Corrected Copy

Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | ) | CC Docket No. 96-262         |
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| Access Charge Reform             | ) | CC Docket No. 94-1           |
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| Price Cap Performance Review for | ) | CC Docket No. 99-249         |
| Local Exchange Carriers          |   |                              |
|                                  | ) | CC Docket No. 96-45          |
| Low-Volume Long-Distance Users   |   |                              |
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| Federal-State Joint Board On     |   |                              |
| Universal Service                | ) |                              |
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**SIXTH REPORT AND ORDER IN CC DOCKET NOS. 96-262 AND 94-1**

**REPORT AND ORDER IN CC DOCKET NO. 99-249**

**ELEVENTH REPORT AND ORDER IN CC DOCKET NO. 96-45**

**Adopted:** May 31, 2000 **Released:** May 31, 2000

By the Commission: Commissioner Furchtgott-Roth concurring in part,
dissenting in part, and issuing a statement.

**TABLE OF CONTENTS**

I. INTRODUCTION 1

II\. BACKGROUND 4

A. Access Charges 5

B. Universal Service 21

C. The Current Situation 26

III\. EXECUTIVE SUMMARY 29

IV\. DISCUSSION 36

A. Common Line Charges 64

1\. Background 64

2\. CALLS Proposal 70

3\. Discussion 75

a\. Residential and Single-Line Business SLCs and PICCs 76

b\. Multi-line Business SLC and PICC 105

c\. SLC Deaveraging 113

B. Local Switching, Trunking, and Special Access Baskets 129

1\. Background 129

a\. Rate Structure 129

b\. The X-Factor 135

c\. The CALLS Proposal 140

2\. Discussion 150

a\. Reductions in Switched Access Usage Charges 151

b\. X-Factor 160

c\. Measure of Inflation 183

C. Universal Service 185

1\. Introduction 185

2\. Background 188

3\. The Calls Proposal: Interstate Access Universal Service Support 195

a\. Overview 195

b\. Size of the Interstate Access Universal Service Support Mechanism
198

c\. Distribution of Interstate Access Support 206

d\. Lifeline 214

e\. LEC Recovery of Universal Service Contributions 218

f\. Implementation 222

4\. Consultation with Joint Board 233

D. Low-Volume Long-Distance Proceeding 234

1\. Introduction 234

2\. Notice of Inquiry 236

3\. Discussion 242

V. PROCEDURAL ISSUES 251

A. Final Regulatory Flexibility Analysis 251

1\. Need for and Objectives of this Order 252

2\. Summary of Significant Issues Raised by the Public Comments in

Response to the IRFA 254

3\. Description and Estimate of the Number of Small Entities to Which

the Rules Will Apply 255

4\. Description of the Projected Reporting, Recordkeeping, and Other

Compliance Requirements 259

5\. Steps Taken to Minimize Significant Economic Impact on Small

Entities, and Significant Alternatives Considered 260

6\. Report to Congress 263

B. Paperwork Reduction Act 264

VI\. ORDERING CLAUSES 265

Appendix A -- Parties Filing Pleadings

Appendix B -- Amendments to the Code of Federal Regulations

Appendix C -- Graphs and Chart

Appendix D -- IXC Commitment Letters

Appendix E -- CALLS Ex Parte Filings Modifying the Proposal

# INTRODUCTION

1.  In this Order, we adopt an integrated interstate access reform and
    universal service proposal put forth by the members of the Coalition
    for Affordable Local and Long Distance Service (CALLS).[^1] This
    action provides many benefits. It will bring lower rates and less
    confusion to consumers; and create a more rational interstate rate
    structure. This, in turn, will support more efficient competition,
    more certainty for the industry, and permit more rational investment
    decisions.

2.  This Order resolves historically vexing issues, some going back
    nearly two decades, in a manner that benefits consumers. Consumers
    that make no or few long-distance calls and consumers that make many
    long-distance calls will both enjoy meaningful savings. The savings
    from the elimination of the Presubscribed Interexchange Carrier
    Charge (PICC) and the long-distance companies' pass-through of that
    charge exceed the modest increases to the Subscriber Line Charge
    (SLC) that this plan allows. In addition, the commitments by AT&T
    and Sprint to offer reasonably priced long-distance plans without
    any Minimum Usage Charge (MUC) ensures that low-volume users will
    enjoy substantially lower overall rates. At the same time,
    significant and immediate reductions to per-minute carrier access
    charges will bring those rates closer to cost and translate into
    lower per-minute long-distance rates, benefiting high-volume
    consumers.

3.  By simultaneously removing implicit subsidies from the interstate
    access charge system and replacing them with a new interstate access
    universal service support mechanism that supplies portable support
    to competitors, this Order allows us to provide more equal footing
    for competitors in both the local and long-distance markets, while
    still keeping rates in higher cost areas affordable and reasonably
    comparable with those in lower cost areas.

# BACKGROUND

4.  In passing the Telecommunications Act of 1996 (1996 Act),[^2]
    Congress sought to establish "a pro-competitive, deregulatory
    national policy framework" for the United States telecommunications
    industry. In the 1996 Act, Congress also directed that universal
    service support "should be explicit and sufficient to achieve the
    purposes" of section 254,[^3] which include the purpose that all
    Americans should have access to telecommunications services at
    affordable and reasonably comparable rates. Therefore, with this
    Order, we take action designed to further accelerate the development
    of competition in the local and long-distance telecommunications
    markets, and to establish an explicit interstate access universal
    service support mechanism that will be sustainable in an
    increasingly competitive marketplace.

## Access Charges

5.  For much of this century, most telephone subscribers obtained both
    local and long-distance services from the same company, the
    pre-divestiture Bell System, owned and operated by AT&T. Its
    provision of local and intrastate long-distance services through its
    wholly-owned operating companies, the Bell Operating Companies
    (BOCs), was regulated by state commissions. The Commission regulated
    AT&T\'s provision of interstate long-distance service. Much of the
    telephone plant that is used to provide local telephone service,
    such as the local loop,[^4] is also needed to originate and
    terminate interstate long-distance calls. Consequently, a portion of
    the costs of this common plant historically was assigned to the
    interstate jurisdiction and recovered through the rates that AT&T
    charged for interstate long-distance calls. The balance of the costs
    of the common plant was assigned to the intrastate jurisdiction and
    recovered through the charges for intrastate services regulated by
    the state commissions. The system of allocating costs between the
    interstate and intrastate jurisdictions is known as the separations
    process. The difficulties inherent in allocating the costs of
    facilities that are used for multiple services between the two
    jurisdictions are discussed below.

6.  At first, there was no formal system of tariffed charges to
    determine how the BOCs and the hundreds of unaffiliated, independent
    local exchange carriers (LECs) would recover the costs allocated to
    the interstate jurisdiction by the separations rules. Instead, AT&T
    remitted to these companies the amounts necessary to recover their
    allocated interstate costs, including a return on allocated capital
    investment.

7.  In the 1970s, MCI and other interexchange carriers (IXCs) began to
    provide switched long-distance service in competition with AT&T.
    AT&T, however, still maintained monopolies in the local markets
    served by its local subsidiaries, the BOCs. The BOCs owned and
    operated the telephone wires that connected the customers in their
    local markets. Other independent (non-BOC) LECs held similar
    monopoly franchises in their local service areas. MCI and the other
    IXCs were dependent on the BOCs and the independent LECs to complete
    the long-distance calls to the end user.

8.  For much of the 1970s, MCI and AT&T fought over the fees \-- the
    access charges \-- that MCI should pay the BOCs for originating and
    terminating interstate calls placed by or to end users on the BOCs\'
    local networks. That battle took place before federal regulators, as
    well as in the federal courts. In December 1978, under Commission
    supervision, AT&T, MCI, and the other long-distance competitors
    entered into a comprehensive interim agreement, known as Exchange
    Network Facilities for Interstate Access (ENFIA), that set rates
    that AT&T would charge long-distance competitors for originating and
    terminating interstate traffic over the facilities of its local
    exchange affiliates.[^5] Several years afterwards, AT&T\'s
    divestiture was completed, separating the local exchange operations
    of the BOCs from the rest of AT&T\'s operations, including AT&T\'s
    long-distance business. The BOCs maintained monopoly franchises in
    their local market, but by splitting them off from AT&T\'s
    long-distance business, the federal courts removed an incentive for
    the BOCs to favor AT&T\'s long-distance business over its
    competitors. Now AT&T competed directly with MCI and the other
    competitors to provide interstate service, and all of the
    competitors, including AT&T, paid the BOCs for the service of
    providing the necessary access to end users.

9.  In 1978, the Commission commenced a wide-ranging review of the
    system by which LECs were compensated for originating and
    terminating interstate traffic. In 1983, following the decision to
    break-up AT&T, the Commission adopted uniform access charge rules in
    lieu of earlier agreements.[^6] These rules governed the provision
    of interstate access services by all incumbent LECs, BOCs as well as
    independents. The access charge rules provide for the recovery of
    the incumbent LECs\' costs assigned to the interstate jurisdiction
    by the separations rules.

10. The Commission uses a multi-step process to identify the cost of
    providing access service. First, the rules require an incumbent LEC
    to record all of its expenses, investments, and revenues in
    accordance with accounting rules set forth in our regulations.[^7]
    Second, the rules divide these costs between those associated with
    regulated telecommunications services and those associated with
    nonregulated activities.[^8] Third, the separations rules determine
    the fraction of the incumbent LEC\'s regulated expenses and
    investment that should be allocated to the interstate
    jurisdiction.[^9] After the total amount of interstate cost is
    identified, the access charge rules translate these interstate costs
    into charges for the specific interstate access services and rate
    elements. Part 69 of our rules specifies in detail the rate
    structure for recovering those costs.[^10] That is, the rules tell
    the incumbent LECs the precise manner in which they may assess
    charges on interexchange carriers and end users.

11. Determining the costs that an incumbent LEC incurs to provide
    interstate access services and that, consequently, should be
    recovered from those services, is relatively straightforward in some
    cases and problematic in others. Some facilities, such as private
    lines, can be used exclusively for interstate services and, in such
    cases, the entire cost of those facilities is assigned to the
    interstate jurisdiction by the separations rules. Most facilities,
    however, are used for both intrastate and interstate services. The
    costs of some of these facilities vary depending on the amount of
    telecommunications traffic that they handle. The separations rules
    typically assign these traffic sensitive costs on the basis of the
    relative interstate and intrastate usage of the facilities, as
    measured, for example, by the relative minutes of interstate and
    intrastate traffic carried by such facilities. By contrast, the
    costs of other facilities used for both interstate and intrastate
    traffic do not vary with the amount of traffic carried over the
    facilities, *i.e.,* the costs are non-traffic sensitive. These costs
    pose particularly difficult problems for the separations process:
    the costs of such facilities cannot be allocated on the basis of
    cost-causation principles because all of the facilities would be
    required even if they were used only to provide local service or
    only to provide interstate access services. A significant
    illustration of this problem is allocating the cost of the local
    loop, which is needed both to provide local telephone service as
    well as to originate and terminate long-distance calls. The current
    separations rules allocate 25 percent of the cost of the local loop
    to the interstate jurisdiction for recovery through interstate
    charges.[^11]

12. In promulgating its access charge rules, the Commission has
    recognized that, to the extent possible, costs of interstate access
    should be recovered in the same way that they are incurred. This
    approach is consistent with principles of cost-causation and
    promotes economic efficiency. Thus, non-traffic sensitive costs
    should be recovered through fixed, flat-rated fees. Similarly,
    traffic sensitive costs should be recovered through corresponding
    per-minute access rates. The Commission's rules, however, are not
    fully consistent with this goal. In particular, because the
    Commission has taken a cautious approach in addressing affordability
    concerns, it has taken measured steps toward this goal by limiting
    the amount of the allocated interstate cost of a local loop that is
    assessed directly on residential and business customers as a flat
    monthly charge.[^12]

13. Through the end of 1990, access revenues were governed by
    \"rate-of-return\" regulation. Under rate-of-return regulation,
    incumbent LECs calculate the specific access charge rates using
    projected costs and projected demand for access services.[^13] An
    incumbent LEC is limited to recovering its costs plus a prescribed
    return on investment, and is potentially obligated to provide
    refunds if its interstate rate of return exceeds the authorized
    level. Regulatory structures that base a firm\'s allowable rates
    directly on the reported costs of the individual firm can create
    perverse incentives, because reimbursing the firm\'s costs removes
    the incentive to reduce costs and improve productive efficiency.

14. Consequently, in 1991 we implemented a system of price cap
    regulation that altered the manner in which the largest incumbent
    LECs establish their interstate access charges. While most rural and
    small LECs remained subject to rate-of-return rules, generally the
    largest incumbent LECs[^14] are now subject to price cap
    regulations. The Commission\'s price cap plan for LECs was intended
    to avoid the perverse incentives of rate-of-return regulation in
    part by divorcing the annual rate adjustments from the performance
    of each individual LEC, and in part by adjusting the cap based on
    actual experience, only with a considerable lag.

15. Briefly stated, rate-of-return regulation is designed to limit the
    profits an incumbent LEC may earn from interstate access service,
    whereas price cap regulation focuses primarily on the prices that an
    incumbent LEC may charge and the revenues it may generate from
    interstate access services. Under the Part 69 cost-of-service rules,
    revenue requirements are based on embedded or accounting costs
    allocated to individual services. Incumbent LECs are limited to
    earning a prescribed return on investment and are potentially
    obligated to provide refunds if their interstate rate of return
    exceeds the authorized level.

16. By contrast, although the access charges of price cap LECs
    originally were set at the levels that existed at the time they
    entered price caps, their prices have been limited ever since by
    price indices that have been adjusted annually pursuant to formulae
    set forth in our Part 61 rules. Price cap carriers whose interstate
    access charges are set by these pricing rules are permitted to earn
    returns significantly higher, or potentially lower, than the
    prescribed rate of return that incumbent LECs are allowed to earn
    under rate-of-return rules. Price cap regulation encourages
    incumbent LECs to improve their efficiency by harnessing
    profit-making incentives to reduce costs, invest efficiently in new
    plant and facilities, and develop and deploy innovative service
    offerings, while setting price ceilings at reasonable levels.[^15]
    Individual companies retain an incentive to cut costs and to produce
    efficiently, because in the short run their behavior has no effect
    on the prices they are permitted to charge, and they are able to
    keep any additional profits resulting from reduced costs. In this
    way, price caps act as a transitional regulatory scheme until the
    advent of actual competition makes price cap regulation
    unnecessary.[^16]

17. Although price cap regulation eliminates the direct link between
    changes in allocated accounting costs and change in prices, it does
    not sever the connection between accounting costs and prices
    entirely. The overall interstate revenue levels still generally
    reflect the accounting and cost allocation rules used to develop
    access rates to which the price cap formulae were originally
    applied. Price cap indices are adjusted upwards if a price cap
    carrier earns returns below a specified level in a given year.
    Moreover, a price cap LEC may petition the Commission to set its
    rates above the levels permitted by the price cap indices based on a
    showing that the authorized rate levels will produce earnings that
    are so low as to be confiscatory. In the past, all or some price cap
    LECs were required to \"share,\" or return to ratepayers, earnings
    above specified levels. This sharing requirement was eliminated in
    1997.[^17]

18. With the passage of the 1996 Act, the Commission determined that it
    was necessary to make substantial revisions to access charges. In
    the *Access Charge Reform Order*, the Commission instituted reforms
    that changed the manner in which price cap LECs recover access costs
    by aligning the rate structure more closely with the manner in which
    costs are incurred.[^18] Prior to such reform, some costs that did
    not vary with usage, in particular the local loop, were not wholly
    recovered through flat charges. The SLC, which is a flat charge that
    recovers the interstate portion of local loop costs from an end
    user, is subject to a cap that, particularly for residential
    customers, is often below the level that would enable the LEC to
    recover the entire interstate cost of the local loop. Prior to the
    *Access Charge Reform Order*, a price cap LEC recovered the
    shortfall created by the SLC caps wholly through the carrier common
    line (CCL) charge, which is a per-minute charge assessed on the end
    user's IXC whenever the end user placed an interstate long-distance
    call. The IXC, in turn, passed this charge on to its customers in
    the form of higher rates. By making the end-user rate for
    long-distance calls more expensive, the CCL charge artificially
    suppresses demand for interstate long-distance services.

