**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | *  | CC Docket No. 96-45          |
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| Federal-State Joint Board on     | ** | CC Docket No. 98-171         |
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| Universal Service                | *  | CC Docket No. 90-571         |
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| 1998 Biennial Regulatory Review  | ** | CC Docket No. 92-237         |
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| Reporting                        | ** | CC Docket No. 99-200         |
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| Requirements Associated with     | *  | CC Docket No. 95-116         |
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+----------------------------------+----+------------------------------+

**ORDER AND SECOND ORDER ON RECONSIDERATION**

**Adopted: March 14, 2003 Released: March 14, 2003**

By the Commission: Commissioner Copps approving in part, dissenting in
part, and issuing a statement; Commissioner Adelstein issuing a
statement.

# introduction

1.  In this Order, we address petitions for interim waiver and several
    petitions for reconsideration of rules recently adopted in the
    *Interim Contribution Methodology Order* regarding the assessment
    and recovery of contributions to the federal universal service
    support mechanisms.[^1] We grant local exchange carriers' request
    for an interim waiver of section 54.712 of the Commission's rules to
    permit such carriers to continue to recover through the federal
    universal service line item certain contribution costs associated
    with Centrex customers on a per-line basis from multi-line business
    customers, pending action on petitions for reconsideration of this
    rule. In addition, we grant, in part, petitions filed by the United
    States Telecommunications Association (USTA) and SBC Communications
    Inc. (SBC) seeking reconsideration of section 54.712 to permit
    eligible telecommunications carriers (ETCs) to recover contribution
    costs associated with Lifeline customers' occasional interstate
    revenues through a universal service pass-through charge for such
    customers. We also address petitions filed by the National Exchange
    Carrier Association, Inc. (NECA), Verizon Wireless, and WorldCom,
    Inc. (WorldCom), and clarify how the Universal Service
    Administrative Corporation (USAC) shall conduct the universal
    service contribution true-up processes for revenues from 2002
    and 2003. Finally, we grant, in part, a petition for reconsideration
    filed by AT&T Corp. (AT&T) requesting that the Commission announce
    the universal service contribution factor as a percentage rounded up
    to the nearest tenth of a percent.

# background

2.  On December 12, 2002, the Commission adopted interim modifications
    to the current revenue-based universal service assessment system to
    ensure the sufficiency and predictability of universal service while
    it considers reforms to sustain the universal service fund for the
    long term.[^2] Among other things, the Commission adopted a general
    rule precluding telecommunications carriers from marking up
    universal service line-item amounts above the relevant contribution
    factor.[^3] The Commission concluded such action would prohibit
    carriers from recovering unrelated costs through universal service
    line items and from averaging contribution costs across all end-user
    customers. In addition, it would alleviate end-user confusion
    regarding universal service line items.[^4] The Commission
    recognized this rule would require some carriers to implement
    modifications to billing systems and therefore stated that it would
    not become effective until April 1, 2003.[^5]

# discussion

3.  *[Centrex.]{.underline}* In this Order, we grant, in part, petitions
    for interim waiver filed by BellSouth, National Exchange Carrier
    Association (NECA), National Telecommunications Cooperative
    Association (NTCA), Organization for the Promotion and Advancement
    of Small Telecommunications Companies (OPASTCO), SBC, and Verizon
    (Petitioners) of section 54.712(a) of our rules as it applies to the
    multi-line business customers of local exchange carriers, pending
    the Commission's resolution of petitions for reconsideration of the
    rule.[^6] We find Petitioners have demonstrated special
    circumstances to warrant deviation from our rule and that the public
    interest would be served by granting a limited interim waiver.[^7]
    Therefore, we waive section 54.712 on an interim basis to enable
    local exchange carriers to continue to recover federal universal
    service contribution costs through universal service line items
    using the equivalency ratios established for Centrex lines under our
    rules governing the Presubscribed Interexchange Carrier Charge
    (PICC).[^8] Until the Commission resolves pending petitions for
    reconsideration of section 54.712, local exchange carriers that
    utilize the PICC equivalency ratios when recovering contribution
    costs from Centrex customers will be permitted to recover a share of
    their contributions associated with the subscriber line charge for a
    specific Centrex line from their multi-line business customers in a
    given state.

