 2012, that ETCs may take into account backhaul costs or 
other unique circumstances that may make it cost-prohibitive to extend 
service to particular customers. Finally, in the Fifth Order on 
Reconsideration, 78 FR 3837, January 17, 2013, the Commission clarified 
that when reviewing petitions for waiver of the $250 per month cap, it 
would ``consider the impact of reforms not only on voice service alone, 
but also on continued operation of a broadband-capable network and the 
effect on consumer rates.'' In particular, the Commission stated that 
it envisioned ``granting relief to incumbent telephone companies only 
in those circumstances in which the petitioner can demonstrate that 
consumers served by such carriers face a significant risk of losing 
access to a broadband-capable network that provides both voice as well 
as broadband today, at reasonably comparable rates, in areas where 
there are no alternative providers of voice or broadband. To the extent 
carriers have already made the investment in such broadband-capable 
networks, reductions in support that would threaten their ability to 
continue to maintain and operate those existing networks offering 
service at reasonably comparable rates in areas where consumers have no 
alternatives would be a public policy concern.''
    44. Thus, under these prior determinations, the Commission declares 
that a request is not reasonable if it would require a carrier to 
undertake new network upgrades to install new backhaul facilities or to 
replace existing copper lines to the home with fiber merely for the 
purpose of newly providing broadband service in study areas where total 
support already is subject to the $250 per line monthly cap. Moreover, 
the Commission declares that a request is not reasonable if it would 
require a carrier to undertake new network upgrades to newly provide 
broadband service to requesting customers if that would cause total 
monthly support that presently is under the $250 cap to exceed the cap, 
under our existing rules.
    45. The Commission also declares that a rate-of-return carrier has 
no obligation to extend broadband-capable infrastructure in any census 
block that is served by an unsubsidized competitor that meets the 
Commission's current performance standards. Indeed, to do so would be 
inconsistent with the Commission's general policy--which is not limited 
to price cap territories--that ``all broadband build out obligations 
for fixed broadband are conditioned on not spending the funds to serve 
customers in areas already served by an `unsubsidized competitor.' '' 
The Commission cannot and will not condone new investment subsidized by 
universal service funds to occur in areas that are already served by 
marketplace

[[Page 39170]]

forces, and thus interpret our broadband public interest obligation 
consistent with that policy.
    46. For purposes of determining whether a census block is served by 
an unsubsidized competitor, the Commission provides flexibility to 
rate-of-return carriers to make that determination in one of several 
ways. They are free to, but not required to, rely upon the treatment of 
a particular census block in the forward-looking cost model recently 
adopted by the Wireline Competition Bureau for the offer of support to 
price cap carriers. They are free to, but not required to, rely upon 
published coverage maps or online tools provided by competitors to 
enable prospective customers to determine whether service is available 
at particular addresses. There may be other ways a rate-of-return 
carrier may determine whether a particular location already is served 
by another provider; the Commission does not intend to suggest these 
are the only means of making such a determination. The Commission 
proposes in the concurrently adopted FNPRM to preclude rate-of-return 
carriers going forward, as of a date certain, from including in cost 
studies used for the determination of HCLS and interstate common line 
support (ICLS) the costs associated with new investment in areas that 
are already served by a qualifying provider that provides voice and 
broadband meeting the Commission's Phase II performance requirements. 
The Commission seeks comment in the concurrently adopted FNPRM on a 
rule to preclude new investment from being recovered through HCLS and 
ICLS as of a date certain and instead to develop a new Connect America 
Fund that will support voice and broadband-capable networks in rural 
America within the existing Connect America Fund budget.
    47. While the Commission does not decide now as a general matter 
whether and if so how a forward-looking cost model could be used to 
identify areas that would be eligible for funding from the Remote Areas 
Fund, it believes the Connect America Cost Model developed by the 
Bureau potentially could be a useful tool for rate-of-return carriers 
to consider where it might be reasonable to extend broadband-capable 
infrastructure and for other purposes. The Commission recognizes that 
some parties have suggested that further work would be required before 
the Connect America Cost Model could be used for any purpose in rate-
of-return territories. At a minimum, the Commission concludes it should 
be updated to incorporate the new study area boundaries data that the 
Bureau recently collected before it can be used for regulatory purposes 
in rate-of-return territories. The Commission therefore directs the 
Bureau to undertake further work to update the Connect America Cost 
Model to incorporate study boundary data, and such other adjustments as 
may be appropriate.
    48. In this regard, the Commission recognizes that a larger 
percentage of locations in rate-of-return areas lie above the likely 
extremely high-cost threshold identified by the Bureau in its recent 
order adopting inputs for the forward-looking cost model for the offer 
of support to price cap carriers. Commenters expressing concern about 
the use of the model for determining rate-of-return areas that would be 
served by the Remote Areas Fund appear to assume that such extremely 
high-cost areas would only be served by the Remote Areas Fund, and that 
existing support for those areas would be eliminated. The Commission 
emphasizes that it has made no decisions regarding how the Remote Areas 
Fund might be implemented in those areas of the country where the 
incumbent provider is a rate-of-return carrier. Classification of a 
rate-of-return area as extremely high-cost under the forward-looking 
model does not mean that support would only be available from the 
Remote Areas Fund.
    49. Finally, the Commission notes that our decision today does not 
change support under the existing support mechanisms for rate-of-return 
carriers, nor does it impact existing broadband service in extremely 
high-cost areas. Rather, the Commission issues this declaratory ruling 
so that carriers can make efficient and prudent investments going 
forward in the near term, while the Commission considers the issues 
raised in the FNPRM. As parties have recognized, rate-of-return 
carriers are free today to deploy alternative technologies, or resell 
satellite service, in areas determined to be beyond a reasonable 
request for the extension of fiber, in order to meet customer demand.

IV. Order

A. Delayed Implementation of Section 54.318(b)

    50. On March 20, 2014, the Bureau announced that the average local 
end-user rate plus state regulated fees of the surveyed incumbent LECs 
in urban areas is $20.46. In addition, the Bureau requested comment on 
a petition filed by the Eastern Rural Telecom Association (ERTA), 
Independent Telephone & Telecommunications Alliance (ITTA), NTCA, the 
National Exchange Carrier Association (NECA), the United States Telecom 
Association (USTelecom), and WTA--Advocates for Rural Broadband 
requesting that the deadline for compliance with the 2014 local service 
rate floor be extended from July 1, 2014 to January 2, 2015, and that 
subsequent adjustments to the rate floor should then be made annually 
on January 2.
    51. Under section 54.313(h), the $20.46 rate floor goes into effect 
on July 1, 2014, and all incumbent ETCs are required to report their 
rates to the Universal Service Administrative Company (USAC) for the 
number of lines for which ``the sum of those rates and fees are below 
the rate floor.'' Pursuant to section 54.318(b), any incumbent ETC 
whose rate for local service plus state regulated fees is below the 
rate floor shall have its ``high-cost support reduced by an amount 
equal to the extent to which its rates for residential local service 
plus state regulated fees are below the local urban rate floor, 
multiplied by the number of lines for which it is receiving support.''
    52. No parties opposed the Associations' Petition. On reply, 
commenters overwhelmingly supported an extension of the deadline to 
comply with the 2014 local service rate floor. In support of the 
extension, commenters note that there would be roughly sixty days for 
incumbent LECs currently at the $14 benchmark to take steps to adjust 
rates to be consistent with the 2014 local service rate floor, which 
may require a full local rate proceeding before state regulators. 
Commenters also suggest that carriers will need sufficient time to 
minimize the impact of the rate increase on consumers and complete 
other necessary modifications. In addition to overwhelmingly supporting 
a delay in the implementation of the rule, commenters suggest that a 
phase-in of the 2014 local service rate floor is appropriate and 
necessary to mitigate the risk of rate shock for consumers. While 
comments vary on the appropriate phase-in, two associations argued that 
an annual increase capped at roughly $2.00 would be acceptable. In 
addition, several commenters ask the Commission to re-evaluate the 
local service rate floor as a general matter, suggesting that capping 
the annual increase in the local rate service floor would not impact 
the high-cost budget adopted in the USF/ICC Transformation Order or 
affect the universal service fund contribution factor. The National 
Association of Regulatory Utility Commissioners (NARUC) filed a 
petition asking the Commission to (1) maintain the current benchmark 
($14) pending release of information

[[Page 39171]]

regarding the data and methodology that produced the $20.46 rate, and 
(2) to seek comment on how to calculate the benchmark. Finally, the 
Maine Office of Public Advocate argues that ``a carrier should receive 
full universal service high cost support for each Lifeline customer 
served even if that customer's monthly rate is a rate that is below the 
Rate Floor.''
    53. Discussion. Initially, the Commission notes that support under 
the federal high-cost program historically has been provided to high-
cost areas to ensure reasonable comparability of rates between urban 
and rural areas without consideration of the relative income levels in 
such areas; the program has not been designed to provide differing 
amounts of high-cost support for areas with lower incomes. Rather, 
other Commission mechanisms--specifically, the Lifeline program--are 
the primary means by which the Commission seeks to ensure that rates 
are affordable for low-income households. The underlying purpose of the 
rate floor is one of fairness: ``The Commission does not believe it is 
equitable for consumers across the country to subsidize the cost of 
service for some consumers that pay local service rates that are 
significantly lower than the national urban average.'' As the 
Commission explained in adopting the rate floor in 2011, ``[i]t is 
inappropriate to provide federal high-cost support to subsidize local 
rates beyond what is necessary to ensure reasonable comparability. 
Doing so places an undue burden on the Fund and consumers that pay into 
it.'' The results of the urban rate survey show there is significant 
variation among the states in the local rates charged to residential 
consumers; nonetheless, in many states, residential consumers are 
paying $25 or more per month for local service. To the extent that 
individual states wish to maintain intrastate rates significantly lower 
than the national urban average, they are free to do so. This rule 
merely prevents them from doing so in a manner that would burden 
ratepayers nationwide.
    54. In the USF/ICC Transformation Order, the Commission 
``anticipate[d] that the rate floor for the third year will be set at a 
figure close to the sum of $15.62 plus state regulated fees.'' To 
mitigate the impact of the implementation of the rate floor and provide 
time to implement a new rate survey, the Commission concluded that the 
rate floor should be phased in over several years: $10 beginning July 
1, 2012, $14 beginning July 1, 2013, and then the average urban rate, 
as determined from data in the Urban Rates Survey, beginning July 1, 
2014. Its goal in adopting a multi-year transition was ``to avoid a 
flash cut that would dramatically affect either carriers or the 
consumers they serve.''
    55. For 2014, the Bureau's survey determined that the average urban 
rate is $19.81 plus $0.65 in state fees (a total of $20.46). Because 
the survey average for flat-rate local service is more than four 
dollars higher than the Commission anticipated, the Commission agrees 
with commenters that a more gradual approach to the reductions to 
universal service support under section 54.318(b) is warranted, and 
waiver of this rule is appropriate.
    56. Therefore, the Commission waives the application of section 
54.318(b) for lines reported July 1, 2014, with a rate of $14 or above. 
Commencing January 2, 2015 (reflecting rates as of December 1, 2014), 
and thereafter, through June 30, 2016, the Commission waives section 
54.318(b) to the extent reported lines are less than $16. For the 
period between July 1, 2016, and June 30, 2017, it waives section 
54.318(b) to the extent reported rates are less than $18, or the 2016 
rate floor, whichever is lower. For the period between July 1, 2017, 
and June 30, 2018, we waive section 54.318(b) to the extent reported 
rates are less than $20, or the 2017 rate floor, whichever is lower. 
The Commission believes that this four-year transition should provide 
sufficient time for carriers and state commissions to determine whether 
and how to make adjustments, without unreasonable effects on carriers 
and consumers. Further, because the Commission is extending 
implementation of the support reductions associated with the next rate 
floor until July 2016, it does not believe that it is necessary to 
change the annual date on which the annual rate floor goes into effect. 
Because ETCs otherwise are required to submit their annual reports on 
July 1 each year, the Commission thinks it will be easier to keep the 
rate floor effective date consistent with these other filings. The 
Commission leaves flexibility to the affected parties to determine 
whether and, if they seek to adjust their rates, how to do so over the 
next four years. The Commission emphasizes, however, that nothing in 
our rules requires carriers affected by the rate floor to adjust their 
local rates.
    57. While the Commission understands some parties are concerned 
about significant rate hikes, it is not convinced based on the 
information before us that implementation of the approach adopted 
herein will lead to widespread rate hikes. Our experience with the 
implementation of the rule thus far suggests that not all carriers will 
raise rates to meet the rate floor. The $14 rate floor went into effect 
on July 1, 2013, and carriers have now had two opportunities to report 
the number of lines below that rate floor. The rate floor increased 
from $10 in 2012 to $14 in 2013, a 40 percent increase. When this 
occurred, interested parties were largely silent and voiced little 
opposition. The Commission notes that three-quarters of the lines 
subject to support reductions this year (based on the rates in effect 
on December 1, 2013) were price cap carrier lines, while one-quarter of 
the lines affected were reported by rate-of-return carriers. The fact 
that many carriers continue to report some lines with rates well below 
the $14 rate floor suggests that they may have made a business decision 
to grandfather the lower rates for those customers and accept the 
associated support reductions. Indeed, the Commission notes that more 
than two years after the Commission adopted the $14 rate floor to be 
implemented in 2013, carriers in 34 study areas in 16 states still are 
reporting a number of lines with residential local service charges of 
$5 or less, further reinforcing our view that individual carriers may 
choose not to raise rates in response to the current rate floor. The 
Commission therefore can predict that, although there could be 
increases in some rates, it is unlikely that there will be a 
significant number of dramatic increases.
    58. In response to the NARUC petition, the Commission notes that 
the Bureau has posted on the Commission's Web site the data used to 
develop the rate floor with explanatory notes, effectively granting 
that aspect of NARUC's petition. Moreover, the Commission also notes 
that our action today to phase-in the effect of the rule over a four-
year period effectively responds to NARUC's suggestion that ``at a 
minimum, delay and perhaps a phasing in of the new floor is 
warranted.'' NARUC also suggests that the Commission should seek 
comment on how to calculate the benchmark. In the Rate Floor Order, 78 
FR 29063, May 17, 2013, the Bureau clearly explained that the sample 
would be drawn using FCC Form 477 data from fixed terrestrial providers 
in urban census tracts, and that the average urban rate would be 
calculated based on the non-promotional rate for stand-alone voice 
service. To the extent that NARUC is challenging that methodology, its 
request is an untimely petition for reconsideration of the Rate Floor 
Order. If the intent of NARUC's petition is to challenge the Bureau's 
decision to use