19. The *Access Charge Reform Order* also created the PICC, a flat
    per-line charge imposed by a price cap LEC on an end user's IXC, in
    order to phase out CCL charges. The Commission sought to establish
    economically efficient rate structures to encourage the development
    of efficient competition, thereby enhancing consumer welfare. PICCs
    have markedly reduced the per-minute recovery of local loop costs
    and raised flat recovery of non-traffic sensitive costs.
    Unfortunately, the advent of PICCs has also created market
    inefficiencies. Because IXCs have recovered the residential PICCs on
    a per-account basis, residential customers with only one line pay
    the same as those with two or more lines, and so pay more than the
    costs IXCs have incurred for providing them service. In addition,
    because PICCs are not assessed directly on consumers, but instead
    are subjected to averaging and mark-ups by the IXCs, consumers are
    prevented from making head-to-head comparisons among local service
    providers.

20. In the *Access Charge Reform Order*, the Commission also stated that
    its primary method for bringing about cost-based access charges was
    by letting competition establish efficient rates.[^19] The
    Commission anticipated creating, in a later stage of access reform,
    a mechanism whereby rate regulation of services would be lessened,
    and eventually eliminated, as competition developed.[^20] To the
    extent that competition did not fully achieve the goal of moving
    access rates toward costs, the Commission reserved the right to
    adjust rates in the future to bring them into line with
    forward-looking costs.[^21] To assist in that effort, the Commission
    said it would require price cap LECs to start forward-looking cost
    studies by no later than February 8, 2001 for all services then
    remaining under price caps.[^22]

## Universal Service

21. One of the primary purposes of universal service support is to allow
    LECs and other eligible telecommunications carriers to provide
    certain basic services to customers in high-cost areas without
    having to charge these customers unaffordable rates.[^23]
    Historically, in the interest of meeting the goal of universal
    service, LEC services have been subsidized or "supported" to enable
    high-cost consumers to be served at rates that are reasonably
    comparable to those in lower cost areas. This universal service
    support has been both explicit and implicit.

22. *Explicit Support*. Several federal programs have provided explicit
    universal service support in the form of direct monetary payments to
    carriers. This support has been provided for both intrastate and
    interstate services. For example, the Commission's high-cost support
    mechanism provides support for the costs of the intrastate portion
    of the local loop that significantly exceed the national average. By
    providing this federal support for intrastate costs, the Commission
    assists the states in ensuring that rates for intrastate rates
    remain affordable and reasonably comparable. Several state universal
    service programs also provide carriers with explicit support for
    their intrastate rates so that those carriers can serve customers in
    high-cost areas without having to charge prohibitively high rates.
    Carriers have also received explicit federal support for their
    interstate costs. For example, the Commission's Long Term Support
    (LTS) mechanism provides certain small carriers with support for the
    interstate portion of the local loop. This support allows such
    carriers to reduce the amount of the interstate costs that they
    would otherwise recover through access charges.

23. *Implicit Support*. In addition to receiving explicit universal
    service support, LECs also received implicit universal service
    support from a variety of sources. Some state rate structures have
    permitted LECs to charge rates for certain services that
    significantly exceeded the costs of providing those services,
    thereby enabling those LECs to charge below-cost rates for other
    services. For example, by charging above-cost rates for vertical
    services (*e.g.*, caller identification, call waiting), carriers can
    support the rates for basic local service. The Commission's
    interstate access charge structure also provided LECs with implicit
    universal service support. For example, LECs charge business
    customers interstate access rates that generally exceed those
    charged to residential customers, even though the costs of providing
    access to these groups of customers does not differ significantly.
    In particular, the multi-line business PICC creates a subsidy
    running from multi-line business subscribers to residential and
    single-line business subscribers to help LECs recover revenues that
    they would not otherwise recover from residential and single-line
    business subscribers due to the lower SLC caps on those lines.[^24]
    In addition, by allowing LECs to recover non-traffic sensitive
    (flat) costs through traffic sensitive (per minute) rates,
    high-volume users bear a greater share of the non-traffic sensitive
    costs than low-volume users, thus creating an implicit support flow
    from high-volume users to low-volume users. Furthermore, the
    practice of averaging rates over large geographic areas, for both
    intrastate and interstate services, results in subscribers in
    low-cost areas subsidizing the rates of subscribers in higher cost
    areas.

24. *Universal Service in a Competitive Environment*. This "patchwork
    quilt" of implicit support helped keep rates largely affordable in a
    monopoly environment where incumbent LECs could be guaranteed an
    opportunity to earn returns from certain services and customers that
    are sufficient to support the high cost of providing other services
    to other customers. The new competitive environment envisioned by
    the 1996 Act, however, threatens to undermine this implicit support
    structure over the long run. The 1996 Act removed barriers to entry
    in the local market, generating competitive pressures that may make
    it difficult for incumbent LECs to maintain access charges above
    economic cost. Thus, where existing rules require an incumbent LEC
    to set access charges above cost for a high-volume user, a competing
    provider of local service can lease unbundled network elements at
    cost, or construct new facilities, thereby undercutting the
    incumbent's access charges. As competition develops, incumbent LECs
    may be forced to lower their access charges or lose market share, in
    either case jeopardizing the source of revenue that, in the past,
    has permitted the incumbent LEC to offer service to other customers,
    particularly those in high-cost areas, at below-cost prices.[^25]
    Incumbent LECs have been claiming that this process has already made
    more than trivial inroads on their high-volume customer base. [^26]

25. Recognizing the disruptive effects that competition would have on
    universal service support mechanisms developed in a monopoly
    environment, Congress instructed the Commission, after consultation
    with the Federal-State Joint Board on Universal Service (Joint
    Board), to establish specific, predictable, and sufficient
    mechanisms to preserve and advance universal service.[^27] Congress
    concluded that the support provided by these mechanisms "should be
    explicit and sufficient to achieve the purposes" of section 254,
    which include the purpose that all Americans should have access to
    telecommunications services at affordable and reasonably comparable
    rates.[^28] In response to this directive, the Commission has taken
    several actions to put in place universal service support mechanisms
    that will be sustainable in an increasingly competitive marketplace.
    These actions fall into three general categories: (1) reforming our
    existing universal service support mechanisms;[^29] (2) reforming
    our interstate access charge regime to identify implicit universal
    service support and to remove such implicit support from our
    interstate access charges,[^30] and (3) establishing new universal
    service mechanisms.[^31] In this Order, we focus our efforts in
    these last two categories.

## The Current Situation

26. Undoing the Gordian knot of determining the appropriate level of
    interstate access charges and converting implicit subsidies in
    interstate access charges into explicit, portable, and sufficient
    universal service support cannot be accomplished with one stroke of
    the sword. Determining the cost of providing service in every area
    of the country is a difficult, time-consuming task that regulators
    cannot perform with exactitude. The particular method that should be
    used for determining the cost of providing service is itself a
    contentious issue as are the results achieved from various proposed
    methods. The incumbent LECs have traditionally argued that they must
    maintain their current revenue streams to support universal service,
    while IXCs and consumer groups have argued that access charges
    should be reduced by amounts in excess of the amount that is
    converted into explicit universal service support. The subsidies
    implicit in geographic averaging must be reduced if competition is
    to develop outside of urban areas; but these subsidies can never be
    entirely eliminated, without pricing service on a
    line-by-line-by-line basis. Affordability concerns deter us from
    allowing end-user charges in higher cost areas to increase to the
    point where they recover the cost of providing service in those
    areas, whether cost is determined on a forward-looking or historic
    basis. These disputes and concerns have dragged on for years and
    could do so indefinitely.

27. As we devise a transition to a more economically rational approach
    to access charges and universal service, we need to balance various
    and sometimes conflicting interests -- including promotion of
    competition, deregulation, maintaining affordability for all, and
    avoiding rate shock to consumers. It is important, however, that the
    Commission not permit itself to be gridlocked into inactivity by
    endeavoring to find precise solutions to each component of this
    complex set of problems. It is preferable and more reasonable to
    take several steps in the right direction, even if incomplete, than
    to remain frozen with indecision because a perfect, ultimate
    solution remains outside our grasp.

28. Against this background, certain segments of the industry have
    developed a comprehensive consensus approach to resolve outstanding
    issues concerning access charges and universal service. The Order we
    adopt today will result in lower rates for both low-volume and
    high-volume long-distance consumers, more competition, fewer line
    items on consumers' phone bills, greater flexibility for price cap
    LECs to meet competition, and an explicit, portable interstate
    access universal support mechanism. It is this comprehensive
    solution of historically contentious issues that allows us to take
    these actions while ensuring that consumers in high-cost areas will
    continue to have affordable service.

# EXECUTIVE SUMMARY

29. CALLS has presented us with an integrated and cohesive proposal that
    aims to resolve major outstanding issues concerning access charges:
    the pending NPRM to address implicit universal service support in
    access charges,[^32] the X-factor remand,[^33] the *Low-Volume
    Long-Distance Users NOI*,[^34] the pending NPRM on geographically
    deaveraging SLCs[^35] and the next scheduled price cap performance
    review.[^36] In addressing these issues, the CALLS Proposal reduces,
    and in most instances eliminates, implicit subsidies among end-user
    classes; makes implicit universal service funding in access charges
    explicit and portable; provides significant benefits to consumers
    who make few or no long-distance calls; and sets carrier charges at
    reasonable levels. Because we find that the CALLS Proposal resolves
    these issues in a way that benefits consumers and is pro-competitive
    and economically efficient, we adopt certain parts of the plan,
    largely rate structure components, as mandatory for all price cap
    LECs for the full five-years of the plan. As discussed in more
    detail below, for certain rate-level components of the plan, we
    adopt it as mandatory on an interim basis. Price cap LECs will be
    able to choose between having these interim rate-level components
    apply for the full five years or having their rates reinitialized
    based on forward-looking economic cost.

30. The proposal provides for the following:

1\) Elimination of the residential PICC;

2\) Increases to the primary residential and single-line business SLC
caps, beginning at \$4.35 on July 1, 2000, and gradually increasing to
\$6.50 on July 1, 2003, provided that LECs can justify any increase
beyond \$5.00;

3\) A review of the SLC rates prior to the increase scheduled for July
1, 2002, including evaluation of forward looking cost information;

4\) Targeting of an X-factor[^37] for switched access to switching and
switched transport elements;

5\) Creation of a separate X-factor for special access services;

6\) \$2.1 billion in reductions to switched access usage rates effective
July 1, 2000;

7\) Reduction of the switched access X-factor to the Gross Domestic
Product-Price Index (GDP-PI) once specific target rate levels are
achieved;

8\) Removal of \$650 million in implicit universal service support from
access charges, and the creation of an explicit, portable interstate
access universal service support mechanism at the same level;

9)  Recovery of LEC universal service contributions directly from end
    users;

10) Elimination of MUCs by participating long-distance carriers;

11) A commitment by participating long-distance carriers to flow through
    reductions in access rates to residential and business customers
    over the life of the plan; and

12) Adjustment of the Lifeline Assistance universal service support
    mechanism to shield low-income customers from increases in the
    residential SLC.

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31. As an initial point, the CALLS Proposal reduces, and in many cases
    eliminates, implicit subsidies among customer classes through two
    means. First, by permitting a greater proportion of the local loop
    costs of primary residential and single-line business customers to
    be recovered through the SLC, rather than through the CCL charge and
    the multi-line business PICC, the CALLS Proposal reduces, and in
    most instances removes, the subsidies associated with both of the
    latter charges. Second, by permitting participating LECs to
    deaverage their SLCs once the CCL charge and multi-line business
    PICCs are eliminated, the CALLS Proposal reduces the subsidy that
    subscribers in low-cost areas provide those in higher cost areas.

32. The CALLS Proposal reduces these subsidies, and keeps rates
    affordable in high-cost areas, by replacing the subsidies with
    explicit interstate access universal service support. In section
    254(e), Congress stated that federal universal service support
    should be made explicit.[^38] The CALLS Proposal identifies and
    removes \$650 million of implicit universal service support in
    interstate access charges, creates an explicit interstate access
    universal service support mechanism in this amount to replace the
    implicit support, and makes interstate access universal service
    support fully portable among eligible telecommunications
    carriers.[^39] The CALLS Proposal conforms with our tentative
    conclusion in the *Universal Service Seventh Report and Order* that
    price cap LECs should reduce their interstate access rates to
    reflect any increase in explicit high-cost support.[^40] In
    addition, we conclude that this interstate access universal service
    support mechanism is specific, predictable and sufficient. Moreover,
    by making universal service support explicit and portable, the
    interstate access universal service support mechanism should also
    encourage competitive entry into high-cost areas.

33. We note that even as the CALLS Proposal phases out these subsidies,
    it maintains several safeguards that ensure that the rates consumers
    pay for the SLC remain well within a zone of reasonableness. The
    CALLS Proposal maintains an overall cap on the SLC assessed on
    primary residential and single-line business lines at \$6.50, and
    could set the cap even lower if price cap LECs cannot justify higher
    increases. Thus, as explained below, CALLS ensures that basic
    telephone service does not become too expensive. The CALLS Proposal
    also asks the Commission to examine the appropriateness of setting
    the SLC caps for primary residential and single-line business lines
    above \$5.00 before doing so.[^41] In addition, the CALLS Proposal
    provides for additional Lifeline support so that low-income
    subscribers will not be hurt by increases to the primary residential
    SLC cap. The CALLS Proposal also provides that Lifeline customers
    will not be assessed universal service charges by price cap
    LECs.[^42]

34. Low-volume long-distance users also benefit from the CALLS Proposal.
    First, AT&T and Sprint both commit to having no monthly minimum
    charge on their Basic Schedule for at least three years. Second,
    both carriers agree to eliminate their PICC pass-through charges for
    residential and single-line business subscribers in light of the
    elimination of the PICCs for those customers. Third, in a move that
    benefits all subscribers, both carriers have agreed to flow through
    to residential and business customers the savings they realize from
    the CALLS-related reductions in access charges. We find that these
    commitments are in the public interest and adopt them as
    requirements of this Order.

35. Today, we adopt the CALLS Proposal because it accomplishes many
    objectives that the Commission to date has been unable to achieve in
    the absence of an industry consensus plan, while providing
    significant consumer benefits that we would not otherwise be able to
    ensure on such a wide-scale basis and in such a timely manner. We
    therefore find the CALLS Proposal to be in the public interest.
    Certainly there is no guarantee that, at the end of the CALLS
    Proposal's five-year term, competition will exist to such a degree
    that deregulation of access charges for price cap LECs is the next
    logical step. Nevertheless, the CALLS Proposal provides stability
    during its term and addresses several issues that have served as
    major obstacles to access charge reform and universal service. We
    also find the CALLS Proposal to be consistent with our market-based
    approach to regulation.

# DISCUSSION

36. We approve and adopt the CALLS Proposal because it resolves in a
    manner consistent with the public interest a number of complex,
    contentious and interrelated issues that stand as a roadblock to a
    competitive marketplace.[^43] The CALLS Proposal is a reasonable
    approach for moving toward the Commission's goals of using
    competition to bring about cost-based rates, and removing implicit
    subsidies without jeopardizing universal service. The CALLS Proposal
    is not designed as a permanent solution to all of the issues it
    addresses; instead, it is a transitional plan that moves the
    marketplace closer to economically rational competition, and it will
    enable us, once such competition develops, to adjust our rules in
    light of relevant market developments.[^44] Consequently, as the
    term of the CALLS Proposal nears its end, we envision that the
    Commission will conduct a proceeding to determine whether and to
    what degree it can deregulate price cap LECs to reflect the
    existence of competition.[^45] At that time, the Commission can also
    examine whether the interstate access universal service support
    mechanism remains sufficient.

37. The CALLS Proposal provides relative certainty in the marketplace
    during its five-year term. All parties will have a much clearer
    blueprint for developing their business plans and attracting capital
    than they would in the absence of CALLS. As the Massachusetts
    Department observes, "Resolving so many contentious issues . . . as
    the CALLS plan does, reduces this uncertainty to the point that it
    should not be a significant factor in capital investment."[^46]

38. The level of access rates, the amount of universal service support
    in access rates, and the appropriate X-factor have all been subject
    to contentious proceedings that heretofore have not been resolved
    despite years devoted to their resolution. For many years, IXCs and
    consumer groups have argued that access rates are significantly
    above cost and contain monopoly profits, the amount of which was
    itself subject to serious debate.[^47] Incumbent LECs, on the other
    hand, have contended that reducing access charges threatened
    universal service support. This dispute cannot be resolved with
    exactitude, as setting access charges is at best an imprecise
    process whose success can be measured only by using a zone of
    reasonableness. With adoption of the CALLS Proposal, we believe that
    we have achieved a reasonable and appropriate up-front reduction to
    access rates that addresses the positions of both sides.