4.  Under sections 69.131 and 69.158 of our rules, local exchange
    carriers have the option of recovering their contribution costs from
    Centrex customers through a universal service line item that uses
    the equivalency ratios established for Centrex lines under our rules
    governing the PICC.[^9] In the *Access Charge Reform Reconsideration
    Order*, the Commission adopted, for purposes of the PICC, a ratio of
    up to nine Centrex lines to one PBX trunk.[^10] The Commission
    subsequently granted local exchange carriers the option of applying
    this equivalency ratio to the recovery of universal service
    contribution costs from Centrex customers.[^11]

5.  In the *Interim Contribution Methodology Order*, the Commission
    adopted a general prohibition on the recovery of amounts in excess
    of contribution obligations through federal universal line-item
    charges. As discussed above, the Commission concluded such action
    would prevent carriers from recovering unrelated costs through
    universal service line items and from averaging contribution costs
    across all end-user customers.[^12] In addition, it would alleviate
    end-user confusion regarding universal service line items.[^13]

6.  We conclude that special circumstances exist that warrant interim
    waiver of the rule. Petitioners have noted a potential inconsistency
    between sections 54.712, 69.131, and 69.158. They assert that if
    carriers are not permitted to increase recovery charges for
    multi-line business customers, they may be unable to continue to
    apply an equivalency ratio to Centrex universal service pass-through
    charges as permitted by sections 69.131 and 69.158 of our rules and
    still recover their contribution costs from their customers.[^14]
    They note the Commission did not indicate its intent in the *Interim
    Contribution Methodology Order* to overturn its existing policy of
    permitting local exchange carriers to apply an equivalency ratio to
    Centrex customer universal service pass-through charges.[^15] To the
    contrary, they argue that the Commission recognized that it may be
    appropriate to continue applying the one-ninth equivalency ratio to
    Centrex customer lines in the event that a connection-based
    universal service contribution methodology is adopted.[^16]

7.  The petitions for reconsideration of this issue raise important
    issues we intend to resolve expeditiously. In the meanwhile, we
    believe the public interest would be served by granting a limited
    waiver of the general prohibition on averaging contribution costs
    among different customers for contribution costs not recovered by
    operation of the Centrex equivalency ratios to preserve the status
    quo for a limited period of time. Grant of this interim waiver does
    not represent a substantive change in Commission policy. To the
    contrary, grant of this interim waiver is only provided to allow
    carriers to continue an existing Commission policy, while we examine
    that policy and contribution issues more broadly. Until the
    Commission addresses pending petitions for reconsideration of this
    issue, local exchange carriers will be permitted to continue to
    average such unrecovered contribution costs across multi-line
    business customers.

8.  Moreover, this interim waiver will prevent an unintended increase in
    universal service pass-through charges on current Centrex users,
    pending the Commission's determination of the merits of the
    petitions for reconsideration on this and other related issues.
    Because most local exchange carriers currently apply the PICC
    equivalency ratios to Centrex universal service pass-through
    charges, the limited waiver we grant today will minimize changes in
    universal service line items for multi-line business customers in
    the immediate term, while carriers otherwise implement the new rule
    on April 1, 2003. In particular, we note that several organizations
    representing state agencies have submitted letters in support of
    this action.[^17] These commenters note that state governments rely
    heavily on Centrex service and would be disproportionately affected
    by increases in universal service line item charges resulting from
    denial of the interim waiver.[^18] We intend to weigh these and
    other arguments in reviewing the pending petitions for
    reconsideration.

9.  We emphasize the limited nature of our action today. This waiver is
    limited to the narrow issue of how to accommodate existing
    Commission policies that the Commission did not directly address in
    the *Interim Contribution Methodology Order*. Except for this
    limited exception, all carriers (including local exchange carriers)
    will continue to be subject to broader limitations on the recovery
    of contribution costs through federal universal service line-item
    charges.

10. *[Lifeline.]{.underline}* In addition, we grant, in part, petitions
    filed by SBC and USTA to reconsider section 54.712(b) of our rules,
    as it applies to the recovery of contributions associated with
    Lifeline customers.[^19] Specifically, we amend section 54.712(b) to
    permit ETCs to recover from Lifeline customers contribution costs
    associated with the provision of interstate telecommunications
    services that are not supported by the Commission's universal
    service mechanisms. ETCs have always been free to recover such
    amounts from these customers in the past, and the Commission did not
    intend to preclude such recovery when it adopted the interim
    modifications in the *Interim Contribution Methodology Order*.

