[Federal Register Volume 81, Number 70 (Tuesday, April 12, 2016)]
[Proposed Rules]
[Pages 21511-21532]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-08376]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 65
[WC Docket Nos. 10-90, 14-58; CC Docket No. 01-92; FCC 16-33]
Connect America Fund, ETC Annual Reports and Certification;
Developing a Unified Intercarrier Compensation Regime
AGENCY: Federal Communications Commission.
ACTION: Proposed rule.
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SUMMARY: In this document, the Federal Communications Commission
(Commission) proposes targeted rule changes to our existing accounting
and affiliate transaction rules to eliminate inefficiencies and provide
guidance to rate-of-return carriers regarding our expectations for
appropriate expenditures.
DATES: Comments are due on or before May 12, 2016 and reply comments
are due on or before June 13, 2016. If you anticipate that you will be
submitting comments, but find it difficult to do so within the period
of time allowed by this document, you should advise the contact listed
below as soon as possible.
ADDRESSES: You may submit comments, identified by either WC Docket No.
10-90, WC Docket No. 14-58 or CC Docket No. 01-92, by any of the
following methods:
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Federal Communications Commission's Web site: http://fjallfoss.fcc.gov/ecfs2/. Follow the instructions for submitting
comments.
People with Disabilities: Contact the FCC to request
reasonable accommodations (accessible format
[[Page 21512]]
documents, sign language interpreters, CART, etc.) by email:
[email protected] or phone: (202) 418-0530 or TTY: (202) 418-0432.
For detailed instructions for submitting comments and additional
information on the rulemaking process, see the SUPPLEMENTARY
INFORMATION section of this document.
FOR FURTHER INFORMATION CONTACT: Alexander Minard, Wireline Competition
Bureau, or Suzanne Yelen, Wireline Competition Bureau, (202) 418-7400
or TTY: (202) 418-0484.
SUPPLEMENTARY INFORMATION: This is a synopsis of the Commission's
Further Notice of Proposed Rulemaking (FNPRM) in WC Docket Nos. 10-90,
14-58 and CC Docket No. 01-92; FCC 16-33, adopted on March 23, 2016 and
released on March 30, 2016. The full text of this document is available
for public inspection during regular business hours in the FCC
Reference Center, Room CY-A257, 445 12th St. SW., Washington, DC 20554
or at the following Internet address: http://transition.fcc.gov/Daily_Releases/Daily_Business/2016/db0330/FCC-16-33A1.pdf. The Report
and Order, Order and Order on Reconsideration that was adopted
concurrently with the FNPRM are published elsewhere in this issue of
the Federal Register.
I. Introduction
1. With this Further Notice of Proposed Rulemaking (FNPRM) and
concurrently adopted Report and Order, Order, Order on Reconsideration,
the Commission adopts significant reforms to place the universal
service program on solid footing for the next decade to ``preserve and
advance'' voice and broadband service in areas served by rate-of-return
carriers. In 2011, the Commission unanimously adopted transformational
reforms to modernize universal service for the 21st century, creating
programs to support explicitly broadband-capable networks. In this
Report and Order, Order, Order on Reconsideration, and FNPRM, the
Commission takes necessary and crucial steps to reform our rate-of-
return universal service mechanisms to fulfill our statutory mandate of
ensuring that all consumers ``have access to . . . advanced
telecommunications and information services.'' In particular, after
extensive coordination and engagement with carriers and their
associations, the Commission modernizes the rate-of-return program to
support the types of broadband offerings that consumers increasingly
demand, efficiently target support to areas that need it the most, and
establish concrete deployment obligations to ensure demonstrable
progress in connecting unserved consumers. This will provide the
certainty and stability that carriers seek in order to invest for the
future in the years to come. The Commission welcomes ongoing input and
partnership as they move forward to implementing these reforms.
2. Rate-of-return carriers play a vital role in the high-cost
universal service program. Many of them have made great strides in
deploying 21st century networks in their service territories, in spite
of the technological and marketplace challenges to serving some of the
most rural and remote areas of the country. At the same time, millions
of rural Americans remain unserved. In 2011, the Commission unanimously
concluded that extending broadband service to those communities that
lacked any service was one of core objectives of reform. At that time,
it identified a rural-rural divide, observing that ``some parts of
rural America are connected to state-of-the art broadband, while other
parts of rural America have no broadband access.'' The Commission
focuses now on the rural divide that exists within areas served by
rate-of-return carriers. According to December 2014 Form 477 data, an
estimated 20 percent of the housing units in areas served by rate-of-
return carriers lack access to 10 Mbps downstream/1 Mbps upstream (10/1
Mbps) terrestrial fixed broadband service. It is time to close the gap,
and take action to bring service to the consumers served by rate-of-
return carriers that lack access to broadband. The Commission needs to
modernize comprehensively the rate-of-return universal service program
in order to benefit rural consumers throughout the country.
3. For years, the Commission has worked with active engagement from
a wide range of interested stakeholders to develop new rules to support
broadband-capable networks. One shortcoming of the current high-cost
rules identified by rate-of-return carriers is that support is not
provided if consumers choose to drop voice service, often referred to
as ``stand-alone broadband'' or ``broadband-only'' lines. In the April
2014 Connect America FNPRM, 79 FR 39196, July 9, 2014, the Commission
unanimously articulated four general principles for reform to address
this problem, indicating that new rules should provide support within
the established budget for areas served by rate-of-return carriers;
distribute support equitably and efficiently, so that all rate-of-
return carriers have the opportunity to extend broadband service where
it is cost-effective to do so; support broadband-capable networks in a
manner that is forward looking; and ensure no double-recovery of costs.
The package of reforms outlined below solve the stand-alone broadband
issue and update the rate-of-return program consistent with those
principles. The Commission also takes important steps to act on the
recommendation of the Governmental Accountability Office to ensure
greater accountability and transparency in the high-cost program.
4. In the FNPRM, the Commission proposes targeted rule changes to
our existing accounting and affiliate transaction rules to eliminate
inefficiencies and provide guidance to rate-of-return carriers
regarding our expectations for appropriate expenditures. Consumers are
harmed when ``universal service provides more support than necessary to
achieve our goals.'' The statute requires that universal service funds
be used for their intended purposes--maintaining and upgrading
supported facilities and services. The Commission proposes to eliminate
a number of expenses from inclusion in a rate-of-return carrier's
revenue requirement and calculations of high-cost support. The
Commission also seeks comment on establishing measures governing
prudent or reasonable expense levels for certain expense categories.
The FNPRM further seeks comment on ways in which the cost allocation
procedures between regulated and non-regulated activities and the
affiliate transaction rules can be improved to reduce the potential for
a carrier to shift costs from non-regulated to regulated services or to
the regulated affiliate.
5. Second, the Commission seeks comment in the FNPRM on additional
options for disaggregating support for those discrete areas that are
served by an unsubsidized competitor and other issues associated with
implementation of the competitive overlap rule.
6. Third, the FNPRM seeks comment on proposals to adopt a mechanism
to provide additional support to unserved Tribal lands. The Commission
has long recognized the distinct challenges in bringing communications
service to Tribal lands.
7. Fourth, the FNPRM seeks comment on other measures that the
Commission could take within the existing budget to encourage further
broadband deployment by rate-of-return carriers.
8. Lastly, the FNPRM seeks comment on additional proposals to
modify or potentially eliminate certain eligible telecommunications
carriers' (ETC) certifications and reporting obligations
[[Page 21513]]
so as to streamline ETC reporting requirements.
9. The actions the Commission takes today, combined with the rate-
of-return reforms undertaken in the past two years, will allow us to
continue to advance the goal of ensuring deployment of advanced
telecommunications and information services networks throughout ``all
regions of the nation.'' Importantly, they build on proposals from and
collaboration with the carriers and their associations. Through the
coordinated reforms the Commission takes today, they will provide rate-
of-return carriers with equitable and sustainable support for
investment in the deployment and operation of 21st century broadband
networks throughout the country, providing stability for the future.
Achieving universal access to broadband will not occur overnight, but
today marks another step on the path toward that goal.
II. Further Notice of Proposed Rulemaking
A. Permitted Expenses, Cost Allocation and Affiliate Transactions
10. With this Notice, the Commission commences a review of the
extent to which certain investments and expenses incurred by a
regulated local exchange carrier may be included in its rate base and
revenue requirement for ratemaking and universal service fund (USF)
purposes. The Commission's rules provide that local exchange carriers
may not include expenses in their revenue requirement unless such
expenses are ``recognized by the Commission as necessary to the
provision'' of interstate telecommunications services. Similarly, high-
cost support provided to an ETC must be used ``only for the provision,
maintenance, and upgrading of facilities and services for which the
support is intended.''
11. The Commission has not comprehensively reviewed the continued
reasonableness of its existing rules regarding permissible investments
and expenses for local exchange carriers since the passage of the
Telecommunications Act of 1996. Market and regulatory conditions have
changed substantially since that time. Notably, regulated
telecommunications carriers have expanded into the provision of retail
broadband services, either directly or through affiliated entities.
Regulated carriers also increasingly face competition, for both voice
and broadband services, in portions of their incumbent territory from
other facilities-based providers, such as cable and wireless providers.
These changing conditions may impact the types of costs carriers
attempt to include in their revenue requirement and the ways in which
carriers allocate costs between regulated and non-regulated services
and affiliates.
12. Moreover, with steady demands on the high-cost program and a
shrinking contribution base, it is more important than ever that these
limited funds be used solely for their intended purposes. Likewise,
amidst challenging economic conditions, it simply is not right to
expect consumers across the country, including those in rural areas, to
reimburse rate-of-return carriers--through the regulated rates for
interstate service--for excessive or otherwise inappropriate expenses.
13. While the Commission believes that most rate-of-return carriers
properly record their costs and seek support only for the intended
purposes, through audits, inquiries and other investigations, the
Commission has recently been made aware of alleged abuses by rate-of-
return carriers of the used and useful principles and its cost
allocation rules. These situations involve rate-of-return carriers, for
example, including questionable expenses in their revenue requirement,
using support for purposes unrelated to the provision of services, and
misallocating expenses among affiliates, or between regulated and non-
regulated activities. Against that backdrop, the Commission concludes
it is time to reevaluate the types of expenses that should be
permitted--both in a carrier's revenue requirement and for recovery
through high-cost support. Looking into the expenses permitted and the
allocation of those expenses will help ensure that carriers are only
recovering costs that are used and useful and prudently incurred, and
in the case of high cost support, only costs that are necessary to the
provision of interstate telecommunications services.
1. Discussion
a. Review of Permitted Expenses
14. The Commission begins our reevaluation of a rate-of-return
carrier's ability to include certain types of expenses in their revenue
requirement and high-cost support with consideration of the appropriate
standard to be applied. As noted above, the Commission has used
different terms in different situations--``used and useful,'' ``prudent
expenditure,'' and ``necessary to the provision of.'' The Commission
believes that these terms should be read consistently to describe those
expenses that a carrier may appropriately include in its interstate
rate base, interstate revenue requirement, and cost studies used to
calculate high-cost support. Thus, they should reflect a business
operation that is run efficiently to provide telecommunications
services. The costs should include amounts of long-term investment and
current expenditures that a business would reasonably incur to provide
telecommunications services, taking into account current and reasonably
forecasted operating conditions and business levels. The Commission
invites parties to comment on these standards and whether they should
be viewed as applying a consistent standard to regulated, tariffed
services and to expenditures that are recovered through high-cost
support. To the extent that a party believes different standards should
be applied, it should specify the situations in which such differences
should apply, what the differences are, and how they should be treated
within the accounting and cost allocation processes of the Commission.
As parties respond to the issues raised below, they should consider the
application of the standards in their comments.
15. The Commission recently indicated that ETCs may not recover
certain types of expenses through high-cost support. Those expenses
include the following: Personal travel; entertainment; alcohol; food,
including but not limited to meals to celebrate personal events, such
as weddings, births, or retirements; political contributions;
charitable donations; scholarships; penalties or fines for statutory or
regulatory violations; penalties or fees for any late payments on debt,
loans, or other payments; membership fees and dues in clubs and
organizations; sponsorships of conferences or community events; gifts
to employees; and, personal expenses of employees, board members,
family members of employees and board members, contractors, or any
other individuals affiliated with the ETC, including but not limited to
personal expenses for housing, such as rent or mortgages.