39. The 1996 Act stated that the Commission should create explicit
    universal service mechanisms that would be secure in a competitive
    environment.[^48] The interstate access universal service support
    mechanism we create today to replace the implicit universal service
    support removed from access charges has been subject to heated
    debate as to the appropriateness of its size and distribution
    methodology. During the course of the proceeding, some parties have
    argued that the amount of implicit universal service support in
    access charges is as high as \$3.9 billion, while others have argued
    that the figure is only \$250 million.[^49] As explained below,
    determining the amount of implicit universal service support is an
    imprecise exercise at best. Consequently, it is only today, more
    than four years after the passage of the 1996 Act, that we issue a
    decision on this matter.

40. Similarly, the size of the X-factor has been subject to debate ever
    since the first time it was set with the creation of price caps.
    More recently, the current X-factor of 6.5 percent, which was set in
    1997,[^50] is currently on remand with the Commission. By adopting
    the reasonable approach set forth in the CALLS Proposal, which
    treats the X-factor not as a productivity estimate but as a method
    to reduce rates to certain levels, we expect to end the debate over
    the appropriate size of the X-factor now and for the next five years
    for participating price cap LECs.

41. The rates proposed by CALLS are reasonable. We have compared LEC
    revenues over the five-year period under the modified CALLS Proposal
    with what their revenues would be under the status quo, and conclude
    that they are roughly the same.[^51] Overall LEC revenues are
    roughly \$700 million lower than they would have been for the first
    year of the plan, but gradually increase in the later years so that
    projected revenue is higher than the status quo at the end of the
    plan. We note, however, that these estimates make no adjustment to
    account for voluntary reductions participating LECs might make in
    response to the development of competition in the marketplace,
    something that is much more likely to occur in the later years of
    the plan, in part due to the reduction of implicit subsidies by the
    CALLS Proposal.[^52]

42. We find that the CALLS Proposal provides a number of consumer
    benefits that are in the public interest. By eliminating the
    residential PICC, the CALLS Proposal provides immediate reductions
    to consumers' overall rates, even after taking the increase to the
    primary residential SLC into account. By having IXCs provide calling
    plans with no monthly minimum charges, CALLS also provides
    additional benefits to low-volume long-distance customers. In
    addition, by recovering a greater proportion of loop costs directly
    from the end user and by creating an explicit and portable
    interstate access universal service mechanism, the CALLS Proposal
    also promotes the development of greater facilities-based
    residential competition.

43. We reject the last-minute alternative proposed by ALTS and Time
    Warner.[^53] Their proposal would not be as beneficial a plan as
    that submitted by CALLS because, among other considerations, the
    smaller annual reductions to per-minute rates would result in a
    delay to more economically efficient rates. We note that the ALTS
    and Time Warner plan contains several of the same elements as does
    CALLS. For example, it eliminates the residential and single-line
    business PICCs, and increases the primary residential and
    single-line business SLCs to \$4.35 on July 1, 2000. Nevertheless,
    for the reasons discussed below, we find that their plan is not well
    developed. To do what is necessary to flesh out their plan,
    including seeking comment on it and resolving internal
    inconsistencies, would require many more months of proceedings,
    thereby resulting in significant delay in implementation.[^54]

44. We reject the contention by ALTS and Time Warner that by adopting
    the CALLS Proposal we are abandoning the Commission's commitment to
    using competition to drive down access charges.[^55] By adopting the
    CALLS Proposal, we require price cap LECs to make a larger rate
    reduction than they otherwise would have on July 1, 2000. For
    carriers that elect CALLS, however, we defer the rate prescription
    scheduled to take place next year that the Commission established as
    a "backstop" to the market-based approach in the event competition
    was slow to develop.[^56] We thereby allow four additional years for
    competition to develop sufficiently to begin to control access
    rates.

45. In addition, we find that the ALTS/Time Warner plan is poorly
    defined. For example, ALTS and Time Warner fail to explain how a SLC
    cap of \$4.35, together with a \$300 million interstate access
    universal service mechanism, would be appropriate to ensure adequate
    recovery of interstate loop costs in rural and high cost areas. ALTS
    and Time Warner also fail to explain how SLCs could be deaveraged
    when the SLC caps are set at that level. The ALTS/Time Warner plan
    also lacks an overall rationale. For example, ALTS and Time Warner
    criticize the up-front reductions in the CALLS Proposal as
    unjustified,[^57] yet they propose an undefended reduction, albeit a
    smaller one, "as a compromise."[^58] ALTS and Time Warner also
    criticize the X-factor targeting employed by CALLS,[^59] even though
    they propose an unsupported targeting of the X-factor different from
    the status quo.[^60] In addition, unlike the CALLS Proposal, ALTS
    and Time Warner have no support from parties other than competitive
    LECs.

46. We conclude that adopting the ALTS and Time Warner proposal would
    not serve the public interest. Although they object to the initial
    reduction in per-minute rates, at no point do they assert that the
    reductions proposed by CALLS will result in below-cost access rates.
    We believe that despite the criticisms by ALTS and Time Warner, the
    CALLS Proposal creates significant business opportunities for Time
    Warner and the members of ALTS. By reducing and removing the
    subsidies that currently keep the primary residential SLC rates
    below the level of loop costs currently allocated to interstate
    service, as accomplished through the CALLS Proposal, we are
    encouraging facilities-based carriers such as Time Warner and the
    members of ALTS to compete for residential subscribers.[^61]

47. With one exception that we discuss below, we decline to make any
    significant modifications[^62] to the CALLS Proposal as some parties
    advocate,[^63] and instead agree with the CALLS signatories that we
    should assess the proposal as a whole. In so doing, we note that the
    Original Proposal, made by a group of price cap LECs and IXCs but
    without comment from consumer groups, did not address the interests
    of consumers as adequately as the Modified Proposal. In response to
    the various critiques of the Original Proposal, CALLS made several
    pro-consumer changes that resulted in a substantially more equitable
    proposal. These changes include lowering the primary residential and
    single-line business SLC caps from the Original Proposal, both at
    the start of the plan and throughout its term; proposing a cost
    review to examine the appropriateness of raising the SLC caps above
    \$5.00; eliminating minimum usage charges for basic long-distance
    service by CALLS long-distance signatories; and removing a
    significant amount of revenues from access charges altogether,
    rather than shifting those permitted revenues to the common line
    basket.

48. We acknowledge that CALLS signatories have made compromises, both
    among themselves and to accommodate other interests. Having two
    groups representing historically opposing positions, *i.e.*, LECs
    (sellers of access services) and IXCs (buyers), reach an agreement
    removes much of the rhetoric that has stood as an obstacle to
    comprehensive action. Thus, the CALLS Proposal allows us to move
    forward more quickly by removing certain issues from consideration
    that would have delayed reaching a comprehensive solution. The fact
    that the resolution of these issues was achieved through a joint
    proposal among a cross-section of LECs and IXCs provides us with
    some indication that the proposal is within a zone of
    reasonableness.[^64] We believe the parties have negotiated with
    each other in good faith and fashioned a reasonable compromise that
    both addresses their competing interests and serves the broader
    public interest. We also believe that the proposal, particularly
    after taking its modifications into account, fairly balances the
    interests of all parties, including those who are not part of the
    coalition. We are supported in this belief by the support the plan
    has received from other interested parties, including certain
    consumer groups,[^65] some state regulators,[^66] and
    competitors.[^67]

49. At the same time, we must exercise our own independent judgment to
    ensure that any proposal we adopt in this area ­­\-- even a proposal
    that reflects a substantial degree of consensus among historically
    adverse parties \-- is reasonable and in the public interest. We
    have exercised that judgment here, and we find that CALLS falls
    easily within the range of reasonable solutions to the problems it
    addresses. CALLS is most appropriately judged as a single, cohesive
    proposal, because the underlying issues it addresses are themselves
    interrelated. We therefore focus our inquiry on the reasonableness
    of the proposal taken as a whole, although we also find that its
    essential constituent parts individually fall within the range of
    reasonableness. There is no one "right answer" to many of the
    disputes that the CALLS Proposal resolves. There are instead ranges
    of reasonable solutions, and the ultimate question is whether CALLS
    is a sensible transitional plan for accommodating the Act's
    universal service goals with the development of fuller, more
    rational competition. Moreover, while we of course have the legal
    authority to make substantive changes to the CALLS Proposal and
    impose them on the industry, we generally decline to do so. Although
    we might ourselves, after further delay, independently devise a
    different set of reasonable solutions to the problems addressed by
    the current proposal, the preferable course is to adopt the proposal
    itself, because it is reasonable in its own right, because it is
    ready to be implemented, and because it already commands a
    commendable degree of industry consensus.

50. Although we find the CALLS Proposal is reasonable for CALLS
    signatories and is likely to be reasonable for non-signatory price
    cap LECs, we recognize that it was developed with the idea that it
    would be voluntary for price cap LECs. At the same time, however,
    the benefits of the CALLS Proposal could not be fully realized if
    all price cap LECs did not participate. Because the CALLS Proposal
    is a cohesive proposal, failure to implement it fully would
    frustrate the consumer benefits we find appropriate for its
    adoption. Moreover, failure to implement CALLS completely will
    impede advancement toward the 1996 Act's competition and universal
    service goals.

51. Section 254(g) of the Act requires IXCs to average their rates.[^68]
    Accordingly, AT&T and Sprint cannot honor their commitments to
    eliminate residential PICCs and single-line business PICCs for
    customers of participating price cap LECs without eliminating these
    charges for customers of all carriers. AT&T and Sprint committed to
    eliminate their PICC pass-through charges for residential and
    single-line business customers on the condition that they would no
    longer be assessed PICCs for those customers. If some price cap LECs
    continued under the status quo, they would continue to charge PICCs
    on residential and single-line business lines, and one would expect
    that IXCs would seek to recover these costs through a flat charge.

52. If IXCs assessed a PICC pass-through charge on all residential and
    single-line business customers to recover the PICCs assessed on them
    by non-participating price cap LECs, residential and single-line
    business customers of participating LECs would end up paying higher
    overall rates than would residential and single-line business
    customers of non-participating LECs. The primary residential and
    single-line business customers of non-participating LECs would have
    their SLCs capped at \$3.50, and would have PICCs assessed on their
    lines to recover additional local loop costs, which would be
    averaged by IXCs among all customers. Customers of participating
    LECs would then pay a higher SLC, yet still be paying a PICC
    pass-through charge that reflects the IXCs' cost of paying PICCs to
    any non-participating price cap LECs. This would reduce some of the
    significant consumer benefits of the CALLS Proposal. It would also
    create a new subsidy running from customers of participating LECs to
    those of non-participating LECs, thereby frustrating the goal of
    removing implicit subsidies.

53. In addition, AT&T's commitments are predicated on there being a
    \$2.1 billion aggregate reduction to access charge usage rates.[^69]
    Because each CALLS LEC signatory has only committed to a
    proportional share of this sum based on an assumption of full
    participation, [^70] full participation by price cap LECs is
    necessary to reach the overall access charge usage rate reduction.
    Therefore, in the absence of full participation, neither AT&T nor
    Sprint[^71] would be obligated to fulfill their commitments,
    including those commitments regarding elimination of minimum usage
    charges, the flow-through of access charge reductions to residential
    and business customers, and consumer education efforts.

54. We also note that for price cap LECs that would not participate in
    CALLS, the implicit universal service subsidies contained in those
    LECs' access charges would remain. We would thus be required to
    conduct a proceeding to determine the size of that implicit
    universal service support, thereby delaying the creation of an
    explicit and portable interstate access universal service support
    mechanism for those areas. Until we completed that proceeding,
    competitive LECs in those price cap LECs' service areas would be
    unable to receive interstate access universal service support.

55. Similarly, without full participation by price cap LECs, the
    averaging requirements imposed on IXCs under section 254(g) of the
    Act could place IXCs at a competitive disadvantage if BOC
    long-distance affiliates only offer service to their in-region
    customers as they enter the long-distance market. A long-distance
    affiliate of a BOC participating in CALLS would be able to offer
    lower per-minute rates than would an IXC having to average its
    access charges across all regions, including those serving
    non-participating price cap LEC customers.[^72] Non-participating
    LECs would receive a windfall from CALLS, because the IXCs' averaged
    rates, which would be significantly lower due to the effects of the
    CALLS Proposal, would stimulate demand for interstate access in the
    LECs' regions, even though those LECs would not have significantly
    reduced their in-region per-minute rates.

56. Nevertheless, we recognize that not all price cap LECs could agree
    on all aspects of the CALLS Proposal.[^73] CALLS members worked
    among themselves to develop the mechanisms under which price cap
    LECs contribute toward reducing switched access usage charges by
    \$2.1 billion, as well as the rules that determine the size and
    distribution of the \$650 million interstate access universal
    service support mechanism. These decisions necessarily pit each
    price cap LEC's interest against the interests of all other price
    cap LECs. Consequently, price cap LECs that did not agree to the
    CALLS Proposal might not receive the same benefits or carry the same
    burdens as the CALLS LEC signatories.

57. Accordingly, out of an abundance of caution, we provide an
    opportunity for price cap LECs to choose between two options for
    certain rate-level, as opposed to rate structure, components of the
    CALLS Proposal. Specifically, price cap LECs may elect CALLS for the
    full five-year period. Alternatively, price cap LECs may elect to
    submit a cost study based on forward-looking economic cost that will
    be the basis for reinitializing rates to the appropriate level.
    Because a cost study proceeding necessarily requires data specific
    to the price cap LEC to be submitted and analyzed, we find it
    necessary to mandate the CALLS rate-level components on an interim
    basis, subject to true-up, in order to provide sufficient time to
    complete a cost study. A price cap LEC that elects the second option
    will be subject to the following rate-level components of the CALLS
    Proposal until we have completed the forward-looking economic cost
    review: the size of the up-front reduction; the size of the
    carrier's interstate access universal service support; the X-factor;
    and the switching target levels. Adopting these components on an
    interim basis will permit realization of the full consumer benefits
    of the CALLS Proposal and preserve the \$2.1 billion reduction in
    switched access usage charges for the first year.

58. At the same time, we adopt the rate structure components of the
    CALLS Proposal as mandatory for all price cap LECs, for the
    five-year period envisioned by the CALLS Proposal. The rate
    structure components are the new SLC caps, elimination of the
    residential PICC, the multi-line business PICC caps, the creation of
    a separate basket for special access, elimination of the marketing
    basket and the recovery of the revenues it recovered as part of CMT
    revenues, recovery of universal service contributions directly from
    end users, SLC deaveraging, portability of the interstate access
    universal service mechanism, and increased Lifeline support to cover
    the new SLC caps. For the reasons discussed elsewhere in this order,
    the changes made in these components are reasonable and in the
    public interest and consistent with our policy of requiring, to the
    extent possible, that non-traffic sensitive costs be recovered
    through fixed rates or flat charges. In addition, these changes do
    not affect carriers' overall recovery of their costs and thus do not
    raise the same issues as the rate-level components.

59. For the rate-level components, each price cap LEC will, at the
    holding-company level, choose between two options. The first
    alternative is to subscribe to the CALLS Proposal for its full
    five-year term. The second alternative is to submit a cost study
    based on forward-looking economic costs, resulting in the LEC\'s
    rates being reinitialized to the appropriate level indicated by the
    study and then made subject to a price cap plan and X-factor that we
    would determine.

60. This cost-study proceeding is consistent with what we outlined in
    the *Access Charge Reform Order*.[^74] In the *Access Charge Reform
    Order*, the Commission stated that its goal was for interstate
    access charges to reflect the forward-looking economic costs of
    providing interstate access services.[^75] The Commission adopted a
    two-phased approach to reach that goal. It adopted a market-based
    approach that relied on competitive pressures to bring prices toward
    forward-looking economic cost, with incumbent LECs receiving
    additional pricing flexibility where competition has developed. The
    second phase provided, however, that the Commission would require
    forward-looking cost studies by no later than February 8, 2001 for
    access services that were not subject to competition and "eventually
    prescribe rates for those services at forward-looking economic cost
    levels."[^76] For those carriers that accept the CALLS Proposal, we
    are extending for five years the period during which we will allow
    the market-based approach to bring interstate access prices toward
    forward-looking economic cost. Those carriers that reject the CALLS
    Proposal will operate under the framework the Commission set forth
    in the *Access Charge Reform Order* to address services that are not
    subject to substantial competition.[^77]

61. Each price cap LEC will have 60 days from the release of this Order
    to make its election between the two options. This election will be
    binding for the five-year term of CALLS. Price cap LECs that elect
    to proceed with a cost study will be subject to the rules we adopt
    today until the completion of our cost study proceeding. We make
    this election binding because we believe the CALLS Proposal, coupled
    with a true-up mechanism discussed below, will ensure reasonable
    rate levels for all price cap LECs, while ensuring that the
    Commission does not waste its limited resources in cost proceedings
    performed solely for the purpose of having LECs determine under
    which approach they would be better off.

