[Federal Register Volume 83, Number 80 (Wednesday, April 25, 2018)]
[Proposed Rules]
[Pages 17968-17979]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-08569]


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FEDERAL COMMUNICATIONS COMMISSION

47 CFR Part 54

[WC Docket Nos. 10-90, 14-58, 07-135, CC Docket No. 01-92; FCC 18-29]


Connect America Fund, ETC Annual Reports and Certifications, 
Establishing Just and Reasonable Rates for Local Exchange Carriers, 
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) considers further reform to establish a budget that will 
allow for robust broadband deployment in rate-of-return areas while 
minimizing the burden that contributions to the Universal Service Fund 
(the Fund) place on ratepayers and to bring greater certainty and 
stability to rate-of-return high-cost funding, both in the near term 
and in the future. The Commission also seeks comment on additional 
reforms to increase broadband deployment, while promoting the efficient 
use of limited resources.

DATES: Comments are due on or before May 25, 2018 and reply comments 
are due on or before June 25, 2018. 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 WC Docket Nos. 10-90, 
14-58, 07-135, 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 Website: http://fjallfoss.fcc.gov/ecfs2/. Follow the instructions for submitting 
comments.
     People With Disabilities: Contact the FCC to request 
reasonable accommodations (accessible format documents, sign language 
interpreters, CART, etc.) by email: [email protected] or phone: (202) 418-
0530 or TTY: (202) 418-0432.
    For detailed instructions for submitting comments and additional 
information on the rulemaking process, see the SUPPLEMENTARY 
INFORMATION section of this document.

FOR FURTHER INFORMATION CONTACT: Suzanne Yelen, Wireline Competition 
Bureau, (202) 418-7400 or TTY: (202) 418-0484.

SUPPLEMENTARY INFORMATION: This is a summary of the Commission's Notice 
of Proposed Rulemaking (NPRM) in WC Docket Nos. 10-90, 14-58, 07-135, 
CC Docket No. 01-92; FCC 18-29, adopted on March 14, 2018 and released 
on March 23, 2018. The full text of this document is available for 
public inspection during regular business hours in the FCC Reference 
Center, Room CY-A257, 445 12th Street SW, Washington, DC 20554 or at 
the following internet address: https://transition.fcc.gov/Daily_Releases/Daily_Business/2018/db0323/FCC-18-29A1.pdf. The Report 
and Order and Third Order on Reconsideration that was adopted 
concurrently with the NPRM is published elsewhere in this issue of the 
Federal Register.

I. Introduction

    1. Universal service can--and must--play a critical role in helping 
to bridge the digital divide to ensure that rural America is not left 
behind as broadband services are deployed. The directive articulated by 
the Commission in 2011 remains as true today as it did then: ``The 
universal service challenge of our time is to ensure that all Americans 
are served by networks that support high-speed internet access.'' 
Though the Commission has made progress for rural Americans living in 
areas served by our nation's largest telecommunications companies, the 
rules governing smaller, community-based providers--rate-of-return 
carriers--appear to make it more difficult for these providers to serve 
rural America. As a result, approximately 11 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 while 34 percent lack access to 25 Mbps downstream/3 Mbps 
upstream (25/3 Mbps). It is time to close this gap and ensure that all 
of those living in rural America have the high-speed broadband they 
need to participate fully in the digital economy.
    2. By improving access to modern communications services, the 
Commission can help provide individuals living in rural America with 
the same opportunities that those in urban areas enjoy. Broadband 
access fosters employment and educational opportunities, stimulates 
innovations in health care and telemedicine and promotes connectivity 
among family and communities. And as important as these benefits are in 
America's cities, they can be even more important in America's more 
remote small towns, rural, and insular areas. Rural Americans deserve 
to reap the benefits of the internet and participate in the 21st 
century society--not run the risk of falling yet further behind.
    3. Today, the Commission takes the next step in closing the digital 
divide through proposals designed to stimulate broadband deployment in 
rural areas. To reach its objective, the Commission must continue to 
reform its existing high-cost universal support programs. Building on 
earlier efforts to modernize high-cost universal service support, the 
Commission seeks to offer greater certainty and predictability to rate-
of-return carriers and create incentives to bring broadband to the 
areas that need it most.
    4. In the NPRM, the Commission considers further reforms to 
establish a budget that will allow for robust broadband deployment in 
rate-of-return areas while minimizing the burden that contributions to 
the Fund place on ratepayers and to bring greater certainty and 
stability to rate-of-return high-cost funding, both in the near term 
and in the future. The Commission also seeks comment on additional 
reforms to increase broadband deployment, while promoting the efficient 
use of limited resources. For example, the Commission seeks comment on 
whether to fully fund existing A-CAM support recipients, afford a new 
opportunity for legacy providers to elect model-based support, and 
establish a minimum threshold of support for legacy providers that 
would not be subject to a budget cap. Lastly, the Commission seeks 
comment on other reforms, including, for example, exploring the need 
for caps on capital and operating expenses, using an auction process to 
address substantial competitive overlaps, and other options for 
simplifying the legacy rate-of-return mechanism.

II. Notice of Proposed Rulemaking

    5. Discussion. The Commission seeks comment on revising the budget 
for rate-of-return carriers within the high-cost program. The 
Commission has not revised the budget since 2011, and as a result, has 
not accounted for the effects of inflation on the budget. Had the 
Commission accounted for inflation, the rate-of-return budget would 
have increased from $2 billion in the 2012 budget year to $2.193 
billion in the 2018 budget year.

[[Page 17969]]

