[Federal Register Volume 64, Number 110 (Wednesday, June 9, 1999)]
[Proposed Rules]
[Pages 30949-30956]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-14699]
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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: Notice of proposed rulemaking.
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SUMMARY: The Commission has adopted the principles of a federal support
mechanism that conforms to the Second Recommended Decision, however,
the Commission does not believe that an adequate record yet exists to
make determinations regarding some of the specific elements of the
support methodology. Accordingly, the Commission has issued this
document seeking comment on several specific implementation issues. In
conjunction with our actions to implement an explicit high-cost support
mechanism based on forward-looking costs, we also take action and seek
comment on additional issues to permit us to identify implicit support
remaining in interstate access charges by January 1, 2000.
DATES: Comments are due on or before July 2, 1999 and reply comments
are due on or before July 16, 1999. Written comments by the public on
the proposed information collections are due on or before July 2, 1999
and reply comments are due on or before July 16, 1999. Written comments
must be submitted by the Office of Management and Budget (OMB) on the
proposed information collections on or before August 9, 1999.
ADDRESSES: Parties who choose to file by paper must file an original
and four copies of each filing. All filings must be sent to the
Commission's Secretary, Magalie Roman Salas, Office of the Secretary,
Federal Communications Commission, 445 Twelfth Street, S.W., TW-A325,
Washington, D.C. 20554. In addition to filing comments with the
Secretary, a copy of any comments on the information collections
contained herein should be submitted to Judy Boley, Federal
Communications Commission, Room 1-C804, 445 Twelfth Street, S.W.,
Washington, DC 20554, or via the Internet to jboley@fcc.gov, and to
Timothy Fain, OMB Desk Officer, 10236 NEOB, 725--17th Street, N.W.,
Washington, DC 20503 or via the Internet to fain__t@al.eop.gov.
FOR FURTHER INFORMATION CONTACT: Jack Zinman, Attorney, Common Carrier
Bureau, Accounting Policy Division, (202) 418-7400. For additional
information concerning the information collections contained in this
Further Notice of Proposed Rulemaking contact Judy Boley at 202-418-
0214, or via the Internet at jboley@fcc.gov.
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.
Initial Paperwork Reduction Act Analysis
1. This Further Notice of Proposed Rulemaking contains a proposed
information collection. 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
collections contained in this Further Notice of Proposed Rulemaking, as
required by the Paperwork Reduction Act of 1995, Public Law 104-13.
Public and agency comments are due at the same time as other comments
on this Further Notice of Proposed Rulemaking; OMB notification of
action is due August 9, 1999. Comments should address: (a) whether the
proposed collection of information is necessary for the proper
performance of the functions of the Commission, including whether the
information shall have practical utility; (b) the accuracy of the
Commission's burden estimates; (c) ways to enhance the quality,
utility, and clarity of the information collected; and (d) ways to
minimize the burden of the collection of information on the
respondents, including the use of automated collection techniques or
other form of information technology.
OMB Approval Number: None.
Title: Notification to High Cost Subscriber Lines and Certification
Letter Accounting for Receipt of Federal Support (Proposals).
Form No.: N/A.
Type of Review: New collection.
Respondents: Business or Other for Profit and State, Local or
Tribal Government.
[[Page 30950]]
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Number of
respondents Estimate time per response Total annual burden
----------------------------------------------------------------------------------------------------------------
Notification to High Cost 30 3 hours (Quarterly)...................... 1080 hours.
subscriber Lines.
Certification Letter 51 3 hours.................................. 153 hours.
Accounting for Receipt of
Federal Support.
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Total Annual Burden: 1233 hours.
Estimated costs per respondent: $0.
Needs and Uses: The Commission proposes that carriers should be
required to notify high-cost subscribers that their lines have been
identified as high-cost lines. This information will be used to show
that federal high-cost support is being provided to the carrier to
assist in keeping rates affordable in those subscribers' area. Further,
the proposed collection of information will be used to verify that the
carriers have accounted for its receipt of federal support in its rates
or otherwise used the support for the ``provision, maintenance, and
upgrading of facilities and services for which the support is
intended'' in accordance with section 254(e).
I. Introduction
2. Although we are adopting the principles of a federal support
mechanism that conform to the Second Recommended Decision, 63 FR 67837
(December 9, 1998), we do not believe that an adequate record yet
exists to make determinations regarding some of the specific elements
of the support methodology. Accordingly, we adopt this Further Notice
of Proposed Rulemaking (FNPRM) seeking comment on several specific
implementation issues. While we are resolving these implementation
issues, we also are continuing to verify the operation of the cost
model, including the input data elements. To complete this process, we
issue separately an additional FNPRM on the model input and operational
issues. We encourage commenters to consider both of these FNPRMs
together, and frame their comments to recognize the close relationship
between the issues discussed in each.
