[Federal Register Volume 64, Number 110 (Wednesday, June 9, 1999)]
[Rules and Regulations]
[Pages 30917-30924]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14698]
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FEDERAL COMMUNICATIONS COMMISSION
47 CFR Part 36
[CC Docket Nos. 96-45 and 96-262; FCC 99-119]
Federal-State Joint Board on Universal Service; Access Charge
Reform
AGENCY: Federal Communications Commission.
ACTION: Final rule.
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SUMMARY: The document Federal-State Joint Board on Universal Services;
Access Charge Reform establishes the framework for a new forward-
looking high-cost universal service support mechanism. The new
mechanism will have a two-part methodology that considers both the
relative costs of providing supported services and the states' ability
to support those costs using their own resources. In taking these
steps, we are moving closer to bringing to fruition the work of the
Joint Board and this Commission to render universal service support
mechanisms explicit, sufficient, and sustainable as local competition
develops. The federal support mechanism would provide support for costs
that exceed both the
[[Page 30918]]
national benchmark and the individual state's resources to support
those costs.
DATES: Effective June 9, 1999.
FOR FURTHER INFORMATION CONTACT: Jack Zinman, Attorney, Common Carrier
Bureau, Accounting Policy Division, (202) 418-7400.
SUPPLEMENTARY INFORMATION: This is a summary of the Commission's
document released on May 28, 1999. The full text of this document is
available for public inspection during regular business hours in the
FCC Reference Center, Room CY-A257, 445 Twelfth Street, S.W.,
Washington, D.C. 20554.
I. Introduction
1. The Telecommunications Act of 1996 (1996 Act) has fostered and
accelerated the development of competition in local telecommunications
markets across the nation. The 1996 Act also, for the first time, wrote
into law the Commission's long-standing policy of supporting universal
service. In codifying this federal policy, Congress sought to ensure
that universal service remains achievable and sustainable as local
competition develops.
2. In this Order, based on recommendations from the Federal-State
Joint Board on Universal Service (Joint Board), we take action to
achieve this Congressional goal and to ensure that mechanisms exist so
that non-rural carriers' rates for services supported by universal
service mechanisms remain affordable in all regions of the nation and
reasonably comparable to those prevalent in urban areas. In taking
these steps, we are moving closer to bringing to fruition the work of
the Joint Board and this Commission to render universal service support
mechanisms explicit, sufficient, and sustainable as local competition
develops.
3. In this Order, we adopt broad revisions to the federal support
mechanisms, in light of the Joint Board's most recent recommendations,
to permit rates to remain affordable and reasonably comparable across
the nation, consistent with the 1996 Act and the competitive
environment that it envisions. To accomplish these goals, as
recommended by the Joint Board, we establish a methodology for
determining non-rural carriers' support amounts, based on forward-
looking costs estimated using a single, national model, and a national
cost benchmark. We explicitly reconsider and repudiate any suggestion
in the First Report and Order, 62 FR 32862 (June 17, 1997), that
federal support should be limited to 25 percent of the difference
between the benchmark and forward-looking cost estimates, in favor of
the more nuanced balancing of federal and state responsibilities
outlined by the Joint Board. To the extent a state's resources are
deemed inadequate to maintain affordable and reasonably comparable
rates, the federal mechanism will provide the necessary support. We
also adopt today the hold-harmless and portability principles
recommended by the Joint Board.
A. The Purpose of Support
4. We agree with the Joint Board that a primary focus in reforming
the federal high-cost universal service support mechanism is to enable
intrastate rates to remain both affordable and reasonably comparable
across high-cost and urban areas. We also agree with the Joint Board
that the Commission bears the responsibility to ensure that interstate
rate structures comply with the Congressional mandates expressed in the
Communications Act of 1934, as amended (the Act). In this section, we
adopt the majority of the Joint Board's conclusions and recommendations
concerning affordability, reasonable comparability, explicit interstate
support, and explicit intrastate support. Pursuant to the Joint Board's
recommendation, we are leaving the existing support mechanism in place
for non-rural carriers for an additional six months. We anticipate
adopting the permanent methodology for calculating and distributing
support for non-rural carriers, based on forward-looking economic
costs, this fall for implementation on January 1, 2000.
1. Enabling Reasonably Comparable Rates
5. We agree with the Joint Board that a central purpose of federal
universal service support mechanisms is to enable rates in rural areas
to remain reasonably comparable to rates in urban areas, and we adopt
the Joint Board's interpretation of the reasonable comparability
standard to refer to ``a fair range of urban/rural rates both within a
state's borders, and among states nationwide.'' This does not mean, of
course, that rate levels in all states, or in every area of every
state, must be the same. In particular, as the local exchange market
becomes more competitive, it would be unreasonable to expect rate
levels not to vary to reflect the varying costs of serving different
areas. The Joint Board and the Commission have concluded that current
rate levels are affordable. Therefore, we interpret the goal of
maintaining a ``fair range'' of rates to mean that support levels must
be sufficient to prevent pressure from high costs and the development
of competition from causing unreasonable increases in rates above
current, affordable levels. When we use the term ``reasonably
comparable'' throughout this Order, we are referring to this definition
of the term.
