[Federal Register Volume 80, Number 58 (Thursday, March 26, 2015)]
[Rules and Regulations]
[Pages 15906-15909]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-06642]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 51

[WC Docket No. 10-90, CC Docket No. 01-92; DA 15-249]


Connect America Fund; Developing a Unified Intercarrier 
Compensation Regime

AGENCY: Federal Communications Commission.

ACTION: Final rule.

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SUMMARY: In this document, the Federal Communications Commission's 
Wireline Competition Bureau clarifies certain rules related to the 
implementation of the intercarrier compensation transition for rate-of-
return local exchange carriers adopted in the USF/ICC Transformation 
Order. Specifically, the Bureau clarifies the Commission's rules 
governing Eligible Recovery calculations to address limited 
unanticipated results of the application of the true-up process 
evidenced by the rate-of-return carriers' 2014 annual access tariff 
filings.

DATES: Effective April 27, 2015.

FOR FURTHER INFORMATION CONTACT: Pamela Arluk, Wireline Competition 
Bureau, Pricing Policy Division, (202) 418-1520 or (202) 418-0484 
(TTY); or Robin Cohn, Wireline Competition Bureau, Pricing Policy 
Division, (202) 418-1520 or (202) 418-0484 (TTY).

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Order 
in WC Docket No. 10-90 and CC Docket No. 01-92, adopted and released on 
February 24, 2015. The full text of this document can be viewed at the 
following Internet address: https://apps.fcc.gov/edocs_public/attachmatch/DA-15-249A1.docx. The full text of this document is also 
available for public inspection during regular business hours in the 
FCC Reference Center, 445 12th Street SW., Room CY-A257, Washington, DC 
20554. To request materials in accessible formats for people with 
disabilities (e.g. braille, large print, electronic files, audio 
format, etc.) or to request reasonable accommodations (e.g. accessible 
format documents, sign language interpreters, CART, etc.), send an 
email to [email protected] or call the Consumer & Governmental Affairs 
Bureau at (202) 418-0530 (voice) or (202) 418-0432 (TTY).

I. Introduction

    1. In the USF/ICC Transformation Order, the Commission delegated to 
the Wireline Competition Bureau (Bureau) the authority to make any rule 
revisions

[[Page 15907]]

necessary to ensure that the intercarrier compensation (ICC) reforms 
adopted by the Commission are properly reflected in the Commission's 
rules, including correction of any conflicts between the new or revised 
rules and addressing any omissions or oversights. In the Order, the 
Bureau acts pursuant to its delegated authority to clarify certain 
rules relating to implementation of the ICC transition for rate-of-
return local exchange carriers (LECs) adopted in the USF/ICC 
Transformation Order. We clarify the Commission's rules governing 
Eligible Recovery calculations under Sec.  51.917(d) to address a 
limited number of unanticipated results associated with application of 
the true-up process that became apparent in rate-of-return carriers' 
2014 annual access tariff filings. Specifically, we clarify that a 
rate-of-return carrier that received too much Eligible Recovery in 
2012-13 because of an under-projection of demand for that tariff 
period, and does not have sufficient Eligible Recovery in 2014-15 to 
fully offset the 2012-13 amount of over-recovery, must refund the 
amount that is not offset to the Universal Service Administrative 
Company (USAC) to avoid duplicative recovery. Additionally, to ensure a 
carrier receives the Eligible Recovery it was entitled to in 2012-13, 
we clarify that a rate-of-return carrier that received too little 
Eligible Recovery in 2012-13 because of an over-projection of demand 
for that tariff period may seek recovery for any amounts it was not 
able to recover through its 2014-15 Eligible Recovery from USAC. We 
also revise Sec.  51.917 of the Commission's rules to address similar 
discrepancies that may occur in future years as a result of the true-up 
process.