11. Sections 54.712(a) and (b) read together prohibit ETCs from
    recovering any contribution costs associated with Lifeline customers
    either from Lifeline customers directly or through a federal
    universal service line-item charge assessed on all other customers.
    When the Commission adopted section 54.712(b), it reasoned that
    because "customers of Lifeline services do not generate assessable
    interstate telecommunications revenues for ETCs, the relevant
    assessment rate and contribution amounts recovered from such
    customers would be zero."[^20] In particular, the Commission focused
    on the fact that Lifeline customers are not obligated to pay a
    subscriber line charge, which typically is a major source of
    interstate revenue for an ETC.[^21] Several large local exchange
    carriers, however, point out that customers of Lifeline services do
    in fact generate occasional interstate telecommunications revenues
    from interstate telecommunications services, such as one-time
    presubscribed interexchange carrier (PIC) change charges and other
    interstate intraLATA toll charges.[^22] These charges, however, are
    not associated with services subject to Lifeline discounts and, in
    any event, should not generate substantial contribution
    amounts.[^23] Therefore, we find that ETCs should not be prohibited
    from recovering these minimal contributions associated with these
    occasional interstate charges from Lifeline customers.

12. Moreover, this modification will ensure that ETCs are not
    disadvantaged by our recovery limitations if they provide both local
    and long distance services to customers who participate in the
    Lifeline program. The combination of sections 54.712(a) and (b)
    could prohibit ETCs that provide both local and long distance
    services from recovering their contributions associated with such
    customer's long distance charges through any universal service line
    items.[^24] Interexchange carriers that only provide long distance
    services to customers who also qualify for Lifeline, however, have
    always been permitted to recover their contribution costs from these
    customers and still are free to do so under the current rules. We do
    not believe this disparity in recovery practices is competitively
    neutral. Accordingly, we will amend our rules to permit ETCs to
    recover contribution costs associated with interstate long distance
    charges from Lifeline customers.

13. *[True-Up Process for 2002 and 2003]{.underline}.* In response to
    petitions for reconsideration filed by NECA, Verizon Wireless, and
    WorldCom, we clarify how USAC will true up annual revenue data filed
    by contributors on the FCC Form 499-A against quarterly revenue data
    filed on the FCC Form 499-Q. Specifically, we clarify that USAC
    shall only apply the annual true-up to revenue periods for which
    universal service contributions actually were assessed. The annual
    true-ups for calendar year 2002 and 2003 revenues, therefore, will
    not apply to revenues from the fourth quarter of 2002 and the first
    quarter 2003.[^25] As discussed below, we deny other proposed
    modifications to USAC's true-up procedures or to the methodologies
    for calculating contributions to other support programs.[^26]

14. During the third quarter of each calendar year, USAC uses annual
    revenue data provided by contributors in the FCC Form 499-A to
    perform a true-up to quarterly revenue data submitted by
    contributors in FCC Form 499-Qs for the prior calendar year. As
    necessary, USAC refunds or collects from contributors any
    over-payments or under-payments. If the combined quarterly revenues
    reported by a contributor are greater than those reported on its
    annual revenue report (FCC Form 499-A), then a refund is provided to
    the contributor based on an average of the two lowest contribution
    factors for the year. If the combined quarterly revenues reported by
    a contributor are less than those reported on its FCC Form 499-A,
    USAC collects the difference from the contributor using an average
    of the two highest contribution factors for the year.

15. Because the purpose of the annual true-up is to ensure that
    interstate telecommunications providers contribute appropriate
    amounts to the universal service mechanisms based on quarterly
    revenue data, we agree with WorldCom and Verizon Wireless that USAC
    should only apply the true-up to revenue periods for which universal
    service contributions actually were assessed. If USAC applied the
    true-up to revenue periods for which universal service contributions
    were not assessed, certain providers' contribution obligation could
    potentially be increased or decreased.[^27] Consistent with this
    conclusion, we direct USAC not to apply the annual true-ups for
    calendar years 2002 and 2003 to revenues from the fourth quarter
    2002 and first quarter 2003.[^28]

16. The true-up for calendar year 2002 revenues will apply to revenues
    reported for the first three quarters of 2002, which were the basis
    for assessments in the third and fourth quarters of 2002 and the
    first quarter of 2003. The true-up for calendar year 2002 revenues
    will not apply to revenues reported for the fourth quarter of 2002.
    USAC will subtract revenues reported for the fourth quarter of 2002
    from annual revenues reported on the FCC Form 499-A to arrive at an
    estimate of a contributor's actual revenues for the first three
    quarters of 2002. Consistent with USAC's current true-up procedures,
    USAC will then compare this amount to the sum of revenues reported
    for the first three quarters of 2002 to determine whether a refund
    or additional collection is warranted. Refunds will be based on the
    average of the two lowest contribution factors applied to revenues
    reported for the first three quarters of 2002. Additional
    collections will be based on the average of the two highest
    contribution factors applied to revenues reported for the first
    three quarters of 2002.