6. We find that, once we have resolved several implementation
issues and further verified the forward-looking cost model, the Joint
Board's recommended methodology largely will be an appropriate means
for the federal mechanism to ensure that states have the ability to
achieve reasonable comparability. Specifically, the Joint Board's
proposed methodology will ensure that any state with per-line costs
substantially above the nationwide average will receive federal support
for those intrastate costs, unless the state has the ability to
maintain reasonably comparable rates without such support. States, of
course, retain primary responsibility for local rate design policy and,
as such, bear the responsibility to marshall state and federal support
resources to achieve reasonable comparability of rates.
7. This approach does not consider rates directly. Instead, it uses
costs as an indicator of a state's ability to maintain reasonable
comparability of rates within the state and relative to other states.
We conclude that the underlying assumption in the Joint Board's
recommendation--that a relationship exists between high costs and high
rates--is a sound one, because rates are generally based on costs. We
adopt this approach, in part, because states possess broad discretion
in developing local rate designs. State rate designs may reflect a
broad array of policy choices that affect actual rates for local
service, intrastate access, enhanced services, and other intrastate
services. A state facing costs substantially in excess of the national
average, however, may be unable through any reasonable combination of
local rate design policy choices to achieve rates reasonably comparable
to those that prevail nationally. Through an examination of the
underlying costs, instead of the resulting rates, we can evaluate the
cost levels that must be supported in each state in order to develop
reasonably comparable rates. Because responsibility for such support is
shared at the federal and state levels, determining the federal portion
based on costs rather than rates allows the federal jurisdiction to
help accomplish the goal of rate comparability without having to
evaluate states' policy choices affecting those rates.
8. By providing support for costs in any state that exceed a
benchmark level,
[[Page 30919]]
the Joint Board's recommended methodology ensures that the cost levels
net of support that must be recovered through intrastate rates--and, by
analogy, its assumed rate levels--must substantially exceed the
national average. By taking account of the cost levels that must be
supported in each state in order to enable reasonable comparability of
rates, the Joint Board's methodology ensures that federal support is
targeted to areas where it is necessary to achieve its intended
purpose--enabling reasonable comparability of rates--and also that
overall support levels are no higher than necessary to achieve this
goal. We agree with the Joint Board that this methodology will result
in federal support levels for each state that are appropriate to
achieve the statutory principle of reasonable comparability of rates.
9. In the First Report and Order, the Commission concluded that the
share of support provided by the federal mechanism should initially be
set at 25 percent of the difference between the forward-looking cost of
providing the supported services and a national benchmark. In adopting
the Joint Board's recommended methodology, we reconsider the
Commission's conclusions in the First Report and Order regarding the
federal share of support. The Joint Board's recommended methodology for
enabling reasonable comparability of rates will define the sharing of
responsibility between the federal and state jurisdictions for high-
cost intrastate universal service support in a way markedly different
from the 25 percent federal share methodology adopted in the First
Report and Order. Instead of allocating responsibility for universal
service support based on fixed percentages, the Joint Board's
recommended methodology recognizes the states' primary role in enabling
reasonable comparability of rates. Under this recommendation, to the
extent a state possesses the ability to support its high-cost areas
wholly through internal means, the methodology we adopt recognizes that
no federal support is required in that state to enable reasonably
comparable local rates. Conversely, to the extent that a state faces
larger rate comparability challenges than can be addressed internally,
our forward-looking methodology places no artificial limits on the
amount of federal support that is available, thus resulting in
sufficient support as required by the 1996 Act.
10. We find that section 254(b)(3) supports the use of federal
support to enable reasonable rate comparability among states. By
specifying that ``[c]onsumers in all regions of the Nation'' should
have rates and services reasonably comparable to rates and services in
urban areas, we believe that Congress intended national, as opposed to
state-by-state, comparisons. Some commenters dispute the Joint Board's
interpretation of reasonable comparability. For example, the California
Commission asserts that using federal universal service support to
enable rate comparability among states would impermissibly expand the
scope of section 254(b)(3), and that support should merely seek to
enable the reasonable comparability of rates within each state.
Similarly, the Maryland Commission claims that the Joint Board's
interpretation would lead to the comparison of rural rates in all
states to some fictional national urban rate, with the potentially
anomalous result that rural rates in a state could be lower than urban
rates in that state. The Joint Board's approach for enabling rate
comparability relies not on a national urban rate, as the Maryland
Commission asserts, but rather on a methodology that ensures that no
state will face per-line costs that substantially exceed the costs
faced by other states, taking into account the individual state's
ability to support its own universal service needs. In this way, the
Joint Board sought to ensure that every state has the means at its
disposal to achieve reasonable comparability of rates in that state. We
agree that the Joint Board's approach is an appropriate way for federal
support mechanisms to enable ``consumers in all regions of the Nation''
to have access to ``reasonably comparable'' rates. We emphasize again,
however, that, because states establish local rates, each state's
policies will determine the level of urban rates relative to rural
rates in that state.
2. Enabling Affordable Rates
11.We decline to adopt the proposals suggested by the D.C.