3. We intend to resolve the remaining methodological issues
identified in this FNPRM and verify the operation of the cost model,
including the input data elements, on which comment is being sought in
the companion Inputs FNPRM. We anticipate adoption this fall of an
order resolving these remaining issues, so that support may be based on
forward-looking costs of providing supported services beginning January
1, 2000. In conjunction with our actions to implement an explicit high-
cost support mechanism based on forward-looking costs, we also take
action today and seek comment on additional issues to permit us to
identify implicit support remaining in interstate access charges by
January 1, 2000.
A. Methodology Issues
National Benchmark
4. In its Second Recommended Decision, the Joint Board supported
using a cost-based benchmark, as opposed to one based on revenues, in
evaluating rate comparability because state jurisdictions vary in how
they set local rates. The Joint Board explained that forward-looking
cost estimates for a given area could be compared against the single
national cost benchmark in order to determine whether the area has
costs that are significantly above the national average. We adopted the
Joint Board's recommendation to employ a cost-based benchmark.
5. In setting the level of the national benchmark, the Joint Board
recommended that the Commission consider using a range between 115 and
150 percent of the national weighted average cost per line. Although
several commenters support the use of a national benchmark, many were
reluctant to comment on the range proposed by the Joint Board in the
absence of a finalized cost model. For that reason, we seek further
comment on the specific cost benchmark that we should adopt, and we
seek comment on whether the national benchmark should fall within the
Joint Board's recommended range.
6. The current high-cost mechanism for large carriers provides
increasing amounts of support based on the amount by which a carrier's
loop costs exceed the national average, beginning with loop costs
between 115 percent and 160 percent of the national average. In
particular, the current federal support mechanism provides 10 percent
support (in addition to the 25 percent allocation of all loop costs to
the interstate jurisdiction) for large incumbent LECs with more than
200,000 working loops for book loop costs above 115 percent of the
national average, and provides gradually more support for the portion
of these carriers' book loop costs exceeding 160 percent of the
national average. The following chart summarizes the levels of support
provided by the current high-cost mechanism for large carriers:
------------------------------------------------------------------------
Loop cost as a percent of the national Amount of intrastate loop cost
average supported (percent)
------------------------------------------------------------------------
Greater than 115%, but not greater than 10
160%
Greater than 160%, but not greater than 30
200%
Greater than 200%, but not greater than 60
250%
Greater than 250% 75
------------------------------------------------------------------------
While the existing mechanism provides support for loop costs
beginning at 115 percent of the national average, it considers only
loop costs, while the forward-looking cost model estimates the forward-
looking cost of all components of the network necessary to provide the
supported services.
7. Although we have not yet completed our work verifying the
results of the forward-looking cost model, the cost model is now
operational and, in a Report and Order, we have adopted the framework
of our methodology for its use. The model currently suggests that,
using this methodology, a cost benchmark level near the center of the
range recommended by the Joint Board would provide support levels that
are sufficient to enable reasonably comparable rates, in light of
current levels of competition to preserve and advance the Commission's
universal service goals. In addition to general comments on the Joint
Board's recommended range for the cost benchmark, we also seek specific
comment on the level at which we should set the national benchmark,
including comment on what additional factors and considerations we
should take into account before selecting a final national benchmark
level. We encourage commenters to use updated model outputs in
formulating their comments.
8. To ensure that there are no sudden withdrawals or reallocations
of federal support to cover costs between the cost benchmark range that
we ultimately adopt, we also seek comment today on the Joint Board's
recommendation that the new forward-looking mechanism incorporate a
hold-harmless provision. We seek comment on the specific operation of
such a provision. We encourage commenters to consider and discuss the
interaction between specific cost benchmark levels and the precise
operation of the hold-harmless provision.
[[Page 30951]]
Area Over Which Costs Should Be Averaged
9. After further consultation with the Joint Board, we seek further
comment on whether the federal support mechanism should calculate
support levels by comparing the forward-looking costs of providing
supported services to the benchmark at either (1) the wire center
level; (2) the unbundled network element (UNE) cost zone level; or (3)
the study area level.
10. A number of commenters have expressed support for calculating
costs at the wire center level. As we strive to bring competition to
local telephone markets while keeping rates for local service
affordable and reasonably comparable in all regions of the country, we
recognize two major benefits of such explicit deaveraged high-cost
support. As competition places downward pressure on rates charged to
urban, business, and other low-cost subscribers, we believe that
support deaveraged to the wire center level or below may ensure that
adequate support is provided specifically to the subscribers most in
need of support, because the support reflects the costs of specific
areas. In addition, deaveraged explicit support that is portable among
all eligible telecommunications carriers and targeted in a granular
manner to support high-cost subscribers could encourage efficient
competitive entry in all areas, not just in urban or other low-cost
areas. By permitting the incumbent's rates to reflect actual costs in
all areas, subject to explicit support assessments or portable support
payments, explicit deaveraged support may provide incentives to
competitors to expand service beyond urban areas and business centers
into all areas of the country and to all Americans, as envisioned by
the 1996 Act. We seek comment on this analysis.
