E9-27050. High-Cost Universal Service Support

AGENCY:

Federal Communications Commission.

ACTION:

Notice of proposed rulemaking.

SUMMARY:

In this notice of proposed rulemaking, the Commission addresses the effect of line loss on universal service Local Switching Support (LSS) received by incumbent local exchange carriers (LECs) that are designated as eligible telecommunications carriers (ETCs). Pursuant to the LSS mechanism, an incumbent LEC ETC serving 50,000 or fewer lines in a study area may recover a portion of its switching costs from the universal service fund. Under the Commission's rules, as an incumbent LEC ETC's access lines increase above certain thresholds, the amount of LSS it may receive decreases, but its support does not increase if its number of access lines falls below the same thresholds. In this notice of proposed rulemaking, the Commission tentatively concludes that the LSS rules should be modified to permit incumbent LEC ETCs that lose lines to increase their LSS, and we seek comment on these proposed rule changes.

DATES:

Comments are due on or before November 24, 2009 and reply comments are due on or before December 1, 2009.

ADDRESSES:

You may submit comments, identified by WC Docket No. 05-337, 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://www.fcc.gov/​cgb/​ecfs/​. Follow the instructions for submitting comments.
• E-mail: [e-mail], and include the following words in the body of the message, “get form.” A sample form and directions will be sent in response. Include the docket number in the subject line of the message.
• Mail: Secretary, Federal Communications Commission, 445 12th Street, SW., Washington, DC 20554.
• People With Disabilities: Contact the FCC to request reasonable accommodations (accessible format documents, sign language interpreters, CART, etc.) by e-mail: [e-mail] or phone: [phone] 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:

Ted Burmeister, Wireline Competition Bureau, Telecommunications Access Policy Division, 202-418-7389 or TTY: 202-418-0484.

SUPPLEMENTARY INFORMATION:

This is a synopsis of the Commission's Notice of Proposed Rulemaking in WC Docket No. 05-337, FCC 09-89, adopted October 2, 2009, and released October 9, 2009. The complete text of this document is available for inspection and copying during normal business hours in the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554.

The document may also be purchased from the Commission's duplicating contractor, Best Copy and Printing, Inc., 445 12th Street, SW., Room CY-B402, Washington, DC 20554, telephone [phone] or [phone], facsimile [phone], or via e-mail at: http://www.bcpiweb.com. It is also available on the Commission's Web site at: http://www.fcc.gov.

Initial Paperwork Reduction Act of 1995 Analysis

This notice of proposed rulemaking does not contain new, modified, or proposed information collections subject to the Paperwork Reduction Act of 1995. In addition, therefore, it does not contain any new, modified, or proposed “information collection burden for small business concerns with fewer than 25 employees” pursuant to the Small Business Paperwork Relief Act of 2002.

Synopsis of the Notice of Proposed Rulemaking

Introduction

1. In this order and notice of proposed rulemaking, the Commission addresses the effect of line loss on universal service Local Switching Support (LSS) received by incumbent local exchange carriers (LECs) that are designated as eligible telecommunications carriers (ETCs). Pursuant to the LSS mechanism, an incumbent LEC ETC serving 50,000 or fewer lines in a study area may recover a portion of its switching costs from the universal service fund. 47 CFR 54.301. Under the Commission's rules, as an incumbent LEC ETC's access lines increase above certain thresholds, the amount of LSS it may receive decreases. 47 CFR 36.125, 54.301. In the order portion of this item, the Commission denies the Coalition for Equity in Switching Support's (Coalition's) petition seeking clarification that the Commission's rules also allow an incumbent LEC ETC's LSS to increase if the carrier's access lines decrease below those thresholds. As described below, the Commission finds no basis in the rules or the record of the Commission's proceedings to support the clarification the Coalition seeks. In the notice of proposed rulemaking portion of this item, however, the Commission tentatively concludes that the LSS rules should be modified to permit incumbent LEC ETCs that lose lines to increase their LSS, and the Commission seeks comment on these proposed rule changes.