62. For a price cap LEC electing the cost study option, we also adopt a
    true-up mechanism to be applied to such price cap LEC's rates. This
    will enable the LEC and its customers to be treated as it would have
    been, had we completed the cost study in time to avoid the need for
    imposing the CALLS Proposal for an interim period. Should any price
    cap LEC elect to participate in the cost-study proceeding, the
    Commission will consider the sufficiency of the interstate access
    universal service support mechanism, including both the size and
    distribution of support, concurrently with the industry-wide review
    of the increase to the primary residential SLC cap after July 2001,
    to avoid duplication of effort. We reject arguments offered by
    parties asking that we make the CALLS Proposal wholly
    mandatory.[^78] CompTel's contention that we have not previously
    implemented opt-in regulation for incumbent LECs is wrong.[^79]
    Other than the BOCs and GTE, all incumbent LECs have had the choice
    of whether to elect rate-of-return or price cap regulation.[^80] In
    addition, for several years all price cap LECs were permitted to
    elect the level of sharing and the X-factor to which they would be
    bound.

63. Below, we discuss each portion of the CALLS Proposal in detail. In
    Section A., we address the impact of the CALLS Proposal on services
    in the common line and marketing baskets. In Section B., we set
    forth the impact of the proposal on the local switching and trunking
    baskets, including the modifications to the X-factor and the
    creation of a separate basket for special access. In Section C., we
    discuss the universal service components of the CALLS Proposal. In
    Section D., we conclude that the CALLS Proposal addresses the
    concerns raised in the *Low-Volume Long-Distance NOI*.

## Common Line Charges

### Background

64. In the *1983* *Access Charge Order*, the Commission established a
    comprehensive mechanism for LECs to recover their costs of providing
    access service to complete interstate and foreign
    telecommunications.[^81] This mechanism distinguished between
    traffic sensitive costs and non-traffic sensitive (NTS) costs
    incurred by a LEC to provide interstate access service. The
    Commission emphasized in the *1983 Access Charge Order* that its
    long range goal was for LECs to recover a large share of their NTS
    common line costs on a flat-rated basis from end users instead of
    from carriers.[^82] The rules adopted in 1983 apportioned charges
    for common line costs between a monthly flat-rated SLC assessed on
    end users and a per-minute CCL charge assessed on the IXCs, which
    ultimately was recovered from end users through long-distance
    charges.[^83]

65. In the *Access Charge Reform Order*, in order to align the rate
    structure more closely with the manner in which costs are incurred,
    the Commission changed the manner in which price cap LECs recover
    their permitted common line revenues.[^84] Consistent with the goal
    enunciated in the *1983 Access Charge Order*, because the costs of
    using the price cap LEC\'s common line (or \"local loop\") do not
    increase with usage, the Commission decided that these costs should
    be recoverable entirely through flat, non-traffic sensitive
    fees.[^85] Out of an abundance of caution for affordability and
    universal service concerns at that time, however, the Commission did
    not raise the SLC cap for primary residential and single-line
    business lines above the \$3.50 level in effect at the time to
    permit the full recovery of common line revenues.[^86] Rather, to
    the extent that common line revenues are not recovered through the
    end-user\'s SLC, the Commission permitted LECs to recover these
    revenues through the PICC, a flat, per-line charge assessed on the
    IXC to whom the access line is presubscribed.[^87]

66. Affordability concerns were not as significant for non-primary lines
    and multi-line business customers.[^88] As a result, the Commission
    permitted increases in their SLC caps from \$3.50 to \$5.00 plus
    future increases for non-primary lines, and from \$6.00 to \$9.00
    plus increases for inflation for multi-line business customers to
    permit recovery of the price cap LECs' average per-line common line
    revenues.[^89] The Commission also established flat-rated PICCs on
    non-primary residential and multi-line businesses to recover common
    line revenues that cannot be recovered from residential and
    single-line business customers due to the caps on SLCs and primary
    residential PICCs.[^90]

67. The PICC was designed to be phased in over a several year period.
    The PICC for primary residential and single-line business lines was
    capped at \$0.53 in the first year with annual adjustments
    thereafter for inflation plus \$0.50 until the sum of the SLC plus
    the PICC equals the price cap LEC's permitted common line revenues
    per line. Under current rules, the caps on non-primary and
    multi-line business PICCs also increase over time. As the primary
    residential and single-line business PICCs increase, however, the
    resulting increase in recovery of common line costs through flat
    charges on primary residential and single-line business lines will
    eliminate the subsidization of subscribers' rates for those lines by
    non-primary residential and multi-line business lines.[^91] At this
    point, non-primary residential and multi-line business lines will no
    longer be assessed PICCs. Some price cap LECs already have reached
    this point; others would not reach this point for a number of years.

68. To the extent that the caps on SLCs and PICCs do not allow recovery
    through flat charges of all common line revenues, LECs are still
    permitted to impose a per-minute CCL charge assessed on originating
    minutes.[^92] As the PICC caps for non-primary residential and
    multi-line business lines increase, and as flat-rated revenues
    received from primary residential and single-line businesses
    increase, the per-minute CCL charge will be eliminated. At present,
    among the price cap LECs, only BellSouth, Citizens, and certain
    study areas of GTE, Frontier, and Sprint continue to collect CCL
    charges.[^93]

69. In the Further Notice of Proposed Rulemaking adopted in August,
    1999, the Commission sought comment on whether to permit price cap
    LECs to geographically deaverage common line access and traffic
    sensitive elements without a competitive showing and whether to
    condition such authority on certain regulatory developments.[^94]
    The Commission also sought comment on whether it should grant
    pricing flexibility for switched access and common line
    services.[^95] That proceeding remains pending.

### CALLS Proposal

70. The CALLS signatories propose reforming and simplifying common line
    charges by combining the SLC, PICC and CCL charges into a single
    end-user charge that can be deaveraged under limited circumstances.
    Under the CALLS Proposal, the PICC for residential and single-line
    businesses would be eliminated beginning July 1, 2000.[^96] The SLC
    for primary residential and single-line business lines would be
    capped at \$4.35 upon implementation of the proposal beginning July
    1, 2000, \$5.00 as of July 1, 2001, \$6.00 as of July 1, 2002, and
    \$6.50 as of July 1, 2003.[^97] The proposal also calls for the
    Commission to initiate a proceeding after the SLC cap reaches \$5.00
    to examine whether increases to the SLC cap for residential and
    single-line businesses above \$5.00 are appropriate, and reflect the
    costs in the UNE zone or zones where they would apply.[^98] The
    maximum primary residential and single-line business SLC in any zone
    would be the average price cap common line, marketing and transport
    interconnection charge revenue (Price Cap CMT Revenue) per line for
    the highest cost unbundled network element (UNE) zone[^99] in a
    study area up to the nominal cap.[^100] Price Cap CMT Revenue is
    defined as the total revenue a filing entity is permitted to receive
    for SLCs, PICCs and CCL charges.[^101] Price Cap CMT Revenue also
    includes marketing expenses pursuant to section 69.156(a) of the
    Commission's current rules, and residual interconnection charge
    revenues collected through PICCs.[^102]

71. In addition to eliminating the PICC for non-primary residential
    lines, the CALLS Proposal would cap the maximum SLC for these lines
    at the lower of \$7.00 or the greater of the current rate or average
    Price Cap CMT Revenue per line for the highest average revenue per
    line UNE zone in a study area.[^103] Once charges for primary and
    non-primary residential lines are equal within a zone or study area,
    a price cap LEC could eliminate the distinction between primary and
    non-primary lines within that zone or study area.[^104] Although the
    distinction between primary and non-primary residential lines could
    be eliminated in most circumstances under the proposal, it would
    remain for those subscribers where the average Price Cap CMT Revenue
    exceeds the maximum primary residential SLC cap.

72. For multi-line business customers, the SLC and PICC would not be
    combined.[^105] The multi-line business PICC would continue to be
    charged to the IXCs with a cap of \$4.31 per line.[^106] It would be
    reduced as the residential SLCs increase until it is phased
    out.[^107] The SLC would be the lesser of \$9.20 or the greater
    of (1) the rate as of June 30, 2000, less certain amounts of SLC
    reductions or (2) Average Price Cap CMT Revenue Per Line where SLCs
    have not been deaveraged.[^108] Multi-line business SLCs would be
    frozen until the carrier's multi-line business PICC and CCL charges
    are eliminated -- except where a carrier chooses to reduce the SLC
    through voluntary reductions.[^109]

73. SLCs could be deaveraged subject to certain limitations.[^110] Price
    cap LECs could only geographically deaverage their SLCs after a
    state commission establishes deaveraged UNE rates by zone and PICCs
    and CCL charges are eliminated. Deaveraged SLCs by customer class
    within each UNE zone also could not generate more revenue than that
    generated by geographically averaged SLCs.[^111] A price cap LEC,
    however, could take a voluntary reduction at any time. Price cap
    LECs may have up to four SLC zones, absent Commission review and
    approval, and price cap LECs can determine which zones to
    consolidate if they have more than four UNE zones.[^112] A carrier
    need not eliminate CCL charges and PICCs prior to deaveraging by
    voluntary reductions. A price cap LEC also could not reduce
    multi-line business SLCs below non-primary residential SLCs or
    non-primary residential SLCs below primary residential and
    single-line business SLCs in a given UNE pricing zone.[^113] SLCs of
    a given customer class, such as multi-line business, could not have
    a lower price in higher cost zones than any line in a lower cost
    zone.[^114] Finally, except with respect to voluntary reductions,
    the proposal would establish a minimum charge within the lowest cost
    zone, which allows consumers outside the lowest cost zone to share
    the benefits of SLC deaveraging.[^115]

74. Each CALLS LEC signatory also commits to reduce "switched access
    usage charges" by its proportional share of \$2.1 billion on July 1,
    2000.[^116] Most LECs would achieve these reductions solely through
    rate decreases. Under the proposal, however, two mutually exclusive
    alternatives are proposed to permit certain carriers to move some of
    these permitted revenues to the common line basket.[^117]

### Discussion

75. We adopt the common line rate structure aspects of the CALLS
    Proposal because it is pro-competitive and provides immediate
    significant consumer benefits through reduced consumer rates.
    Furthermore, consistent with the 1996 Act, including section 254(k),
    it simplifies the current rate structure and long-distance bills,
    reduces consumer confusion, and furthers the Commission's efforts
    over the past two decades to eliminate per-minute recovery of common
    line costs.[^118] Although support for the CALLS Proposal was not
    unanimous, the proposal is a major step forward from the
    Commission's current access charge regime, and preferable in moving
    access charges to cost-based levels than the current process.[^119]

#### Residential and Single-Line Business SLCs and PICCs

76. In this Order, we eliminate residential and single-line business
    PICCs. We also increase the related SLC caps as proposed and modify
    our rules accordingly. As explained below, we find that this action
    is within the Commission's statutory authority to order proper
    recovery of the portion of common line costs that has been allocated
    to the interstate jurisdiction through charges imposed on telephone
    subscribers, and that doing so does not violate the Communications
    Act of 1934, as amended.[^120]

77. Our actions today are in furtherance of our goal of having price cap
    LECs recover a large share of their NTS common line costs from end
    users who cause them instead of carriers, and to recover these costs
    on a flat-rated, rather than a usage-sensitive, basis.[^121] As
    explained below, we find that modifying these charges in the
    proposed manner will simplify the current rate structure and
    consequently consumers' bills by eliminating some of the complexity
    involved with these charges and the billing practices that gave rise
    to the *Truth-in-Billing Order* and *Low-Volume Long-Distance Users
    NOI*.[^122]

78. By eliminating the residential and single-line business PICCs, the
    CALLS Proposal establishes a straightforward, economically rational
    pricing structure which enables consumers to make a choice among
    competing providers through head-to-head comparisons and better
    promotes competition by sending potential entrants economically
    correct entry incentives.[^123] Furthermore, because of the PICC
    billing practices of many IXCs, the new SLC caps ultimately will
    result in a further reduction of the overall amount many consumers
    currently pay for their individual SLCs and PICCs. Most IXCs
    currently recover PICCs from their customers through a blended PICC
    pass-through charge[^124] on a per-account basis. This practice
    results in consumers with only one line paying more than they
    otherwise would had the LECs simply passed onto them directly the
    \$1.04 worth of permitted revenues that the LEC recovers through the
    single-line PICC.[^125] We estimate that IXCs are recovering
    additional amounts per account in "transaction costs" to recover
    their Lifeline costs, universal service contributions and bad debt
    associated with non-paying subscribers. Specifically, while we
    estimate that the average IXC blended PICC pass-through rate absent
    any additional amounts recovered by IXCs currently is approximately
    \$1.23,[^126] AT&T, MCI WorldCom and Sprint currently charge their
    residential customers \$1.51, \$1.46 and \$1.50, respectively, as a
    blended PICC pass-through charge on a per-account basis. Eliminating
    the PICC, therefore, will make common line billing more efficient
    and more closely aligned with costs.[^127]

79. Under the CALLS Proposal, the primary residential and single-line
    business SLC cap will be less than the combined SLC and PICC would
    be beginning July 1, 2000 under our existing rules. Under our
    existing rules, the primary residential and single-line business SLC
    currently is capped at \$3.50 per line. The primary residential and
    single-line business PICC cap currently is \$1.04 per line, and it
    is scheduled to increase on July 1, 2000 by \$0.50 per line, plus an
    amount for inflation.[^128] The total amount of the SLC and PICC
    caps beginning July 1, 2000 under existing rules therefore, would be
    approximately \$5.06. Under the CALLS Proposal, the primary
    residential and single-line business SLC is capped at \$4.35 per
    line beginning July 1, 2000. Consequently, most subscribers with
    only one line could save more than \$0.70 per line under the CALLS
    Proposal compared to amounts they otherwise might have paid had
    these caps gone into effect beginning July 1, 2000. This estimate
    does not reflect the additional savings that result from the
    elimination of the blended PICC pass-through. Given that the new SLC
    cap will be less than the SLC and PICC caps would be under our
    current rules, we have a sufficient basis to find that the rates
    charged primary residential and single-line business customers will
    not be excessive and therefore unreasonable. Furthermore, because
    per-line CMT revenues are below the proposed caps in some areas, the
    average primary residential and single-line business SLC will not be
    as high as the cap particularly if the caps are raised in 2002
    and 2003. We estimate the average primary residential SLC will be
    \$4.93 in July 2001, \$5.63 in July 2002, \$5.82 in July 2003, and
    \$5.83 after full implementation and transition of the proposal in
    July 2004 if the caps are fully implemented not counting voluntary
    reductions due to competition or any modifications to the proposed
    caps which might occur as a result of the cost review proceeding
    prior to the SLC increasing above \$5.00.[^129] It is difficult to
    compare these rates with the estimated primary residential SLC and
    PICC rates in 2004 under our current rules because of variables
    beyond our control. For example, the SLC under the CALLS Proposal's
    proposed rules is largely unaffected by inflation, whereas the
    projected SLCs and PICCs under our current rules would vary widely
    depending on what happens with inflation over the time period. In
    addition, further into the future, it is more difficult to estimate
    what IXCs would charge as a PICC pass-through to end users, and what
    the X-factor would be.

80. Similarly, the SLC cap for non-primary residential lines will be
    lower than the SLC cap that would otherwise apply beginning July
    1, 2000. The non-primary residential SLC cap currently is \$6.07 per
    line and is scheduled under our current rules to increase on July 1,
    2000 by \$1.00 per line, plus an amount for inflation. Additional
    increases to this SLC cap of \$1.00 per line plus an amount for
    inflation also are scheduled in subsequent years.[^130] Under the
    CALLS Proposal, the non-primary residential SLC cap will be \$7.00
    beginning July 1, 2000, and remain unchanged for the five-year term
    of the proposal.[^131] Because the actual charges assessed on many
    non-primary residential lines will be below the SLC cap under either
    approach, these subscribers will not see additional benefits.
    However, the remaining subscribers will immediately benefit by
    saving approximately \$0.24, and on average will enjoy considerable
    savings in subsequent years.[^132]

81. We find that this rate restructuring and rate decrease is in the
    public interest because it simplifies the current rate structure,
    moves towards cost-based rates, reduces consumers' overall rates,
    and simplifies long-distance bills, thereby resulting in less
    consumer confusion. Similarly, simplifying the current rate
    structure benefits price cap LECs and IXCs by eliminating some of
    the complexities involved in the administration of current
    Commission rules and providing greater opportunities for pricing
    flexibility. These are all goals we have sought to achieve through
    our access charge reform, truth-in-billing and low-volume
    long-distance user proceedings.[^133]

82. We recognize that although consumers will experience considerable
    immediate savings, they also will see an additional line item charge
    on their bill when price cap LECs begin recovering Universal Service
    Fund contributions through an end-user charge. This charge could
    have been assessed regardless of the CALLS Proposal as a result of
    the Fifth Circuit's decision in *Texas Office of Public Utility
    Counsel v. FCC*.[^134] Although the removal of the implicit
    subsidies from access charges to an explicit universal service
    support mechanism will be part of this line item charge, the
    increase attributed to the interstate access universal service
    support mechanism should be offset by the decreases in other rates
    and charges resulting from the implementation of the CALLS Proposal.