Commission and Ad Hoc. We continue to believe, consistent with the
Joint Board's recommendation, that rates for local service are
generally affordable. Indeed, since March 1989, at least 93 percent of
all households in the United States have had telephone service, and as
of November 1998, the subscribership rate was 94.2 percent. While
affordability encompasses more than subscribership, the Joint Board and
the Commission agree that the states are better equipped to determine
which additional factors can and should be used to measure
affordability.
12.The principle of ensuring reasonably comparable rates, set forth
in section 254(b)(3), does not specify an income component. To the
contrary, although affordability may vary with individual subscriber
income, section 254(b)(3)'s statement that consumers in rural and high-
cost areas of the country should have access to telecommunications
services at rates that are reasonably comparable to rates in urban
areas is not qualified. Therefore, we find no congressional mandate for
the Commission to implement or to require that states implement means-
testing in conjunction with mechanisms designed to provide support to
high-cost areas and to enable reasonable comparability of rates
nationwide. Affordability problems, as they relate to low-income
consumers, raise many issues that are unrelated to the need for support
in high-cost areas, and section 254(b)(3) reflects a legislative
judgment that all Americans, regardless of income, should have access
to the network at reasonably comparable rates. The specific
affordability issues unique to low-income consumers, including all
factors that may be relevant to means-testing or other need-based
inquiries, are best addressed at the federal level through programs
specifically designed for this purpose. Indeed, the Commission already
has such programs in place, namely, the Lifeline and Link-Up programs,
which provide assistance for low-income consumers to get connected and
stay connected to the telecommunications network. As discussed in the
First Report and Order, we believe that the impact of household income
on subscribership is more appropriately addressed through programs
designed to help low income households obtain and retain telephone
service, rather than as part of the federal high-cost support
mechanism.
13. Moreover, forcing states to adopt means testing or limits on
rates of return in order to receive federal high-cost support would be
contrary to the Joint Board's recommendations. Although it may be
within the Commission's jurisdiction to condition federal support on
specific state action, the Joint Board recommended against our doing so
in the high-cost context. Individual state commissions are in a
position to evaluate specific affordability issues facing their
respective states, and we believe that individual states should retain
the primary responsibility to decide questions of affordability and to
weigh the relative importance of factors such as consumer income and
local rate design. Therefore, we decline to require means testing for
federal high-cost support. An individual state, however,
[[Page 30920]]
could voluntarily adopt an explicit support mechanism using means
testing or other cost-of-living data, as suggested by the D.C.
Commission and Ad Hoc. Although the states retain discretion to adopt
such a mechanism, we will continue to monitor the issue of rate
affordability, and we will take remedial action, to the extent we have
jurisdiction to do so, if it becomes necessary.
3. Making Interstate Support Explicit
14. We agree with the Joint Board that the Commission has the
jurisdiction and responsibility to identify support for universal
service that is implicit in interstate access charges. Moreover, we
agree with the Joint Board that it is part of our statutory mandate
that any such support, to the extent possible, be made explicit. In
this proceeding and in our pending Access Charge Reform, 62 FR 31040
(June 6, 1997), proceeding, we are endeavoring to identify the types of
implicit support in interstate access charges and the amount of that
support. As we move forward with our efforts to reform interstate
access charges, we will develop additional information on the costs of
interstate access necessary to evaluate the Joint Board's
recommendations in this area and the associated record. The
overwhelming majority of commenters addressing the Joint Board's
recommendations, however, agree that interstate access rates contain
implicit support that should be made explicit. These commenters differ
only as to the amount of their estimate of implicit support presently
in access rates and the method for making it explicit. We anticipate
taking action in the fall of 1999 to resolve the issue of making
interstate support explicit, and we will address the Joint Board's
recommendations at that time. Although, as explained, the statutory
goal of making explicit the support that is currently implicit in
interstate access charges is distinct from the statutory goal of
ensuring reasonably comparable intrastate rates, we nevertheless
recognize the close relationship between the implementation of the
permanent revised support mechanism on January 1, 2000 and the Access
Charge Reform proceeding. We therefore intend to move ahead with access
reform in tandem with the implementation of the revised methodology.
4. Making Intrastate Support Explicit
15. Historically, states have ensured universal service principally
through implicit support mechanisms, such as geographic rate averaging
and above-cost pricing of vertical services, such as call waiting,
voice mail, and caller ID. We agree with the Joint Board that the 1996
Act does not require states to adopt explicit universal service support
mechanisms. Section 254(e) does not specifically mention state support
mechanisms. Section 254(b)(5) declares that ``[t]here should be
specific, predictable and sufficient Federal and State mechanisms to
preserve and advance universal service.'' Section 254(f) provides that
states ``may adopt regulations not inconsistent with the Commission's
rules to preserve and advance universal service.'' The permissive
language in both of these sections demonstrates that Congress did not
require states to establish explicit universal service support
mechanisms. Accordingly, our actions today are consistent with the
directives of the 1996 Act.