11. As an alternative to computing costs at the wire center level,
we seek comment on whether we should compare costs to the benchmark at
the level of UNE cost zones instead. Under this proposal, each wire
center within a UNE cost zone would receive the same amount of support.
Thus, support would still be targeted to the general areas that need it
most, but upward pressure on the size of the federal fund would be
lessened compared to the wire center approach. This approach would also
coincide with the rules on the pricing of UNEs. Under our deaveraging
rules, state commissions must establish different rates for elements in
at least three defined geographical areas within the state to reflect
geographic cost differences, and may use existing density-related zone
pricing plans, or other cost-related zone plans established pursuant to
state law. Using UNE zones may avoid opportunities for arbitrage, and
because states are responsible for developing UNE zones, states will be
able to develop zone boundaries based upon local conditions, including
cost characteristics and the status of competition. We generally do not
foresee any difficulty using the cost model to mirror state UNE zones,
provided that state UNE zones correspond to wire center boundaries. We
seek comment, however, on how state UNE zones that potentially do not
correspond to wire center boundaries can be effectively used in the
cost model. We encourage commenters to use updated model outputs in
formulating their comments on this proposal. Finally, we ask commenters
to propose any other cost zones, other than UNE zones, that may be an
appropriate basis for computing costs.
12. We also seek comment on whether we should calculate costs at
the study area level. In recommending that the federal support
mechanism calculate costs at the study area level, the Joint Board
suggested that the level of competition today has not eroded implicit
support flows to such an extent as to threaten universal service. In
addition, compared to calculating costs at the level of wire centers or
UNE zones, calculating costs at the larger study area level may be more
likely to prevent substantial increases in the size of the high-cost
support mechanism because high-cost areas within the study area are
averaged with lower-cost areas within the study area. In addition, we
seek comment on whether comparing costs to the benchmark at the study
area level is more consistent with a vision of a federal mechanism for
reasonable rate comparability that focuses on support flows among
states rather than within states, and whether such a vision is more
consistent with the Joint Board's Second Recommended Decision. We seek
specific comment, however, on the extent to which competition is likely
to place steadily increasing pressure on implicit support flows from
low-cost areas and the extent to which this pressure suggests that we
should deaverage support in the implementation of our new mechanism. We
urge commenters to use updated model outputs when responding to this
analysis.
13. We seek specific comment on the impact of using study-area
averaged costs in a study area where UNEs are available. In the Local
Competition Order, the Commission determined that UNEs would be priced
in a minimum of three rate zones within a state. If high-cost support
is provided using study-area averaged costs, then all lines within the
study area would be eligible for the same amount of support even though
the UNE rates for those same lines would vary among rate zones within
the state. We seek comment on whether this disparity between support
amounts and UNE rates among different rate zones may create incentives
for carriers to engage in arbitrage or other uneconomic activities
unrelated to the purpose of high-cost support.
14. In recommending that costs be calculated at the study area
level, the Joint Board was driven by concerns that the amount of
federal high-cost universal service support be ``properly measured'' in
light of the current state of local competition. Comparing costs to a
benchmark when averaged over a smaller area is bound to produce higher
support calculations, however, because high costs in one area are less
likely to be diluted by low costs in another area when the area under
consideration is smaller. As discussed, we agree with the Joint Board
that federal support to enable reasonably comparable local rates for
non-rural carriers should not increase significantly from current
levels. We seek comment, however, on ways to resolve the tension
between the goal of preventing the fund from increasing significantly
above current levels, and the goal of ensuring that support is, to the
extent possible, directly targeted to high-cost areas within study
areas. In addition, we seek specific comment on four proposals to
resolve this tension.
15. First, we propose, if we were to determine total support
amounts in each study area by running the model to estimate costs at
the study area level, to distribute support by running the model again
at the wire center level in order to target support to high-cost wire
centers within the study area. This approach would not significantly
increase the size of the fund, but would ensure that support is
distributed to areas that need it most. As a second alternative, we
could determine support based on costs averaged at a level more
granular than the study area, such as UNE zones or wire centers, but
provide only a uniform percentage of the support so indicated. Such an
approach would be consistent with the Joint Board's findings that rates
are presently affordable and that competition has not yet eroded
support to high-cost customers.