83. As set forth in the CALLS Proposal, we shall review any increases to
    residential and single-line business SLC caps above \$5.00 to verify
    that any such increases are appropriate and reflect higher costs
    where they are to be applied.[^135] We will initiate and complete a
    cost review proceeding prior to any scheduled increases above this
    cap taking effect to determine the appropriate SLC cap. For this
    proceeding, the price cap LECs have agreed to provide, and we will
    examine, forward-looking cost information associated with the
    provision of retail voice grade access to the public switched
    telephone network. We will address in that proceeding whether an
    increase in the SLC cap above \$5.00 is warranted and, if not,
    whether a decrease in common line charges is warranted.[^136]

84. We disagree with CALLS opponents who argue that this cost study
    should occur prior to the adoption of the proposal.[^137] This
    proposal is good for all end users because it reduces the overall
    rates paid by them. Initiating and completing a cost study would
    take a considerable amount of time, which would delay the immediate
    savings end users would realize from the implementation of the
    proposal on July 1, 2000. Scheduling the cost study prior to the SLC
    cap increasing above \$5.00 in July 2002, will enable end users to
    reap the immediate benefits of this proposal without the delay that
    would otherwise result from conducting the study beforehand. We
    further disagree with CALLS opponents who want the Commission today
    to specifically define the scope of the cost review study as well as
    the specific information to be examined in it. We believe that these
    issues are more appropriately addressed when we initiate the cost
    study.

85. We are not persuaded by arguments that increasing the SLC cap would
    violate the principle set forth in section 254(b) that consumers in
    all regions of the nation should have affordable access to
    telecommunications and information services at rates that are
    reasonably comparable to those services provided in urban
    areas.[^138] The SLC cap was set over a decade ago and was
    determined to be generally affordable.[^139] It has never been
    adjusted for inflation. Our rate restructuring today will result in
    lower overall charges than consumers experience with the current SLC
    and PICC, and a more efficient recovery of common line revenues
    through flat charges.[^140] Furthermore, the data indicate that if
    the SLC cap for primary residential lines had been adjusted annually
    for inflation since it became effective in 1984, by July 2000, the
    \$3.50 primary residential and single-line business SLC cap that was
    in place in 1989 and retained in the *Access Charge Reform Order*
    would have increased to \$4.94 per line.[^141] Thus, for residential
    customers, the primary residential SLC cap we adopt today is more
    affordable now than what it otherwise would have been had the \$3.50
    cap we previously deemed affordable been adjusted for inflation
    annually.

86. Increasing the SLC cap and eliminating the PICC as proposed will, in
    most areas, enable the full recovery of common line revenues for
    residential and single-line business lines through a single charge.
    Although, in the past, the Commission was reluctant to increase the
    SLC cap, the CALLS Proposal mitigates our reluctance.[^142] Indeed,
    although we established the PICC as a charge that LECs assess IXCs
    instead of an end-user charge in order to minimize any impact on end
    users potentially resulting from a higher SLC, the reality in the
    marketplace is that IXCs have marked-up and passed-through the PICC
    to end users, thereby imposing higher flat charges for the majority
    of residential customers than would have occurred had we increased
    the SLC cap by the amount of the PICC caps. Even an end user who
    does not presubscribe to an IXC, and who pays the PICC directly to
    the LEC, could have been paying more in SLC and PICC on July 1,
    2000, than the proposed SLC in the CALLS Proposal. Furthermore,
    subscribership has not been negatively impacted by these charges.
    Since the introduction of these charges, subscribership rates have
    remained relatively stable.[^143] We are unpersuaded by the
    arguments therefore, that revising the rate structure as proposed
    will negatively impact subscribership.[^144] Thus, in light of all
    of the benefits associated with the proposed restructuring of common
    line billing, such as the savings shown above, reductions in
    switched access usage rates and the interstate access universal
    service support mechanism of the CALLS Proposal, our prior concerns
    about whether increasing the SLC cap above \$3.50 would render
    telephone service unaffordable are sufficiently mitigated to allow
    an increase in the SLC.

87. We acknowledge that states are concerned about the impact the CALLS
    Proposal may have on intrastate access charges, due to the fact that
    many states require that intrastate access fees mirror interstate
    access charges.[^145] We agree with the Joint Board in the *Second
    Recommended Decision*, that "\[t\]he Commission's efforts to remove
    implicit universal service support from interstate access charges
    will not affect intrastate rates directly.[^146]" We believe that
    the states' concern over an indirect consequence of our action today
    is outweighed by our efforts, consistent with the 1996 Act, to
    remove implicit supports from access charges. For this reason, and
    because the 1996 Act directs that states should take action to
    preserve and advance universal service,[^147] we leave it to the
    individual states to adjust their rates as they deem necessary in
    response to this Order.

88. In addition, the CALLS Proposal will provide rate benefits for rural
    customers including those not served by price cap LECs.[^148] Most
    IXCs currently assess a flat-rated charge to recover the PICC on all
    of their subscribers, including those subscribers served by
    rate-of-return LECs. By eliminating the PICC, we eliminate these
    charges from the bills of these subscribers as well. This benefit is
    in addition to the savings they otherwise will experience from the
    reductions in long-distance charges resulting from the pass through
    by the long-distance signatories of the proposed lower access
    charges.[^149] Because long-distance providers must offer their
    geographically-averaged rates to all of their customers, including
    those served by rate-of-return carriers,[^150] rural customers also
    will benefit from reductions in per-minute rates. We also anticipate
    addressing access reform and universal service reform for rural
    carriers in the near future.[^151]

89. Some of the proposal's critics suggest that the more appropriate
    competitive route to access reform is to eliminate the SLC rather
    than the PICC.[^152] These parties believe that, because the
    long-distance market is currently more competitive than the local
    exchange market, these charges are more likely to be competed away
    if assessed on IXCs. We disagree with this proposition. Because
    PICCs are an external cost to the IXCs that they cannot reduce by
    managing it better or being more efficient, PICCs are unlikely to be
    competed away.[^153] Indeed, we are now into the third year of its
    introduction, and there is no sign that the PICC is being competed
    away. Rather, we believe that one of the major benefits of
    recovering common line costs through the SLC alone is to encourage
    efficient competitive entry, particularly in providing competing
    alternatives for loop service.[^154] The only way an IXC can reduce
    its PICCs is by discouraging presubscription by customers that it
    would prefer not to serve, such as those who make few long-distance
    calls. This type of behavior could raise issues regarding unjust,
    unreasonable and discriminatory practices under sections 201[^155]
    and 202[^156] of the 1996 Act. This is not a result that we would
    like to encourage. If common line costs are recovered in the SLC, a
    LEC can reduce its costs through efficiency gains and will have the
    incentive to avoid costs and reduce prices as it faces increased
    competition from competing local exchange carriers.[^157] Further,
    we find that the proposed cost recovery structure will be more
    apparent to the end user, whereas PICCs currently are at least
    partially buffered against direct comparison because of the manner
    in which they are processed from the LEC through the IXC to the end
    user. Proceeding in this manner will provide greater economic
    incentives to stimulate alternative sources for the loop through
    facilities-based competition, and thus subject loop prices to
    competitive pressure.

90. Opponents also argue that the CALLS Proposal violates section 254(k)
    of the 1996 Act[^158] for two reasons: (1) it fails to recover costs
    from all services that use the loop and permits the uncompensated
    use of the loop by IXCs; and (2) it causes services included in the
    definition of universal service to bear more than a reasonable share
    of the joint and common costs of facilities used to provide those
    services.[^159]

91. We find that section 254(k) is not implicated by our action today.
    Section 254(k) is directed at the allocation of costs between
    competitive and non-competitive services, both regulated and
    non-regulated, and prohibits subsidization of competitive services
    by non-competitive services.[^160] The SLC is a method of recovering
    loop costs; not an allocation of those costs between supported and
    unsupported services.[^161] Contrary to the opponents' arguments,
    nothing in section 254(k) precludes the Commission from permitting
    recovery of common line charges properly apportioned to interstate
    access from subscribers on a flat-rated basis. Under current rules,
    no PICC or CCL charges are paid by IXCs with respect to non-primary
    residential and multi-line business lines after the phase-in
    specified in the *Access Charge Reform Order* is completed.
    Similarly, for primary residential lines that are not presubscribed
    to an IXC, there is no common line recovery from IXCs in those
    places where the CCL charge has been phased out.

92. Moreover, section 254(k) addresses the concern that price cap LECs
    may attempt to gain an unfair market advantage in competitive
    markets by allocating to their less competitive services, for which
    subscribers have no available alternative, an excessive portion of
    the costs incurred by their competitive operations.[^162] Whether a
    LEC allocates all of its interstate loop costs to the end user or to
    the IXC, the LEC's competitive position as compared to other
    suppliers of local exchange facilities remains the same. Section
    254(k) was not designed to regulate the apportionment of loop costs
    between end users and IXCs because this allocation does not involve
    improperly shifting costs from a competitive to non-competitive
    service.[^163]

93. Consequently, we agree with the CALLS proponents that there is no
    legal impediment to a federal recovery mechanism that simply
    requires all telephone subscribers to pay, on a per-line basis, for
    that portion of their *necessarily-incurred local telephone plant
    costs* that is assigned to the interstate jurisdiction.[^164]
    Section 254(k) does not apply to the question of whether prices
    should be set through SLCs alone or through a combination of SLCs
    and PICCs. Neither the PICC nor the CCL charge is legally compelled
    by section 254(k) or any other provision of law.

94. Indeed, these arguments have already been addressed and rejected by
    the United States Court of Appeals for the Eighth Circuit.[^165] In
    *Southwestern Bell v. FCC*, the Texas Office of Public Utility
    Counsel argued, among other things, that the Commission's decision
    in the *Access Charge Reform Order* to increase the SLC cap for
    certain lines resulted in a "'free ride by the IXCs on the common
    line facilities'" and that loop costs were being shifted from
    competitive services to basic services, contrary to the intent of
    section 254(k) of the 1996 Act. Texas Counsel argued that as a
    result of section 254(k), the recovery of joint and common costs,
    such as NTS loop costs, must be borne mutually both by end users and
    by IXCs. Texas Counsel asserted that it was improper for the
    Commission to shift additional NTS loop cost recovery from the
    access rates LECs charge IXCs for interstate access onto the rates
    end users pay for certain telephone lines.[^166] Texas Counsel
    contended that increasing the SLC cap imposed on end users allowed
    IXCs to evade their fair share of the common line costs.[^167] Texas
    Counsel maintained that this approach violated section 254(k) "in
    that the existing proportion of NTS loop cost recovery by the IXCs
    through competitive services would be reduced through increases on
    end users for basic services."[^168]

95. The Eighth Circuit upheld the Commission's increases to various LEC
    SLC caps, however, and found that "Texas Counsel's contention that
    increasing the SLC price ceiling violates the prohibition against
    using non-competitive services to subsidize competitive services
    \[wa\]s unpersuasive."[^169] In doing so, the court reaffirmed the
    Commission's long standing view that the subscriber "causes" local
    loop costs, whether the subscriber uses the service for intrastate
    or interstate calls. These costs are, in any event, recovered from
    the end user, either through direct end-user charges or indirectly
    through higher rates or additional charges paid to IXCs. The court
    further affirmed the Commission's conclusion that it was appropriate
    and rational for the Commission to impose these costs on the end
    user. The court concluded as a result that increasing SLC caps on
    certain lines did not result in a windfall for IXCs.[^170]

96. Similarly, the court in *Southwestern Bell* rejected the argument
    that increasing the SLC cap violates the second sentence of section
    254(k) by causing services included in the definition of universal
    service to bear more than a reasonable share of the joint and common
    costs of facilities used to provide those services. The second
    provision of section 254(k) separates telecommunications services
    into those that are supported by universal service, and those that
    are not.[^171] This provision empowers the Commission to establish
    rules to prevent LECs from overallocating to supported services the
    costs of facilities that are used to provide services in both
    categories. It places a continuing obligation on the Commission to
    ensure that the treatment of joint and common costs, such as
    corporate overheads, prescribed by our accounting, cost allocation,
    separations, and access charge rules will safeguard the availability
    of universal service.[^172] Opponents argue that by eliminating the
    PICC and increasing the SLC cap, the Commission violates section
    254(k) by allocating 100 percent of the joint and common costs to
    the common line elements paid by the end user. The Commission,
    however, has complied with the requirements of section 254(k) by
    allocating joint and common costs to various interstate services,
    including those that are supported by universal service, such as
    common line and switching, and those that are not, such as special
    access services.[^173] The Commission also has in place a
    comprehensive system of accounting and non-accounting safeguards
    designed to discourage carriers from misallocating the costs of
    non-regulated activities, and to ensure that ratepayers share in any
    efficiencies generated from joint use of the network by
    non-regulated activities.[^174] None of the proposal's critics
    challenge these safeguards as insufficient or flawed, or our
    allocation as improper. Because the SLC is a method of recovering
    properly allocated loop costs, not an allocation of those costs
    between supported and unsupported services, section 254(k) is not
    implicated.[^175]

97. Moreover, the SLC and PICC were established to recover loop costs
    for the same service -- interexchange access. Interexchange access
    is a supported service as defined in the *Universal Service First
    Report and Order*.[^176] Therefore, contrary to the arguments of
    opponents, moving the recovery of loop costs associated with
    interexchange access service from the PICC to the SLC is not a
    change in the allocation between supported and unsupported service.

98. We also reject the argument that elimination of the PICC is
    inconsistent with the *Line Sharing Order*.[^177] The *Line Sharing
    Order* concluded that states should not permit incumbent LECs to
    charge more to competitive LECs for access to shared local loops
    than the amount of loop costs the incumbent LEC allocated to ADSL
    services when it established its interstate retail rates for those
    services.[^178] To date, we are not aware of any incumbent LECs that
    have allocated any loop costs to ADSL services.

99. Many of the proposal's critics also erroneously argue that the
    consolidation of the SLC and PICC violates the requirements for
    reasonable recovery of shared costs as interpreted by *Smith v.
    Illinois Bell*.[^179] We find no requirement anywhere that we are
    required to prescribe the recovery of properly allocated common line
    costs from IXCs rather than in the cost causative manner that we
    follow. In making their arguments, the opponents misinterpret and
    confuse the issues in *Smith v. Illinois Bell*. Indeed, their
    arguments have already been addressed and rejected in *NARUC v.
    FCC*. Specifically, in *NARUC v. FCC*, the D.C. Circuit held that
    *Smith v. Illinois Bell* dealt with jurisdiction and that a portion
    of the costs of local subscriber plant may be recovered only under
    the authority of a body with interstate regulatory powers.[^180] The
    D.C. Circuit further held that *Smith v. Illinois* did not address
    the manner in which the Commission was to perform this task.[^181]
    The court specifically found that *Smith v. Illinois Bell* did not
    compel the Commission to use a particular formula to recover costs
    allocated to its jurisdiction.[^182] Rather, the Commission may
    properly order recovery, through charges imposed on telephone
    subscribers, of the portion of the local loop costs, that, in
    accordance with *Smith v. Illinois,* have been placed in the
    interstate jurisdiction.[^183] Contrary to the arguments of many
    opponents, therefore, *Smith v. Illinois Bell* does not preclude our
    action today as the common line costs in question have been properly
    allocated by the Commission.

100. In this Order, we also permit price cap LECs to eliminate over time
     the distinction between primary and non-primary residential lines.
     Under the revised proposal, this distinction can be eliminated in
     most circumstances, but will remain for those subscribers where the
     average CMT revenue exceeds the maximum proposed SLC cap for
     primary residential lines.[^184] This will go a long way to
     eliminate the consumer confusion that now exists relating to this
     distinction. Although the primary/non-primary line distinction has
     served a role during the transitional regulatory process we
     established, we agree that eliminating this distinction to the
     extent that we can will further simplify the current rate structure
     and eliminate the costs associated with administering this
     distinction, which are ultimately borne by consumers.