    6. Moreover, since 2011 consumers' expectations and the 
Commission's requirements regarding broadband speed have continued to 
increase. The Commission's initial speed benchmark for Connect America 
Fund (CAF) recipients was 4 Mbps downstream and 1 Mbps upstream, later 
revised to 10 Mbps downstream and 1 Mbps upstream, and certain CAF 
recipients are now required to offer 25 Mbps downstream and 3 Mbps 
upstream. Consumer demand for higher speeds is also evident. Among 
residential users, the percentage of fixed broadband connections with a 
``downstream speed of at least 25 Mbps has grown from 24% (or 23 
million connections) in June 2013 to 57% (or 59 million connections) in 
June 2016,'' and ``slower downstream speeds of less than 3 Mbps has 
decreased from 18% (or 17 million connections) in June 2013 to 5% (or 5 
million connections) in June 2016.'' A budget designed to speed the 
deployment of 4 Mbps/1 Mbps broadband to rural America may be 
insufficient to encourage the deployment of the high-speed broadband 
networks that residents of rural America need.
    7. In initiating the budget review, the Commission seeks comment on 
the appropriate level of support--and the Commission notes that the 
Communications Act of 1934, as amended (Act) requires such support to 
be ``predictable and sufficient . . . to preserve and advance universal 
service.'' Should the Commission establish a separate budget dedicated 
to High-cost Loop Support (HCLS) and Connect America Fund Broadband 
Loop Support (CAF BLS)? If so, should the Commission set that budget at 
$1.23 billion (the current amount available for HCLS and CAF BLS), at 
$1.35 billion (that amount adjusted by the inflationary ratio that 
reflects inflation since 2011), or at some other amount? Commenters 
should submit evidence that labor costs or other costs, such as fiber 
or electronics, have increased since 2011 due to inflation. Commenters 
should also submit evidence that those increased costs, if any, have 
not been offset by savings related to increased labor productivity or 
the lower cost of network equipment.
    8. Alternatively, should the amount of support available for HCLS 
and CAF BLS continue to be calculated by subtracting Alternative 
Connect America Cost Model (A-CAM), Alaska Plan, and Connect America 
Fund Intercarrier Compensation (CAF ICC) support from a single rate-of-
return budget? If so, should the Commission increase that rate-of-
return budget for the 2018 budget year to $2.193 billion (the 
inflation-adjusted figure) or adopt some other figure? If the 
Commission retains a single budget, how should the Commission account 
for other changes and proposals it makes today? For example, in the 
concurrently adopted Report and Order, the Commission offers existing 
A-CAM carriers revised support up to a per-location cap of $146.10 and 
here seeks comment on making a second A-CAM offer to legacy carriers--
should that additional funding come from within a single, combined 
budget? The Commission notes that any increase in the budget 
attributable to those carriers now receiving A-CAM could help fully 
fund the original offer at the $200 per-location cap or incent more 
legacy carriers to elect a new model offer. Should the Commission adopt 
a budget that would fully fund a new model offer and fully fund the 
original A-CAM offer for all existing A-CAM providers? The Commission 
also proposes to offer model-based support to glide path carriers, 
which would decline over the 10-year term as transition payments phase 
down to the model amount. Should that support then be available to 
carriers continuing to receive HCLS and CAF BLS?
    9. In revisiting the budget, how should the Commission take into 
account the reforms it adopted in the Rate-of-Return Reform Order, 81 
FR 24282, April 25, 2016, as well as proposals the Commission makes in 
this NPRM--reforms and proposals that will bring more predictability to 
rate-of-return carrier support, while spurring deployment and 
mitigating regulatory inefficiencies? And how should the Commission 
account for the fact that recipients of CAF BLS and HCLS are uniquely 
situated because each recipient effectively determines its own support 
claims through its behavior (its expenses and capital investments) and 
each recipient's behavior has a collective effect on all recipients of 
these funds due to the budget cap. In other words, how should the 
Commission account for the fact that spending by one legacy carrier 
could reduce support available to other providers once adjustments are 
made to ensure that total spending falls below the cap?
    10. The Commission is mindful of its obligation to ensure that 
scarce public resources are spent judiciously. As courts have 
recognized, too much subsidization could affect the affordability of 
telecommunications services for those that pay for universal service 
support, in violation of section 254(b). The Commission also notes that 
when the Tenth Circuit upheld the budget adopted in 2011, it stated 
that ``the FCC quite clearly rejected any notion that budgetary 
`sufficiency' is equivalent to `complete' or `full' funding for 
carrying out the broadband and other obligations imposed upon carriers 
who are voluntary recipients of USF funds.'' The Commission therefore 
asks commenters to discuss whether the benefits of any budget increase 
would outweigh the burden on ratepayers from an increase in the 
contribution factor. The Commission notes that the proposed 
contribution factor for the second quarter of 2018 is 18.4 percent. The 
Commission takes seriously its obligations as steward of the Fund and 
is committed to fiscal responsibility. The Commission also recognizes 
that increases in the contribution factor raise the costs, directly and 
indirectly, of service to businesses and consumers. The Commission thus 
asks that commenters consider its commitment to fiscal responsibility 
when advocating an appropriate high-cost budget.
    11. With any proposed budget, the Commission urges commenters to 
provide a detailed economic analysis. The Commission would find most 
helpful comments providing evidence on the amount of support legacy 
carriers would need to meet mandatory buildout requirements while 
offering at least one plan at the comparative benchmark rate, and why/
if current support levels are insufficient. The Commission also asks 
that comments quantify how much additional broadband deployment could 
occur with any budget increase.
    12. After the Commission has set a new initial budget, it proposes 
to increase that budget for inflation going forward and seek comment on 
this proposal. The Commission believes that adjusting the budget for 
inflation would account for any increases in the costs of network 
inputs and allow carriers an opportunity to recover those increased 
costs. The Commission seeks comment on inflation's impact on the costs 
of deploying and maintaining a network.
    13. For an inflationary factor, the Commission proposes using Gross 
Domestic Product--Chain Price Index (GDP-CPI), the same factor used for 
the Rural Growth Factor (RGF). Using the same inflationary factor the 
Commission uses for the RGF would be administratively efficient. In 
addition, the Commission has been using the GDP-CPI in other contexts 
since 1996, and of the two versions used to index federal programs, the 
GDP-CPI is more accurate in estimating cost of living changes from 
month to month. Furthermore, in the document, the Commission modifies 
the operating expense limitation to add GDP-CPI as

[[Page 17970]]

the inflationary factor, which the industry had requested. Nonetheless, 
the Commission seeks comment on whether another inflationary factor be 
more appropriate and, if so, why?
    14. The Commission also seeks comment on when it should next 
revisit the budget. Should the Commission revisit the budget again in 
six years, as set forth in the USF/ICC Transformation Order, 76 FR 
73830, November 29, 2011? Given that current A-CAM funding continues 
until 2026, would it be more appropriate to revisit the budget in 2026? 
The Commission asks that commenters consider that any time frame should 
take into account carriers' needs for a sufficient and predictable 
funding stream, while providing the flexibility to make adjustments as 
marketplace circumstances warrant.
    15. A-CAM Offer. In the A-CAM Revised Offer Order, 82 FR 4275, 
January 13, 2017, the Commission recognized that glide path carriers--
those carriers electing A-CAM despite an ``offer of model-based support 
. . . less than the legacy support that they received''--leave more 
funding available in the A-CAM rate-of-return budget to the benefit of 
consumers and other rate-of-return carriers that elected model support. 
Here, the Commission proposes to extend a new model offer to carriers 
willing to accept lower support amounts in exchange for increased 
certainty of funding--which in turn could create additional headroom 
for legacy rate-of-return carriers over time. The Commission seeks 
comment on this proposal.
    16. In proposing this new model offer, the Commission first seeks 
comment on limited adjustments to the cost model that may make 
participation more favorable to carriers that declined the A-CAM, 
including the addition of a Tribal Broadband Factor. The Commission 
next seeks comment on which carriers should be eligible to participate. 
The Commission then seeks comment on the support amounts available for 
electing carriers, as well as their accompanying obligations. Finally, 
the Commission seeks comment on the process used for elections.
    17. Revising Model Parameters. The Commission generally proposes to 
use the A-CAM and the parameters it adopted in the Rate-of-Return 
Reform Order to provide its new model offers, but the Commission seeks 
comment on several proposed revisions.
    18. First, the Commission proposes to adjust the model to reflect 
the unique challenges of deploying high-speed broadband to rural, 
Tribal communities by incorporating a Tribal Broadband Factor into the 
model. Specifically, the A-CAM incorporates assumptions about take 
rates and potential average revenues per subscriber that may be 
unrealistic given the ``high concentration of low-income individuals 
[and] few business subscribers'' in many rural, Tribal areas. By 
reducing the funding threshold by 25 percent for locations in Indian 
country--in other words, by setting a high-cost funding benchmark of 
$39.38 on Tribal lands--the Commission believes the revised model will 
better reflect the business case of deploying high-speed broadband in 
rural, Tribal areas and therefore spur further broadband deployment 
there. Because A-CAM support is calculated at the census block level, 
the Tribal Broadband Factor would efficiently target support to 
carriers that serve significant Tribal lands, as well as those carriers 
that serve only a minimal amount of Tribal lands or a small number of 
housing units on Tribal lands in their study area. The Commission 
proposes to use the definition of ``Tribal lands'' that was used in the 
USF/ICC Transformation Order and later modified in the 2015 Lifeline 
Reform Order, 80 FR 40923, July 14, 2015. The Commission seeks comment 
on this proposal.
    19. Second, the Commission proposes to include census blocks where 
an incumbent or its affiliate is providing 10 Mbps/1 Mbps or better 
broadband using either fiber to the premises (FTTP) or cable 
technologies. In the Rate-of-Return Reform Order, the Commission 
excluded these census blocks to focus its limited budget on those 
carriers most likely to build new networks with new funding. Because 
the Commission proposes to limit this new offer to glide path carriers, 
providing model support to maintain and upgrade existing networks is 
financially feasible and may create an additional incentive for legacy 
providers to consider shifting to model-based support.
    20. Third, consistent with the $146.10 per-location funding cap the 
Commission is implementing for the original A-CAM electors, it proposes 
to cap the total amount of support available for the second offer at 
$146.10 per location instead of $200. The Commission also proposes a 
$13.12 higher per-location cap on rural, Tribal lands to reflect the 
high-cost threshold created by applying the Tribal Broadband Factor. 
The Commission seeks comment on this proposal. The Commission also 
seeks comment on alternatives. For example, because the Commission 
proposes to limit eligibility to carriers for whom A-CAM support would 
be less than legacy support, should the Commission anticipate that the 
available budget could potentially fund a higher per-location funding 
cap of $200? If so, should the Commission establish a per-location cap 
up to that amount? Alternatively, the Commission notes that a single 
per-location funding cap may unnecessarily exclude some carriers from 
participating in the new model offer. For example, a carrier might be 
willing to accept a small loss of support but not a larger loss--
meaning a $146.10 per-location funding cap may be, for that carrier, 
too low to induce participation. In contrast, a carrier might be 
willing to accept a small loss of support but is not given the chance--
because a $146.10 per-location funding cap may result in an increase to 
that carrier's legacy support. Should the Commission adjust the per-
location funding cap for each carrier so that every legacy carrier has 
an opportunity to accept the new model with only a small loss (5 to 15 
percent) of support? If so, should the Commission nonetheless retain a 
per-location funding cap maximum of $200 or $146.10?
    21. Fourth, the Commission proposes to update the broadband 
coverage data with the most recent publicly available FCC Form 477 data 
prior to any additional offer of support. The Commission proposes to 
rely on the certified FCC Form 477 data rather than conducting a time-
consuming and administratively burdensome challenge process. In this 
regard, the Commission notes that in the challenge process for the 
first A-CAM offer, the Bureau granted only 61 challenges of the more 
than 250 requests received to change A-CAM coverage. Even with the 
challenges granted, the coverage data may not have changed to 
``unserved'' in particular census blocks if there were other 
unsubsidized providers that were not challenged reporting service in 
those census blocks. The Commission seeks comment on updating the 
broadband coverage data.
    22. Eligibility Requirements. First, the Commission proposes to 
limit this new model offer to legacy carriers eligible to receive HCLS 
and CAF BLS, i.e., those rate-of-return carriers that are not 
recipients of A-CAM support and that are not participants in the Alaska 
Plan.
    23. Second, the Commission proposes to limit this new model offer 
to carriers that would be glide path carriers, i.e., those for whom the 
new offer of model support will be below their legacy support. The 
Commission seeks comment on how to set the baseline level of legacy 
support for these purposes. Should the Commission use the same baseline 
it did in authorizing