[[Page 39172]]

only incumbent LEC data in computing the average urban rate, we note 
that this decision resulted in a lower rate floor than would have 
resulted if the Bureau had used the data from all providers. Therefore, 
seeking comment on that aspect of the methodology would not advance 
NARUC's objective, and the Commission see no other reason to do so. The 
Commission therefore grants in part and deny in part NARUC's petition.
    59. The Commission is not persuaded by arguments that it should 
artificially cap the 2014 rate floor to be a figure lower than what was 
calculated by the rate survey. The rate floor rule is separate from the 
rule requiring reductions in support for rates below the rate floor; 
there is no reason why it is necessary to ``cap'' the rate floor 
itself.
    60. The Commission does not waive section 54.313(h) of our rules. 
The announced urban rate floor is $20.46; incumbent ETCs must report 
their rates to USAC to the extent that their rates plus state fees are 
below this amount. Having information regarding ETC rates below the 
urban rate floor will facilitate our ability over the next four years 
to monitor the impact of this rule on carriers and consumers. Effective 
July 1, 2016, the rate floor will be determined by the next urban rate 
survey. The Commission directs the Bureau to conduct the next survey in 
sufficient time to announce the results in early 2015 and to announce 
the 2016 rate floor no later than January 31, 2016.
    61. The Commission agrees with the Maine Office of Public Advocate 
that a carrier should not be subject to universal service support 
reductions as a result of the rate floor for those lines provided to 
Lifeline customers. The Commission has consistently emphasized its 
commitment to ensuring that its reforms do not negatively impact 
Lifeline customers. The Commission therefore waives application of 
section 54.318(i) for lines provided to customers enrolled in the 
Lifeline program. The Commission concludes that allowing carriers to 
maintain rate plans that are priced below the rate floor for Lifeline 
subscribers strikes the appropriate balance between ensuring that 
consumers across America are not funding below-average rates for 
selected consumers, while providing targeted relief to ensure this rule 
does not negatively impact Lifeline subscribers. Therefore, the 
Commission waives section 54.318(i) and direct USAC to take steps to 
ensure there will be no reductions in high-cost support for lines 
provided to customers enrolled in the Lifeline program.
    62. The Commission declines to reconsider the adoption of a rate 
floor. Such requests effectively are untimely petitions for 
reconsideration of the original decision in the USF/ICC Transformation 
Order to adopt the rate floor. The Commission denied petitions for 
reconsideration of the adoption of the rate floor in the Third Order on 
Reconsideration. Moreover, as noted above, the Commission adopted the 
rate floor as a matter of fairness to ensure that consumers throughout 
the country do not support consumers and states with very low rates. 
While parties may disagree with the particular operation of the current 
rule, that does not change the fact that consumers across the country 
otherwise would be continuing to subsidize, through federal universal 
service support, excessively low rates in some areas. As explained 
above, in no sense does this policy require carriers to raise their 
rates, nor does it preclude states from subsidizing low prices through 
their own universal-service mechanisms. The Commission thus continues 
to believe that the rate floor is necessary to maintain fairness in the 
universal service support mechanism and accordingly grant in part and 
deny in part the Associations' Petition to the extent described herein.

B. Waiver of Fees for Study Area Boundary Waivers

    63. The Commission's rules require carriers filing petitions for 
waiver of the study area boundary freeze to submit a $7,990 application 
fee with their petitions. Historically, the Commission has imposed 
application fees to recoup a portion of the direct cost it incurs to 
provide specific services to individuals and companies. The $7,990 fee 
is a uniform fee that applies to all petitions for waiver of Part 32 
accounting rules, Part 36 separations rules, Part 43 reporting 
requirements, Part 64 cost allocation rules, Part 65 rate of return 
rules, and Part 69 access charge rules.
    64. Discussion. In response to informal inquiries from state 
commissions and others, the Commission now waives on our own motion the 
$7,990 application fee for carriers seeking a study area waiver to 
transfer lines below the exchange level. The Commission notes that the 
Bureau generally considers petitions seeking to transfer lines at the 
sub-exchange level as routine. This burden and cost has been reduced 
even further by the streamlined study area boundary freeze waiver 
process instituted in the USF/ICC Transformation Order. The 
administrative burden and cost associated with reviewing these 
petitions and issuing decisions, therefore, is relatively small, while 
the amount of the fee is a deterrent to transferring lines at the sub-
exchange level. Accordingly, there is good cause to grant this limited 
waiver.

V. Memorandum Opinion and Order

    65. In this section, the Commission addresses two applications for 
review of the Bureau's Phase II Service Obligations Order related to 
the requirements for a provider to be designated an unsubsidized 
competitor. Alaska Communications Systems (ACS) requests review of the 
Bureau's statement that it will consider challenges to a competitor's 
unsubsidized status even if that competitor is receiving high-cost 
support that is being phased out. The National Cable and 
Telecommunications Association (NCTA) requests review of the decision 
to use the same criteria for determining whether a provider is an 
unsubsidized competitor as are used in setting the obligations for 
Phase II funding recipients. For the reasons set forth below, the 
Commission denies ACS's application, and it dismisses NCTA's 
application. The Commission concludes that it is appropriate for the 
Bureau to commence the Phase II challenge process under the framework 
established in the Phase II Service Obligations Order.
    66. In the USF/ICC Transformation Order, the Commission decided 
that all ETCs ``will be required to offer broadband service in their 
supported areas that meets certain basic performance requirements.'' In 
setting those performance requirements for Phase II model-based funding 
recipients, the Commission stated that those recipients must ``offer 
broadband at actual speeds of at least 4 Mbps downstream and 1 Mbps 
upstream, with latency suitable for real-time applications, such as 
VoIP, and with usage capacity reasonably comparable to that available 
in comparable offerings in urban areas,'' offered at rates that are 
reasonably comparable to the rates offered in urban areas. In 
determining the areas that will be eligible for Connect America Phase 
II support, the Commission stated that it will ``exclude areas where an 
unsubsidized competitor offers broadband service that meets the [above-
mentioned] broadband performance requirements.'' The task of assigning 
quantifiable metrics to the Commission's general performance criteria, 
both for Phase II recipients and for unsubsidized competitors, was 
delegated to the Bureau.
    67. In the Phase II Service Obligations Order, the Bureau 
implemented the Commission's direction that Connect America Phase II 
funding recipients

[[Page 39173]]

meet certain performance criteria. The Bureau specified the performance 
metrics that would be required of recipients of Phase II model-based 
support. The Bureau also specified how those criteria would be used in 
determining what areas would be considered served by an unsubsidized 
competitor, and therefore ineligible for support. The Bureau noted 
that, per the Commission's direction, ``an unsubsidized competitor must 
be offering broadband and voice service that would meet the 
Commission's requirements for price cap carriers receiving model-based 
support.'' Thus, in order to qualify as an unsubsidized competitor, a 
provider must offer broadband with speeds of 4 Mbps downstream and 1 
Mbps upstream (4 Mbps/1 Mbps), roundtrip provider network latency of 
100 ms or less, minimum usage allowances of at least 100 GB per month, 
and pricing that is reasonably comparable to that in urban areas.

A. ACS Application for Review

    68. In the Phase II Service Obligations Order, the Bureau stated 
that it would ``presume that any recipient of high-cost support at the 
time the challenge process is conducted'' would not meet the definition 
of ``unsubsidized competitor,'' but it would ``entertain challenges to 
that presumption from any competitive [ETC] that otherwise meets or 
exceeds the performance standards established [for price cap carriers 
accepting model-based support] and whose high-cost support is scheduled 
to be eliminated during the five-year term of Phase II.'' It further 
stated that this would ``provide an opportunity for the Commission to 
consider whether to waive application of the `unsubsidized' element of 
the unsubsidized competitor definition in situations that would result 
in Phase II support being used to overbuild an existing broadband-
capable network.''
    69. ACS requests that the Commission review and reverse the 
Bureau's decision. For the reasons discussed below, the Commission 
denies ACS's application.
    70. The USF/ICC Transformation Order states, ``[i]n determining the 
areas eligible for support, [the Commission] will also exclude areas 
where an unsubsidized competitor offers broadband service that meets 
the broadband performance requirements described above, with those 
areas determined by the Wireline Competition Bureau as of a specified 
future date as close as possible to the completion of the model.'' ACS 
argues that allowing a provider to challenge its unsubsidized status 
even if it continues to receive support after the start of Phase II 
violates the requirement that the determination be made ``as close as 
possible to the completion of the model.''
    71. The Commission concludes that the Bureau's action falls within 
its delegated authority to interpret and implement the requirements of 
the unsubsidized competitor rule. ACS's arguments fail for two reasons. 
First, while the Commission required that the list of eligible areas be 
determined as close as possible to the completion of the cost model, 
that does not necessarily translate to a requirement that the 
unsubsidized status of a provider be determined based on whether that 
provider is receiving funding at the time the cost model is completed. 
While the former is a decision made by the Commission, the latter is an 
interpretation of what it means to be ``unsubsidized,'' and the 
authority to make that interpretation is delegated to the Bureau.
    72. Second, ACS's argument is not ripe for our consideration. The 
Bureau has not ruled that any and all providers receiving support after 
the start of Phase II qualify as unsubsidized. Quite the opposite: the 
Bureau presumes such providers are subsidized and requires that they 
come forward to present evidence if they wish to challenge that 
designation. In light of this, all the Bureau did was provide a 
procedural vehicle through which interested parties could--if they so 
choose--present certain evidence for consideration. Recognizing that 
the Commission delegated to the Bureau the implementation of the 
challenge process, the Commission is not persuaded that it was beyond 
the Bureau's delegated authority to invite parties to bring such 
evidence to the agency's attention.
    73. Ultimately, the issue of the Bureau's delegated authority is 
moot, however, because the Commission agrees that the Phase II 
challenge process is the appropriate venue for parties to present 
evidence that they serve areas with a service that meets the standards 
established for Phase II, and that those areas should be excluded from 
the offer of support to price cap carriers. The Commission therefore 
affirms the Bureau's invitation to interested parties to present such 
evidence in the challenge process. ACS will suffer no substantial 
prejudice by the challenge process proceeding as the Bureau has 
outlined, as there will be time to make any final determinations on 
this topic based on a full record before the offer of support is 
extended. It is appropriate and timely for the Bureau to move forward 
with the Phase II challenge process now.
    74. To provide all interested parties, including those outside 
Alaska, the opportunity to weigh in more broadly on how the Commission 
can use Connect America funding most efficiently, it seeks comment more 
generally on this topic in the concurrently adopted FNPRM. 
Specifically, the Commission proposes to exclude areas with 
competitors, whether or not subsidized, from Phase II eligibility in 
certain circumstances. Parties are free to raise substantive arguments 
in response to the concurrently adopted FNPRM as to whether this 
approach would harm universal service. As such, the Commission declines 
to address ACS's substantive policy arguments at this time, and it 
denies ACS's Application for Review.

B. NCTA Application for Review

    75. NCTA challenges the Bureau's determination that the standards 
used for Phase II recipients' service obligations will also be used in 
assessing whether a provider qualifies as an unsubsidized competitor. 
The Commission concludes that the arguments advanced by NCTA are not 
appropriate for consideration in an application for review. The 
Commission therefore dismisses NCTA's Application for Review.
    76. NCTA seeks review of the Bureau's determination that uniform 
standards will be used in assessing whether areas are served by 
unsubsidized competitors as well as setting the requirements that apply 
to recipients of Phase II model-based support. NCTA argues that using 
the same standards for both groups will result in wasteful and 
inefficient use of universal service funds; that the decision is 
tantamount to directly regulating broadband rates, terms, and 
conditions; and that unsubsidized competitors should not be held to the 
same performance standards as Phase II recipients, but rather should be 
evaluated based only on the speed of their offerings.
    77. NCTA's arguments constitute an untimely petition for 
reconsideration of the decisions made in the USF/ICC Transformation 
Order, and, therefore, are not proper for an application for review. 
The decision for which NCTA seeks review is not an action taken by the 
Bureau on delegated authority; therefore, the matter is not properly 
addressed in an application for review. In the USF/ICC Transformation 
Order, the Commission affirmatively decided

[[Page 39174]]

that a uniform standard will apply in determining what areas are served 
by an unsubsidized competitor as well as in setting the performance 
obligations for recipients of Phase II model-based support. Rather than 
constituting a new decision made under delegated authority, the 
Bureau's Phase II Service Obligations Order simply implements the 
Commission's prior direction to use a uniform standard. Per the 
Commission's rules, a party may file an application for review if it is 
``aggrieved by any action taken pursuant to delegated authority.'' But 
NCTA is not challenging a decision the Bureau made on delegated 
authority. Rather, NCTA challenges the Bureau's implementation of a 
prior Commission decision. An application for review of a Bureau 
decision implementing a Commission directive may not be used as a 
vehicle to seek reconsideration of the Commission's earlier decision. 
The proper method for challenging the Commission's decision on this 
point would have been for NCTA to seek reconsideration of the USF/ICC 
Transformation Order. However, the window for filing such a petition 
has passed. The Commission therefore dismisses NCTA's Application for 
Review of the Phase II Service Obligations Order as improper on the 
grounds that the application does not seek review of any Bureau action 
taken pursuant to delegated authority; to the extent the filing should 
be viewed as a petition for reconsideration of the Commission's 
decision in the USF/ICC Transformation Order, it dismisses it as 
untimely.
    78. The Commission concludes that NCTA's application is 
procedurally defective. Therefore, the Commission dismisses NCTA's 
Application for Review.