101. We also eliminate the Marketing Basket in this Order. We
     established this basket in our *Access Charge Reform Order* to
     prevent price cap LECs from recovering retail marketing expenses
     from carrier access services, and to ensure that the recovery of
     these expenses was directed at multi-line users rather than primary
     residential and single-line business users. Under current
     Commission rules, the marketing expenses allocated to the Marketing
     Basket are recovered through common line charges.[^185] Under the
     CALLS Proposal, these marketing expenses are included in the total
     revenue a price cap LEC is permitted to recover as Price Cap CMT
     Revenue.[^186]

102. We adopt the CALLS Proposal with respect to its treatment of
     marketing expenses. In doing so, we expand the common line elements
     from which these expenses can be recovered to include the primary
     residential and single-line business SLC. In the *Access Charge
     Reform Order* we prevented the recovery of marketing expenses from
     primary residential and single-line business SLCs and PICCs because
     we believed that price cap LEC retail marketing may have focused
     more on the sale of optional vertical features such as call waiting
     and caller ID, and on features and services designed for business
     customers.[^187] At the time, there was insufficient evidence in
     the record demonstrating that price cap LECs marketed to primary
     residential and single-line business subscribers. As a result, we
     determined that the most efficient and cost-causative method for
     recovering these expenses was from the end users to whom the price
     cap LECs' marketing was directed -- multi-line business and
     non-primary residential line end users.[^188] We therefore limited
     recovery of these expenses to the non-primary residential and
     multi-line business common line elements in the common line
     basket.[^189] In addition, by proceeding in this manner, we avoided
     potential universal service concerns relating to increasing the
     primary residential SLC.[^190]

103. Since the adoption of the *Access Charge Reform Order*, evidence
     has developed which demonstrates that price cap LECs incur
     marketing expenses relating to primary residential and single-line
     business services as well. [^191] Consequently, consistent with the
     cost-causative approach we adhered to in the *Access Charge Reform
     Order*, we now permit the recovery of these expenses from all
     elements in the common line basket, including the primary
     residential and single-line business SLC.

104. This change will have little, if any, impact on subscribers, given
     the existence of the SLC caps, the elimination of the primary and
     non-primary residential PICCs, and the distribution of these
     expenses across a larger subscriber base. In light of the
     integrated nature of the CALLS Proposal and the considerable
     benefits resulting from the simplification of and overall rate
     reductions in the common line basket, the reductions to the
     switched access usage charges, and the implementation of the
     interstate access universal service support mechanism, our prior
     universal service concerns relating to increasing the primary
     residential and single-line business SLC cap above \$3.50 are
     allayed. The overall effect of the proposal is to lower costs for
     consumers. Eliminating this basket also promotes efficiency and
     streamlines the process by which a price cap LEC recovers its
     marketing expenses, while at the same time reducing the
     administrative costs associated with maintaining and managing this
     basket.

#### Multi-line Business SLC and PICC

105. We also cap the multi-line business PICC at \$4.31 and reduce it
     over time until it is eliminated as provided for in the CALLS
     Proposal. Under the CALLS Proposal, the multi-line business PICC in
     virtually all areas is eliminated over the next several years or
     can be eliminated through voluntary reductions in order to permit
     deaveraging. Several critics of this aspect of the proposal assert
     that the multi-line business PICC and SLC should be consolidated,
     eliminated or reduced further, and that it should be billed
     directly from the price cap LECs to subscribers to avoid any
     mark-up by IXCs.[^192] We believe for the following reasons,
     however, that the restructuring of the multi-line business PICC
     proposed in the CALLS Proposal is the better approach at this time.

106. The multi-line business PICC was established to recover revenue
     that would otherwise be recoverable through charges on residential
     and single-line business lines, and not to recover the cost of
     serving multi-line business lines. For most price cap LECs, a SLC
     of \$9.00 or less fully recovers average per-line permitted
     revenues, and the multi-line business PICC represents a subsidy
     running from business long-distance users to residential users.
     Under current rules, this subsidy is to be phased out over time
     pursuant to the *Access Charge Reform Order* as price cap LECs are
     eventually able to recover their full per-line common line revenues
     from each line through the SLC and PICC. Under the CALLS Proposal,
     this subsidy also is to be phased out over time although not as
     quickly as it would be under our current rules. Because of rate
     averaging by IXCs, the overall effect of this subsidy mechanism is
     spread out over a large number of multi-line business subscribers
     which permits this subsidy to remain sustainable until we are able
     to reevaluate this rate structure at the end of the five-year
     period covered by the CALLS Proposal. At the time the multi-line
     business PICC was established, the Commission determined that it
     was a reasonable measure to avoid an adverse impact on universal
     service and residential customers. Maintaining this transitional
     mechanism continues to be a reasonable measure to avoid an adverse
     impact on universal service and residential customers, and is the
     better approach in establishing a more efficient interstate access
     charge rate structure consistent with our long-term universal
     service goals in a competitive local exchange environment.

107. We reject the opponents' arguments that the multi-line business
     PICC should be consolidated with the multi-line business SLC or
     recovered differently,[^193] because doing so would exaggerate the
     difference between business end-user charges in high-cost and
     low-cost areas and impact rate comparability between urban and
     rural areas. In addition, combining the multi-line business SLC and
     multi-line business PICC would place price cap LECs at a
     competitive disadvantage with competitive LECs. The multi-line
     business SLC is intended to recover a price cap LEC's interstate
     portion of local loop costs for multi-line business services, while
     the multi-line business PICC is intended to subsidize the price cap
     LEC's interstate portion of local loop costs for residential
     service. Competitive LECs are not regulated by the Commission and
     are not restricted in the same manner as price cap LECs in how they
     recover their costs. A combined SLC and PICC, therefore, could
     exceed a competitive LEC's rate that recovers its loop costs, even
     where the SLC alone would be less than a competitive LEC's loop
     cost recovery mechanism. Because the multi-line business PICC is a
     subsidy, this could encourage inefficient entry by competitors.

108. We also recognize, however, allegations that IXCs mark-up the
     multi-line business PICC well above the average rate. These
     commenters argue that merging the multi-line business SLC and PICC
     would make it subject to competitive pressures, forcing price cap
     LECs to lower their multi-line PICC charges to stay competitive
     with competitive LECs.[^194] We are troubled by these mark-up
     allegations and remind carriers of our statutory authority to
     investigate any charges that appear unreasonable or unlawful.[^195]
     We will not hesitate to take action on a case-by-case basis against
     carriers that impose unjust or unreasonable line item
     charges.[^196] We are hopeful, however, that the mandatory
     detariffing of IXC charges that recently took effect will increase
     the competitive pressure on IXCs to bring their multi-line business
     PICC pass-through closer to the average multi-line business PICC.

109. Although we will not merge the multi-line business SLC and PICC at
     this juncture, we will revisit this issue during the cost review
     proceeding scheduled to occur before the residential and
     single-line business SLC cap increases above \$5.00. At that time,
     we will be better able to evaluate the long-term impact of the
     multi-line business PICC and competition in the IXC market.

110. In addition, the timeframe for eliminating the multi-line business
     PICC for most subscribers under the CALLS Proposal generally is
     consistent with the current timeframe under which the multi-line
     business PICC would be eliminated for most subscribers. For
     example, we estimate that by July 2004, the multi-line business
     PICC will be eliminated under current rules for all BOCs whereas it
     will be eliminated under the proposal for all BOCs except for
     BellSouth, which would have a multi-line business PICC at that time
     of approximately \$0.20 per line.[^197] We also estimate that the
     multi-line business PICC for GTE, Sprint and some other price cap
     LECs will remain in some areas where it might otherwise have been
     eliminated under existing rules. Multi-line business PICCs also can
     be immediately eliminated through voluntary reductions in order to
     deaverage SLCs as described below. Consequently, we reject the
     suggestion that the proposal should be modified to accelerate the
     elimination of the multi-line business PICC.[^198]

111. We recognize that the continued existence of the multi-line
     business PICC in some areas may constitute an implicit non-portable
     subsidy.[^199] As the Eighth Circuit held in reviewing our *Access
     Charge Reform Order*, however, this does not violate section
     254.[^200] In our *Access Charge Reform Order*, we created the
     multi-line business PICC as an interim mechanism for price cap LECs
     to recover permitted common line revenues they were otherwise
     unable to recover because of the SLC and PICC caps on primary
     residential and single-line business lines.[^201] Although our
     action today affects the cap at which the multi-line business PICC
     can be assessed, it does not alter the interim nature of this
     mechanism nor the underlying reason why we established it. The
     Eighth Circuit upheld this rate structure as a reasonable solution
     to the "implicit tension between the \[Commission's\] goals of
     moving toward cost-based rates and protecting universal
     service."[^202] More importantly, the CALLS Proposal phases out the
     multi-line business PICC for most customers until it is
     eliminated.[^203] At the end of the five-year term, we will examine
     to what extent competition and voluntary reductions have further
     eliminated it, and to the extent that they have not we will
     consider additional measures to address those areas. Although this
     proposal does not eliminate transitional higher rates for business
     users, it generally maintains the rate structure we established in
     our *Access Charge Reform Order* for the reasons stated therein, of
     redistributing recovery from a very few high-volume users to
     business users in general.[^204] The CALLS Proposal will continue
     to permit the charges to be sustainable during our transition to a
     more economically rational approach to access charges and universal
     service.[^205] We find that this aspect of the proposal is a
     reasonable measure in moving toward cost-based rates and protecting
     universal service.

112. We agree that freezing and eventually reducing the current combined
     level of multi-line business PICCs and SLCs further reduces the
     distortions in the current rate structure. This in turn reduces the
     likelihood that competitive LECs and incumbent LECs will target
     their investments towards urban business customers due to
     artificial regulatory incentives, and to a greater extent than
     would be required by economic efficiency. Consequently, we expect a
     greater proportion of competitive LEC investment in rural and
     residential urban areas as a result of these actions.[^206]

#### SLC Deaveraging

113. We also modify our rules today to permit deaveraging of the SLC in
     the limited manner outlined in the CALLS Proposal. Granting price
     cap LECs more flexibility to deaverage these rates enhances the
     efficiency of the local telephone market by allowing prices to be
     tailored more easily and accurately to reflect costs and,
     therefore, promotes competition in both urban and rural areas. In
     addition, deaveraging SLCs will have the effect of reducing
     implicit subsidies that otherwise exist under the current rate
     structure.

114. Geographic deaveraging refers to charging different rates in
     different zones to reflect the relative costs of providing service
     in each zone. Since 1992, the Commission has permitted incumbent
     LECs to deaverage certain rates by geographic zone because of the
     concern that averaged rates might create a pricing umbrella for
     competitors that would deprive subscribers of the benefits of more
     vigorous competition.[^207] We also have ordered the deaveraging of
     the rates for interconnection and unbundled elements,[^208] and
     permitted deaveraging of rates for trunking services as well.[^209]
     In doing so, we found that deaveraging reduces implicit support
     inherent in some rates and helps promote competition in both
     low-cost and high-cost areas whereas averaging across large
     geographic areas may distort the operation of markets in high-cost
     areas because it requires incumbent LECs to offer services in those
     areas at prices substantially lower than their costs of providing
     services.[^210] We found that deaveraged rates more closely reflect
     the actual cost of providing service, which promotes competition
     and efficiency by allowing a LEC to compete for subscribers when it
     is the lowest cost service provider, and by removing support flows
     to the LEC's higher-cost services.[^211] Prices that are below cost
     reduce the incentives for entry by firms that could provide the
     services as efficiently, or more efficiently, than the incumbent
     LEC.[^212] Similarly, discrepancies between price and cost may
     create incentives for carriers to enter low-cost areas even if
     their cost of providing service is actually higher than that of the
     incumbent LEC.[^213] These findings and conclusions clearly support
     the proposed limited deaveraging of SLCs.

115. We agree with the CALLS proponents that permitting deaveraging of
     the SLC under the proposed limited conditions and safeguards
     substantially reduces the implicit support of rural rates by urban
     ratepayers, and is a critical step in the development of increased
     competition in rural areas and the preservation of universal
     service.[^214] Integrating SLC deaveraging with explicit universal
     service support and deaveraged UNE loop rates strengthens both
     rural and urban competition, and ensures affordable rates.[^215] We
     are satisfied that by capping SLCs at affordable levels and
     limiting SLC deaveraging to a maximum of four zones as
     proposed,[^216] we satisfy the statutory principle that rates in
     rural, insular, and high-cost areas remain "reasonably comparable"
     to those in urban areas.[^217] Indeed, this action is consistent
     with our prior findings that three zones are presumptively
     sufficient to reflect geographic cost differences in setting rates
     for interconnection and unbundled elements.[^218] We also are
     satisfied that the interstate access universal service support
     mechanism established under CALLS is designed to ensure that
     subscribers in all areas of the country pay rates that are
     affordable and reasonably comparable.

116. Opponents of deaveraging SLCs contend that doing so complicates the
     administration of the SLC and potentially violates the section
     254(b) principle that rates should be affordable and reasonably
     comparable between rural and urban areas.[^219] Opponents also
     argue that deaveraging makes it difficult for long-distance
     companies to maintain geographically averaged rates as required by
     section 254(g). They argue that section 254(g) is intended to
     incorporate the policies of geographic rate averaging and rate
     integration of interexchange services in order to ensure that all
     subscribers in rural and high-cost areas are able to continue to
     receive both intrastate and interstate interexchange services at
     rates no higher than those paid by urban subscribers.[^220] In
     their view, permitting SLC deaveraging evades the 1996 Act's
     geographic averaging mandate by shifting the interstate loop costs
     out of the IXCs' long-distance rates and into deaveraged SLCs to be
     collected from the price cap LEC's customers, rather than as
     averaged PICC pass-through charges imposed on the IXCs'
     presubscribed customers.[^221]

117. Opponents further argue that section 254(g) does not provide any
     exception for interstate interexchange access service provided to
     end users on a flat-rated basis. In their view, once the SLC is
     deaveraged, no rural end user in price cap LECs' service areas will
     be able to receive interstate interexchange services without paying
     more than an urban user because of the higher access costs in rural
     areas.[^222] In support of their position, they point out that the
     Commission previously recognized in the *Access Charge Reform
     Order* that letting the IXCs pass the PICCs through to their
     customers on a deaveraged basis might conflict with section 254(g)
     and "create a substantial risk that many subscribers in rural and
     high-cost areas may be charged significantly more than subscribers
     in other areas."[^223] They argue that the Commission's same
     analysis should prevail over any effort to achieve the deaveraging
     indirectly by manipulation of the cost recovery responsibility, the
     name of the charge, or the identity of who must pay for it.[^224]

118. We are unpersuaded by the arguments that section 254(g) applies to
     SLCs charged by incumbent LECs. Moreover, we disagree with the
     arguments that (1) the SLC, as set forth under the CALLS Proposal,
     represents a "rate" charged by an interexchange service provider
     within the meaning of section 254(g) because IXCs benefit from the
     SLC payment,[^225] and (2) the SLC is a "rate" of a subscriber's
     LEC which remains a charge for interstate interexchange service
     because it facilitates access to the service.[^226] The statutory
     rate integration requirement applies on its face only to rates
     charged by providers of "interexchange telecommunications services
     to subscribers," not to providers of interexchange access
     service.[^227] SLCs, which are charged by LECs, do not fall within
     the statutory standard.[^228] As described above, the SLC is a LEC
     charge designed to recover the cost of the interstate portion of
     facilities that subscribers use to connect to the telephone network
     for the purpose of making and receiving both local and
     interexchange calls. Therefore, the SLC is not a "rate" charged by
     IXCs to subscribers within the meaning of Section 254(g).

119. Moreover, we believe that interpreting this provision in the manner
     suggested by these commenters goes beyond what Congress intended
     when it incorporated geographic rate averaging and integration
     policies into section 254(g). These policies apply only to
     interexchange service, not to exchange access whether paid by the
     carrier or the end user.[^229] SLCs, which are charged by LECs, do
     not fall within the statutory standard.[^230] Indeed, our view is
     consistent with the current system wherein multi-line business SLCs
     vary from one price cap LEC to another and, even within a single
     LEC or LEC holding company, from study area to study area, with a
     low of \$3.77 to a high of \$9.20.[^231] More specifically, Bell
     Atlantic has for many years assessed a residential SLC in the
     District of Columbia that is lower than the residential SLCs it
     charges in some other states because of the lower average cost in
     the District of Columbia. These SLCs varied before the enactment of
     the 1996 Act and the adoption of the *Access Charge Reform
     Order.*[^232] Despite this occurrence, Congress did not suggest
     that section 254(g) was applicable to SLCs, nor has there ever been
     any suggestion that this variation in price cap LEC SLC rates from
     high-cost areas to low-cost areas violated section 254(g), or that
     Section 254(g) was intended to address that situation.

