[Federal Register Volume 80, Number 17 (Tuesday, January 27, 2015)]
[Rules and Regulations]
[Pages 4446-4480]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-00939]



[[Page 4445]]

Vol. 80

Tuesday,

No. 17

January 27, 2015

Part III





Federal Communications Commission





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47 CFR Part 54





Connect America Fund, ETC Annual Reports and Certifications, Petition 
of USTelecom for Forbearance From Obsolete ILEC Regulatory Obligations 
That Inhibit Deployment of Next-Generation Networks; Final Rule

  Federal Register / Vol. 80 , No. 17 / Tuesday, January 27, 2015 / 
Rules and Regulations  

[[Page 4446]]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos. 10-90, 14-58, 14-192; FCC 14-190]


Connect America Fund, ETC Annual Reports and Certifications, 
Petition of USTelecom for Forbearance From Obsolete ILEC Regulatory 
Obligations That Inhibit Deployment of Next-Generation Networks

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission 
(Commission) takes momentous strides towards fully implementing a 
modernized universal service regime capable of meeting consumer demands 
for 21st century networks. The Commission also finalizes decisions 
necessary to proceed with the offer of support to price cap carriers in 
early 2015.

DATES: Effective February 26, 2015, except for Sec. Sec.  54.313(a)(e) 
and 54.320 which contain 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 those sections.

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, WC Docket Nos. 10-90, 14-58, 14-192; FCC 14-190, adopted on 
December 11, 2014 and released on December 18, 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: 
https://apps.fcc.gov/edocs_public/attachmatch/FCC-14-190A1.pdf.

I. Introduction

    1. With this Report and Order (Order), the Commission takes another 
momentous stride towards fully implementing a modernized universal 
service regime capable of meeting consumer demands for 21st century 
networks. The Commission finalizes the decisions necessary to proceed 
with the offer of support to price cap carriers in early 2015, thereby 
paving the way for the deployment of new broadband infrastructure to 
millions of unserved Americans. In the coming months, the Commission 
will turn our attention to finalizing the rules for the Phase II 
competitive bidding process that will occur in those states where the 
price cap carrier declines the offer of model-based support.
    2. Throughout the universal service reform process, the Commission 
has sought to ensure that all consumers ``have access to . . . advanced 
telecommunications and information services'' and benefit from the 
historic technology transitions that are transforming our nation's 
communications services. This Report and Order continues down that 
path. The Commission adopts several revisions to Connect America Phase 
II to account for changes in the marketplace since the USF/ICC 
Transformation Order, 76 FR 73830, November 29, 2011, was adopted. In 
particular, the Commission revises the minimum speed requirement that 
recipients of high-cost universal service must offer. The Commission 
finds that it is in the public interest to require recipients of high-
cost support subject to broadband performance obligations to serve 
fixed locations to provide at least a minimum broadband speed of 10 
Mbps downstream.
    3. The Commission adopts targeted changes to the framework 
established for the offer of model-based support to price cap carriers. 
Specifically, the Commission makes an adjustment to the term of 
support, adopts more evenly spaced interim deployment milestones, and 
concludes that adjustments of up to five percent in the number of 
locations that must be served with corresponding support reductions are 
appropriate to ensure that deployment obligations recognize conditions 
in the real world. The Commission also forbears from the federal high-
cost universal service obligation of price cap carriers to offer voice 
service in low-cost areas where they do not receive high-cost support, 
in areas served by an unsubsidized competitor, and in areas where the 
price cap carrier is replaced by another eligible telecommunications 
carrier (ETC).
    4. In addition, the Commission addresses where Phase II support 
will be available, both for the offer of model-based support to price 
cap carriers and the subsequent Phase II competitive bidding process. 
First, the Commission will exclude from the offer of Phase II model-
based support any census block served by a subsidized facilities-based 
terrestrial competitor that offers fixed residential voice and 
broadband services meeting or exceeding 4 Mbps downstream and 1 Mbps 
upstream (4/1 Mbps), using 3 Mbps downstream/768 kbps upstream (3 Mbps/
768 kbps) as a proxy for this standard, as determined by the Wireline 
Competition Bureau (Bureau) upon completion of the Phase II challenge 
process. The Commission also reaffirms its decision to exclude from the 
offer of model-based support any census block served by an unsubsidized 
competitor that meets or exceeds the 3 Mbps/768 kbps performance 
metrics. Second, the Commission concludes that those high-cost blocks 
served by a subsidized carrier that are excluded from the offer of 
model-based support--including blocks with service meeting or exceeding 
the new 10 Mbps downstream/1 Mbps upstream (10/1 Mbps) speed 
requirement--will be eligible for support in the Phase II competitive 
bidding process. Third, the Commission concludes that any area served 
by an unsubsidized facilities-based terrestrial competitor that offers 
10/1 Mbps will be ineligible for support in the Phase II competitive 
bidding process.
    5. In the April 2014 Connect America Fund FNPRM, 79 FR 39196, July 
9, 2014, the Commission sought comment on a number of near-term and 
longer-term reforms for rate-of-return carriers, including developing 
and implementing a ``Connect America Fund'' for rate-of-return 
carriers. Although a number of parties have submitted proposals that 
may have promise, the Commission finds that further analysis and 
development of these proposals is necessary. The Commission will 
continue to explore the possibility of a voluntary path to model-based 
support for those rate-of-return carriers that choose to pursue it. The 
Commission also expects to continue to develop the record and act in 
the coming year on alternatives for those who do not elect to receive 
model-based support.
    6. In this Order, the Commission focuses on near-term reforms for 
rate-of-return carriers. Specifically, the Commission adopts a revised 
methodology for applying the cap on high-cost loop support to 
distribute that support on a more equitable basis. The Commission also 
addresses the proposals from the April 2014 Connect America FNPRM 
regarding the 100 percent overlap rule.
    7. In the USF/ICC Transformation Order, the Commission established 
a ``uniform national framework for accountability'' that replaced the 
various data and certification filing deadlines that carriers 
previously were

[[Page 4447]]

required to meet. In this Order, the Commission takes several steps to 
strengthen that framework, including codifying the reasonable 
comparability pricing requirement for broadband services, adjusting the 
reductions in support for late-filed annual ETC reports and 
certifications, and providing greater specificity regarding how the 
Commission will address non-compliance with the Commission's service 
obligations for voice and broadband.
    8. The actions the Commission takes in this Order, combined with 
the implementation of the rural broadband experiments and the reforms 
the Commission implemented earlier in the year, will allow the 
Commission to continue to advance further down the path outlined in the 
USF/ICC Transformation Order. The Commission expects the Bureau to 
complete the Connect America Phase II challenge process and then make a 
final determination as to which census blocks will be eligible for the 
offer of model-based Phase II support by early 2015. That final 
determination will allow the Commission to extend the offers of Phase 
II model-based support to price cap carriers to fund the deployment of 
voice and broadband-capable infrastructure in their territories. The 
carriers will then have 120 days to consider the offer, and in those 
states where the price cap carrier declines the offer of support, the 
Commission will move forward with the Phase II competitive bidding 
process to determine support recipients.

II. Public Interest Obligations

A. Evolving Speed Obligations

    9. Discussion. In this section, the Commission adopts a new minimum 
speed standard of 10 Mbps downstream and 1 Mbps upstream (10[sol]1 
Mbps) to further the statutory goal in section 254 of ensuring that 
consumers in rural and high-cost areas of the country have access to 
advanced telecommunications and information services that are 
reasonably comparable to those services in urban areas, at reasonably 
comparable rates. The marketplace for broadband has continued to evolve 
since the Commission established its initial minimum speed benchmark of 
4[sol]1 Mbps in 2011, and will continue to do so, given consumer demand 
for an ever growing range of services and applications. Our task is to 
implement policies with our available funds that will extend broadband 
to high-cost and rural areas where the marketplace alone does not 
currently provide a minimum level of broadband connectivity.
    10. The most recent State Broadband Initiative (SBI) data for 
December 2013 show that 99 percent of Americans living in urban areas 
have access to fixed broadband with speeds of at least 10 Mbps 
downstream/768 kbps upstream (10 Mbps/768 kbps), and a majority of 
Americans have already chosen to adopt such service. Moreover, fixed 
broadband services with even higher speeds, such as 25 Mbps downstream/
3 Mbps upstream (25/3 Mbps) or higher, are available to the vast 
majority of urban households. In contrast, the SBI data indicate that 
31 percent of the population residing in rural census blocks lack 
access to fixed broadband providing at least 10 Mbps/768 kbps speeds.
    11. Our objective with high-cost support is to extend broadband-
capable infrastructure to as many high-cost locations as efficiently as 
possible, and at the same time ensure that the Commission is best 
utilizing the funds that consumers and businesses pay into the 
universal service system. The Commission finds that raising the minimum 
downstream speed requirement to 10 Mbps is an appropriate way at the 
present time to implement the statutory language in section 254 
regarding reasonable comparability. As noted above, where available, a 
majority of households adopt fixed broadband with speeds of at least 10 
Mbps/768 kbps. This is not surprising, as fixed broadband with speeds 
of at least 10 Mbps downstream offers more functionality to consumers 
than 4 Mbps downstream, particularly when multiple users are relying 
upon the broadband connection. For users browsing the Web, the total 
time needed to load a page decreases with higher speeds up to about 10 
Mbps. High definition video requires 5 Mbps downstream. Although VoIP 
services are adequately supported by lower speeds, VoIP quality may 
suffer when household bandwidth is shared by other services. When rural 
households have access to speeds of 10 Mbps or more, they are just as 
likely to adopt a 10 Mbps service as households in urban areas.
    12. The Commission is setting a standard that is achievable in the 
near term with support from the Connect America Fund, while mindful of 
the need to balance the interests of both recipients and contributors 
to the Fund. The Commission encourages recipients of funding to deploy 
to the extent possible future proof infrastructure that will be capable 
of meeting evolving broadband performance obligations over the longer 
term. That will ensure that our policies will continue to support an 
evolving level of universal service in the future.
    13. Based on the record before us, the Commission finds ample basis 
for revising the current broadband performance obligations to require 
minimum speeds of 10 Mbps downstream. In contrast, while a few 
commenters supported raising the upstream speed, there is little 
analysis in this docket regarding the potential advantages and 
disadvantages associated with raising the minimum upstream speed above 
1 Mbps for purposes of high-cost funding. The Commission therefore does 
not adjust the minimum upstream speed required for high-cost support 
recipients at this time, but expect to consider the matter again when 
the Commission revisits our broadband performance obligations for 
recipients of high-cost support in the future. Accordingly, pursuant to 
section 254, the Commission adopts a minimum speed standard of 10[sol]1 
Mbps to ensure that Connect America funding is used efficiently, to 
deploy broadband-capable networks to meet ever evolving consumer 
demand.
    14. As the Commission explained in the April 2014 Connect America 
FNPRM, by increasing the current broadband downstream speed benchmark, 
the Commission is primarily focusing on the minimum standard for new 
deployments of broadband-capable infrastructure. Consistent with the 
approach the Commission adopted for the previous speed benchmark, high-
cost support recipients will be expected to achieve the new standard 
over a period of years, as they utilize that support to extend and 
upgrade networks in high-cost areas that are otherwise uneconomic to 
serve. Price cap carriers accepting a state-level commitment will be 
required to offer at least 10[sol]1 Mbps broadband service to the 
requisite number of high-cost locations in a given state by the end of 
the support term. Rate-of-return carriers will be required to offer at 
least 10[sol]1 Mbps broadband service upon reasonable request, 
consistent with past guidance regarding our expectations regarding the 
reasonable request standard. If a request for 10[sol]1 Mbps is not 
reasonable in a given circumstance, but offering 4[sol]1 Mbps is 
reasonable, the Commission would expect a rate-of-return carrier to 
offer 4[sol]1 Mbps.
    15. The Commission is not persuaded by arguments that increasing 
the downstream speed benchmark to 10 Mbps requires fundamental changes 
in the terms of the offer to price cap carriers that accept a state-
level commitment. Although price cap carriers generally support a 10 
Mbps

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speed benchmark, they contend concurrent changes should be made to 
other terms of the state-level offer. The Commission does not agree 
that by increasing the required broadband speed the Commission is 
upending the ``delicate balance'' adopted by the Commission in the USF/
ICC Transformation Order. The Commission made clear in 2011 that it 
expected broadband performance obligations to evolve, committed to 
initiating a proceeding in three years to re-examine the standard, and 
noted that carriers were expected to build ``robust, scalable 
networks.'' Moreover, at that time, the Commission delegated authority 
to the Bureau to require price cap carriers accepting model-based 
support to deploy service delivering at least 6[sol]1.5 Mbps to a 
number of supported locations. Thus, the framework adopted by the 
Commission in 2011 expressly anticipated that a higher minimum speed 
standard would be necessary in the future to provide an evolving level 
of universal service.
    16. Although the Commission recognizes that carriers upgrading 
their networks may incur additional capital investment costs to offer 
10[sol]1 Mbps as opposed to 4[sol]1 Mbps, how much more costly this is 
in the real world depends on circumstances that vary by carrier, such 
as the location of existing facilities and distances to unserved 
locations. The fact that achieving this revised standard may require 
additional network investment than would be the case if the speed 
standard remained 4[sol]1 Mbps is not a justification, however, for not 
adjusting the standard at all. Rather as discussed more fully below, 
the Commission makes other modest adjustments to the Phase II framework 
to ensure that the support provided is sufficient to meet the 
obligations that are accepted through the state-level commitment. To 
the extent a carrier believes the support offered is insufficient to 
meet the obligations, it may turn down the offer of Phase II model-
based support.
    17. The Commission expects carriers planning upgrades to their 
networks today would take into account near term and future consumer 
demand. As noted above, current data show that a majority of broadband 
subscribers today purchase at least 10[sol]1 Mbps. A comparison of 
adoption rates from 2011 to 2013 show a steady increase in adoption for 
this level of service. The Commission therefore finds that it is 
reasonable to assume that many carriers upgrading their networks with 
Phase II support would aim to provide the capability to provide at 
least 10[sol]1 Mbps, with higher speeds available to a subset of 
locations.
    18. Rate-of-return carriers are expected to take into account the 
revised 10[sol]1 Mbps speed standard when considering whether and where 
to upgrade existing plant in the ordinary course of business and will 
be required to report on progress toward this goal in annual updates to 
their five-year service quality plans. As the Commission emphasized in 
proposing the revised speed standard, however, a rate-of-return carrier 
will only be required to meet the higher speed standard if the request 
for service is reasonable. Rate-of-return carriers will be able to 
comply with the revised speed standard because the Commission already 
has adopted a more flexible approach to determining compliance with our 
broadband performance obligations for this segment of the industry. The 
Commission previously have stated that a ``reasonable request is one 
where the carrier could cost-effectively extend a voice and broadband-
capable network to that location. In determining whether a particular 
upgrade is cost effective, the carrier should not consider only its 
anticipated end-user revenues, for the services to be offered over that 
network, both voice and broadband internet access, but also other 
sources of support, such as federal and, where available, state 
universal service funding.'' Among other things, the Commission has 
explained that a request would not be reasonable if the incremental 
cost of undertaking the necessary upgrades to a particular location 
exceed the revenues that could be expected from that upgraded line. The 
Commission has determined that carriers may take into account backhaul 
costs or other unique circumstance that make it cost-prohibitive to 
extend service to particular customers. Moreover, rate-of-return 
carriers have no obligation to extend broadband-capable infrastructure 
in any census block that is served by a competitor that meets the 
Commission's revised performance standards.
    19. Nor is the Commission persuaded that increasing the broadband 
speed requirement requires enlarging the budget for rate-of-return 
carriers. As discussed above, carriers evaluating whether or not a 
request for service is reasonable may consider the cost of upgrading 
the network and the support available. If, for instance, the cost of 
extending fiber sufficiently close to a requesting customer to be able 
to offer 10[sol]1 Mbps service is more than a rate-of-return carrier 
could cover with existing universal service support and anticipated 
end-user revenues, but it would be able to cover the cost of extending 
fiber to provide 4[sol]1 Mbps service, the Commission would expect the 
carrier to extend 4[sol]1 Mbps service.
    20. The Commission is confident that these carriers will deploy 
broadband-capable infrastructure meeting these new requirements to the 
extent economically feasible in their communities and will continue to 
work on creative ways to partner with each other and other entities to 
provide service meeting these requirements. The Commission notes that 
rate-of-return carriers have continued to deploy broadband-capable 
infrastructure since the Commission adopted the landmark reforms in the 
USF/ICC Transformation Order, and the Commission expects they will 
continue to do so in the future. As discussed below, the Commission 
adopts modifications to the current high-cost loop support mechanism to 
provide a more equitable method of distributing funding among carriers 
serving high-cost areas, ensuring that some carriers in high-cost areas 
do not precipitously lose support. In the April 2014 Connect America 
FNPRM, the Commission proposes longer-term reforms for rate-of-return 
carriers, including a voluntary path to model-based support. The 
Commission remains interested in finding a way to distribute support on 
an equitable basis that will provide support for investment in 
infrastructure capable of delivering 10/1 Mbps where reasonable in 
areas served by rate-of-return carriers.
    21. The Commission also rejects arguments that the Commission 
should increase the high-cost universal service budget, as a means of 
advancing broadband deployment in rural areas to an even greater degree 
than the Commission already does in this Order. ``[T]he Commission has 
to balance the principles of section 254(b) to ensure that support is 
sufficient but does not impose an excessive burden on all ratepayers.'' 
The Commission previously conducted just such a balancing in adopting 
the budget at issue here, and the Commission is not persuaded to depart 
from it at this time. In particular, ``any determination about whether 
the Commission has adequately implemented section 254 must look at the 
cumulative effect of the four support programs, acting together.'' The 
Commission has been undertaking comprehensive reforms of its universal 
service programs to facilitate broadband deployment, and the Commission 
continues to advance that objective through the reforms adopted in this 
Order. Although the Commission recognizes that there are possible 
broadband goals the Commission could

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advance even more broadly here, the ratepayer impact that already will 
occur as a result of its universal service programs collectively, 
coupled with the particular circumstances here, persuade the Commission 
to proceed cautiously when weighing any benefits from increased support 
against the burden on ratepayers.
    22. In that regard, the record here does not persuade the 
Commission that an increased high-cost budget is warranted. When 
comprehensively reforming the high-cost support mechanism to better 
advance broadband deployment, the Commission began implementing certain 
reforms immediately, while setting out a plan to advance broadband even 
more widely over time through additional initiatives. For example, 
noting that some areas may be too costly to serve with traditional 
wireline or terrestrial wireless broadband technologies, the Commission 
established the Remote Areas Fund to provide support for such 
``extremely high-cost'' areas and set a budget of ``at least'' $100 
million. In April 2014, the Commission concluded that extremely high-
cost areas would be eligible for the Phase II competitive bidding 
process. In the coming year, the Commission expects to develop the 
rules for the Phase II auction and how to address the areas that remain 
unserved after that competitive bidding process. The Commission also is 
considering, among other things, long term high-cost universal service 
reforms for rate-of-return study areas. Against the backdrop of these 
and other existing and planned efforts, some commenters nonetheless 
advocate making increased high-cost support available here, but fail to 
meaningfully quantify or demonstrate--even in an aggregate way--the 
incremental cost (and associated burden on ratepayers) required to 
achieve an incremental advancement of broadband deployment beyond what 
the Commission already is achieving through the reforms adopted here 
and through our universal service programs more broadly. The Commission 
thus is not persuaded to increase high-cost universal service support 
further. Instead, the Commission advances our broadband universal 
service goals through the high-cost fund to the extent the Commission 
is able within the existing budget. The Commission also notes that the 
states have an important role to play in advancing universal service 
goals. The Commission welcomes and encourages states to supplement our 
federal funding, whether through state universal service funds or other 
mechanisms.
    23. Finally, the Commission concludes that recipients of support 
through the Phase II competitive bidding process will be required to 
meet an evolving broadband speed standard over the ten-year term. Given 
the historical and anticipated trajectory of broadband speeds, the 
Commission anticipates that consumers will increasingly demand greater 
upstream speeds as well as downstream speeds. The Commission would 
expect to initiate a proceeding to review the performance standards for 
the Connect America Fund no later than 2018. While the Commission will 
establish the specific performance obligations and auction design in an 
upcoming order regarding the Phase II competitive bidding process, the 
Commission decides now that 10/1 Mbps should not be our end goal for 
recipients of support over a ten-year term. The Commission recognizes 
that competitive bidding is likely to be more efficient if potential 
bidders can predict what their performance obligations will be for the 
length of the term. The Commission therefore now adopts a methodology 
for determining the minimum speeds that will be required by the end of 
the ten-year term for entities receiving support through the Phase II 
competitive bidding process. The Commission concludes that the minimum 
speed shall be based on the highest speed adopted by a majority of 
households, as reported in the most recent Form 477 data available at 
the time the Commission next revisits the specific performance 
obligations for the Connect America Fund. The Commission encourages 
parties receiving ten years of support through the Phase II competitive 
bidding process to deploy future-proof networks that are capable of 
meeting future demand.