VI. Seventh Order on Reconsideration

    79. In this section, the Commission addresses several petitions for 
reconsideration of certain aspects of the USF/ICC Transformation Order, 
making adjustments where appropriate. First, to provide a more measured 
transition for rate-of-return carriers that would have qualified for 
SNA support based on their significant network investment, the 
Commission permits such carriers to receive SNA for such investments 
made in 2010 and 2011. Second, the Commission denies a petition 
challenging the imposition of broadband public interest conditions on 
recipients of high-cost support, concluding that does not constitute 
common carrier regulation. Third, the Commission eliminates the HCLS 
benchmarking rule so that carriers' HCLS will no longer be limited by 
benchmarks calculated using the QRA methodology.

A. Safety Net Additive

    80. When the Commission adopted SNA, the number of access lines was 
growing. At that time, the Commission did not anticipate that incumbent 
telephone companies would lose access lines as they have over the past 
decade. Because incumbent LECs qualified for SNA support by realizing 
growth in TPIS on a per-line basis, decreasing access lines resulted in 
the majority of carriers receiving SNA support due to significant loss 
of lines, rather than significant increases in investment. For example, 
in 2009 and 2010, close to sixty percent of incumbent LECs that 
qualified for SNA did so because of line loss rather than increased 
investment.
    81. In the 2011 USF/ICC Transformation Order, the Commission made 
the decision to eliminate and phase out SNA. The Commission found that 
the mechanism was not fulfilling its purpose of encouraging 
``additional significant investment in telecommunications plant'' 
because the majority of incumbent carriers qualified for SNA due to 
line loss rather than network investment. The Commission decided that 
carriers that qualified for SNA support due to a 14 percent or greater 
increase in total TPIS over the prior year would continue to receive 
support for the full five-year period for which they were eligible. The 
Commission concluded that other carriers--i.e., those qualifying for 
SNA based on line loss--would have their SNA support phased down by 50 
percent in 2012 and completely eliminated in 2013 because such support 
was not being paid on the basis of significant investment in 
telecommunications plant. Because the Commission eliminated SNA 
effective December 29, 2011, carriers that otherwise would have newly 
received SNA in 2012 or 2013 based on qualifying investments prior to 
the effective date of the Commission's action were no longer eligible 
for SNA.
    82. Since the release of the USF/ICC Transformation Order, rate-of-
return carriers have urged the Commission to reconsider its decision to 
eliminate SNA support. NECA, OPASTCO, and WTA (NECA et al.) also argue 
that, rather than eliminating SNA support, the Commission should revise 
the qualification requirements for SNA so that only those carriers that 
increase their total network investment from year-to-year--i.e., 
carriers that experience total year-over-year, rather than per-line, 
TPIS growth--would qualify for SNA support. Both NECA et al. and 
USTelecom urge the Commission to extend the SNA phase down schedule for 
carriers that qualified for SNA based on line loss. On December 20, 
2012, North Central Telephone Cooperative, Inc. (North Central) filed a 
petition seeking waiver of the Commission's rules to enable it to 
receive SNA support for investments the company made in 2010. North 
Central alleges that the decrease in support as a result of the 
elimination of SNA has caused it to defer investments that would have 
resulted in lower annual operating costs and increased broadband 
availability and adoption in very rural areas.
    83. Discussion. On reconsideration, the Commission concludes that a 
more measured transition for carriers that qualified for SNA based on 
investment is appropriate. Specifically, the Commission will allow 
carriers that would have qualified for SNA based on increased 
investment--an increase of at least 14 percent in their total TPIS in 
2010 or 2011--to receive such support. This relief applies only to 
carriers that would have qualified for such support based on investment 
undertaken in 2010 or 2011 that led to a 14 percent or greater increase 
in total TPIS, not carriers that would have qualified due to line loss. 
The Commission concludes that providing SNA support for this limited 
group of carriers is consistent with our goal of increasing rural 
broadband deployment by promoting investment in modern networks. 
Moreover, providing SNA for this discrete group of carriers is 
consistent with the Commission's goal of ``phas[ing] in reform with 
measured but certain transitions, so companies affected by reform have 
time to adapt to changing circumstances.'' Because of the relief 
granted herein, the Commission dismisses North Central's petition as 
moot.
    84. The Commission reiterates that carriers are not entitled to 
universal service support simply because they may have an expectation 
of such support. However, the Commission believes that providing a more 
measured transition for carriers is not only consistent with the 
original intent of the SNA mechanism, but also furthers the goals of 
the USF/ICC Transformation Order, which was intended to expand modern 
communications networks in rural communities throughout the country.
    85. The Commission notes that our decision, by focusing only on 
those carriers who qualify for SNA based on significant network 
investments, will have a limited budgetary impact. In 2013, USAC 
disbursed approximately

[[Page 39175]]

$20 million in SNA support to eligible carriers. The Commission 
estimates that allowing SNA support for carriers qualifying for SNA 
based on investment in 2010 and 2011 will result in an increase of 
approximately $31.5 million in SNA support in 2014, $12 million 
annually in 2015 and 2016, and $4.5 million in 2017.
    86. The Commission otherwise finds that parties have presented no 
new evidence or raised new arguments that convince us to delay or 
reverse the Commission's general decision to eliminate and phase out 
SNA. Accordingly, the Commission denies other requests to reconsider 
actions relating to SNA.
    87. As the Commission explained in the USF/ICC Transformation 
Order, allowing qualification based on growth in total investment 
rather than per line investment, as petitioners suggest, ``would not 
address [the Commission's] overarching concern that [SNA] as a whole 
does not provide the right incentives for investment in modern 
communications networks.'' For example, the rule provided support for 
investment in terrestrial wireline networks in extremely high-cost 
areas where it may be more cost effective to deploy alternative 
technologies. The rule also provided SNA to carriers for investments in 
areas served by an unsubsidized competitor. Therefore, simply modifying 
the qualification requirement, rather than eliminating SNA altogether, 
would fail to provide sufficient assurance that carriers receiving 
support in the future would make reasonable or cost-efficient 
investments or target these investments to areas that would not 
otherwise be served, contrary to the goals of the USF/ICC 
Transformation Order.
    88. The Commission also declines to alter the phase down of support 
for carriers that qualified for SNA due to line loss prior to or during 
2009. The phase down adopted by the Commission was part of a total 
package of reforms designed to balance the Commission's objectives of 
advancing the availability of modern networks capable of supporting 
broadband and voice services at reasonably comparable rates and 
encouraging efficient investment while minimizing the burden on 
consumers and businesses. The Commission found that the SNA mechanism 
was not well designed to meet its intended purpose. Extending the phase 
down for two additional years would thwart the Commission's reform 
goals and reward inefficiency.
    89. The Commission also is not persuaded by USTelecom's argument 
that it should extend the phase down of SNA support for incumbent rate-
of-return carriers that qualified for SNA support due to line loss to 
provide treatment equivalent to that provided to competitive ETCs. In 
the USF/ICC Transformation Order, the Commission established a five-
year transition period for competitive ETCs' existing high-cost 
universal service support in recognition of the fact that they were 
losing all support with the elimination of the identical support rule. 
The Commission adopted this phase down to eliminate legacy support 
entirely for competitive ETCs. Rate-of-return carriers remain eligible 
to receive support from existing high-cost support mechanisms as 
reformed by the USF/ICC Transformation Order, as well as CAF-ICC 
support. As such, the different approach for competitive ETCs makes 
sense in the context of the overall set of reforms.

B. Broadband Public Interest Conditions

    90. For price cap carriers, the Commission began the process of 
transitioning high-cost support to the Connect America Fund. In Connect 
America Phase I, the Commission froze existing high-cost support for 
price cap carriers and their rate-of-return affiliates until Connect 
America Phase II is implemented. As a condition of receiving this 
frozen support, the Commission required price cap carriers to use a 
portion of that support ``to build and operate broadband-capable 
networks'' necessary ``to offer the provider's own retail broadband 
service in areas substantially unserved by an unsubsidized 
competitor.''
    91. The USF/ICC Transformation Order also implemented a number of 
reforms for rate-of-return carriers. Relevant here, the Commission 
determined that rate-of-return carriers would continue to receive 
support under existing universal service support mechanisms (subject to 
some modifications to improve the efficiency and effectiveness of those 
mechanisms). As a condition on the continued receipt of high-cost loop 
support, interstate common line support, and support from the CAF-ICC 
recovery mechanism, the Commission required rate-of-return carriers to 
provide broadband service meeting the specified performance 
requirements upon reasonable request for service and within a 
reasonable amount of time.
    92. In its petition for reconsideration, USTelecom claims that the 
Commission ``lacks authority'' to condition the receipt of ``legacy'' 
federal universal support on these broadband public interest 
conditions. It argues that these conditions constitute ``common-carrier 
regulation,'' and that because broadband is classified as a Title I 
information service, the Commission is precluded from imposing such 
conditions on support pursuant to section 3(51) of the Act. That 
section provides, in relevant part, that ``[a] telecommunications 
carrier shall be treated as a common carrier under this [Act] only to 
the extent that it is engaged in providing telecommunications 
services.''
    93. Discussion. The broadband public interest conditions that the 
USF/ICC Transformation Order imposes on the receipt of federal 
universal service subsidies do not constitute a per se common carrier 
obligation. After the USF/ICC Transformation Order, as before, carriers 
or their affiliated Internet Service Providers are free to offer or 
decline to sell broadband Internet access service to any end user. 
Carriers need not hold themselves out to offer service indiscriminately 
to anyone. Instead, carriers only have to provide broadband service to 
a customer if the carrier seeks designation as an ETC from a state 
commission or the FCC and requests federal subsidies. As such, the USF/
ICC Transformation Order imposes funding conditions, not 
``regulation''--and certainly not a per se common carrier obligation. 
Indeed, as the United States Court of Appeals for the Tenth Circuit has 
explained, conditions placed on the receipt of federal universal 
service subsidies--even though they may be similar to the duties 
imposed on common carriers--do not amount to a per se common carrier 
obligation because carriers voluntarily assume the conditions in the 
first instance and ``retain[] the ability to opt out of them entirely 
by declining . . . federal universal service subsidies.'' USTelecom 
concedes that price cap carriers ``may decline [Connect America] Phase 
I incremental support if they `cannot meet [the Commission's] broadband 
deployment requirement' and may decide not to accept [Connect America] 
Phase II support.'' The same holds true with respect to legacy 
support--price cap carriers have the option of declining legacy high-
cost support if they do not want to comply with the broadband public 
interest conditions in the USF/ICC Transformation Order.
    94. The Commission is not persuaded by the argument that the 
broadband public interest obligations are not a voluntarily assumed 
condition on the receipt of federal subsidies because incumbent LECs 
cannot recover the costs they incur fulfilling various other regulatory 
obligations in the absence of high-cost universal service support and, 
therefore, incumbent LECs have no

[[Page 39176]]

choice but to comply with the broadband public interest conditions. 
Implicit in this argument is the notion that incumbent LECs are 
entitled to universal service subsidies. The Commission considered and 
rejected a variation on this argument, which is analogous to a takings 
claim, in the USF/ICC Transformation Order. Indeed, consistent with our 
view, reviewing courts have uniformly rejected similar entitlement 
claims, recognizing that the ``purpose of universal service is to 
benefit the customer, not the carrier.''
    95. Moreover, all incumbent LECs are subject to regulatory 
obligations as incumbents, irrespective of whether they receive high-
cost universal service support. Thus, those obligations, which are 
distinct from the universal service objectives of section 254, do not 
entitle some subset of incumbent LECs to high-cost universal service 
support. Further, incumbent LECs recover the costs associated with many 
of those obligations from other sources. Accordingly, the Commission 
does not agree that incumbent LECs have no choice but to comply with 
the broadband public interest conditions because they will not be able 
to recover their costs in the absence of federal subsidies.
    96. Likewise, the Commission does not share the view that support 
is not `` `sufficient . . . to preserve and advance universal service.' 
'' The Commission explained, at length, the basis of its predictive 
judgment that federal universal service subsidies would be sufficient 
to support both voice and broadband in the USF/ICC Transformation 
Order, and nothing leads us to reconsider that determination. As the 
courts have held, consumers are the intended beneficiaries of universal 
service subsidies. Properly viewed from the customer's perspective, the 
evidence demonstrates that support is sufficient for purposes of 
section 254(b)(5).
    97. Marketplace trends since the Commission adopted the USF/ICC 
Transformation Order support the Commission's conclusion that support 
is sufficient to meet the broadband public interest obligations. For 
example, there has been an increase in broadband deployment by 
incumbent LECs, both price-cap and rate-of-return carriers. Likewise, 
there have been increases in both broadband and telephone penetration 
rates since the adoption of the USF/ICC Transformation Order. If 
support was insufficient the Commission would expect those rates to 
stagnate or decline. The Commission also finds no evidence that the 
broadband public interest obligations have proved to be too onerous for 
incumbent LECs. To the contrary, since the Commission adopted the USF/
ICC Transformation Order in 2011, only 14 out of the nation's 
approximately 740 rate-of-return carriers have sought waivers of 
universal service support reductions. Given the dearth of such waiver 
requests, the Commission finds no merit to the claim that it's 
providing incumbent LECs insufficient support to satisfy the broadband 
public interest conditions.
    98. Even if the broadband public interest conditions amounted to 
regulation, which they do not, they fall far short of a per se common 
carrier obligation. The DC Circuit has held that a carrier is ``being 
relegated to common carrier status'' if that carrier ``is forced to 
offer service indiscriminately and on general terms.'' USTelecom's 
petition for reconsideration, which lacks any discussion of how the 
broadband public interest conditions are commensurate with a per se 
common carrier obligation under Title II of the Act, fails to 
demonstrate that those conditions impose such a duty on universal 
service support recipients. After the USF/ICC Transformation Order, as 
before, providers are free to set their own prices for broadband 
service and may charge different rates to different end-user customers. 
Indeed, the broadband public interest conditions only require ETCs to 
offer broadband service if they request federal subsidies, and then to 
do so at rates in rural areas that are ``reasonably comparable'' to 
those in urban areas. In other words, ETCs are free to offer their 
broadband services on terms they choose, and may offer different 
pricing structures to different areas of the country, subject only to 
the condition that the rates they offer in rural areas fall within a 
``reasonable range of urban rates for reasonably comparable broadband 
service.''
    99. If, for example, a customer such as a community anchor 
institution negotiated terms and pricing for broadband services with an 
ETC to address the unique needs of that institution, the USF/ICC 
Transformation Order does not then require the ETC to offer those same 
terms to any--let alone all--of the ETC's other customers. As such, the 
broadband public interest conditions ``leave[] substantial room for 
individualized bargaining and discrimination in terms,'' distinguishing 
them from common carriage.