16. The Commission seeks comment on explicitly prohibiting the
inclusion of any of these expenses in a carrier's interstate revenue
requirement, which would supersede any existing rules or precedent that
might otherwise suggest these are legitimate expenditures. The
Commission tentatively concludes that these expenditures are
unnecessary to the provision of regulated interstate services and thus
are not appropriately included in a rate-of-return carrier's interstate
revenue requirement, just as they are not appropriately included in
[[Page 21514]]
calculating the level of high-cost support a carrier receives.
Recognizing that some of these enumerated types of expenditures are
quite broad, however, the Commission invites parties to indicate
whether there is a definable subset of expenses within any of the
categories that should not be excluded from a carrier's interstate
revenue requirement. Parties believing there are specific types of
expenses that should be included in the interstate revenue requirement
should provide examples of such expenses, the reasons they are
necessary, as well as specific language that would allow the Commission
to distinguish these expenses from those that are appropriately
excluded. The Commission also seeks comment on whether, if the
Commission ultimately decides some of these expense categories, or a
portion of them, should be allowed in a carrier's interstate revenue
requirement, whether similar treatment should be accorded those
expenses for purposes of high-cost support.
17. In addition to the expenses identified in the High Cost Oct.
19, 2015 Public Notice, the Commission proposes to prohibit additional
expenses from inclusion in a carrier's interstate revenue requirement
and also preclude their recovery through high-cost support. The
additional expenses that the Commission proposes to disallow for these
purposes include: Artwork and other objects which possess aesthetic
value; corporate aircraft, watercraft, and other motor vehicles
designed for off-road use, except insofar as necessary to access
inhabited portions of the study area not reachable by motor vehicles
travelling on roads; any vehicles for personal use; tangible property
not logically related or necessary to the offering of voice or
broadband services; childcare; cafeterias and dining facilities; and,
housing allowances or other forms of mortgage or rent assistance for
employees. Like the expenses listed above, the Commission is concerned
that some carriers may incur additional expenses of this nature that
are not necessary to the provision of the supported service--voice
telephony--and not necessary to the provision of regulated interstate
services. If adopted, such a rule would overturn any existing rule or
precedent that might suggest such expenditures are permissible.
18. The Commission invites parties to comment on whether there is
any reason that these expense categories should not be completely
excluded from a carrier's revenue requirement or its high-cost support.
Parties making an argument for inclusion of these expenses in a
carrier's revenue requirement should explain clearly why such expenses
are necessary to the provision of a supported service or to the
provision of a regulated interstate telecommunications service. The
Commission invites parties to indicate whether there is a definable
subset of expenses within any of the categories that should not be
excluded from a carrier's interstate revenue requirement or high-cost
support. Parties believing that to be the case should provide examples
of such expenses, the reason they are necessary, as well as specific
language that would allow the Commission to distinguish these expenses
from those that are appropriately excluded.
19. The Commission also invites parties to identify additional
expenses that should be excluded from either a carrier's interstate
revenue requirement, from calculations of high-cost support, or both.
Parties identifying additional expenses to be excluded should address
the reasons they are unnecessary to the provision of telecommunications
service or to the provision of supported services. Parties seeking
additional exclusions should also provide language that would allow the
Commission to exclude such items if it elects to do so. With respect to
ensuring the appropriate use of high-cost funds for certain expenses,
our proposals apply to both price cap and rate-of-return carriers. Our
proposals concerning permitted expenses for the revenue requirement
would primarily apply to rate-of-return carriers, but they would also
apply to price cap carriers in limited circumstances.
20. In addition to these categories, the Commission has seen
instances in which ``companies maintain comparatively high compensation
portfolios for their executives.'' The Commission expressed concern
that these and other expenses were not reasonable and necessary given a
number of considerations. The Commission seeks comment on how to
address potential concerns regarding such expenses for executives,
those with close relationships to those executives, and a carrier's
other employees and contractors.
21. The Commission is also aware of at least one instance in which
costly benefits were sought to be provided to board members. Are there
circumstances under which compensation for board members, including
fees per-meeting, for special duties assumed, and for travel and per
diem expenses should be deemed unreasonable? If so, on what basis? Is
additional evaluation warranted where board members have a close
relationship to someone in the company?
22. The Commission seeks comment on whether the costs that may be
included in a carrier's revenue requirement for buildings purchased or
rented by regulated telecommunications carriers should be limited. For
example, in cases where excessive square footage of office or warehouse
space is purchased by a regulated carrier in order to earn a rate of
return on that space, should part of the price paid for the building be
excluded from the revenue requirement? How should ``excessive'' be
defined for this purpose? Are there objective metrics available on the
square footage of office space per employee that is reasonable, or on
the square footage of warehouse space that a carrier should reasonably
require given the number of loops the carrier provides and the density
of its service area? Are there objective metrics on the price per
square foot that should be paid for office or warehouse space in
specific locations?
23. Section 32.2002 provides that plant held for future use must be
utilized within two years. This plant is included in the carrier's rate
base. The Commission is concerned that carriers may have incentives to
place excess capacity in the interstate regulated rate base that will
not be used in the foreseeable future, with ratepayers bearing the
cost. The Commission reminds carriers that the benefit from a used and
useful investment must be realized within a reasonable amount of time.
Thus, the Commission invites parties to comment on whether they should
adopt a rule that would prohibit a regulated carrier from leasing
capacity from its unregulated affiliate that is not presently utilized
in the provision of voice or broadband services. Alternatively, could
this concern be addressed by defining more precisely what constitutes
reasonable projections of use and/or requiring that such capacity be
used within a shorter timeframe than two years? Parties are invited to
address the types of uses that should be considered to meet the
requirement that excess capacity be used in the foreseeable future.
24. As explained above, carriers record their financial
transactions in the USOA books of account as they occur. These amounts
then flow through the allocation procedures in Parts 64, 36, and 69
with the implied assumption that the recorded amounts are reasonable,
and thus prudently incurred. While the used and useful and prudent
expenditure standards apply to all investments and expenses of the
carrier, the principles considered under
[[Page 21515]]
this standard have been interpreted only in limited, specific cases.
The Commission now seeks comment on whether the Commission should adopt
more precise guidance regarding what constitutes a used and useful or
otherwise prudent expenditure.
25. The Commission notes that transactions between non-affiliated
parties that are negotiated at arm's length are generally presumed to
produce commercially reasonable prices. Affiliate transactions,
however, are not negotiated at arm's length and thus, may result in
unreasonable prices absent standards governing how those transactions
should be priced; that is why the Commission adopted rules for the
pricing of affiliate transactions decades ago. The Commission now
invites parties to comment on whether there are circumstances
surrounding transactions between non-affiliated parties that might
raise concerns about whether the resulting prices are reasonable. For
example, would a close family relationship or cross-participation on
boards of directors be situations that warrant more scrutiny of the
price? The Commission invites parties to discuss these examples and to
identify other examples that might raise concerns. Parties are invited
to discuss whether presumptions concerning what would be a prudent
expenditure could be employed to ensure that prices are reasonable.
26. The Commission's rules require a carrier in specified
situations to record the purchase of a good or service from an
affiliate at fair market value. The Commission invites parties to
comment on whether the affiliate transaction standard should also be
applied to goods and services acquired from non-affiliated entities. If
not, parties should propose an alternative standard and explain why it
is a preferable approach. The Commission also invites parties to
comment on the factors that should be considered in determining whether
a transaction is a prudent expenditure or is a reasonable market price
in evaluating prices in situations identified as warranting a closer
look. Are there circumstances where a prudent expenditure might be
something other than the absolute lowest identified price? Parties are
invited to identify other metrics beside cost and reliability that are
relevant in determining whether an investment or expense is prudent for
the purposes of our rules. Finally, are there specific circumstances
under which a carrier should be required to make a good faith
determination of fair market value for a good or service obtained from
a non-affiliate, prior to incurring such expenses, for instance when
the total aggregate annual value of the good(s) or service(s) reaches
or exceeds a specified threshold for purchases from a non-affiliate, as
is done under section 32.27(b)(3) and (c)(3) for affiliates?
27. Finally, the Commission invites parties to comment on the best
manner of implementing any decision to exclude the expenses identified
in this section. Specifically, parties should address whether it would
be sufficient to adopt an order simply identifying and defining which
costs are not allowed, as has generally been the process in the past,
or whether some rule revisions are necessary. If rule revisions are
thought necessary, parties should address where in the process they can
best be implemented. Part 32 excludes certain investments and expenses
as non-regulated, while Part 64 allocates investments and expenses used
to provide both regulated and non-regulated activities that are
recorded in the regulated accounts of Part 32 between regulated and
non-regulated activities. In addition, for purposes of determining
whether a carrier's realized rate-of-return exceeds the maximum
allowable rate of return, Part 65 specifies the determination of
earnings and rate base. Parties are encouraged to address whether some
cost disallowances would be better achieved through revisions to the
Part 32 rules, while other cost disallowances could best be addressed
through revisions to other rules in Parts 64, 65, 69, or some
combination of these rules. The Commission is providing state
commissions with notice of this in compliance with the requirements of
section 220(i) of the Act in the event they decide to make some
revisions to Part 32. In other words, is it better to first enumerate
which expenses should be excluded from the revenue requirement as not
used and useful in the provision of regulated services and then proceed
with allocating costs, or is it better to rely on the cost allocation
procedures in Part 64 to exclude such expenses? One of the goals of the
USOA at the time it was adopted was that it remain stable over time.
How should this be factored into the decision of where to make certain
disallowances? Parties are invited to submit proposed language to
accomplish the approach they recommend. Lastly, the Commission invites
parties to comment on whether they should require rate-of-return
carriers to identify their cost consultants, if any, in their FCC Form
481s.
b. Issues Related to Cost Allocation and Affiliate Transactions
28. Rate-of-return carriers are subject to the Commission's
longstanding Part 64 rules regarding the allocation of costs between
regulated and non-regulated activities and to the affiliate transaction
rules in Part 32. Under these rules, carriers currently apply broad
principles in making such allocations, and the lack of specificity in
the rules gives carriers a degree of discretion in making these
allocation decisions. Therefore, there is an incentive to interpret the
allocation rules in order to allocate as many costs as possible to
their regulated activities, both to justify a higher interstate revenue
requirement and to receive additional high-cost support. For instance,
marketing costs could be recorded solely as regulated expenses, even
though those marketing activities are designed to increase
subscribership of retail broadband, i.e., non-regulated services. Given
the lack of specific guidance, the additional costs associated with the
provision of retail broadband services, and the incentive to allocate
costs to regulated activities, the Commission concludes that it is time
to revisit our allocation rules in order to provide greater clarity to
rate-of-return carriers regarding how to determine the relative
allocation of costs between regulated and non-regulated activities and
affiliates.
29. As noted, the Commission's existing cost allocation rules
relating to regulated versus non-regulated activities generally provide
that costs shall be directly assigned to either regulated or non-
regulated activities where possible, and common costs are to be
allocated according to a hierarchy of principles. To the extent costs
cannot be allocated on direct or indirect cost causation principles,
they are allocated based on a ratio of all expenses directly assigned
or attributed to regulated and non-regulated activities. In certain
cases, the affiliate transaction rule requires fully distributed costs
to be used to determine the charge to the affiliate or the carrier.
30. The Commission seeks comment on adopting new rules to improve
the process of allocating costs among regulated and non-regulated
services and between affiliates. The Commission also seeks a better
understanding of how to detect cases of misallocation. Our goal is to
reduce the potential ability of carriers to include expenses associated
with non-regulated services in their regulated revenue requirements,
and to preclude carriers from artificially inflating their high-cost
support through such actions. To this end, the Commission seeks comment
on
[[Page 21516]]
adopting a rule that would classify certain costs, such as general and
administrative expenses, as common costs for purposes of applying the
Part 64 and affiliate transaction rules when an entity provides
broadband services directly, or through an affiliated entity. Are there
other costs that should be treated as common costs in applying these
allocation rules? Under such an approach, carriers would be precluded
from including all of these expenses in their regulated revenue
requirement, and instead, would be required to exclude some expenses
based on the prescribed manner of allocation. Accordingly, the
Commission also seeks comment on adopting rules that would prescribe
the manner of allocation of common costs in particular situations. For
example, are there certain common costs that the Commission should
specify by rule that they should be allocated on the basis of the
relative number of regulated lines compared to the total number of
lines (both regulated and non-regulated) for the rate-of-return carrier
and its broadband affiliate, if any? Are there other instances in which
relative revenues or some other measure would be a better allocator,
taking into account the ease of administering any such rule?