B. Term of Support for Price Cap Carriers Accepting Phase II Model-
Based Support

    24. The Commission makes a modest adjustment to the framework the 
Commission adopted in 2011 for the Connect America Fund and adopts a 
six-year term of support, which will begin in 2015 and extend through 
2020, with an option for a seventh year in certain circumstances. The 
Commission recognizes that upgrading existing networks to provide 10/1 
Mbps requires deploying fiber further into the distribution network. 
The Commission is not persuaded, however, that the ten-year term 
advocated by some is warranted. When the Commission adopted the five-
year term it emphasized ``the limited scope and duration of the state-
level commitment procedure'' and expected that ``support after such 
five-year period will be awarded through a competitive bidding process 
in which all eligible providers will be given an equal opportunity to 
compete.'' The Commission continues to believe that it should move to 
competitive bidding processes in a timely manner in those areas where 
support initially is awarded through the acceptance of state-level 
commitments. In particular, the Commission expects to conduct a 
competitive bidding process no later than the end of 2019 to ensure 
there is continuity and a transition path to Connect America Phase III.
    25. To the extent a price cap carrier that accepts the offer of 
Phase II model-based support in a particular state is a winning bidder 
in the Phase III auction, it will commence receiving that support in 
2021. In the event that carrier either does not win in the Phase III 
auction, or chooses not to bid on such support, its term of Phase II 
support will be completed at the end of 2020. The Commission will 
provide such carriers the option to elect one additional year of 
support, however, with Phase II support continuing in calendar year 
2021 as a gradual transition to the elimination of support. This is 
consistent with the principle established in the USF/ICC Transformation 
Order of ``no flash cuts,'' while also recognizing that additional 
funding may be appropriate in particular circumstances in those states 
where six years of support is insufficient to cover the capital 
investment necessary to meet the revised 10 Mbps downstream standard. 
The Commission also notes that even if a new entrant is authorized to 
begin receiving Phase III support in 2020, there will be a certain 
amount of time before that new provider will be able to deploy its 
network and begin offering service. Providing another year of Phase II 
support to the incumbent provider through the end of 2021 will ensure 
that there is an appropriate transition from the incumbent to new ETCs.

C. Flexibility in Meeting Deployment Obligations

    26. In the April 2014 Connect America FNPRM, the Commission sought 
comment on a number of measures that would provide recipients of Phase 
II support greater flexibility in meeting their deployment obligations. 
In response, price cap carriers argue that if the Commission requires 
10 Mbps, it should increase the build-out period of the state-level 
commitment to eight or ten years. They claim that building

[[Page 4450]]

networks capable of providing 10/1 Mbps will take more time and more 
funding than networks meeting the current 4/1 Mbps speed requirement, 
because it will require extending fiber further into the network and 
deploying additional remote terminals. In addition to taking more time 
for planning network upgrades and obtaining necessary permits, they 
also argue that the broadband construction industry as a whole may not 
be capable of meeting the demand in a shorter timeframe.
    27. Here, the Commission addresses flexibility for price cap 
carriers accepting Phase II model-based support. The Commission expects 
to provide similar flexibility to recipients of support awarded through 
the Phase II competitive bidding process, which will be addressed in a 
future order adopting the rules for the competitive bidding process.
1. Interim Deployment Obligations
    28. The Commission modifies the build-out requirements established 
for price cap carriers accepting model-based support to create straight 
line interim milestones over the revised six-year term, rather than 
front-loading the deployment obligations in the first three years of 
the term. When the Commission adopted the interim deployment milestone 
of deploying to 85 percent of locations by the end of the third year, 
it noted that ``there were few concrete suggestions in the record on 
what those interim milestones should be.'' The Commission recognizes 
that the first task for any major network upgrade is to complete an 
overall plan and then undertake detailed engineering analyses in the 
field to plan the construction of particular routes. Recipients of 
support--whether price cap carriers or bidders in a competitive 
auction--will likely then proceed incrementally, route by route, 
working to complete construction evenly over the course of the term 
required for deployment. For that reason, rather than requiring price 
cap carriers accepting a state-level commitment to offer broadband 
service meeting the minimum requirements to at least 85 percent of 
their high-cost locations by the end of the third year, the Commission 
instead adopts evenly spaced annual interim milestones for price cap 
carriers to offer at least 10/1 Mbps to an additional 20 percent of the 
requisite number of high-cost locations each year, as shown in Table 1 
below. Completing construction to 40 percent of the requisite number of 
locations in a state by the end of calendar year 2017, instead of 85 
percent by mid-2018 year, is a more realistic expectation, given that 
carriers will not accept the offer of support until mid-year in 2015 
and once authorized to receive support, will then be developing 
detailed network construction plans.

Table 1--Deployment Milestones for Price Cap Carriers Accepting Phase II
                           Model-Based Support
------------------------------------------------------------------------
                                                     Revised  interim
                        Current  requirement            milestones
------------------------------------------------------------------------
Year 1............  ............................  **%.
Year 2............  ............................  **%.
Year 3............  85% of locations............  40%.
                                                  End of 2017.
Year 4............  ............................  60%.
                                                  End of 2018.
Year 5............  100% of locations...........  80%.
                                                  End of 2019.
Year 6............  ............................  100%
                                                  End of 2020.
------------------------------------------------------------------------

    29. The Commission recognizes that price cap carriers may choose to 
prioritize construction in certain states in any given year and 
therefore do not expect them to be deploying new facilities in every 
state in every year of the Phase II term. However, the Commission does 
require that carriers annually deploy new infrastructure to some 
locations that previously lacked 4[sol]1 Mbps in the earlier years of 
the Phase II term so that consumers benefit from the availability of 
new broadband services as early as possible. By the end of calendar 
year 2017, the Commission requires that, at the holding company level, 
at least five percent of the nationwide total of funded locations that 
have been reported as newly served in the annual reports must be 
locations that previously lacked 4/1 Mbps.
2. Number of Locations
    30. In addition, the Commission recognizes that the ``facts on the 
ground'' when price cap carriers are deploying facilities may 
necessitate some additional flexibility regarding the scope of the 
deployment obligations. At the outset, the Commission notes that there 
may be some variance between the number of funded locations as 
specified by the forward-looking cost model adopted by the Bureau and 
the actual number of locations in a given area. For instance, the price 
cap carrier model utilizes GeoResults study area boundaries, which in 
some instances may be inaccurate, which in turn may result in the 
inaccurate assignment of certain locations to a particular price cap 
territory. The model also utilizes GeoResults business location data, 
which in some instances may be inaccurate in terms of either business 
counts or actual physical locations; this in turn may result in too 
many or too few locations in a given census block. While these minor 
inaccuracies should cancel one another out in most instances across 
multiple census blocks, the Commission recognizes that in particular 
areas that may not be the case, and the total number of locations 
assigned to a particular price cap carrier in a given state according 
to the model simply does not necessarily reflect the actual number of 
locations. The Commission also recognizes that there may be a variety 
of unforeseen factors, after the initial planning stage, that can cause 
significant changes as a network is actually being deployed in the 
field, and a variety of factors that can affect the time needed to 
deploy a planned route. Finally, the Commission notes that the customer 
location data utilized in the model reflect location data at a 
particular point in time. The precise number of locations in some 
funded census blocks is likely to change over time for a variety of 
reasons, which may impact the orderly progress of the planned 
construction cycle.
    31. Given all of these factors, rather than requiring deployment to 
100 percent of funded locations as identified by the model in a given 
state, the Commission will permit a modest adjustment to the number of 
model-determined funded locations in a given state with a corresponding 
reduction in support in certain instances. Price cap carriers taking 
advantage of this flexibility will be required to refund support based 
on the number of required locations without access to broadband. The 
Commission balances this flexibility with our goal of advancing the 
availability of broadband to these high-cost locations. Therefore, the 
Commission will require deployment to at least 95 percent of the funded 
locations, but in order for a price cap carrier to take advantage of 
this flexibility, the Commission requires them to identify by December 
31, 2015, any specific census blocks where they do not intend to meet 
their deployment commitments, with those blocks covering at least two 
percent of their total eligible locations in a state. The Commission 
recognizes there may be discrete census blocks identified during the 
early planning stages that will be challenging to serve. By requiring 
the price cap carriers to identify up front those particular census 
blocks that they know they will not deploy to during Phase II, the 
Commission can make those census blocks eligible for support in the 
Phase II competitive bidding process. For those carriers that elect to

[[Page 4451]]

take advantage of this flexibility, the Commission then allows them to 
identify an additional number of the eligible locations left unserved 
at of the end of the term, up to three percent.
    32. The Commission finds that requiring deployment to at least 95 
percent of the number of funded locations will provide some flexibility 
to price cap carriers in meeting their deployment obligations. The 
Commission is not persuaded by commenters who argue that the Commission 
should provide much more flexibility. For example, price cap carriers 
argue that those accepting a state-level commitment should be permitted 
to deploy to as few as 90 percent of their funded locations. Although 
they propose to forego funding on a pro rata basis for the remaining 
locations, the Commission is concerned that providing that degree of 
flexibility across the board is inconsistent with the Commission's 
rationale for providing these carriers the offer of model-based support 
in the first instance: to ensure ubiquitous coverage. Rather, the 
Commission may address unique situations through the waiver process 
where specific circumstances justify additional flexibility.
    33. Nor is the Commission persuaded by commenters who argue that 
requiring anything less than 100 percent would allow recipients to 
``cherry pick'' and opt out of serving the highest-cost locations. As 
discussed above, there are a number of legitimate reasons why it may 
not be possible for a provider--whether a price cap carrier or a 
competitive provider awarded support in a competitive bidding process--
to deploy to 100 percent of the funded locations in Phase II areas by 
the end of the deployment term. The Commission concludes that the 
benefits of providing some flexibility to a price cap carrier to 
address any variance between the cost model and real world 
circumstances outweigh the theoretical risk that the carrier could 
systematically identify and exclude the five percent of locations that 
are highest-cost and are likely sprinkled throughout its funded 
territory.
    34. The Commission will require price cap Phase II recipients that 
have deployed to at least 95 percent, but less than 100 percent, of the 
number of funded locations to refund support based on the number of 
funded locations left unserved in the state at the end of their support 
term. The Commission recognizes that many factors determine a carrier's 
deployment decisions, and affect costs even after those decisions are 
made, so the Commission doubts that a carrier would or could 
systematically exclude the highest cost locations. At the same time, it 
is reasonable to assume that many of the locations left unserved would 
have higher than the average costs calculated by the model. A higher 
amount per location than the average therefore is appropriate. 
Moreover, the Commission wants to provide more incentive to carriers to 
build out to 100 percent of the required number of locations. On a 
nationwide basis, the average support for the top five percent of the 
highest-cost funded locations is 3.77 times the average support for all 
funded locations. The Commission recognizes that costs will vary by 
state and carrier, but find that the administrative simplicity of using 
one-half of the nationwide aggregate factor outweighs the benefits of 
false precision. Accordingly, the Commission will require a price cap 
carrier at the end of its support term to refund an amount based on the 
number of locations left unserved and the average Phase II support the 
carrier receives in a state multiplied by 1.89.
    35. The Commission concludes that the administrative simplicity of 
this method outweighs the potential benefit of reducing support based 
on a more complicated determination based on the relative costs of 
particular locations as determined by the forward-looking cost model. 
As discussed below, the Commission will require price cap carriers to 
include in the final annual progress report that they submit with their 
section 54.313 reports the total number and geocodes of all funded 
locations to which they have deployed facilities capable of delivering 
broadband meeting the requisite requirements, which will provide an 
objective, easily verifiable basis for USAC to determine the amount of 
support to recover in the event there is less than 100 percent 
compliance with the deployment obligation.
    36. Finally, for those carriers accepting Phase II model-based 
support, the Commission declines to adopt the proposal to substitute 
unserved locations within partially served census blocks for locations 
within funded census blocks. While the Commission will continue to 
explore this issue, questions remain in the record how best to 
determine whether or not a particular location in a partially served 
block is served or unserved without placing significant burdens on 
interested parties and Bureau staff. The Commission notes that all 
parties potentially interested in Connect America support--both 
incumbents and new entrants alike--have an interest in building 
economically efficient networks, and those networks do not neatly align 
with census boundaries. Therefore, the Commission encourages all 
stakeholders interested in the Phase II competitive bidding process to 
work together to propose for future Commission consideration an 
administratively feasible method for ensuring that unserved consumers 
in partially served census blocks are not left behind.

D. Obligations of Carriers Serving Non-Contiguous Areas That Elect 
Phase II Frozen Support

    37. Discussion. Based on the record before the Commission, it 
concludes that the best approach is to adopt tailored service 
obligations for each of the non-contiguous carriers that elect to 
continue to receive frozen support amounts for Phase II in lieu of the 
offer of model-based support. The Commission recognizes that non-
contiguous carriers face unique circumstances in the areas they serve 
and experience different challenges in deploying broadband service in 
those areas. Consequently, a ``one-size-fits-all'' approach would leave 
some of these carriers potentially unable to fulfill their service 
obligations. The Commission believes that tailoring specific service 
obligations to the individual circumstances of each non-contiguous 
carrier that elects to continue receiving frozen support for Phase II 
will best ensure that Connect America funding is put to the best 
possible use.
    38. Because the amount of frozen support may in some cases be 
greater than the amount of model-based support, the Commission must 
reserve sufficient funds for frozen support before generally making the 
offer of support to price cap carriers in order to ensure that the 
Commission does not exceed the overall budget for the offer of model-
based support. The Commission requires each non-contiguous carrier to 
notify the Bureau no later than 15 days after the release of this Order 
whether it is interested in Phase II frozen support in lieu of model-
based support. The Bureau then will be able to determine the 
appropriate maximum amount of money that should be reserved out of the 
$1.8 billion budget for those carriers. The Commission concludes that 
waiting to extend the offer of model-based support until it adopts 
tailored service obligations for each non-contiguous carrier would 
unnecessarily delay the offer of model-based support to all other price 
cap carriers.
    39. As the Commission stated in the April 2014 Connect America 
FNPRM, the Commission expects that any tailored service obligations 
would be consistent with the Commission's goal

[[Page 4452]]

of ensuring universal availability of modern networks capable of 
providing voice and broadband service to homes, businesses, and 
community anchor institutions. The Commission anticipates being able to 
adopt these tailored service obligations no later than the time the 
Commission adopts the rules for the Phase II competitive bidding 
process. The non-contiguous carriers then will have 60 days to 
determine whether to accept or decline the Phase II frozen support. If 
any non-contiguous carrier declines Phase II frozen support with 
tailored service obligations, those areas may be eligible in the Phase 
II competitive bidding process.
    40. Though the Commission does not determine at this time specific 
service obligations for non-contiguous carriers receiving Phase II 
frozen support, the Commission concludes that carriers serving non-
contiguous areas will not be permitted to use Phase II frozen support 
in any areas where there is a terrestrial provider of fixed residential 
voice and broadband service that meets Phase II requirements, as 
modified in this Order. Therefore, the Commission prohibits non-
contiguous carriers receiving frozen support from using that support in 
any census block where there is a competitor providing service of 10/1 
Mbps or greater. If a carrier is unable to meet this requirement in 
certain areas, the Commission requires it to relinquish the relevant 
Phase II frozen support for those areas.

E. ETC Obligations as Funding Transitions to New Mechanisms

    41. Discussion. Based on the Commission's consideration of the 
relevant statutory framework and the record before it, the Commission 
now concludes that it is in the public interest to forbear, pursuant to 
section 10 of the Communications Act of 1934, as amended (the Act) from 
enforcing a federal high-cost requirement that price cap carriers offer 
voice telephony service throughout their service areas pursuant to 
section 214(e)(1)(A) in three types of geographic areas: (1) Census 
blocks that are determined to be low-cost, (2) all census blocks served 
by an unsubsidized competitor, as defined in our rules, offering voice 
and broadband at speeds of 10/1 Mbps to all eligible locations, and (3) 
census blocks where a subsidized competitor--i.e., another ETC--is 
receiving federal high-cost support to deploy modern networks capable 
of providing voice and broadband to fixed locations. They will remain 
obligated, however, to maintain existing voice service unless and until 
they receive authority under section 214(a) to discontinue that 
service. They also will remain subject to the obligation to offer 
Lifeline service to qualifying low-income households throughout their 
service territory.
    42. Effectively, as a result of this limited forbearance, price cap 
carriers that accept the state-level commitment for Phase II support 
will continue to have a federal high-cost universal service obligation 
to offer voice telephony services in those census blocks that are 
deemed to be extremely high-cost, unless and until they are replaced by 
another ETC in those areas. The Commission does not address at this 
time and in particular do not forbear from enforcing the section 214(e) 
obligation of a price cap carrier to offer voice telephony services in 
extremely high-cost areas where it is not receiving support, except for 
the two circumstances expressly described herein: Those extremely high-
cost census blocks served by an unsubsidized competitor or where the 
price cap carrier is replaced by another ETC selected through a 
competitive bidding process that is required to offer voice and 
broadband services to fixed locations that meet the Commission's public 
service obligations. Price cap carriers that decline the state-level 
commitment will have the federal high-cost universal service obligation 
to offer voice telephony services in those census blocks that are 
determined to be high-cost or extremely high-cost, and unserved by an 
unsubsidized competitor, until they are replaced by another ETC that is 
required to offer voice and broadband service to fixed locations that 
meet the Commission's public service obligations.
    43. As the Commission explained in the USF/ICC Transformation 
FNPRM, 76 FR 78384, December 16, 2011, states have primary authority 
for designating ETCs and defining their service areas except in cases 
where they lack jurisdiction over the entity seeking designation. In 
such situations, the Act gives the Commission responsibility for 
designating the entity as an ETC. Once an entity is designated as an 
ETC it must ``throughout the service area for which the designation is 
received . . . offer the services that are supported by Federal 
universal service support mechanisms under section 254(c).'' The 
Commission defined the service supported by universal service support 
mechanisms under section 254(c)(1) to be ``voice telephony'' in the 
USF/ICC Transformation Order. An ETC's ``service area'' is defined to 
be the geographic area as established by the relevant state commission 
within which an ETC has universal service obligations and may receive 
universal service support.
    44. The Commission previously interpreted section 214(e) of the Act 
to require that an ETC offer voice telephony service throughout its 
designated service area. But with the Bureau's adoption of the CAM, the 
Commission is now able to determine on a more granular level which 
areas are low-cost and therefore do not need a subsidy because price 
cap carriers can recoup their costs through reasonable end-user rates. 
The Commission notes that these low-cost census blocks already have 
voice telephony service with rates well below the reasonable 
comparability benchmark for voice service. And in the other census 
blocks where the Commission now grants limited forbearance, an 
unsubsidized competitor exists that is offering voice telephony service 
at reasonably comparable rates, or there is another ETC with an 
obligation to offer reasonably comparable voice telephony service. 
Thus, the Commission no longer finds that it is necessary as a matter 
of federal universal service policy to require price cap carriers to 
offer voice telephony service in these areas to achieve the section 
254(b)(3) principle of ensuring that ``[c]onsumers in all regions of 
the Nation . . . should have access to telecommunications . . . 
services, . . . that are reasonably comparable to those services 
provided in urban areas and that are available at rates that are 
reasonably comparable to rates charged for similar services in urban 
areas.''
    45. Accordingly, as discussed below, the Commission concludes that 
forbearance from the federal high-cost requirement that price cap 
carriers offer voice telephony services throughout their service area 
is warranted in these limited circumstances. The Act requires the 
Commission to forbear from applying any requirement of the Act or our 
regulations to a telecommunications carrier if the Commission 
determines that: (1) Enforcement of the requirement is not necessary to 
ensure that the charges, practices, classifications, or regulations by, 
for, or in connection with that telecommunications carrier or 
telecommunications service are just and reasonable and are not unjustly 
or unreasonably discriminatory; (2) enforcement of that requirement is 
not necessary for the protection of consumers; and (3) forbearance from 
applying that requirement is consistent with the public interest. The 
Commission concludes each of these statutory criteria is met for the 
specific types of areas described above.