16. As the Joint Board acknowledged, however, the development of
competition in local markets is likely to erode states' ability to
support universal service through implicit mechanisms. We agree with
the Joint Board that the erosion of intrastate implicit support does
not mean that federal support must be provided to replace implicit
intrastate support that is eroded by competition. Indeed, it would be
unfair to expect the federal support mechanism, which by its very
nature operates by transferring funds among jurisdictions, to bear the
support burden that has historically been borne within a state by
intrastate, implicit support mechanisms. The Joint Board stated that
states ``possess the jurisdiction and responsibility to address these
implicit support issues through appropriate rate design and other
mechanisms within a state,'' and it concluded that states ``should bear
the responsibility for the design of intrastate funding mechanisms.''
The Joint Board's position is consistent with the methodology that it
recommended for determining federal support levels. That methodology
does not mandate any particular state action, but assumes that states
will take some action, whether through rate design or through an
explicit support mechanism, to support universal service within the
state, and provides for federal support where such state efforts would
be insufficient to achieve reasonable comparability of rates. We will
continue to monitor state efforts at eliminating implicit support and
will consider additional measures should state efforts be insufficient
in this regard.
B. Methodology for Estimating Costs and Computing Support
17. We are adopting the majority of the Joint Board's
recommendations for a revised methodology for estimating costs and
calculating federal support levels to enable reasonably comparable
local rates for non-rural carriers. We are seeking further comment,
however, on specific implementation issues in an Further Notice of
Proposed Rulemaking (FNPRM). We conclude that the revised universal
service high-cost support mechanism shall take effect on January 1,
2000. We anticipate that by January 1, 2000, the Commission will have
made final determinations on all outstanding issues raised, and all
verification of the cost model that will be used to estimate the
forward-looking costs of providing supported services will have been
completed.
18. Specifically, we adopt the Joint Board's recommendation that
forward-looking economic costs should be used to estimate the costs of
providing supported services. We also adopt the Joint Board's general
recommendation that the methodology should rely primarily on states to
achieve reasonably comparable rates within their borders while
providing support for above-average costs to the extent that such costs
prevent the state from enabling reasonable comparability of rates. We
further adopt the Joint Board's recommendations that this explicit
federal support mechanism should not be significantly larger than the
current explicit federal mechanism.
1. Forward-Looking Economic Costs
19. We adopt the Joint Board's recommendation that support
calculations be based on forward-looking costs, and that those costs be
estimated using a single national model. As we stated in the First
Report and Order, a methodology based on forward-looking economic costs
will ``send the correct signals for entry, investment, and innovation
in the long run.'' Many commenters support the use of forward-looking
economic costs as the basis for estimating the costs of providing the
supported services, because the use of forward-looking economic costs
will encourage efficient entry and investment. The use of a carrier's
book costs, by contrast, would not allocate support in a competitively
neutral manner among potentially competing carriers. Instead, such a
system would tend to distort support payments because current book
costs are influenced by a variety of carrier-specific factors, such as
the age of the plant, depreciation rates, efficiency of
[[Page 30921]]
design, and other factors. Support based on forward-looking models will
ensure that support payments remain specific, predictable, and
sufficient, as required by section 254, particularly as competition
develops. To achieve universal service in a competitive market, support
should be based on the costs that drive market decisions, and those
costs are forward-looking costs.
20. Although we believe that forward-looking costs will set support
levels most efficiently, we decline to adopt a suggestion of the Ohio
Consumers' Counsel that carriers should receive the lesser of either
current amounts of high-cost support or a forward-looking economic cost
model-based amount. The hold-harmless provision set forth in of this
Order is intended to prevent dislocation and rate shocks as we make the
transition to a support system based on forward-looking costs. As
noted, we intend for the Joint Board and the Commission to re-evaluate
non-rural carriers' support mechanisms, including the hold-harmless
provision, three years from the date that the revised mechanism is
implemented.
21. Although some commenters have expressed concerns about the
accuracy of the outputs of the cost model, we agree with the Joint
Board that a national forward-looking model will provide a more
consistent approach by which to develop a method for measuring rate
comparability than would individual state cost studies. We believe
state cost studies could rely on differing forward-looking cost
methodologies, including differing assumptions or input data elements
that would prevent meaningful comparisons of the resulting forward-
looking cost estimates, and thus would provide a less accurate and
consistent picture by which we could evaluate the cost levels that must
be supported in each state to develop reasonably comparable rates.
Therefore, we reject the use of state cost studies for the purpose of
developing our method for rate comparability. States, of course, retain
the flexibility to design state-level support mechanisms using other
indicators of cost.
22. At this time, however, there has not been adequate time to
verify the results of the cost model and to verify that certain input
data elements are accurate. Thus, we cannot implement immediately a
revised high-cost support mechanism based on forward-looking economic
costs. We anticipate that the model and the input data will be verified
and ready for use by January 1, 2000.
23. The Joint Board recommended that, if the Commission did not
implement a forward-looking support mechanism on July 1, 1999 to enable
the reasonable comparability of non-rural carriers' rates, the
Commission should provide interim relief to high-cost states served
primarily by non-rural carriers. In formulating this Order, we have
continued to consult with the state Joint Board members, and they
recently filed a letter stating that the Commission should not adopt an
interim mechanism, given the brevity of the implementation delay that
we adopt today. The state Joint Board members state that they have been
unable to develop a workable interim solution, and that the
administrative complexity of overlaying changes in collection and
disbursement onto the existing system for only six months does not
appear prudent. In light of the state members' position on this issue,
and the reasons they present in their letter, we conclude that we
should not adopt an interim support mechanism at this time.