31. The Commission is concerned about the potential for carriers to
provide shared operational services to their affiliates under fully-
distributed cost (FDC) allocation procedures that do not include all of
the associated costs. The affiliate transaction rules employ a higher
of cost or market standard when applicable, or a FDC standard to ensure
that all costs of services provided by a regulated telecommunications
company are recovered from its affiliates. The general nature of the
FDC allocation guidelines, however, allows carriers significant
discretion in performing the FDC cost study. This discretion allows
carriers to exclude expenses associated with providing shared functions
to their non-regulated affiliates, especially to those affiliates that
then sell retail broadband services to end users on an unregulated
basis, thus recovering these costs from rate payers. The Commission
seeks comment on clarifying or adopting new rules to ensure the proper
application of the affiliate transaction rules in light of provision of
retail broadband by affiliates in certain telecommunications markets.
32. Our accounting and high-cost universal service support rules
rely on proper allocation of costs to work as intended. The Commission
seeks comment on specific instances in which additional rules or
further clarification could minimize potential misallocations and
thereby protect ratepayers of regulated services. Are there other
methods that would help ensure proper allocation of costs between
regulated and non-regulated services?
33. The Commission is also concerned that problems similar to those
associated with regulated versus non-regulated allocations may arise in
the application of the FDC process in connection with affiliate
transactions. Section 32.27 of the Commission's rules requires an
incumbent LEC to record assets or services received from its affiliated
entities at the lesser of FDC or fair market value when no tariff rate,
prevailing price, or publicly filed agreement exists. FDC may be over-
inclusive, however, if it includes investment and expenses of the
affiliate that would not properly be included in a carrier's revenue
requirement or calculations for high-cost support. While the used and
useful and prudent expenditure standards apply to costs included in
affiliate transactions, the Commission seeks comment on whether they
should adopt a rule that explicitly prohibits carriers from including
in the FDC of an affiliate any costs that are disallowed from the
regulated rate base or revenue requirement, or considered not to be
used and useful or prudent expenditures. Without such a rule, carriers
could shift costs to an affiliate and then effectively recover those
disallowed costs through payments to the affiliate. The Commission
invites parties to comment on how such an approach could be
implemented, and whether there are circumstances under which these
costs of affiliates should be properly included in the regulated rate
base or costs used to calculate high-cost support.
34. The Commission seeks comment on whether additional data would
assist in enforcement of the Commission's accounting and cost
allocation rules, while minimizing ETC reporting burden.
c. Compliance Issues
35. Finally, the Commission seeks comment on the most effective way
to ensure compliance with the proposed rules for universal service
support and tariffing purposes. Rate-of-return affiliates of price cap
carriers would be subject to any revised rules in establishing their
tariffed rates for interstate services. In addition, if a price cap
carrier is required to make a cost-based showing in the future, any
expense rules adopted in this proceeding would apply to such showings.
The Commission invites parties to comment on whether they should
require carriers to certify that they have not included any prohibited
expenses in their cost submissions used to calculate high-cost support.
If so, is there a current certification that can be modified to
encompass this aspect, or is a new rule necessary? Because audit
findings can be used to recover overpayments of high-cost support, the
Commission also invites parties to comment on how the Commission should
implement any requirements it may adopt. Are there other proposals or
considerations that the Commission should consider to ensure compliance
with any revised requirements?
36. Ensuring compliance with any revised investment, expense, or
cost allocation rules in the tariffing context raises different
challenges. Rate-of-return carrier tariffs must be filed in advance of
their effective date, and pursuant to section 204 of the Act, the
Commission, during the notice period, may suspend the effectiveness of
a tariff and initiate an investigation to determine whether the tariff
is just and reasonable. Section 204(a)(3) provides that local exchange
carrier tariffs that take effect on 7-days notice after filing (when
rates are reduced) or 15-days notice (for any other change) after
filing are ``deemed lawful'' unless rejected or suspended and
investigated by the Commission. If a tariff investigation has not been
completed within five months of the tariff's specified effective date,
the proposed tariff goes into effect subject to the results of the
investigation. At the conclusion of the investigation, the Commission
may prescribe rates prospectively and order refunds as necessary for
any period in which the tariff was in effect. With these constraints on
timing and prohibition on retroactive relief, the Commission invites
parties to comment on steps the Commission could take to ensure that
carriers follow these requirements. As a starting point, the Commission
proposes to require a certification and seek comment on what it should
entail. The Commission also invites parties to comment on what
sanctions should be used to give some meaning to the certifications.
37. The Commission invites parties to comment on whether, and if
so, when an exception to the ``deemed lawful'' provision of section 204
of the Act would apply where a carrier violated these rules. The
Commission notes that in ACS v. FCC, the D.C. Circuit indicated that
although the ``deemed lawful'' language is unambiguous, ``[w]e do not,
of course, address the case of a carrier that furtively employs
improper accounting techniques in a tariff filing, thereby concealing
potential rate of return violations. The Order here makes
[[Page 21517]]
no claim of such misconduct.'' The D.C. Circuit thus acknowledged that
there may be extenuating circumstances (such as using improper
accounting techniques or willfully misrepresenting expenses) that
warrant an exception to the deemed lawful language. The Commission
proposes to adopt a rule that would find an exception to the deemed
lawful rule when a carrier incorrectly certifies that its revenue
requirements are compliant with the applicable standards. The
Commission invites parties to comment on this proposal. In particular,
parties should address the amount of the discrepancy in actual and
projected costs that must exist before such an exception would be
invoked. The Commission also asks parties to comment on how any cost
recovery should be returned to customers. For example, should it be
used to reduce the revenue requirement for the following tariff period?
Should there be an interest component to what must be returned to the
customers. If so, what should the applicable interest rate be--the
authorized rate of return, the corporate tax underpayment rate, or
something else? Are there other mechanisms the Commission should
consider to deter inclusion of inappropriate expenses in a rate-of-
return carrier's revenue requirement?
38. The vast majority of rate-of-return carriers are members of the
NECA pool, and their costs are combined to establish pool rates. The
Commission invites parties to comment on NECA's role in enforcing these
rules. Should carriers be barred from pool participation if determined
to be including expenses prohibited by Commission rules? How should the
magnitude of the violation be determined? What percent level of
prohibited cost inclusion should be required before immediate expulsion
from pool participation is deemed necessary? Are there any other
metrics that should be considered in making this determination? Should
carrier violations for inclusion of prohibited expenses have a
``repeated occurrences'' component, or should one time inclusion of a
certain percentage of prohibited expenses impact pool participation?
B. Reducing Support in Competitive Areas
39. In section II.B of the concurrently adopted Report and Order,
the Commission concludes that CAF BLS should not be provided in areas
served by a qualifying unsubsidized competitor. The Commission adopts
several methods of disaggregating Connect America Fund Broadband Loop
Support (CAF BLS) for areas found to be competitively service, and
allow carriers to select which method will be used. USTelecom and NTCA
propose that in addition to the methods they specifically presented,
carriers should also have the option of disaggregating support based on
a ``method approved by the Commission.'' Here, the Commission invites
commenters to propose other methods of disaggregation of support that
can be implemented with minimal administrative burden for affected
carriers and USAC. The Commission seeks to avoid complex allocations of
the cost of facilities that that serve both competitive and non-
competitive areas, which could be burdensome for rate-of-return
carriers to implement.
40. The Commission also invites parties to comment on how the non-
supported amount is to be recovered by the carrier, assuming such
expenses remain regulated expenses for ratemaking purposes. At the
outset, the Commission notes that rate-of-return carriers currently
receive compensation for interstate loop costs through a combination of
end-user charges, e.g., SLCs and universal service support. The SLCs
most rate-of-return carriers assess are at the maximum levels. Thus, in
many situations, carriers would be prohibited by our current rules from
increasing SLC rates to recover investment and associated expenses that
will not be supported under the high-cost program in competitive areas.
The Commission invites parties to comment on the two approaches for
recovery of those amounts.
41. First, the Commission could treat the non-supported expenses as
being outside the tariffed regulated revenue requirement and allow
carriers to assess a detariffed regulated rate to recover those non-
supported costs. This would remove those costs from the NECA pooling
process. The Commission invites parties to comment on whether the
detariffed rates would be outside the prohibition on tariffing
deaveraged rates in a study area, or whether a new rule should be
adopted. The Commission invites parties to comment on this alternative.
Does it present any opportunities for carriers to game the tariffing
process?
42. A second option would be to raise the SLC caps for a particular
study area to permit the recovery of the amounts not supported by the
high-cost program. The Commission invites parties to comment on this
alternative, including whether any SLC increases should be allowed only
in the competitive area or should apply to the entire study area. In
the former case, a modification of the rule prohibiting deaveraging
within the study area would need to be made. Parties should
particularly address the effects of deaveraging on the NECA pooling and
tariffing processes. The Commission also invites parties to comment on
the effects of deaveraging on carriers' billing and operation support
systems. Are there other alternatives that the Commission should
consider for recovery of the non-supported investment and associated
expenses?
C. Tribal Support
43. Discussion. Given the difficulties that some carriers have
experienced in deploying basic telecommunications services on Tribal
lands, the Commission recognizes the important role of universal
service support to foster the deployment of broadband in unserved
areas. Therefore, the Commission seeks comment on adopting rules to
increase support to rate-of-return carriers for census blocks that
include Tribal lands and unserved with broadband meeting the
Commission's current requirements.
44. The Commission recognizes the distinct challenges in bringing
communications services to Tribal lands and seek comment on how best to
achieve broadband deployment on Tribal lands commensurate with that in
other areas. However, the Commission has acknowledged that there are
areas throughout the United States that are expensive to serve and that
face challenges in demographics, weather, and geography.
45. NTTA proposes that a TBF be applied to any non-model-based
rate-of-return mechanism that the Commission adopts. In light of the
other changes adopted today, including measures to provide a larger
capital investment allowance for carriers that are below average in
terms of broadband deployment, and defined deployment obligations for
all rate-of-return carriers, is there a need for a separate mechanism
for Tribal lands? The Commission seeks comment on whether a multiplier
applied to the revised ICLS (i.e. CAF BLS) mechanism would foster
broadband deployment on Tribal lands and ensure ``universal service
funds are used for their intended purposes.'' Are there other
approaches that would better advance of our goals?
46. If the Commission determines that a multiplier of support
amounts under CAF BLS is an appropriate mechanism, what factor is
appropriate? NTTA provides little support of why 1.25x is the
appropriate factor to ensure broadband deployment on Tribal lands,
other than pointing to the 25 percent
[[Page 21518]]
credit the Commission provided in the Tribal Mobility Fund Phase I. The
Commission seeks comment on the appropriate figure for the multiplier,
if they were to adopt such an approach. When providing comment on the
appropriate multiplier, specific data and figures are encouraged. The
Commission also emphasizes that high-cost universal service support is
a finite resource that must be equitably distributed in a manner that
effectuates the goals of section 254. Therefore, the Commission seeks
comment on how implementation of Tribal-specific additional support may
affect the resources available to extend broadband deployment to non-
Tribal rate-of-return service areas with equally minimal broadband
build out and located in geographies as equally hard to serve as Tribal
lands.
47. The Commission also seeks comment on how best to target Tribal
land-specific support to Tribal lands most in need of broadband
deployment. NTTA recommends offering TBF support to all rate-of-return
carriers serving Tribal lands and limiting the applicability of the TBF
to specific census blocks that include Tribal lands. As noted above,
broadband deployment differs substantially among Tribal lands. In light
of this, should all Tribal lands be eligible for additional support, or
only those with lower levels of deployment? Above, the Commission
adopts a mechanism to allow a larger allowable loop expenditure for
carriers below the average and to limit the allowable loop expenditure
for those above the average. The Commission notes that the weighted
average nationwide for rate-of-return carrier deployment of 10/1 Mbps
service is currently 68 percent. Should Tribal-specific support only be
provided to those rate-of-return carriers that are serving Tribal lands
that report broadband deployment lower than the weighted average, based
on Form 477 data? If so, should eligibility for Tribal-specific support
be determined annually or on a less frequent basis? Should it be
provided for a specified period of time, and if so, what is the
appropriate time period?