[[Page 4453]]

    46. Just and Reasonable. The Commission concludes that enforcement 
of the section 214(e)(1)(A) federal requirement that price cap carriers 
offer voice telephony throughout their service areas is not necessary 
to ensure that the charges, practices, or classifications of price cap 
carriers are just and reasonable and not unjustly or unreasonably 
discriminatory in specific geographic areas. The areas where the 
Commission forbears from enforcing the federal requirement that price 
cap carriers offer voice telephony services are census blocks (1) that 
have been deemed low-cost, (2) where there is an unsubsidized 
competitor meeting the Commission's standards, or (3) where there is 
another ETC required to offer voice and broadband services to fixed 
locations that meet the Commission's public service obligations.
    47. ETCs receiving Connect America support will be required to 
offer reasonably comparable voice and broadband services in their 
funded high-cost census blocks at rates that are reasonably comparable 
to urban areas. Therefore, there is no need to require a price cap 
carrier that declines the offer of model-based support to offer voice 
telephony in those census blocks where another ETC is subject to that 
reasonable comparability requirement.
    48. Moreover, in all the census blocks where the Commission grants 
forbearance, the price cap carrier will remain subject to other Title 
II requirements that ensure that voice telephony rates remain just and 
reasonable and not unjustly or unreasonably discriminatory. Price cap 
carriers will continue to be subject to sections 201 and 202 of the 
Act, which place nondiscrimination obligations on common carriers. 
Additionally, the Commission defers to the states' judgment in assuring 
that the local rates that price cap carriers offer in the areas from 
which the Commission forbears remain just and reasonable. It also is 
reasonable to expect that the rates that price cap carriers charge in 
these areas for voice telephony will constrain the rates of other 
providers. And finally, in the event that the price cap carrier seeks 
to cease offering voice telephony in these areas, it will be subject to 
the section 214(a) discontinuance process that the Commission addresses 
more fully below, during which any concerns that may be raised by the 
price cap carrier's decision to cease offering voice service can be 
addressed if necessary. The Commission concludes that these 
circumstances ensure just, reasonable, and nondiscriminatory offerings 
in the areas where the Commission grants forbearance. For these 
reasons, the Commission finds that the first prong of section 10(a) is 
met.
    49. Protection of Consumers. The Commission finds that, in the 
three types of census blocks subject to this forbearance determination, 
other mechanisms will be sufficient to protect consumers, and therefore 
it is unnecessary to enforce the obligation of price cap carriers to 
offer voice telephony services to ensure that consumers are protected.
    50. First, there are several safeguards that will prevent the 
consumers living in these areas from losing access to voice telephony 
services. Not enforcing the high-cost ETC obligation of price cap 
carriers to offer voice telephony services in these areas does not mean 
that price cap carriers can immediately cease providing voice telephony 
service. Pursuant to section 214(a) of the Act and section 63.71 of the 
Commission's rules, all carriers must provide notice to their customers 
and the relevant states in writing that they plan to discontinue 
service and then file an application with the Commission before 
discontinuing voice telephony service in an area. Outside parties have 
the opportunity to provide comment on the application, and the 
Commission may then decide that the application should not be 
automatically granted. The discontinuance rules are designed to ensure 
that customers are fully informed of any proposed change that will 
reduce or end service, ensure appropriate oversight by the Commission 
of such changes, and provide an orderly transition of service, as 
appropriate. This process allows the Commission to minimize harm to 
customers and to satisfy its obligation under the Act to protect the 
public interest.
    51. The Commission has discretion to grant a discontinuance request 
in whole or in part, and may attach conditions as necessary to protect 
consumers and the public interest. Given the fact-intensive nature of 
this inquiry for each affected market, the Commission is not persuaded 
by suggestions in the record that it should grant blanket 
discontinuance to price cap carriers in the areas where it grants 
forbearance. Where there is a question as to appropriate alternatives 
available to consumers or whether the present or future public 
convenience and necessity will be adversely affected, the Commission 
will scrutinize the discontinuance application, consistent with its 
statutory obligations. In evaluating a section 214 discontinuance 
application, the Commission generally considers a number of factors, 
including the existence, availability, and adequacy of alternatives. 
Through consideration of these factors, the Commission ensures that the 
removal of a choice from the marketplace occurs in a manner that 
respects consumer expectations and needs. The Commission will not 
authorize a proposed discontinuance of service if customers or other 
end users would be unable to receive service or a reasonable 
alternative, or the public convenience and necessity would be otherwise 
adversely affected. In such circumstances, the Commission will require 
price cap carriers to continue offering voice telephony services in 
those areas in those instances where there is no reasonable 
alternative. Moreover, if an area is unserved and no common carrier 
will serve that area, the relevant state commission (or the Commission 
if applicable) is directed by the Act to designate an ETC to serve the 
area with voice telephony service.
    52. Second, it is reasonable to expect that price cap carriers will 
continue to offer voice service in these areas even after they have 
been relieved of the federal ETC requirement to do so. They already 
have existing networks and customers in these areas. They have an 
economic incentive to continue to serve these customers and to offer 
them innovative new services.
    53. Third, even if price cap carriers were to exit these areas, in 
areas where there is an unsubsidized competitor or another ETC 
receiving federal high-cost support to deploy modern networks capable 
of providing voice and broadband to fixed locations, there will be at 
least one provider in that area offering a voice telephony service that 
is reasonably comparable to service available in urban areas. Because 
consumers in these areas will have at least one other option for fixed 
voice telephony service at reasonable rates, there is no need to 
require price cap carriers to continue to offer such services as a 
federal ETC obligation. And as explained above, whether appropriate 
substitutes exist in all of the geographic areas in which the 
Commission grants limited forbearance will be addressed through the 
section 214(a) discontinuance process; thus, the Commission is 
comfortable that there is no need to continue to apply ETC obligations 
in these areas.
    54. The Commission disagrees with the claim that the Commission 
should not forbear from section 214(e) because the Commission should 
ensure that there is at least one carrier that has a federal obligation 
to provide voice telephony service to all consumers in a particular 
area. As explained above, there are existing regulatory protections 
that provide reasonable assurance that

[[Page 4454]]

consumers in the areas where the Commission forbears from the federal 
high-cost ETC obligation to provide voice telephony service will 
continue to have access to voice telephony service. And as the 
Commission explains below, our decision to grant forbearance in these 
limited circumstances does not disturb existing state carrier of last 
resort obligations and does not preclude states that do not have 
carrier of last resort obligations from imposing such obligations. In 
sum, the Commission finds that consumers will be protected, and the 
second prong of section 10(a) is satisfied.
    55. Public Interest. The Commission concludes that it is in the 
public interest to forbear from the federal high-cost obligation to 
offer voice service throughout the service territory because 
enforcement of that obligation is unnecessary to preserve voice 
service. As noted above, the section 214 discontinuance process will 
ensure that consumers will continue to have access to voice service. 
Price cap carriers that are granted the ability to discontinue their 
voice telephony service as a matter of federal law because there are 
alternatives available will no longer be required to spend their 
resources on maintaining existing voice telephony services or deploying 
new infrastructure to offer voice telephony service in newly 
constructed homes where there are already reasonable substitutes. 
Instead, price cap carriers can reallocate their resources towards 
making upgrades to their networks to meet the broadband needs of their 
existing or new customers.
    56. The Commission also finds that limited forbearance from section 
214(e)(1)(A) will promote competitive market conditions by giving price 
cap carriers the flexibility to compete on a more equal regulatory 
footing in the voice telephony market with competitors that already 
have the opportunity to make business decisions about how best to offer 
voice telephony service. Accordingly, the Commission's decision is 
consistent with the principle that universal service policies be 
equitable and nondiscriminatory and the principle of competitive 
neutrality.
    57. The Commission does not take the further steps suggested by 
some commenters of reinterpreting section 214(e)(1) to sunset all 
existing ETC designations and require states to re-designate ETCs so 
that their service areas include only high-cost funded areas, imposing 
rules on state ETC designations, adopting a federal process to redefine 
service areas, or preempting states. State commenters argue that these 
approaches would give insufficient consideration to the important role 
that Congress has given the states in defining service areas and 
designating ETCs. The Commission's decision to grant limited 
forbearance does not redefine price cap carriers' service areas or 
revoke price cap carriers' ETC designations in these areas, and the 
Commission emphasizes that it does not preempt price cap carriers' 
obligation to continue to comply with any state requirements, including 
carrier of last resort obligations to the extent applicable. The 
Commission also notes that it does not relieve ETCs of their other 
``incumbent-specific obligations'' like interconnection and negotiating 
unbundled network elements pursuant to sections 251 and 252 of the Act. 
The continued existence of these obligations supports the Commission's 
finding that the forbearance it grants in this Order is consistent with 
the public interest.
    58. The Commission's public-interest finding is also supported by 
the fact that any incumbent price cap carrier must still comply with 
the requirements of section 214(e)(4) of the Act regarding 
relinquishment of ETC designation. The Commission is not persuaded that 
its decision to not preempt state obligations constitutes a taking. The 
Commission notes that no party has articulated which specific state 
obligations constitute a taking, submitted specific evidence to show 
how those state obligations are burdensome, or provided detailed 
analysis as to how the preemption standard has been met for these 
obligations.
    59. Timing. Because many ETCs will no longer receive support for 
discrete census blocks upon full implementation of Phase II in price 
cap territories, the Commission believes that it is appropriate to 
clarify its expectations regarding the specific timing of this 
forbearance. The Commission finds that in the first month that support 
is disbursed to another ETC that is required to serve particular census 
blocks with voice and broadband service to fixed locations, incumbent 
price cap carriers not receiving such support will be immediately 
relieved of their federal high-cost ETC obligation to offer voice 
telephony in those specific census blocks. Also, incumbent price cap 
carrier ETCs will be relieved of the federal high-cost ETC obligation 
to offer voice telephony service in the low-cost census blocks where 
Phase II support is not available and also in census blocks where the 
average cost is above the funding benchmark where an unsubsidized 
provider is already providing service. Incumbent price cap carriers 
shall be relieved of their existing federal high-cost universal service 
obligations to offer voice telephony service in low-cost census blocks 
beginning on the date on which they accept or decline to make a state-
level commitment. Incumbent price cap carriers shall be relieved of 
their existing federal high-cost universal service obligations to offer 
voice telephony service in census blocks served by unsubsidized 
competitors on the date that there is a determination that there is an 
unsubsidized competitor offering 10/1 Mbps in those census blocks.
    60. Price cap carriers subject to this limited forbearance in these 
three specific types of census blocks must continue to satisfy all 
Lifeline ETC obligations. Therefore, they will effectively become 
Lifeline-only ETCs in the specific census blocks that are the subject 
of this forbearance. As such, they must continue to offer voice 
telephony service to qualifying low-income households in those areas 
unless or until they relinquish their ETC designations in those areas 
pursuant to section 214(e)(4), and, in any event, must continue to 
offer voice more generally until they receive discontinuance authority 
under section 214.

III. Eligibilty of Areas for Phase II Support

A. Areas Served by Competitors

    61. Discussion. Upon consideration of the record, the Commission 
now adopts these proposals with certain modifications. First, to ensure 
support is targeted to areas lacking 4/1 Mbps, the Commission will 
exclude from the offer of Phase II model-based support to price cap 
carriers any census block served by a subsidized facilities-based 
terrestrial competitor that offers fixed residential voice and 
broadband services meeting or exceeding 3 Mbps/768 kbps speed 
requirement, as determined by the Bureau. Second, the Commission 
concludes that any such high-cost blocks served by a subsidized carrier 
that are excluded from the offer of model-based support--including 
blocks with service meeting or exceeding the new 10/1 Mbps speed 
requirement--will instead be eligible for support in the Phase II 
competitive bidding process. Third, the Commission concludes that any 
area served by an unsubsidized facilities-based terrestrial competitor 
that offers 10/1 Mbps will be ineligible for support in the Phase II 
competitive bidding process.
    62. The Commission excludes areas served by subsidized competitors 
providing 3 Mbps/768 kbps or greater

[[Page 4455]]

service from the offer of model-based support because the Commission is 
persuaded that whether another provider receives high-cost universal 
service support should not be the determining factor in excluding a 
high-cost census block from the offer of model-based support. In the 
USF/ICC Transformation Order, the Commission eliminated the identical 
support rule and established Phase II of the Mobility Fund as the 
mechanism to provide ongoing support for mobile services. Competitive 
ETCs offering broadband services that meet the performance standards, 
however, only have the opportunity to compete for ongoing support if 
price cap companies decline the state-level commitment. Upon further 
consideration, the Commission now concludes that areas served by a 
subsidized facilities-based terrestrial competitor offering fixed 
residential voice and broadband services meeting or exceeding 3 Mbps/
768 kbps should not be part of the price cap carrier state-level 
commitment.
    63. By excluding these areas from the offer of Phase II model-based 
support and instead including them in the Phase II competitive bidding 
process, the Commission gives competitive ETCs serving these areas the 
opportunity to compete for ongoing support in their high-cost areas, 
regardless of whether a price cap incumbent accepts or declines the 
state-level commitment. This modification recognizes that these areas 
are high-cost and, absent such ongoing support, it may not be 
economically feasible for providers in these areas to continue 
providing service. Removing these census blocks from the offer of 
model-based support and instead immediately opening these areas to 
competitive bidding allows competition to drive support to efficient 
levels, to be awarded to the provider that will most effectively use 
funds.
    64. Changing the minimum speed threshold for network deployment to 
10/1 Mbps does not mean, however, that the Commission should use the 
10/1 Mbps coverage map in determining what areas are served by either 
unsubsidized or subsidized competitors for purposes of the offer of 
Phase II model-based support. The version of the CAM adopted by the 
Bureau for purposes of identifying the initial list of eligible census 
blocks provides support for census blocks with an average cost per 
location per month of between $52.50 and $207.81 and that are unserved 
by an unsubsidized competitor offering 3 Mbps/768 kbps broadband 
service. While adjusting the CAM to provide support for census blocks 
not served with 10/1 Mbps service would increase the number of 
locations eligible for the offer of model-based support, this increase 
would be predominately the result of the extremely high-cost threshold 
shifting downwards. The end result would be that locations in those 
blocks that are more expensive to serve, relatively speaking, that 
currently do not receive even 3 Mbps/768 kbps service would no longer 
be eligible for the offer of model-based support. In contrast, using 
the same 3 Mbps/768 kbps coverage map to target the offer of Phase II 
model-based support to locations in these higher cost census blocks 
will result in Connect America model-based funding being targeted to 
the very same areas that the Commission intended to be subject to the 
offer of model-based support when it adopted the USF/ICC Transformation 
Order in 2011--those lacking the most basic Internet access.
    65. The Commission is not persuaded by the suggestion that it would 
be more efficient to use the 10/1 Mbps coverage map because that will 
result in more locations being served. The fact that areas that 
currently have 3 Mbps/768 kbps service but not 10/1 Mbps are excluded 
from the offer of model-based support does not mean there is no 
mechanism to ensure that consumers in those areas have access to 
service meeting the newly established standard. Instead, the Commission 
concludes that any area lacking service from a facilities-based 
terrestrial competitor that meets our new 10/1 Mbps standard and 
existing latency/usage/pricing requirements will be eligible for 
support in the Phase II competitive bidding process. The Commission 
concludes it is preferable to address these areas in the competitive 
bidding process, as competitive forces will drive support to efficient 
levels in those geographic areas that now lack broadband by virtue of 
our adjustment of the minimum speed threshold.
    66. The Commission also is not persuaded by arguments that using 
the 10/1 Mbps coverage map to determine eligibility for the offer of 
model-based support is necessary to enable price cap carriers to build 
more efficient networks. The Commission notes that price cap carriers--
like all other providers--will be able to bid on these census blocks in 
the Phase II competitive bidding process, providing them with an 
opportunity to gain additional territory for network efficiency.
    67. Utilizing the 3 Mbps/768 kbps coverage map to exclude areas 
eligible for model-based support also is administratively efficient. 
Excluding areas served by qualifying competitors providing at least 10/
1 Mbps service would require the Bureau to conduct a new challenge 
process to determine which areas that have 3 Mbps/768 kbps lack 10/1 
Mbps service. The Phase II challenge process has been underway since 
June 2014, and with the record now closed, the Bureau is poised to 
complete these adjudications. The Commission believes that undertaking 
such an effort to conduct a supplemental challenge process would 
unnecessarily delay the offer of model-based support that otherwise 
would occur in early 2015. The Commission therefore directs the Bureau 
to complete the challenge process for the offer of model-based support 
and to remove from eligibility any blocks it determines are served by a 
qualifying competitor providing service of at least 3 Mbps/768 kbps.
    68. Finally, the Commission concludes that any area served by an 
unsubsidized facilities-based terrestrial competitor that offers 10/1 
Mbps will be ineligible for support in the Phase II competitive bidding 
process. Because these areas already have service that meets or exceeds 
the new speed requirement without receiving high-cost funding, the 
Commission does not have the same concern as it does for areas served 
by subsidized competitors--that it may not be economically feasible for 
providers in these areas to continue providing service absent support. 
The Commission believes that it would be an inefficient use of Connect 
America support to provide funding in these areas. The Commission 
expects to update the list of census blocks that will be excluded from 
eligibility from the Phase II competitive bidding process based on the 
most current data available at the time shortly before that auction to 
take into account any new deployment that is completed in the coming 
year.
    69. The Commission also notes that any areas left unserved after 
the Phase II competitive bidding process will be addressed through the 
Remote Areas Fund. The Commission does not establish a separate Remote 
Areas Fund at this time, as the Commission has concluded that parties 
should be free in the Phase II competitive bidding process to submit 
bids to bring service to the highest cost, most remote areas of the 
nation. Once that Phase II competitive bidding process occurs, and the 
Commission has determined which winning bidders are authorized to 
receive support, the Commission will be in a much better position to 
determine what areas, if any, remain unserved and can be addressed 
through a separate Remote Areas Fund.