17. The true-up for calendar year 2003 revenues will apply to revenues
    projected for the second through fourth quarters of 2003. The
    true-up for calendar year 2003 revenues will not apply to revenues
    projected for the first quarter of 2003. USAC will subtract revenues
    projected for the first quarter of 2003 from annual revenues
    reported on the FCC Form 499-A to arrive at an estimate of a
    contributor's actual revenues for the second through fourth quarters
    of 2003. USAC will then compare this amount to the sum of revenues
    projected for the second through fourth quarters of 2003 to
    determine whether a refund or collection is appropriate. In
    subsequent years, the annual true-up will continue to apply to any
    and all revenue periods for which contributions are assessed.

18. We deny NECA's proposal to conduct additional true-ups on a
    quarterly basis.[^29] In addition to the annual true-up, NECA
    proposes a quarterly true-up mechanism in which a contributor's
    quarterly revenue projections would be compared to the corresponding
    quarter's actual revenue filed six months later.[^30] Under NECA's
    proposal, any difference between projections and actual revenues
    would be applied to the relevant contribution factor for that
    calendar quarter to arrive at a true-up amount. We disagree with
    NECA that quarterly true-ups are appropriate because it is more
    difficult for contributors to project revenues than report
    historical revenues. As the Commission noted in the *Interim
    Contribution Methodology Order*, although the modified contribution
    methodology relies on the ability of contributors to project
    gross-billed and collected revenues, it only requires contributors
    to project for the upcoming quarter, which should minimize the
    potential for inaccurate estimates.[^31] In addition, contributors
    may correct their projections up to 45 days after the due date of
    each FCC Form 499-Q. We also note that by eliminating penalties for
    over- or under-reporting, NECA's quarterly true-up proposal would
    reduce incentives created under current true-up procedures for
    contributors to accurately forecast their revenues for the upcoming
    quarter.[^32] We therefore decline to adopt NECA's proposal at this
    time.

19. *[Timing of Revised Safe Harbor for Mobile Wireless
    Providers]{.underline}.* We also reject Verizon Wireless's
    contention that the Commission retroactively changed reporting
    requirements for mobile wireless providers by requiring mobile
    wireless providers that choose to report their interstate
    telecommunications revenues based on an interim safe harbor to
    report an increased percentage of interstate revenues for the fourth
    quarter of 2002 and the first quarter of 2003.[^33] In the *Interim
    Contribution Methodology Order*, the Commission increased to 28.5
    the interim safe harbor that provides cellular, broadband Personal
    Communications Service, and certain Specialized Mobile Radio
    providers with the option of assuming that a fixed percentage of
    their telecommunications revenues are interstate with the
    presumption of reasonableness. The Commission\'s decision to
    increase the mobile wireless safe harbor was based, in large part,
    on traffic studies conducted in the third quarter of 2002 by five
    unnamed large national mobile wireless providers.[^34] In the
    *Interim Contribution Methodology Order*, the Commission left
    unchanged mobile wireless providers' option of reporting actual
    interstate telecommunications revenues if they are able to do
    so.[^35]

20. Contrary to Verizon Wireless's contention, the rules adopted in the
    *Interim Contribution Methodology Order* do not impact revenues
    reported prior to January 29, 2003, the effective date of the order.
    The requirements adopted in the *Interim Contribution Methodology
    Order* only apply to future reporting obligations. For example,
    contributors to the federal universal service programs first
    reported revenues for the fourth quarter of 2002 and the first
    quarter of 2003 on the FCC Form 499-Q filed on February 3, 2003.
    Moreover, the increased interim safe harbor for mobile wireless
    providers will apply to universal service contributions beginning in
    the second quarter of 2003. These contributions will be based on
    projected revenues for the second quarter of 2003, which
    contributors reported on the February 3, 2003, FCC Form 499-Q.