[[Page 17971]]

the A-CAM? Should the Commission set the baseline as total support 
received in calendar year 2017 or budget year 2017? In setting the 
baseline, should the Commission ignore the parent trap rule where 
applicable? For instance, if a carrier's legacy support would have been 
$500,000, but because of the parent trap rule, support is $300,000, 
which amount should the Commission use?
    24. Third, the Commission seeks comment on whether to exclude from 
this new model offer carriers whose deployment obligations would 
include no fully funded locations. That is, should the Commission 
exclude from the new model offer those carriers that would only be 
obligated to deploy \4/1\ Mbps to a certain number of locations, and to 
provide broadband only upon reasonable request to the remaining 
locations?
    25. In the Rate-of-Return Order, the Commission excluded from the 
initial A-CAM offer any carrier that had deployed 10/1 Mbps broadband 
to 90 percent or more of its eligible locations in a state in order to 
maximize its limited funding toward those areas with less deployment. 
Because the Commission proposes to limit this new offer to glide path 
carriers, it declines to propose such a limit because offering model 
support to such carriers is financially feasible and may create an 
opportunity for legacy providers to consider shifting to model-based 
support and increasing their deployment of even higher-speed service. 
The Commission also seeks comment on any other eligibility criteria 
that it should consider.
    26. Support. The Commission proposes aligning the term of support 
for this new model offer with the 10-year term of the first A-CAM 
offer. Current A-CAM support recipients began receiving support as of 
January 1, 2017. If support is authorized pursuant to a second A-CAM 
offer in 2018, the Commission seeks comment on providing a nine-year 
term of support that will expire at the end of 2026, with support 
beginning January 1, 2018. If additional A-CAM recipients are not 
authorized until late 2018, in 2019, or later, should the Commission 
offer a shorter term of support or take other measures to align the A-
CAM support terms? In addressing an appropriate term of support, 
commenters are invited to address the Commission's competing goals of 
providing the certainty needed to stimulate investment with its 
interest in promoting administrative efficiency and accounting for 
marketplace developments over time.
    27. As adopted by the Commission for current A-CAM recipients, it 
proposes a three-tiered process to transition electing carriers from 
the legacy support mechanism to the model. The Commission proposes to 
base the transition payments on the difference between model support 
and legacy support, and phase down transition payments over longer 
periods of time where that difference is greater. If the Commission 
aligns the term of support for the new model offer with the 10-year 
term of the original A-CAM offer, the Commission proposes to adjust the 
percentage reductions also to align with the shorter support term. The 
Commission seeks comment on this proposal. In the alternative, the 
Commission seeks comment on modifying the transition payments so that a 
greater portion of the available budget will be directed to increased 
broadband deployment obligations. Commenters are also invited to 
address whether the Commission should modify deployment obligations if 
a carrier forgoes transition payments or accepts faster transitions.
    28. The Commission notes that given that it proposes to extend a 
new model offer only to those carriers for whom the offer is less than 
their legacy support, support claims alone will cover the A-CAM support 
plus transition payments regardless of any per-location cap adopted by 
the Commission. The Commission therefore proposes to base the budget 
for a new model offer on the 2017 claims amount contributed by electing 
carriers.
    29. Obligations. The Commission proposes to require the same 
performance and deployment obligations as the Commission requires for 
existing A-CAM recipients. Specifically, the Commission proposes to 
require rate-of-return carriers electing model support to maintain 
voice and existing broadband service and to offer at least 10/1 Mbps to 
the number of locations ``fully funded'' by the model, and at least 25/
3 Mbps to a certain percentage of those locations, by the end of the 
support term. The Commission continues to believe that this approach 
strikes the appropriate balance in allowing carriers to conduct network 
planning, while accounting for evolving standards in the future.
    30. The Commission proposes to vary the deployment obligations by 
density, as it did for the previous A-CAM offers. Carriers with a 
density in the state of more than 10 housing units per square mile 
would be required to offer 25/3 Mbps to at least 75 percent of the 
fully funded locations; carriers with 10 or fewer, but more than five, 
housing units per square mile would be required to offer 25/3 Mbps to 
at least 50 percent of the fully funded locations; and carriers with 
five or fewer housing units per square mile would be required to offer 
25/3 Mbps to at least 25 percent of the fully funded locations.
    31. The Commission also proposes requiring carriers electing model 
support to offer at least 4/1 Mbps to a defined number of locations 
that are not fully funded (i.e. with a calculated average cost above 
the funding cap) by the end of the support term. The Commission 
proposes that carriers with a density of more than 10 housing units per 
square mile be required to offer at least 4/1 Mbps to 50 percent of all 
capped locations; and carriers with a density of 10 or fewer housing 
units per square mile be required to offer at least 4/1 Mbps to 25 
percent of all capped locations. The remaining capped locations would 
be subject to the reasonable request standard. The Commission seeks 
comment on these proposed obligations. The Commission also seeks 
comment on whether it should modify the broadband speed obligations in 
any way, such as by requiring additional 25/3 Mbps deployment in census 
blocks that would have been excluded from the original A-CAM offer 
because of reported cable or fiber deployment.
    32. Consistent with CAF requirements for funding recipients, the 
Commission proposes to require carriers electing the new model offer to 
offer a minimum usage allowance of the higher of 170 GB per month or 
one that reflects the average usage of a majority of consumers, using 
Measuring Broadband America data or a similar data source. In addition, 
the Commission proposes to require carriers electing to receive model 
support to certify that 95 percent or more of all peak period 
measurements of round-trip latency are at or below 100 milliseconds. 
Because there may be a need for relaxed standards in areas where 
carriers may use alternative technologies to meet their public interest 
obligations, the Commission proposes that this latency standard would 
apply to locations served by terrestrial technologies. The Commission 
seeks comment on whether to use the high latency metric adopted in the 
CAF II auction proceeding for any capped locations served by a non-
terrestrial technology. Under the high-latency standard, carriers would 
be required to certify that 95 percent or more of all peak period 
measurements of round-trip latency are at or below 750 milliseconds, 
and with respect to voice performance, a score of four or higher using 
the Mean Opinion Score (MOS). The Commission seeks comment on these 
proposals.