120. In addition, the CALLS Proposal, contrary to some arguments, does
     not shift IXC costs to LEC customers. Allowing the recovery of
     common line costs through a single end-user charge billed directly
     from a price cap LEC to an end user does not "evade" section 254(g)
     by shifting the interstate loop costs out of IXCs' long-distance
     rates and into deaveraged SLCs. As we have maintained, loop costs
     are incurred by LECs, not IXCs. The District of Columbia Circuit in
     *NARUC v. FCC* upheld our finding that "\[l\]ocal telephone plant
     costs are real; they are necessarily incurred for each subscriber
     by virtue of that subscriber's interconnection into the local
     network, and they must be recovered regardless of how many or how
     few interstate calls (or local calls for that matter) a subscriber
     makes."[^233] Therefore, requiring price cap LECs to bill their own
     customers for a cost they are in fact required by law to incur -
     because use of the loop is a mandatory component of universal
     service -- is not an end-run around the statute. The proposal does
     not shift IXC costs to price cap LEC customers. The fact that CCL
     charges and the recently created PICC have resulted in some of
     these costs being passed on to IXCs (and subsequently recovered
     through end-user pass-through charges) does not forever transform
     loop costs into an IXC cost.[^234] These costs are, in fact, LEC
     costs, regardless whether they are recovered directly from end
     users or recovered indirectly through IXC payments that are then
     passed onto end users.

121. In addition, we are unpersuaded by the arguments that our previous
     decision not to forbear from applying section 254(g) to the
     recovery of IXC costs through the PICC pass-through charges
     precludes us from permitting the deaveraging of SLCs by LECs.[^235]
     Our decision at that time was in response to some IXCs' requests
     for the Commission to forbear from applying section 254(g) to the
     recovery of their PICC costs through charges to end users.[^236] At
     that time, the IXCs offered nothing in support of their request
     other than that the action was necessary in response to LECs'
     recovery of NTS common line costs through deaveraged rates assessed
     on IXCs.[^237] We concluded that they failed to demonstrate in the
     record that they met the forbearance test set forth in Section
     10(a) of the 1996 Act, and denied their request.[^238] That finding
     is irrelevant to a determination that a charge not covered by
     section 254(g) should be allowed to be deaveraged.

122. We also find no basis in this record to conclude that interexchange
     rates under the CALLS Proposal would be higher for rural than urban
     customers. Indeed, we believe that eliminating the geographic
     disparity of the PICC will make IXC costs more uniform, and thus
     make complying with section 254(g) less difficult for IXCs.[^239]
     For example, price cap LEC PICC assessments range from \$0 to
     \$4.31, resulting in geographic disparity for IXCs which recover
     the PICC through charges to end users on an averaged basis, even in
     areas where PICCs are not assessed on them.

123. We also are unpersuaded by the arguments of some opponents that the
     SLC deaveraging provisions of the CALLS Proposal conflict with the
     reasonable rate comparability principle of section 254(b)(3) of the
     1996 Act.[^240] On the contrary, the CALLS Proposal's SLC
     deaveraging provisions are consistent with our interpretation of
     section 254(b)(3). As we concluded in the *Universal Service
     Seventh Report and Order,* the "reasonably comparable" rate
     provisions of section 254(b)(3) were intended as a national, as
     opposed to a state-by-state, comparison.[^241] This standard refers
     to "a fair range of urban/rural rates both within a state's
     borders, and among states nationwide."[^242] This does not mean
     that rate levels in all states, or in every area of every state,
     must be the same.[^243] As the local exchange market becomes more
     competitive, we believe that it would be unreasonable to expect
     rate levels not to vary to reflect the varying costs of serving
     different areas.[^244] Therefore, the goal of maintaining a "fair
     range" of rates means that support levels must be sufficient to
     prevent pressure from high costs in certain areas and the
     development of competition from causing unreasonable increases in
     rates in the high-cost areas above affordable levels.[^245]

124. Section 254(b)(3) permits the use of federal support to enable
     reasonable rate comparability among states. The approach for
     enabling rate comparability which we previously adopted relies not
     on a national urban rate, but rather on a methodology that ensures
     that no state will face per-line costs that substantially exceed
     the costs faced by other states, taking into account the individual
     state's ability to support its own universal service needs. In this
     way, we seek to ensure that every state has at its disposal the
     means to achieve reasonable comparability of rates in that
     state.[^246]

125. The CALLS Proposal is consistent with our interpretation of section
     254(b)(3) and satisfies the requirements of the statute. It
     protects high-cost subscribers by providing that no SLC, whether
     averaged or deaveraged, may exceed the overall proposed SLC caps.
     Although prices will begin to reflect geographic variations in the
     forward-looking cost of providing service, newly explicit universal
     service support will protect rural subscribers against substantial
     rate increases. This approach is consistent with prior actions we
     have taken in furtherance of our universal service goals. For
     example, we previously capped SLC adjustments as a means of
     preventing end users in high-cost areas from paying SLCs that are
     significantly higher than in other parts of the country in order to
     ensure that all subscribers receive affordable rates that are
     comparable in different parts of the nation.[^247] The CALLS
     Proposal's SLC cap is consistent with this approach, and ensures
     that end users in high-cost areas do not pay SLCs that are
     significantly higher than in low-cost areas.

126. We also believe that the Lifeline and Universal Service Fund
     aspects of the CALLS Proposal address to some extent concerns about
     potential rate increases to high-cost customers as a result of the
     geographic deaveraging aspects of the proposal.[^248] Under the
     CALLS Proposal, Lifeline support will be increased so that all of
     the increased SLC is waived for Lifeline customers, with carriers
     reimbursed from the Universal Service Fund. Although Lifeline
     customers today pay no SLC, they must pay IXC-billed PICC charges,
     unless the IXC voluntarily waives that fee. The CALLS Proposal
     therefore benefits Lifeline customers by eliminating the PICCs and
     by ensuring that their fixed monthly charges do not increase in the
     future.

127. We disagree with the argument that deaveraged UNEs should be the
     sole trigger for deaveraging, and that the remaining proposed
     safeguards should be eliminated.[^249] As in the case of the
     trunking basket and the deaveraging provisions in our *Pricing
     Flexibility Order*, the proposed safeguards generally reflect
     minimum revenue requirements for pricing zones and limits on price
     increases that are simple and easily verified. These limitations
     also generally are consistent with the comments filed by some CALLS
     opponents on this issue in response to the Further Notice of
     Proposed Rulemaking in the *Pricing Flexibility Order*.[^250] We
     find therefore, that the public interest benefits associated with
     maintaining the proposed safeguards outweigh the benefits that
     might accrue from deaveraging occurring sooner than what might
     otherwise occur without these simple and easily verified
     safeguards. The proposal provides an incentive to LECs to deaverage
     voluntarily other than through offset free from the limitations of
     the proposed safeguards. The proposed safeguards ensure that the
     deaveraging of SLCs maintains affordable rural rates while
     developing competition and preserving universal service. Not
     permitting deaveraging unless a state has created geographically
     deaveraged UNE rates for loops ensures that deaveraging will not
     inadvertently hamper UNE-based entry or LEC competitive
     response.[^251]

128. There is no cost causative way to deaverage multi-line business
     PICCs and CCL charges because they are subsidies. Requiring
     multi-line business PICCs and CCL charges to be eliminated before
     permitting SLC deaveraging helps ensure that the burdens of
     implicit support are spread evenly. To the extent that implicit
     support is included in the multi-line business SLC rates above what
     results from geographic averaging, allowing geographic deaveraging
     of the multi-line business SLC before the multi-line business PICC
     and CCL charges are eliminated would allow carriers to deaverage
     that implicit support and impose a greater burden on those
     multi-line business customers with fewer competitive options. By
     the time the multi-line business PICC and CCL charges are
     eliminated, however, implicit subsidies in the multi-line business
     SLC other than those resulting from geographic averaging should be
     reduced, and geographic deaveraging of the multi-line business SLC
     to reduce the subsidies resulting from averaging is appropriate.
     Also, by requiring that the multi-line business SLC not be lower
     than the non-primary residential SLC, or the non-primary
     residential SLC not be lower than the primary residential and
     single-line business SLC, the CALLS Proposal ensures that all
     consumers in low-cost areas share the benefits of SLC
     deaveraging.[^252]

## Local Switching, Trunking, and Special Access Baskets

### Background

#### Rate Structure

129. The Commission\'s long-standing policy is to require, to the extent
     possible, rate structures to reflect the manner in which carriers
     incur costs. Inefficient rate structures lead to inefficient and
     undesirable economic behavior, and create an implicit subsidy
     between high-volume users and low-volume users.[^253] For example,
     a rate structure that recovers non-traffic sensitive costs through
     traffic sensitive access rates increases the per-minute rates paid
     by IXCs and long-distance companies, thereby artificially
     suppressing demand for interstate long-distance services, and
     requiring high-volume customers to pay charges in excess of the
     costs of serving them. Meanwhile, low-volume customers pay rates
     that are less than the cost of the dedicated equipment.[^254]

130. To recover the costs of providing interstate access services,
     incumbent LECs charge IXCs and end users for access services in
     accordance with our Part 69 access charge rules.[^255] Part 69
     establishes two basic categories of access services: special access
     services and switched access services. Special access services
     generally employ dedicated facilities that run directly between the
     end user and the IXC's point of presence (POP), or between a LEC's
     switch and an IXC's POP.[^256] Switched access services, on the
     other hand, use local exchange switches to route originating and
     terminating interstate toll calls. The Commission has not
     prescribed specific rate elements for special access services in
     Part 69.[^257] For switched access, Part 69 establishes specific
     elements and a mandatory rate structure for each element.[^258]

131. Interoffice transmission services, known as transport services,
     carry interstate switched access traffic between an IXC's POP and
     the end office that serves the end-user customer. Incumbent LEC
     transmission facilities that carry switched interstate traffic
     between an IXC's POP and the incumbent LEC end office serving the
     POP (the serving wire center (SWC)) are known as entrance
     facilities.[^259] Incumbent LECs currently offer two types of
     interstate-switched transport service between a SWC and an end
     user's end office. Under the first service, direct‑trunked
     transport, calls are transported between the SWC and the end office
     by means of a direct trunk, a dedicated facility that does not pass
     through an intervening switch.[^260] The second service,
     tandem‑switched transport, routes calls from the SWC to the end
     office through a tandem switch located between the SWC and the end
     office. Traffic travels over a dedicated circuit from the SWC to
     the tandem switch and then over a shared circuit, which carries the
     calls of many different IXCs, from the tandem switch to the
     incumbent LEC end office.[^261] Incumbent LEC tandem switches and
     end office switches switch interstate traffic between the transport
     trunks carrying traffic to and from the IXC POPs and the end users'
     local loops.

132. Under the original price cap plan, interstate access services were
     grouped into four different baskets: the common line, traffic
     sensitive, special access, and interexchange baskets.[^262] In the
     *Second Transport Order*, the Commission removed transport services
     from the traffic sensitive basket and combined these services with
     special access services in the newly created trunking basket.[^263]
     Each basket is subject to a price cap index (PCI), which caps the
     total charges a LEC may impose for interstate access services in
     that basket.[^264] The PCI is adjusted annually by a measure of
     inflation minus a "productivity factor," or "X-factor."[^265] A
     separate adjustment is made to the PCI for "exogenous" cost
     changes, which are changes outside the carrier's control not
     otherwise reflected in the price cap formula.[^266]

133. In the *First Transport Order*, the Commission restructured
     interstate transport rates for incumbent LECs.[^267] The
     restructuring created facility-based rates for dedicated transport
     services based on comparable special access rates as of September
     1, 1991, derived per-minute tandem-switched transport transmission
     rates from those dedicated transport rates, established a tandem
     switching rate, and established a transport interconnection charge
     (TIC) that initially recovered the difference between the revenues
     from the new facility-based rates and the revenues that would have
     been realized under the preexisting "equal charge rule."[^268] The
     TIC was intended as a transitional measure that initially made the
     transport rate restructure revenue neutral for incumbent LECs and
     reduced any harmful interim effects on small IXCs caused by the
     restructuring of transport rates.[^269] The Commission, however,
     subsequently determined that as a per-minute charge assessed on all
     switched access minutes, the TIC adversely affected the development
     of competition in the interstate access market.[^270] Therefore,
     the Commission reassigned several costs included in the TIC and
     established a mechanism that virtually eliminated the remaining
     per-minute TIC over a short, but reasonable period, primarily by
     targeting X-factor reductions to the per-minute TIC.[^271]

134. In the *Access Charge Reform Order*, the Commission instituted
     reforms so that access costs are recovered in a manner that more
     accurately reflects how they are incurred. Recognizing that a
     significant portion of local switching costs, (i.e.*,* the costs
     associated with line cards and trunk ports)[^272] do not vary with
     usage, the Commission required that such non-traffic sensitive
     costs be recovered on a flat-rated, rather than usage sensitive
     basis.[^273] Because the record was not adequate, however, to
     determine whether and to what extent the remaining switching costs
     were traffic sensitive or non-traffic sensitive, LECs continue to
     recover these costs through traffic sensitive charges. As part of
     the *Pricing Flexibility Order*, the Commission invited comment on
     whether and to what extent it should modify further its price cap
     rules for the traffic sensitive and trunking baskets to reflect
     capacity-based local switching and tandem switching rate
     structures.[^274] Also in the *Pricing Flexibility Order*, the
     Commission proposed adding a "q" factor to the formulas used to
     adjust annually the PCIs for the baskets that contain the charges
     for local switching and tandem switching.[^275] The q factor would
     reduce switching charges based on growth in demand.[^276] As
     proposed, the PCIs of the affected baskets would be reduced
     annually by both the X-factor and the q factor.

#### The X-Factor

##### Prior Commission Decisions and Pending Proposals

135. The Commission's LEC price cap scheme allows prices to increase by
     a measure of inflation minus a productivity offset, or
     X-factor.[^277] In the Commission's LEC price cap formula, the
     X-factor represents the amount by which LECs can be expected to
     outperform economy-wide productivity gains.[^278] The X-factor
     adopted in the *LEC Price Cap Order* initiating price cap
     regulation for the largest LECs consisted of a component based on
     historical LEC productivity, and an additional productivity
     obligation of 0.5 percent as a consumer productivity dividend (CPD)
     to assign the first productivity gains to customers in the form of
     lower rates.[^279]

136. Initially, price cap LECs were required to share a portion of their
     earnings in excess of specified rates of return with their access
     customers by temporarily reducing the price cap ceiling in a
     subsequent period.[^280] In 1990, the Commission prescribed two
     X-factors: a minimum 3.3 percent X-factor, and an optional 4.3
     percent X-factor.[^281] Price cap LECs that opted to use the higher
     X-factor were allowed to retain larger shares of their earnings.
     Additionally, the Commission adopted a low-end adjustment mechanism
     for LECs with earnings below a specified threshold.[^282] The *LEC
     Price Cap Order* required that the Commission periodically review
     the performance of the price cap regime.[^283] The order in the
     first performance review was released in 1995, at which time the
     Commission increased the minimum X-factor from 3.3 percent to 4.0
     percent, and provided two optional X-factors of 4.7 and 5.3
     percent.[^284] In the next performance review order, released in
     1997, the Commission further revised the price cap plan by
     eliminating all sharing requirements and prescribing a new X-factor
     of 6.5 percent.[^285] This X-factor prescription relied primarily
     on a staff study (1997 Staff TFP Study) of the historical rate of
     growth in LEC total factor productivity (TFP).[^286] The Commission
     also retained the low-end adjustment mechanism for incumbent LECs
     with earnings below a specified threshold in the *1997 Price Cap
     Review Order*.[^287]

137. In the *Pricing Flexibility Order*, the Commission tentatively
     concluded that it should measure inflation in the PCI formula with
     a chain-weighted GDP‑PI, which bases weights for the current year's
     index on the prior year.[^288] The Commission reasoned that it
     should change from the "Fixed Weight Price Index for Gross Domestic
     Product, 1987 Weights" to a chain-weighted GDP‑PI to be consistent
     with the U.S. Department of Commerce's Bureau of Economic Analysis
     (BEA) inflation measure and with that used in setting the
     X-factor.[^289] The Commission sought comment on its tentative
     conclusion.[^290]

##### Court Decision

138. Several entities filed petitions for review of the *1997 Price Cap
     Review Order* with the U.S. Court of Appeals for the District of
     Columbia Circuit (D.C. Circuit). In its decision on appeal, the
     court reversed and remanded for further explanation the
     Commission's decision to select an X-factor of 6.5 percent,
     although it affirmed the order against petitioners' remaining
     challenges.[^291] The court rejected the Commission's stated
     rationales for selecting 6.0 percent as the historical component of
     the X-factor. In particular, the court rejected the Commission's
     reasons for placing less weight on the lowest averages of
     productivity growth used to establish the range of reasonableness
     of 5.2 to 6.3 percent.[^292] The court also found that the
     Commission failed to explain adequately its reliance on an apparent
     upward trend in productivity growth for the period 1992-1995 in
     choosing 6.0 percent from this range, as well as its reliance on
     AT&T's productivity estimates to extend the range of reasonableness
     upward.[^293] In addition, the court remanded for explanation the
     Commission's choice of 0.5 percent as a CPD component of the
     X-factor.[^294] The court withheld issuance of its mandate, pending
     the Commission's reconsideration of the X-factor, through June 30,
     2000.[^295]

##### Resulting Commission Price Cap FNPRM

139. Following the Court's decision in *USTA v. FCC*, the Commission
     commenced a rulemaking seeking comment on alternative bases for
     prescribing the X-factor.[^296] The *1999 Price Cap FNPRM* was
     released after CALLS filed its Original Proposal. In the *1999
     Price Cap FNPRM*, the Commission noted that adoption of the CALLS
     Proposal would eliminate the need to adjust the X-factor
     retrospectively in response to the court's remand, or prescribe an
     X-factor on a going-forward basis.[^297] In response to the *1999
     Price Cap FNPRM*, commenters proposed X-factor amounts ranging from
     3.71 percent[^298] to 11.2 percent.[^299]

#### The CALLS Proposal

140. The X-factor would serve a different function under the CALLS
     Proposal than in the original price cap plan. Instead of
     representing an estimate of expected annual productivity gains, the
     X-factor under the CALLS Proposal would be used to reduce local
     switching and switched transport rates to specified target rate
     levels, and to reduce special access rates over a set period of
     time.[^300] The proposal thus transforms the X-factor from a
     productivity factor into a transitional mechanism that operates to
     reduce rates at a certain pace, and it would not be linked to a
     specific measure of productivity.