Background

2. Pursuant to the Commission's jurisdictional separations rules, see 47 CFR 36.1 et seq., incumbent LECs apportion their switching costs to the interstate jurisdiction based on the ratio of interstate dial equipment minutes of use (DEM) to total DEM. 47 CFR 36.125(f). The incumbent LECs then recover their interstate switching costs through interstate tariffs, and recover the remaining intrastate switching costs as provided by the relevant state ratemaking authority. Incumbent LECs serving 50,000 access lines or fewer are permitted to allocate a higher portion of their switching costs to the interstate jurisdiction. 47 CFR 36.125(f), (j). The precise amount of the extra allocation depends on a weighting factor determined by the number of access lines served by the incumbent LEC, with key thresholds established at 10,000, 20,000, and 50,000 lines. See 47 CFR 36.125(f). A smaller DEM weighting factor allowed fewer switching costs to be recovered through interstate access charges and a larger DEM weighting factor allowed more switching costs to be recovered through interstate access charges. Prior to 1998, the costs allocated to the interstate jurisdiction, including the higher portion allocated pursuant to DEM weighting, were recovered through interstate access charges.

3. In the Universal Service First Report and Order, the Commission determined that recovering switching costs allocated based on the weighted DEM factor through interstate access charges constituted an implicit support mechanism disfavored by Congress when it adopted the Telecommunications Act of 1996. Telecommunications Act of 1996, Public Law 104-104, 110 Stat. 56 (1996). Accordingly, the Commission created LSS, which explicitly supports the additional switching costs allocated to the interstate jurisdiction through the universal service fund. Universal Service First Report and Order, 62 FR 32861. LSS retained DEM weighting as the method of calculating switching support with minor modifications. Specifically relevant to the discussion below, the Commission adopted the rule, now codified in nearly identical language at both § 36.125(j) (governing the allocation of switching costs) and § 54.301 (LSS), that “if * * * the number of a study area's access lines increased or will increase such that * * * the weighting factor would be reduced, that lower weighting factor shall be applied to the study area's 1996 unweighted interstate DEM factor to derive a new local switching support factor.” 47 CFR 36.125(j). Under this rule section, if an incumbent LEC ETC's access lines exceeded the relevant threshold, the DEM weighting factor would decrease and this would also decrease the amount of LSS received by the incumbent LEC ETC.

4. In the 2001 Separations Freeze Order, the Commission froze the jurisdictional allocation factors used by incumbent LECs, while it considered comprehensive jurisdictional separations reform. Separations Freeze Order, 66 FR 33202. It codified the extension by adding effective dates, ending June 30, 2006, to each of the relevant rules. In 2006, the Commission adopted the Separations Freeze Extension Order, extending the effective date of the freeze to June 30, 2009, or upon completion of comprehensive jurisdictional separations reform, whichever occurred earlier. 2006 Separations Freeze Extension Order, 71 FR 29882. Recently, the Commission adopted an order extending the freeze again, to June 30, 2010. 2009 Separations Freeze Extension Order, 74 FR 23956.

5. Coalition for Equity in Switching Support Petition. The Coalition contends that there is no clear evidence of the Commission's intent to create a “one-way rule” that would limit the amount of LSS available to an incumbent LEC ETC if its number of access lines increased, but would not correspondingly increase its amount of LSS if its access lines decreased, and that the rules themselves are silent on the treatment of carriers that experience declining line counts. The Coalition argues that its proposed clarification, or in the alternative, an amendment to the Commission's rules, is necessary to provide incumbent LEC ETCs the level of support consistent with the rationale for LSS, thereby avoiding hardship to those carriers and inconsistent treatment of those carriers as compared to other carriers of similar size. Citing the Universal Service First Report and Order, the Coalition argues that the Commission has recognized that “rural carriers generally serve fewer subscribers, serve more sparsely populated areas, and do not generally benefit [as much] from economies of scale and scope.” The Coalition maintains that the one-way rule prevents some small incumbent LEC ETCs from receiving the full amount of LSS intended by the Commission when it adopted the rule.