16. As a third alternative, we could determine support based on
costs averaged at a level more granular than the study area, such as
UNE zones or wire centers, but cap the amount of
[[Page 30952]]
support available to any particular state to a fixed percentage of the
overall fund. As a fourth alternative, if we were to determine support
based on costs averaged at the UNE zone or wire center level, we could
limit the size of the fund either by raising the cost benchmark
appropriately or adopting incremental funding levels for costs above
the selected benchmark similar to the existing high-cost loop support
mechanism. As an example of incremental funding levels, were we to
adopt a cost benchmark of 135 percent of the national weighted average
cost per line, we could fund 10 percent of the costs that are between
135 percent and 160 percent of the national average, 30 percent of the
costs that are between 160 percent and 200 percent of the national
average, and so forth. We seek comment on each of these proposals,
including comment on how each meets the statutory requirement that
support should be ``sufficient.'' We also ask commenters to suggest
additional methods for preventing the size of the fund from growing
significantly.
Determining a State's Ability To Support High-Cost Areas
17. As discussed, we agree with the Joint Board that federal
support to enable reasonably comparable local rates for non-rural
carriers should be determined based, in part, on a state's ability to
support its universal service needs internally and that such federal
support should be available to the extent the state is unable to
achieve reasonably comparable rates using its own resources. We
concluded that a fixed dollar amount per line is a reasonably certain
and specific means of assessing a state's ability to enable reasonable
comparability of rates using its own resources.
18. In this FNPRM, we now seek comment on the fixed per-line dollar
amount that should be set to estimate a state's ability to internally
support its high-cost areas, and how the amount should be determined.
As one option, we observe that in the First Report and Order, 62 FR
32862 (June 17, 1997), the Commission suggested a revenue benchmark of
approximately $31. In the Second Recommended Decision, the Joint Board
considered establishing a state's responsibility based on a percentage
of revenues, specifically, a range between three and six percent of
intrastate telecommunications revenues. We seek comment on whether the
per-line amount should be set so that it amounts to between three and
six percent of this original $31 revenue benchmark, in order to roughly
equal, in absolute dollar terms, the amount that a state could
reasonably have anticipated if measured on a revenue percentage basis.
For example, a $2.00 per line figure would reflect roughly six percent
of $31. Under this fixed dollar amount per line approach, the perceived
need for support in the state is first calculated by comparing costs to
the benchmark. The state's ability to enable reasonably comparable
rates in the face of this perceived need would then be estimated by
multiplying the per-line figure by the total number of non-rural
carrier lines in the state. If the perceived support need exceeds this
estimate of the state's own resources, federal support would support
the difference in accordance with the benchmark methodology described.
We seek comment on this proposal.
19. We also seek comment on whether wireless lines should be
included in the calculation of a state's ability to support universal
service. If commenters believe that wireless lines should be included,
we seek comment on whether there should be a distinction between
wireless lines of an ETC and wireless lines of a non-ETC. Finally, we
emphasize that the use of a fixed per-line dollar value assessment to
estimate states' abilities to support their universal service needs
internally does not mandate the creation of state universal service
funds for this purpose.
B. Distribution and Application of Support
20. As discussed, we have concluded that, consistent with section
254, carriers should be required to use support ``only for the
provision, maintenance, and upgrading of facilities and services for
which the support is intended.'' We seek comment on what specific
restrictions, if any, are necessary to achieve this statutory
requirement. Specifically, in the event that the Commission ultimately
decides to average costs over an area larger than the wire center in
determining support levels, we seek comment on how this application of
support should be accomplished given our tentative conclusion to
require carriers to apply federal high-cost support to the wire centers
that triggered the need for support.
21. Although the Commission has the responsibility to ensure that
support is sufficient to enable reasonable comparability of rates, the
states establish specific rate levels. Therefore, we seek comment on
whether making federal support available as carrier revenue, to be
accounted for by the state in the rate setting process, will
sufficiently fulfill the section 254(e)'s requirement that federal
support shall be used ``only for the provision, maintenance, or
upgrading of facilities and services for which the support was
intended.'' We tentatively conclude that making support available as
part of the state rate-setting process would empower state regulators
to achieve reasonable comparability of rates within their states. For
example, we expect that states that have adopted price cap regulation
could require exogenous price cap adjustments to reflect the increased
support for high-cost areas and that states that retain rate of return
regulation would count the new support towards carriers' revenue
requirements. In either case, the state would be able to use federal
support targeted to high-cost wire centers to enable reasonable
comparability of local rates, if it so chose. We seek comment on this
proposal. Specifically, we seek comment on whether all state
commissions possess the jurisdiction and resources to take the actions
this approach would require. We also seek comment on whether, under
this proposal, carriers should be required to notify high-cost
subscribers that their lines have been identified as high-cost lines
and that federal high-cost support is being provided to the carrier to
assist in keeping rates affordable in those subscribers' area.