C. Elimination of the Benchmarking Rule

    100. In the February 2013 Sixth Order on Reconsideration, 78 FR 
16808, March 19, 2013, the Commission reconsidered some aspects of the 
benchmarking rule. WTA, ERTA, and NECA (the Rural Associations) filed a 
petition for reconsideration of that Order. In their petition, the 
Rural Associations claim that the current benchmarking methodology 
results in unpredictable support and discourages investment in 
telecommunications and broadband infrastructure; they urge the 
Commission to reconsider its conclusion that the rule produces 
predictable support, or use at a minimum benchmarks solely as a trigger 
to determine if a carrier's costs require further examination.
    101. Subsequently, the Bureau implemented a data collection to 
update study area boundaries used in developing the geographical 
variables in the regression analysis. In July 2013, the Bureau took 
several additional measures to provide greater clarity regarding the 
support amounts that rate-of-return carriers would receive in 2014.
    102. Discussion. The Commission remains firmly committed to the 
goal of ensuring that universal service support is utilized efficiently 
to preserve voice and extend broadband-capable networks in high-cost 
areas in rural America. As discussed in the USF/ICC Transformation 
Order, the Commission has taken steps to reform the universal service 
mechanisms that support rate-of-return carriers ``to address the 
misaligned incentives'' of the previous regime ``by correcting program 
design flaws, extending successful safeguards, ensuring basic fiscal 
responsibility, and closing loopholes to ensure our rules reward only 
prudent and efficient investment in modern networks.''
    103. The Commission now concludes, however, that the benchmarking 
rule is not effectively advancing those objectives. When the Commission 
adopted the benchmarking rule in the USF/ICC Transformation Order, it 
anticipated that the rule would encourage carriers to make fiscally 
responsible investments in their infrastructure and that the support 
redistributed by the rule would encourage new investment in voice and 
broadband-capable networks. Based on our further experience with the 
rule, however, the Commission concludes that it is not functioning as 
originally intended. Therefore, on reconsideration, the Commission 
eliminates the benchmarking rule.
    104. The Commission now finds that the rule unintentionally has 
encouraged carriers that were not subject to the benchmarks to believe 
that they too needed to limit their investment in broadband-capable 
networks. This was due in part to the fact that the new rule

[[Page 39177]]

relied on a statistical methodology that was unfamiliar to many 
affected stakeholders.
    105. The evidence before us does not permit us to draw a firm 
conclusion regarding the actual impact of the rule in question; much of 
the concern appears to be focused on potential other reforms that might 
be implemented in the future. A number of trade associations, carriers, 
and consultants have expressed to the Commission that the benchmarking 
rule has been discouraging investment. According to the Rural 
Associations, 69 percent of the NTCA members that responded to a survey 
stated that they were ``postponing or cancelling fixed network 
upgrades'' due to ``uncertainty surrounding'' the benchmarking rule and 
other reforms in the USF/ICC Transformation Order. On the other hand, 
the Bureau's Universal Service Implementation Progress Report noted 
that in the year following the April 2012 implementation of the 
benchmarking rule, there was a 10 percent increase in the number of 
census bocks reported by rate-of-return carriers in which service at 
speeds of at least 3 Mbps/768 kbps was available. Investment thus has 
continued to occur post-USF/ICC Transformation Order, and we would 
expect the steps we take today will lead to even greater investment in 
the deployment of next-generation broadband networks.
    106. While the Bureau staff and affected stakeholders have 
proceeded in good faith to implement the directives of the Commission 
in the Sixth Order on Reconsideration, the Commission anticipates it 
still would take many months for the Bureau develop new regressions, 
seek public input on potential equations, and finalize the methodology 
to be used to calculate support in 2014 and beyond. No party has 
provided any concrete suggestions as to what standards should be 
applied to determine excessive costs if the benchmarking rule were used 
as a trigger for further examination of costs. Thus, the Commission 
declines to adopt the Rural Associations' suggestion that it use the 
QRA as a trigger to determine if a carrier's costs require further 
examination, although it is firmly committed to developing standards 
for what are reasonable and appropriate investments for rate-of-return 
carriers. The Commission now concludes that eliminating the 
benchmarking rule at this time is a prudent step that should enable 
rate-of-return carriers to evaluate realistically the impact of the 
reforms adopted in the USF/ICC Transformation Order on their business 
operations and extend broadband-capable infrastructure where 
economically appropriate. As a result of this decision, carriers' HCLS 
support will no longer be capped by benchmarks calculated using the QRA 
methodology. Instead, the Commission is leaving in place the HCLS 
mechanism that the Rural Associations themselves argue is predictable, 
while it continues to evaluate alternative ways to ensure that rate-of-
return carriers have structural incentives to operate efficiently and 
make prudent expenditures with universal service support.
    107. With the elimination of the benchmarking rule, carriers' HCLS 
support will be distributed as it previously had been prior to the USF/
ICC Transformation Order. Nothing in today's decision disturbs the 
other rules governing eligibility for HCLS, such as the HCLS indexed 
cap, which limits the total amount of HCLS provided to rate-of-return 
carriers and has been in effect for decades. Likewise, the $250 monthly 
per-line cap on total high-cost federal universal service support and 
the corporate operations expense limitations for ICLS remain in place 
for all rate-of-return carriers.
    108. The Commission continues to have significant concerns with the 
``race to the top'' incentives that exist under the HCLS rule. Given 
the perception of and concerns with the benchmarking rule, however, the 
Commission concludes it is appropriate to eliminate it while it 
considers options to increase incentives for efficient investment of 
universal service funds. The Commission will press forward with efforts 
to ensure that these funds are disbursed efficiently and in the public 
interest. Such efforts are essential if the Commission is to remain 
within the budget framework established by a unanimous Commission in 
the USF/ICC Transformation Order. The Commission seeks comment in the 
concurrently adopted FNPRM on several specific reforms to the existing 
support mechanisms for rate-of-return carriers, while inviting 
additional proposals that will create an appropriate framework for 
network investment and expansion over the longer term.
    109. ASTAC and CVTC's Application for Review. The Commission also 
takes this opportunity to dismiss ASTAC and CVTC's untimely filed 
application for review of the Sixth Order on Reconsideration. The Sixth 
Order on Reconsideration was not properly subject to an application for 
review, because it was adopted by the Commission and not by the Bureau 
on delegated authority. Moreover, even if the Commission were to treat 
the application as a petition for reconsideration, it dismisses the 
pleading pursuant to section 1.429(d) and (i) of the Commission's 
rules. Not only does the application address an issue that is wholly 
unrelated to and outside the scope of the Sixth Order on 
Reconsideration (the QRA's climate variable), but the application was 
also filed 30 days late--petitions for reconsideration must be filed 
within 30 days of public notice, and whereas the Sixth Order on 
Reconsideration was published in the Federal Register on March 19, 
2013, the application for review was not filed until May 18, 2013.

VII. Procedural Matters

A. Paperwork Reduction Act Analysis

    110. This document contains new information collection requirements 
subject to the PRA. It will be submitted to the Office of Management 
and Budget (OMB) for review under section 3507(d) of the PRA. OMB, the 
general public, and other Federal agencies are invited to comment on 
the new information collection requirements contained in this 
proceeding. In addition, the Commission notes that pursuant to the 
Small Business Paperwork Relief Act of 2002, it previously sought 
specific comment on how the Commission might further reduce the 
information collection burden for small business concerns with fewer 
than 25 employees. The Commission describes impacts that might affect 
small businesses, which includes most businesses with fewer than 25 
employees, in the Final Regulatory Flexibility Analysis (FRFA) in 
Appendix C, infra.

B. Final Regulatory Flexibility Analysis

    111. As required by the Regulatory Flexibility Act of 1980 (RFA), 
as amended, an Initial Regulatory Flexibility Analyses (IRFA) was 
incorporated in the Further Notice of Proposed Rule Making (USF/ICC 
Transformation FNRPM). The Commission sought written public comment on 
the proposals in the USF/ICC Transformation FNRPM, including comment on 
the IRFA. The Commission did not receive any relevant comments on the 
USF/ICC Transformation FNPRM IRFA. This Final Regulatory Flexibility 
Analysis (FRFA) conforms to the RFA.
1. Need for, and Objectives of, the Report and Order, Declaratory 
Ruling, and Order
    112. The Report and Order adopts several rules to establish the 
foundation for the award of support in price cap areas where the price 
cap carrier declines the offer of model-based support. Specifically, 
the Commission

[[Page 39178]]

concludes that all areas where the average cost per location equals or 
exceeds a specified cost benchmark are eligible for Phase II support in 
the competitive bidding process. The Commission sets a support term of 
10 years for support awarded through the competitive bidding process. 
Finally, the Commission permits price cap carriers that decline model-
based support to participate in the competitive bidding process.
    113. The Commission also addresses more generally provider 
eligibility for support through the competitive bidding process and the 
Remote Areas Fund. The Commission permits entities to seek designation 
as eligible telecommunications carriers (ETC) after notification they 
are winning bidders for the offer of Phase II Connect America funding. 
The Commission also concludes that recipients of support through the 
competitive bidding process or Remote Areas Fund must certify as to 
their financial and technical capabilities to provide the required 
services within the specified timeframe in the geographic area for 
which they seek support.
    114. The Commission issues a declaratory ruling to provide rate-of-
return carriers greater clarity regarding their obligations to extend 
broadband service upon reasonable request.
    115. In the Order, the Commission phases in support reductions 
associated with the 2014 rate floor of $20.46 over a multi-year period 
to provide time for incumbent carriers and state commissions to make 
any adjustments they deem necessary. In particular, the Commission 
defers any support reductions for lines that have rates of $14 or 
greater until January 2, 2015. Between January 2, 2015, and June 30, 
2016, the Commission implements support reductions only to the extent 
rates are below $16; between July 1, 2016 and June 30, 2017, it 
implements support reductions only for lines with rates under $18 or 
the rate floor established by the 2016 rate survey, whichever is lower; 
and between July 1, 2017 and June 30, 2018, the Commission implements 
support reductions only for lines with rates under $20 or the 2017 rate 
floor, whichever is lower. Thus, the impact of this rule is phased in 
over a four-year period. In addition, the Commission waives any support 
reductions associated with lines provided to customers enrolled in the 
Lifeline program. This will minimize the effect of rate-floor-related 
support reductions on small entities with Lifeline customers.
    116. The Commission also reconsiders certain aspects of the USF/ICC 
Transformation Order in response to petitions from a variety of 
stakeholders. These modifications reflect our continuing commitment in 
the universal service reforms to efficiency and creating the 
appropriate incentives to invest and operate modern voice and 
broadband-capable networks. First, to provide a more measured 
transition for rate-of-return carriers that would have qualified under 
the prior rules for certain support known as Safety Net Additive (SNA) 
based on their significant network investment, the Commission permits 
such carriers to receive SNA for such investments made in 2010 and 
2011. Second, the Commission eliminates the high-cost loop support 
(HCLS) benchmarking rule so that rate-of-return carriers' support will 
no longer be limited by benchmarks calculated using quantile regression 
analysis (QRA).
    117. In addition, the Commission waives the application fees for 
carriers seeking a study area waiver to transfer lines below the sub-
exchange level. Prior to this decision, study area waivers required an 
application fee of $7,990 regardless of the number of lines involved. 
Because the processing of sub-exchange level transfers is now routine, 
the burden and cost associated with reviewing these petitions has been 
reduced and the application fee, which is a deterrent to transferring 
lines, is no longer necessary. The Commission also denies a petition 
for reconsideration of the Commission's decision to impose broadband 
public interest obligations on recipients of high-cost support, and in 
the Memorandum Opinion and Order the Commission dismisses or denies two 
applications for review of the Wireline Competition Bureau's (Bureau) 
Phase II Service Obligations Order.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    118. There were no relevant comments filed that specifically 
addressed the rules and policies proposed in the USF/ICC Transformation 
FNPRM IRFA.
3. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply
    119. 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 rules adopted herein. 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.
    120. Small Businesses. Nationwide, there are a total of 
approximately 27.5 million small businesses, according to the SBA.
    121. Wired Telecommunications Carriers. The SBA has developed a 
small business size standard for Wired Telecommunications Carriers, 
which consists of all such companies having 1,500 or fewer employees. 
According to Census Bureau data for 2007, there were 3,188 firms in 
this category, total, that operated for the entire year. Of this total, 
3,144 firms had employment of 999 or fewer employees, and 44 firms had 
employment of 1,000 employees or more. Thus, under this size standard, 
the majority of firms can be considered small.
    122. 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 
Order.
    123. 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