2. Shared Federal-State Responsibility for Reasonably Comparable Rates
24. We agree with the Joint Board that the states share
responsibility for universal service, and that states should have
``specific, predictable, and sufficient'' mechanisms in place to
maintain and advance universal service. We further agree with the Joint
Board that, because rates are generally affordable, and subscribership
is high in most parts of the country, federal involvement may be
limited to instances where states face significant obstacles in
maintaining reasonably comparable rates. Because affordability is
closely tied to local rate levels, established and regulated by the
states, we conclude that states are well-positioned to adopt local rate
structures and intrastate universal service support mechanisms that
maintain affordable and reasonably comparable rates on a statewide
basis. Federal mechanisms, in contrast, will assure that these goals
are met nationally by providing support to those states where the cost
of providing the supported services substantially exceed the national
average. We find that the appropriate balance of responsibility for
enabling reasonably comparable local rates can be struck through the
methodology recommended by the Joint Board. Accordingly, we reconsider
and reject the decision in the First Report and Order that the federal
share of support should be limited to 25 percent of the difference
between the forward-looking cost of providing the supported services
and a national benchmark, and directed only to the interstate
jurisdiction.
3. Determination of Federal Support Amounts
(1) Determining the National Benchmark. 25. We adopt the Joint
Board's recommendation that federal high-cost intrastate support should
be determined using a cost-based benchmark and should be provided where
states are unable to provide sufficient intrastate universal service
support to non-rural carriers with costs that exceed a national
benchmark. In so doing, we reconsider and reject the determination in
the First Report and Order that federal support for rate comparability
should be determined using a revenue-based benchmark. Given the focus
of the Second Recommended Decision, 63 FR 67837 (December 9, 1998), on
rate comparability, and its recommendation that the Commission should
rely on the cost of providing the supported services when determining
support amounts, rather than local rates, we believe that a cost-based
benchmark is more appropriate. We agree with the Joint Board's re-
examination of this issue and its departure in the Second Recommended
Decision from its original recommendation that a cost-based benchmark
should not be used. We have continued to coordinate with the Joint
Board in developing specific details of the methodology for determining
high-cost support for non-rural carriers.
26. In the first step of the revised support methodology, areas
will be identified where the forward-looking cost of providing the
supported services exceeds the benchmark amount. We agree with the
Joint Board that a cost-based benchmark provides a better gauge with
which to identify areas in need of support to enable reasonably
comparable rates than would a revenue benchmark. Contrary to the
assertions of some commenters, revenues may not accurately reflect the
level of need for support to enable reasonably comparable rates because
states have varying rate-setting methods and goals.
(2) Determining a State's Ability to Support its High-Cost Areas.
27. We further agree with the Joint Board that federal support should
be available to enable local rate comparability if the state cannot do
so on its own, and thus that federal support for this purpose should be
determined based, in part, on a state's ability to support its
universal service needs internally. Given the difficulties in
determining a state's ability to support its high-cost areas, and after
extensive consultation with the Joint Board, we have concluded that a
set dollar amount per line is an
[[Page 30922]]
appropriate method by which to ascertain a state's internal ability to
achieve rate comparability. We agree with the Maine Commission that a
fixed dollar amount per line is a reasonably specific and certain
method by which to determine a state's share of responsibility for
universal service support. We also believe that using a fixed dollar
amount per line is an administratively simple methodology that can be
applied in a consistent manner to all states. In this Order, however,
we have not set a specific per-line dollar amount.
28. We agree in principle with those commenters that assert that
using a fixed percentage of each state's intrastate revenues as the
level of the state's responsibility for its universal service needs
could unduly burden high-cost states that also have high intrastate
revenues because they currently have high rates due to high costs.
However a state chooses to bear its universal service burden (i.e.,
through existing, implicit rate designs or through an explicit support
mechanism), the ability to spread the burden over a larger number of
lines will make the burden easier for a state to bear. In contrast,
using the ratio of high-cost to low-cost lines, one method suggested by
the Joint Board, may not be as predictable as using a fixed dollar
amount per line, because the number of high-cost to low-cost lines may
fluctuate over time. Using the ratio of high-cost to low-cost lines
also would be an administratively difficult method of determining a
state's internal ability to achieve rate comparability, given the fact
that supporting data would need to be obtained from a variety of
sources in each state. Finally, the Joint Board's recommendation that
intrastate support be calculated as a percentage of intrastate
telecommunications revenues was based in part on its judgment that
intrastate telecommunications revenues provide a rough measure of the
funds available to support intrastate mechanisms. Because we have
decided to adopt a cost-based benchmark rather than a benchmark that is
based on revenues, we do not believe that a percentage-based cap on
intrastate responsibility would in every case provide a meaningful
measure of a state's ability to fund intrastate support.