[[Page 4456]]

B. Rural Broadband Experiments

    70. Discussion. The Commission now establishes a process to enable 
the selection of next-in-line bidders for rural broadband experiments 
support, in the event any of the provisionally selected bidders 
defaults by failing to meet our technical and financial requirements 
before the time the Bureau finalizes the list of census blocks that 
will be offered to the price cap carriers. All bidders in the rural 
broadband experiments that wished to remain in consideration for rural 
broadband experiment support should have filed their financial and 
technical information no later than 7 p.m. EST on Tuesday, January 6, 
2015, in WC Docket No. 14-259. In particular, they must file the most 
recent three consecutive years of audited financial statements, 
including balance sheets, net income, and cash flow, in order to enable 
a thorough financial review. They also must submit a description of the 
technology and system design that would be used to deliver voice and 
broadband service meeting the requisite speeds to all locations in the 
funded census blocks, including a network diagram, which must be 
certified by a professional engineer. This will enable Bureau staff 
quickly to identify additional provisionally selected bidders in the 
event that any of the initially selected bidders default before the 
Bureau finalizes the list of eligible census blocks for the offer of 
model-based support, which the Commission expects may occur in early 
2015. All bidders that wish to remain under consideration must seek 
confidential treatment of their filing in order to protect the 
integrity of the competitive bidding process.
    71. The Commission concludes that excluding from the offer of 
model-based support any census block included in a non-winning rural 
broadband experiment application submitted in funding category one will 
ensure the more efficient use of Connect America support. The 
Commission will only exclude those census blocks where a losing bidder 
has indicated that it wishes to remain in consideration for rural 
broadband experiment support as described above. The Commission will 
not exclude from the offer of model-based support any area where the 
rural broadband experiment applicant is seeking a waiver of one or more 
requirements established for rural broadband experiments, including the 
submission of the requisite financial and technical information. The 
Commission concludes that the time necessary to resolve such waiver 
requests to determine which blocks to remove from the offer of model-
based support would unnecessarily delay the implementation of Phase II. 
The Commission emphasizes that it has no intention of delaying the 
offer of model-based support to the price cap carriers, and expect to 
proceed with that offer in early 2015.
    72. The Commission determines that rural broadband experiment 
proposals submitted in funding category one that facially meet the 
requirements for submission of financial and technical information 
could help us achieve our universal service goals in a cost-effective 
manner. Though all rural broadband experiment proposals seek an amount 
of support at or below model-calculated levels, proposals in funding 
category one are required to commit to constructing networks that are 
capable of providing 100/25 Mbps. The Commission is not convinced that 
providing model-based support to a price cap carrier in an area where 
another entity has demonstrated an interest to provide service that so 
significantly exceeds the Commission's new speed requirements, for an 
amount at or below the model-determined support, would be an efficient 
use of funding. Further, because the proposals the Commission received 
in funding category one requested support below the level of support 
that the model would otherwise provide, excluding these areas from the 
offer of model-based support and instead making them available in the 
Phase II competitive bidding process should enable us to stretch our 
finite Connect America budget even further.
    73. The Commission is not persuaded by concerns that this approach 
could result in an opportunity for gaming by allowing a party to submit 
a rural broadband experiments application that the party never intended 
to honor simply to reserve its opportunity to participate in the Phase 
II competitive bidding process. The Commission believes that the 
parameters it establishes above--that only rural broadband experiment 
proposals in category one for which the applicant submits the required 
technical and financial information will be excluded from the offer of 
model-based support--alleviate any concerns that the Commission's 
decision would enable applicants to game the system. The submission of 
a network engineering diagram certified by a professional engineer and 
audited financial statements as described above provides some assurance 
that these are serious bidders prepared to participate in the Phase II 
competitive bidding process. Through such action, these parties will 
demonstrate a baseline understanding of Commission regulations and 
procedures. Moreover, entities with three years of audited financial 
statements by definition are ongoing businesses.
    74. This decision also reflects our balancing of section 254(b) 
principles under the circumstances here. In the USF/ICC Transformation 
Order, the Commission concluded--and it now reaffirms--that the CAF 
``should ultimately rely on market-based mechanisms, such as 
competitive bidding, to ensure the most efficient and effective use of 
public resources.'' The Commission adopted a mechanism to offer 
incumbent price cap carriers a right of first refusal to provide 
service in exchange for model-based support due to its recognition that 
the continued existence of legacy obligations could complicate the 
transition to competitive bidding and might cause consumer disruption. 
The Commission also reasoned that the offer would generally include 
only areas where the incumbent price cap carrier would likely have the 
only wireline facilities, and that other bidders may have the ability 
to deliver scalable broadband meeting the Commission's requirements 
over time. It was also ``our predictive judgment that the incumbent LEC 
is likely to have at most the same, and sometimes lower, costs compared 
to a new entrant in many of these areas.'' Under the analysis in the 
USF/ICC Transformation Order, these considerations weighed against 
strict application of the competitive neutrality principle and other 
factors that might, on their own, otherwise have led us to move more 
quickly to competitive bidding.
    75. The Commission is persuaded to revisit that balancing in 
certain targeted ways here. Today, the rural broadband experiments give 
the Commission more of an ability to identify areas that are likely to 
be candidates to transition more quickly to competitive bidding, and it 
is the Commission's predictive judgment that those areas will be better 
served, and the Connect America budget better used, by excluding those 
areas from price cap carrier's right of first refusal, enabling both 
incumbents and competitors to seek support through a competitive 
process. In light of these new circumstances, and against the backdrop 
of other changes adopted in this Order, the Commission finds that 
moving more quickly to competitive bidding in certain respects as a 
result of the changes adopted here is warranted under the Commission's 
reevaluation of the balancing of the competitive

[[Page 4457]]

neutrality principle against other universal service goals.
    76. The Commission does recognize the possibility that if it 
removes these areas from the offer of model-based support, both the 
price cap carrier and the rural broadband experiment applicant 
ultimately may opt not to bid on such areas in the Phase II competitive 
bidding process. That risk exists as well for areas where the price cap 
carrier declines the offer of model-based support. On balance, however, 
the Commission concludes that this risk is outweighed by the public 
policy benefits potentially, and the Commission believes likely, to be 
gained of having consumers in these areas receive higher-quality 
service from a competitor at or below the amount of model-based support 
and being able to ensure that additional consumers are served with that 
unused funding. The Commission also notes that any areas left unserved 
after the Phase II competitive bidding process will be addressed 
through the Remote Areas Fund.

IV. Phase II Transitions

    77. In this section, the Commission addresses several issues 
relating to the implementation of Phase II in areas currently served by 
price cap carriers. First, the Commission adopts our proposal to align 
the funding years for price cap carriers accepting model-based Phase II 
support with the calendar year, but clarify that the deployment 
obligation will commence on the date of public notice of authorization 
for Phase II funding. Second, the Commission eliminates the transition 
year formerly adopted by the Commission in the USF/ICC Transformation 
Order. Third, the Commission clarifies that Phase I incremental support 
should not be included in the calculations of transitional support for 
those price cap carriers that choose to accept model-based support that 
is less than frozen support in a given state.

A. Aligning Connect America Phase II Funding and Calendar Years

    78. Discussion. The Commission adopts its proposal to align the 
funding years for the offer of model-based support with the calendar 
year. Thus, the Commission adopts its proposal to disburse a lump sum 
amount to those carriers for whom model-based support in a given state 
will be greater than Connect America Phase I support. This lump sum 
will represent the additional amount of model-based support (above the 
frozen support that price cap carriers already receive) that would 
accrue for the beginning months of the year while price cap carriers 
are considering the offer of model-based support. Thus, as discussed 
above, carriers accepting model-based support will receive such support 
in calendar years 2015 through 2020.
    79. The Commission anticipates extending the offer of model-based 
support in early 2015, with carriers responding 120 days later. Then, 
the Bureau will issue a Public Notice authorizing USAC to disburse the 
new funding amounts for those providers electing model-based support. 
The Commission directs USAC to disburse the lump sum payment in the 
month after the issuance of this Public Notice, drawing the funds from 
the broadband reserve account. The Commission will, however, provide an 
option for a carrier to elect to defer this lump sum payment until 
calendar year 2016, in recognition that may be the first year in which 
significant capital investments are made to meet the deployment 
obligations established for Phase II.
    80. The Commission clarifies that while carriers will receive a 
full year of Phase II support in calendar year 2015, the deployment 
obligation commences on the date of the Public Notice authorizing Phase 
II-model based support. The Commission acknowledges recipients that 
accept model-based support thus will be subject to different 
obligations for the time periods before and after they are authorized 
to receive Phase II support in calendar year 2015, and direct USAC to 
take that into account when conducting beneficiary compliance reviews 
of price cap carrier ETCs for calendar year 2015.

B. Transition Where Model-Based Support is Greater Than Connect America 
Phase I Support

    81. Discussion. The Commission adopts its proposal to eliminate the 
transition period for price cap carriers that elect to receive model-
based support in states where such support is greater than the frozen 
support they receive under Phase I. Because the affected price cap 
carriers will be receiving more support in these states than they did 
in Phase I, the Commission finds that it is unnecessary to provide a 
transition year for these carriers to adjust to receiving Phase II 
support. Instead, it is in the public interest and will further our 
Connect America goals immediately to provide these price cap carriers 
with their full Phase II support, recognizing that significant capital 
investments will be required to deploy voice and broadband capable 
networks to unserved areas. The Commission also concludes that it will 
lessen administrative costs for USAC: once the Bureau issues the Public 
Notice authorizing model-based support for those entities electing to 
make a state-level commitment, that monthly support amount will remain 
unchanged for the duration of the term of support, rather than making 
adjustments to account for a transition year.

C. Base Support Amount for Transition To Connect America Phase II

    82. Discussion. The Commission adopts its proposal to clarify that 
for purposes of transitioning from Connect America Phase I to Phase II, 
the Commission will only provide a percentage of Connect America Phase 
I frozen support; Phase I incremental support will not be included in 
this transition. Because Phase I incremental support was intended to be 
a one-time ``immediate boost to broadband deployment'' while the 
Commission worked on implementing Phase II, the Commission concludes 
that there is no need for price cap carriers to continue to receive a 
percentage of that support as ongoing support as they transition to 
Phase II.

V. Reforms in Rate-of-Return Study Areas

    83. In the April 2014 Connect America FNPRM, the Commission sought 
comment on several proposals for near-term reform of high-cost 
universal service support for rate-of-return carriers. The Commission 
addresses these here. First, the Commission adopts a revised 
methodology for applying the cap on HCLS so that support is distributed 
more equitably among all high-cost carriers, and so that carriers with 
the highest loop costs have better incentives to curb waste in the 
operation of their study areas. Second, the Commission adopts its 
proposals regarding the 100 percent overlap rule, concluding that the 
Bureau should determine whether there is a 100 percent overlap every 
other year, and the prior year's support should be used as the basis 
for the phase-down in support for any study area with a 100 percent 
overlap. The Commission concludes that the Bureau should not determine 
100 percent overlap based on the existence of a subsidized provider.
    84. The Commission does not, at this time, take action with regard 
to any of the proposals for long term reform for rate-of-return 
carriers. Although a number of parties have submitted proposals that 
may have promise, the Commission find that further analysis and 
development of these proposals is necessary. The Commission expects to

[[Page 4458]]

continue to develop the record and act on long-term reform in the 
coming year.

A. HCLS Reimbursement Rates Under the Cap

    85. In the April 2014 Connect America FNPRM, the Commission noted 
that it ``continues to have significant concerns regarding the 
structure and incentives created under the existing high-cost 
mechanisms for rate-of-return carriers, such as the `race to the top' 
incentives that exist under HCLS and the `cliff effect' of the annual 
adjustment of the HCLS cap.'' The Commission addresses this concern for 
the near-term by modifying the methodology for reimbursements under 
HCLS.
    86. The indexed cap on HCLS has seen steady reductions in recent 
years as a result of decreasing numbers of working loops and low 
inflation rates. As a result, carriers with costs close to the ever 
rising NACPL risk losing all HCLS for prior investments, while carriers 
with a higher cost per loop are sheltered from the impact of the HCLS 
cap. The carriers with the highest loop costs relative to the national 
average have minimal incentive to reduce their expenses and eliminate 
waste: between HCLS and interstate common line support, it is possible 
for 100 percent of their incremental loop costs to be recovered through 
universal service. The Commission observes that these carriers with the 
highest HCLS reimbursement rates have steadily increased their reported 
loop costs (by 36 percent since 2004), while carriers with lower 
reimbursement rates have had stable or reduced loop costs. In 
combination, the decreasing HCLS cap and the increasing demand from the 
carriers reporting the highest cost per loop create yearly increases in 
the NACPL used to calculate HCLS, precluding many carriers from 
receiving any HCLS and significantly reducing support for others with 
costs per loop close to the NACPL. A comparison of the 646 study areas 
that submitted cost studies for each year from 2004 to 2013 shows what 
has occurred over the last decade: in 2006, 579 of the 646 study areas 
were receiving HCLS support, but by 2015, only 461 of them are 
projected to receive support, meaning that 118 or 20 percent of these 
study areas fell ``off the cliff'' over this ten-year period. These 
features of the HCLS rule were not altered in the USF/ICC 
Transformation Order.
    87. In the April 2014 Connect America FNPRM, the Commission 
proposed to mitigate these deficiencies by reducing support 
proportionally among all HCLS recipients through decreased 
reimbursement percentages for all carriers instead of adjusting the 
NACPL. Specifically, the Commission proposed to freeze the NACPL that 
is used to determine support and instead to decrease HCLS 
proportionately among all HCLS recipients. As specified in the proposed 
rule, the reduction would be achieved by multiplying each carrier's 
calculated HCLS by the ratio of the indexed HCLS cap to the aggregate 
amount of HCLS initially calculated for all carriers using the frozen 
NACPL. This effectively would freeze the NACPL at the capped amount as 
a date certain, such as December 31, 2014.
    88. This proposal initially received widespread support from 
commenters responding to the FNPRM. Subsequent to the closing of the 
comment cycle, however, the Rural Associations argued the Commission's 
proposed methodology should be modified to lessen the impact on the 
companies with the highest reported cost per loop by continuing to 
raise the NACPL as is done under the current methodology. In 
particular, the Rural Associations propose that if HCLS as initially 
calculated based on the frozen NACPL exceeds the indexed cap, then the 
NACPL would be adjusted so the HCLS amounts equal the indexed cap plus 
half of the difference between the initially calculated amount and the 
indexed cap. The HCLS amounts calculated using this adjusted NACPL 
would then be reduced proportionally so that total HCLS matched the 
indexed cap. The Rural Associations argue that their proposal would 
mitigate what they consider disproportionate effects on the carriers 
with the highest cost per loop.
    89. Discussion. After full consideration of the record, the 
Commission now adopts their proposal, as described in the April 2014 
Connect America Order and FNPRM, 79 FR 39164, July 9, 2014 and 79 FR 
39196, July 9, 2014. The Commission finds that this targeted rule 
change will be effective in addressing the lack of incentives to curb 
waste that results from the race to the top and providing a more 
equitable distribution of support to all high-cost rate-of-return 
carriers, including those currently facing a loss of support due to the 
cliff effect.
    90. The Commission declines to adopt the Rural Associations' 
proposed modification. Under their proposal current recipients of HCLS 
would continue to lose HCLS as the HCLS cap is lowered, albeit not to 
the same extent as occurs today. Yet addressing the cliff effect was 
one of the core objectives of the Commission's proposal. Although the 
Rural Associations' proposal may, to some degree, mitigate both the 
cliff effect and the race to the top as compared to our current 
methodology, based on the record before the Commission, it finds it 
would be less effective at addressing both objectives than the 
Commission's proposal. In a set of examples provided by the Rural 
Associations, the two lowest cost companies in the set each would 
receive approximately 40 percent less in the first year after 
implementation of the proposed rule than they would under the 
Commission's proposals and would have their HCLS entirely eliminated by 
the fifth year of operation. Indeed, under NTCA's proposal, the cliff 
effect would immediately eliminate support from 11 study areas that 
would continue to receive support under the Commission's proposal. In 
other words, the cliff effect would remain significant if the Rural 
Associations' proposal were implemented. Similarly, the Rural 
Associations' proposal significantly preserves the advantages under 
HCLS of being a company reporting a relatively higher cost per loop, 
even if it does eliminate the possibility that a carrier could recover 
100 percent of any marginal loops costs it incurs.
    91. Although the Rural Associations express concern that the 
Commission's proposal may have a disproportionate effect on the 
carriers with the highest cost per loop, in their own examples, the 
Commission does not believe that this will result in insufficient 
support for any carrier. Using NTCA's analysis, the highest cost 
carrier would lose only seven percent of HCLS as compared to the 
current rules (and receives only three percent less than it would 
receive under the Commission's proposal). Because that carrier would 
likely also be receiving a significant amount of ICLS, the reduction as 
a fraction of total support would be even less than seven percent. 
Moreover, the fact that reported costs have increased for some high-
cost recipients at rates substantially above that for other high-cost 
recipients suggests that the current construct of the rule does not 
create structural incentives for these carriers to take measures to 
reduce their expenses to the extent possible. There are several 
potential reasons why reported costs per loop for certain carriers are 
increasing at rates in excess of that for other high-cost recipients: 
They are investing more, they are subject to greater competition and 
therefore experiencing line loss, or they are spending imprudently. One 
of the Commission's goals as it considers proposals for longer-term 
reform is to provide a more equitable opportunity for all carriers in 
high-cost areas to invest in broadband-capable infrastructure. In the 
meanwhile, the

[[Page 4459]]

rule change the Commission is adopting in this Order will strengthen 
the incentive for the carriers with the highest reported costs per loop 
to manage their expenditures in light of the existence of the cap on 
HCLS.
    92. The Commission also is not persuaded by commenters arguing that 
these changes are unnecessary. TCA argues that the $250 per-line per 
month cap effectively addresses the race to the top. In fact, the $250 
per-line cap affects only a small number of the very highest cost 
carriers and, for the reasons explained above, does not, it concludes, 
comprehensively address the race to the top or the cliff effect. Those 
higher cost carriers not subject to the $250 per-line cap still have 
limited incentive to curb waste, and numerous others are hurt by the 
cliff effect.
    93. The Commission does not agree with the Concerned Rural ILECs 
that the race to the top is a budgetary problem and could be solved by 
increasing the size of the HCLS budget. Although significantly 
increasing the HCLS budget might address the cliff effect, it would, if 
anything, exacerbate the race to the top by eliminating the limited 
constraints the HCLS mechanism currently has on carrier spending and 
undermining the carriers' incentives to curb wasteful expenses related 
to common line costs.
    94. The Commission disagrees with TCA's contention that it should 
not adopt its proposal due to retroactivity. As a matter of law, the 
proposed rule is not impermissibly retroactive. The Commission notes 
that the Tenth Circuit recently rejected arguments that the changes the 
Commission made to the HCLS and Safety Net Additive (SNA) rules in the 
USF/ICC Transformation Order violated the presumption against 
retroactivity. The court there found that ``the Order . . ., which 
makes only prospective changes to the reimbursement framework, 
including the elimination of SNA, is not retroactive.'' A rule does not 
operate retroactively merely because it is ``applied in a case arising 
from conduct antedating [its] enactment'' or ``upsets expectations 
based on prior law.'' Rather, a rule operates retroactively if it 
``takes away or impairs vested rights acquired under existing law, or 
creates a new obligation, imposes a new duty, or attaches a new 
disability in respect to transactions or considerations already past.'' 
The application of the rules adopted here will not take away or impair 
a vested right, create a new obligation, impose a new duty, or attach a 
new disability in respect to the carriers' previous expenditures. There 
is no statutory provision or Commission rule that provides companies 
with a vested right to continue to receive support at particular levels 
or through the use of a specific methodology. Although application of 
these rules may affect the amount of support a carrier receives for 
expenditures made in 2013, it does not change the legal landscape in 
which those expenditures were made. Rather, as the Commission observed 
in the USF/ICC Transformation Order, ``section 254 directs the 
Commission to provide support that is sufficient to achieve universal 
service goals, [but] that obligation does not create any entitlement or 
expectation that ETCs will receive any particular level of support or 
even any support at all.''
    95. Moreover, as a matter of policy, the Commission is not 
persuaded that even the highest cost rate-of-return carriers will be 
unduly harmed by this rule. As noted above, in the Rural Associations' 
examples, the highest cost company sees a reduction of only six percent 
of its HCLS (and a smaller fraction of its total high-cost support) as 
a result of this rule. TCA nonetheless argues that this rule change 
``unfairly penalizes'' rate-of-return carriers ``that have made 
investments to bring broadband to their customers in accordance with 
the FCC's goals.'' TCA provides no basis, however, for distinguishing 
between carriers that have, in fact, prudently invested in broadband 
facilities and those that have failed to curb wasteful expenses. The 
Commission notes that if any rate-of-return carrier suffers significant 
harm as a result of this rule change and the carrier's earlier prudent 
investment, it may seek waiver of our rules.
    96. The Commission declines to adopt the Eastern Rural Telecom 
Association's (ERTA) proposal that the frozen NACPL be indexed to 
inflation or some other low-growth factor as a method of removing the 
cliff effect. The Commission finds that the other steps taken here will 
effectively address this issue. Moreover, because the Commission 
anticipates that it will adopt more comprehensive reforms for rate-of-
return carriers in the coming year, indexing the NACPL is unlikely to 
have a material effect.
    97. The Commission recognizes that NTCA's analysis is sensitive to 
a number of forecasting assumptions, including line growth or loss and 
changes in cost per loop. For that reason, the Commission will closely 
monitor the effects of this rule change on rate-of-return carriers and 
will revisit this issue in the event that it has unanticipated results. 
In sum, however, the Commission is not convinced based on the record 
before us that the Rural Associations' proposal is superior to what the 
Commission proposed in the April 2014 Connect America NPRM.