6. The Coalition also asserts that the “best reading” of § 36.125(j) is that the one-way rule expired on June 30, 2006. Specifically, the Coalition notes that, on its face, the rule adopted in the 2006 Separations Freeze Order is effective “during the period * * * through June 30, 2006.” It asserts that the rule therefore “fails to provide guidance for carriers whose number of access lines decreases below a threshold after June 30, 2006.” It further asserts that because the Commission did not revise § 36.125 or specifically discuss LSS eligibility in the 2006 Separations Freeze Extension Order, § 36.125 is ambiguous with respect to “what happens after June 30, 2006.” The Coalition argues that, given this ambiguity, the phrase “during the duration of the freeze period” in the final sentence of § 36.125(j) should not be read to include the extended freeze period, only the initial freeze period ending June 30, 2006, as that would be consistent with the date certain in the first sentence.

Discussion

7. We deny the Coalition's petition seeking clarification that §§ 36.125 and 54.301 of the Commission's rules allow an incumbent LEC ETC's DEM weighting factor and LSS to increase if the carrier's access lines decrease below the thresholds set out in the rules. We do not agree that the existing rules are ambiguous or otherwise provide a basis for the clarification the Coalition seeks.

8. We find that the Coalition's contention that § 36.125(j) did not apply after June 30, 2006, is not supported by the record in the Commission's proceedings. Prior to the adoption of the 2009 Separations Freeze Extension Order the text of that section stated:

If during the period from January 1, 1997, through June 30, 2006, the number of a study area's access lines increased or will increase such that, under § 36.125(f) the weighting factor would be reduced, that lower weighting factor shall be applied to the study area's 1996 unweighted interstate DEM factor to derive a new local switching support factor. The study area will restate its Category 3, Local Switching Equipment factor under § 36.125(f) and use that factor for the duration of the freeze period. 47 CFR 36.125(j) (2008).

The Coalition argues that, given the specific date reference in the first sentence of the paragraph, the “duration of the freeze” should be read to refer only to the initial freeze period and not the extended freeze period. It further notes that there is no specific discussion or reference to § 36.125 in the Separations Freeze Extension Order.

9. The Coalition mistakenly believes that the June 30, 2006 date in the first sentence of § 36.125(j) is unaffected by the extended separations freeze. The Commission first codified the separations freeze by amending literally dozens of rules in part 36 to read “through June 30, 2006.” See Separations Freeze Order, 66 FR 33202. When it later adopted the 2006 Separations Freeze Extension Order, the Commission did not change the text of each affected rule. 2006 Separations Freeze Extension Order, 71 FR 29882. However, although the Commission did not specifically reference § 36.125 or any other specific rule in the 2006 Separations Freeze Extension Order, it expressly extended the entire freeze beyond June 30, 2006. The extended freeze therefore applied to all affected part 36 rules, including § 36.125. Accordingly, limiting the applicability of § 36.125(j) only to June 30, 2006, as the Coalition suggests, is inconsistent with the Commission's action in the 2006 Separations Freeze Extension Order.

10. Moreover, under the Coalition's interpretation of the freeze period's application to § 36.125, incumbent LEC ETCs would be subject to different DEM weighting factors for jurisdictional separations (under § 36.125) and LSS (under § 54.301). If the one-way rule ceased to apply to § 36.125(j), an incumbent LEC ETC might be able to shift additional switching costs to the interstate jurisdiction if its number of access lines decreased below a relevant threshold under the part 36 separations rules, but the one-way rule in § 54.301(a)(2)(ii) would still apply and the carrier could not recover those additional switching costs from LSS under the part 54 universal service rules. We find no evidence that the Commission intended such an anomaly.