29. We emphasize that states are not, through the adoption of this
approach, required to impose a per-line charge to support universal
service, nor are carriers necessarily entitled to recover this amount
from new or explicit state mechanisms. As the Joint Board explained,
this amount reflects a reasonable estimate of the state's ability to
achieve reasonably comparable rates on a statewide basis and
establishes a level above which federal support, consisting of funds
transferred from other jurisdictions, should be provided to assist the
state in achieving rates that are reasonably comparable to those in
other states. States largely are already making use of this ability by
providing carriers with substantial universal service support, often
through rate averaging and other rate design methodologies, and states
are best positioned to determine how and whether these mechanisms need
to be altered to ensure that carriers do not double-recover universal
service support. Given the substantial amounts of universal service
support already built into state rate designs, we agree with the Joint
Board that providing the full amount of support determined by the
federal methodology from federal mechanisms, without any estimate of
state support, is likely to lead to carrier double-recovery.
30. Thus, in the second step of the revised support methodology, an
assessment will be made as to whether the perceived support need, as
established in the first step of the methodology, exceeds the state's
ability to achieve reasonable comparability of rates. The state's
ability will be estimated by multiplying a dollar figure by the number
of lines served by non-rural carriers in the state. Any needed support
that exceeds this estimate of the state's ability to support its own
high-cost areas will be provided by the federal mechanism. In this way,
the mechanism will ensure that every state will have adequate resources
to ensure reasonably comparable rates.
4. Size of the Federal Support Mechanism and Hold-Harmless
31. In this Order, we adopt the recommendation of the Joint Board
that a hold-harmless provision should be implemented to prevent
substantial reductions of federal support and potentially significant
rate increases. Adoption of a hold-harmless provision will both serve
to avoid any potential rate shock when the new federal support
mechanism goes into effect, and to prevent undue disruption of state
rate designs that may have been constructed upon, and thus are
dependent upon, current federal high-cost support flows. We agree with
the Joint Board that the hold-harmless amounts should be provided in
lieu of the amounts computed by the two-step forward-looking
methodology described, whenever the hold-harmless amount exceeds the
amount indicated by the forward-looking methodology.
32. In determining the size of the new federal mechanism to enable
reasonably comparable local rates, we must fulfill our statutory
obligation to assure sufficient, specific, and predictable universal
service support without imposing an undue burden on carriers and,
potentially, consumers to fund any increases in federal support.
Because increased federal support would result in increased
contributions and could increase rates for some consumers, we are
hesitant to mandate large increases in explicit federal support for
local rates in the absence of clear evidence that such increases are
necessary either to preserve universal service, or to protect
affordable and reasonably comparable rates, consistent with the
development of efficient competition. Rather, we agree with the Joint
Board that current conditions do not necessitate substantial increases
in federal support for local rates. We believe that limiting the amount
of new support that each state receives under the new mechanism is
consistent with the Joint Board's recommendation that the amount of
such federal support should not increase significantly.
33. The Joint Board initially recommended that having the federal
mechanism calculate support using study-area average costs would be one
way roughly to maintain the current size of the federal mechanism.
Indeed, the current system calculates costs using study area-averaged
costs. While we agree with the Joint Board that there is no current
need for large increases in the size of the federal support mechanism
for local rates, we are seeking further comment in an FNPRM on whether
it is equally important, even at this early stage in the development of
local competition, to provide support that is calculated at a more
granular level. Given that telephone service currently is largely
affordable, and any significant increase in the size of federal support
for local rates appears unnecessary, we conclude that we should limit
the size of the federal mechanism, as recommended by the Joint Board.
5. Portability of Support
34. In the Second Recommended Decision, the Joint Board recommended
that the Commission maintain the policy established in the First Report
and Order of making high-cost support available to all eligible
telecommunications carriers, whether they be incumbent LECs,
competitive carriers, or wireless carriers. The Joint Board stated that
portable support is consistent with the principle of competitive
neutrality, and expressed
[[Page 30923]]
its continued support for competitive neutrality as a guiding principle
of universal service reform. GTE and USTA expressed general support for
this recommendation.
35. We conclude, consistent with the Joint Board's recommendation,
that the policy the Commission established in the First Report and
Order of making support available to all eligible telecommunications
carriers should continue. All carriers, including commercial mobile
radio service (CMRS) carriers, that provide the supported services,
regardless of the technology used, are eligible for ETC status under
section 214(e)(1). We reiterate that the plain language of section
214(e)(1) prohibits the Commission or the states from adopting
additional eligibility criteria beyond those enumerated in section
214(e)(1). We also reaffirm that under section 214(e), a state
commission must designate a common carrier, including carriers that use
wireless technologies, as an eligible carrier if it determines that the
carrier has met the requirements of section 214(e)(1). We re-emphasize
that the limitation on a state's ability to regulate rates and entry by
wireless service carriers under section 332(c)(3) does not allow the
states to deny wireless carriers ETC status.
36. We agree with the Joint Board that competitive neutrality is a
fundamental principle of universal service reform, and that portability
of support is necessary to ensure that universal service support is
distributed in a competitively neutral manner. We also agree with US
West that ``portability'' of support should not be used to divert
federal funds from high-cost areas to other areas. For this very
reason, we conclude that all carriers, both incumbent LECs and
competitive LECs, must use high-cost support in a manner consistent
with section 254.