48. If a rate-of-return carrier's study area is mostly non-Tribal,
should that carrier be eligible to receive additional Tribal-specific
support? Should there be some threshold percentage, for example 50
percent, of a carrier's service area is on Tribal lands in order to
qualify for additional Tribal-specific support? The Commission also
seeks comment on the appropriate data source to use to determine
whether a census block contains Tribal lands. For example, should the
Commission utilize maps and data distributed by the U.S. Census Bureau,
or would maps and data provided by the Bureau of Indian Affairs be more
appropriate? What other sources of data might the Commission use? The
Commission notes that the Commission is currently engaged in
consultation with the Tribal Nations of Oklahoma on the operational
functionality and use of the Oklahoma Historical Map at the local and
individual Tribal Nation level as part of the Lifeline rulemaking
proceeding. The Commission seeks comment on how this process may affect
our determination of which census blocks would be eligible for Tribal-
specific support.
49. In addition, the Commission seeks comment on what specific
broadband deployment obligations should be established, if they were to
adopt a mechanism to provide additional support on Tribal lands that
lag behind. NTTA supports tying build-out obligations to additional
support, and proposes specific build-out obligations tied to a sliding
scale based on current broadband deployment levels to ``meaningfully
improve broadband connectivity on Tribal lands . . . particularly in
areas that are unserved today.'' For instance, it proposes that
recipients of TBF that currently have deployed 10/1 Mbps to less than
10 percent of their locations be required to provide 4/1 Mbps service
to at least 25 percent of their locations within three years, and 10/1
Mbps to at least 10 percent of locations, within three years; for those
that already have deployed 10/1 Mbps to at least 10 percent but not 25
percent of their locations, they would be required to offer 4/1 Mbps
service to 50 percent of their locations and 10/1 Mbps service to 25
percent of locations within three years. If the Commission were to
adopt some form of additional Tribal-specific support, how should these
proposals be harmonized with the mandatory deployment obligations they
adopt above for all rate-of-return carriers?
50. NTTA recommends that participation in the TBF be voluntary. The
Commission seeks comment on whether carriers should have the option to
decline Tribal-specific support if the Commission determines that the
provision of additional support to Tribal lands is necessary to close
the broadband deployment gap in such areas. NTTA suggests that if
acceptance of Tribal-specific support is conditioned on build-out
obligations, such support presents a ``unique opportunity to promote
greater deployment of broadband to Tribal lands.'' Should participation
in such a program be mandatory?
51. In the USF/ICC Transformation Order, 76 FR 73830, November 29,
2011, the Commission required that ETCs serving Tribal lands must
meaningfully engage with Tribal governments in their supported areas.
The Commission seeks comment on whether the offer of additional
voluntary Tribal-specific support would encourage more robust ETC
engagement by carriers with Tribal governments on whose lands they
provide service.
52. Finally, the Commission asks whether carriers that serve Tribal
lands, in whole or in part, should not be subject to the measures to
limit operating expenses and the overall budget control mechanism
concurrently adopted in the Report and Order. Parties have noted, for
instance, that Tribal lands may pose unique challenges for obtaining
permitting and other authorizations. If the Commission were to exempt
such providers from those opex and overall budget limitations, how
should they determine the providers subject to such limitations? For
instance, to be eligible for such an exemption, should 50 percent or
more of the carrier's study area be Tribal lands? What would the
budgetary impact be on other rate-of-return carriers that remain on
legacy support mechanisms if the Commission were to adopt such
exemptions?
D. Other Measures To Improve the Operation of the Current Rate-of-
Return System
53. Some companies have informed us they have been unable to extend
broadband despite their sincere desire to do so due to lack of access
to capital. Some companies have seen declining support under the
existing legacy mechanisms, and others are not eligible for high cost
loop support (HCLS) support due to the prior ``race to the top'' that
the Commission took steps to address in December 2014.
54. In the April 2014 Connect America Fund FNPRM, the Commission
questioned the long term viability of HCLS and ICLS in their current
form; that is why they encouraged stakeholders to focus on creating a
Connect America Fund for cost recovery that would be consistent with
our core principles for reform. As noted in the concurrently adopted
Report and Order, the Commission expect the voluntary path to the model
to be an attractive option for some of the carriers that no longer
receive HCLS. Moreover, our reforms to the existing interstate common
line support (ICLS) mechanism will enable carriers that are, relatively
[[Page 21519]]
speaking, lower cost than some of their peers to obtain more high-cost
support for broadband only lines from CAF BLS than they would have
received for voice-broadband lines under the existing HCLS mechanism.
This may provide an incentive for them to migrate customers to
broadband-only lines.
55. The Commission intends to monitor the impact of these reforms
over time. The Commission are optimistic that together, these two paths
will provide sufficient options for carriers to make a business case to
extend broadband service where it is lacking, while minimizing
disruption for those carriers that prefer to remain under the reformed
legacy mechanisms. The Commission invites commenters to submit into the
record any other proposals or ideas for steps the Commission should
take to provide appropriate incentives for broadband deployment to
unserved areas working within the framework of the existing budget for
rate-of-return areas.
56. As the Commission evaluates ways to improve the overall
framework governing rate-of-return carriers, they also believe it is
appropriate to ensure that the administration of the current rate-of-
return system, a function largely performed by NECA, is as efficient as
possible to ensure that the costs of administration, ultimately borne
by consumers, are reasonable. The role of NECA has changed over the
last few decades due to a number of factors, including market changes,
significant regulatory reforms, and the creation of USAC as the
Administrator for the federal universal service mechanisms. The
Commission asks parties to address whether and how the Commission
should amend subpart G of Part 69 to reflect these changes. The
Commission also seeks comment on whether they should adopt rule changes
to facilitate transparency into and evaluation of whether NECA's
functions are accomplished in an efficient, cost effective, and neutral
manner.
E. Streamlining ETC Annual Reporting Requirements
57. In addition to the modifications to ETC annual reporting
obligations adopted above, the Commission seeks comment on certain,
narrowly-tailored reporting changes to improve the Commission's ability
to protect against waste, fraud, and abuse. The Commission also seeks
comment on additional ways to lessen regulatory reporting burdens on
ETCs, particularly those that are small businesses.
58. Here, the Commission seeks comment on whether to modify or
eliminate five sets of requirements: specifically, the requirements by
ETCs to provide outage information, unfulfilled service requests, the
number of complaints per 1,000 subscribers for both voice and broadband
service, pricing for both voice and broadband, and certification that
it is complying with applicable service quality standards. What are the
regulatory costs associated with requiring such information to be
included in the annual Form 481, particularly for those categories of
information that may be collected in some fashion through other means
(the Commission's outage reporting system and consumer complaint
system)? In the case of outage reporting, the Commission notes that all
carriers are under a separate obligation to report outages under part 4
of our rules. Are the ETC-specific rules therefore duplicative, and can
other means of collection be improved?
59. To the extent commenters believe such information should
continue to be collected from ETCs, the Commission asks for specific
suggestions on how to modify these requirements so that the information
is more useful to analyze, both on an individual ETC and aggregate
basis.
60. The underlying purpose of the unfulfilled service request
reporting rule was to monitor rate-of-return carriers' progress in
deploying broadband pursuant to the reasonable request standard. The
Commission has concerns, however, that the rule, as implemented, is not
adequately advancing that purpose. Similarly, the Commission has found
the information regarding complaints to be of limited value, in large
part because it is not clear that ETCs are reporting such information
in a consistent fashion. If the Commission were to retain some form of
reporting requirements for complaints and unfulfilled requests, should
they implement more specific standardized instructions regarding the
reporting of complaints and unfulfilled requests so that the
information can be analyzed and aggregated in a more useful fashion?
For the reporting of pricing information, would it be less burdensome
if ETCs were to report only the price offering that meets or exceeds
our minimum requirements, and not the full range of service offerings?
61. The Commission also seeks comment on whether, in light of our
experience with the reporting requirements to date, they should modify
or eliminate the requirement that an ETC certify it is complying with
applicable service quality standards and consumer protection rules.
Absent greater specificity, affected ETCs may not know what standards
and rules are ``applicable.'' Should the Commission clarify that the
obligation applies only to legally binding rules and/or voluntary
guidelines with which the ETC has agreed to comply? If so, how should
the ETC report its compliance? Are other clarifications or
modifications to the rule appropriate?
62. Above the Commission directs USAC to establish an online tool
to permit access to all information submitted by ETCs, including Form
481 data. USAC shall ensure that state regulators, and Tribal
governments where applicable, will have access full Form 481 data
filings, including any data marked confidential. In light of that
change, the Commission proposes to eliminate ETCs' requirement to file
a duplicate copy of Form 481 with states and/or Tribal governments.
Instead, they would make a single filing with USAC, and both the
Commission and other regulators would obtain the information through
online access. The Commission tentatively concludes that centralizing
all filing requirements with USAC would be beneficial for states and
Tribal governments as it would reduce the need to sort through, in some
cases, dozens of paper documents containing the same information that
would be available more readily through an online tool. Interested
parties have suggested that the Commission should reduce or eliminate
duplicate filings of the same information. Having one place for ETCs to
file their annual reports, instead of three or more, may reduce the
filing burden on ETCs. The Commission seeks comment on this tentative
conclusion.
63. Lastly, the Commission seeks comment on modifying or
eliminating any other reporting requirements applicable to all ETCs
that have broadband obligations as a condition of receiving high-cost
support in order to further improve the alignment of carriers'
obligations with our ability to monitor them through our reporting
requirements.
III. Procedural Matters
A. Paperwork Reduction Act Analysis
64. 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
[[Page 21520]]
sought specific comment on how the Commission might further reduce the
information collection burden for small business concerns with fewer
than 25 employees. The Commission describes impacts that might affect
small businesses, which includes most businesses with fewer than 25
employees, in the Final Regulatory Flexibility Analysis (FRFA) in
Appendix B, infra.
B. Initial Regulatory Flexibility Analysis
65. As required by the Regulatory Flexibility Act of 1980, as
amended (RFA), the Commission has prepared this Initial Regulatory
Flexibility Analysis (IRFA) of the possible significant economic impact
on a substantial number of small entities from the policies and rules
proposed in this Further Notice of Proposed Rulemaking. The Commission
requests written public comment on this IRFA. Comments must be
identified as responses to the IRFA and must be filed by the deadlines
for comments on the Further Notice provided on Further Notice of
Proposed Rulemaking and the concurrently adopted Report and Order,
Order and Order on Reconsideration. The Commission will send a copy of
the Further Notice, including this IRFA, to the Chief Counsel for
Advocacy of the Small Business Administration (SBA). In addition, the
Further Notice and IRFA (or summaries thereof) will be published in the
Federal Register.
1. Need for, and Objectives of, the Proposed Rules
66. In the Further Notice, the Commission commences a review of the
extent to which certain investments and expenses incurred by a rate-of-
return regulated local exchange carrier may be included in its rate
base and revenue requirement for ratemaking and USF purposes. The
Commission notes that there may be very limited circumstances where our
proposed reforms would impact price cap regulated carriers' use of
high-cost USF support. The Commission has not comprehensively reviewed
the continued reasonableness of its existing rules regarding
permissible investments and expenses for regulated local exchange
carriers since the passage of the Telecommunications Act of 1996.
Market and regulatory conditions have changed substantially since that
time. Regulated telecommunications carriers have expanded into the
provision of retail broadband services, either directly or through
affiliated entities. Regulated carriers also increasingly face
competition, for both voice and broadband services, in portions of
their incumbent territory from other facilities-based providers, such
as cable and wireless providers. These changing conditions may affect
the incentives regarding the types of costs carriers attempt to include
in their revenue requirement and the ways in which carriers allocate
costs between regulated and non-regulated services and affiliates.
67. Through audits, inquiries, and other investigations, the
Commission has recently become aware of alleged abuses by rate-of-
return carriers of the used and useful principles and its cost
allocation rules. The Commission therefore concluded that it is time to
reevaluate the types of expenses that should be permitted--both in a
carrier's revenue requirement and for recovery through high-cost
support. Looking into the expenses permitted and the allocation of
those expenses will help ensure that carriers are only recovering costs
that are used and useful and prudently incurred, and in the case of
high cost support, only costs that are necessary to the provision of
interstate telecommunications services.
68. In the concurrently adopted Order, the Commission determined
that universal service support should be targeted more specifically to
those areas where support is most needed to ensure consumers are served
with voice and broadband service. Therefore, the Commission adopted a
process for identifying those areas served by an unsubsidized
competitor and several methods of disaggregating support to those
areas. However, the Commission seeks comment on other methods for
disaggregating support that would be minimally burdensome on carriers
and how the non-supported amount should be recovered.
