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**DA 06-1252**

**Released: June 9, 2006**

**Proposed Third Quarter 2006 Universal Service Contribution Factor**

CC Docket No. 96-45

In this Public Notice, the Wireline Competition Bureau (Bureau)
announces that the proposed universal service contribution factor for
the third quarter of 2006 will decrease to 0.105 or 10.5 percent.[^1]

**[Rules for Calculating the Contribution Factor]{.underline}**

Contributions to the federal universal service support mechanisms are
determined using a quarterly contribution factor calculated by the
Federal Communications Commission (Commission).[^2] The Commission
calculates the quarterly contribution factor based on the ratio of total
projected quarterly costs of the universal service support mechanisms to
contributors' total projected collected end-user interstate and
international telecommunications revenues, net of projected
contributions.[^3]

**[USAC Projections of Demand and Administrative Expenses]{.underline}**

Pursuant to section 54.709(a)(3) of the Commission's rules,[^4] the
Universal Service Administrative Company (USAC) submitted projections of
demand and administrative expenses for the third quarter of 2006.[^5]
Accordingly, the projected demand and expenses are as follows:

(\$ millions)

+----------------+----------+--------+----------+----------+----------+
| Program        | P        | Admin. | App      | App      | Total    |
|                | rojected | Ex     | lication | lication | Program  |
|                | Program  | penses |          | of       | Co       |
|                | Support  |        | Of       | Periodic | llection |
|                |          |        | Interest | True-Ups |          |
|                |          |        | Income   |          |          |
+----------------+----------+--------+----------+----------+----------+
| Schools and    | 546.201  | 16.299 | (34.706) | 6.540    | 534.334  |
| Libraries      |          |        |          |          |          |
+----------------+----------+--------+----------+----------+----------+
| Rural Health   | 7.292    | 0.946  | (0.403)  | 1.826    | 9.661    |
| Care           |          |        |          |          |          |
+----------------+----------+--------+----------+----------+----------+
| High-Cost      | 1        | 5.280  | (3.284)  | (15.119) | 1        |
|                | ,033.192 |        |          |          | ,020.069 |
+----------------+----------+--------+----------+----------+----------+
| Low Income     | 209.115  | 1.239  | (1.122)  | (10.760) | 198.472  |
+----------------+----------+--------+----------+----------+----------+
| TOTAL          | 1        | 23.764 | (39.515) | (17.513) | 1        |
|                | ,795.800 |        |          |          | ,762.536 |
+----------------+----------+--------+----------+----------+----------+

**[USAC Projections of Industry Revenues]{.underline}**

USAC submitted projected collected end-user telecommunications revenues
for July through September 2006 based on information contained in the
Third Quarter 2006 Telecommunications Reporting Worksheet (FCC Form
499-Q).[^6] The amount is as follows:

> Total Projected Collected Interstate and International End-User
> Telecommunications Revenues for Third Quarter 2006: \$18.773679
> billion.

**[Adjusted Contribution Base]{.underline}**

To determine the quarterly contribution base, we decrease the third
quarter 2006 estimate of projected collected interstate and
international end-user telecommunications revenues by the projected
revenue requirement to account for circularity, and decrease the result
by one percent to account for uncollectible contributions. Accordingly,
the quarterly contribution base for the third quarter of 2006 is as
follows:

Adjusted Quarterly Contribution Base for Universal Service Support
Mechanism

> Third Quarter 2006 Revenues - Projected Revenue Requirement - 1%
>
> (\$18.773679 billion -- \$1.762536 billion) \* 0.99
>
> \$ 16.841032 billion.

**[Unadjusted Contribution Factor]{.underline}**

Using the above-described adjusted contribution base and the total
program collection requirement from the table above, the proposed
unadjusted contribution factor for the third quarter of 2006 is as
follows:

> Contribution Factor for Universal Service Support Mechanisms
>
> Total Program Collection / Adjusted Quarterly Contribution Base
>
> \$1.762536 billion / \$16.841032 billion
>
> 0.104657
>
> .