22. In addition, we seek comment on what further restrictions, if
any, we should impose on the use of federal support to ensure that
recipient carriers use the support in a manner consistent with section
254. The Joint Board recommended that the Commission require carriers
to certify that they will apply federal high-cost support in accordance
with the statute. The Joint Board also recommended that the Commission
should not require states to provide any certification as a
``condition'' for carriers in the state to receive high cost support,
but the Commission should instead permit states to certify that, in
order to receive federal universal service support, a carrier must use
such funds in a manner consistent with section 254. We seek comment on
whether state authority over local rates in a manner cognizant of
federal support levels will adequately enforce the requirements of
section 254(e), making additional federal regulation unnecessary.
Because some states may lack either the authority or the desire to
impose conditions on the use of high-cost support, we tentatively
conclude that such state oversight, while valuable and potentially
sufficient, may not in every case ensure that section 254(e)'s goals
are met. Therefore, we seek comment on whether
[[Page 30953]]
it would be appropriate to condition the receipt of federal universal
service high-cost support on any state action, including adjustments to
local rate schedules reflecting federal support. We believe that
denying support to states that lack the regulatory authority to ensure
that federal funds are used appropriately would penalize those states
and would not be consistent with section 254's mandates. We tentatively
conclude, however, that even states that lack this authority would be
able to certify to the Commission that a carrier within the state had
accounted for its receipt of federal support in its rates or otherwise
used the support for the ``provision, maintenance, and upgrading of
facilities and services for which the support is intended'' in
accordance with section 254(e). Conversely, if the state were unable or
unwilling to take action to achieve the goals of section 254(e), we
could allow such states to refuse federal high-cost support. We seek
comment on these approaches, including comment on whether
implementation of multiple options might best achieve the goals of
section 254(e), and comment on whether any carrier-initiated action
would be necessary in states with limited authority. Finally, we seek
comment on what carrier or state commission action, if any, may be
necessary to prevent double-recovery of universal service support at
both the federal and state level.
23. Under the approach discussed, we recognize that we may need to
allocate federal support among high-cost wire centers within a
carrier's study area. If the federal support amount based on forward-
looking cost provides only a portion of the support for a given wire
center, or if we choose to fund only a portion of the support otherwise
indicated by the model, we seek comment on means by which to perform
this allocation. If a carrier does not receive support equal to the
full amount of the difference between the forward-looking cost estimate
for the wire center and the threshold level for federal support, we
tentatively conclude that it should allocate the support among all
lines in these high-cost wire centers in a pro rata manner, based upon
the difference between the federal benchmark, plus state supported
levels, and the wire center's forward-looking cost of providing
service. We believe this approach has the potential to foster
competition because the amount of the support available to competing
eligible telecommunications carriers would be clearly identified, and
thus competing carriers would be able to assess more accurately whether
competitive entry is viable in a particular high-cost area. In
addition, high-cost support would be distributed in such a manner that
support levels in each high-cost wire center would be proportionate to
costs. We seek comment on these proposals and tentative conclusions.
C. Hold-Harmless and Portability of Support
24. As discussed, we agree with the Joint Board that the federal
high-cost support mechanism should have a hold-harmless provision to
prevent immediate and substantial reductions of federal support and
potentially significant rate increases. Under such a hold-harmless
provision, the amount of support provided would be the greater of the
amount generated under the forward-looking mechanism or the explicit
amount presently received. We seek comment on how we should implement
such a hold-harmless provision to best accomplish this goal.
Specifically, we seek comment on whether the hold-harmless provision
should be implemented on a state-by-state basis or on a carrier-by-
carrier basis.
25. Under a state-by-state approach, the total amount of federal
support provided in each state would be the greater of the total amount
indicated by the forward-looking mechanism or the total amount
presently received by carriers in the particular state. For example,
assume a state has two carriers, Carrier A and Carrier B, each
presently receiving $100 in federal high-cost intrastate support.
Assume further that under the forward-looking mechanism, Carrier A is
entitled to $100 and Carrier B is entitled to $95. The total amount of
support indicated by the forward-looking mechanism ($195) is less than
the total amount of support under the present mechanism ($200).
Therefore, the hold-harmless provision would supply an additional $5 of
support. Assume, however, that under the forward-looking mechanism,
Carrier A is entitled to $120 and Carrier B is entitled to $90. The
total amount of support indicated by the forward-looking mechanism
($210) is greater than the total amount of support under the present
mechanism ($200). Although Carrier B would receive less support under
the forward-looking mechanism, the state, as a whole, would receive
more support under the forward-looking mechanism. Therefore, the hold-
harmless provision does not supply any additional support. We believe
that such a state-by-state hold-harmless is likely to prevent
substantial increases in the size of the high-cost support mechanism
because an increase in support for one carrier can be offset by a
decrease in support for another carrier when determining the total
amount of hold-harmless support provided in a particular state. On the
other hand, the state-by-state approach may not prevent a decrease in
support for certain carriers within a particular state. Redistribution
of federal support within the state, however, may be accomplished by
state commission action.