B. 100 Percent Overlap Rule

    98. Discussion. The Commission previously 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.'' The 
Commission expects the Bureau will, in 2015, review study area boundary 
data in conjunction with other data collected via FCC Form 477 or the 
State Broadband Initiative to determine whether and where 100 percent 
overlaps exist. The Bureau will publish its preliminary determination 
of those areas subject to 100 percent overlap and then provide an 
opportunity for comment on these preliminary determinations, building 
on experience gained in conducting the Phase II challenge process in 
price cap areas. Once the comment period is complete, the Bureau then 
will finalize its determination of where there is a 100 percent 
overlap. The Commission directs the Bureau to repeat this process every 
other year to determine whether additional study areas have become 
subject to the 100 percent overlap rule. Finally, the Commission adopts 
its proposal to base support reduction phase down on the amount of 
support awarded in the year prior to the determination, rather than 
2010. Because implementation of the 100 percent overlap determinations 
for rate-of-return carriers has taken longer than initially 
anticipated, the Commission believes that basing reductions on current 
support will lead to a smoother transition.
    99. The Commission declines to modify the 100 percent overlap rule 
to eliminate support in any study area with a qualifying competitor, as 
opposed to an unsubsidized competitor. As explained above, the reason 
the Commission is removing high-cost census blocks with a qualifying 
competitor from eligibility for Connect America Phase II model support 
is to provide an opportunity for all parties to compete for support for 
those areas through a competitive bidding process. There is no 
comparable process in place in rate-of-return study areas for several 
subsidized competitors to compete with each other for support to serve 
the study area. In the case of rate-of-return carriers, removing study 
areas from eligibility where there are qualifying competitors would 
mean that there is no mechanism to provide support for high-cost areas 
that presumably need support in order for consumers to have access to 
voice and broadband services, once the

[[Page 4460]]

phase-down in competitive ETC support is complete.

VI. Accountability and Oversight

    100. In this section, the Commission takes several steps to 
strengthen the uniform national framework for accountability that the 
Commission adopted in the USF/ICC Transformation Order. First, the 
Commission codifies a broadband reasonable comparability rates 
certification requirement for all recipients of high-cost support that 
are subject to obligations to deploy broadband to fixed locations. 
Second, the Commission requires price cap carriers that accept model-
based support to submit specific location information with their 
service quality improvement plans and progress reports to enhance the 
Commission's ability to monitor their use of Connect America support. 
Third, the Commission adjusts the framework for reduction in support 
for late-filed section 54.313 and 54.314 reports and certifications. 
Fourth, the Commission adopts measures to be used in the event specific 
ETCs do not meet certain terms and conditions of high-cost support.

A. Reasonably Comparable Rates Certification for Broadband

    101. Discussion. The Commission amends section 54.313(a) to include 
a new subsection 12 that requires recipients of high-cost and/or 
Connect America Fund support that are subject to broadband performance 
obligations to submit a broadband reasonable comparability rate 
certification with their annual section 54.313 report (FCC Form 481). 
In that certification, support recipients must certify that the pricing 
of the broadband offering they are relying upon to meet their broadband 
performance obligation is no more than the applicable benchmark as 
specified in a public notice annually issued by the Bureau, or is no 
more than the non-promotional prices charged for a comparable fixed 
wireline service in urban areas in the state or U.S. Territory where 
that high-cost support recipient receives support. Recognizing that 
high-cost support recipients are permitted to offer a variety of 
broadband service offerings as long as they offer at least one 
standalone voice service plan and one service plan that provides 
broadband that meets our requirements, the Commission only requires 
that they make the above certification for one of their broadband 
service offerings that satisfies all of the Commission's requirements, 
including that the service be offered throughout the high-cost support 
recipient's supported area in the relevant state or U.S. Territory, or 
for rate-of-return carriers, be made available upon reasonable request. 
The Commission concludes that requiring high-cost support recipients to 
make this certification will ensure that the Commission can monitor 
their compliance with conditions that fulfill the section 254(b) 
principle that ``[c]onsumers in all regions of the Nation . . . should 
have access to telecommunications and information services . . . that 
are available at rates that are reasonably comparable to rates charged 
for similar services in urban areas.''
    102. The Commission requires high-cost support recipients that 
elect to certify that their pricing of services in rural areas is no 
greater than their pricing in urban areas to rely upon the non-
promotional prices charged for comparable fixed wireline services. The 
Commission declines to permit high-cost support recipients to certify 
that the pricing they offer for their broadband services is no more 
than the non-promotional prices charged for comparable ``broadband'' 
services. The Commission notes that the applicable benchmark adopted by 
the Bureau is two standard deviations above the average urban rates for 
a specific set of service characteristics, consistent with the 
Commission's precedent for the voice reasonable comparability 
benchmark. The Commission also already provides a presumption for high-
cost support recipients that offer rates that exceed the applicable 
benchmark that those rates are reasonably comparable if they are the 
same as rates being offered in urban areas for a comparable fixed 
wireline service. Fixed wireless services tend to be more expensive 
than fixed wireline services even when data usage allowances and the 
speeds offered are taken into account. Moreover, consumers living in 
urban areas typically have the choice of obtaining broadband service 
from at least one fixed wireline provider. The Commission therefore 
concludes it is appropriate to use fixed wireline services in urban 
areas as the reference point for reasonably comparable rates, 
recognizing that rates in rural areas may be higher than urban areas.
    103. This certification will be included in the FCC Form 481 to be 
filed in 2016, addressing performance during 2015, after the 
requirement has received Paperwork Reduction Act (PRA) approval from 
the Office of Management and Budget. All parties subject to a broadband 
public interest requirement to serve fixed locations that file this 
report in 2016 will be required to make the certification, and annually 
thereafter.
    104. Recipients of funding through the Phase II competitive bidding 
process must submit their first certification with the first section 
54.313 annual report they are required to submit after support is 
authorized, and each year thereafter with their annual report.

B. Monitoring Progress in Meeting Deployment Obligations

    105. Discussion. Here, the Commission takes action to enhance our 
ability to monitor the use of Connect America support and ensure that 
price cap carriers that accept model-based support use that support for 
its intended purpose. Specifically, as proposed by USTelecom, the 
Commission requires all price cap carriers accepting model-based 
support to include in the annual progress report that they submit each 
year with their section 54.313 annual reports a list of the geocoded 
locations to which they have newly deployed facilities capable of 
delivering broadband meeting the requisite requirements with Connect 
America support in the prior year. The list must identify which 
locations are located in a Phase II-funded block and which locations 
are located in extremely high-cost census blocks. The first list must 
be submitted with their July 2016 annual report, reflecting deployment 
status through the end of 2015. This first list should also include the 
geocoded locations that a price cap carrier had already built out to 
with service meeting the Commission's requirements before receiving 
Phase II support. In subsequent years, the list should provide the 
relevant information for newly built locations in the prior calendar 
year. The last list that price cap carriers submit with their July 2021 
annual reports must include the total number and geocodes of all 
supported locations to which they have deployed facilities capable of 
delivering broadband meeting the requisite requirements.
    106. The Commission concludes that it is in the public interest to 
require price cap carriers accepting model-based support to provide 
this data on an annual basis. The Commission and USAC will analyze the 
data to determine how Connect America support is being used to 
``improve broadband availability, service quality, and capacity,'' 
consistent with a recent recommendation of the Government 
Accountability Office. The Commission also intends to make such data 
available to the public on its Web site in a user-friendly manner so 
that the public will be able to see at a granular level how

[[Page 4461]]

high-cost funds are being used to invest in new broadband 
infrastructure to bring new services to the area. The Commission finds 
that the benefits in collecting this data outweigh any potential 
burdens on the price cap carriers in reporting this data annually, 
given that the Commission expects that price cap carriers will already 
be collecting such data for their own business purposes and to be 
prepared to respond to the compliance reviews that the Commission 
directs USAC to undertake.
    107. The Commission will also collect from price cap carriers in 
their annual section 54.313 reports the total amount of Connect America 
Phase II support, if any, they used for capital expenditures in the 
previous calendar year. The Commission concludes that the benefit to 
the Commission of being able to determine how price cap carriers are 
using Phase II funding outweighs any potential burden on price cap 
carriers in submitting this information given that it expects that 
price cap carriers will track their capital expenditures for Phase II 
in the regular course of business.
    108. The Commission directs USAC to review Phase II recipients' 
compliance with deployment obligations and the Commission's public 
interest obligations at the state level--that is, whether the carrier 
is meeting interim and final deployment obligations for the total 
number of locations required for the state. As discussed above, the 
Commission concludes that conducting compliance reviews at the state 
level would be less administratively burdensome for the Commission, 
USAC, and the recipients of Phase II support than at the census block 
level. The Commission expects USAC to review compliance with the 
deployment obligations for all price cap recipients over the course of 
the Phase II support term. This will ensure the Commission is able to 
fulfill our responsibility to monitor each Phase II recipient's use of 
high-cost support in areas subject to the state-level commitment.

C. Reduction in Support for Late Filing

    109. Discussion. The Commission adopts a rule to reduce on a pro-
rata daily basis the support for ETCs that miss certification and data 
submission deadlines. Based on the Commission's experience to date with 
the current support reduction scheme, it has determined that reducing 
support for late filers on a quarterly basis is unduly harsh given that 
most late filings are inadvertent, particularly for those recipients 
that file closer to the beginning of the quarter than the end of the 
quarter. The Commission concludes that readjusting the support 
reductions to more closely calibrate the reduction of support with the 
period of non-compliance is a more reasonable approach for handling the 
recurring problem of an occasional failure to file.
    110. The Commission will impose a minimum reduction of support of 
seven days given the importance of ETCs meeting filing deadlines. After 
the initial seven days, support will be reduced further on a day-by-day 
basis until the high-cost recipient files the required report or 
certification, plus the minimum seven-day reduction. Reducing support 
on a day-by-day basis plus an additional seven-day reduction is an 
appropriate measure to create incentives for high-cost recipients to 
make their filings as soon as they have determined that they have 
missed the applicable deadlines.
    111. The Commission recognizes that despite its best efforts, an 
ETC may miss a deadline due to an administrative oversight but still 
file within a few days of the deadline. For a late filer, the 
Commission finds that it is appropriate to provide a one-time grace 
period of three days so that an ETC that quickly rectifies its error 
within three days of the deadline will not be subject to the seven-day 
minimum loss of support. The Commission directs USAC to send a letter 
to such an ETC notifying the ETC that its filing was late but cured 
within the grace period. If the ETC again files any high-cost filing 
late, the grace period will not be available. Repeated mistakes, even 
inadvertent, are indicative of a lack of adequate policies and 
procedures to ensure timely filing. If an ETC misses a filing deadline 
more than once due to its inadvertence, the Commission finds that the 
support reductions that it adopts should provide an incentive to ETCs 
to revise their procedures to ensure that such inadvertence does not 
become a pattern.
    112. The Commission disagrees with arguments that it should 
lengthen the one-time grace period because new ETCs receiving support 
may be unfamiliar with high-cost filing requirements or that ETCs may 
inadvertently forget to file. The Commission imposes support reductions 
on late filers to impress upon high-cost recipients the importance of 
understanding obligations that come with high-cost funding and the need 
for the Commission and USAC to receive the data in a timely manner so 
that it can properly administer the Universal Service Fund. A one-time 
grace period of three days achieves an appropriate balance between 
requiring strict compliance with our rules and providing an opportunity 
for ETCs that may be first time filers or that make an uncharacteristic 
mistake to rectify quickly an error.
    113. Although ETCs are required to submit separate filings for each 
operating company, the Commission notes that many holding companies 
administer the filings for all of their operating companies that may 
hold an ETC designation. The Commission expects that holding companies 
will take measures to ensure that all of their operating companies meet 
the required deadlines. Thus, the Commission will apply the grace 
period at the holding company level. If an ETC misses the deadline and 
exercises the grace period in a prior year, that grace period will not 
be available for all subsequent years to another one of the holding 
company's operating companies that holds an ETC designation to serve a 
different study area.
    114. The Commission is not persuaded by the Rural Associations' 
argument, relying on precedent related to the Eighth Amendment to the 
Constitution ``Excessive Fines'' clause, that the support reductions 
are ``unreasonable'' and ``excessive penalties.'' Because ETCs have no 
property interest in or right to continued universal service support, 
nor any right to support other than as provided for by the Commission's 
rules, the reduction of an ETC's universal support payment does not 
constitute a payment by the ETC to the government that is subject to 
the Excessive Fines clause of the Eighth Amendment.
    115. In any case, even if that framework were viewed as applicable, 
given the important role these data and certifications play in the 
administration of the Universal Service Fund, the Commission finds that 
the support reductions that it adopts are sufficiently proportional to 
the harm caused by late filings. The reductions increase as the length 
in delay of the filings increase, and thus are proportional to the 
amount of harm that is caused when the Commission, state commissions, 
and USAC are delayed in being able to monitor the use of universal 
service funds. Moreover, by basing the support reductions on each ETC's 
daily support amount, the Commission has calibrated the amount of 
support that a late filer will have reduced with the benefit they 
receive from the Universal Service Fund. Contrary to the arguments of 
some commenters, the Commission finds that the benefits for consumers 
nationwide of an effective oversight scheme outweigh the potential 
impact of support reductions on the customers of late filing ETCs. 
Congress gave the Commission broad discretion under

[[Page 4462]]

section 254 to determine support levels and adjust them as needed, and 
hence any reductions in support provided for under the Commission's 
rules are well within our legislative mandate.
    116. The Commission is not persuaded by suggestions that the 
Commission should refrain from imposing support reductions for untimely 
filings and instead rely on Commission enforcement authority in the 
event of non-compliance. If the Commission were to conduct an 
enforcement proceeding every time an ETC misses a deadline, that would 
divert Commission resources from other Commission priorities. Instead, 
by adopting a clear and predictable support reduction scheme, the 
Commission, USAC, and ETCs will know exactly what consequences will 
result under the rules if filings are missed, rather than having to 
handle each issue on a case-by-case basis. Similarly, the Commission is 
not persuaded that support reductions are unnecessary because ETCs are 
already motivated to file on time to avoid a delay in receiving their 
support. Support reductions provide more of an incentive to file on 
time because ETCs actually lose support under the mechanism established 
in our rules rather than simply have it delayed if they do not meet a 
deadline.
    117. Given the Commission's decision to modify the support 
reductions for late filings, the Commission adopts its proposal to 
require strict adherence to filing deadlines. The Commission will cease 
the practice of finding there is good cause for a waiver of high-cost 
filing deadlines in circumstances where an ETC has missed the deadline 
due to an administrative or clerical oversight and where that ETC has 
promised to revise its procedures to ensure future compliance, as 
proposed in the April 2014 Connect America FNPRM. The Commission 
expects all ETCs, even those new to the Commission's processes or with 
small staffs, to implement appropriate procedures to ensure compliance 
with the Commission's filing deadlines and other regulatory 
requirements.

D. Measures To Address Non-Compliance

    118. Discussion. In this Order the Commission adopts specific 
measures that the Bureau will take in the event that certain ETCs do 
not meet their high-cost support deployment obligations for fixed 
services or do not offer rates for fixed services that are reasonably 
comparable to rates offered in urban areas.
    119. In addition, the Commission reminds all ETCs that they may 
also be subject to other sanctions for non-compliance with the terms 
and conditions of high-cost funding, including, but not limited to, 
potential revocation of ETC designation and suspension or debarment. 
The Commission emphasizes that it will enforce the terms and conditions 
of high-cost support vigorously. The Enforcement Bureau may initiate an 
enforcement proceeding in situations where waiver is not appropriate. 
In proposing any forfeiture, consistent with the Commission's rules, 
the Enforcement Bureau shall take into account the nature, 
circumstances, extent, and gravity of the violations.
1. Non-Compliance With Deployment Obligations
    120. For ETCs that must meet specific build-out milestones, the 
Commission adopts a framework for support reductions that are 
calibrated to the extent of an ETC's non-compliance with these 
deployment milestones. The Commission concludes that adopting support 
reductions that scale with the extent of an ETC's non-compliance will 
create incentives for ETCs to come into compliance as soon as possible, 
and that a support reduction scheme that is tied to specific milestones 
is a clear, straightforward approach.
    121. The Commission has given rate-of-return carriers greater 
flexibility to build out their networks by requiring that they deploy 
service meeting the Commission's requirements upon reasonable request. 
Because rate-of-return carriers are not at this time required to build 
out to a certain number of locations, the Commission concludes it is 
appropriate to handle matters regarding their potential non-compliance 
on a case-by-case basis.
    122. Trigger for Default. A default will occur if an ETC is 
receiving support and then fails to meet its high-cost support 
deployment obligations. For example, a default will occur if a 
recipient of Phase II funding fails to meet a build-out milestone. The 
Commission directs USAC to confirm that Phase II ETCs are in fact 
meeting the terms and conditions of that support by verifying the 
build-out certifications that recipients of Phase II support are 
required to provide to ensure that Connect America funds are being used 
to deploy infrastructure to eligible locations.
    123. To the extent that an ETC determines that it will not meet a 
build-out milestone, that ETC must notify the Commission, USAC, and the 
relevant state or U.S. Territory, and Tribal government as appropriate, 
no later than ten business days after the relevant deadline, rather 
than waiting until the filing of the next annual report. The Commission 
also expects that the states, U.S. Territories, and Tribal governments 
will continue to aid us in our joint oversight role and notify the 
Commission when an ETC is not meeting its obligations.
    124. Support Reductions for ETCs with Defined Build-Out Milestones. 
If an ETC begins receiving support and the Bureau subsequently 
determines that the ETC has defaulted, the Bureau will issue a letter 
documenting the default, and USAC will take the steps outlined below in 
the following month. The measures that will be taken will be dependent 
on the extent of an ETC's non-compliance.
    125. Specifically, for interim milestones that occur during the 
support term:
     Tier 1: If an ETC has a compliance gap of at least five 
percent but less than 15 percent of the number of locations that the 
ETC is required to have built out to by the interim milestone, the 
Bureau will issue a letter to that effect. The ETC will then be 
required to file quarterly reports identifying the geocoded locations 
to which the ETC has newly deployed facilities capable of delivering 
broadband meeting the requisite requirements with Connect America 
support in the previous quarter. The ETC must continue to file these 
quarterly reports until the ETC reports that it has reduced the 
compliance gap to less than five percent of the required number of 
locations for that interim milestone and the Bureau issues a letter to 
that effect.
     Tier 2: If an ETC has a compliance gap of at least 15 
percent but less than 25 percent of the number of locations that the 
ETC is required to have built out to by the interim milestone, USAC 
will withhold 15 percent of the ETC's monthly support for the state and 
the ETC will be required to file quarterly reports. Once the ETC has 
reported that it has reduced the compliance gap to less than 15 percent 
of the required number of locations for that interim milestone for that 
state, the Bureau will issue a letter to that effect, USAC will stop 
withholding support, and the ETC will receive all of the support that 
had been withheld. The ETC will then move to Tier 1 status.
     Tier 3: If an ETC has a compliance gap of at least 25 
percent but less than 50 percent of the number of locations that the 
ETC is required to have built out to by the interim milestone, USAC 
will withhold 25 percent of the ETC's monthly support for the state and 
the ETC will be required to file quarterly reports. Once the ETC has 
reported that it has reduced the compliance gap to