[[Page 39179]]

incumbent local exchange service are small businesses that may be 
affected by rules adopted pursuant to the Order.
    124. 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.
    125. 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 Order.
    126. Interexchange Carriers (IXCs). Neither the Commission nor the 
SBA has developed a size standard for small businesses specifically 
applicable to interexchange services. The closest applicable size 
standard under SBA rules is for Wired Telecommunications Carriers. 
Under that size standard, such a business is small if it has 1,500 or 
fewer employees. According to Commission data, 359 companies reported 
that their primary telecommunications service activity was the 
provision of interexchange services. Of these 359 companies, an 
estimated 317 have 1,500 or fewer employees and 42 have more than 1,500 
employees. Consequently, the Commission estimates that the majority of 
interexchange service providers are small entities that may be affected 
by rules adopted pursuant to the Order.
    127. 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 Order.
    128. 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 Order.
    129. 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 Order.
    130. 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 Order.
    131. 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.
    132. 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

[[Page 39180]]

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 1000 employees or more. Similarly, according to 
Commission data, 413 carriers reported that they were engaged in the 
provision of wireless telephony, including cellular service, Personal 
Communications Service (PCS), and Specialized Mobile Radio (SMR) 
Telephony services. Of these, an estimated 261 have 1,500 or fewer 
employees and 152 have more than 1,500 employees. Consequently, the 
Commission estimates that approximately half or more of these firms can 
be considered small. Thus, using available data, the Commission 
estimates that the majority of wireless firms can be considered small.
    133. Broadband Personal Communications Service. The broadband 
personal communications service (PCS) spectrum is divided into six 
frequency blocks designated A through F, and the Commission has held 
auctions for each block. The Commission defined ``small entity'' for 
Blocks C and F as an entity that has average gross revenues of $40 
million or less in the three previous calendar years. For Block F, an 
additional classification for ``very small business'' was added and is 
defined as an entity that, together with its affiliates, has average 
gross revenues of not more than $15 million for the preceding three 
calendar years. These standards defining ``small entity'' in the 
context of broadband PCS auctions have been approved by the SBA. No 
small businesses, within the SBA-approved small business size standards 
bid successfully for licenses in Blocks A and B. There were 90 winning 
bidders that qualified as small entities in the Block C auctions. A 
total of 93 small and very small business bidders won approximately 40 
percent of the 1,479 licenses for Blocks D, E, and F. In 1999, the 
Commission re-auctioned 347 C, E, and F Block licenses. There were 48 
small business winning bidders. In 2001, the Commission completed the 
auction of 422 C and F Broadband PCS licenses in Auction 35. Of the 35 
winning bidders in this auction, 29 qualified as ``small'' or ``very 
small'' businesses. Subsequent events, concerning Auction 35, including 
judicial and agency determinations, resulted in a total of 163 C and F 
Block licenses being available for grant. In 2005, the Commission 
completed an auction of 188 C block licenses and 21 F block licenses in 
Auction 58. There were 24 winning bidders for 217 licenses. Of the 24 
winning bidders, 16 claimed small business status and won 156 licenses. 
In 2007, the Commission completed an auction of 33 licenses in the A, 
C, and F Blocks in Auction 71. Of the 14 winning bidders, six were 
designated entities. In 2008, the Commission completed an auction of 20 
Broadband PCS licenses in the C, D, E and F block licenses in Auction 
78.
    134. 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.
    135. 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.
    136. 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

[[Page 39181]]

2,093 licenses. A fourth auction, consisting of 9,603 lower and upper 
paging band licenses was held in the year 2010. Twenty-nine bidders 
claiming small or very small business status won 3,016 licenses.
    137. 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 Order.
    138. 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.
    139. Specialized Mobile Radio. The Commission awards small business 
bidding credits in auctions for Specialized Mobile Radio (``SMR'') 
geographic area licenses in the 800 MHz and 900 MHz bands to entities 
that had revenues of no more than $15 million in each of the three 
previous calendar years. The Commission awards very small business 
bidding credits to entities that had revenues of no more than $3 
million in each of the three previous calendar years. The SBA has 
approved these small business size standards for the 800 MHz and 900 
MHz SMR Services. The Commission has held auctions for geographic area 
licenses in the 800 MHz and 900 MHz bands. The 900 MHz SMR auction was 
completed in 1996. Sixty bidders claiming that they qualified as small 
businesses under the $15 million size standard won 263 geographic area 
licenses in the 900 MHz SMR band. The 800 MHz SMR auction for the upper 
200 channels was conducted in 1997. Ten bidders claiming that they 
qualified as small businesses under the $15 million size standard won 
38 geographic area licenses for the upper 200 channels in the 800 MHz 
SMR band. A second auction for the 800 MHz band was conducted in 2002 
and included 23 BEA licenses. One bidder claiming small business status 
won five licenses.
    140. 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.
    141. In addition, there are numerous incumbent site-by-site SMR 
licensees and licensees with extended implementation authorizations in 
the 800 and 900 MHz bands. The Commission does not know how many firms 
provide 800 MHz or 900 MHz geographic area SMR pursuant to extended 
implementation authorizations, nor how many of these providers have 
annual revenues of no more than $15 million. One firm has over $15 
million in revenues. In addition, the Commission does not know how many 
of these firms have 1,500 or fewer employees. The Commission assumes, 
for purposes of this analysis, that all of the remaining existing 
extended implementation authorizations are held by small entities, as 
that small business size standard is approved by the SBA.
    142. 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

[[Page 39182]]

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.
    143. 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 Order.
    144. Lower 700 MHz Band Licenses. The Commission previously adopted 
criteria for defining three groups of small businesses for purposes of 
determining their eligibility for special provisions such as bidding 
credits. The Commission defined a ``small business'' as an entity that, 
together with its affiliates and controlling principals, has average 
gross revenues not exceeding $40 million for the preceding three years. 
A ``very small business'' is defined as an entity that, together with 
its affiliates and controlling principals, has average gross revenues 
that are not more than $15 million for the preceding three years. 
Additionally, the Lower 700 MHz Band had a third category of small 
business status for Metropolitan/Rural Service Area (``MSA/RSA'') 
licenses, identified as ``entrepreneur'' and defined as an entity that, 
together with its affiliates and controlling principals, has average 
gross revenues that are not more than $3 million for the preceding 
three years. The SBA approved these small size standards. The 
Commission conducted an auction in 2002 of 740 Lower 700 MHz Band 
licenses (one license in each of the 734 MSAs/RSAs and one license in 
each of the six Economic Area Groupings (EAGs)). Of the 740 licenses 
available for auction, 484 licenses were sold to 102 winning bidders. 
Seventy-two of the winning bidders claimed small business, very small 
business or entrepreneur status and won a total of 329 licenses. The 
Commission conducted a second Lower 700 MHz Band auction in 2003 that 
included 256 licenses: 5 EAG licenses and 476 Cellular Market Area 
licenses. Seventeen winning bidders claimed small or very small 
business status and won 60 licenses, and nine winning bidders claimed 
entrepreneur status and won 154 licenses. In 2005, the Commission 
completed an auction of 5 licenses in the Lower 700 MHz Band, 
designated Auction 60. There were three winning bidders for five 
licenses. All three winning bidders claimed small business status.
    145. 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.
    146. 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).
    147. 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.
    148. 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.

[[Page 39183]]

    149. 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.
    150. 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.
    151. 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.
    152. Air-Ground Radiotelephone Service. The Commission has not 
adopted a small business size standard specific to the Air-Ground 
Radiotelephone Service. The Commission will use SBA's small business 
size standard applicable to Wireless Telecommunications Carriers 
(except Satellite), i.e., an entity employing no more than 1,500 
persons. There are approximately 100 licensees in the Air-Ground 
Radiotelephone Service, and the Commission estimates that almost all of 
them qualify as small under the SBA small business size standard and 
may be affected by rules adopted pursuant to the Order.
    153. Aviation and Marine Radio Services. Small businesses in the 
aviation and marine radio services use a very high frequency (VHF) 
marine or aircraft radio and, as appropriate, an emergency position-
indicating radio beacon (and/or radar) or an emergency locator 
transmitter. The Commission has not developed a small business size 
standard specifically applicable to these small businesses. For 
purposes of this analysis, the Commission uses the SBA small business 
size standard for the category Wireless Telecommunications Carriers 
(except Satellite), which is 1,500 or fewer employees. Census data for 
2007, which supersede data contained in the 2002 Census, show that 
there were 1,383 firms that operated that year. Of those 1,383, 1,368 
had fewer than 100 employees, and 15 firms had more than 100 employees. 
Most applicants for recreational licenses are individuals. 
Approximately 581,000 ship station licensees and 131,000 aircraft 
station licensees operate domestically and are not subject to the radio 
carriage requirements of any statute or treaty. For purposes of our 
evaluations in this analysis, 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 Order.
    154. 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.
    155. Offshore Radiotelephone Service. This service operates on 
several UHF television broadcast channels that are not used for 
television broadcasting in the coastal areas of states bordering the 
Gulf of Mexico. There are presently approximately 55 licensees in this 
service. 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 the category of Wireless Telecommunications Carriers 
(except Satellite). Under that SBA small business size standard, a 
business is small if it has 1,500 or fewer employees. Census data for 
2007, which supersede data contained in the 2002 Census, show that 
there were 1,383 firms that operated that year. Of those 1,383, 1,368 
had fewer than 100 employees, and 15 firms had more than 100 employees. 
Thus, under this category and the associated small business size 
standard, the majority of firms can be considered small.
    156. 39 GHz Service. The Commission created a special small 
business size

[[Page 39184]]

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 Order.
    157. 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.
    158. 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.
    159. 2.3 GHz Wireless Communications Services. This service can be 
used for fixed, mobile, radiolocation, and digital audio broadcasting 
satellite uses. The Commission defined ``small business'' for the 
wireless communications services (``WCS'') auction as an entity with 
average gross revenues of $40 million for each of the three preceding 
years, and a ``very small business'' as an entity with average gross 
revenues of $15 million for each of the three preceding years. The SBA 
has approved these definitions. The Commission auctioned geographic 
area licenses in the WCS service. In the auction, which was conducted 
in 1997, there were seven bidders that won 31 licenses that qualified 
as very small business entities, and one bidder that won one license 
that qualified as a small business entity.
    160. 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.
    161. 3650-3700 MHz band. In March 2005, the Commission released a 
Report and Order and Memorandum Opinion and Order that provides for 
nationwide, non-exclusive licensing of terrestrial operations, 
utilizing contention-based technologies, in the 3650 MHz band (i.e., 
3650-3700 MHz). As of April 2010, more than 1270 licenses have been 
granted and more than 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.
    162. 24 GHz--Incumbent Licensees. This analysis may affect 
incumbent licensees who were relocated to the 24 GHz band from the 18 
GHz band, and applicants who wish to provide services in the 24 GHz 
band. For this service, the Commission uses the SBA small business size 
standard for the category ``Wireless Telecommunications Carriers 
(except satellite),'' which is 1,500 or fewer employees. To gauge small 
business prevalence for these cable services we must, however, use the 
most current census data. Census data for 2007, which supersede data 
contained in the 2002 Census, show that there were 1,383 firms that 
operated that year. Of those 1,383, 1,368 had fewer than 100 employees, 
and 15 firms had more than 100 employees. Thus under this category and 
the associated small business size standard, the majority of firms can 
be considered small. The Commission notes that the Census' use of the 
classifications ``firms'' does not track the number of ``licenses''. 
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.
    163. 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.
    164. 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

[[Page 39185]]

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.
    165. 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 Order.
    166. 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.
    167. 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 Order.
    168. Cable Companies and Systems. The Commission has developed its 
own small business size standards, for the purpose of cable rate 
regulation. Under the Commission's rules, a ``small cable company'' is 
one serving 400,000 or fewer subscribers, nationwide. Industry data 
indicate that, of 1,076 cable operators nationwide, all but eleven are 
small under this size standard. In addition, under the Commission's 
rules, a ``small system'' is a cable system serving 15,000 or fewer 
subscribers. Industry data indicate that, of 7,208 systems nationwide, 
6,139 systems have under 10,000 subscribers, and an additional 379 
systems have 10,000-19,999 subscribers. Thus, under this second size 
standard, most cable systems are small and may be affected by rules 
adopted pursuant to the Order.
    169. 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.
    170. 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 
Order. 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.
    171. 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, 3,144 firms had employment of 999 or fewer employees, and 
44 firms had employment of 1000 employees or more. Thus, under this

[[Page 39186]]