[[Page 17972]]

    33. The Commission proposes to require carriers electing a new 
model offer to meet the same deployment milestones as the Commission 
requires for existing A-CAM recipients, adjusted for the proposed nine-
year term of support or as appropriate. Assuming a nine-year term, the 
Commission would eliminate the 40 percent benchmark in 2020, and 
propose to require new A-CAM support recipients to offer at least 10/1 
Mbps service to 50 percent of the requisite number of funded locations 
by the end of 2021, an additional 10 percent each year thereafter, and 
100 percent by 2026. In addition, by the end of 2026, the Commission 
proposes to require these carriers to offer at least 25/3 Mbps and 4/1 
Mbps to the requisite percentage of locations, depending on density. 
The Commission also proposes to provide the same flexibility afforded 
other A-CAM recipients to deploy to only 95 percent of the required 
number of fully funded 10/1 Mbps locations by the end of the term of 
support. The Commission seeks comment on these proposed deployment 
milestones.
    34. Consistent with existing obligations, the Commission proposes 
to require carriers to report geocoded location information for all 
newly deployed locations that are capable of delivering broadband 
meeting or exceeding the speed tiers. The Commission also proposes to 
adopt defined deployment milestones, so that the same previously 
adopted non-compliance measures would apply.
    35. Election Process. The Commission proposes a single-step process 
whereby electing carriers make an irrevocable acceptance of the offered 
amount because no support adjustments will need to be made to address 
budget targets.
    36. Continuing Uniform Collections. The Commission seeks comment on 
whether it should extend its direction to the Universal Administrative 
Company (USAC) to forecast total high-cost demand as no less than one 
quarter of the annual high-cost budget, regardless of actual quarterly 
demand in order to minimize volatility in contributions. If the 
Commission maintains an overall cap on the legacy portion of the rate-
of-return budget, are there any reasons why demand might shift 
dramatically, causing unexpected increases to the contribution factor? 
Are uniform collections with a reserve fund a prudent budgetary 
practice or an unnecessary change to the Commission's traditional 
framework?
    37. Fully Fund Existing A-CAM. In the concurrently adopted Report 
and Order, the Commission offers additional support to authorized A-CAM 
recipients based on a $146.10 per-location cap. Here, the Commission 
seeks comment on whether to offer A-CAM support to those carriers using 
a $200 per-location funding cap, and what additional deployment 
commitments may be appropriate. The Commission also provides 
information on the amount by which the acceptances for the model 
exceeded the available funding. The Commission notes that carriers who 
elected A-CAM offers that were below then-current support levels have 
already received full funding. To stay within the budget, however, the 
Bureau revised the offer for all other electing carriers by reducing 
the funding cap to $146.10 per location, and then further reducing 
carrier-specific offers by varying amounts based on the percentage of 
locations lacking 10/1 Mbps.
    38. The Commission now seeks comment on using additional headroom 
in the budget to offer the carriers that accepted the revised offer of 
A-CAM support in 2017 the fully funded amount, using a per-location 
funding cap of $200 per location. Providing full funding for the 
original A-CAM recipients would accelerate broadband deployment in 
those rural areas for which rate-of-return carriers accepted the first 
A-CAM offer. If all eligible carriers accept this offer, it anticipates 
that it would result in approximately $66.6 million more support per 
year for the 10-year A-CAM term. If the Commission were to move forward 
with this additional offer, the Bureau would release a public notice 
announcing the offer and provide carriers 30 days to accept the offer 
and carriers accepting the fully funded offer be subject to the 
original deployment obligations. The Commission seeks comment on this 
option, including any timing considerations that it should bear in 
mind.
    39. An A-CAM Offer for All Legacy Carriers. Encouraged by the 
response to the first A-CAM offer, the Commission seeks comment on 
whether to open a new window for all legacy carriers--not just those 
for whom the offer of model-based support is less than the legacy 
support they received--to elect to receive specific and predictable 
model-based support on a state-level basis in exchange for extending 
broadband service to a pre-determined number of locations in eligible 
census blocks. Expanding the number of carriers receiving A-CAM support 
will advance the Commission's longstanding objective to provide high-
cost support based on forward-looking, efficient costs to help spur 
additional broadband deployment in rural areas. If the Commission 
initiates a broader new model offer, generally propose to use the same 
process, obligations, and criteria described in this document. 
Accordingly, when reviewing the proposals and questions the Commission 
asks in this document, commenters should also consider them in light of 
a second offer to all legacy carriers. In the following, the Commission 
discusses and seeks comment on aspects of a new model offer that are 
not discussed in this document, i.e. those aspects that are applicable 
only if the Commission makes a new model offer to legacy carriers who 
might receive more funding than they had received previously.
    40. Budget. If the Commission extends a second offer to all legacy 
rate-of-return carriers, it proposes to direct the Bureau to use a 
multi-step process for non-glide path carriers, similar to the one used 
in the first offer, to determine support amounts if the available 
budget is insufficient to maintain the initial per-location funding cap 
of $146.10 (or some other amount). The Bureau would first total the 
amount of model-based support for electing carriers and determine the 
extent to which, in the aggregate, their model-based support exceeds 
the total legacy support they received in 2017. The Commission seeks 
comment on whether it should collect additional contributions to fully 
fund all electors at this point, rather than calculating a second offer 
for electors. The Commission seeks comment on this approach.
    41. Alternatively, if the Commission does not decide to collect 
sufficient contributions to fully fund all electors, should it direct 
the Bureau to reduce the funding cap and/or prioritize support amounts 
to those areas that have the lowest deployment of broadband? Should the 
Bureau first reduce the per-location funding cap? If the new model 
support amounts using this lower funding cap still exceeded the budget, 
should the Bureau further reduce support offers by varying percentages 
based on the percentage of locations lacking 10/1 Mbps? Is there a 
different way to allocate the budget amongst new model electors that 
would maximize broadband deployment?
    42. Election Process. If the Commission extends a new model offer 
to non-glide path carriers, it proposes to use the same two-step 
election process the Commission used for the first A-CAM offer. The 
Bureau would first release a public notice showing the offer of model-
based support for each carrier in a state and associated deployment 
obligations, including the number of

[[Page 17973]]