11. Although the Coalition explicitly argues that the Commission should adopt the Coalition's interpretation of the June 30, 2006 limitation on § 36.125 discussed above, many of its arguments suggest that the Commission should instead clarify that the DEM weighting thresholds were always intended to apply to carriers with either increasing or decreasing numbers of access lines. We find no evidence that the Commission intended its rules to be so construed, nor do we find that the rules contain any ambiguity that would permit such a clarification. The plain language of § 54.301(a)(2)(ii) refers only to increases in line counts, and is silent on decreases in line counts:

If the number of a study area's access lines increases such that, under § 36.125(f) of this chapter, the weighted interstate DEM factor for 1997 or any successive year would be reduced, that lower weighted interstate DEM factor shall be applied to the carrier's 1996 unweighted interstate DEM factor to derive a new local switching support factor. 47 CFR 54.301(a)(2)(ii).

Similarly, in the Universal Service First Report and Order, the Commission is silent on decreases in line counts, concluding only that “[i]f the number of a carrier's lines increases during 1997 or any successive year, either through the purchase of exchanges or through other growth in lines, such that the current DEM weighting factor would be reduced, the carrier must apply the lower weighting factor to the 1996 unweighted interstate DEM factor in order to derive the local switching support factor used to calculate universal service support.” Universal Service First Report and Order, 62 FR 32861.

12. The Coalition notes that the Commission likely did not consider a circumstance in which incumbent LECs suffered declining numbers of access lines, noting that “local exchange carriers' access lines had risen virtually without exception for over half a century.” Assuming, arguendo, that this is true, the fact that the Commission never considered such a circumstance would likely indicate that it never intended to adopt a specific rule to govern declining numbers in access lines. We do not find, in this case, that silence results in ambiguity, as the Coalition contends. We further do not find any basis for applying the rule in a manner that is manifestly contrary to the rule's express language.

Notice of Proposed Rulemaking

13. The Coalition requests, in the alternative, that the Commission amend its rules to permit an incumbent LEC ETC with declining numbers of access lines to use a higher DEM weighting factor in performing jurisdictional separations and calculating LSS. We believe that public policy supports doing so. We therefore tentatively conclude that §§ 36.125(j) and 54.301(a)(2)(ii) should be amended accordingly. We seek comment on this tentative conclusion, on the proposed rules attached in the appendix, and on the analysis below. We emphasize that this analysis applies only to our current consideration of a relatively minor change to an existing rule, and nothing herein is intended to reflect or prejudge our consideration of LSS as part of any comprehensive universal service reform. In support of this request, the Coalition states that the one-way rule provides small incumbent LEC ETCs that suffer declining numbers of access lines with less LSS than they would be eligible to receive if their number of access lines had not exceeded the thresholds established in the rules. The Coalition states in addition that the calculation of LSS and the DEM weighting factors assume that small incumbent LEC ETCs have higher local switching costs than larger carriers. Thus, the Coalition asserts that if size is a driving factor behind high switching costs, then the fact that a carrier has gained and later lost access lines does not mitigate those high costs.

14. The Coalition has provided evidence that failing to provide the higher level of LSS has caused or threatens to cause small incumbent LEC ETCs some hardship. Moreover, the Coalition asserts that a small carrier that gains, then loses, access lines is not in a meaningfully different situation than a similarly-sized small carrier that suffers no gain or loss. Indeed, a carrier that purchases equipment designed to support a greater number of access lines but then loses those access lines may be even more disadvantaged than a carrier that had never made purchasing decisions based upon a higher access line count.

15. We therefore seek comment on amending our rules to allow an incumbent LEC ETC's DEM weighting factor and LSS to increase if the carrier's access lines decrease below the thresholds set out in the rules. We seek comment on the potential effect of such a change, and ask commenters to provide specific data regarding the amount by which such a change will increase universal service high-cost support disbursements, and an analysis as to why any such increase in the size of the universal service fund is justified.