69. The Commission recognizes that Tribal lands may need additional
financial support to ensure the availability of broadband in these
areas. Therefore, the Further Notice seeks comment on whether a
separate mechanism is needed to support broadband in Tribal lands and,
if so, how such a mechanism should be structured.
70. Some companies have informed the Commission that they are
unable to extend broadband due to a lack of access to capital. Other
carriers have seen declining support or are ineligible for certain
types of support, such as HCLS. In the concurrently adopted Order, the
Commission has adopted reforms to its high-cost universal service
support to support broadband deployment. The Further Notice seeks
comment on other proposals to expand broadband services in those areas
served by rate-of-return carriers and any changes needed to make the
administration of federal universal service programs more efficient.
71. The Commission also seeks to modify its ETC annual reporting
obligations to improve the Commission's ability to protect against
waste, fraud, and abuse. The Further Notice seeks comment on how best
to make the information collected more useful while minimizing the
burdens on those carriers subject to these reporting requirements.
2. Review of Permitted Expenses
72. The Further Notice begins by reevaluating a rate-of-return
carrier's ability to include certain types of expenses in its revenue
requirement and high-cost support with consideration of the appropriate
standard to be applied. The Commission believes that the terms ``used
and useful,'' ``prudent expenditure,'' and ``necessary to the provision
of'' should be read consistently to describe those expenses that a
carrier may appropriately include in its interstate rate base,
interstate revenue requirement, and cost studies used to calculate
high-cost support. The costs should include amounts of long-term
investment and current expenditures that a business would reasonably
incur to provide telecommunications services, taking into account
current and reasonably forecasted operating conditions and business
levels. Accordingly, the Commission seeks comment on a variety of
expenses, and whether such expenses should be included when making
these calculations.
3. Issues Related to Cost Allocation and Affiliate Transactions
73. Rate-of-return carriers are subject to the Commission's
longstanding Part 64 rules regarding the allocation of costs between
regulated and non-regulated activities and to the affiliate transaction
rules in Part 32. Under these rules, carriers currently apply broad
principles in making such allocations, and the lack of specificity in
the rules gives carriers a degree of discretion in making these
allocation decisions. Carriers have an incentive to interpret the
allocation rules in order to allocate as many costs as possible to
their regulated activities, both to justify a higher interstate revenue
requirement and to receive additional high-cost support. Given the lack
of specific guidance, the additional costs associated with the
provision of retail broadband services, and the incentive to allocate
costs to regulated activities, the Commission concludes that it is time
to revisit the allocation
[[Page 21521]]
rules to provide greater clarity to rate-of-return carriers regarding
how to determine the relative allocation of costs between regulated and
non-regulated activities and affiliates. The Commission seeks comment
on adopting new rules to improve the process of allocating costs among
regulated and non-regulated services and among affiliates, and also
seeks comment regarding how to detect cases of misallocation.
4. Compliance Issues
74. Additionally, the Commission seeks comment on the most
effective way to ensure compliance with the proposed rules for
universal service support and tariffing purposes. For example, the
Commission seeks comment on what, if any, certification or reporting
requirements should be implemented.
5. Reducing Support in Competitive Areas
75. In the Further Notice, the Commission seeks comment on
alternative methods of reducing support for areas served by an
unsubsidized competitor. In the concurrently adopted Order, the
Commission adopts several methods of disaggregating CAF BLS for areas
found to be competitively served and allow carriers to select which
method will be used. However, the Commission invites commenters to
propose other methods of disaggregation of support that can be
implemented with minimal administrative burden for affected carriers
and USAC. The Commission seeks to avoid complex allocations of the cost
of facilities that serve both competitive and non-competitive areas,
which could be burdensome for rate-of-return carriers to implement.
76. The Commission also invites parties to comment on how the non-
supported amount is to be recovered by the carrier, assuming such
expenses remain regulated expenses for ratemaking purposes. The
Commission notes that rate-of-return carriers currently receive
compensation for interstate loop costs through a combination of end-
user charges, e.g., SLCs, and universal service support. The SLCs most
rate-of-return carriers assess are at the maximum levels. Thus, in many
situations, carriers would be prohibited by our current rules from
increasing SLC rates to recover investment and associated expenses that
will not be supported under the high-cost program in competitive areas.
Therefore, the Commission invites parties to comment on two approaches
for recovery of those amounts.
6. Tribal Support
77. In the Further Notice, the Commission seeks comment on a
proposal to adopt a mechanism to provide additional support to unserved
Tribal lands, and alternative approaches. The Commission has observed
that communities on Tribal lands have historically had less access to
telecommunications services than any other segment of the population,
and that greater financial support therefore may be needed in order to
ensure the availability of broadband on Tribal lands. Therefore, the
Commission seeks comment on adopting rules to increase support to rate-
of-return carriers for census blocks that include Tribal lands and are
unserved with broadband meeting the Commission's current requirements.
The Commission also recognizes that broadband deployment differs
substantially among Tribal lands. To assist small rate-of-return
carriers that serve Tribal areas with minimal infrastructure build out,
the Commission also seeks comment on how best to target Tribal land-
specific support to Tribal areas most in need of broadband deployment.
7. Other Measures To Improve the Operation of the Current Rate-of-
Return System
78. Additionally, in the Further Notice, the Commission invites
commenters to submit into the record any other proposals or ideas for
steps the Commission should take to provide appropriate incentives for
broadband deployment to unserved areas working within the framework of
the existing budget for rate-of-return areas. Some companies have
indicated they have been unable to extend broadband despite their
sincere desire to do so due to lack of access to capital, while other
companies have seen declining support under the existing legacy
mechanisms. Dome carriers are not eligible for HCLS support due to the
prior ``race to the top'' that the Commission took steps to address in
December 2014. The Commission expects our reforms to the existing ICLS
mechanism and addition of a voluntary path to the model will provide
options for carriers to extend broadband where it is lacking. While the
Commission intends to monitor the impact of these reforms over time,
they invite commenters to submit into the record any other proposals or
ideas for steps the Commission should take to provide appropriate
incentives for broadband deployment to unserved areas while minimizing
disruption for those carriers that prefer to remain under the reformed
legacy mechanisms.
8. Streamlining ETC Annual Reporting Requirements
79. Lastly, with respect to ETC reporting requirements, the
Commission seeks comment on additional ways to lessen regulatory
reporting burdens on ETCs, particularly those that are small
businesses. In the concurrently adopted Order, the Commission updates
our annual reporting requirements for rate-of-return ETCs as a
necessary component of our ongoing efforts to update the support
mechanisms for such ETCs to reflect our dual objectives of supporting
existing voice and broadband service, while extending broadband to
those areas of the country where it is lacking. To further lessen the
regulatory burden on ETCs, many of whom are small rate-of-return
carriers, and to improve on the Commission's ability to protect against
waste, fraud, and abuse, the Commission seeks comment on certain,
narrowly-tailored reporting changes. Specifically, the Commission seeks
comment on whether to modify or eliminate five sets of requirements:
the requirements to provide outage information, unfulfilled service
requests, the number of complaints per 1,000 subscribers for both voice
and broadband service, pricing for both voice and broadband, and
certification of compliance with applicable service quality standards.
9. Legal Basis
80. The legal basis for any action that may be taken pursuant to
the Notice is 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, 201-
206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 403, 405, 1302, and
sections 1.1, 1.3, 1.421, 1.427, and 1.429 of the Commission's rules,
47 CFR 1.1, 1.3, 1.421, 1.427, and 1.429.
10. Description and Estimate of the Number of Small Entities To Which
the Rules Would Apply
81. The RFA directs agencies to provide a description of, and where
feasible, an estimate of the number of small entities that may be
affected by the proposed rules, if adopted. The RFA generally defines
the term ``small entity'' as having the same meaning as the terms
``small business,'' ``small organization,'' and ``small governmental
jurisdiction.'' In addition, the term ``small business'' has the same
meaning as the term ``small-business concern'' under the Small Business
Act. A small-
[[Page 21522]]
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).
11. Total Small Entities
82. Our proposed action, if implemented, may, over time, affect
small entities that are not easily categorized at present. The
Commission therefore describes here, at the outset, three
comprehensive, statutory small entity size standards. First,
nationwide, there are a total of approximately 28.2 million small
businesses, according to the SBA, which represents 99.7% of all
businesses in the United States. In addition, a ``small organization''
is generally ``any not-for-profit enterprise which is independently
owned and operated and is not dominant in its field.'' Nationwide, as
of 2007, there were approximately 1,621,215 small organizations.
Finally, the term ``small governmental jurisdiction'' is defined
generally as ``governments of cities, towns, townships, villages,
school districts, or special districts, with a population of less than
fifty thousand.'' Census Bureau data for 2011 indicate that there were
90,056 local governmental jurisdictions in the United States. The
Commission estimates that, of this total, as many as 89,327 entities
may qualify as ``small governmental jurisdictions.'' Thus, the
Commission estimates that most governmental jurisdictions are small.
12. Broadband Internet Access Service Providers
83. The rules adopted in the concurrently adopted Order apply to
broadband Internet access service providers. The Economic Census places
these firms, whose services might include Voice over Internet Protocol
(VoIP), in either of two categories, depending on whether the service
is provided over the provider's own telecommunications facilities
(e.g., cable and DSL ISPs), or over client-supplied telecommunications
connections (e.g., dial-up ISPs). The former are within the category of
Wired Telecommunications Carriers, which has an SBA small business size
standard of 1,500 or fewer employees. These are also labeled
``broadband.'' The latter are within the category of All Other
Telecommunications, which has a size standard of annual receipts of
$32.5 million or less. These are labeled non-broadband. According to
Census Bureau data for 2007, there were 3,188 firms in the first
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 1,000 employees or more. For the second category, the
data show that 2,383 firms operated for the entire year. Of those,
2,346 had annual receipts below $32.5 million per year. Consequently,
the Commission estimates that the majority of broadband Internet access
service provider firms are small entities.
84. The broadband Internet access service provider industry has
changed since this definition was introduced in 2007. The data cited
above may therefore include entities that no longer provide broadband
Internet access service, and may exclude entities that now provide such
service. To ensure that this FRFA describes the universe of small
entities that our action might affect, the Commission discusses in turn
several different types of entities that might be providing broadband
Internet access service. The Commission notes that, although they have
no specific information on the number of small entities that provide
broadband Internet access service over unlicensed spectrum, they
include these entities in our Final Regulatory Flexibility Analysis.
13. Wireline Providers
85. Incumbent Local Exchange Carriers (Incumbent LECs). Neither the
Commission nor the SBA has developed a small business size standard
specifically for incumbent LEC services. The closest applicable 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, 1,307 carriers
reported that they were incumbent LEC 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 LEC service are small businesses that may
be affected by rules adopted pursuant to the concurrently adopted
Order.
86. Competitive Local Exchange Carriers (Competitive LECs),
Competitive Access Providers (CAPs), Shared-Tenant Service Providers,
and Other Local Service Providers. Neither the Commission nor the SBA
has developed a small business size standard specifically for these
service providers. The appropriate size standard under SBA rules is for
the category Wired Telecommunications Carriers. Under that size
standard, such a business is small if it has 1,500 or fewer employees.
According to Commission data, 1,442 carriers reported that they were
engaged in the provision of either competitive local exchange services
or competitive access provider services. Of these 1,442 carriers, an
estimated 1,256 have 1,500 or fewer employees and 186 have more than
1,500 employees. In addition, 17 carriers have reported that they are
Shared-Tenant Service Providers, and all 17 are estimated to have 1,500
or fewer employees. In addition, 72 carriers have reported that they
are Other Local Service Providers. Of the 72, seventy have 1,500 or
fewer employees and two have more than 1,500 employees. Consequently,
the Commission estimates that most providers of competitive local
exchange service, competitive access providers, Shared-Tenant Service
Providers, and other local service providers are small entities that
may be affected by rules adopted pursuant to the concurrently adopted
Order.
87. 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
the Commission emphasizes that this RFA action has no effect on
Commission analyses and determinations in other, non-RFA contexts.
88. Interexchange Carriers. Neither the Commission nor the SBA has
developed a small business size standard specifically for providers of
interexchange services. 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, 359 carriers have reported that they are
engaged in the provision of interexchange service. Of these, 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
IXCs are small entities that may be affected by rules adopted pursuant
to the concurrently adopted Order.