II. Background

    2. In the USF/ICC Transformation Order, the Commission adopted, 
among other things, rules to implement the ICC reform timeline that 
require carriers to adjust, over a period of years, many of their 
legacy ICC rates effective on July 1 of each of those years, with the 
ultimate goal of transitioning to a bill-and-keep regime. The 
Commission also adopted a recovery mechanism to mitigate the impact of 
reduced ICC revenues on carriers and to facilitate continued investment 
in broadband infrastructure while providing greater certainty and 
predictability going forward. The recovery mechanism allows incumbent 
LECs to recover ICC revenues reduced due to the ICC reforms, up to an 
amount defined for each year of the transition, which is referred to as 
``Eligible Recovery.'' A Rate-of-Return carrier initially may recover 
its Eligible Recovery each year from its end users through the Access 
Recovery Charge (ARC) subject to an annual cap. If the projected ARC 
revenues do not recover the entire Eligible Recovery amount, the 
carrier may elect to collect the remainder from Connect America Fund 
ICC support.
    3. For rate-of-return LECs, the calculation each year of a 
carrier's Eligible Recovery begins with its Base Period Revenue (BPR). 
A rate-of-return carrier's BPR is the sum of certain ICC intrastate 
switched access revenues and net reciprocal compensation revenues 
received by March 31, 2012, for services provided during FY 2011, and 
the projected revenue requirement for interstate switched access 
services provided during the 2011-2012 tariff period. The BPR for rate-
of-return carriers was reduced by 5% initially and is reduced by an 
additional 5% in each year of the transition. A rate-of-return LEC's 
Eligible Recovery is equal to the adjusted BPR for the year in question 
less, for each relevant year of the transition, the sum of (1) 
projected intrastate switched access revenue; (2) projected interstate 
switched access revenue; and (3) projected net reciprocal compensation 
revenue.
    4. Beginning in 2014, the recovery mechanism also incorporates in 
the Eligible Recovery calculation a true-up of the revenue difference 
between projected and actual demand for interstate and intrastate 
switched access services, reciprocal compensation, and the ARC for the 
tariff period that began two years earlier. This adjustment measures 
the extent to which a carrier received more or less than the revenues 
it projected for the earlier period and thus whether it received too 
little, or too much, Eligible Recovery through ARCs and/or Connect 
America Fund ICC support for that period. The true-up is achieved by 
adjusting the later tariff period's Eligible Recovery to account for 
the carrier's revenue variance resulting from differences between 
projected and actual demand for the prior period. The true-up process 
ensures that rate-of-return carriers at a minimum have the opportunity 
to receive their adjusted BPR, notwithstanding changes in demand for 
their intercarrier compensation rates being capped or reduced. The 
true-up process does not require that a carrier that has negative 
Eligible Recovery, meaning the carrier received revenues in excess of 
its adjusted BPR from its interstate and intrastate switched access and 
reciprocal compensation alone and not through an ARC or Connect America 
Fund ICC support, to refund any of the revenues it received.
    5. To provide context for how the true-up process works, the 
following two examples demonstrate scenarios in which the carrier 
either under-projected or over-projected its revenues, and thus must 
engage in a true-up calculation pursuant to Sec.  51.917(d)(1)(iii)-
(iv) of the Commission's rules. In this first example, Carrier A under-
projected its actual revenues and received too much Eligible Recovery 
for the 2012-2013 tariff period. Carrier A had a BPR of $100.00, a 
projected revenue amount of $80.00 and an actual revenue amount of 
$85.00:

2012-2013 BPR is $100.00 x .95 = $95.00 (Adjusted BPR)
2012-2013 Total Projected Revenues = $80.00
2012-2013 Eligible Recovery (Adjusted BPR-Projected Revenues) = $15.00
2012-2013 Total Actual Revenues = $85.00
Projected Revenue--Actual Revenue = $-5.00 (true-up amount)
2014-2015 Eligible Recovery adjusted by $-5.00

As a result of its under-projection, Carrier A would need to reduce its 
2014-2015 tariff period Eligible Recovery by five dollars to reflect 
the difference between its actual revenues and projected revenues for 
the 2012-2013 tariff period.
    6. Conversely, in the second example, Carrier B over-projected its 
revenue amounts in the 2012-2013 tariff period, and it would need to 
increase its 2014-2015 Eligible Recovery amounts to reflect the 
difference. Carrier B had a BPR of $100.00, a projected revenue amount 
of $85.00 and an actual revenue amount of $80.00:

2012-2013 BRP is $100.00 x .95 = $95.00 (Adjusted BPR)
2012-2013 Total Projected Revenues = $85.00
2012-2013 Eligible Recovery (Adjusted BPR-Projected Revenues) = $10.00
2012-2013 Total Actual Revenues = $80.00
Projected Revenue-Actual Revenue = $5.00 (true-up amount)
2014-2015 Eligible Recovery adjusted by $5.00

Thus, in this example, the carrier will need to increase its 2014-2015 
Eligible Recovery amount by five dollars to reflect the difference 
between its actual revenues and projected revenues for the 2012-2013 
tariff period.

III. Discussion

    7. As noted above, the 2014 annual tariff filing was the first time 
that Eligible Recovery was adjusted to

[[Page 15908]]

incorporate a true-up of projected demand used in calculating Eligible 
Recovery for an earlier tariff period. The true-up process is designed 
to provide certainty to rate-of-return carriers by accounting for any 
difference between projected and actual switched access revenues, 
reciprocal compensation revenues, or ARC revenues due to demand 
variations. As the above examples and the illustration in the USF/ICC 
Transformation Order (which similarly shows operation of the true-up 
process when a carrier both overestimated and underestimated its 
projected revenues for the first year of the ICC reforms adopted by the 
Commission) demonstrate, a carrier's Eligible Recovery was to be 
adjusted either upward or downward based on any such differences. As 
the illustration in the USF/ICC Transformation Order reflects, the 
Commission expected that the amount of any adjustment could be 
completely offset through adjustments to the amount of Eligible 
Recovery for which ARC rates could be assessed and Connect America Fund 
ICC support could be received.
    8. In conjunction with the 2014 annual tariff filing process, NECA 
informally sought clarification concerning a limited number of cases in 
which the true-up process did not work as outlined above and for which 
the rules do not provide an unambiguous resolution. In the Order, we 
clarify how rate-of-return carriers and USAC should address the 2014-15 
fact scenarios described below, consistent with the policy goals of the 
USF/ICC Transformation Order, and revise the Commission's rules, as set 
forth in the Appendix, to provide clarity for future tariff periods.
    9. The first set of facts identified by NECA involves several 
carriers whose 2012-13 tariff period projected demand was 
underestimated compared to their ultimate actual demand. Each carrier 
therefore received too much Eligible Recovery in 2012-13, and, under 
the rules, their 2014-15 Eligible Recovery should be reduced by the 
amount of revenues associated with the demand difference. The carriers' 
Eligible Recovery for 2014-15 before reflecting the true-up adjustment, 
however, was not large enough to offset completely the true-up 
reduction from the 2012-13 tariff period. Thus, the excess Eligible 
Recovery carriers received during the 2012-13 tariff period has not 
been fully offset, and the carriers would be left with duplicative 
recovery in contravention of Sec.  51.917(d)(1)(vii) of the rules 
absent clarification to specify the procedures to be followed under 
these circumstances. We accordingly clarify that carriers that are in 
this situation with respect to their 2014-15 Eligible Recovery 
calculation must refund to USAC the amount of the excess recovery that 
was not offset within thirty (30) days of the effective date of the 
Order. Consistent with the rules we adopt, as set forth in the 
Appendix, in the future a carrier in this situation must refund excess 
amounts to USAC by August 1 following the date of the annual access 
tariff filing.
    10. The second set of facts that NECA sought clarification on 
involves several carriers who overestimated their 2012-13 tariff period 
projected demand compared to the resulting actual demand. Thus, to the 
extent carriers would have been entitled to Eligible Recovery for 
tariff period 2012-13 if they had accurately projected their demand, 
these carriers received too little Eligible Recovery in tariff period 
2012-13. The affected carriers also have negative Eligible Recovery in 
the 2014-15 tariff period before adjusting for any true-ups. Absent a 
clarification of our rules, these carriers would not receive the same 
level of revenues they would have been entitled to if they had 
projected their demand accurately in the 2012-13 tariff period. This 
occurs because the positive amount of the 2012-13 under-recovery would 
be reduced by the negative 2014-15 Eligible Recovery amount before 
further Eligible Recovery would be possible in tariff period 2014-15. 
This would deprive such carriers of the cash flow certainty the 
Commission sought to provide carriers through the recovery mechanism. 
As explained above, carriers that have negative Eligible Recovery were 
allowed to retain any revenues received through intercarrier revenue 
payments, consistent with the transition from strict rate-of-return 
regulation to incentive regulation. We accordingly clarify that those 
carriers that were in this situation with respect to their tariff 
period 2014-15 Eligible Recovery calculation may seek recovery of 2012-
13 true-up under-recovery from USAC and are not required to offset the 
2012-13 amounts they could have received in Eligible Recovery in the 
2012-13 tariff period if they had projected demand correctly against 
their 2014-15 negative Eligible Recovery. The carrier's Eligible 
Recovery from USAC shall be equal to the amount of the 2012-13 true-up 
that a carrier could have recovered through Eligible Recovery in the 
2012-13 tariff period if it had accurately projected demand and which 
amount a carrier was unable to recover as Eligible Recovery in tariff 
period 2014-15. Consistent with the rules we adopt in the Appendix, in 
the future a carrier in this situation must treat the amount eligible 
for true-up as its Eligible Recovery for the true-up tariff period and 
flow that amount through the normal procedures associated with the 
recovery mechanism. This is consistent with the priorities established 
for recovery of Eligible Recovery in the USF/ICC Transformation Order.
    11. Finally, we clarify how ARC rates are to be handled in making 
Eligible Recovery calculations in light of mid-year revisions that some 
carriers have made to their ARC rates after discovering errors in the 
rates that were charged. The Commission's rules do not address 
applicable procedures for addressing such rate changes. If a carrier 
assessed an ARC rate that was too high for part of a tariff period, it 
must use this higher rate and the associated demand for that time 
period in calculating future true-ups for that tariff period. Failure 
to account for the higher ARC rates for the period in question would 
constitute impermissible duplicative recovery because, without this 
treatment, the carrier would have received the ARC revenues without 
having to offset Eligible Recovery to reflect their receipt. We also 
take this opportunity to remind carriers that if they charge ARCs that 
are below the maximum rate that could have been charged, whether for 
the whole year or for part of a year, they are required to impute the 
maximum rate that they could have assessed for purposes of determining 
the carrier's Eligible Recovery. These clarifications help to ensure 
that the recovery mechanism adopted for rate-of-return carriers in the 
USF/ICC Transformation Order works as intended.