26. In contrast, under a carrier-by-carrier hold-harmless approach,
the amount of federal support provided to each carrier in a state would
be the greater of the amount indicated by the forward-looking mechanism
or the explicit amount presently received by the carrier. For example,
assume a state has two carriers, Carrier A and Carrier B, each
presently receiving $100 in support. Assume further that, under the
forward-looking mechanism, Carrier A is entitled to $125 and Carrier B
is entitled to $75. Under a carrier-by-carrier hold-harmless provision,
Carrier A would receive $125 pursuant to the forward-looking model, and
Carrier B would receive $100 pursuant to the hold-harmless provision.
Thus, the total amount of federal support provided in that state would
increase to $225. A carrier-by-carrier approach ensures that no carrier
receives less support under the forward-looking mechanism than it
receives under the present mechanism. We believe, however, that the
carrier-by-carrier approach, as opposed to the state-by-state approach,
is more likely to inflate the size of the high-cost support mechanism
because the amount of support provided to each carrier can only
increase under this approach. Using updated model outputs, we ask
commenters to comment on whether a state-by-state or a carrier-by-
carrier hold-harmless approach is more consistent with universal
service principles set forth in the Act and the role of the federal
mechanism in providing high-cost support.
27. In addition, in the event that the Commission adopts a state-
by-state hold-harmless provision, we seek comment on how such a
provision should allocate support among carriers in the event that the
total amount of hold-harmless support provided in a particular state is
insufficient to fully hold each carrier harmless. Specifically, in the
event the Commission adopts a state-by-state hold-harmless approach, we
propose allocating the total amount of support pro rata among such
carriers based on their relative reductions in support. For example,
assume that a state has three carriers, Carrier A,
[[Page 30954]]
Carrier B, and Carrier C. Assume further that, under the present
mechanism, Carrier A receives $150, Carrier B receives $125, and
Carrier C receives $100. Also assume that, under the forward looking
mechanism, Carrier A is entitled to $175, Carrier B is entitled to
$100, and Carrier C is entitled to $75. The total amount of support
indicated by the forward-looking mechanism ($350) is less than the
total amount of support under the present mechanism ($375). Therefore,
a state-by-state hold-harmless provision would provide an additional
$25 of support. Because Carrier B and Carrier C have experienced a
combined reduction in support of $50 and Carrier A has experienced no
reduction in support, the $25 of hold-harmless support must be
allocated between Carrier B and Carrier C. Under our proposal, the
hold-harmless support would first be allocated to the carrier
experiencing the greater relative reduction in support. Here, Carrier B
received 80 percent ($100/$125) of its previous support amount, and
Carrier C received 75 percent ($75/$100) of its previous support
amount. In order to place Carrier B and Carrier C on equal footing,
therefore, the first $5 of the total hold-harmless amount would be
allocated to Carrier C, resulting in both Carrier B and Carrier C
receiving 80 percent of their previous amount of support. The remaining
$20 of support would be allocated pro rata between Carrier B and
Carrier C so that both carriers receive the same total percentage of
the support provided under the present mechanism. Carrier B would
receive an additional $11.11 ($125/$225 x $20), for a total of 89
percent ($111.11/$125) of its support under the present mechanism, and
Carrier C would receive an additional $8.88 ($100/$225 x $20), for a
total of 89 percent ($88.88/$100) of its support under the present
mechanism. We believe that this method of allocation allows for an
equitable distribution of support in the event that the total state-by-
state amount is insufficient to fully hold each carrier harmless. We
seek comment on this proposal.
28. In the alternative, we seek specific comment on whether, if we
eventually adopt a state-by-state rather than a carrier-by-carrier
hold-harmless approach, we should distribute universal service high-
cost support directly to the state commissions, rather than to
carriers. The Joint Board considered and rejected distributing federal
support to the states, rather than directly to carriers, because of the
long-standing practice of distributing federal support directly to
carriers and the absence of any affirmative evidence in the Act or its
legislative history that Congress intended to alter this method of
distribution. In addition, commenters that addressed this issue oppose
a mechanism that would distribute support to the states. We seek
additional comment, however, on whether support should be distributed
to the state commissions for allocation among carriers in each state
instead of through a federal allocation mechanism, in the event one or
more carriers in the state experienced a reduction in support as a
result of a state-by-state hold-harmless mechanism.