89. Operator Service Providers (OSPs). Neither the Commission nor
the SBA has developed a small business size
[[Page 21523]]
standard specifically for operator service providers. The appropriate
size standard under SBA rules is for the category Wired
Telecommunications Carriers. Under that size standard, such a business
is small if it has 1,500 or fewer employees. According to Commission
data, 33 carriers have reported that they are engaged in the provision
of operator services. Of these, an estimated 31 have 1,500 or fewer
employees and two have more than 1,500 employees. Consequently, the
Commission estimates that the majority of OSPs are small entities that
may be affected by rules adopted pursuant to the concurrently adopted
Order.
90. 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 concurrently adopted
Order.
91. 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 concurrently adopted Order.
92. 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 concurrently adopted Order.
93. 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.
94. 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.
14. Wireless Providers--Fixed and Mobile
95. The broadband Internet access service provider category covered
by the concurrently adopted Order may cover multiple wireless firms and
categories of regulated wireless services. Thus, to the extent the
wireless services listed below are used by wireless firms for broadband
Internet access service, the proposed actions may have an impact on
those small businesses as set forth above and further below. In
addition, for those services subject to auctions, the Commission notes
that, as a general matter, the number of winning bidders that claim to
qualify as small businesses at the close of an auction does not
necessarily represent the number of small businesses currently in
service. Also, the Commission does not generally track subsequent
business size unless, in the context of assignments and transfers or
reportable eligibility events, unjust enrichment issues are implicated.
96. Wireless Telecommunications Carriers (except Satellite). Since
2007, the Census Bureau has placed wireless firms within this new,
broad, economic census category. 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 the category of Wireless
Telecommunications Carriers (except Satellite), census data for 2007
show that there were 1,383 firms that operated for the entire year. Of
this total, 1,368 firms had employment of 999 or fewer employees and 15
had employment of 1,000 employees or more. Since all firms with fewer
than 1,500 employees are considered small, given the total employment
in the sector, the Commission estimates that the vast majority of
wireless firms are small.
97. 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.
98. 218-219 MHz Service. The first auction of 218-219 MHz spectrum
resulted in 170 entities winning licenses for 594 Metropolitan
Statistical Area (MSA) licenses. Of the 594 licenses, 557 were won by
entities qualifying as a small business. For that auction, the
[[Page 21524]]
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.
99. 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.
100. 1670-1675 MHz Services. This service can be used for fixed and
mobile uses, except aeronautical mobile. An auction for one license in
the 1670-1675 MHz band was conducted in 2003. One license was awarded.
The winning bidder was not a small entity.
101. Wireless Telephony. Wireless telephony includes cellular,
personal communications services, and specialized mobile radio
telephony carriers. As noted, the SBA has developed a small business
size standard for Wireless Telecommunications Carriers (except
Satellite). Under the SBA small business size standard, a business is
small if it has 1,500 or fewer employees. According to Commission data,
413 carriers reported that they were engaged in wireless telephony. Of
these, an estimated 261 have 1,500 or fewer employees and 152 have more
than 1,500 employees. Therefore, a little less than one third of these
entities can be considered small.
102. Broadband Personal Communications Service. The broadband
personal communications services (PCS) spectrum is divided into six
frequency blocks designated A through F, and the Commission has held
auctions for each block. The Commission initially defined a ``small
business'' for C- and F-Block licenses as an entity that has average
gross revenues of $40 million or less in the three previous calendar
years. For F-Block licenses, an additional small business size standard
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 small
business size standards, in the context of broadband PCS auctions, have
been approved by the SBA. No small businesses within the SBA-approved
small business size standards bid successfully for licenses in Blocks A
and B. There were 90 winning bidders that claimed small business status
in the first two C-Block auctions. A total of 93 bidders that claimed
small business status won approximately 40 percent of the 1,479
licenses in the first auction for the D, E, and F Blocks. On April 15,
1999, the Commission completed the reauction of 347 C-, D-, E-, and F-
Block licenses in Auction No. 22. Of the 57 winning bidders in that
auction, 48 claimed small business status and won 277 licenses.
103. On January 26, 2001, the Commission completed the auction of
422 C and F Block Broadband PCS licenses in Auction No. 35. Of the 35
winning bidders in that auction, 29 claimed small business status.
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. On February 15, 2005, the Commission completed an
auction of 242 C-, D-, E-, and F-Block licenses in Auction No. 58. Of
the 24 winning bidders in that auction, 16 claimed small business
status and won 156 licenses. On May 21, 2007, the Commission completed
an auction of 33 licenses in the A, C, and F Blocks in Auction No. 71.
Of the 12 winning bidders in that auction, five claimed small business
status and won 18 licenses. On August 20, 2008, the Commission
completed the auction of 20 C-, D-, E-, and F-Block Broadband PCS
licenses in Auction No. 78. Of the eight winning bidders for Broadband
PCS licenses in that auction, six claimed small business status and won
14 licenses.
104. Specialized Mobile Radio Licenses. The Commission awards
``small entity'' bidding credits in auctions for Specialized Mobile
Radio (SMR) geographic area licenses in the 800 MHz and 900 MHz bands
to firms that had revenues of no more than $15 million in each of the
three previous calendar years. The Commission awards ``very small
entity'' bidding credits to firms 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 900 MHz Service.
The Commission has held auctions for geographic area licenses in the
800 MHz and 900 MHz bands. The 900 MHz SMR auction began on December 5,
1995, and closed on April 15, 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 began on October 28, 1997, and was
completed on December 8, 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 held on January 10,
2002 and closed on January 17, 2002 and included 23 BEA licenses. One
bidder claiming small business status won five licenses.
105. The auction of the 1,053 800 MHz SMR geographic area licenses
for the General Category channels began on August 16, 2000, and was
completed on September 1, 2000. Eleven bidders won 108 geographic area
licenses for the General Category channels in the 800 MHz SMR band and
qualified as small businesses under the $15 million size standard. In
an auction completed on December 5, 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 four auctions, 41 winning
bidders for geographic licenses in the 800 MHz SMR band claimed status
as small businesses.
106. In addition, there are numerous incumbent site-by-site SMR
licenses 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 service pursuant to
extended implementation
[[Page 21525]]
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, which is the SBA-determined size standard.
The Commission assumes, for purposes of this analysis, that all of the
remaining extended implementation authorizations are held by small
entities, as defined by the SBA.
107. 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 Service had a third category of small
business status for Metropolitan/Rural Service Area (MSA/RSA)
licenses--``entrepreneur''--which is 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. An auction of
740 licenses (one license in each of the 734 MSAs/RSAs and one license
in each of the six Economic Area Groupings (EAGs)) commenced on August
27, 2002, and closed on September 18, 2002. Of the 740 licenses
available for auction, 484 licenses were won by 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. A
second auction commenced on May 28, 2003, closed on June 13, 2003, and
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. On July 26, 2005, the
Commission completed an auction of 5 licenses in the Lower 700 MHz band
(Auction No. 60). There were three winning bidders for five licenses.
All three winning bidders claimed small business status.
108. 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. An auction of 700 MHz licenses commenced January 24, 2008 and
closed on March 18, 2008, which included, 176 Economic Area licenses in
the A Block, 734 Cellular Market Area licenses in the B Block, and 176
EA licenses in the E Block. Twenty winning bidders, claiming 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) won 49 licenses. Thirty three winning bidders claiming
very small business status (those with attributable average annual
gross revenues that do not exceed $15 million for the preceding three
years) won 325 licenses.
109. Upper 700 MHz Band Licenses. In the 700 MHz Second Report and
Order, the Commission revised its rules regarding Upper 700 MHz
licenses. On January 24, 2008, the Commission commenced Auction 73 in
which several licenses in the Upper 700 MHz band were available for
licensing: 12 Regional Economic Area Grouping licenses in the C Block,
and one nationwide license in the D Block. The auction concluded on
March 18, 2008, with 3 winning bidders claiming very small business
status (those with attributable average annual gross revenues that do
not exceed $15 million for the preceding three years) and winning five
licenses.
110. 700 MHz Guard Band Licensees. In 2000, in the 700 MHz Guard
Band Order, 65 FR 17594, April 4, 2000, the Commission adopted size
standards 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 in this
service 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. SBA approval of these definitions is not
required. An auction of 52 Major Economic Area 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.
111. 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.
112. 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.
113. 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.
114. 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 21526]]
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.
115. Air-Ground Radiotelephone Service. The Commission has
previously used the SBA's small business size standard applicable to
Wireless Telecommunications Carriers (except Satellite), i.e., an
entity employing no more than 1,500 persons. There are approximately
100 licensees in the Air-Ground Radiotelephone Service, and under that
definition, the Commission estimates that almost all of them qualify as
small entities under the SBA definition. For purposes of assigning Air-
Ground Radiotelephone Service licenses through competitive bidding, the
Commission has defined ``small business'' as an entity that, together
with controlling interests and affiliates, has average annual gross
revenues for the preceding three years not exceeding $40 million. A
``very small business'' is defined as an entity that, together with
controlling interests and affiliates, has average annual gross revenues
for the preceding three years not exceeding $15 million. These
definitions were approved by the SBA. In May 2006, the Commission
completed an auction of nationwide commercial Air-Ground Radiotelephone
Service licenses in the 800 MHz band (Auction No. 65). On June 2, 2006,
the auction closed with two winning bidders winning two Air-Ground
Radiotelephone Services licenses. Neither of the winning bidders
claimed small business status.
116. Aviation and Marine Radio Services. Small businesses in the
aviation and marine radio services use a very high frequency (VHF)
marine or aircraft radio and, as appropriate, an emergency position-
indicating radio beacon (and/or radar) or an emergency locator
transmitter. The Commission has not developed a small business size
standard specifically applicable to these small businesses. For
purposes of this analysis, the Commission uses the SBA small business
size standard for the category Wireless Telecommunications Carriers
(except Satellite), which is 1,500 or fewer employees. Census data for
2007, which supersede data contained in the 2002 Census, show that
there were 1,383 firms that operated that year. Of those 1,383, 1,368
had fewer than 100 employees, and 15 firms had more than 100 employees.
Most applicants for recreational licenses are individuals.
Approximately 581,000 ship station licensees and 131,000 aircraft
station licensees operate domestically and are not subject to the radio
carriage requirements of any statute or treaty. For purposes of our
evaluations in this analysis, the Commission estimates that there are
up to approximately 712,000 licensees that are small businesses (or
individuals) under the SBA standard. In addition, between December 3,
1998 and December 14, 1998, the Commission held an auction of 42 VHF
Public Coast licenses in the 157.1875-157.4500 MHz (ship transmit) and
161.775-162.0125 MHz (coast transmit) bands. For purposes of the
auction, the Commission defined a ``small'' business as an entity that,
together with controlling interests and affiliates, has average gross
revenues for the preceding three years not to exceed $15 million
dollars. In addition, a ``very small'' business is one that, together
with controlling interests and affiliates, has average gross revenues
for the preceding three years not to exceed $3 million dollars. There
are approximately 10,672 licensees in the Marine Coast Service, and the
Commission estimates that almost all of them qualify as ``small''
businesses under the above special small business size standards and
may be affected by rules adopted pursuant to the concurrently adopted
Order.
117. Advanced Wireless Services (AWS) (1710-1755 MHz and 2110-2155
MHz bands (AWS-1); 1915-1920 MHz, 1995-2000 MHz, 2020-2025 MHz and
2175-2180 MHz bands (AWS-2); 2155-2175 MHz band (AWS-3)). For the AWS-1
bands, the Commission has defined a ``small business'' as an entity
with average annual gross revenues for the preceding three years not
exceeding $40 million, and a ``very small business'' as an entity with
average annual gross revenues for the preceding three years not
exceeding $15 million. For AWS-2 and AWS-3, although the Commission
does not know for certain which entities are likely to apply for these
frequencies, they note that the AWS-1 bands are comparable to those
used for cellular service and personal communications service. The
Commission has not yet adopted size standards for the AWS-2 or AWS-3
bands but proposes to treat both AWS-2 and AWS-3 similarly to broadband
PCS service and AWS-1 service due to the comparable capital
requirements and other factors, such as issues involved in relocating
incumbents and developing markets, technologies, and services.
118. 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.