Procedural Matters

16. Pursuant to §§ 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: (1) The Commission's Electronic Comment Filing System (ECFS); (2) the Federal Government's eRulemaking Portal; or (3) by filing paper copies. See Electronic Filing of Documents in Rulemaking Proceedings, 63 FR 24121, May 1, 1998.

• Electronic Filers: Comments may be filed electronically using the Internet by accessing the ECFS: http://www.fcc.gov/​cgb/​ecfs/​ or the Federal eRulemaking Portal: http://www.regulations.gov. Filers should follow the instructions provided on the Web site for submitting comments.

○ For ECFS filers, if multiple docket or rulemaking numbers appear in the caption of this proceeding, filers must transmit one electronic copy of the comments for each docket or rulemaking number referenced in the caption. In completing the transmittal screen, filers should include their full name, U.S. Postal Service mailing address, and the applicable docket or rulemaking number. Parties may also submit an electronic comment by Internet e-mail. To get filing instructions, filers should send an e-mail to [e-mail], and include the following words in the body of the message, “get form.” A sample form and directions will be sent in response.

○ Paper Filers: Parties who choose to file by paper must file an original and four copies 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 (although we continue to experience delays in receiving U.S. Postal Service mail). All filings must be addressed to the Commission's Secretary, Office of the Secretary, Federal Communications Commission.

○ The Commission's contractor will receive hand-delivered or messenger-delivered paper filings for the Commission's Secretary at 236 Massachusetts Avenue, NE., Suite 110, Washington, DC 20002. The filing hours at this location are 8 a.m. to 7 p.m. All hand deliveries must be held together with rubber bands or fasteners. Any envelopes 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 should be addressed to 445 12th Street, SW., Washington, DC 20554.

17. In addition, one copy of each pleading must be sent to the Commission's duplicating contractor, Best Copy and Printing, Inc, 445 12th Street, SW., Room CY-B402, Washington, DC 20554; Web site: http://www.bcpiweb.com;​; phone: [phone]. Furthermore, three copies of each pleading must be sent to Antoinette Stevens, Telecommunications Access Policy Division, Wireline Competition Bureau, 445 12th Street, SW., Room 5-B521, Washington, DC 20554; e-mail: [e-mail].

18. Filings and comments are also available for public inspection and copying during regular business hours at the FCC Reference Information Center, Portals II, 445 12th Street, SW., Room CY-A257, Washington, DC 20554. Copies may also be purchased from the Commission's duplicating contractor, BCPI, 445 12th Street, SW., Room CY-B402, Washington, DC 20554. Customers may contact BCPI through its Web site: http://www.bcpiweb.com,, by e-mail at: [e-mail], by telephone at [phone] or [phone] (voice), [phone] (tty), or by facsimile at [phone].

19. To request materials in accessible formats for people with disabilities (Braille, large print, electronic files, audio format), send an e-mail to [e-mail] or call the Consumer & Governmental Affairs Bureau at [phone] (voice) or [phone] (TTY). Contact the FCC to request reasonable accommodations for filing comments (accessible format documents, sign language interpreters, CART, etc.) by e-mail: [e-mail]; phone: [phone] or TTY: [phone].

20. For further information regarding this proceeding, contact Ted Burmeister, Attorney Advisor, Telecommunications Access Policy Division, Wireline Competition Bureau at [phone], or [e-mail].

Ex Parte Presentations

21. This proceeding shall be treated as a “permit-but-disclose” proceeding in accordance with the Commission's ex parte rules. 47 CFR 1.1200-1.1216. Persons making oral ex parte presentations are reminded that memoranda summarizing the presentations must contain summaries of the substance of the presentations and not merely a listing of the subjects discussed. More than a one or two sentence description of the views and arguments presented is generally required. 47 CFR 1.1206(b)(2). Other requirements pertaining to oral and written presentations are set forth in § 1.1206(b) of the Commission's rules. 47 CFR 1.1206(b).