21. The Commission also did not retroactively change revenue reporting
    requirements for other Commission programs, such as Local Number
    Portability, Numbering Administration, and Telecommunications Relay
    Service. The reporting of fourth quarter 2002 revenues for purposes
    of calculating assessment to other Commission programs will not
    occur until April 1, 2003. Contributions to these other programs are
    based on annual revenues reported on April 1st of each year.
    Assessments to these other programs based on calendar year 2002
    revenues will not be billed until beginning in the third quarter
    of 2003. Likewise, reporting of revenues for the first quarter of
    2003 for these other Commission programs will not occur until April
    1, 2004, and will not be assessed until beginning in the third
    quarter of 2004. Therefore, we conclude that our decision to apply
    the revised interim wireless safe harbor to revenues reported for
    the fourth quarter of 2002 and the first quarter of 2003 does not
    constitute retroactive changes to reporting obligations or to
    contribution obligations.

22. *[Rounding Up the Contribution Factor]{.underline}*. Finally, we
    grant, in part, a petition for reconsideration filed by AT&T
    requesting that the Commission announce the universal service
    contribution factor as a percentage rounded up to the nearest tenth
    of a percent.[^36] Sprint and Verizon support AT&T's request.[^37]
    We direct the Wireline Competition Bureau (Bureau) to announce a
    contribution factor rounded up to the nearest tenth of a percent
    (e.g., .073 or 7.3 percent). In order to allow an individual
    contributor the ability to recover the full amount of its
    contribution obligation through its federal universal line item, we
    also direct the Bureau to account for contribution factor rounding
    when calculating the circularity discount factor.[^38]

23. In the past, the Bureau has announced a contribution factor rounded
    to the nearest 1/10,000th of a percent (e.g., .072805). AT&T has
    asserted that some of its billing systems can only accommodate a
    factor of three digits beyond the decimal point.[^39] Our decision
    today that the contribution factor be rounded up to the nearest
    tenth of a percent, and that rounding be accounted for when
    calculating circularity, accommodates concerns expressed by AT&T and
    others that billing system limitations, when coupled with the
    recovery limitations in section 54.712 of our rules, may inhibit
    some carriers' ability to recover a portion of their contribution
    costs through their federal universal service line-item
    charges.[^40] This action also will prevent carriers from recovering
    amounts in excess of contribution obligations. We therefore conclude
    that each quarter the Bureau shall announce a contribution factor
    rounded up to the nearest tenth of a percent.

# ordering clauseS

24. Accordingly, IT IS ORDERED, pursuant to sections 1-4, 201-202, 254,
    and 405 of the Communications Act of 1934, as amended, 47 U.S.C. §§
    151-154, 201-202, 254, and 405 and section 1.108 of the Commission's
    rules, 47 C.F.R. § 1.108, this ORDER AND ORDER ON RECONSIDERATION is
    ADOPTED.

25. IT IS FURTHER ORDERED, pursuant to sections 1, 4(i), 254 and 405 of
    the Communications Act of 1934, as amended, 47 U.S.C. §§ 151,
    154(i), 254, and 405, and sections 1.3, 1.429 of the Commission's
    rules, 47 C.F.R. §§ 1.3, 1.429, that the Verizon, SBC, and BellSouth
    Joint Petition for Interim Waiver and the National Exchange Carrier
    Association, Inc., National Telecommunications Cooperative
    Association, Organization for the Promotion and Advancement of Small
    Telecommunications Companies Joint Petition for Interim Waiver are
    GRANTED to the extent indicated herein.

26. IT IS FURTHER ORDERED that, pursuant to section 405 of the
    Communications Act of 1934, as amended, 47 U.S.C. § 405, and section
    1.429 of the Commission's rules, 47 C.F.R. § 1.429, the petitions
    for reconsideration filed by the United States Telecommunications
    Association and SBC Communications, Inc., are GRANTED to the extent
    indicated herein.

27. IT IS FURTHER ORDERED that, pursuant to section 405 of the
    Communications Act of 1934, as amended, 47 U.S.C. § 405, and section
    1.429 of the Commission's rules, 47 C.F.R. § 1.429, the petition for
    reconsideration filed by the National Exchange Carrier Association,
    Inc. is DENIED.

28. IT IS FURTHER ORDERED that, pursuant to section 405 of the
    Communications Act of 1934, as amended, 47 U.S.C. § 405, and section
    1.429 of the Commission's rules, 47 C.F.R. § 1.429, the petition for
    reconsideration filed by WorldCom, Inc., is GRANTED.