fully funded and capped locations. The Commission seeks comment on 
providing carriers 30 days or 60 days to indicate on a state-by-state 
basis whether they elect to receive model-based support. The Commission 
proposes that the elections would be irrevocable if no adjustment to 
the support amounts would be required either because the support 
amounts are within the available budget or because the Commission has 
concluded to collect sufficient amounts to fully fund the offers. If 
the budget is insufficient, the Commission proposes that it adopts a 
methodology similar to that used to revise the first A-CAM offers. The 
Bureau would approve fully funded amounts for glide path carriers. The 
Bureau would also release a public notice showing the revised offers 
for all other carriers. Carriers would have 30 days to accept the 
revised offer. The Commission seeks comment on this option.
    43. Threshold Level of Support. In funding support claims affected 
by the budget control mechanism from July 2017 to June 2018 in the 
concurrently adopted Report and Order, the Commission provides an 
opportunity to consider the effects of the budget control mechanism on 
rate comparability in conjunction with its overall review of the rate-
of-return budget. The Commission also acknowledges carriers' claims 
that unpredictability may make capital planning difficult, potentially 
resulting in reduced broadband deployment that, in turn, could harm 
consumers. With each successive annual calculation of the budget 
control mechanism, the budget adjustment factor has increased and 
legacy carriers have faced increasing reductions in their support 
relative to their support claims. Moreover, the Commission notes that 
reductions can vary from year-to-year and even quarter-to-quarter, 
given that each carrier's reduction in support is affected by the 
spending of other carriers.
    44. Here, the Commission seeks to address this concern and provide 
greater long-term stability and predictability for legacy carriers to 
facilitate planning and help spur deployment. At the same time, the 
Commission wants to better motivate legacy carriers to operate 
efficiently. To achieve this result, the Commission proposes two 
changes to the budget control mechanism.
    45. First, the Commission proposes to modify the budget control 
mechanism to use only a pro rata reduction applied as necessary to 
achieve the target amount and no longer include a per-line reduction. 
The Commission's experience thus far with per-line reductions has led 
to larger and more unpredictable swings in support than might otherwise 
be expected; accordingly, using only a pro rata reduction may be a more 
predictable and equitable way to reduce support amounts because all 
carriers' support is reduced by the same percentage. It is also a less 
complex mechanism to administer. Accordingly, the Commission proposes 
that the budget control mechanism would operate in the same manner as 
the current one, but without the per-line reduction aspect. The 
Commission seeks comment on this proposal.
    46. Second, the Commission proposes to provide legacy providers a 
threshold level of annual support that would not be subject to a budget 
cap. Establishing a level of uncapped support may give legacy carriers 
more predictability, allowing them to make longer term plans while 
knowing that certain expenses could push them above the uncapped amount 
and therefore would be less likely to be fully recoverable.
    47. The Commission seeks comment on alternatives for establishing a 
level of high-cost support that would not be subject to the budget 
control mechanism. One option would be to set the uncapped amount of 
annual support at 80 percent of the amount a legacy carrier would have 
received had they elected the new model offer (based on a funding cap 
of $146.10 per location). In evaluating this option, the Commission 
seeks comment on whether basing a carrier's uncapped level of support 
using 80 percent of the revised model is appropriate, as opposed to a 
different percentage.
    48. Another option would be to use the five-year CAF BLS forecast 
developed by the National Exchange Carrier Association (NECA) for the 
carrier-specific deployment obligation as the uncapped threshold, but 
subject any amounts greater than that to a budget control mechanism. A 
third option could set the uncapped threshold at a specified fraction 
of each carrier's unconstrained 2016 or 2017 claims amount. If the 
Commission adopts this approach, would a 70 percent fraction be 
appropriate? Should it be lower or higher? And should this amount be 
adjusted to reflect line loss, so that a carrier is not guaranteed a 
fixed amount to serve a decreasing number of lines? Finally, a fourth 
option if the Commission does retain the per-line reductions would be 
to limit any reductions in support due to the budget control mechanism 
to no more than twice the ``budget adjustment factor.'' For example, if 
total demand, prior to the application of the budget control mechanism, 
was $1.4 billion and the overall legacy rate-of-return budget remains 
at $1.23 billion, then a 12.1 percent reduction would be applied to CAF 
BLS and HCLS to stay within the budget. Under this alternative, no 
carrier would have a reduction in support greater than 24.2 percent.
    49. The Commission seeks comment on these alternatives, and any 
others that parties may propose. What are the benefits and costs of 
each proposal? Would they result in a threshold level of support that 
is sufficient or excessive? Should any of these options be adopted as 
an additional layer to one of the methods of limiting support losses 
described above? In evaluating the various options, the Commission 
requests that commenters discuss what factors and goals it should 
consider. For instance, is the best option the one where the average 
decrease in support from current levels is the least or is it better to 
base the guaranteed amount on those carriers the cost model indicates 
can use it most efficiently? To what extent should the Commission weigh 
the certainty and predictability of support associated with each 
option? The Commission also seeks comment on how each option helps to 
mitigate the inefficiencies of the legacy rate-of-return system, such 
as the incentive for rate-of-return companies to over-invest capital to 
increase profits, the Averch-Johnson effect. In addition, the 
Commission seeks comment on any other mechanisms for calculating an 
amount of support not subject to a budget control that balances the 
Commission's objective of providing specific, predictable, and 
sufficient support, with its goals of spurring rural broadband 
deployment, all while fairly allocating a finite budget among legacy 
carriers.
    50. The Commission seeks comment on revising deployment obligations 
should it decide to provide carriers a threshold level of support that 
is not subject to the budget control mechanism or a cap on overall 
support, based on the A-CAM model. The deployment obligations adopted 
in the Rate-of-Return Reform Order were based on each legacy carrier 
targeting a defined percentage of its five-year forecasted CAF BLS 
support to the deployment of broadband where the carrier has not 
already deployed. Deployment obligations were determined by dividing 
the dollar amount of targeted CAF BLS by a cost-per-location amount. In 
forecasting the amount of CAF BLS that a carrier would receive, NECA 
incorporated the impact of the budget control mechanism.

[[Page 17974]]

    51. Consistent with the Commission's proposal in this document, it 
seeks comment on revising the deployment obligations to reflect any 
guaranteed level of support that is not subject to the budget control 
mechanism. Specifically, the Commission seeks comment on whether each 
carrier should have a minimum deployment obligation that is based on 
the number of locations that would be served under the revised A-CAM 
model at an 80 percent funding level. For example, if the revised A-
CAM, at the 80 percent funding level, indicated that a carrier should 
serve 1,000 locations with broadband service, and it currently serves 
900, then it would be required to build out to an additional 100 
locations. Each carrier would have further deployment obligations based 
on any additional support it is forecasted to receive in excess of its 
uncapped threshold level of support. The forecasted amount and the 
further obligations could be developed using the same methodology as 
was initially used after the adoption of the Rate-of-Return Reform 
Order (i.e., by dividing the amount of targeted CAF BLS in excess of 
the threshold level by a cost-per-location amount).
    52. The Commission seeks comment on this option. Would this 
buildout requirement better serve the public interest and promote 
deployment than the current buildout obligations? Does setting 
deployment obligations consistent with the threshold level of support 
improve certainty for carriers? Are there any additional benefits or 
possible concerns regarding setting deployment obligations in this 
manner? Should deployment obligations be modified to align with the 
expiration of the A-CAM support mechanism? Are there other ways to 
improve the determination of deployment obligations?
    53. Monthly Per-Line Limit. The Commission seeks comment on 
lowering the $250 per-line monthly limit on support to $225 or $200. 
The Commission adopted the monthly limit on support in the USF/ICC 
Transformation Order, finding that amounts higher than $250 per loop 
per month (not including CAF ICC) should not be provided to carriers 
without further justification. In adopting that limit, the Commission 
noted that only 18 incumbent rate-of-return carriers received more than 
$250 per loop each month and estimated that only 12 would be subject to 
the limit after other reforms adopted in the USF/ICC Transformation 
Order were applied.
    54. The Commission's experience suggests that a lower limit may be 
justified. Currently, approximately 13 study areas are affected by the 
monthly per-line limit. However, carriers serving only 10 of those 
study areas have petitioned the Commission to justify higher support 
amounts, and some withdrew their requests. To date, the Commission has 
awarded relief in only three instances. This history suggests that the 
$250 per-line monthly limit has been neither too restrictive nor likely 
to have a negative impact on the ability of carriers to provide 
service. Moreover, the Commission notes that a reduction to $200 would 
currently affect approximately 25 study areas that are not already 
subject to the $250 per-line monthly limit, and the same waiver process 
would be available to all affected study areas. Lowering the per-line 
monthly limit would also free up additional support within the legacy 
budget for other carriers. The Commission invites comment on whether to 
adopt a lower per-line monthly limit and, in particular, what amount 
may be appropriate.
    55. 100 Percent Overlap Process. The Commission seeks comment on 
whether to replace the 100 percent overlap process by which it 
eliminates support for legacy rate-of-return study areas that are fully 
served by unsubsidized carriers with a different mechanism. In the USF/
ICC Transformation Order, the Commission adopted a rule to eliminate 
high-cost universal service support in incumbent LEC study areas where 
an unsubsidized competitor or a combination of unsubsidized competitors 
offers voice and broadband services that meet the Commission's service 
obligations throughout the study area. High-cost universal service 
support for the study areas found to be 100 percent overlapped is 
frozen at the amount disbursed in the prior calendar year, and support 
is phased down over three years. The Bureau conducted this biennial 
review in 2015 and 2017 and found only one study area to be 100 percent 
overlapped by unsubsidized competitors.
    56. The Commission seeks comment on the effectiveness of the 100 
percent overlap process. The Commission notes that to date there has 
been little participation by unsubsidized competitors. This lack of 
participation likely reflects the absence of incentives to participate. 
In competitively served rate-of-return areas, a study area is often not 
completely overlapped by one competitor, but rather multiple 
competitors covering different parts of the study area. An unsubsidized 
competitor that only partially overlaps an incumbent may not 
participate in the current process because there is a cost to doing so 
(e.g., cost of compiling the information and filing) but other 
competitor(s) similarly may not participate such that the incumbent's 
support will not be phased out. In addition, the current process 
requires Commission staff to weigh the certifications and evidence 
presented to determine whether all locations are in fact served by 
voice and broadband, which can be challenging. Does the benefit of 
eliminating support from study areas 100 percent served by competitors 
outweigh the cost of conducting this process?
    57. In lieu of the current process to determine whether a study 
area is 100 percent overlapped, the Commission seeks comment on using 
an auction mechanism to award support to either the incumbent LEC or 
the competitor(s) in areas where there is significant competitive 
overlap. Competitive bidding can result in more efficient levels of 
support. Competitors will have an incentive to bid less than the amount 
the incumbent currently receives, and incumbents will have an incentive 
to increase efficiencies by bidding less than the competitor(s). In 
addition, the Commission anticipates that the competitive overlap 
process adopted by the Commission in the 2016 Rate-of-Return Reform 
Order will require substantial Commission resources because it will 
require the Commission to review evidence regarding each census block 
that is competitively served individually. An auction procedure is 
likely to be quicker and more efficient.
    58. If the Commission were to conduct auctions, should it focus 
only on study areas that are 100 percent overlapped according to FCC 
Form 477 data, or should the Commission focus on some lesser 
percentage, such as 90 percent overlapped or greater? If a lesser 
percentage, should the Commission adopt an auction to replace the 
competitive overlap process adopted by the Commission in the Rate-of-
Return Reform Order? Using an auction at the study area level rather 
than the current process would give competitors an incentive to 
participate--the opportunity to win support to serve these areas. In 
the current 100 percent overlap process, the Commission uses the 10/1 
Mbps standard to determine whether an area is served by unsubsidized 
competitors. If a study area is determined to be 100 percent 
overlapped, then the incumbent's support is phased out, perhaps 
trapping the area at 10/1 Mbps for the foreseeable future. An auction 
for support in these areas could increase speeds to the Commission's 
current standard of 25/3 Mbps, or indeed even higher. If one of