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 Order.
    172. 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 Order.
    173. 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 Order.
    174. 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
    175. In the Report and Order, the Commission requires that entities 
participating in the Phase II competitive bidding process and the 
Remote Areas Fund certify as to their financial and technical 
capabilities to provide the required services within the specified 
timeframe in the geographic area for which they seek support.
    176. The Commission also makes a procedural rule amendment to 
require all ETCs to file their section 54.313 and 54.314 reports and 
certifications in WC Docket No. 14-58.
5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    177. The RFA requires an agency to describe any significant 
alternatives that it has considered in reaching its 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 or reporting requirements under the rule for 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 small 
entities.
    178. The rules that the Commission adopts in the Report and Order, 
Declaratory Ruling, Order, Memorandum Opinion and Order, and Seventh 
Order on Reconsideration provide flexibility by streamlining certain 
processes for all carriers, including small entities. For example, the 
Commission permits entities that wish to participate in the Phase II 
competitive bidding process to seek ETC designation for the Phase II 
competitive bidding process and Remote Areas Fund after being notified 
they are winning bidders for the offer of the award of Phase II Connect 
America funding. The Commission recognized that some qualified bidders, 
including small entities, may be hesitant to invest resources to apply 
for an ETC designation prior to the competitive bidding process without 
any sense of whether they are likely to be awarded Phase II support.
    179. In the Order, the Commission also removes a deterrent for all 
carriers, including small carriers, that wish to transfer or acquire 
parts of exchanges. The Commission waives on our own motion the $7,990 
application fee for carriers filing petitions for waiver of the study 
area boundary freeze for transfers at the sub-exchange level. This 
change could be especially beneficial to small entities that may have 
found the application fee prohibitive. The Order also delays any 
support reductions associated with the rate floor rule over a multi-
year period, giving carriers, including small carriers, more time to 
adjust to the requirement.
    180. The rules that the Commission adopts for the Phase II 
competitive bidding process also provide flexibility for all 
participants, including small entities, to determine the most cost-
effective way to serve areas where they are awarded support through the 
competitive bidding process. By permitting participants to select to 
bid on extremely high-cost areas, the Commission permits participants 
to build integrated networks that span both types of areas in adjacent 
census blocks as appropriate. And by providing a funding term of 10 
years (subject to existing requirements and the availability of funds), 
the Commission seeks to stimulate greater interest in the competitive 
bidding process.
    181. The Commission declines to adopt a transition period for 
competitive ETCs that receive support through the Phase II competitive 
bidding process because competitive ETCs, including small entities, 
have the ability to determine the level of support necessary to support 
an area through their bid, and thus a transition period is unnecessary.
    182. The Commission also takes steps to provide greater certainty 
to rate-of-

[[Page 39187]]

return carriers, many of which are small entities. For example, in the 
Declaratory Ruling, the Commission clarifies its requirements for rate-
of-return carriers relating to the extension of broadband services upon 
reasonable request. And in the Seventh Order on Reconsideration, the 
Commission eliminates the HCLS benchmarking rule after finding that the 
rule unintentionally has encouraged carriers that were not subject to 
the benchmarks to believe that they too needed to limit their 
investment in broadband-capable networks. In the Seventh Order on 
Reconsideration, the Commission also adopts a more measured transition 
for carriers that qualified for SNA based on investment. In the USF/ICC 
Transformation Order, the Commission made the decision to eliminate and 
phase out SNA effective December 29, 2011. Because there is a two year 
lag between when carriers qualify for SNA support and receive support, 
this decision precluded carriers that would have qualified for SNA 
support in 2010 and 2011, before the Commission's decision to eliminate 
SNA, from receiving SNA. The Commission reconsiders this decision and 
permit carriers that that would have qualified for SNA in 2010 or 2011 
based on an increase in their investment (not due to line loss) to 
receive SNA.
6. Report to Congress
    183. The Commission will send a copy of the Report and Order, 
Declaratory Ruling, Memorandum Opinion and Order, Seventh Order on 
Reconsideration, and concurrently adopted Further Notice of Proposed 
Rulemaking, including this FRFA, in a report to be sent to Congress and 
the Government Accountability Office pursuant to the Small Business 
Regulatory Enforcement Fairness Act of 1996. In addition, the 
Commission will send a copy of the Report and Order, Declaratory 
Ruling, Order, Memorandum Opinion and Order, Seventh Order on 
Reconsideration, and concurrently adopted Further Notice of Proposed 
Rulemaking, including this FRFA, to the Chief Counsel for Advocacy of 
the Small Business Administration. A copy of the Report and Order, 
Declaratory Ruling, Memorandum Opinion and Order, Seventh Order on 
Reconsideration, and concurrently adopted Further Notice of Proposed 
Rulemaking (or summaries thereof) will also be published in the Federal 
Register

VIII. Ordering Clauses

    184. 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 Report and Order, 
Declaratory Ruling, Order, Memorandum Opinion and Order, Seventh Order 
on Reconsideration, and the concurrently adopted Further Notice of 
Proposed Rulemaking 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 the 
Commission 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.
    185. It is further ordered that Parts 36, 54, and 69 of the 
Commission's rules, 47 CFR Parts 36, 54, and 69, are amended as set 
forth in Appendix A, and such rule amendments shall be effective thirty 
(30) days after publication of the rules amendments in the Federal 
Register, except to the extent they contain information collections 
subject to PRA review. The rules that contain information collections 
subject to PRA review shall become effective immediately upon 
announcement in the Federal Register of OMB approval.
    186. It is further ordered that, pursuant to the authority 
contained in sections 1, 2, and 4(i) of the Communications Act of 1934, 
as amended, 47 U.S.C. 151, 152, 154(i), and section 1.3 of the 
Commission's rules, 47 CFR 1.3, the Petition for Extension of Time 
filed by the Eastern Rural Telecom Association, the Independent 
Telephone & Telecommunications Alliance, the National Exchange Carrier 
Association, NTCA--The Rural Broadband Association, the United States 
Telecom Association, and WTA--Advocates for Rural Broadband on March 
11, 2014, is granted in part and is denied in part to the extent 
described herein.
    187. It is further ordered that, pursuant to the authority 
contained in section 5(c)(5) of the Communications Act of 1934, as 
amended, 47 U.S.C. 155(c)(5), and section 1.115(g) of the Commission's 
rules, 47 CFR 1.115(g), the Application for Review filed by Alaska 
Communication Systems on November 26, 2013, is denied.
    188. It is further ordered that, pursuant to section 5(c)(5) of the 
Communications Act of 1934, as amended, 47 U.S.C. 155(c)(5), and 
section 1.115(g) of the Commission's rules, 47 CFR 1.115(g), the 
Application for Review filed by the National Cable and 
Telecommunications Association on December 23, 2013, is dismissed.
    189. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and section 1.429 of the Commission's rules, 47 CFR 
1.429, the Petition for Reconsideration and Clarification filed by the 
National Exchange Carrier Association, Inc., the Organization for the 
Promotion and Advancement of Small Telecommunications Companies, and 
the Western Telecommunications Alliance on December 29, 2011, is 
granted in part and denied in part to the extent described herein.
    190. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and section 1.429 of the Commission's rules, 47 CFR 
1.429, the Petition for Reconsideration filed by the United States 
Telecom Association on December 29, 2011, is denied in part to the 
extent described herein.
    191. It is further ordered that the petition for waiver of section 
36.605 of the Commission's rules, 47 CFR 36.605, eliminating 
eligibility of local exchange carriers to receive Safety Net Additive 
support with respect to qualifying investments made during the year 
2010, filed by North Central Telephone Cooperative, Inc. on December 
20, 2012, is dismissed as described herein.
    192. It is further ordered that, pursuant to the authority 
contained in section 405 of the Communications Act of 1934, as amended, 
47 U.S.C. 405, and section 1.429 of the Commission's rules, 47 CFR 
1.429, the Petition for Reconsideration filed by the Western

[[Page 39188]]

Telecommunications Alliance, The Eastern Rural Telecom Association, and 
the National Exchange Carrier Association on April 18, 2013, is granted 
to the extent described herein.
    193. It is further ordered that, pursuant to the authority 
contained in sections 5 and 405 of the Communications Act of 1934, as 
amended, 47 U.S.C. 155(c), 405, and sections 1.115 and 1.429 of the 
Commission's rules, 47 CFR 1.115, 1.429, the Application for Review 
filed by Arctic Slope Telephone Association Cooperative, Inc. and 
Copper Valley Telephone Cooperative on May 20, 2013 and dated May 18, 
2013, is dismissed as described herein.
    194. It is further ordered that, pursuant to the authority 
contained in sections 1, 2, and 4(i), and 405 of the Communications Act 
of 1934, as amended, 47 U.S.C. 151, 152, 154(i), 405, and sections 1.3 
and 1.429 of the Commission's rules, 47 CFR 1.3, 1.429, the petition 
filed by the National Association of Regulatory Utility Commissioners 
on April 15, 2014 is granted in part and denied in part to the extent 
described herein.
    195. It is further ordered that, pursuant to the authority 
contained in sections 1, 2, and 4(i) of the Communications Act of 1934, 
as amended, 47 U.S.C. 151, 152, 154(i), and sections 1.3,1.4(b)(2), and 
1.103 of the Commission's rules, 47 CFR 1.3, 1.4(b)(2), 1.103 on our 
own motion, section 1.1105 of the Commission's rules, 47 CFR 1.1105 is 
waived to the extent described herein effective upon release.
    196. It is further ordered that, pursuant to the authority 
contained in sections 1, 2, and 4(i) of the Communications Act of 1934, 
as amended, 47 U.S.C. 151, 152, 154(i), and sections 1.3, 1.4(b)(2), 
and 1.103 of the Commission's rules, 47 CFR 1.3, 1.4(b)(2), 1.103, 
sections 54.318(b) and 54.318(i) of the Commission's rules, 47 CFR 
54.318(b), (i) are waived to the extent described herein effective upon 
release.
    197. It is further ordered that the Commission shall send a copy of 
this Report and Order, Declaratory Ruling, Order, Memorandum Opinion 
and Order, Seventh Order on Reconsideration, and concurrently adopted 
Further Notice of Proposed Rulemaking to Congress and the Government 
Accountability Office pursuant to the Congressional Review Act, see 5 
U.S.C. 801(a)(1)(A).
    198. It is further ordered, that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of this Report and Order, Declaratory Ruling, Order, Memorandum 
Opinion and Order, Seventh Order on Reconsideration, and concurrently 
adopted Further Notice of Proposed Rulemaking, 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

47 CFR Part 36

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone, Uniform System of Accounts.

47 CFR Part 54

    Communications common carriers, Reporting and recordkeeping 
requirements, Telecommunications, Telephone.

47 CFR Part 69

    Communications common carriers, Reporting and recordkeeping 
requirements, Telephone.

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rule

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR parts 36, 54, and 69 as 
follows:

PART 36--JURISDICTIONAL SEPARATIONS PROCEDURES; STANDARD PROCEDURES 
FOR SEPARATING TELECOMMUNICATIONS PROPERTY COSTS, REVENUES, 
EXPENSES, TAXES AND RESERVES FOR TELECOMMUNICATIONS COMPANIES

0
1. The authority citation for part 36 continues to read as follows:

    Authority: 47 U.S.C. 151, 154(i) and (j), 205, 221(c), 254, 
303(r), 403, 410, and 1302 unless otherwise noted.

Subpart F--[Removed and Reserved]

0
2. Remove and reserve subpart F, consisting of Sec. Sec.  36.601, 
36.603 through 36.605, 36.611 through 36.613, 36.621, 36.622 and 
36.631.

PART 54--UNIVERSAL SERVICE

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

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


0
4. Amend Sec.  54.302 by revising paragraph (b) to read as follows:


Sec.  54.302  Monthly per-line limit on universal service support.

* * * * *
    (b) For purposes of this section, universal service support is 
defined as the sum of the amounts calculated pursuant to Sec. Sec.  
54.1304 and 54.1310, and Sec. Sec.  54.305, and 54.901 through 54.904. 
Line counts for purposes of this section shall be as of the most recent 
line counts reported pursuant to Sec.  54.1306(i).
* * * * *

0
5. Amend Sec.  54.305 by revising paragraphs (d) and (e) to read as 
follows:


Sec.  54.305  Sale or transfer of exchanges.