29. We also seek comment on the relationship between the hold-
harmless approaches suggested, and the portability of federal high-cost
support. As discussed, we concluded that, consistent with the Joint
Board's recommendations and the policy we established in the First
Report and Order, federal high-cost support should be portable, and
available to all eligible telecommunications carriers, regardless of
the technology used to provide the supported services. To implement
portability, however, we must first determine the amount of support to
be ported. Specifically, in the event a competitor wins a customer from
an incumbent receiving hold-harmless support, we seek comment on
whether the competitor should receive the incumbent's hold-harmless
support, or whether the competitor should receive the amount of support
determined on a forward-looking basis. Making the hold-harmless amount
available to the competitor appears to be more competitively neutral,
because both carriers would receive the same amount. However, given
that the purpose of the hold-harmless provision is to prevent sudden
rate increases by carriers that have grown dependent on current support
in designing their rate structures, the hold-harmless amount could
represent a windfall to an efficient competitor. While making the
forward-looking amount available to the competitor and providing the
hold-harmless amount to the incumbent may not be as competitively
neutral, it would appear to approximate more closely the amount
necessary to support high-cost service in the area. We seek comment on
this issue. We encourage commenters to use updated model outputs in
framing their comments on the issue of portability.
D. Adjusting Interstate Access Charges To Account for Explicit Support
30. As discussed, we agree with the Joint Board that we have the
jurisdiction and statutory obligation to identify any universal service
support that is implicit in interstate access charges and, as far as
possible, make that support explicit. In this section we seek comment
on how we should adjust interstate access charges to offset universal
service support that we subsequently identify in interstate access
charges and allow carriers to recover through increased support from
the new federal mechanism. Because of the role access charges have
played in supporting universal service, it is critical to implement
changes in the interstate access charge system together with the
complementary changes in the federal universal service support
mechanism we adopt today. We seek comment on how we should adjust
interstate access charges to reflect any increases in federal explicit
support provided to non-rural carriers under the new federal mechanism
and methodology.
31. The Commission determined in the First Report and Order that
non-rural carriers would begin to receive high-cost support on July 1,
1999, based on forward-looking costs, and delayed the implementation of
support based on forward-looking costs for rural carriers until at
least January 1, 2001. As discussed, more time is needed to verify the
models that will determine the forward-looking costs on which the
intrastate high-cost support for non-rural carriers will be based.
Thus, we are postponing the July 1, 1999, implementation of intrastate
high-cost support for non-rural carriers until January 1, 2000. Because
these models may also be used to determine levels of implicit support
in interstate access charges and the amount of federal support a
carrier should receive, this will also delay determination of the
interstate high-cost support for non-rural carriers. This section
addresses only the question of how to reduce interstate access charges
to reflect increased explicit federal support for non-rural carriers
that currently flows within the interstate jurisdiction. We will
address any necessary interstate access charge reductions for rural
carriers at a later date.
32. We tentatively conclude that we should require price cap LECs
to reduce their interstate access rates to reflect any increased
explicit federal high-cost support they receive. To do otherwise would
give these carriers a windfall by allowing them to maintain rates that
include implicit high-cost support even after the support has been made
explicit. We tentatively conclude that the carriers should make an
exogenous downward adjustment to the common line basket. In the short
run, this will reduce the CCLC and multi-line PICCs.
[[Page 30955]]
In the longer run, this adjustment will keep down scheduled increases
for the primary residential and single-line business PICC. The PICC is
often passed on to the end user by the IXC that pays it. This approach
will serve the dual purpose of eliminating implicit support and holding
down per-line rates associated with primary residential and single-line
business lines. This will, therefore, help keep basic telephone service
affordable and comparable.
33. We seek comment on whether we should require price cap LECs to
reflect explicit high-cost support by making the downward exogenous
adjustment to their common line basket's price cap indexes (PCIs).
Alternatively, we seek comment on whether we should instead permit
incumbent LECs to reduce their access rates to offset the explicit
support by lowering their common line charges on a geographically
deaveraged basis. For example, we could reduce implicit support
resulting from geographic averaging by permitting carriers to lower
their SLCs on a deaveraged basis, reducing SLCs in low-cost areas,
while maintaining the SLC caps in our rules for high-cost areas. We
seek comment on whether we should allow carriers to determine where
they lower their rates under such an approach. Alternatively, we seek
comment on whether we or the state commissions should delineate the
permissible areas for deaveraged reductions, and how those areas should
be determined. We could, for example, require the deaveraging to occur
based on the same rate zones that some states have already identified
pursuant to our deaveraging requirement for the pricing of unbundled
network elements and interconnection. We also seek comment on which
common line rate elements should be deaveraged.
34. We also seek comment on whether price cap carriers should also
reduce their base factor portion (BFP). For carriers that calculate
their SLC based on the BFP, this would result in reductions to the SLC
for multi-line business and non-primary residential lines, which would
be offset by smaller reductions in CCL and multi-line PICC rates. We
also seek comment on whether a downward adjustment to the incumbent
LECs' PCIs should be across-the-board instead of targeted to the common
line basket.