119. Fixed Microwave Services. Microwave services include common
carrier, private-operational fixed, and broadcast auxiliary radio
services. They also include the Local Multipoint Distribution Service
(LMDS), the Digital Electronic Message Service (DEMS), and the 24 GHz
Service, where licensees can choose between common carrier and non-
common carrier status. At present, there are approximately 36,708
common carrier fixed licensees and 59,291 private operational-fixed
licensees and broadcast auxiliary radio licensees in the microwave
services. There are approximately 135 LMDS licensees, three DEMS
licensees, and three 24 GHz licensees. The Commission has not yet
defined a small business with respect to microwave services. For
purposes of the FRFA, the Commission will use the SBA's definition
applicable to Wireless Telecommunications Carriers (except satellite)--
i.e., an entity with no more than 1,500 persons. Under the present and
prior categories, the SBA has deemed a wireless business to be small if
it has 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
36,708 common carrier fixed licensees and up to 59,291 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.
[[Page 21527]]
120. 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.
121. 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 concurrently adopted Order.
122. 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.
123. In 2009, the Commission conducted Auction 86, the sale of 78
licenses in the BRS areas. The Commission offered three levels of
bidding credits: (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) received 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) received 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) received a 35 percent discount on its
winning bid. Auction 86 concluded in 2009 with the sale of 61 licenses.
Of the ten winning bidders, two bidders that claimed small business
status won 4 licenses; one bidder that claimed very small business
status won three licenses; and two bidders that claimed entrepreneur
status won six licenses.
124. In addition, the SBA's Cable Television Distribution Services
small business size standard is applicable to EBS. There are presently
2,436 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 2,336 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 has
developed a small business size standard for this category, which is:
all such firms having 1,500 or fewer employees. To gauge small business
prevalence for these cable services the Commission must, however, use
the most current census data that are based on the previous category of
Cable and Other Program Distribution and its associated size standard;
that size standard was: all such firms having $13.5 million or less in
annual receipts. According to Census Bureau data for 2007, there were a
total of 996 firms in this category that operated for the entire year.
Of this total, 948 firms had annual receipts of under $10 million, and
48 firms had receipts of $10 million or more but less than $25 million.
Thus, the majority of these firms can be considered small.
125. 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.
126. Paging (Private and Common Carrier). In the Paging Third
Report and Order, 64 FR 33762, June 24, 1999, the Commission developed
a small business
[[Page 21528]]
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.
127. 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 concurrently adopted
Order.
128. 220 MHz Radio Service--Phase II Licensees. The 220 MHz service
has both Phase I and Phase II licenses. The Phase II 220 MHz service is
subject to spectrum auctions. In the 220 MHz Third Report and Order, 62
FR 15978, April 3, 1997, the Commission adopted a small business size
standard for ``small'' and ``very small'' businesses for purposes of
determining their eligibility for special provisions such as bidding
credits and installment payments. This small business size standard
indicates that a ``small business'' is an entity that, together with
its affiliates and controlling principals, has average gross revenues
not exceeding $15 million for the preceding three years. A ``very small
business'' is an entity that, together with its affiliates and
controlling principals, has average gross revenues that do not exceed
$3 million for the preceding three years. The SBA has approved these
small business size standards. Auctions of Phase II licenses commenced
on September 15, 1998, and closed on October 22, 1998. In the first
auction, 908 licenses were auctioned in three different-sized
geographic areas: three nationwide licenses, 30 Regional Economic Area
Group (EAG) Licenses, and 875 Economic Area (EA) Licenses. Of the 908
licenses auctioned, 693 were sold. Thirty-nine small businesses won
licenses in the first 220 MHz auction. The second auction included 225
licenses: 216 EA licenses and 9 EAG licenses. Fourteen companies
claiming small business status won 158 licenses.
15. Satellite Service Providers
129. Satellite Telecommunications Providers. Two economic census
categories address the satellite industry. The first category has a
small business size standard of $30 million or less in average annual
receipts, under SBA rules. The second has a size standard of $30
million or less in annual receipts.
130. The category of Satellite Telecommunications ``comprises
establishments primarily engaged in providing 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 570 firms that operated for the entire
year. Of this total, 530 firms had annual receipts of under $30
million, and 40 firms had receipts of over $30 million. Consequently,
the Commission estimates that the majority of Satellite
Telecommunications firms are small entities that might be affected by
our action.
131. The second category of Other Telecommunications comprises,
inter alia, ``establishments 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.'' For this
category, Census Bureau data for 2007 show that there were a total of
1,274 firms that operated for the entire year. Of this total, 1,252 had
annual receipts below $25 million per year. Consequently, the
Commission estimates that the majority of All Other Telecommunications
firms are small entities that might be affected by our action.
16. Cable Service Providers
132. Because section 706 requires us to monitor the deployment of
broadband using any technology, the Commission anticipates that some
broadband service providers may not provide telephone service.
Accordingly, the Commission describes below other types of firms that
may provide broadband services, including cable companies, MDS
providers, and utilities, among others.
133. Cable and Other Program Distributors. 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. To gauge small business prevalence for these cable services
the Commission must, however, use current census data that are based on
the previous category of Cable and Other Program Distribution
[[Page 21529]]
and its associated size standard; that size standard was: all such
firms having $13.5 million or less in annual receipts. According to
Census Bureau data for 2007, there were a total of 2,048 firms in this
category that operated for the entire year. Of this total, 1,393 firms
had annual receipts of under $10 million, and 655 firms had receipts of
$10 million or more. Thus, the majority of these firms can be
considered small.
134. Cable Companies and Systems. The Commission has also 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
that there are currently 4,600 active cable systems in the United
States. Of this total, all but nine cable operators are small under the
400,000 subscriber size standard. In addition, under the Commission's
rules, a ``small system'' is a cable system serving 15,000 or fewer
subscribers. Current Commission records show 4,945 cable systems
nationwide. Of this total, 4,380 cable systems have less than 20,000
subscribers, and 565 systems have 20,000 or more subscribers, based on
the same records. Thus, under this standard, the Commission estimates
that most cable systems are small entities.
135. Cable System Operators. The Communications Act of 1934, as
amended, 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. Based on
available data, the Commission finds that all but ten incumbent cable
operators are small entities under this size standard. The Commission
notes that the Commission neither requests nor collects information on
whether cable system operators are affiliated with entities whose gross
annual revenues exceed $250 million, and therefore they are unable to
estimate more accurately the number of cable system operators that
would qualify as small under this size standard.
136. 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 1,000 employees or
more. Thus, under this second size standard, most cable systems are
small and may be affected by rules adopted pursuant to the concurrently
adopted Order. In addition, the Commission notes that they have
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.
17. Electric Power Generators, Transmitters, and Distributors
137. Electric Power Generators, Transmitters, and Distributors. The
Census Bureau defines an industry group comprised of ``establishments,
primarily engaged in generating, transmitting, and/or distributing
electric power. Establishments in this industry group may perform one
or more of the following activities: (1) Operate generation facilities
that produce electric energy; (2) operate transmission systems that
convey the electricity from the generation facility to the distribution
system; and (3) operate distribution systems that convey electric power
received from the generation facility or the transmission system to the
final consumer.'' The SBA has developed a small business size standard
for firms in this category: ``A firm is small if, including its
affiliates, it is primarily engaged in the generation, transmission,
and/or distribution of electric energy for sale and its total electric
output for the preceding fiscal year did not exceed 4 million megawatt
hours.'' Census Bureau data for 2007 show that there were 1,174 firms
that operated for the entire year in this category. Of these firms, 50
had 1,000 employees or more, and 1,124 had fewer than 1,000 employees.
Based on this data, a majority of these firms can be considered small.
18. Description of Projected Reporting, Recordkeeping, and Other
Compliance Requirements for Small Entities
138. Permitted Expenses. In the Further Notice, when reviewing
permitted expenses, the Commission seeks comment on whether it should
require rate-of-return carriers to identify their cost consultants, if
any, in their FCC Form 481s.
139. Cost Allocation and Affiliate Transactions. The Commission
seeks comment on adopting a rule that would classify certain costs,
such as general and administrative expenses, as common costs for
purposes of applying the Part 64 and affiliate transaction rules when
an entity provides broadband services directly, or through an
affiliated entity. Additionally, the Commission asks whether it should
clarify or adopt new rules to ensure the proper application of the
affiliate transaction rules in light of the provision of retail
broadband by affiliates in certain telecommunications markets. More
generally, the Commission seeks comment on instances in which
additional rules or further clarification could minimize potential
misallocations and thereby protect ratepayers of regulated services.
While the Commission notes that the used and useful and prudent
expenditure standards apply to costs included in affiliate
transactions, it seeks comment on whether it should adopt a rule that
explicitly prohibits carriers from including in the fully distributed
cost of an affiliate any costs that are disallowed from the regulated
rate base or revenue requirement, or considered not to be used and
useful or prudent expenditures. Finally, the Commission seeks comment
on whether additional data would assist in enforcement of the
Commission's accounting and cost allocation rules, while minimizing ETC
reporting burden, and if so, what kind of reporting requirements should
be implemented.
140. Compliance. To ensure compliance with the proposed rules for
universal service support and tariffing purposes, the Commission
invites parties to comment on whether carriers should be required to
certify that they have not included any prohibited expenses in their
cost submissions used to calculate high-cost support. Additionally, the
Commission asked parties to comment on NECA's role in
[[Page 21530]]
enforcing these rules, and whether carriers should be subject to any
additional reporting requirements.
141. Reducing Support in Competitive Areas. In the Further Notice,
the Commission also seeks comment on methods of disaggregation of
support that can be implemented with minimal administrative burden for
affected carriers and USAC. The Commission seeks to avoid complex
allocations of the cost of facilities that that serve both competitive
and non-competitive areas, which could be burdensome for rate-of-return
carriers to implement.
142. Additionally, the Commission asks how the non-supported amount
is to be recovered by the carrier, assuming such expenses remain
regulated expenses for ratemaking purposes. Specifically, the
Commission invites parties to comment on two approaches for recovery of
those amounts. First, the Commission could treat the non-supported
expenses as being outside the tariffed regulated revenue requirement
and allow carriers to assess a detariffed regulated rate to recover
those non-supported costs. This would remove those costs from the NECA
pooling process. The Commission invites parties to comment on whether
the detariffed rates would be outside the prohibition on tariffing
deaveraged rates in a study area, or whether a new rule should be
adopted. A second option would be to raise the SLC caps for a
particular study area to permit the recovery of the amounts not
supported by the high-cost program. The Commission invites parties to
comment on this alternative, including whether any SLC increases should
be allowed only in the competitive area or should apply to the entire
study area. Either of these alternatives would create new compliance
requirements that could create administrative burdens for small rate-
of-return carriers.
143. Tribal Support. The Commission seeks comment on adopting rules
to increase support to rate-of-return carriers for census blocks that
include Tribal lands and unserved with broadband meeting the
Commission's current requirements. As part of this line of questioning,
the Commission asks how to how best to target Tribal land-specific
support to Tribal areas most in need of broadband deployment, which may
require filing on behalf of Tribal entities. Additionally, the
Commission seeks comment on what specific broadband deployment
obligations should be established, if the Commission were to adopt a
mechanism to provide additional support on Tribal lands. Identification
of specific areas to deploy and the associated deployment obligations
could place an administrative and resource burden on small rate-of-
return carriers serving Tribal lands.
144. Other Measures To Improve the Operation of the Current Rate-
of-Return System. The Commission invites commenters to submit into the
record any other proposals or ideas for steps the Commission should
take to provide appropriate incentives for broadband deployment to
unserved areas working within the framework of the existing budget for
rate-of-return areas. This line of questioning by the Commission is
intended to gather new ideas or proposals for further consideration.
Therefore, the Commission does not foresee any major burdens being
placed on carriers as a result of this portion of the Further Notice.
145. Streamlining ETC Annual Reporting Requirements. Lastly, the
Commission seeks comment on whether to modify or eliminate five sets of
requirements for ETCS to provide: outage information, unfulfilled
service requests, the number of complaints per 1,000 subscribers for
both voice and broadband service, pricing for both voice and broadband,
and certification that they are complying with applicable service
quality standards. Elimination of these ETC reporting requirements
would relieve the administrative burden on small rate-of-return
carriers.
19. Steps Taken To Minimize the Significant Economic Impact on Small
Entities and Significant Alternatives Considered
146. The RFA requires an agency to describe any significant
alternatives that it has considered in reaching its proposed approach,
which may include (among others) the following four alternatives: (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. The Commission expects to consider all of these factors when
they have received substantive comment from the public and potentially
affected entities.