29. IT IS FURTHER ORDERED that, pursuant to section 405 of the
    Communications Act of 1934, as amended, 47 U.S.C. § 405, and section
    1.429 of the Commission's rules, 47 C.F.R. § 1.429, the petition for
    reconsideration filed by the Verizon Wireless is GRANTED, in part,
    and DENIED, in part, to the extent indicated herein.

30. IT IS FURTHER ORDERED that, pursuant to section 405 of the
    Communications Act of 1934, as amended, 47 U.S.C. § 405, and section
    1.429 of the Commission's rules, 47 C.F.R. § 1.429, the petitions
    for reconsideration filed by AT&T Corp. is GRANTED to the extent
    indicated herein.

31. IT IS FURTHER ORDERED that section 54.712 of the Commission's rules,
    47 C.F.R. § 54.712, IS AMENDED as set forth in Appendix A hereto,
    effective upon publication in the Federal Register.[^41]

    FEDERAL COMMUNICATIONS COMMISSION

    Marlene H. Dortch Secretary

**APPENDIX A -- FINAL RULES**

Parts 54 and 69 of the Code of Federal Regulations are amended as
follows:

[PART 54 -- UNIVERSAL SERVICE]{.underline}

[Subpart H \-- Administration]{.underline}

1\. Section 54.712 is revised by deleting paragraph (b).

STATEMENT OF

COMMISSIONER MICHAEL J. COPPS,

APPROVING IN PART, DISSENTING IN PART

*Re:* *Federal-State Joint Board on Universal Service*

I dissent in part from today's decision to the extent it grants a waiver
of our prohibition on carriers marking up their universal service line
items. I am troubled by several aspects of this interim waiver of our
interim rules. First, I am concerned that, after adopting a rule that
prohibits mark-ups of the universal service line item just this past
December, the Commission right out of the block grants a waiver without
any analysis of the impact, the cost, or the precedent it creates for
additional mark-ups. Second, these mark-ups may affect small and medium
enterprises and will require these small businesses to subsidize large
businesses. Finally, although the majority asserts that it will
reexamine the issue in the near future, it provides no specific timeline
for this proceeding. I have seen too often that interim policies can
exist for years before the Commission addresses them. For the foregoing
reasons, I respectfully dissent in part.

**SEPARATE STATEMENT OF**

**COMMISSIONER JONATHAN S. ADELSTEIN**

***RE: Interim Contribution Methodology Order***

In December, the Commission adopted a general prohibition on the
recovery of amounts in excess of contribution obligations through
federal universal service line-item charges. Although I did not have the
opportunity to vote that item, I do support that general prohibition.

We as a general matter today are granting an interim, very limited
waiver of this prohibition to allow carriers to continue to apply an
equivalency ratio to Centrex customers. We are preserving the status quo
for a strictly limited time in order to avoid an unintended increase in
universal service pass-through charges on Centrex customers including
entities that rely heavily on this service, such as state governments,
universities, community colleges, libraries, local governments, school
districts and certain not-for-profit corporations, including private
universities and health care providers.

The record reflects the substantial rate increase these institutions
would experience but for our action today. Many of these entities are
subject to budgeting processes that could make their very operation
difficult in the event of an unplanned increase. Estimates are as high
as five hundred thousand dollars on an annual basis.

In that this is an interim waiver, I look forward to discussing the
merits of the petition for reconsideration with my colleagues.

[^1]: *See* *Federal-State Joint Board on Universal Service, 1998
    Biennial Regulatory Review -- Streamlined Contributor Reporting
    Requirements Associated with Administration of Telecommunications
    Relay Service, North American Numbering Plan, Local Number
    Portability, and Universal Service Support Mechanisms,
    Telecommunications Services for Individuals with Hearing and Speech
    Disabilities, and the Americans with Disabilities Act of 1990,
    Administration of the North American Numbering Plan and North
    American Numbering Plan Cost Recovery Contribution Factor and Fund
    Size, Number Resource Optimization, Telephone Number Portability,
    Truth-in-Billing and Billing Format*, CC Docket Nos. 96-45, 98-171,
    90-571, 92-237, 99-200, 95-116, 98-170, Report and Order and Second
    Further Notice of Proposed Rulemaking, 17 FCC Rcd 24952 (2002)
    (*Interim Contribution Methodology Order*). To the extent not
    discussed herein, all remaining petitions for reconsideration and
    petitions for waiver will be addressed in a future order.