IV. Procedural Matters

A. Paperwork Reduction Act

    12. This document does not contain any new or modified information 
collection requirements subject to the Paperwork Reduction Act of 1995 
(PRA). In addition, therefore, it does not contain any new or modified 
information collection burden for small business concerns with fewer 
than 25 employees, pursuant to the Small Business Paperwork Relief Act 
of 2002.

B. Final Regulatory Flexibility Act Certification

    13. The Regulatory Flexibility Act of 1980, as amended (RFA), 
requires that a regulatory flexibility analysis be prepared for 
rulemaking proceedings, unless the agency certifies that ``the rule 
will not have a significant economic

[[Page 15909]]

impact on a substantial number of small entities.'' The RFA generally 
defines ``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 Small Business 
Administration (SBA).
    14. We hereby certify that the rule revisions adopted in the Order 
will not have a significant economic impact on a substantial number of 
small entities. The Order amends rules adopted in the USF/ICC 
Transformation Order by correcting conflicts between the new or revised 
rules and existing rules, as well as addressing omissions or 
oversights. These revisions do not create any burdens, benefits, or 
requirements that were not addressed by the Final Regulatory 
Flexibility Analysis attached to the USF/ICC Transformation Order. The 
Commission will send a copy of the Order, including a copy of this 
final certification, to the Chief Counsel for Advocacy of the SBA. In 
addition, the Order (or a summary thereof) and certification will be 
published in the Federal Register.