[[Page 17975]]

the goals of this auction process is to increase speeds in these areas, 
should the Commission only auction those areas that are overlapped at 
the 10/1 Mbps level, or any speed less than 25/3 Mbps?
    59. Other Reforms to Legacy Support Mechanisms. The current legacy 
support mechanisms are complicated and remain mired in the complexities 
and disadvantages of rate-of-return regulation. The Commission 
therefore seeks comment on broader measures that would simplify its 
legacy support mechanisms while providing flexibility and certainty to 
carriers. For example, the Commission could rely on its prior HCLS and 
Interstate Common Line Support (ICLS) mechanisms but treat all lines 
similarly, regardless of what services customers purchase. Under this 
scenario, carriers would include certain costs associated with 
standalone broadband service when calculating HCLS and ICLS and all 
voice and standalone broadband lines would be counted as working loops 
when calculating support. Thus, HCLS and ICLS would continue as they 
had prior to the adoption of the Rate-of-Return Reform Order but would 
now include standalone broadband costs and lines in the calculations. 
The Commission seeks comment on whether this approach would be less 
complex than the CAF BLS program adopted by the Commission in 2016. 
Alternatively, is there a way to treat voice and broadband lines 
similarly that could be incorporated into the CAF BLS program? If so, 
would this approach minimize the effect of the budget control 
mechanism? Because carriers have long experience with HCLS and ICLS, 
would using HCLS and ICLS for standalone broadband line support provide 
more certainty and predictability to support flows?
    60. The Commission also seeks comment on whether combining its 
high-cost support programs into one support stream would be simpler to 
administer and provide carriers with more flexibility. HCLS and CAF BLS 
rely on mechanisms originally designed to support voice services. 
Carriers receiving A-CAM support receive one monthly payment in 
exchange for meeting specific buildout obligations. Would a single 
support mechanism that combines current HCLS and CAF BLS resources and 
focuses on broadband deployment rather than voice services reduce 
regulatory burdens and provide more certainty and predictability to 
carriers receiving legacy support? Could such a mechanism be structured 
to provide incentives for carriers to operate efficiently and minimize 
the disadvantages of rate-of-return regulation? The Commission seeks 
comment on how a single high-cost support mechanism could reduce the 
need for complex cost regulation while encouraging broadband 
deployment.
    61. The Commission seeks comment on whether there are other 
alternatives it should consider to further enhance the efficiency of 
the legacy high-cost program and target support to where it is most 
needed. For example, should the Commission target support not only to 
high-cost areas but low-income areas as well? Should the Commission 
adopt means-testing within the high-cost program? Either approach could 
target support where it is needed most by focusing only on areas or 
consumers with lower household income. Should the Commission award 
support for high-cost areas through a portable consumer subsidy or 
voucher? Would a voucher system increase the choices available to 
consumers? Should the Commission target support to States with less 
ability to fund the deployment of broadband in rural areas? How should 
the Commission identify States that are most in need of support, and 
how can the Commission do so while avoiding perverse incentives? Are 
there other alternatives the Commission should consider? Commenters 
should address considerations of timeliness, ease of administration, 
and cost effectiveness for each alternative.
    62. Modifying Limitations on Capital and Operating Expenditures. 
The Commission seeks comment on the opex limitation and capital 
investment allowance. Through this proceeding, the Commission seeks to 
adopt further reforms to legacy support mechanisms that will simplify 
administrative processes and provide carriers with greater flexibility 
to deploy efficient broadband networks. Accordingly, the Commission 
seeks comment on whether the current limitations on capital and 
operating expenditures--currently untethered from the budget control 
mechanism--are successfully curbing unnecessary expenditures and 
incentivizing prudent investments or instead creating unnecessary 
burdens or deterring efficient investments. The Commission notes that 
for NECA to calculate the capital investment allowance, legacy carriers 
must track every capital expenditure and the number of locations 
affected by that expenditure. Is that additional administrative work 
yielding results for ratepayers? Also, given the trade-off many 
carriers must make between capital and operating expenditures, the 
Commission seeks comment on whether these limitations might actually 
lead to greater inefficiencies in overall business operations than 
would be the case without the constraints.
    63. The Commission also seeks comment on the extent to which the 
limitations on capital and operating expenditures have been effective 
in promoting efficient spending. Do the company-specific limitations 
reflect reasonable upper limits on the amount of operating and capital 
expenses that a carrier need incur? For example, the Commission notes 
that that the National Tribal Telecommunications Association recently 
argued that carriers serving Tribal lands incur costs that other rural 
carriers do not face, resulting in significantly higher operating 
expenses to serve very sparsely populated service areas. Are there 
other specific examples that the Commission should take into account? 
For instance, are there modifications to the process or amounts that 
would improve operation of these limitations? Alternatively, should the 
Commission eliminate the opex limitation or the capital investment 
allowance entirely?
    64. Conforming Changes to Information Collection. The Commission 
seeks comment on proposed changes related to the collection of line 
count data for rate-of-return carriers. Currently, carriers that 
receive CAF BLS must use FCC Form 507 to file, on July 31 of each year, 
their voice and broadband-only line counts as of the prior December 31. 
Carriers may file, also using FCC Form 507, optional updates on 
September 30, December 31, and March 31, reporting line counts as of 
six months prior to the filing. These data are used to apply the 
monthly $250 per-line cap and to administer the budget control 
mechanism. In addition, these data are extremely useful in monitoring 
and analyzing the benefits and efficiency of high-cost universal 
service.
    65. First, the Commission proposes to change the date for mandatory 
line count filings for CAF BLS to March 31 of each year but to continue 
to require line counts as of December 31 (i.e., reduce the lag until 
filing to 3 months). This would ensure that recent line counts are used 
to apply the monthly cap and administer the budget control mechanism. 
Currently, when USAC performs the necessary calculations in April of 
each year, it typically must rely on the carrier's FCC Form 507 from 
the prior July, which in turn reports line counts as of the prior 
December 31. In other words, these calculations are based on line 
counts that are more than 15 months old. Revising the line count 
reporting process as proposed would mean that USAC would be able to use