37. Although we adopt a hold-harmless provision we do not believe
that the Joint Board intended incumbent LECs to be held harmless for
federal high-cost support amounts that they lose when a customer elects
to switch carriers and begins taking service from a competitive LEC.
Such a conclusion would contravene the Joint Board's desire that
competitive neutrality be a driving force behind universal service
reform. Moreover, it would eviscerate the concept of ``portable''
support if the loss of customers to a competitor did not change the
incumbent's support amounts. We conclude, therefore, that incumbent
LECs will not be held harmless for reductions in their federal high-
cost support amounts that result from competitive LECs capturing that
incumbent LEC's customers. In addition, a competitive LEC or other
carrier that gains an incumbent LEC's customers, and hence any high-
cost support that the incumbent LEC had received for those customers,
may only use that support in a manner consistent with section 254.
6. Use of Support
38. We conclude that carriers must apply federal high-cost
universal service support in a manner consistent with section 254.
Specifically, section 254(e) requires carriers to use universal service
support ``only for the provision, maintenance, and upgrading of
facilities and services for which the support is intended.''
39. We also conclude that, if we find that a carrier has not
applied its universal service high-cost support in a manner consistent
with section 254, we have the authority to take appropriate enforcement
actions. States or other parties may petition the Commission, pursuant
to section 208 of the Act, if such parties believe that a common
carrier has misapplied its high-cost universal service support. States
or other parties should avail themselves of the Commission's formal
complaint procedures if they believe that a common carrier is not using
its federal universal service high-cost support in accordance with the
directions we have set forth in this Order. Because the Commission's
statutory authority under section 208 extends to violations of the Act
by all common carriers, we conclude that all potential recipients of
high-cost support would be subject to our enforcement jurisdiction.
Depending on the nature of the complaint, furthermore, a complaint
filed by a party against a common carrier alleging misapplication of
universal service high-cost support could qualify for resolution under
the Commission's ``accelerated docket'' procedures.
C. Carrier Recovery of Universal Service Contributions from Consumers
40. Because we have resolved, or are resolving, all of the carrier
recovery issues in the Truth-in-Billing proceeding, we need not revisit
them here. We continue to believe that the ongoing Truth-in-Billing
proceeding, with the detailed record being developed there, is the
correct forum to resolve these issues. We wish to emphasize, however,
that prior to the adoption in the Truth-in-Billing proceeding of any
final standardized label for universal service charges on consumer
bills, we will not hesitate to take enforcement action against carriers
who engage in unjust or unreasonable practices in violation of section
201(b).
D. Assessing Contributions from Carriers
41. The Fifth Circuit has not yet issued a decision in Texas Public
Utility Counsel v. FCC. While we acknowledge the Joint Board's
observation that changing the assessment base to include both
interstate and intrastate end-user telecommunications revenues would
ease burdens on carriers that would not otherwise have to separate
revenues on a jurisdictional basis and that a broader revenue base
would result in a lower assessment rate, these recommendations are
contingent upon the Fifth Circuit's decision in Texas Public Utility
Counsel v. FCC. Accordingly, pending further resolution of this matter
by the Fifth Circuit, the assessment base and the recovery base for
contributions to the high-cost and low-income universal service support
mechanism that we adopted in the First Report and Order shall remain in
effect.
E. Unserved Areas
42. During the proceedings that led to the Second Recommended
Decision, the Arizona Corporation Commission submitted a proposal to
use a portion of federal support to address the problem of unserved
areas and the inability of low-income residents to obtain telephone
service because they cannot afford to pay line extension or
construction charges. In the Second Recommended Decision, the Joint
Board expressed its interest in ensuring that telephone service is
provided to unserved areas, and recognized that states other than
Arizona may have unserved areas that may need to be examined. Because
providing service to unserved areas has historically been addressed by
the states, the Joint Board concluded that the states should continue
to address unserved area problems, to the extent they are able to do
so. The Joint Board recognized, however, that there may be some
circumstances that warrant federal universal service support for line
extensions to unserved areas. The Joint Board recommended that the
Commission investigate the question of unserved areas in a separate
proceeding and determine, in consultation with the Joint Board, whether
there are unserved areas that warrant any federal universal service
consideration.
43. We agree with the Joint Board that, while the states have
historically addressed the issue of providing service to unserved
areas, there may be unserved areas, or inadequately-served areas
characterized by extremely low density, low penetration, and high costs
[[Page 30924]]
that warrant additional federal universal service support. Commenters
who addressed this issue agree with the Joint Board that the Commission
should investigate this issue further. Bringing service to these areas
is clearly within the goal of the 1996 Act to accelerate deployment of
services to ``all Americans.'' In accordance with the Joint Board's
recommendations, therefore, we will initiate a separate proceeding in
July of 1999 to more fully develop the record on this issue, and
investigate the nature and extent of the ``unserved area'' issue in the
nation. We anticipate that, as a result of this separate proceeding,
and in consultation with the Joint Board, we will be better able to
determine whether any of these unserved areas should receive federal
universal service support.