Initial Regulatory Flexibility Act Certification

22. The Regulatory Flexibility Act (RFA), See 5 U.S.C. 603, requires that an agency prepare a regulatory flexibility analysis for notice-and-comment rulemaking proceedings, unless the agency certifies that “the rule will not, if promulgated, have a significant economic impact on a substantial number of small entities.” See 5 U.S.C. 605(b). The RFA generally defines “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” 5 U.S.C. 601(6). In addition, the term “small business” has the same meaning as the term “small business concern” under the Small Business Act. 5 U.S.C. 601(3). 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). 15 U.S.C. 632.

23. In this notice of proposed rulemaking we propose to revise two of the Commission's rules to permit small incumbent LECs whose access lines decrease below specific thresholds to receive LSS based on their current number of lines. The revisions do not increase the incumbent LECs' administrative burdens.

24. The Commission therefore certifies, pursuant to the RFA, that the proposals in this notice of proposed rulemaking, if adopted, will not have a significant economic impact on a substantial number of small entities. If commenters believe that the proposals discussed in the notice of proposed rulemaking require additional RFA analysis, they should include a discussion of these issues in their comments and additionally label them as RFA comments. The Commission will send a copy of the notice of proposed rulemaking, including a copy of this initial certification, to the Chief Counsel for Advocacy of the SBA. In addition, a copy of the notice of proposed rulemaking and this initial certification will be published in the Federal Register. See 5 U.S.C. 605(b).

Ordering Clauses

25. Accordingly, it is ordered that, pursuant to the authority contained in §§ 1, 2, 4(i), 4(j), 201-205, 214, 220, and 254 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i), 154(j), 201-205, 214, 220, and 254, the petition for clarification filed by the Coalition for Equity in Switching Support is denied as discussed herein.

26. It is further ordered that, pursuant to the authority contained in §§ 1, 2, 4(i), 4(j), 201-205, 214, 220, and 254 of the Communications Act of 1934, as amended, 47 U.S.C. 151, 152, 154(i), 154(j), 201-205, 214, 220, and 254, this notice of proposed rulemaking is adopted.

27. It is further ordered that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, shall send a copy of this notice of proposed rulemaking, including the Initial Regulatory Flexibility Certification, to the Chief Counsel for Advocacy of the Small Business Administration.

28. It is further ordered that, pursuant to §§ 1.103(a) and 1.4(b)(1) of the Commission's rules, 47 CFR 1.103(a) and 1.4(b)(1), this notice of proposed rulemaking shall be effective upon publication in the Federal Register.

Federal Communications Commission.

Marlene H. Dortch,

Secretary.

Proposed Rules

For the reasons discussed in the preamble, the Federal Communications Commission proposes to amend 47 parts 36 and 54 as follows:

PART 36—[AMENDED]

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

Authority: 47 U.S.C. 151, 154(i) and (j), 205, 221(c), 254, 403, and 410.

2. Section 36.125 is amended by revising paragraph (j) to read as follows:

§ 36.125

Local switching equipment—Category 3.

* * * * *

(j) If the number of a study area's access lines increases or decreases such that, under § 36.125(f) of this part, the weighted interstate DEM factor for 1997 or any successive year would change, the weighted interstate DEM factor appropriate to the study area's current access line count shall be applied to the study area's 1996 unweighted interstate DEM factor to derive a new local switching support factor.

PART 54—[AMENDED]

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

Authority: 47 U.S.C. 151, 154(i), 201, 205, 214, and 254 unless otherwise noted. 4. Section 54.301 is amended by revising paragraph (a)(2)(ii) to read as follows:

§ 54.301

Local switching support.

(a) * * *

(2) * * *

(ii) If the number of a study area's access lines increases or decreases such that, under section 36.125(f) of this chapter, the weighted interstate DEM factor for 1997 or any successive year would change, the weighted interstate DEM factor appropriate to the study area's current access line count shall be applied to the study area's 1996 unweighted interstate DEM factor to derive a new local switching support factor.

* * * * *