C. Congressional Review Act

    15. The Commission will send a copy of the Order to Congress and 
the Government Accountability Office pursuant to the Congressional 
Review Act.

V. Ordering Clauses

    16. Accordingly, it is ordered, that pursuant to the authority 
contained in sections 1, 2, 4(i), 201-203, 220, 251, 252, 254, 303(r) 
and 403 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 
152, 154(i), 201-203, 220, 251, 252, 254, 303(r) and 403, and pursuant 
to Sec. Sec.  0.91, 0.201(d), 0.291, 1.3, and 1.427 of the Commission's 
rules, 47 CFR 0.91, 0.201(d), 0.291, 1.3 and 1.427, and pursuant to the 
delegation of authority in paragraph 1404 of 26 FCC Rcd 17663 (2011), 
the Order and the rules revising part 51 of the Commission's rules are 
adopted, effective April 27, 2015.
    17. It is further ordered that the Commission shall send a copy of 
this Order to Congress and the Government Accountability Office 
pursuant to the Congressional Review Act.
    18. It is further ordered that the Commission's Consumer and 
Governmental Affairs Bureau, Reference Information Center, shall send a 
copy of the Order, including the Final Regulatory Flexibility 
Certification, to the Chief Counsel for Advocacy of the Small Business 
Administration.

List of Subjects in 47 CFR Part 51

    Communications common carriers, Telecommunications.

Federal Communications Commission.
Deena M. Shetler,
Associate Chief, Wireline Competition Bureau.

    For the reasons discussed in the preamble, the Federal 
Communications Commission amends 47 CFR part 51 as follows:

PART 51--INTERCONNECTION

0
1. The authority citation for part 51 continues to read as follows:

    Authority: Sections 1-5, 7, 201-05, 207-09, 218, 220, 225-27, 
251-54, 256, 271, 303(r), 332, 706 of the Telecommunication Act of 
1996, 48 Stat. 1070, as amended, 1077; 47 U.S.C. 151-55, 157, 201-
05, 207-09, 218, 220, 225-27, 251-54, 256, 271, 303(r), 332, 1302, 
47 U.S.C. 157 note, unless otherwise noted.

Subpart J--Transitional Access Service Pricing

0
2. Section 51.917 is amended by adding paragraphs (d)(1)(viii)(A) and 
(B) to read as follows:


Sec.  51.917  Revenue recovery for rate-of-return carriers.

* * * * *
    (d) * * *
    (1) * * *
    (viii) * * *
    (A) If a Rate-of-Return Carrier in any tariff period underestimates 
its projected demand for services covered by Sec.  51.917(b)(6) or 
51.915(b)(13), and thus has too much Eligible Recovery in that tariff 
period, it shall refund the amount of any such True-up Revenues or 
True-up Revenues for Access Recovery Charge that are not offset by the 
Rate-of-Return Carrier's Eligible Recovery (calculated before including 
the true-up amounts in the Eligible Recovery calculation) in the true-
up tariff period to the Administrator by August 1 following the date of 
the Rate-of-Return Carrier's annual access tariff filing.
    (B) If a Rate-of-Return Carrier in any tariff period receives too 
little Eligible Recovery because it overestimates its projected demand 
for services covered by Sec.  51.917(b)(6) or 51.915(b)(13), which 
True-up Revenues and True-up Revenues for Access Recovery Charge it 
cannot recover in the true-up tariff period because the Rate-of-Return 
Carrier has a negative Eligible Recovery in the true-up tariff period 
(before calculating the true-up amount in the Eligible Recovery 
calculation), the Rate-of-Return Carrier shall treat the unrecoverable 
true-up amount as its Eligible Recovery for the true-up tariff period.
* * * * *
[FR Doc. 2015-06642 Filed 3-25-15; 8:45 am]
 BILLING CODE 6712-01-P