[[Page 4463]]

less than 25 percent of the required number of locations for that 
interim milestone, the Bureau will issue a letter to that effect, the 
ETC will move to Tier 2 status, and USAC will withhold 15 percent of 
its monthly support for that state until the ETC reports that it is 
eligible to move to Tier 1 status. Once the ETC has reported that it 
qualifies for Tier 1 status, and the Bureau issues a letter to that 
effect, it will be eligible to have all of its support restored, the 
ETC will receive all of the support that had been withheld, and it will 
move to Tier 1.
     Tier 4: If an ETC has a compliance gap of 50 percent or 
more of the number of locations that the ETC is required to have built 
out to by the interim milestone, USAC will withhold 50 percent of the 
ETC's monthly support for the state, and the ETC will be required to 
file quarterly reports. As with the other tiers, as the ETC reports 
that it has lessened the extent of its non-compliance, and the Bureau 
issues a letter to that effect, it will move down the tiers until it 
reaches Tier 1 (or no longer is out of compliance with the relevant 
interim milestone). At that point, the ETC will be eligible to have all 
of its support restored, the ETC will receive all of the support that 
had been withheld, and, if it now is meeting the interim milestone, it 
will no longer be required to file quarterly reports.
    On the other hand, if after having 50 percent of its support 
withheld for six months the ETC has not reported that it is eligible 
for Tier 3 status (or one of the other lower tiers), USAC will withhold 
100 percent of the ETC's support for that state and will commence 
recovery action for a percentage of support that is equal to the ETC's 
compliance gap plus ten percent of the ETC's support that has been paid 
to that point. For example, if an ETC has not built out to 75 percent 
of the required number of locations in a state, USAC would recover 85 
percent of the ETC's support that had been paid to that point. The 
Commission concludes that recovering the additional ten percent of the 
ETC's support that has been disbursed up to that point will deter ETCs 
from deciding that they would rather return the support than meet their 
commitments for the supported area. Because these are high-cost areas 
that lack unsubsidized providers at the outset of the support term, an 
ETC's refusal to serve these locations could potentially leave the 
locations with no options for reasonably comparable service.
     If at any point during the support term the ETC reports 
that it is eligible for Tier 1 status, it will have its support fully 
restored including any support that had been withheld, USAC will repay 
any funds that were recovered, and the ETC will move to Tier 1 status.
    126. As noted above, the Commission requires ETCs to report to the 
Commission, USAC, and the relevant state or U.S. Territory, and Tribal 
government as appropriate, within ten business days of the final build-
out milestone if they have missed this milestone. If an ETC misses the 
final build-out milestone, it must identify by what percentage it has 
missed the final build-out milestone. Absent an extension of time for 
circumstances beyond the ETC's control, the ETC will then have twelve 
months from the date of the final build-out milestone deadline to come 
into full compliance with this milestone. If an ETC does not report 
that it has come into full compliance within twelve months, the Bureau 
will issue a letter to this effect. USAC will then recover an amount of 
support that is equal to 1.89 times the average amount of support per 
location received in the state over the six-year term for the relevant 
number of locations that the ETC has failed to deploy to, plus ten 
percent of the ETC's total Phase II support received in the state over 
the six-year term. As explained above, the Commission concludes that 
recovering an additional ten percent of the ETC's total Phase II 
support will deter ETCs from deciding to return their support rather 
than build out to more than a de minimis number of locations.
    127. If after the ETC's support term has ended, USAC determines in 
the course of a compliance review that the ETC has not retained 
sufficient evidence to demonstrate that it has built out to all of the 
locations required by the final build-out milestone, USAC must recover 
support from that ETC. Specifically, if the ETC does not have 
sufficient evidence to demonstrate that it has built out to the total 
number of required locations, USAC will recover an amount of support 
that is equal to 1.89 times the average amount of support per location 
received in the state over the six-year term for the relevant number of 
locations for which the ETC has failed to retain sufficient evidence, 
plus ten percent of the ETC's total support received in that state over 
the six-year term. The Commission expects that ETCs will have strong 
incentives to adopt policies and procedures to retain sufficient 
evidence to aid the Commission and USAC in our oversight 
responsibility.
    128. Table 2 below summarizes the regime the Commission adopts in 
this Order.

                                        Table 2--Non-Compliance Measures
----------------------------------------------------------------------------------------------------------------
                 Tier                              Compliance gap                   Non-compliance measure
----------------------------------------------------------------------------------------------------------------
1.....................................  5% to less than 15%................  Quarterly reporting.
2.....................................  15% to less than 25%...............  Quarterly reporting + withhold 15%
                                                                              of monthly support.
3.....................................  25% to less than 50%...............  Quarterly reporting + withhold 25%
                                                                              of monthly support.
4.....................................  50% or more........................  Quarterly reporting + withhold 50%
                                                                              of monthly support for six months;
                                                                              after six months withhold 100% of
                                                                              monthly support and recover
                                                                              percentage of support equal to
                                                                              compliance gap plus 10% of support
                                                                              disbursed to date.
Recovery after Last Milestone.........  If carrier elects the flexibility    Twelve months to come into full
                                         option: its compliance gap will be   compliance; after twelve months
                                         determined by the percentage of      recover support equal to 1.89
                                         total locations it does not build    times the average amount of
                                         to after subtracting the             support per location received in
                                         percentage of locations it has       the state over the six-year term
                                         identified it will not serve         for the relevant locations, plus
                                         (e.g., if a carrier is offered 100   10% of total Phase II support.
                                         total locations, and it elects not
                                         to serve 4 locations but by the
                                         end of the term it has not served
                                         20 locations, its compliance gap
                                         is 16% (20% minus 4% = 16%)). If
                                         carrier does not elect flexibility
                                         option: anything less than 100%
                                         compliance.
----------------------------------------------------------------------------------------------------------------


[[Page 4464]]

    129. The Commission provides the following example in Table 3 of 
how these compliance measures will be implemented for a price cap 
carrier that accepts the state-level commitment. For simplicity, the 
Commission assumes the price cap carrier must serve 100 total locations 
and does not elect the flexibility option.

                                    Table 3--Non-Compliance Measures Example
----------------------------------------------------------------------------------------------------------------
              Milestone                          Tier                            Compliance gap
----------------------------------------------------------------------------------------------------------------
December 31, 2017--40% of total        1......................  Serves 35 to 38 locations.
 locations (40 locations).
                                       2......................  Serves 31 to 34 locations.
                                       3......................  Serves 21 to 30 locations.
                                       4......................  Serves 20 locations or fewer.
----------------------------------------------------------------------------------------------------------------
December 31, 2018--60% of total        1......................  Serves 52 to 57 locations.
 locations (60 locations).
                                       2......................  Serves 46 to 51 locations.
                                       3......................  Serves 31 to 45 locations.
                                       4......................  Serves 30 locations or fewer.
----------------------------------------------------------------------------------------------------------------
December 31, 2019--80% of total        1......................  Serves 69 to 76 locations.
 locations (80 locations).
                                       2......................  Serves 61 to 68 locations.
                                       3......................  Serves 41 to 60 locations.
                                       4......................  Serves 40 locations or fewer.
----------------------------------------------------------------------------------------------------------------
December 31, 2020--100% of total       Recovery...............  Serves 99 locations or fewer.
 locations (100 locations).
----------------------------------------------------------------------------------------------------------------

    130. The Commission concludes that the approach it adopts in the 
Order is preferable to the other alternative the Commission sought 
comment on--permitting ETCs to submit a plan to USAC for coming into 
compliance before support reductions would begin. Such an approach 
would likely to be resource-intensive for Commission staff and USAC 
because each default would need to be handled on a case-by-case basis. 
When there are clear milestones that must be met, such an approach is 
unnecessary. Moreover, it likely would take a significant amount of 
time for an ETC to develop a compliance plan and for the plan to be 
approved, and then it will take even more time for the ETC to come into 
full compliance. During this extended period consumers will be without 
service meeting the Commission's requirements. The Commission finds 
that the more automatic support reduction scheme it adopts above will 
more quickly motivate ETCs to come into compliance and is a clearer, 
less resource-intensive process for the Commission, USAC, and ETCs.
    131. Non-Compliance Measures for Rate-of-Return Carriers. The 
Commission will determine on a case-by-case basis whether rate-of-
return carriers are fulfilling their obligation to provide voice and 
broadband services meeting the Commission's requirements upon 
reasonable request. The Commission clarifies that rate-of-return 
carriers should report any requests that are deemed unreasonable as 
unfulfilled requests in their section 54.313 annual reports. The 
Commission expects that USAC will verify that rate-of-return carriers 
have sufficient evidence to demonstrate that any unfulfilled requests 
were in fact unreasonable. Rate-of-return carriers should consult the 
Declaratory Ruling contained in the April 2014 Connect America Order, 
79 FR 39164, July 9, 2014, for guidance on what constitutes an 
unreasonable request to determine the types of evidence they should 
retain to demonstrate that unfilled requests were unreasonable. The 
Commission declines at this time to specify a schedule of support 
reductions for rate-of-return carriers because they are not subject to 
defined build-out milestones. To the extent USAC determines in the 
course of an audit that a carrier has insufficient evidence to support 
a decision to deny a request for service, such findings shall be 
reported as ``other matters.'' Because rate-of-return carriers are not 
required to serve a set number of locations, and the Commission only 
recently issued guidance on the reasonable request standard, the 
Commission does not have sufficient experience to create specific 
milestones that would require support reductions. However, the 
Commission reserves the right to adopt a more automatic support 
reduction framework for rate-of-return carriers at a future date.
    132. Adjustment of Deployment Obligations. In the event an ETC is 
unable to meet the required deployment obligations due to circumstances 
beyond its control (e.g., a severe weather event, an inability to 
secure a right of way, or an unforeseen obstacle that prevents building 
to a location), that ETC may petition for an extension of time or 
waiver of the relevant build-out milestone pursuant to section 1.3 of 
the Commission's rules. The Commission notes that to the extent the ETC 
is seeking an extension or waiver of a specific build-out milestone, 
the Commission expects that the ETC would file its petition seeking 
that relief no later than 30 days prior to the build-out milestone. The 
Commission encourages ETCs that submit such petitions to continue to 
work diligently towards meeting the terms and conditions of their 
support while their petitions are pending. If the petitioning ETC is 
unable to meet the terms and conditions by the time the build-out 
milestone occurs, then the Bureau will issue a letter finding default, 
and if applicable, reporting obligations and support reductions will 
begin as described above. If an extension of time or waiver 
subsequently is granted, the petitioning ETC will have all of the funds 
that have been withheld or recovered restored and will be entitled to 
receive its subsequent disbursements.
2. Non-Compliance With Reasonably Comparable Pricing Obligations
    133. The Commission concludes that this issue is best dealt with on 
a case-by-case basis for the time being for all ETCs that must certify 
that the rates they offer are reasonably comparable. The Commission 
finds that it would not be appropriate to apply a uniform support 
reduction to all ETCs that fail to offer reasonably comparable prices. 
It would be inequitable to reduce support by the same percentage amount 
regardless of whether the ETC was charging prices a few dollars above 
what is considered to be reasonably comparable or charging much higher 
prices. Similarly, because the pricing benchmarks for voice and 
broadband are

[[Page 4465]]

presumptions, not mandates, the Commission must provide an opportunity 
for affected ETCs to present information to rebut the presumption. 
Because there may be a variety of factors that go into determining 
whether prices are reasonably comparable (e.g., speeds and data usage 
limits being offered), the Commission is not prepared at this time to 
establish a method for scaling the support reductions based on a level 
of non-compliance. The Commission finds that it would be beneficial to 
consider each potential instance of non-compliance separately and 
gather more information to inform future judgments as to what is a 
reasonable approach.
    134. The Commission directs USAC to gather additional information 
when ETCs fail to make the reasonably comparable certification about 
their voice or broadband rates in their section 54.313 annual report 
and transmit that information to the Commission. The ETC may present 
factual evidence explaining the unique circumstances that preclude it 
from offering service at a rate meeting the requisite benchmark. Based 
on this information, the Commission will be in a better position at a 
future date to determine the appropriate steps to take when there is 
non-compliance with this requirement.

VII. Procedural Matters

A. Paperwork Reduction Act Analysis

    135. 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, the Commission 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).

B. Final Regulatory Flexibility Analysis

    136. As required by the Regulatory Flexibility Act of 1980 (RFA), 
as amended, an Initial Regulatory Flexibility Analyses (IRFA) was 
incorporated in the April 2014 Connect America FNPRM. The Commission 
sought written public comment on the proposals in the April 2014 
Connect America FNPRM, including comment on the IRFA. The Commission 
did not receive any relevant comments on the April 2014 Connect America 
FNPRM IRFA. This Final Regulatory Flexibility Analysis (FRFA) conforms 
to the RFA.
1. Need for, and Objectives of, the Report and Order
    137. With this Order, the Commission takes another momentous stride 
towards fully implementing a modernized universal service regime 
capable of meeting consumer demands for 21st century networks. The 
Commission finalizes the decisions necessary to proceed with the offer 
of support to price cap carriers in early 2015, thereby paving the way 
for the deployment of new broadband infrastructure to millions of 
unserved Americans. In the coming months, the Commission will turn its 
attention to finalizing the rules for the Phase II competitive bidding 
process that will occur in those states where the price cap carrier 
declines the offer of model-based support.
    138. Throughout the universal service reform process, the 
Commission has sought to ensure that all consumers ``have access to . . 
. advanced telecommunications and information services'' and benefit 
from the historic technology transitions that are transforming our 
nation's communications services. The Order continues down that path. 
The Commission adopts several revisions to Connect America Phase II to 
account for changes in the marketplace since the USF/ICC Transformation 
Order was adopted. In particular, the Commission revises the minimum 
speed requirement that recipients of high-cost universal service must 
offer. The Commission finds that it is in the public interest to 
require recipients of high-cost support subject to broadband 
performance obligations to serve fixed locations to provide at least a 
minimum broadband speed of 10 Mbps downstream.
    139. The Commission adopts targeted changes to the framework 
established for the offer of model-based support to price cap carriers. 
Specifically, the Commission makes an adjustment to the term of 
support, adopts more evenly spaced interim deployment milestones, and 
concludes that adjustments of up to five percent in the number of 
locations that must be served with corresponding support reductions are 
appropriate to ensure that deployment obligations recognize conditions 
in the real world. The Commission also forbears from the federal high-
cost universal service obligation of price cap carriers to offer voice 
service in low-cost areas where they do not receive high-cost support, 
in areas served by an unsubsidized competitor, and in areas where the 
price cap carrier is replaced by another ETC.
    140. In addition, the Commission addresses where Phase II support 
will be available, both for the offer of model-based support to price 
cap carriers and the subsequent Phase II competitive bidding process. 
First, the Commission will exclude from the offer of Phase II model-
based support any census block served by a subsidized facilities-based 
terrestrial competitor that offers fixed residential voice and 
broadband services meeting or exceeding the 3 Mbps downstream/768 kbps 
upstream (3 Mbps/768 kbps) performance metrics, as determined by the 
Bureau upon completion of the Phase II challenge process. The 
Commission also reaffirms its decision to exclude from the offer of 
model-based support any census block served by an unsubsidized 
competitor that meets or exceeds the 3 Mbps/768 kbps performance 
metrics. Second, the Commission concludes that those high-cost blocks 
served by a subsidized carrier that are excluded from the offer of 
model-based support--including blocks with service meeting or exceeding 
the new 10 Mbps downstream/1 Mbps upstream (10/1 Mbps) speed 
requirement--will be eligible for support in the Phase II competitive 
bidding process. Third, the Commission concludes that any area served 
by an unsubsidized facilities-based terrestrial competitor that offers 
10/1 Mbps will be ineligible for support in the Phase II competitive 
bidding process. Fourth, the Commission excludes from the offer of 
model-based support those areas that are the subject of category one 
bids that were not selected for the rural broadband experiments and 
where a losing bidder has filed specific information indicating that it 
wishes to remain in consideration for rural broadband experiment 
support.
    141. In the Connect America Fund FNPRM, the Commission sought 
comment on a number of near-term and longer-term reforms for rate-of-
return carriers, including developing and implementing a ``Connect 
America Fund'' for rate-of-return carriers. Although a number of 
parties have submitted proposals that may have promise, the Commission 
finds that further analysis and development of these proposals is 
necessary. The Commission will continue to explore the possibility of a 
voluntary path to model-based support for those rate-of-return carriers 
that choose to pursue it. The Commission also expects to continue to 
develop the record and act in the coming year on alternatives for

[[Page 4466]]

those who do not elect to receive model-based support.
    142. In this Order, the Commission focuses on near-term reforms for 
rate-of-return carriers. Specifically, the Commission adopts a revised 
methodology for applying the cap on high-cost loop support to 
distribute that support on a more equitable basis. The Commission also 
addresses the proposals from the April 2014 Connect America FNPRM 
regarding the 100 percent overlap rule.
    143. In the USF/ICC Transformation Order, the Commission 
established a ``uniform national framework for accountability'' that 
replaced the various data and certification filing deadlines that 
carriers previously were required to meet. In the Order, the Commission 
takes several steps to strengthen that framework, including codifying 
the reasonable comparability pricing requirement for broadband 
services, adjusting the reductions in support for late-filed annual ETC 
reports and certifications, and providing greater specificity regarding 
how the Commission will address non-compliance with the Commission's 
service obligations for voice and broadband.
    144. The actions the Commission takes in this Order, combined with 
the implementation of the rural broadband experiments and the reforms 
the Commission implemented earlier in the year, will allow the 
Commission to continue to advance further down the path outlined in the 
USF/ICC Transformation Order. The Commission expects the Bureau to 
complete the Connect America Phase II challenge process and then make a 
final determination as to which census blocks will be eligible for the 
offer of model-based Phase II support by early 2015. That final 
determination will allow the Commission to extend the offers of Phase 
II model-based support to price cap carriers to fund the deployment of 
voice and broadband-capable infrastructure in their territories. The 
carriers will then have 120 days to consider the offer, and in those 
states where the price cap carrier declines the offer of support, the 
Commission will move forward with the Phase II competitive bidding 
process to determine support recipients.
2. Summary of Significant Issues Raised by Public Comments in Response 
to the IRFA
    145. There were no relevant comments filed that specifically 
addressed the rules and policies proposed in the April 2014 Connect 
America FNPRM IRFA. Nonetheless, the agency considered the potential 
impact of the rules proposed in the IRFA on small entities and reduced 
the compliance burden for all small entities in order to reduce the 
economic impact of the rules enacted herein on such entities.
3. Description and Estimate of the Number of Small Entities to Which 
the Proposed Rules Will Apply
    146. 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.
    147. Small Businesses. Nationwide, there are a total of 
approximately 28.2 million small businesses, according to the SBA.
    148. Wired Telecommunications Carriers. The SBA has developed a 
small business size standard for Wired Telecommunications Carriers, 
which consists of all such companies having 1,500 or fewer employees. 
According to Census Bureau data for 2007, there were 3,188 firms in 
this category, total, that operated for the entire year. Of this total, 
3144 firms had employment of 999 or fewer employees, and 44 firms had 
employment of 1000 employees or more. Thus, under this size standard, 
the majority of firms can be considered small.
    149. 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.
    150. Incumbent Local Exchange Carriers (incumbent LECs). Neither 
the Commission nor the SBA has developed a size standard for small 
businesses specifically applicable to incumbent local exchange 
services. The closest applicable size standard under SBA rules is for 
Wired Telecommunications Carriers. Under that size standard, such a 
business is small if it has 1,500 or fewer employees. According to 
Commission data, 1,307 carriers reported that they were incumbent local 
exchange service providers. Of these 1,307 carriers, an estimated 1,006 
have 1,500 or fewer employees and 301 have more than 1,500 employees. 
Consequently, the Commission estimates that most providers of incumbent 
local exchange service are small businesses that may be affected by 
rules adopted pursuant to the Order
    151. 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.
    152. 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

[[Page 4467]]

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.
    153. 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.
    154. 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.
    155. 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.
    156. 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.
    157. 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.
    158. 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.
    159. Wireless Telecommunications Carriers (except Satellite). Since 
2007, the SBA has recognized wireless firms within this new, broad, 
economic census category. Prior to that time, such firms were within 
the now-superseded categories of Paging and Cellular and Other Wireless 
Telecommunications. Under the present and prior categories, the SBA has 
deemed a wireless business to be small if it has 1,500 or fewer 
employees. For this category, census data for 2007 show that there were 
1,383 firms that operated for the entire year. Of this total, 1,368 
firms had employment of 999 or fewer employees and 15 had employment of 
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.
    160. 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

[[Page 4468]]