35. We also seek comment on whether we should reduce the SLC on
primary residential and single-line business lines. Although such a
reduction is an option, it would not further the goal of reducing
implicit interstate support, unless it was targeted to low-cost wire
centers within a study area. The current SLC cap of $3.50 per month on
primary residential and single-line business lines already creates
interstate implicit support for most of those lines. A general
reduction in the SLC would increase the need for such support and would
not reduce support implicit in the CCLC and the multi-line PICC.
Although, at the end of the transition initiated by our Access Charge
Reform Order, 62 FR 31040 (June 6, 1997), the combination of the SLC
and PICC assessed to each line will permit carriers to recover the full
interstate-allocated portion of their common line costs from the line
that caused those costs to be incurred, any reduction in the SLC would
delay this transitional process and result in a higher PICC on primary
residential and single-line business lines. We do not expect any
reductions to the common line basket to reduce common-line recovery
below $3.50 per month, per line, but we seek comment on whether we
should limit any reductions to the common line basket to the amount
needed to reduce common line revenues per line to $3.50. We seek
comment on how the remainder of the adjustment should be applied if
that were to occur.
36. We tentatively conclude that non-rural rate-of-return LECs
should apply additional interstate explicit high-cost support revenues
to the CCL element, thus reducing CCL charges. We seek comment on this
tentative conclusion. We also seek comment on whether these revenues
should instead be deducted from the BFP, which would reduce the SLC for
multi-line business lines and diminish the reduction to the CCLC.
Furthermore, as noted, the Joint Board set forth certain guidelines
that the Commission should follow when taking action to remove implicit
support from interstate access rates, including: (1) there should be a
corresponding dollar-for-dollar reduction in interstate access charges
as implicit support in interstate access rates is replaced with
explicit support; (2) any reductions in interstate access rates should
benefit consumers; (3) universal service should bear no more than a
reasonable share of joint and common costs; and (4) reasonable
comparability should not be jeopardized, and neither consumers in
general nor particular classes of consumers should be harmed. We seek
comment on whether our proposals in this section conform to the Joint
Board's guidelines.
37. Finally, we recognize that some proposals for access reform may
have the added benefit of directing more federal support to high-cost
areas, relative to low-cost areas. For example, some parties have
suggested using the cost proxy model as the basis for converting the
excess of access rates above the forward-looking cost of access from
implicit support to geographically deaveraged support amounts. These
support amounts would be both explicit and portable to competing LECs
that serve the lines to which these support amounts would be assigned.
It would appear that these proposals could potentially serve to direct
more federal support to high-cost areas, relative to low-cost areas,
much like we believe the use of the cost model in conjunction with an
appropriate benchmark could direct such additional support to high-cost
areas. We seek comment on whether and how adoption of an access reform
proposal that would direct more federal support to high-cost areas,
relative to low-cost areas, should affect our calculation of high-cost
universal service support, if at all. To the extent possible, parties
commenting on this issue should address specific access reform
proposals that could be used in this manner to reform both high-cost
universal service and access charges simultaneously.
II. Procedural Matters
A. Regulatory Flexibility Act
38. The Regulatory Flexibility Act (RFA) requires a Regulatory
Flexibility Act analysis whenever an agency publishes a notice of
proposed rulemaking, or 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.
39. We conclude that neither an Initial Regulatory Flexibility
Analysis nor a Final Regulatory Flexibility Analysis are required here
because the foregoing FNPRM seeks comment only on the mechanisms that
the Commission should use to provide high-cost support 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 the RFA, 5
U.S.C. 605(b),
[[Page 30956]]
that the proposals contained in the FNPRM, 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 FNPRM, to the Chief Counsel for
Advocacy of the SBA in accordance with the RFA, see 5 U.S.C. 605(b),
and to Congress pursuant to the Small Business Regulatory Enforcement
Fairness Act of 1996, see 5 U.S.C. 801(a)(1)(A). In addition, this
certification, as well as this FNPRM (or summaries thereof), will be
published in the Federal Register.
B. Filing Comments
40. Pursuant to Sections 1.415 and 1.419 of the Commission's rules,
47 CFR 1.415, 1.419, interested parties may file comments on or before
July 2, 1999, and reply comments on or before July 16, 1999. Comments
may be filed using the Commission's Electronic Comment Filing System
(ECFS) or by filing paper copies. See Electronic Filing of Documents in
Rulemaking Proceedings, 63 FR 24,121 (1998).
41. Comments filed through the ECFS can be sent as an electronic
file via the Internet to http://www.fcc.gov/e-file/ecfs.html>.
Generally, only one copy of an electronic submission must be filed. If
multiple docket or rulemaking numbers appear in the caption of this
proceeding, however, commenters must transmit one electronic copy of
the comments to each docket or rulemaking number referenced in the
caption. In completing the transmittal screen, commenters should
include their full name, 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 for
e-mail comments, commenters should send an e-mail to ecfs@fcc.gov, and
should include the following words in the body of the message, ``get
form 