[[Page 17976]]

line count data that is only three months old. The Commission seeks 
comment on this proposal.
    66. The Commission notes that the FCC Form 507 filing deadlines 
mirror the line count filing deadlines used for HCLS. Would changing 
the FCC Form 507 deadlines so that they no longer coincided with the 
HCLS deadlines create significant administrative burdens? Would it be 
feasible also to revise the HCLS line count deadlines to be consistent 
with the proposed FCC Form 507 deadlines? If the Commission modifies 
the filing schedule as proposed, do the optional filings serve any 
benefit, or could they be eliminated?
    67. The Commission also seeks comment regarding whether FCC Form 
507 should be mandatory for rate-of-return carriers that do not receive 
CAF BLS (i.e., carriers that have elected A-CAM) or whether there are 
alternative sources of this data that would be less burdensome for 
carriers. Line count data is extremely useful for monitoring and 
analyzing high-cost universal service programs. Carriers that elected 
A-CAM were required to file line count data on FCC Form 507 prior to 
the implementation of A-CAM because they received ICLS, but no longer 
do so. Requiring the A-CAM carriers to continue to provide line count 
information would allow the Commission to maintain a frequently used 
data set for assessing whether the Commission's rules are achieving its 
universal service goals, while being a minimal burden to A-CAM 
recipients. The Commission seeks comment on this proposal. The 
Commission currently estimates that it takes approximately six hours to 
complete and file FCC Form 507. Is this an accurate estimate of the 
burden associated with completing this form? Are there alternate 
sources of these data that the Commission could rely on instead? Would 
the public benefit of maintaining these data for the purpose of 
monitoring and analyzing high-cost universal service exceed the burden?
    68. In February 2016, the Financial Accounting Standards Board 
(FASB) issued Accounting Standards Update (ASU) 2016-02, Leases, which 
is codified as Accounting Standards Codification (ASC) Topic 842 (ASC 
842). The new standard affects both capital and operating leases. Under 
this new standard, capital leases are referred to as financing leases 
and the procedures for expensing amounts recorded for financing leases 
are the same procedures previously used for capital leases.
    69. ASC 842 adopts new requirements for operating leases. For 
example, ASC 842 requires that operating leases longer than one year be 
carried on a company's balance sheet along with a corresponding 
liability to reflect the net present value of future lease commitments. 
The new standard provides procedures for expensing amounts recorded in 
the operating lease asset account. A carrier would recognize a lease 
expense from the operating lease on a straight-line basis over the 
lease term. Thus, for an operating lease with an escalation clause, ASC 
842 would require the recorded operating expense to be higher in the 
first year than the amount paid in cash. This is different than the 
current Part 32 treatment of operating leases, which classifies leases 
as expenses associated with the executory agreements that are recorded 
as expenses at the time lease payments are made. Pursuant to the 
current Part 32 treatment, a company would continue to disclose future 
lease commitments through a footnote to the financial statements. 
Additional recordkeeping would be necessary if Part 32 were not to 
adopt the ASC 842 guidelines.
    70. The Commission seeks comment on whether to incorporate the ASC 
842 guidelines into the Uniform System of Accounts (USOA) contained in 
Part 32. The differences in the two approaches raise questions 
regarding how the asset and liability should be recorded and the 
ability of, and the additional burden on, a carrier to maintain records 
to support the two approaches. The Commission seeks comment on these 
questions in general, as well as in connection with the specific issues 
raised below. The Commission is particularly interested in the 
additional record-keeping burden that maintaining both the Part 32 and 
ASC 842 lease accounts would place on carriers if the Commission were 
not to adopt ASC 842 for Part 32 purposes. A party asserting a burden 
should address the level of that burden in the context of any 
ratemaking effects that would occur.
    71. If the Commission were to incorporate ASC 842 into Part 32, it 
proposes to create an asset and a liability account to reflect 
operating leases. The Commission seeks comment on this proposal. The 
Commission also invites comment on whether other balance sheet or 
income statement-related accounts are necessary to account for leasing 
activities, either financing or operating. If so, parties should 
specify the additional accounts that are needed. The Commission 
proposes to adopt new or revised instructions for accounting for 
leases. Commenters supporting the adoption of ASC 842 are encouraged to 
provide language for the instructions and other rule revisions needed 
to implement ACS 842 in Part 32, taking into account the issues raised 
below.
    72. The creation of a new asset account and a new liability account 
for operating leases raises questions about the treatment of these 
amounts in the ratemaking context. The operating lease asset would 
record the discounted value of payments due under operating leases 
longer than one year. Because there is no current outlay of funding for 
the operating leases, the Commission proposes that such amounts be 
excluded from the carrier's rate base. Similarly, because the liability 
is based on the value in the operating lease account, the Commission 
proposes that such liability should not be used in calculating the cost 
of capital. The Commission seeks comment on these two proposals, 
including whether the proposed treatment is warranted and what effect 
such treatment would have on a carrier's revenue requirement. 
Commenters are encouraged to identify and provide specific language to 
effectuate the changes to Part 65, or other affected provisions in the 
Commission's rules, that would be needed to implement this proposal.
    73. Adopting ASC 842 would also modify the way operating lease 
expenses are currently calculated pursuant to the Commission's Part 32 
rules. As noted earlier, ASC 842 would spread lease payments on a 
straight-line basis over the term of the operating lease. The 
Commission seeks comment on any recognition or timing issues between 
the Part 32 treatment and the treatment under ASC 842. In particular, 
the Commission seeks comment on how any entries reflecting interest 
associated with the use of the net present value approach to recording 
operating leases should be treated for purposes of calculating lease 
expense. If the Commission adopts ASC 842, it proposes to assign 
operating lease costs to the expense accounts currently being used to 
record such amounts. Would any revisions to the separations rules 
contained in Part 36 would be required under this proposal, and if so, 
which sections would need to be revised and what specific language 
should be used?
    74. The Commission also seeks comment on the impact any ratemaking 
changes resulting from this proposed accounting modification would have 
on the levels or distribution of CAF BLS or other universal service 
support mechanisms. Commenters should identify any recognition and/or 
timing issues raised by any change and should,

[[Page 17977]]

to the extent possible, quantify any difference.
    75. ASC 842 becomes effective for fiscal years beginning after 
December 15, 2018 for public business entities and certain other 
businesses. For all other entities, it becomes effective for fiscal 
years beginning after December 15, 2019. Early adoption is permitted. 
The Commission seeks comment on when any changes the Commission adopts 
should become effective and whether there are any other implementation 
issues the Commission should address.

III. Procedural Matters

A. Paperwork Reduction Act

    76. The NPRM adopted herein contains new, proposed new or modified 
information collection requirements. The Commission, as part of its 
continuing effort to reduce paperwork burdens, invites the general 
public and the Office of Management and Budget (OMB) to comment on the 
information collection requirements contained in this document, as 
required by the Paperwork Reduction Act of 1995, Public Law 104-13. In 
addition, pursuant to the Small Business Paperwork Relief Act of 2002, 
Public Law 107-198, the Commission seeks specific comment on how it 
might further reduce the information collection burden for small 
business concerns with fewer than 25 employees.
    77. 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 the NPRM. 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 NPRM. The Commission 
will send a copy of the NPRM, including this IRFA, to the Chief Counsel 
for Advocacy of the Small Business Administration (SBA). In addition, 
the NPRM and IRFA (or summaries thereof) will be published in the 
Federal Register.
    78. The proposals in this NPRM seek to build on efforts to 
modernize high-cost universal service support by offering greater 
certainty, predictability, and stability to rate-of-return carriers and 
creating incentives for efficient spending and bringing broadband to 
the areas that need it most.
    79. The Commission reviews the amount of support available to rate-
of-return carriers by initiating review of the high-cost universal 
service support budget, proposing to increase the budget based on 
inflation, and proposing an offer of model-based support for carriers 
whose model-based support would be lower than the support they received 
in 2016. By examining the budget and the support available for rate-of-
return carriers, the Commission is looking to bring stability to the 
program and fulfill its commitment to reexamine the budget. To address 
some of the shortcomings and inefficiencies in the Commission's 
existing support programs, it also seeks comment on whether to fully-
fund carriers that have elected to receive model-based support, subject 
to additional build-out obligations, and on providing another 
opportunity for all legacy rate-of-return carriers still receiving 
legacy support to elect a voluntary path to model support. For those 
carriers that choose to remain on legacy support, the Commission 
proposes to adopt a mechanism whereby legacy carriers would be 
guaranteed a threshold level of annual support, and the Commission 
seeks comment on an implementing an individual cap for each legacy 
carriers. This would alleviate the unpredictability created by the 
budget control mechanism. The Commission also seeks comment on 
eliminating limitations on capital, operational, and corporate expenses 
to minimize the burden these mechanisms put on carriers. Finally, the 
Commission seeks comment on modifying various rules, including legacy 
buildout obligations, the methodology for applying the budget 
constraint, the $250 per-loop, per-month cap, and looking at other 
reforms to the rate-of-return mechanisms. The Commission also seeks 
comment on proposals to modify line count data reporting requirements 
and accounting rules for capital and operating leases.
    80. The legal basis for any action that may be taken pursuant to 
the NPRM is contained in sections 1-4, 5, 201-206, 214, 218-220, 251, 
252, 254, 256, 303(r), 332, 403, and 405 of the Communications Act of 
1934, as amended, and section 706 of the Telecommunications Act of 
1996, 47 U.S.C. 151-155, 201-206, 214, 218-220, 251, 256, 254, 256, 
303(r), 403 and 405.
    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-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).
    82. Small Businesses, Small Organizations, Small Governmental 
Jurisdictions. The Commission's actions, over time, may affect small 
entities that are not easily categorized at present. The Commission 
therefore describes here, at the outset, three broad groups of small 
entities that could be directly affected herein. First, while there are 
industry specific size standards for small businesses that are used in 
the regulatory flexibility analysis, according to data from the SBA's 
Office of Advocacy, in general a small business is an independent 
business having fewer than 500 employees. These types of small 
businesses represent 99.9% of all businesses in the United States which 
translates to 28.8 million businesses.
    83. Next, the type of small entity described as 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 Aug 2016, there were approximately 356,494 small 
organizations based on registration and tax data filed by nonprofits 
with the Internal Revenue Service (IRS).
    84. Finally, the small entity described as a ``small governmental 
jurisdiction'' is defined generally as ``governments of cities, 
counties, towns, townships, villages, school districts, or special 
districts, with a population of less than fifty thousand.'' U.S. Census 
Bureau data from the 2012 Census of Governments indicates that there 
were 90,056 local governmental jurisdictions consisting of general 
purpose governments and special purpose governments in the United 
States. Of this number there were 37, 132 General purpose governments 
(county, municipal and town or township) with populations of less than 
50,000 and 12,184 Special purpose governments (independent school 
districts and special districts) with populations of less than 50,000. 
The 2012 U.S. Census Bureau data for most types of governments in the 
local government category shows that the majority of these governments 
have populations of less than 50,000. Based on this data the Commission 
estimates that at least 49,316 local government jurisdictions fall in 
the category of ``small governmental jurisdictions.''
    85. Line Count Data. In the NPRM, the Commission seeks comment on