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.
    161. 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.
    162. 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.
    163. Paging (Private and Common Carrier). In the Paging Third 
Report and Order, 64 FR 33762, June 24, 1999, the Commission developed 
a small business size standard for ``small businesses'' and ``very 
small businesses'' for purposes of determining their eligibility for 
special provisions such as bidding credits and installment payments. A 
``small business'' is an entity that, together with its affiliates and 
controlling principals, has average gross revenues not exceeding $15 
million for the preceding three years. Additionally, a ``very small 
business'' is an entity that, together with its affiliates and 
controlling principals, has average gross revenues that are not more 
than $3 million for the preceding three years. The SBA has approved 
these small business size standards. According to Commission data, 291 
carriers have reported that they are engaged in Paging or Messaging 
Service. Of these, an estimated 289 have 1,500 or fewer employees, and 
two have more than 1,500 employees. Consequently, the Commission 
estimates that the majority of paging providers are small entities that 
may be affected by our action. An auction of Metropolitan Economic Area 
licenses commenced on February 24, 2000, and closed on March 2, 2000. 
Of the 2,499 licenses auctioned, 985 were sold. Fifty-seven companies 
claiming small business status won 440 licenses. A subsequent auction 
of MEA and Economic Area (``EA'') licenses was held in the year 2001. 
Of the 15,514 licenses auctioned, 5,323 were sold. One hundred thirty-
two companies claiming small business status purchased 3,724 licenses. 
A third auction, consisting of 8,874 licenses in each of 175 EAs and 
1,328 licenses in all but three of the 51 MEAs, was held in 2003. 
Seventy-seven bidders claiming small or very small business status won 
2,093 licenses. A fourth auction, 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.
    164. 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.
    165. 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

[[Page 4469]]

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.
    166. 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.
    167. 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.
    168. 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.
    169. Broadband Radio Service and Educational Broadband Service. 
Broadband Radio Service systems, previously referred to as Multipoint 
Distribution Service (``MDS'') and Multichannel Multipoint Distribution 
Service (``MMDS'') systems, and ``wireless cable,'' transmit video 
programming to subscribers and provide two-way high speed data 
operations using the microwave frequencies of the Broadband Radio 
Service (``BRS'') and Educational Broadband Service (``EBS'') 
(previously referred to as the Instructional Television Fixed Service 
(``ITFS'')). In connection with the 1996 BRS auction, the Commission 
established a small business size standard as an entity that had annual 
average gross revenues of no more than $40 million in the previous 
three calendar years. The BRS auctions resulted in 67 successful 
bidders obtaining licensing opportunities for 493 Basic Trading Areas 
(``BTAs''). Of the 67 auction winners, 61 met the definition of a small 
business. BRS also includes licensees of stations authorized prior to 
the auction. At this time, the Commission estimates that of the 61 
small business BRS auction winners, 48 remain small business licensees. 
In addition to the 48 small businesses that hold BTA authorizations, 
there are approximately 392 incumbent BRS licensees that are considered 
small entities. After adding the number of small business auction 
licensees to the number of incumbent licensees not already counted, the 
Commission finds that there are currently approximately 440 BRS 
licensees that are defined as small businesses under either the SBA or 
the Commission's rules. The Commission has adopted three levels of 
bidding credits for BRS: (i) A bidder with attributed average annual 
gross revenues that exceed $15 million and do not exceed $40 million 
for the preceding three years (small business) is eligible to receive a 
15 percent discount on its winning bid; (ii) a bidder with attributed 
average annual gross revenues that exceed $3 million and do not exceed 
$15 million for the preceding three years (very small business) is 
eligible to receive a 25 percent discount on its winning bid; and (iii) 
a bidder with attributed average annual gross revenues that do not 
exceed $3 million for the preceding three years (entrepreneur) is 
eligible to receive a 35 percent discount on its winning bid. In 2009, 
the Commission conducted Auction 86, which offered 78 BRS licenses. 
Auction 86 concluded with ten bidders winning 61 licenses. Of the ten, 
two bidders claimed small business status and won 4 licenses; one 
bidder claimed very small business status and won three licenses; and 
two bidders claimed entrepreneur status and won six licenses.
    170. 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

[[Page 4470]]

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.
    171. 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.
    172. 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.
    173. 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).
    174. 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.
    175. 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.
    176. 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.
    177. 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.
    178. 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

[[Page 4471]]

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.
    179. 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.
    180. 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 the 
Commission's evaluations in this analysis, it 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.
    181. 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.
    182. 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.
    183. 39 GHz Service. The Commission created a special small 
business size standard for 39 GHz licenses--an entity that has average 
gross revenues of $40 million or less in the three previous calendar 
years. An additional size standard for ``very small business'' is: An 
entity that, together with affiliates, has average gross revenues of 
not more than $15 million for the preceding three calendar years. The 
SBA has approved these small business size standards. The auction of 
the 2,173 39 GHz licenses began on April 12, 2000 and closed on May 8, 
2000. The 18 bidders who claimed small business status won 849 
licenses. Consequently, the Commission estimates that 18 or fewer 39 
GHz licensees are small entities that may be affected by rules adopted 
pursuant to the Order.
    184. 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.
    185. 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

[[Page 4472]]

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.
    186. 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.
    187. 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.
    188. 3650-3700 MHz band. In March 2005, the Commission released a 
Report and Order and Memorandum Opinion and Order that provides for 
nationwide, non-exclusive licensing of terrestrial operations, 
utilizing contention-based technologies, in the 3650 MHz band (i.e., 
3650-3700 MHz). As of April 2010, more than 1270 licenses have been 
granted and more than 7433 sites have been registered. The Commission 
has not developed a definition of small entities applicable to 3650-
3700 MHz band nationwide, non-exclusive licensees. However, the 
Commission estimates that the majority of these licensees are Internet 
Access Service Providers (ISPs) and that most of those licensees are 
small businesses.
    189. 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 the Commission 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.
    190. 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.
    191. Satellite Telecommunications. Since 2007, the SBA has 
recognized satellite firms within this revised category, with a small 
business size standard of $15 million. The most current Census Bureau 
data are from the economic census of 2007, and the Commission will use 
those figures to gauge the prevalence of small businesses in this 
category. Those size standards are for the two census categories of 
``Satellite Telecommunications'' and ``Other Telecommunications.'' 
Under the ``Satellite Telecommunications'' category, a business is 
considered small if it had $15 million or less in average annual 
receipts. Under the ``Other Telecommunications'' category, a business 
is considered small if it had $25 million or less in average annual 
receipts.
    192. 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.
    193. 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

[[Page 4473]]

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.
    194. 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.
    195. 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.
    196. 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 the Commission is 
unable to estimate more accurately the number of cable system operators 
that would qualify as small under this size standard.
    197. 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.
    198. Internet Service Providers. Since 2007, these services have 
been defined within the broad economic census category of Wired 
Telecommunications Carriers; that category is defined as follows: 
``This industry comprises establishments primarily engaged in operating 
and/or providing access to transmission facilities and infrastructure 
that they own and/or lease for the transmission of voice, data, text, 
sound, and video using wired telecommunications networks. Transmission 
facilities may be based on a single technology or a combination of 
technologies.'' The SBA has developed a small business size standard 
for this category, which is: All such firms having 1,500 or fewer 
employees. According to Census Bureau data for 2007, there were 3,188 
firms in this category, total, that operated for the entire year. Of 
this total, 3144 firms had employment of 999 or fewer employees, and 44 
firms had employment of 1000 employees or more. Thus, under this size 
standard, the majority of firms can be considered small. In addition, 
according to Census Bureau data for 2007, there were a total of 396 
firms in the category Internet Service Providers (broadband) that 
operated for the entire year. Of this total, 394 firms had employment 
of 999 or fewer employees, and two firms had employment of 1000 
employees or more. Consequently, the Commission estimates that the 
majority of these firms are small entities that may be affected by 
rules adopted pursuant to the Order.
    199. 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.

[[Page 4474]]

    200. 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.
    201. 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
    202. In the Order, the Commission amends section 54.313(a) to 
include a new subsection 12 that requires recipients of high-cost and/
or Connect America Fund support that are subject to broadband 
performance obligations to submit a broadband reasonable comparability 
certification with their annual section 54.313 report (FCC Form 481). 
In that certification, support recipients must certify that the pricing 
of the broadband offering they are relying upon to meet their broadband 
performance obligation is no more than the applicable benchmark as 
specified in a public notice issued by the Bureau, or is no more than 
the non-promotional prices charged for a comparable fixed wireline 
service in urban areas in the states or U.S. Territories where the 
high-cost support recipient receives support. For purposes of the 
latter certification, the Commission does not require that the high-
cost support recipient offer a particular rate nationwide; rather it is 
sufficient if for each state or U.S. Territory where the high-cost 
support recipient receives funding, the high-cost support recipient or 
another provider offers the same rate for a comparable fixed wireline 
service in an urban area in that state or U.S. Territory. Recognizing 
that high-cost support recipients are permitted to offer a variety of 
broadband service offerings as long as they offer at least one 
standalone voice service plan and one service plan that provides 
broadband that meets the Commission's requirements, it only requires 
that they make the above certification for one of their broadband 
service offerings that satisfies all of the Commission's requirements, 
including that the service be offered throughout the high-cost support 
recipient's supported area, or for rate-of-return carriers, be made 
available upon reasonable request.
    203. The Commission concludes that requiring high-cost support 
recipients to make this certification will ensure that the Commission 
can monitor their compliance with the section 254(b) principle that 
``[c]onsumers in all regions of the Nation . . . should have access to 
telecommunications and information services that are reasonably 
comparable to rates charged for similar services in urban areas.''
    204. The Commission requires that high-cost support recipients that 
elect to certify that their pricing of services in rural areas is no 
greater than their pricing in urban areas to rely upon the non-
promotional prices charged for comparable fixed wireline services. This 
certification will be included in the FCC Form 481 to be filed in 2016, 
addressing performance during 2015, after the requirement has received 
Paperwork Reduction Act (PRA) approval from the Office of Management 
and Budget. All parties subject to a broadband public interest 
requirement that file this report in 2016 will be required to make the 
certification, and annually thereafter. Recipients of funding through 
the Phase II competitive bidding process must submit their first 
certification with the first section 54.313 annual report they are 
required to submit after support is authorized, and each year 
thereafter with their annual report.
    205. In the Order, the Commission requires all price cap carriers 
accepting model-based support to include in the annual progress report 
that they submit with their section 54.313 annual reports a list of the 
geocoded locations to which they have newly deployed facilities capable 
of delivering broadband meeting the requisite requirements with Connect 
America support in the prior year. The list must identify which 
locations are located in a Phase II-funded block and which locations 
are located in extremely high-cost census blocks. The first list must 
be submitted with their July 2016 annual report, reflecting deployment 
status through the end of 2015. This first list should also include the 
geocoded locations that a price cap carrier had already built out to 
with service meeting the Commission's requirements before receiving 
Phase II support. The Commission will also collect from price cap 
carriers accepting model-based support in their annual section 54.313 
reports the total amount of Connect America Phase II support, if any, 
they used for capital expenditures in the previous calendar year. In 
the Order, the Commission finds that it is in the public interest to 
require price cap carriers accepting model-based support to provide 
this data on an annual basis.
    206. In the Order, the Commission also takes a necessary step to 
ensure the most efficient use of high-cost support by reducing on a 
pro-rata daily basis the support of any ETC that misses certification 
or data submission deadlines. The Commission recognizes that despite 
its best efforts, an ETC may miss a deadline due to an administrative 
oversight but still file within a few days of the deadline, and 
therefore implement a one-time grace period of three days. A one-time 
grace period of three days achieves an appropriate balance between 
requiring strict compliance with our rules and providing an opportunity 
for ETCs that may be first time filers or that make an uncharacteristic 
mistake to rectify quickly an error.
    207. Given our decision to modify the support reductions for late 
filings, the Order announces that the Commission otherwise requires 
strict adherence to filing deadlines. The Commission will cease the 
practice of finding there is good cause for a waiver of high-cost 
filing deadlines in circumstances where an ETC has missed the deadline 
due to an administrative or clerical oversight and where that ETC has 
promised to revise it procedures to ensure future compliance.
    208. Lastly, the Commission adopts specific measures in the event 
that certain ETCs do not meet their high-cost obligations for fixed 
services. Specifically, in the Order, the Commission adopts a support 
reduction regime for ETCs that fail to meet their

[[Page 4475]]

deployment obligations subsequent to accepting Connect America Phase II 
support. For price cap ETCs the Commission adopts a framework for 
support reductions that are calibrated to the extent of an ETC's non-
compliance with these deployment milestones. Because rate-of-return 
carriers are not at this time required to build out to a certain number 
of locations, the Commission concludes it is appropriate to handle 
matters regarding their potential non-compliance on a case-by-case 
basis. Additionally, the Commission concludes that non-compliance of 
the reasonable comparability requirement is best dealt with on a case-
by-case basis for all ETCs that must certify that the rates they offer 
are reasonably comparable. The Commission finds that it would not be 
appropriate to apply a uniform support reduction to all ETCs that fail 
to offer reasonably comparable prices.
5. Steps Taken To Minimize Significant Economic Impact on Small 
Entities, and Significant Alternatives Considered
    209. 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.
    210. The rules that the Commission adopts in the Order provide 
flexibility in meeting the public interest obligations that are a 
condition of the receipt of high-cost support for those price cap 
carriers accepting the offer of model-based support, the Commission 
adopts targeted adjustments to the framework established by the 
Commission in the USF/ICC Transformation Order to provide carriers 
flexibility. Specifically, the Commission adopts evenly spaced annual 
interim milestones for price cap carriers to offer at least 10/1 Mbps 
to an additional 20 percent of the requisite number of high-cost 
locations each year. The Commission also modifies the build-out 
requirements established for price cap carriers accepting model-based 
support to create evenly spaced annual interim milestones. The 
Commission requires price cap carriers accepting model-based support to 
complete construction to 40 percent of the requisite number of 
locations in a state by the end of calendar year 2017, instead of 85 
percent by the mid-2018, which is a more realistic expectation, given 
that carriers will not accept the offer of support until mid-year in 
2015 and then will be developing detailed network construction plans. 
The Commission also will permit a modest adjustment to the number of 
model-determined funded locations in a given state with a corresponding 
reduction in support. The Commission expects the flexibility in 
deployment for price-cap carriers accepting model-based Phase II 
support will minimize the economic impact on small entities.
    211. Additionally, as the Commission did in 2011, it continues to 
offer a more flexible approach to deploying broadband for rate-of-
return carriers. Rate-of-return carriers are only required to meet the 
higher speed if the request for service is reasonable--meaning that the 
carrier could cost effectively extend voice and broadband-capable 
network to that location, given its anticipated end-user revenues and 
other sources of support. Rate-of-return carriers will be required to 
offer at least 10/1 Mbps broadband service upon reasonable request, 
consistent with past guidance regarding our expectations regarding the 
reasonable request standard. If a request for 10/1 Mbps is not 
reasonable in a given circumstance, but offering 4/1 Mbps is 
reasonable, the Commission would expect a rate-of-return carrier to 
offer 4/1 Mbps.
    212. The Commission also concludes, based on our consideration of 
the relevant statutory framework and the record before us, that it is 
in the public interest to forbear from enforcing a federal high-cost 
requirement that price cap carriers offer voice telephony service 
throughout their service areas pursuant to section 214(e)(1)(A) of the 
Act in three types of geographic areas: (1) Census blocks that are 
determined to be low-cost, (2) census blocks served by an unsubsidized 
competitor, and (3) census blocks where a subsidized competitor--i.e., 
another ETC--is receiving federal high-cost support to deploy modern 
networks capable of providing voice and broadband to fixed locations. 
The Commission finds that limited forbearance from section 214(e)(1)(A) 
will promote competitive market conditions by giving affected carriers 
the flexibility to compete on a more equal regulatory footing in the 
voice telephony market with competitors that already have the 
opportunity to make decisions about how best to offer voice telephone 
service.
    213. For those price cap carriers serving non-contiguous areas that 
elect to continue receiving frozen support amounts in lieu of the offer 
of model-based support, the Commission recognizes that such carriers 
face unique circumstances in the areas they serve and experience 
different challenges in deploying broadband service in those areas. 
Consequently, a ``one-size-fits-all'' approach would leave some of 
these carriers potentially unable to fulfill their service obligations. 
The Commission is confident that tailoring specific service obligations 
to the individual circumstances of each non-contiguous carrier that 
elects to continue receiving frozen support will best ensure that 
Connect America funding is put to the best possible use.
    214. The Commission institutes a broadband reasonably comparable 
rate certification on all ETCs that receive ongoing high-cost support 
in areas served by price cap carriers and rate-of-return carriers. 
Although the Commission notes that filing deadlines will be strictly 
enforced, it adjusts the reduction of support for all ETCs, including 
small entities, and provides a grace period to ensure it is not unduly 
punitive given the nature of non-compliance.
    215. The Commission also adopts specific measures that the Bureau 
will take in the event that certain ETCs do not meet their high-cost 
support deployment obligations for fixed services or does not offer 
rates that are reasonably comparable to rates offered in urban areas. 
The reductions represent a detailed calculus to ensure that no carrier 
is penalized inappropriately for its non-compliance. As such, price cap 
ETC support reductions scale with the extent of an ETC's non-
compliance, and create incentives for ETCs to come into compliance as 
soon as possible. For rate-of-return ETCs, given that their obligation 
is to provide voice and broadband service upon reasonable request and 
the Commission does not have sufficient experience to create specific 
deployment milestones, the Commission finds it appropriate to handle 
matters regarding their potential non-compliance on a case-by-case 
basis. Additionally, determined that non-compliance with the reasonable 
comparability requirement is best dealt with on a case-by-case basis 
for all ETCs because of the variety of factors that go into determining 
whether prices are reasonably comparable. Accordingly, the Commission 
determined that it would not be appropriate to apply a uniform support 
reduction to all ETCs that fail to offer reasonably comparable prices.

[[Page 4476]]

6. Report to Congress
    216. The Commission will send a copy of the Order, 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, including this FRFA, to the Chief 
Counsel for Advocacy of the Small Business Administration. A copy of 
the Report and Order and FRA (or summaries thereof) will also be 
published in the Federal Register.
7. Additional Information
    217. People with Disabilities. To request materials in accessible 
formats for people with disabilities (braille, large print, electronic 
files, audio format), send an email to [email protected] or call the 
Consumer & Governmental Affairs Bureau at 202-418-0530 (voice), 202-
418-0432 (tty).
    218. Additional Information. For additional information on this 
proceeding, contact Alexander Minard of the Wireline Competition 
Bureau, Telecommunications Access Policy Division, 
[email protected], (202) 418-7400, or Suzanne Yelen of the 
Wireline Competition Bureau, Industry Analysis and Technology Division, 
[email protected], (202) 418-7400.

VIII. Ordering Clauses

    219. Accordingly, IT IS ORDERED, pursuant to the authority 
contained in sections 1, 2, 4(i), 5, 10, 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, 160, 201-206, 214, 218-220, 251, 
252, 254, 256, 303(r), 332, 403, 405, 1302, and sections 1.1, 1.427, 
and 1.429 of the Commission's rules, 47 CFR 1.1, 1.427, and 1.429, that 
this Report and Order, IS ADOPTED, effective thirty (30) days after 
publication of the text or summary thereof in the Federal Register, 
except for those rules and requirements involving Paperwork Reduction 
Act burdens, which shall become effective immediately upon announcement 
in the Federal Register of OMB approval, and except as otherwise 
provided below. It is the Commission's intention in adopting these 
rules that if any of the rules that it retains, 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.
    220. IT IS FURTHER ORDERED that the requirement for non-contiguous 
carriers that wish to elect Phase II frozen support in lieu of model-
based support discussed in paragraph 39 and the requirement that 
bidders in the rural broadband experiments that wish to remain in 
consideration for rural broadband experiment support discussed in 
paragraph 71 are effective upon release.
    221. IT IS FURTHER ORDERED that for the reasons stated in paragraph 
71 the Commission finds good cause exists to make excluding from the 
offer of model-based support any census block included in a non-winning 
rural broadband experiment application submitted in funding category 
one discussed in paragraph 72 effective upon Federal Register 
publication.
    222. IT IS FURTHER ORDERED that Part 54 of the Commission's rules, 
47 CFR part 54, IS AMENDED as set forth below, and such rule amendments 
SHALL BE EFFECTIVE February 26, 2015, except for Sec. Sec.  
54.313(a)(e) and 54.320 which contain 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 those sections.
    223. IT IS FURTHER ORDERED that, pursuant to the authority 
contained in sections 4(i), 4(j), 10, 214, and 254 of the 
Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 160, 
214 and 254, the petition for forbearance filed by the United States 
Telecom Association on October 6, 2014, IS GRANTED IN PART to the 
extent described herein.
    224. 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 August 8, 2014, IS DISMISSED to the extent 
described herein.
    225. 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 National Exchange 
Carrier Association, Inc., et al. on August 8, 2014, IS DISMISSED to 
the extent described herein.
    226. IT IS FURTHER ORDERED that the Commission SHALL SEND a copy of 
this Report and Order to Congress and the Government Accountability 
Office pursuant to the Congressional Review Act, see 5 U.S.C. 
801(a)(1)(A).
    227. 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, including the Final Regulatory 
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small 
Business Administration.