**[Unadjusted Circularity Factor]{.underline}**

USAC will reduce each provider's contribution obligation by a
circularity discount approximating the provider's contributions in the
upcoming quarter. Accordingly, the proposed unadjusted circularity
factor for the third quarter of 2006 is as follows:

Unadjusted Circularity Factor for Universal Service Support Mechanisms

1 - ((Third Quarter 2006 Revenues - Total Program Collection) / Third

> Quarter 2006 Revenues)
>
> 1 -- ((\$18.773679 - \$1.762536) / \$18.773679 billion)

0.093883.

**[Proposed Contribution Factor]{.underline}**

The Commission has directed the Bureau to announce the contribution
factor as a percentage rounded to the nearest tenth of one percent.[^7]
Accordingly, the proposed contribution factor for the third quarter of
2006 is as follows:

10.5

**[Proposed Circularity Factor]{.underline}**

The Commission also has directed the Bureau to account for contribution
factor rounding when calculating the circularity discount factor.[^8]
Accordingly, the proposed circularity factor for the third quarter of
2006 is as follows:

0.096841[^9]

**[Conclusion]{.underline}**

If the Commission takes no action regarding the projections of demand
and administrative expenses and the proposed contribution factor within
the 14-day period following release of this Public Notice, they shall be
deemed approved by the Commission.[^10] USAC shall use the contribution
factor to calculate universal service contributions for the third
quarter of 2006. USAC will reduce each provider's contribution
obligation by a circularity discount approximating the provider's
contributions in the upcoming quarter.[^11] USAC includes contribution
obligations less the circularity discount in invoices sent to
contributors. Contribution payments are due on the dates shown on the
invoice. Contributors will pay interest for each day for which the
payments are late. Contributors failing to pay contributions in a timely
fashion may be subject to the enforcement provisions of the
Communications Act of 1934, as amended, and any other applicable law. In
addition, contributors may be billed by USAC for reasonable costs of
collecting overdue contributions.[^12]

We also emphasize that carriers may not mark up federal universal
service line-item amounts above the contribution factor.[^13] Thus,
carriers may not, during the third quarter of 2006, recover through a
federal universal service line item an amount that exceeds 10.5 percent
of the interstate telecommunications charges on a customer's bill.

For further information, contact Ted Burmeister in the
Telecommunications Access Policy Division, Wireline Competition Bureau,
at (202) 418-7400, TTY (202) 418-0484.

[^1]: *See* 47 C.F.R. § 54.709(a).

[^2]: *See id.*

[^3]: *See* 47 C.F.R. § 54.709(a)(2).

[^4]: 47 C.F.R. § 54.709(a)(3).

[^5]: *See* Federal Universal Service Support Mechanisms Fund Size
    Projections for the Third Quarter 2006, available at
    \<http://www.universalservice.org/overview/ filings\> (filed May 2,
    2006) (*USAC Filing for Third Quarter 2006 Projections*). *See also*
    Federal Universal Service Support Mechanisms Fund Size Quarterly
    Contribution Base for the Third Quarter 2006, available at
    \<http://www.universalservice.org/overview/ filings\> (filed June 1,
    2006) (*USAC Filing for Third Quarter 2006 Contribution Base*).

[^6]: *USAC Filing for Third Quarter 2006 Contribution Base* at 4.

[^7]: *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, Order and Second Order on Reconsideration,
    18 FCC Rcd 4818, 4826, para. 22 (2003) (*Second Order on
    Reconsideration)*.

[^8]: *Id*.

[^9]: The proposed circularity discount factor = 1 + \[(unadjusted
    circularity discount factor -- 1) \* (unadjusted contribution factor
    / proposed contribution factor)\]. The proposed circularity discount
    factor is calculated in a spreadsheet program, which means that
    internal calculations are made with more than 15 decimal places.

[^10]: *See* 47 C.F.R. § 54.709(a)(3).

[^11]: USAC will calculate each individual contributor's contribution in
    the following manner: (proposed contribution factor \* contributor's
    projected collected revenues) -- (proposed circularity discount
    factor \* proposed contribution factor \* contributor's projected
    collected revenues).

[^12]: *See* 47 C.F.R. § 54.713.

[^13]: *See* 47 C.F.R. § 54.712.