F. Periodic Review
44. In the Second Recommended Decision, the Joint Board noted that
the 1996 Act contemplates that the Joint Board may periodically make
recommendations to the Commission regarding modifications in the
definition of services supported by the federal universal service
support mechanism. In addition to recommending that the Commission
continue to consult with the Joint Board on matters addressed in the
Second Recommended Decision, the Joint Board specifically recommended
that the Joint Board and the Commission broadly reexamine the high cost
universal service mechanism no later than three years from the
implementation date of the revised universal service high-cost
mechanism.
45. We affirm our commitment to consulting with the Joint Board on
an ongoing basis on issues addressed in this Order. We agree with the
Joint Board that both ongoing and periodic review is necessary in light
of the fact that the telecommunications industry is rapidly changing,
and both competition and technological change may affect universal
service needs in rural, insular, and high cost areas. We conclude that,
in addition to ongoing consultation with the Joint Board, the
Commission and the Joint Board shall, on or before January 1, 2003,
comprehensively examine the operation of the high cost universal
service mechanism implemented in this Order, including the hold-
harmless mechanism.
II. Procedural Matters
A. Regulatory Flexibility Act
46. The Regulatory Flexibility Act (RFA) requires an Initial
Regulatory Flexibility Analysis (IRFA) whenever an agency publishes a
notice of proposed rulemaking, and a Final Regulatory Flexibility
Analysis (FRFA) whenever an agency promulgates a final rule, unless the
agency certifies that the proposed or final rule will not have ``a
significant economic impact on a substantial number of small
entities,'' and includes the factual basis for such certification. The
RFA generally defines ``small entity'' as having the same meaning as
the term ``small business concern'' under the Small Business Act, 15
U.S.C. 632. The Small Business Administration (SBA) defines a ``small
business concern'' as an enterprise that (1) is independently owned and
operated; (2) is not dominant in its field of operation; and (3) meets
any additional criteria established by the SBA.
47. We conclude that neither an IRFA nor a FRFA are required here
because the foregoing Report and Order adopts a final rule affecting
only the amount of high-cost support provided to non-rural LECs. Non-
rural LECs generally do not fall within the SBA's definition of a small
business concern because they are usually large corporations,
affiliates of such corporations, or dominant in their field of
operations. Therefore, we certify, pursuant to section 605(b) of the
RFA, that the final rule adopted in the Report and Order, will not have
a significant economic impact on a substantial number of small
entities. The Office of Public Affairs, Reference Operation Division,
will send a copy of this certification, along with this Report and
Order, to the Chief Counsel for Advocacy of the SBA in accordance with
the RFA. In addition, this certification, Report and Order (or
summaries thereof) will be published in the Federal Register.
B. Effective Date of Final Rules
48. We conclude that the amendments to our rules adopted herein
shall be effective upon publication in the Federal Register. Pursuant
to our rules, our existing high-cost support mechanism is scheduled to
be phased out on July 1, 1999. In this Order, however, we conclude that
the new forward-looking high-cost support mechanism should be
implemented on January 1, 2000, instead of July 1, 1999, as previously
planned. The amendments we adopt in this Order extend the present high-
cost support mechanism from July 1, 1999, until January 1, 2000, when
the new forward-looking high-cost support mechanism will be
implemented. Thus, the amendments must become effective before July 1,
1999. Making the amendments effective 30 days after publication in the
Federal Register would jeopardize the required July 1, 1999 effective
date. Accordingly, pursuant to the Administrative Procedure Act, we
find good cause to depart from the general requirement that final rules
take effect not less than 30 days after their publication in the
Federal Register.
III. Ordering Clauses
49. Accordingly, it is ordered that, pursuant to the authority
contained in sections 1-4, 201-205, 218-220, 214, 254, 303(r), 403, and
410 of the Communications Act of 1934, as amended, 47 U.S.C. 151-154,
201-205, 218-220, 214, 254, 303(r), 403, and 410, the Report and Order
is adopted, June 9, 1999.
50. It is further ordered that part 36 of the Commission's rules,
47 CFR 36, is amended as set forth, effective immediately upon
publication of the text thereof in the Federal Register.
List of Subjects in 47 CFR Part 36
Reporting and recordkeeping requirements and Telephone.
Federal Communications Commission.
Magalie Roman Salas,
Secretary.
Rule Changes
For the reasons discussed in the preamble, the Federal
Communications Commission amends 47 CFR Part 54 as follows:
PART 36--JURISDICTIONAL SEPARATIONS PROCEDURES; STANDARD PROCEDURES
FOR SEPARATING TELECOMMUNICATIONS PROPERTY COSTS, REVENUES,
EXPENSES, TAXES AND RESERVES FOR TELECOMMUNICATIONS COMPANIES
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.
Sec. 36.601 [Amended]
2. In 47 CFR 36.601(c) remove the date ``July 1, 1999'' and add, in
its place each place it appears, the date ``January 1, 2000.''
[FR Doc. 99-14698 Filed 6-8-99; 8:45 am]
BILLING CODE 6712-01-P