List of Subjects in 47 CFR Part 54

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

Federal Communications Commission.
Marlene H. Dortch,
Secretary.

Final Rules

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 54 as follows:

PART 54--UNIVERSAL SERVICE

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

    Authority:  47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 
254, 303(r), 403, and 1302 unless otherwise noted.


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


Sec.  54.5  Terms and definitions.

* * * * *
    Qualifying competitor. A ``qualifying competitor'' is a facilities-
based terrestrial provider of residential fixed voice and broadband 
service access meeting or exceeding 3 Mbps downstream and 768 kbps 
upstream.
* * * * *

0
3. Amend Sec.  54.201 by revising paragraph (d) introductory text and 
adding paragraph (d)(3) to read as follows:


Sec.  54.201  Definitions of eligible telecommunications carriers, 
generally.

* * * * *
    (d) A common carrier designated as an eligible telecommunications 
carrier under this section shall be eligible to receive universal 
service support in accordance with section 254 of the Act and, except 
as described in paragraph (d)(3) of this section, shall throughout

[[Page 4477]]

the service area for which the designation is received:
* * * * *
    (3) Exception. Price cap carriers that serve census blocks that are 
identified by the forward-looking cost model as low-cost, census blocks 
that are served by an unsubsidized competitor as defined in Sec.  54.5 
meeting the requisite public interest obligations specified in Sec.  
54.309, or census blocks where a subsidized competitor is receiving 
federal high-cost support to deploy modern networks capable of 
providing voice and broadband to fixed locations, are not required to 
comply with paragraphs (d)(1) and (2) of this section in these specific 
geographic areas. Such price cap carriers remain obligated to maintain 
existing voice telephony service in these specific geographic areas 
unless and until a discontinuance is granted pursuant to Sec.  63.71 of 
this chapter.
* * * * *
0
4. Add Sec.  54.308 to read as follows:


Sec.  54.308  Broadband public interest obligations for recipients of 
high-cost support.

    (a) Rate-of-return carrier recipients of high-cost support are 
required to offer broadband service at actual speeds of at least 10 
Mbps downstream/1 Mbps upstream, with latency suitable for real-time 
applications, including Voice over Internet Protocol, and usage 
capacity that is reasonably comparable to comparable offerings in urban 
areas, at rates that are reasonably comparable to rates for comparable 
offerings in urban areas, upon reasonable request. If a request for 
broadband service at actual speeds of at least 10 Mbps downstream/1 
Mbps upstream is unreasonable, and offering broadband service at actual 
speeds of at least 4 Mbps downstream/1 Mbps upstream is reasonable, 
rate-of-return recipients of high-cost support are required to offer 
broadband service at actual speeds of at least 4 Mbps downstream/1 Mbps 
upstream. For purposes of determining reasonable comparability of 
rates, recipients are presumed to meet this requirement if they offer 
rates at or below the applicable benchmark to be announced annually by 
public notice issued by the Wireline Competition Bureau, or no more 
than the non-promotional prices charged for a comparable fixed wireline 
service in urban areas in the state or U.S. Territory where the 
eligible telecommunications carrier receives support.
    (b) [Reserved]

0
5. Revise Sec.  54.309 to read as follows:


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

    (a) Recipients of Connect America Phase II model-based support are 
required to offer broadband service at actual speeds of at least 10 
Mbps downstream/1 Mbps upstream, with latency suitable for real-time 
applications, including Voice over Internet Protocol, and usage 
capacity that is reasonably comparable to comparable offerings in urban 
areas, at rates that are reasonably comparable to rates for comparable 
offerings in urban areas. For purposes of determining reasonable 
comparability of rates, recipients are presumed to meet this 
requirement if they offer rates at or below the applicable benchmark to 
be announced annually by public notice issued by the Wireline 
Competition Bureau, or no more than the non-promotional prices charged 
for a comparable fixed wireline service in urban areas in the state or 
U.S. Territory where the eligible telecommunications carrier receives 
support.
    (b) [Reserved]

0
6. Amend Sec.  54.310 by revising paragraphs (b) and (c) to read as 
follows:


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

* * * * *
    (b) Term of support. Connect America Phase II model-based support 
shall be provided to price cap carriers that elect to make a state-
level commitment for six years. Connect America Phase II support 
awarded through a competitive bidding process shall be provided for ten 
years.
    (c) Deployment obligation. Recipients of Connect America Phase II 
model-based support must complete deployment to 40 percent of supported 
locations by December 31, 2017, to 60 percent of supported locations by 
December 31, 2018, to 80 percent of supported locations by December 31, 
2019, and to 100 percent of supported locations by December 31, 2020. 
Compliance shall be determined based on the total number of supported 
locations in a state.
    (1) For purposes of meeting the obligation to deploy to the 
requisite number of supported locations in a state, recipients may 
serve unserved locations in census blocks with costs above the 
extremely high-cost threshold instead of locations in eligible census 
blocks, provided that they meet the public interest obligations set 
forth in Sec.  54.309 for those locations and provided that the total 
number of locations covered is greater than or equal to the number of 
supported locations in the state.
    (2) Recipients of Connect America Phase II model-based support may 
elect to deploy to 95 percent of the number of supported locations in a 
given state with a corresponding reduction in support computed based on 
the average support per location in the state times 1.89.
* * * * *

0
7. Amend Sec.  54.313 by adding paragraph (a)(12) and revising 
paragraphs (e) and (j) to read as follows:


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

    (a) * * *
    (12) A certification that the pricing of a service that meets the 
Commission's broadband public interest obligations is no more than the 
applicable benchmark to be announced annually in a public notice issued 
by the Wireline Competition Bureau, or is no more than the non-
promotional price charged for a comparable fixed wireline service in 
urban areas in the states or U.S. Territories where the eligible 
telecommunications carrier receives support.
* * * * *
    (e) In addition to the information and certifications in paragraph 
(a) of this section, any price cap carrier that elects to receive 
Connect America Phase II model-based support shall provide:
    (1) On July 1, 2016 an initial service quality improvement plan 
that includes a list of the geocoded locations already meeting the 
Sec.  54.309 public interest obligations at the end of calendar year 
2015, and the total amount of Phase II support, if any, the price cap 
carrier used for capital expenditures in 2015.
    (2) On July 1, 2017 and every year thereafter ending July 1, 2021, 
a progress report on the company's service quality improvement plan, 
including the following information:
    (i) A certification that it is meeting the interim deployment 
milestones as set forth;
    (ii) The number, names, and addresses of community anchor 
institutions to which the eligible telecommunications carrier newly 
began providing access to broadband service in the preceding calendar 
year;
    (iii) A list of the geocoded locations to which the eligible 
telecommunications carrier newly deployed facilities capable of 
delivering broadband meeting the Sec.  54.309 public interest 
obligations with Connect America support in the prior year. The final 
progress report filed on July 1, 2021 must include the total number and 
geocodes of all the supported locations that a price cap carrier has 
built out to

[[Page 4478]]

with service meeting the Sec.  54.309 public interest obligations; and
    (iv) The total amount of Phase II support, if any, the price cap 
carrier used for capital expenditures in the previous calendar year.
    (3) On July 1, 2018, a certification that the recipient offered 
broadband meeting the requisite public interest obligations specified 
in Sec.  54.309 to 40% of its supported locations in the state on 
December 31, 2017.
    (4) On July 1, 2019, a certification that the recipient offered 
broadband meeting the requisite public interest obligations specified 
in Sec.  54.309 to 60% of its supported locations in the state on 
December 31, 2018.
    (5) On July 1, 2020, a certification that the recipient offered 
broadband meeting the requisite public interest obligations specified 
in Sec.  54.309 to 80% of its supported locations in the state on 
December 31, 2019.
    (6) On July 1, 2021, a certification that the recipient offered 
broadband meeting the requisite public interest obligations specified 
in Sec.  54.309 to 100% of its supported locations in the state on 
December 31, 2020.
* * * * *
    (j) Filing deadlines. (1) In order for a recipient of high-cost 
support to continue to receive support for the following calendar year, 
or retain its eligible telecommunications carrier designation, it must 
submit the annual reporting information required by this section 
annually by July 1 of each year. Eligible telecommunications carriers 
that file their reports after the July 1 deadline shall receive a 
reduction in support pursuant to the following schedule:
    (i) An eligible telecommunications carrier that files after the 
July 1 deadline, but by July 8, will have its support reduced in an 
amount equivalent to seven days in support;
    (ii) An eligible telecommunications carrier that files on or after 
July 9 will have its support reduced on a pro-rata daily basis 
equivalent to the period of non-compliance, plus the minimum seven-day 
reduction.
    (2) Grace period. An eligible telecommunications carrier that 
submits the annual reporting information required by this section after 
July 1 but before July 5 will not receive a reduction in support if the 
eligible telecommunications carrier and its holding company, operating 
companies, and affiliates as reported pursuant to paragraph (a)(8) of 
this section have not missed the July 1 deadline in any prior year.
* * * * *

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


Sec.  54.314  Certification of support for eligible telecommunications 
carriers.

* * * * *
    (d) Filing deadlines. (1) In order for an eligible 
telecommunications carrier to receive federal high-cost support, the 
state or the eligible telecommunications carrier, if not subject to the 
jurisdiction of a state, must file an annual certification, as 
described in paragraph (c) of this section, with both the Administrator 
and the Commission by October 1 of each year. If a state or eligible 
telecommunications carrier files the annual certification after the 
October 1 deadline, the carrier subject to the certification shall 
receive a reduction in its support pursuant to the following schedule:
    (i) An eligible telecommunications carrier subject to 
certifications filed after the October 1 deadline, but by October 8, 
will have its support reduced in an amount equivalent to seven days in 
support;
    (ii) An eligible telecommunications carrier subject to 
certifications filed on or after October 9 will have its support 
reduced on a pro-rata daily basis equivalent to the period of non-
compliance, plus the minimum seven-day reduction.
    (2) Grace period. If an eligible telecommunications carrier or 
state submits the annual certification required by this section after 
October 1 but before October 5, the eligible telecommunications carrier 
subject to the certification will not receive a reduction in support if 
the eligible telecommunications carrier and its holding company, 
operating companies, and affiliates as reported pursuant to Sec.  
54.313(a)(8) have not missed the October 1 deadline in any prior year.
0
9. Revise Sec.  54.319 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 
rate-of-return 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 10 
Mbps downstream/1 Mbps upstream, with latency suitable for real-time 
applications, including Voice over Internet Protocol, and usage 
capacity that is reasonably comparable to comparable offerings in urban 
areas, at rates that are reasonably comparable to rates for comparable 
offerings in urban areas.
    (b) After a determination there is a 100 percent overlap, the 
incumbent local exchange carrier shall receive the following amount of 
high-cost support:
    (1) In the first year, two-thirds of the lesser of the incumbent's 
total high-cost support in the immediately preceding calendar year or 
$3000 times the number of reported lines as of year-end for the 
immediately preceding calendar year;
    (2) In the second year, one-third of the lesser of the incumbent's 
total high-cost support in the immediately preceding calendar year or 
$3000 times the number of reported lines as of year-end for the 
immediately preceding calendar year;
    (3) In the third year and thereafter, no support shall be paid.
    (c) The Wireline Competition Bureau shall update its analysis of 
where there is a 100 percent overlap on a biennial basis.

0
10. Amend Sec.  54.320 by adding paragraph (d) to read as follows:


Sec.  54.320  Compliance and recordkeeping for the high-cost program.

* * * * *
    (d) Eligible telecommunications carriers subject to defined build-
out milestones must notify the Commission and USAC, and the relevant 
state, U.S. Territory, or Tribal government, if applicable, within 10 
business days after the applicable deadline if they have failed to meet 
a build-out milestone.
    (1) Interim build-out milestones. Upon notification that an 
eligible telecommunications carrier has defaulted on an interim build-
out milestone after it has begun receiving high-cost support, the 
Wireline Competition Bureau will issue a letter evidencing the default. 
The issuance of this letter shall initiate reporting obligations and 
withholding of a percentage of the eligible telecommunication carrier's 
total monthly high-cost support, if applicable, starting the month 
following the issuance of the letter:
    (i) Tier 1. If an eligible telecommunications carrier has a 
compliance gap of at least five percent but less than 15 percent of the 
number of locations that the eligible telecommunications carrier is 
required to have built out to by the interim milestone, the Wireline 
Competition Bureau will issue a letter to that effect. Starting three 
months after the issuance of this letter, the eligible 
telecommunications carrier will be required to file a report every 
three

[[Page 4479]]

months identifying the geocoded locations to which the eligible 
telecommunications carrier has newly deployed facilities capable of 
delivering broadband meeting the requisite requirements with Connect 
America support in the previous quarter. Eligible telecommunications 
carriers that do not file these quarterly reports on time will be 
subject to support reductions as specified in Sec.  54.313(j). The 
eligible telecommunications carrier must continue to file quarterly 
reports until the eligible telecommunications carrier reports that it 
has reduced the compliance gap to less than five percent of the 
required number of locations for that interim milestone and the 
Wireline Competition Bureau issues a letter to that effect.
    (ii) Tier 2. If an eligible telecommunications carrier has a 
compliance gap of at least 15 percent but less than 25 percent of the 
number of locations that the eligible telecommunications carrier is 
required to have built out to by the interim milestone, USAC will 
withhold 15 percent of the eligible telecommunications carrier's 
monthly support for that state and the eligible telecommunications 
carrier will be required to file quarterly reports. Once the eligible 
telecommunications carrier has reported that it has reduced the 
compliance gap to less than 15 percent of the required number of 
locations for that interim milestone for that state, the Wireline 
Competition Bureau will issue a letter to that effect, USAC will stop 
withholding support, and the eligible telecommunications carrier will 
receive all of the support that had been withheld. The eligible 
telecommunications carrier will then move to Tier 1 status.
    (iii) Tier 3. If an eligible telecommunications carrier has a 
compliance gap of at least 25 percent but less than 50 percent of the 
number of locations that the eligible telecommunications carrier is 
required to have built out to by the interim milestone, USAC will 
withhold 25 percent of the eligible telecommunications carrier's 
monthly support for that state and the eligible telecommunications 
carrier will be required to file quarterly reports. Once the eligible 
telecommunications carrier has reported that it has reduced the 
compliance gap to less than 25 percent of the required number of 
locations for that interim milestone for that state, the Wireline 
Competition Bureau will issue a letter to that effect, the eligible 
telecommunications carrier will move to Tier 2 status.
    (iv) Tier 4. If an eligible telecommunications carrier has a 
compliance gap of 50 percent or more of the number of locations that 
the eligible telecommunications carrier is required to have built out 
to by the interim milestone:
    (A) USAC will withhold 50 percent of the eligible 
telecommunications carrier's monthly support for that state, and the 
eligible telecommunications carrier will be required to file quarterly 
reports. As with the other tiers, as the eligible telecommunications 
carrier reports that it has lessened the extent of its non-compliance, 
and the Wireline Competition Bureau issues a letter to that effect, it 
will move down the tiers until it reaches Tier 1 (or no longer is out 
of compliance with the relevant interim milestone).
    (B) If after having 50 percent of its support withheld for six 
months the eligible telecommunications carrier has not reported that it 
is eligible for Tier 3 status (or one of the other lower tiers), USAC 
will withhold 100 percent of the eligible telecommunications carrier's 
monthly support and will commence a recovery action for a percentage of 
support that is equal to the eligible telecommunications carrier's 
compliance gap plus 10 percent of the ETC's support that has been 
disbursed to that date.
    (v) If at any point during the support term, the eligible 
telecommunications carrier reports that it is eligible for Tier 1 
status, it will have its support fully restored, USAC will repay any 
funds that were recovered or withheld, and it will move to Tier 1 
status.
    (2) Final build-out milestone. Upon notification that the eligible 
telecommunications carrier has not met a final build-out milestone, the 
eligible telecommunications carrier will have twelve months from the 
date of the final build-out milestone deadline to come into full 
compliance with this milestone. If the eligible telecommunications 
carrier does not report that it has come into full compliance with this 
milestone within twelve months, the Wireline Competition Bureau will 
issue a letter to this effect. USAC will then recover the percentage of 
support that is equal to 1.89 times the average amount of support per 
location received in the state over the six-year term for the relevant 
number of locations plus 10 percent of the eligible telecommunications 
carrier's total Phase II support over the six-year term for that state.
    (3) Compliance reviews. If subsequent to the eligible 
telecommunications carrier's support term, USAC determines in the 
course of a compliance review that the eligible telecommunications 
carrier does not have sufficient evidence to demonstrate that it has 
built out to all of the locations required by the final build-out 
milestone, USAC shall recover a percentage of support from the eligible 
telecommunications carrier as specified in paragraph (d)(2) of this 
section.
0
11. Amend Sec.  54.1309 by revising paragraphs (a) introductory text, 
(c) introductory text, and (c)(2) and adding paragraph (d) to read as 
follows:


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

    (a) National average unseparated loop cost per working loop. Except 
as provided in paragraphs (c) and (d) 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. Until 
June 30, 2015 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 is frozen at $240.00.
* * * * *
    (c) Until June 30, 2015, the national average unseparated loop Cost 
per working loop shall be the greater of:
* * * * *
    (2) An amount calculated to produce the maximum rural incumbent 
local exchange carrier portion of the nationwide loop cost expense 
adjustment allowable pursuant to Sec.  54.1302(a).
    (d) Beginning July 1, 2015, the national average unseparated loop 
cost per working loop shall be frozen at the national average 
unseparated loop cost per working loop as recalculated by the National 
Exchange Carrier Association to reflect the March 2015 update filing.

0
12. Revise Sec.  54.1310 to read as follows:


Sec.  54.1310  Expense adjustment.

    (a) Until June 30, 2015, for study areas reporting 200,000 or fewer 
working loops pursuant to Sec.  54.1305(h), the expense adjustment 
(additional interstate expense allocation) is equal to the sum of 
paragraphs (a)(1) and (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

[[Page 4480]]

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.
    (b) Beginning July 1, 2015, the expense adjustment for each study 
area calculated pursuant to paragraph (a) of this section will be 
adjusted as follows:
    (1) If the aggregate expense adjustments for all study areas exceed 
the maximum rural incumbent local exchange carrier portion of 
nationwide loop cost expense adjustment allowable pursuant to Sec.  
54.1302(a) (the HCLS cap), then each study area's expense adjustment 
will be reduced by multiplying it by the ratio of the HCLS cap to the 
aggregate expense adjustments for all study areas.
    (2) If the aggregate expense adjustments for all study areas are 
less than the HCLS cap set pursuant to Sec.  54.1302(a), then the 
expense adjustments for all study areas pursuant to paragraph (a) of 
this section shall be recalculated using a cost per loop calculated to 
produce an aggregate amount equal to the HCLS cap in place of the 
national average cost per loop.
    (c) The expense adjustment calculated pursuant to paragraphs (a) 
and (b) of this section 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 
paragraphs (a) and (b) of this section 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 paragraphs (a) and (b) of this 
section for the following year.

[FR Doc. 2015-00939 Filed 1-26-15; 8:45 am]
BILLING CODE 6712-01-P