147. With respect to the costs of implementing the proposals to
restrict permitted expenses, the Commission seeks comment on the least
costly means of implementing any revisions, which would minimize
burdens on carriers. The Commission notes that many of the proposals
with respect to cost allocation would most likely change the way cost
allocation is completed, but would not necessarily be any more
burdensome. The proposal of identifying cost consultants would add a
minimal burden on small entities if adopted because carriers should
typically utilize cost consultants to submit information to NECA for
purposes of pooling.
148. In discussing potential compliance procedures, the Commission
asks whether there is a current certification that can be modified to
encompass a certification that only permitted expenses are included.
This methodology seeks to reduce the burden on smaller entities by
making a small change instead of creating a new, more involved
compliance mechanism.
149. In the concurrently adopted Order, the Commission adopts
several methods of disaggregating CAF BLS for areas found to be
competitively served and allow carriers to select which method will be
used. However, in seeking comment on other methods of disaggregation of
support that can be implemented with minimal administrative burden for
affected carriers and USAC, the Commission takes further steps to
reduce administrative and resource burdens on small rate-of-return
carriers. The Commission seeks to avoid complex allocations of the cost
of facilities that that serve both competitive and non-competitive
areas, which could be burdensome for rate-of-return carriers to
implement.
150. The Commission also invites parties to comment on how the non-
supported amount is to be recovered by the carrier, assuming such
expenses remain regulated expenses for ratemaking purposes. The
Commission invites parties to comment on the two approaches for
recovery of those amounts. The Commission seeks to minimize
administrative burden under any approach.
151. The Commission also invites commenters to submit into the
record any other proposals or ideas for steps the Commission should
take to provide appropriate incentives for broadband deployment to
unserved areas working within the framework of the existing budget for
rate-of-return areas. The Commission is cognizant of the many
compliance burdens small rate-of-return carriers face and seeks to
minimize these burdens overall with this line of questioning.
152. In the concurrently adopted Order, the Commission updates our
annual reporting requirements for rate-
[[Page 21531]]
of-return ETCs as a necessary component of our ongoing efforts to
update the support mechanisms for such ETCs to reflect our dual
objectives of supporting existing voice and broadband service, while
extending broadband to those areas of the country where it is lacking.
To further lessen the regulatory burden on small rate-of-return
carriers, and to improve on the Commission's ability to protect against
waste, fraud, and abuse they Commission seeks comment on certain,
narrowly-tailored reporting changes. Specifically, the sets of
requirements the Commission seeks comment on whether to modify or
eliminate would reduce rate-of-returns ETCs' compliance burden.
153. More generally, the Commission expects to consider the
economic impact on small entities, as identified in comments filed in
response to the Notice and this IRFA, in reaching its final conclusions
and taking action in this proceeding. The proposals and questions laid
out in the Further Notice were designed to ensure the Commission has a
complete understanding of the benefits and potential burdens associated
with the different actions and methods.
20. Federal Rules That May Duplicate, Overlap, or Conflict With the
Proposed Rules
154. None.
C. Congressional Review Act
155. The Commission will send a copy of the concurrently adopted
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).
D. Ex Parte Presentations
156. Permit-But-Disclose. The proceeding this Second FNPRM
initiates shall be treated as a ``permit-but-disclose'' proceeding in
accordance with the Commission's ex parte rules. Persons making ex
parte presentations must file a copy of any written presentation or a
memorandum summarizing any oral presentation within two business days
after the presentation (unless a different deadline applicable to the
Sunshine period applies). Persons making oral ex parte presentations
are reminded that memoranda summarizing the presentation must (1) list
all persons attending or otherwise participating in the meeting at
which the ex parte presentation was made, and (2) summarize all data
presented and arguments made during the presentation. If the
presentation consisted in whole or in part of the presentation of data
or arguments already reflected in the presenter's written comments,
memoranda, or other filings in the proceeding, the presenter may
provide citations to such data or arguments in his or her prior
comments, memoranda, or other filings (specifying the relevant page
and/or paragraph numbers where such data or arguments can be found) in
lieu of summarizing them in the memorandum. Documents shown or given to
Commission staff during ex parte meetings are deemed to be written ex
parte presentations and must be filed consistent with rule 1.1206(b).
In proceedings governed by rule 1.49(f) or for which the Commission has
made available a method of electronic filing, written ex parte
presentations and memoranda summarizing oral ex parte presentations,
and all attachments thereto, must be filed through the electronic
comment filing system available for that proceeding, and must be filed
in their native format (e.g., .doc, .xml, .ppt, searchable .pdf).
Participants in this proceeding should familiarize themselves with the
Commission's ex parte rules.
E. Comment Filing Procedures
157. Comments and Replies. Pursuant to sections 1.415 and 1.419 of
the Commission's rules, 47 CFR 1.415, 1.419, interested parties may
file comments and reply comments on or before the dates indicated on
the first page of this document. Comments may be filed using the
Commission's Electronic Comment Filing System (ECFS). See Electronic
Filing of Documents in Rulemaking Proceedings, 63 FR 24121 (1998).
Electronic Filers: Comments may be filed electronically
using the Internet by accessing the ECFS: http://apps.fcc.gov/ecfs.
Paper Filers: Parties who choose to file by paper must
file an original and one copy of each filing. If more than one docket
or rulemaking number appears in the caption of this proceeding, filers
must submit two additional copies for each additional docket or
rulemaking number.
Filings can be sent by hand or messenger delivery, by commercial
overnight courier, or by first-class or overnight U.S. Postal Service
mail. All filings must be addressed to the Commission's Secretary,
Office of the Secretary, Federal Communications Commission.
All hand-delivered or messenger-delivered paper filings
for the Commission's Secretary must be delivered to FCC Headquarters at
445 12th St. SW., Room TW-A325, Washington, DC 20554. The filing hours
are 8:00 a.m. to 7:00 p.m. All hand deliveries must be held together
with rubber bands or fasteners. Any envelopes and boxes must be
disposed of before entering the building.
Commercial overnight mail (other than U.S. Postal Service
Express Mail and Priority Mail) must be sent to 9300 East Hampton
Drive, Capitol Heights, MD 20743.
U.S. Postal Service first-class, Express, and Priority
mail must be addressed to 445 12th Street SW., Washington, DC 20554.
158. 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).
159. Comments and reply comments must include a short and concise
summary of the substantive arguments raised in the pleading. Comments
and reply comments must also comply with section 1.49 and all other
applicable sections of the Commission's rules. The Commission directs
all interested parties to include the name of the filing party and the
date of the filing on each page of their comments and reply comments.
All parties are encouraged to utilize a table of contents, regardless
of the length of their submission. The Commission also strongly
encourages parties to track the organization set forth in the FNPRM in
order to facilitate our internal review process.
160. Additional Information. For additional information on this
proceeding, contact Suzanne Yelen of the Wireline Competition Bureau,
Industry Analysis and Technology Division, [email protected], (202)
418-7400 or Alexander Minard of the Wireline Competition Bureau,
Technology Access Policy Division, [email protected], (202) 418-
7400.
IV. Ordering Clauses
161. 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, 201-206, 214, 218-220, 251, 252,
254, 256, 303(r), 332, 403, 405, 1302, and sections 1.1, 1.3, 1.421,
1.427, and 1.429 of the Commission's rules, 47 CFR 1.1, 1.3, 1.421,
1.427, and 1.429, that this Further Notice of Proposed Rulemaking
[[Page 21532]]
and the concurrently adopted Report and Order, Order and Order on
Reconsideration IS ADOPTED. It is our intention in adopting these rules
that if any of the rules that the Commission retains, modifies, or
adopts 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.
162. IT IS FURTHER ORDERED that, 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, 201-206, 214, 218-220, 251, 252,
254, 256, 303(r), 332, 403, 405, 1302, and sections 1.1, 1.3, 1.421,
1.427, and 1.429 of the Commission's rules, 47 CFR 1.1, 1.3, 1.421,
1.427, and 1.429, NOTICE IS HEREBY GIVEN of the proposals and tentative
conclusions described in this Further Notice of Proposed Rulemaking.
163. IT IS FURTHER ORDERED that the Commission SHALL SEND a copy of
this Further Notice of Proposed Rulemaking and the concurrently adopted
Report and Order, Order and Order on Reconsideration to Congress and
the Government Accountability Office pursuant to the Congressional
Review Act, see 5 U.S.C. 801(a)(1)(A).
164. IT IS FURTHER ORDERED, that the Commission's Consumer and
Governmental Affairs Bureau, Reference Information Center, SHALL SEND a
copy of this Further Notice of Proposed Rulemaking and the concurrently
adopted Report and Order, Order and Order on Reconsideration, including
the Initial Regulatory Flexibility Analysis and the Final Regulatory
Flexibility Analysis, to the Chief Counsel for Advocacy of the Small
Business Administration.
List of Subjects in 47 CFR Part 65
Administrative practice and procedure, Communications common
carriers, Reporting and recordkeeping requirements, Telephone.
Federal Communications Commission.
Marlene H. Dortch,
Secretary.
Proposed Rules
For the reasons discussed in the preamble, the Federal
Communications Commission proposes to amend 47 CFR part 65 as follows:
PART 65--INTERSTATE RATE OF RETURN PRESCRIPTION PROCEDURES AND
METHODOLOGIES
0
1. The authority citation for part 65 is revised to read as follows:
Authority: 47 U.S.C. 151, 154, 201, 202, 203, 204, 205, 218,
219, 220, 403.
0
2. Amend Sec. 65.450 by revising paragraph (d) and adding paragraph
(e) to read as follows:
Sec. 65.450 Net income.
* * * * *
(d) Except for the allowance for funds used during construction and
interest related to customer deposits, the amounts recorded as
nonoperating income and expenses and taxes (Account 7300 and 7400) and
interest and related items (Account 7500) and extraordinary items
(Account 7600) shall not be included unless this Commission
specifically determines that particular items recorded in those
accounts shall be included.
(e) For purposes of determining whether an expense is recognized by
the Commission as ``necessary to the provision of these services''
under paragraph (a) of this section, the expense must be used and
useful and a prudent expenditure. The Commission specifically provides
that the following expenses are not necessary to the provision of
interstate telecommunications services regulated by the Commission:
(1) Personal travel; gifts to employees; childcare; housing
allowances or other forms of mortgage or rent assistance for employees;
personal expenses of employees, board members, family members of
employees and board members, contractors, or any other individuals
affiliated with the incumbent LEC, including but not limited to
personal expenses for housing, such as rent or mortgages; personal use
of company-owned housing, buildings, or facilities used for
entertainment purposes by employees, board members, family members of
employees and board members, contractors, or any other individuals
affiliated with the incumbent local exchange carrier;
(2) Entertainment; artwork and other objects which possess
aesthetic value; tangible property not logically related or necessary
to the offering of voice or broadband services;
(3) Aircraft, watercraft, and other motor vehicles designed for
off-road use, except insofar as necessary to access inhabited portions
of the study area not reachable by motor vehicles travelling on roads;
any vehicles provided to employees, board members, family members of
employees and board members, contractors, or any other individuals
affiliated with the incumbent local exchange carrier for personal use;
(4) Cafeterias and dining facilities; alcohol and food, including
but not limited to meals to celebrate personal events, such as
weddings, births, or retirements, except that a reasonable amount for
food shall be allowed for work-related travel;
(5) Political contributions; charitable donations; scholarships;
membership fees and dues in clubs and organizations; sponsorships of
conferences or community events; and
(6) Penalties or fines for statutory or regulatory violations;
penalties or fees for any late payments on debt, loans, or other
payments.
0
3. Add paragraph (d) to Sec. 65.830 to read as follows:
Sec. 65.830 Deducted items.
* * * * *
(d) The following assets shall also be deducted from the interstate
rate base:
(1) Artwork and other objects which possess aesthetic value;
(2) Tangible property not logically related or necessary to the
offering of voice or broadband services;
(3) Personal residences and property used for entertainment
purposes;
(4) Aircraft, watercraft, and other motor vehicles designed for
off-road use, except insofar as necessary to access inhabited portions
of the study area not reachable by motor vehicles travelling on roads;
(5) Any vehicles provided to employees, board members, family
members of employees and board members, contractors, or any other
individuals affiliated with the incumbent local exchange carrier for
personal use; and
(6) Cafeterias and dining facilities.
[FR Doc. 2016-08376 Filed 4-11-16; 8:45 am]
BILLING CODE 6712-01-P