[^2]: *See* *Interim Contribution Methodology Order*.

[^3]: *See id.* at paras*.* 45-63.

[^4]: 47 C.F.R. § 54.712 ("the amount of the federal universal service
    line-item charge may not exceed the interstate telecommunications
    portion of that customer's bill times the relevant contribution
    factor").

[^5]: *See Interim Contribution Methodology Order* at para. 52.

[^6]: *See* Verizon, SBC, BellSouth Joint Petition for Interim Waiver
    3-5; NECA, NTCA, OPASTCO Joint Petition for Interim Waiver at 3-4.
    Several parties filed petitions for reconsideration of section
    54.712(a) as it applies to non-Centrex multi-line business lines.
    *See* SBC Petition for Reconsideration at 7; USTA Petition for
    Reconsideration at 4.

[^7]: *See* 47 C.F.R. § 1.3. *See also Northeast Cellular Telephone v.
    FCC*, 897 F.2d 1164, 1166 (D.C. Cir. 1990).

[^8]: *See* 47 C.F.R. §§ 69.131, 69.153(e), 69.158.

[^9]: *See id.*

[^10]: *See Access Charge Reform, Price Cap Performance Review of Local
    Exchange Carriers, Transport Rate Structure*, CC Docket Nos. 96-262
    and 94-1, Second Order on Reconsideration and Memorandum Opinion and
    Order, 12 FCC Rcd 16606, 16616-18, paras. 33-38 (1997). If a Centrex
    customer has fewer than nine lines, the maximum monthly PICC for
    each of those lines is the maximum allowable multi-line business
    PICC for that customer's local exchange carrier divided by the
    customer's number of Centrex lines. For example, if a Centrex
    customer has two lines, then each line is assessed half the maximum
    allowable multi-line business PICC, and if a Centrex customer has
    five lines, then each line is assessed at one-fifth the maximum
    allowable multi-line business PICC. *See* 47 C.F.R. § 69.153(e).
    Local exchange carriers may use these same calculations when
    recovering subscriber line charge related contribution costs from
    Centrex customers. *See* 47 C.F.R. §§ 69.131, 69.158.

[^11]: *See* *Access Charge Reform, Price Cap Performance Review for
    Local Exchange Carriers*, CC Docket Nos. 96-262 and 94-1, Sixth
    Report and Order, *Low-Volume Long-Distance Users*, CC Docket No.
    99-249, Report and Order, *Federal-State Joint Board on Universal
    Service*, CC Docket No. 96-45, Eleventh Report and Order, 15 FCC Rcd
    12962 (2000), *aff'd in part, rev'd in part, and remanded in part*,
    *Texas Office of Public Util. Counsel et al. v. FCC*, No. 00-60434
    (5^th^ Cir. September 10, 2001).

[^12]: *See supra* para. 2.

[^13]: *See Interim Contribution Methodology Order*, at paras. 45-50.

[^14]: *See* Verizon, SBC, BellSouth Joint Petition for Interim Waiver
    3-5.

[^15]: *See id.* at 4.

[^16]: *See id. See also Interim Contribution Methodology Order* at
    paras. 76, 87, 97.

[^17]: *See* Letter from Hale Irwin, NASTD -- the Association of
    Telecommunications & Technology Professionals Serving State
    Government, to Marlene H. Dortch, Federal Communications Commission,
    filed February 28, 2003 (*NASTD Ex Parte*); Letter from John H.
    Ford, State of Florida, State Technology Office, to Marlene H.
    Dortch, Federal Communications Commission, filed February 27, 2003
    (*Florida State Technology Office Ex Parte*); Letter from Gerry
    Washington, National Association of State Chief Information
    Officers, to Marlene H. Dortch, Federal Communications Commission,
    filed February 28, 2003 (*NASCIO Ex Parte*). *See also* Letter from
    Brett Young, Marquette General Hospital to Federal Communications
    Commission, filed February 5, 2003 (*Marquette Ex Parte*); AT&T
    Comments on Verizon, SBC, BellSouth Joint Petition for Interim
    Waiver at 2.