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proposed changes related to the collection line count data for rate-of-
return carriers. Currently, carriers that receive CAF BLS must use FCC 
Form 507 to file, on July 31st of each year, their voice and broadband-
only line counts as of the prior December 31st. Carriers may also file 
quarterly updates. First, the Commission proposes to change the date 
for mandatory line count filings for CAF BLS to March 31st of each 
year, but to continue to require line counts as of December 31st (i.e., 
reduce the lag until filing to 3 months). Second, the Commission seeks 
comment regarding whether the FCC Form 507 should be mandatory for 
rate-of-return carriers that do not receive CAF BLS (i.e., carriers 
that have elected A-CAM).
    86. Accounting for Capital and Operation Leases. In February 2016, 
the Financial Accounting Standards Board (FASB) issued Accounting 
Standards Update (ASU) 2016-02, Leases, which are codified as 
Accounting Standards Codification (ASC) Topic 842 (ASC 842). The new 
standard affects both capital and operating leases. Under this new 
standard, capital leases are referred to as financing leases and the 
procedures for expensing amounts recorded for financing leases are the 
same procedures previously used for capital leases. ASC 842 adopts new 
requirements for operating leases. The Commission seeks comment on 
whether to incorporate the ASC 842 guidelines into the Uniform System 
of Accounts (USOA) contained in Part 32. The changes the Commission 
proposes would lead to carrier being required to modify certain 
accounting practices. The Commission is interested in the burden this 
change would create for carriers.
    87. Deployment Obligations. In the NPRM, the Commission seeks 
comment on whether the number of locations legacy carriers are required 
to deploy to should change and how based on the new support mechanism 
proposed.
    88. 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 
it has received substantive comment from the public and potentially 
affected entities.
    89. Largely, the proposals in the NPRM if adopted would have no 
impact on or would reduce the economic impact of current regulations on 
small entities. Certain proposals in this NPRM could have a positive 
economic impact on small entities; for instance, the Commission seeks 
comment on fully funding the original A-CAM offer and increasing the 
budget for rate-of-return carriers based on an inflationary factor.
    90. In this NPRM, the Commission seeks comment on making a second 
offer of A-CAM support. The offer will be voluntary and carriers are 
not required to accept it or take any action. Therefore, the 
Commission's proposal for a second A-CAM will not have a significant 
impact on small entities.
    91. The Commission also seeks comment on mechanisms to provide 
legacy carriers a guaranteed threshold of annual support and a carrier 
specific cap, which would reduce the unpredictability of the current 
budget control mechanism. The Commission proposes several alternatives 
for carriers to evaluate. In addition, because legacy carriers' support 
amounts could change due to the Commission's proposals, to minimize 
significant economic impact, the Commission seeks comment on whether or 
how deployment obligations should change.
    92. The Commission also seeks comment on whether it should retain 
the operating expense limitation, the corporate operations limit, and 
the capital investment allowance. If the Commission were to eliminate 
these limitations on expenses and investment, it would be further 
minimizing the economic impacts on small entities of the Commission's 
current regulations. In addition, the Commission seeks comment on ways 
to simplify legacy support mechanisms by making changes to how HCLS and 
CAF BLS are calculated.
    93. The Commission proposes to change the date for mandatory line 
count filings for CAF BLS to March 31st of each year, but to continue 
to require line counts as of December 31st (i.e., reduce the lag until 
filing to 3 months). The Commission also seeks comment regarding 
whether FCC Form 507 should be mandatory for rate-of-return carriers 
that do not receive CAF BLS (i.e., carriers that have elected A-CAM). 
Finally, the Commission seeks comment on whether to incorporate the ASC 
842 guidelines into the Uniform System of Accounts (USOA) contained in 
Part 32. These changes would require carriers to modify certain 
accounting practices and for certain carriers add a reporting 
requirement. In the NPRM, the Commission seeks comment on the burden 
this change would create for carriers and will factor that into its 
decision.
    94. More generally, the Commission expects to consider the economic 
impact on small entities, as identified in comments filed in response 
to the NPRM and this IRFA, in reaching its final conclusions and taking 
action in this proceeding. The proposals and questions laid out in the 
NPRM were designed to ensure the Commission has a complete 
understanding of the benefits and potential burdens associated with the 
different actions and methods.
    95. Permit-But-Disclose. The proceeding this NPRM 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

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themselves with the Commission's ex parte rules.
    96. 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).
    97. 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 NPRM in 
order to facilitate its internal review process.

IV. Ordering Clauses

    98. Accordingly, it is ordered that, pursuant to the authority 
contained in sections 1-4, 5, 201-206, 214, 218-220, 251, 252, 254, 
256, 303(r), 332, 403, and 405 of the Communications Act of 1934, as 
amended, and section 706 of the Telecommunications Act of 1996, 47 
U.S.C. 151-155, 201-206, 214, 218-220, 251, 256, 254, 256, 303(r), 403 
and 405, this Notice of Proposed Rulemaking IS ADOPTED, effective 
thirty (30) days after publication of the text or summary thereof in 
the Federal Register.
    99. It is further ordered, Pursuant to Section 220(i) of the 
Communications Act, 47 U.S.C. 220(i), that notice be given to each 
state commission of the above rulemaking proceeding, and that the 
Secretary shall serve a copy of this Notice on each state commission.
    100. It is further ordered that, pursuant to the authority 
contained in sections 1, 2, 4(i), 5, 201-206, 214, 218-220, 251, 252, 
254, 256, 303(r), 332, and 403 of the Communications Act of 1934, as 
amended, and section 706 of the Telecommunications Act of 1996, 47 
U.S.C. 151, 152, 154(i), 155, 201-206, 214, 218-220, 251, 252, 254, 
256, 303(r), 332, 403, 1302, notice is hereby given of the proposals 
and tentative conclusions described in this Notice of Proposed 
Rulemaking.

Federal Communications Commission.
Marlene Dortch,
Secretary.
[FR Doc. 2018-08569 Filed 4-24-18; 8:45 am]
 BILLING CODE 6712-01-P