* * * * *
    (d) Transferred exchanges in study areas operated by rural 
telephone companies that are subject to the limitations on loop-related 
universal service support in paragraph (b) of this section may be 
eligible for a safety valve loop cost expense adjustment based on the 
difference between the rural incumbent local exchange carrier's index 
year expense adjustment and subsequent year loop cost expense 
adjustments for the acquired exchanges. Safety valve loop cost expense 
adjustments shall only be available to rural incumbent local exchange 
carriers that, in the absence of restrictions on high-cost loop support 
in paragraph (b) of this section, would qualify for high-cost loop 
support for the acquired exchanges under Sec.  54.1310.
    (1) For carriers that buy or acquire telephone exchanges on or 
after January 10, 2005, from an unaffiliated carrier, the index year 
expense adjustment for the acquiring carrier's first year of operation 
shall equal the selling carrier's loop-related expense adjustment for 
the transferred exchanges for the 12-month period prior to the transfer 
of the exchanges. At the acquiring carrier's option, the first year of 
operation for the transferred exchanges, for purposes of calculating 
safety valve support, shall commence at the beginning of either the 
first calendar year or the next calendar quarter following the transfer 
of exchanges. For the first year of operation, a loop cost expense 
adjustment, using the costs of the acquired exchanges submitted in 
accordance with Sec. Sec.  54.1305 and 54.1306, shall be calculated 
pursuant to Sec.  54.1310 and then compared to the index year expense 
adjustment. Safety valve support for the first period of operation will 
then be calculated pursuant to paragraph (d)(3) of this section. The 
index year expense adjustment for years after the first year of 
operation shall be determined using cost data for the first year of 
operation

[[Page 39189]]

of the transferred exchanges. Such cost data for the first year of 
operation shall be calculated in accordance with Sec. Sec.  54.1305, 
54.1306, and 54.1310. For each year, ending on the same calendar 
quarter as the first year of operation, a loop cost expense adjustment, 
using the loop costs of the acquired exchanges, shall be submitted and 
calculated pursuant to Sec. Sec.  54.1305, 54.1306, and 54.1310 and 
will be compared to the index year expense adjustment. Safety valve 
support for the second year of operation and thereafter will then be 
calculated pursuant to paragraph (d)(3) of this section.
    (2) For carriers that bought or acquired exchanges from an 
unaffiliated carrier before January 10, 2005, and are not subject to 
the exception in paragraph (c) of this section, the index year expense 
adjustment for acquired exchange(s) shall be equal to the rural 
incumbent local exchange carrier's high-cost loop expense adjustment 
for the acquired exchanges calculated for the carrier's first year of 
operation of the acquired exchange(s). At the carrier's option, the 
first year of operation of the transferred exchanges shall commence at 
the beginning of either the first calendar year or the next calendar 
quarter following the transfer of exchanges. The index year expense 
adjustment shall be determined using cost data for the acquired 
exchange(s) submitted in accordance with Sec. Sec.  54.1305 and 54.1306 
and shall be calculated in accordance with Sec.  54.1310. The index 
year expense adjustment for rural telephone companies that have 
operated exchanges subject to this section for more than a full year on 
August 8, 2014 shall be based on loop cost data submitted in accordance 
with Sec.  54.1306 for the year ending on the nearest calendar quarter 
following August 8, 2014. For each subsequent year, ending on the same 
calendar quarter as the index year, a loop cost expense adjustment, 
using the costs of the acquired exchanges, will be calculated pursuant 
to Sec.  54.1310 and will be compared to the index year expense 
adjustment. Safety valve support is calculated pursuant to paragraph 
(d)(3) of this section.
    (3) Up to fifty (50) percent of any positive difference between the 
transferred exchanges loop cost expense adjustment and the index year 
expense adjustment will be designated as the transferred exchange's 
safety valve loop cost expense adjustment and will be available in 
addition to the per-line loop-related support transferred from the 
selling carrier to the acquiring carrier pursuant to paragraph (b) of 
this section. In no event shall a study area's safety valve loop cost 
expense adjustment exceed the difference between the carrier's study 
area loop cost expense adjustment calculated pursuant to Sec.  54.1310 
and transferred support amounts available to the acquired exchange(s) 
under paragraph (b) of this section. Safety valve support shall not 
transfer with acquired exchanges.
    (e) The sum of the safety valve loop cost expense adjustment for 
all eligible study areas operated by rural telephone companies shall 
not exceed five (5) percent of the total rural incumbent local exchange 
carrier portion of the annual nationwide loop cost expense adjustment 
calculated pursuant to Sec.  54.1302. The five (5) percent cap on the 
safety valve mechanism shall be based on the lesser of the rural 
incumbent local exchange carrier portion of the annual nationwide loop 
cost expense adjustment calculated pursuant to Sec.  54.1302 or the sum 
of rural incumbent local exchange carrier expense adjustments 
calculated pursuant to Sec.  54.1310. The percentage multiplier used to 
derive study area safety valve loop cost expense adjustments for rural 
telephone companies shall be the lesser of fifty (50) percent or a 
percentage calculated to produce the maximum total safety valve loop 
cost expense adjustment for all eligible study areas pursuant to this 
paragraph. The safety valve loop cost expense adjustment of an 
individual rural incumbent local exchange carrier also may be further 
reduced as described in paragraph (d)(3) of this section.
* * * * *
0
6. Amend Sec.  54.310 by revising paragraphs (a) and (b) and adding 
paragraphs (e) and (f) to read as follows:


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

    (a) Geographic areas eligible for support. Connect America Phase II 
support may be made available for census blocks or other areas 
identified as eligible by public notice, including locations identified 
by the forward-looking cost model as extremely high-cost. The number of 
supported locations will be identified for each area eligible for 
support will be identified by public notice.
    (b) Term of support. Connect America Phase II model-based support 
shall be provided to price cap carriers that elect to make a state-wide 
commitment for five years. Connect America Phase II support awarded 
through a competitive bidding process shall be provided for ten years.
* * * * *
    (e) Provider eligibility. Any eligible telecommunications carrier 
is eligible to receive Connect America Phase II support in eligible 
areas.
    (1) 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.
    (2) To the extent an applicant in the competitive bidding process 
seeks eligible telecommunications carrier designation prior to public 
notice 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.
    (f) Transition to model-based support. Eligible telecommunications 
carriers electing model-based support in states where that support is 
less than their Phase I frozen support will transition to model-based 
support as follows: In addition to model-based support, in the first 
year of Phase II, they will receive 75% of the difference between Phase 
I frozen support and model-based support; in the second year of Phase 
II, they will receive 50% of the difference between Phase I frozen 
support and model-based support; and in the third year of Phase II, 
they will receive 25% of the difference between Phase I frozen support 
and model-based support.

0
7. Amend Sec.  54.313 by revising paragraphs (f)(1) introductory text 
and (i) to read as follows:


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

* * * * *
    (f) * * *
    (1) Beginning July 1, 2015. A progress report on its five-year 
service quality plan pursuant to Sec.  54.202(a) that includes the 
following information:
* * * * *
    (i) All reports pursuant to this section shall be filed with the 
Office of the Secretary of the Commission clearly referencing WC Docket 
No. 14-58, with the Administrator, and with the relevant state 
commissions or relevant authority in a U.S. Territory, or Tribal 
governments, as appropriate.
* * * * *

0
8. Amend Sec.  54.314 by revising paragraph (c) to read as follows:

[[Page 39190]]

Sec.  54.314  Certification of support for eligible telecommunications 
carriers.

* * * * *
    (c) Certification format. (1) A certification pursuant to this 
section may be filed in the form of a letter from the appropriate 
regulatory authority for the State, and must be filed with both the 
Office of the Secretary of the Commission clearly referencing WC Docket 
No. 14-58, and with the Administrator of the high-cost support 
mechanism, on or before the deadlines set forth in paragraph (d) of 
this section. If provided by the appropriate regulatory authority for 
the State, the annual certification must identify which carriers in the 
State are eligible to receive federal support during the applicable 12-
month period, and must certify that those carriers only used support 
during the preceding calendar year and will only use support in the 
coming calendar year for the provision, maintenance, and upgrading of 
facilities and services for which support is intended. A State may file 
a supplemental certification for carriers not subject to the State's 
annual certification. All certificates filed by a State pursuant to 
this section shall become part of the public record maintained by the 
Commission.
    (2) An eligible telecommunications carrier not subject to the 
jurisdiction of a State shall file a sworn affidavit executed by a 
corporate officer attesting that the carrier only used support during 
the preceding calendar year and will only use support in the coming 
calendar year for the provision, maintenance, and upgrading of 
facilities and services for which support is intended. The affidavit 
must be filed with both the Office of the Secretary of the Commission 
clearly referencing WC Docket No. 14-58, and with the Administrator of 
the high-cost universal service support mechanism, on or before the 
deadlines set forth in paragraph (d) of this section. All affidavits 
filed pursuant to this section shall become part of the public record 
maintained by the Commission.
* * * * *

0
9. Amend Sec.  54.318 by revising paragraphs (d) and (g) to read as 
follows:


Sec.  54.318  High-cost support; limitations on high-cost support.

* * * * *
    (d) For purposes of this section, high-cost support is defined as 
the support available pursuant to Sec.  54.1310 and frozen high-cost 
support provided to price cap carriers to the extent it is based on 
support previously provided pursuant to Sec.  54.1310 or former high-
cost proxy model support.
* * * * *
    (g) Any reductions in high-cost support under this section will not 
be redistributed to other carriers that receive support pursuant to 
Sec.  54.1310.
* * * * *

0
10. Add Sec.  54.319 to subpart D to read as follows:


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

    (a) Universal service support shall be eliminated in an incumbent 
local exchange carrier study area where an unsubsidized competitor, or 
combination of unsubsidized 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 4 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 2010 high-cost support or $3000 times the number of reported 
lines as of year-end 2010;
    (2) In the second year, one-third of the lesser of the incumbent's 
total 2010 high-cost support or $3000 times the number of reported 
lines as of year-end 2010;
    (3) In the third year and thereafter, no support shall be paid.

0
11. Amend Sec.  54.903 by revising paragraphs (a)(1) and (2) to read as 
follows:


Sec.  54.903  Obligations of rate-of-return carriers and the 
Administrator.

    (a) * * *
    (1) Beginning July 31, 2002, each rate-of-return carrier shall 
submit to the Administrator in accordance with the schedule in Sec.  
54.1306 the number of lines it serves, within each rate-of-return 
carrier study area showing residential and single-line business line 
counts and multi-line business line counts separately. For purposes of 
this report, and for purposes of computing support under this subpart, 
the residential and single-line business class lines reported include 
lines assessed the residential and single-line business End User Common 
Line charge pursuant to Sec.  69.104 of this chapter, and the multi-
line business class lines reported include lines assessed the multi-
line business End User Common Line charge pursuant to Sec.  69.104 of 
this chapter. For purposes of this report, and for purposes of 
computing support under this subpart, lines served using resale of the 
rate-of-return local exchange carrier's service pursuant to section 
251(c)(4) of the Communications Act of 1934, as amended, shall be 
considered lines served by the rate-of-return carrier only and must be 
reported accordingly.
    (2) A rate-of-return carrier may submit the information in 
paragraph (a) of this section in accordance with the schedule in Sec.  
54.1306, even if it is not required to do so. If a rate-of-return 
carrier makes a filing under this paragraph, it shall separately 
indicate any lines that it has acquired from another carrier that it 
has not previously reported pursuant to paragraph (a) of this section, 
identified by customer class and the carrier from which the lines were 
acquired.
* * * * *

0
12. Add subpart M to part 54 to read as follows
Subpart M--High Cost Loop Support for Rate-of-Return Carriers
Sec.
54.1301 General.
54.1302 Calculation of incumbent local exchange carrier portion of 
nationwide loop cost expense adjustment for rate-of-return carriers.
54.1303 Calculation of the rural growth factor.
54.1304 Calculation of safety net additive.
54.1305 Submission of information to the National Exchange Carrier 
Association (NECA).
54.1306 Updating information submitted to the National Exchange 
Carrier Association.
54.1307 Submission of information by the National Exchange Carrier 
Association.
54.1308 Study area total unseparated loop cost.
54.1309 National and study area average unseparated loop costs.
54.1310 Expense adjustment.

Subpart M--High Cost Loop Support for Rate-of-Return Carriers


Sec.  54.1301  General.

    (a) This subpart addresses support for loop-related costs included 
in Sec.  54.1308. The expense adjustment calculated pursuant to this 
subpart M shall be added to interstate expenses and deducted from state 
expenses after expenses and taxes have been apportioned pursuant to 
subpart D of part 36 of this chapter. Beginning January 1, 2012, this 
subpart will only apply to incumbent local exchange

[[Page 39191]]

carriers that are rate-of-return carriers not affiliated, as 
``affiliated companies'' are defined in Sec.  32.9000 of this chapter, 
with price cap local exchange carriers. Rate-of-return carriers and 
price cap local exchange carriers are defined pursuant to Sec.  54.5 
and Sec.  61.3(bb) of this chapter, respectively.
    (b) The expense adjustment will be computed on the basis of data 
for a preceding calendar year which may be updated at the option of the 
carrier pursuant to Sec.  54.1306(a).


Sec.  54.1302  Calculation of incumbent local exchange carrier portion 
of nationwide loop cost expense adjustment for rate-of-return carriers.

    (a) Beginning January 1, 2013, and each calendar year thereafter, 
the total annual amount of the incumbent local exchange carrier portion 
of the nationwide loop cost expense adjustment shall not exceed the 
amount for the immediately preceding calendar year, multiplied times 
one plus the Rural Growth Factor calculated pursuant to Sec.  54.1303.
    (b) The annual rural incumbent local exchange carrier portion of 
the nationwide loop cost expense adjustment shall be reduced to reflect 
the transfer of rural incumbent local exchange carrier access lines 
that are eligible for expense adjustments pursuant to Sec.  54.1310. 
The reduction shall equal the amount of the Sec.  54.1310 expense 
adjustment available to the transferred access lines at the time of the 
transfer and shall be effective in the next calendar quarter after the 
access lines are transferred.
    (c) Safety net additive support calculated pursuant to Sec.  
54.1304, and transferred high-cost support and safety valve support 
calculated pursuant to Sec.  54.305 of this part shall not be included 
in the rural incumbent local exchange carrier portion of the annual 
nationwide loop cost expense adjustment.


Sec.  54.1303  Calculation of the rural growth factor.

    (a) The Rural Growth Factor (RGF) is equal to the sum of the annual 
percentage change in the United States Department of Commerce's Gross 
Domestic Product--Chained Price Index (GPD-CPI) plus the percentage 
change in the total number of rural incumbent local exchange carrier 
working loops during the calendar year preceding the July 31st filing 
submitted pursuant to Sec.  54.1305. The percentage change in total 
rural incumbent local exchange carrier working loops shall be based 
upon the difference between the total number of rural incumbent local 
exchange carrier working loops on December 31 of the calendar year 
preceding the July 31st filing and the total number of rural incumbent 
local exchange carrier working loops on December 31 of the second 
calendar year preceding that filing, both determined by the company's 
submissions pursuant to Sec.  54.1305. Loops acquired by rural 
incumbent local exchange carriers shall not be included in the RGF 
calculation.
    (b) Beginning July 31, 2012, pursuant to Sec.  54.1301(a), the 
calculation of the Rural Growth Factor shall not include price cap 
carrier working loops and rate-of-return local exchange carrier working 
loops of companies that were affiliated with price cap carriers during 
the calendar year preceding the July 31st filing submitted pursuant to 
Sec.  54.1305.