[^18]: *See NASCIO Ex Parte* at 2 ("state governments' operating costs
    will be disproportionately affected by this change because of our
    heavy reliance on Centrex services"); *NASTD Ex Parte* at 2 ("state
    governments rely heavily on Centrex for local service"); and
    *Florida State Technology Office Ex Parte* at 2 ("maintains over 200
    Centrex systems with an estimated 200,000 lines statewide for
    \[state agencies, universities, community colleges, libraries, local
    governments, school districts, and certain not-for-profit
    corporations, including private universities and health care
    providers.\]" Commenter estimates financial impact on these lines
    will be about \$1 million per year.). *See also* *Marquette Ex
    Parte* at 1 ("\[w\]e at Marquette General Hospital rely primarily on
    Centrex lines to serve our entire 300 bed hospital, including
    patient rooms, clinical departments and administrative hospitals."
    The proposed change "would have a significant adverse affect on the
    cost of our telephone service").

[^19]: *See* SBC Petition for Reconsideration at 6-7; USTA Petition for
    Reconsideration at 12-13; *see also* SBC Comments at 3-4. *See also*
    47 C.F.R. § 54.712(b) ("eligible telecommunications carriers may not
    recover federal universal service contribution costs from Lifeline
    customers").

[^20]: *See Interim Contribution Methodology Order* at para. 51.

[^21]: Services eligible for Lifeline discounts do not generate
    assessable interstate telecommunications revenues, because Lifeline
    customers are not assessed subscriber line, local number
    portability, or toll limitation charges.

[^22]: *See* Letter from Clint Odom, Verizon, to Marlene H. Dortch,
    Federal Communications Commission, filed February 14, 2003*.*

[^23]: *See* 47 C.F.R. §§ 54.101 (list of supported services), 54.401
    (Lifeline defined).

[^24]: Similarly, a wireless ETC that provides minutes of use that can
    be used for local or long distance calling and that uses the interim
    mobile wireless safe harbor or a proxy percentage based on traffic
    studies to determine its interstate revenues would incur assessable
    telecommunications revenues from a Lifeline customer.

[^25]: As described in the *Interim Contribution Methodology Order*, on
    April 1, 2003, USAC will convert from universal service assessments
    based on revenues from two quarters prior to projected revenues.
    *See Interim Contribution Methodology Order* at paras. 29-39. As a
    result, revenues from the fourth quarter of 2002 and the first
    quarter of 2003 will not be assessed.

[^26]: *See* NECA Petition for Reconsideration at 4.

[^27]: For example, if a contributor reported correct amounts for
    periods subject to contribution obligations, but an incorrect amount
    for a period not subject to contribution obligations, it would be
    subject to a true-up based purely on the amount overreported or
    underreported for the period not originally subject to contribution
    obligations.

[^28]: *See* WorldCom Petition for Reconsideration at 3; Verizon
    Wireless Petition for Reconsideration at 13-14.

[^29]: *See* NECA Petition for Reconsideration at 4.

[^30]: *Id.*

[^31]: *See Interim Contribution Methodology Order* at para. 36.

[^32]: By contrast, under current procedures, refunds are based on the
    average of the two lowest contribution factors for the year and
    additional contributions are based on the average of the two highest
    contribution factors for the year.

[^33]: *See* Verizon Wireless Petition for Reconsideration at 13-14.
    *See also Interim Contribution Methodology Order* at para. 21.

[^34]: *See* Letter from Michael Altschul, Cellular Telecommunications
    and Internet Association, to Marlene H. Dortch, Federal
    Communications Commission, filed September 30, 2002.  These traffic
    studies provided strong evidence that the interstate
    telecommunications revenues of these representative mobile wireless
    providers already exceeded the interim safe harbor prior to the
    fourth quarter of 2002.

[^35]: *See Interim Contribution Methodology Order* at para. 22.

[^36]: *See* AT&T Petition for Reconsideration at 5-7.

[^37]: *See* Sprint Comments at 5; Verizon Comments at 3.

[^38]: The circularity discount factor is used to eliminate from a
    telecommunications provider's assessable revenue base amounts that
    would be derived from the telecommunications provider's federal
    universal service line-item charge. *See Interim Contribution
    Methodology Order* at para. 35.

[^39]: *See* AT&T Petition for Reconsideration at 6.

[^40]: *See* *id.;* Sprint Comments at 5; Verizon Comments at 3. There
    may be other reasons beyond the Commission's control for carrier
    undercollection of contribution obligations through federal
    universal service line-item charges, such as inaccurate revenue
    projections.

[^41]: We find good cause to make this rule change effective upon
    publication in the Federal Register because carriers must begin
    complying with the recovery limitations by April 1, 2003.