Sec.  54.1304  Calculation of safety net additive.

    (a) Safety net additive support. Only those local exchange carriers 
that qualified for safety net additive based on 2011 or prior year 
costs shall be eligible to receive safety net additive pursuant to 
paragraph (c) of this section. A local exchange carrier shall not 
receive safety net additive unless the carrier's realized total growth 
in Telecommunications Plant in Service (TPIS) was more than 14 percent 
in 2011 or earlier, pursuant to paragraph (c) of this section.
    (b) Calculation of safety net additive support for companies that 
qualified based on 2011 or prior year costs. Safety net additive 
support is equal to the amount of capped support calculated pursuant to 
this subpart M in the qualifying year minus the amount of support in 
the year prior to qualifying for support subtracted from the difference 
between the uncapped expense adjustment for the study area in the 
qualifying year minus the uncapped expense adjustment in the year prior 
to qualifying for support as shown in the following equation: Safety 
net additive support = (Uncapped support in the qualifying year-
Uncapped support in the base year)-(Capped support in the qualifying 
year-Amount of support received in the base year).
    (c) Operation of safety net additive support for companies that 
qualified based on 2011 or prior year costs. (1) In any year in which 
the total carrier loop cost expense adjustment is limited by the 
provisions of Sec.  54.1302, a rate-of-return incumbent local exchange 
carrier shall receive safety net additive support as calculated in 
paragraph (b) of this section, if in any study area, the rural 
incumbent local exchange carrier realizes growth in end of period TPIS, 
as prescribed in Sec.  32.2001, on a per loop basis, of at least 14 
percent more than the study area's TPIS per loop investment at the end 
of the prior period.
    (2) If paragraph (c)(1) of this section is met, the rural incumbent 
local exchange carrier must notify the Administrator; failure to 
properly notify the Administrator of eligibility shall result in 
disqualification of that study area for safety net additive, requiring 
the rural incumbent local exchange carrier to again meet the 
eligibility requirements in paragraph (c)(1) of this section for that 
study area in a subsequent period.
    (3) Upon completion of verification by the Administrator that the 
study area meets the stated criterion in paragraphs (a), (b), or (c) of 
this section, the Administrator shall:
    (i) Pay to any qualifying rural telephone company safety net 
additive support for the qualifying study area in accordance with the 
calculation set forth in paragraph (b) of this section; and
    (ii) Continue to pay safety net additive support in any of the four 
succeeding years in which the total carrier loop expense adjustment is 
limited by the provisions of Sec.  54.1302. Safety net additive support 
in the succeeding four years shall be the lesser of:
    (A) The sum of capped support and the safety net additive support 
received in the qualifying year; or
    (B) The rural telephone company's uncapped support.


Sec.  54.1305  Submission of information to the National Exchange 
Carrier Association (NECA)

    (a) In order to allow determination of the study areas and wire 
centers that are entitled to an expense adjustment pursuant to Sec.  
54.1310, each incumbent local exchange carrier (LEC) must provide the 
National Exchange Carrier Association (NECA) (established pursuant to 
part 69 of this chapter) with the information listed for each study 
area in which such incumbent LEC operates, with the exception of the 
information listed in paragraph (h) of this section, which must be 
provided for each study area. This information is to be filed with NECA 
by July 31st of each year. The information provided pursuant to 
paragraph (i) of this section must be updated pursuant to Sec.  
54.1306. Rural telephone companies that acquired exchanges subsequent 
to May 7, 1997, and incorporated those acquired exchanges into existing 
study areas shall separately provide the information required by 
paragraphs (b)

[[Page 39192]]

through (i) of this section for both the acquired and existing 
exchanges.
    (b) Unseparated, i.e., state and interstate, gross plant investment 
in Exchange Line Cable and Wire Facilities (C&WF) Subcategory 1.3 and 
Exchange Line Central Office (CO) Circuit Equipment Category 4.13. This 
amount shall be calculated as of December 31st of the calendar year 
preceding each July 31st filing.
    (c) Unseparated accumulated depreciation and noncurrent deferred 
federal income taxes, attributable to Exchange Line C&WF Subcategory 
1.3 investment, and Exchange Line CO Circuit Equipment Category 4.13 
investment. These amounts shall be calculated as of December 31st of 
the calendar year preceding each July 31st filing, and shall be stated 
separately.
    (d) Unseparated depreciation expense attributable to Exchange Line 
C&WF Subcategory 1.3 investment, and Exchange Line CO Circuit Equipment 
Category 4.13 investment. This amount shall be the actual depreciation 
expense for the calendar year preceding each July 31st filing.
    (e) Unseparated maintenance expense attributable to Exchange Line 
C&WF Subcategory 1.3 investment and Exchange Line CO Circuit Equipment 
Category 4.113 investment. This amount shall be the actual repair 
expense for the calendar year preceding each July 31st filing.
    (f) Unseparated corporate operations expenses, operating taxes, and 
the benefits and rent proportions of operating expenses. The amount for 
each of these categories of expense shall be the actual amount for that 
expense for the calendar year preceding each July 31st filing. The 
amount for each category of expense listed shall be stated separately.
    (g) Unseparated gross telecommunications plant investment. This 
amount shall be calculated as of December 31st of the calendar year 
preceding each July 31st filing.
    (h) Unseparated accumulated depreciation and noncurrent deferred 
federal income taxes attributable to local unseparated 
telecommunications plant investment. This amount shall be calculated as 
of December 31st of the calendar year preceding each July 31st filing.
    (i) The number of working loops for each study area. For universal 
service support purposes, working loops are defined as the number of 
working Exchange Line C&WF loops used jointly for exchange and message 
telecommunications service, including C&WF subscriber lines associated 
with pay telephones in C&WF Category 1, but excluding WATS closed end 
access and TWX service. These figures shall be calculated as of 
December 31st of the calendar year preceding each July 31st filing.


Sec.  54.1306  Updating Information Submitted to the National Exchange 
Carrier Association.

    (a) Any incumbent local exchange carrier subject to Sec.  
54.1301(a) may update the information submitted to the National 
Exchange Carrier Association (NECA) on July 31st pursuant to Sec.  
54.1305 one or more times annually on a rolling year basis according to 
the schedule.
    (1) Submit data covering the last nine months of the previous 
calendar year and the first three months of the existing calendar year 
no later than September 30th of the existing year;
    (2) Submit data covering the last six months of the previous 
calendar year and the first six months of the existing calendar year no 
later than December 30th of the existing year;
    (3) Submit data covering the last three months of the second 
previous calendar year and the first nine months of the previous 
calendar year no later than March 30th of the existing year.
    (b) [Reserved]


Sec.  54.1307  Submission of Information by the National Exchange 
Carrier Association.

    (a) On October 1 of each year, the National Exchange Carrier 
Association (NECA) shall file with the Commission and Administrator the 
information listed below. Information filed with the Commission shall 
be compiled from information provided to NECA by telephone companies 
pursuant to Sec.  54.1305.
    (1) The unseparated loop cost for each study area and a nationwide-
average unseparated loop cost.
    (2) The annual amount of the high cost expense adjustment for each 
study area, and the total nationwide amount of the expense adjustment.
    (3) The dollar amount and percentage of the increase in the 
nationwide average unseparated loop cost, as well as the dollar amount 
and percentage increase for each study area, for the previous 5 years, 
or the number of years NECA has been receiving this information, 
whichever is the shorter time period.
    (b) [Reserved]


Sec.  54.1308  Study Area Total Unseparated Loop Cost.

    (a) For the purpose of calculating the expense adjustment, the 
study area total unseparated loop cost equals the sum of the following:
    (1) Return component for net unseparated Exchange Line C&WF 
subcategory 1.3 investment and Exchange Line CO Circuit Equipment 
Category 4.13 investment. This amount is calculated by deducting the 
accumulated depreciation and noncurrent deferred Federal income taxes 
attributable to C&WF Subcategory 1.3 investment and Exchange Line 
Category 4.13 circuit investment reported pursuant to Sec.  54.1305(b) 
from the gross investment in Exchange Line C&WF Subcategory 1.3 and CO 
Category 4.13 reported pursuant to Sec.  54.1305(a) to obtain the net 
unseparated C&WF Subcategory 1.3 investment, and CO Category 4.13 
investment. The net unseparated C&WF Subcategory 1.3 investment and CO 
Category 4.13 investment is multiplied by the study area's authorized 
interstate rate of return.
    (2) Depreciation expense attributable to C&WF Subcategory 1.3 
investment, and CO Category 4.13 investment as reported in Sec.  
54.1305(c).
    (3) Maintenance expense attributable to C&WF Subcategory 1.3 
investment, and CO Category 4.13 investment as reported in Sec.  
54.1305(d).
    (4) Corporate Operations Expenses, Operating Taxes and the benefits 
and rent portions of operating expenses, as reported in Sec.  
54.1305(e) attributable to investment in C&WF Category 1.3 and COE 
Category 4.13. This amount is calculated by multiplying the total 
amount of these expenses and taxes by the ratio of the unseparated 
gross exchange plant investment in C&WF Category 1.3 and COE Category 
4.13, as reported in Sec.  54.1305(a), to the unseparated gross 
telecommunications plant investment, as reported in Sec.  54.1305(f). 
Total Corporate Operations Expense for purposes of calculating high-
cost loop support payments beginning January 1, 2012 shall be limited 
to the lesser of Sec.  54.1308(a)(4)(i) or (ii).
    (i) The actual average monthly per-loop Corporate Operations 
Expense; or
    (ii) A monthly per-loop amount computed according to paragraphs 
(a)(4)(ii)(A), (a)(4)(ii)(B), (a)(4)(ii)(C), and (a)(4)(ii)(D) of this 
section. To the extent that some carriers' corporate operations 
expenses are disallowed pursuant to these limitations, the national 
average unseparated cost per loop shall be adjusted accordingly.
    (A) For study areas with 6,000 or fewer total working loops the 
amount monthly per working loop shall be $42.337 - (.00328 x the number 
of total working loops), or, $63,000/the number of total working loops, 
whichever is greater;

[[Page 39193]]

    (B) For study areas with more than 6,000 but fewer than 17,887 
total working loops, the monthly amount per working loop shall be 
$3.007 + (117,990/the number of total working loops); and
    (C) For study areas with 17,887 or more total working loops, the 
monthly amount per working loop shall be $9.562.
    (D) Beginning January 1, 2013, the monthly per-loop amount computed 
according to paragraphs (a)(4)(ii)(A), (a)(4)(ii)(B), and (a)(4)(ii)(C) 
of this section shall be adjusted each year to reflect the annual 
percentage change in the United States Department of Commerce's Gross 
Domestic Product-Chained Price Index (GDP-CPI).
    (b) [Reserved]


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

    (a) National average unseparated loop cost per working loop. Except 
as provided in paragraph (c) of this section, this 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. Beginning July 
1, 2001, the national average unseparated loop cost for purposes of 
calculating expense adjustments for rural incumbent local exchange 
carriers, as that term is defined in Sec.  54.5 of this part is frozen 
at $240.00.
    (1) The national average unseparated loop cost per working loop 
shall be recalculated by the National Exchange Carrier Association to 
reflect the September, December, and March update filings.
    (2) Each new nationwide average shall be used in determining the 
additional interstate expense allocation for companies which made 
filings by the most recent filing date.
    (3) The calculation of a new national average to reflect the update 
filings shall not affect the amount of the additional interstate 
expense allocation for companies which did not make an update filing by 
the most recent filing date.
    (b) Study area average unseparated loop cost per working loop. This 
is equal to the unseparated loop costs for the study area as calculated 
pursuant to Sec.  54.1308(a) divided by the number of working loops 
reported in Sec.  54.1305(i) for the study area.
    (1) If a company elects to, or is required to, update the data 
which it has filed with the National Exchange Carrier Association as 
provided in Sec.  54.1306(a), the study area average unseparated loop 
cost per working loop and the amount of its additional interstate 
expense allocation shall be recalculated to reflect the updated data.
    (2) [Reserved]
    (c) The national average inseparated loop Cost per working loop 
shall be the greater of:
    (1) The amount calculated pursuant to the method described in 
paragraph (a) of this section; or
    (2) Beginning July 1, 2001, for rural carriers, an amount 
calculated to produce the maximum rural incumbent local exchange 
carrier portion of nationwide loop cost expense adjustment allowable 
pursuant to Sec.  54.1302(a).


Sec.  54.1310  Expense adjustment.

    (a) [Reserved]
    (b) [Reserved]
    (c) Beginning January 1, 1988, 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 (c)(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(a) 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(a) multiplied by the number of 
working loops reported in Sec.  54.1305(h) for the study area.
    (d) Beginning April 1, 1989, the expense adjustment calculated 
pursuant to Sec.  54.1310(c) 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(c) for the following year. 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(c) for the following year.

PART 69--ACCESS CHARGES

0
13. The authority citation for part 69 continues to read as follows:

    Authority:  47 U.S.C. 154, 201, 202, 203, 205, 218, 220, 254, 
403.


0
14. Revise Sec.  69.413 to read as follows:


Sec.  69.413  High cost loop support universal service fund expenses.

    Beginning April 1, 1989, expenses allocated to the interstate 
jurisdiction pursuant to Sec. Sec.  54.1310 and 36.641 of this chapter 
shall be assigned to the Universal Service Fund Element.

[FR Doc. 2014-15668 Filed 7-8-14; 8:45 am]
BILLING CODE 6712-01-P