141. Under the original price cap regime, the X-factor would continue
     indefinitely, subject to periodic performance reviews. X-factor
     reductions were applied to each price cap basket on a pro rata
     basis, except for the period of time during which those reductions
     were targeted to eliminate the per-minute TIC. The CALLS Proposal
     would alter both of these principles. First, the CALLS Proposal
     includes two X-factors: one for switched access services, and a
     separate X-factor for special access services. After predetermined
     rates are reached, the switched access X-factor would be adjusted
     to GDP-PI. The special access X-factor would also eventually be
     adjusted to GDP-PI on July 1, 2004. Because the price cap formula
     is adjusted by GDP-PI minus the X-factor, setting the X-factor at
     GDP-PI would effectively freeze the price caps for the remainder of
     the term of the CALLS Proposal. Second, under the CALLS Proposal,
     the switched access X-factor reductions would be targeted to the
     trunking and traffic sensitive baskets. This means that total
     switched access revenues would be used to calculate the size of the
     X-factor reduction, but the actual reductions would only be made to
     revenues in the trunking and traffic sensitive baskets. This would
     cause rates in the targeted baskets to decrease more rapidly and
     significantly, while rates in the untargeted baskets to which the
     X-factor would not be applied would remain largely unchanged.

142. CALLS proposes to target a 6.5 percent X-factor for switched access
     services to the following rates in this sequence: first to the
     residual per-minute TIC until that rate is \$0.00; then to the
     information surcharge until that rate is \$0.00;[^301] and finally
     to the local switching charge and switched transport charges until
     the carrier's interstate average traffic sensitive charge equals a
     specified target rate.[^302] CALLS proposes a multi-tier target
     rate system for interstate average traffic sensitive charges, with
     a target rate of 0.55 cents for the BOCs and GTE, and a target rate
     of 0.65 cents for other price cap LECs.[^303] A further
     modification of the CALLS Proposal submitted by CALLS and VALOR
     Telecommunications Company proposes a third target rate of 0.95
     cents for very low-density price cap LECs.[^304]

143. CALLS proposes that where a price cap LEC sells a filing entity or
     portion of a filing entity to another price cap LEC during the term
     of the CALLS Proposal, the sold filing entity would retain its
     pre-existing target rate. Two exceptions to this rule exist. First,
     if a filing entity sold during the term of the CALLS Proposal is
     merged with a filing entity with a different target rate, the
     target rate for the merged filing entity would be a weighted
     average of the combined target rates. Second, if a binding and
     executed contract existed for the sale of a filing entity on April
     1, 2000, the target rate for the filing entity would be the greater
     of the applicable target rate of the acquiring company, or the
     target rate under the previous owner.[^305] CALLS proposes that
     price cap LECs account for the differing target rates of filing
     entities under contract of sale in their tariff review plans
     (TRPs). Selling price cap LECs would file TRPs on June 16, 2000
     that reflected the target rates of the filing entities after they
     are acquired by the purchasing price cap LEC.[^306]

144. For switching and switched transport services, CALLS proposes to
     apply an X-factor of 6.5 percent until the interstate average
     traffic sensitive charge target rate is reached. After carriers
     with target rates of 0.55 cents or 0.65 cents reach these targets,
     the annual X-factor for baskets except special access would equal
     GDP-PI. Setting the X-factor at GDP-PI would effectively freeze the
     price caps for the services comprising switched access
     services.[^307] For very low-density carriers electing the
     0.95-cent target rate, the 6.5 percent X-factor would continue to
     apply after the target rate is reached and would be applied to the
     common line basket to reduce CCL charges.[^308] Upon the earlier of
     the elimination of the CCL charges or June 30, 2004, the X-factor
     for the very low-density carriers would equal inflation.[^309] The
     CALLS Proposal offered contingencies in the case that GDP-PI is
     greater than 6.5 percent or less than zero after an entity has
     eliminated its CCL and multi-line business PICC charges. If the
     GDP-PI is greater than 6.5 percent, the X-factor for common line
     would equal 6.5 percent and all SLC rates and nominal caps on SLC
     rates would be increased by the difference between GDP-PI and the
     X-factor. If GDP-PI is less than zero, the X-factor for common line
     would be zero.[^310]

145. Under the CALLS Proposal, price cap LECs would agree to waive the
     low-end adjustment to interstate access rates for rates charged
     during the tariff year beginning on July 1, 2000, but not for
     subsequent years.[^311] CALLS members also would agree not to
     initiate legal or regulatory action to adjust price cap determined
     rates for interstate access charges billed for access minutes prior
     to July 1, 2000.[^312]

146. CALLS also proposes that price cap LECs would reduce switched
     access usage charges by an aggregate amount of \$2.1 billion on
     July 1, 2000.[^313] The switched access usage charges to be reduced
     would include average traffic sensitive charges and CCL charges,
     but would exclude SLCs and PICCs.[^314] The switched access usage
     charge reductions would be accomplished through: 1) the targeting
     of the 6.5 percent X-factor to switching and switched transport
     services until the applicable average traffic sensitive charge
     rates are reached;[^315] 2) reductions in CCL charges through
     application of \$650 million of explicit interstate access
     universal service support;[^316] 3) reductions in CCL charges
     through application of increased SLCs;[^317] and 4) reductions in
     CCL charges from application of a 6.5 percent X-factor to the
     common line basket for very low-density carriers after they reach
     the average traffic sensitive charge rate of 0.95 cents.[^318] If
     these reductions do not total \$2.1 billion, price cap LECs will
     make additional reductions to switched access usage charges to make
     up the difference. These additional reductions would be calculated
     as a percentage of the local switching element of the price cap
     LECs, who could take these reductions against any of the average
     traffic sensitive charge rate elements.[^319] Most price cap LECs
     would not offset these additional reductions by increasing other
     rate elements. Two mutually exclusive alternatives, however, are
     proposed to permit certain carriers to move some of these permitted
     revenues to the common line basket.[^320]

147. The first alternative is available to price cap carriers other than
     the BOCs and GTE that have at least 20 percent of total holding
     company lines operated by rural telephone companies. These carriers
     may elect to redistribute to the common line basket the additional
     reductions to average traffic sensitive charge rates necessary to
     yield their proportionate share of the total reduction in switched
     access usage rates.[^321] Eligibility for this option is determined
     at the holding company level, and the amounts to be shifted to the
     common line basket are determined at the filing entity level.
     Specifically, eligible companies' non-rural filing entities may
     shift the amount of additional reductions that exceed 25 percent of
     local switching element revenues.[^322] The predominantly rural
     filing entities of the eligible price cap LECs may shift the entire
     proportionate amount of the additional reductions attributable to
     those filing entities.[^323] To the extent the eligible carrier
     cannot recover all of these revenues within the filing entity, it
     may recover these amounts from multi-line business PICC and
     multi-line business SLC charges of other filing entities within the
     same holding company, provided that they do not exceed the
     established caps for these charges.[^324] This alternative affects
     only those rate reductions above and beyond the reductions that
     result from the operation of the existing price cap rules. Price
     cap LECs qualifying for this alternative still will make their
     normal price cap rate reductions. These carriers also will
     implement the additional switched access rate reductions called for
     by the CALLS Proposal. This mechanism will be evaluated in the
     proposed cost review proceeding to determine whether retaining it
     is warranted.

148. The second option is available to any price cap company that would
     have July 1, 2000 price cap reductions at the holding company level
     greater than the industry-wide total July 1, 2000 price cap
     reductions.[^325] These price cap carriers may elect temporarily to
     shift to the common line basket the amount of the additional
     reductions above 25 percent of the local switching element revenues
     necessary to yield their proportionate share of the total reduction
     in switched access usage rates on July 1, 2000. These carriers may
     then recover the amounts as additional components of a multi-line
     business SLC or PICC within the same filing entity. A 6.5 percent
     X-factor will be applied to the shifted amounts, even after the
     carriers reach their interstate average traffic sensitive target
     rates, until the shifted amounts are eliminated.[^326]

149. CALLS also would create a separate special access basket.[^327]
     Under the CALLS Proposal the revenues in the special access basket
     would not be included in the targeting of the X-factor reductions
     to the switched access usage charges. Instead, the services in the
     special access basket would be subject to their own X-factor. The
     special access X-factor would be set at 3.0 percent in 2000, and
     would be set at 6.5 percent for each of the next three years. After
     2003, there essentially would be a freeze on special access PCIs,
     as the X-factor would equal GDP-PI.[^328]

### Discussion

150. As discussed above, we are adopting the CALLS Proposal on an
     interim mandatory basis. Price cap LECs that choose not to be
     regulated under the CALLS Proposal will have their PCIs set at
     forward-looking economic costs after the completion of a proceeding
     to determine those costs. Until the cost proceeding is concluded
     for those price cap LECs that elect it, the CALLS Proposal price
     cap rules, as described below, will apply to all price cap LECs.

#### Reductions in Switched Access Usage Charges

151. We adopt the CALLS Proposal as it relates to local switching,
     trunking, and special access. We believe the proposal is in the
     public interest because it provides an immediate reduction in
     switched access rates that will result in lower long-distance
     charges for consumers, while also simplifying the current price cap
     access charge regime. Adoption of the CALLS Proposal will result in
     an immediate \$2.1 billion reduction in switched access usage
     charges. All price cap LECs will make the CALLS Proposal's switched
     access usage charge reductions on July 1, 2000. Upon completion of
     the required cost proceeding, price cap LECs that choose not to be
     regulated under the CALLS Proposal will be subject to a true-up of
     their rates under the CALLS Proposal and of those based on
     forward-looking economic cost.

152. The CALLS IXCs have committed to pass the reduction to switched
     access usage charges on to residential and business long-distance
     consumers,[^329] and, except in very limited circumstances, price
     cap LECs will not recover any of these reductions through
     non-traffic sensitive flat-rated end-user fees. This means that,
     contrary to CALLS opponents' concerns,[^330] LECs generally will
     not subsidize the rates they charge high-volume users with revenue
     they receive from an end-user fee applied to everyone, including
     low-volume users.

153. Although most price cap LECs would achieve the switched access
     usage charge reduction solely through rate decreases, CALLS
     proposed two mutually exclusive alternatives to permit certain
     carriers to shift some of these charges to limited elements of the
     common line basket as described below. We adopt these limited
     exceptions for smaller rural carriers, and for carriers that would
     have initial reductions above the average of all price cap
     carriers.

154. Under the first alternative established by these rules, price cap
     carriers other than the BOCs and GTE that have at least 20 percent
     of total holding company lines operated by rural telephone
     companies may elect to shift to the common line basket the switched
     access usage charges necessary to yield those filing entities'
     proportionate share of the total reduction in switched access usage
     rates.[^331] As noted above, this mechanism will be evaluated in
     the proposed cost review proceeding to determine whether retaining
     this exception or transferring the additional switched access
     reduction amounts to the common line basket is warranted.

155. Citizens and Global Crossing comment that this option is not an
     effective solution for smaller rural price cap LECs because the
     shifted amounts would be recovered from multi-line business SLCs
     and PICCs, thereby increasing rates in their most competitive
     markets.[^332] We note that the shifting mechanism is not
     mandatory; smaller rural price cap LECs can choose not to recover
     their additional switched access usage charge reductions from
     multi-line business SLCs and PICCs. We believe, however, it is in
     the public interest to allow these carriers some ability to recover
     the switched access usage charge reductions. As discussed below, we
     are adopting a higher interstate average traffic sensitive access
     charge target rate of 0.95 cents for very low-density carriers. We
     believe that adoption of the limited revenue shifting exception,
     with the availability of the higher target rate, will address
     sufficiently any concerns raised by the immediate switched access
     usage charge reduction to small rural price cap LECs.

156. We also permit any price cap company that would have July 1, 2000
     price cap reductions as a percentage of base period price cap
     revenues at the holding company level greater than the
     industry-wide percentage to elect temporarily to shift to the
     common line basket a portion of the amount of the additional
     reductions to switched access usage charges necessary to yield that
     carrier's proportionate share of the total reduction in switched
     access usage rates on July 1, 2000.[^333] These shifted amounts
     will be eliminated through the application of a 6.5 percent
     X-factor.

157. This transitional exception is reasonable because it permits
     carriers with above average reductions per line in the first year
     to spread those reductions more equitably over time while
     maintaining the \$2.1 billion reduction in switched access charges
     to IXCs on July 1, 2000. Carriers that elect this option can shift
     a portion of their initial-year reductions to the common line
     basket and recover these amounts as additional components of a
     multi-line business SLC or PICC.[^334] Although the recovery of the
     shifted amounts temporarily creates an implicit subsidy, the
     shifted revenue added to the multi-line business SLC or PICC will
     eventually be eliminated through application of an X-factor of 6.5
     percent beyond the date on which the average traffic sensitive
     access rates reach the applicable targets.[^335]

158. Subject to these two narrowly defined alternatives, price cap LECs
     will be making significant reductions to switched access usage
     charges on July 1, 2000 without recovering these reductions through
     flat-rated end-user charges. We find that these reductions in
     switched access usage charges have several significant, direct
     benefits for consumers. First, the IXCs' commitment to eliminate
     their minimum usage charges in return for this reduction will
     especially benefit low-volume and moderate long-distance
     users.[^336] Because low-volume and moderate long-distance users
     make so few calls, such fees have impacted them
     disproportionately.[^337] Second, the reduction in switching
     charges, when taken with the IXC pass-through commitment, also will
     result in lower per-minute long-distance rates for all
     consumers.[^338] Finally, the reduction in switched access usage
     charges will promote competition in the long-distance market
     between BOC affiliates entering this market and IXCs. To the extent
     switched access usage charges paid by IXCs are significantly above
     cost, BOC affiliates would have a competitive advantage because
     they would obtain switching services from the BOCs at cost. By
     driving switched access usage charges closer to their actual costs
     more quickly than would occur under the existing price cap regime,
     the CALLS Proposal will minimize the competitive advantages BOC
     affiliates would have over IXCs in offering long-distance services
     while switched access rates were significantly above cost.[^339]

159. Some commenters request that we modify the CALLS Proposal to
     require that a proportionate share of the additional switched
     access usage charge reductions agreed upon to reach \$2.1 billion
     in reductions by July 1, 2000 come from tandem-switched
     rates.[^340] Specifically, commenters argue that absent such a
     requirement, price cap LECs are more likely to decrease rates for
     direct-trunked transport than tandem-switched transport, thereby
     competitively disadvantaging smaller IXCs that rely heavily on
     tandem switching.[^341] We decline to require that a proportionate
     share of the switched access usage charge reductions come from
     tandem-switched rates. Our current price cap plan allows price cap
     LECs flexibility to determine how X-factor reductions should be
     applied among tandem-switched rates and direct-trunked transport
     rates. Price cap LECs are free to make that determination on the
     basis of the relative costs of providing the services and market
     considerations. The CALLS Proposal does not change that situation
     and we see no reason to do so. We have previously determined that
     rules to protect smaller IXCs in competition with large IXCs are
     unnecessary because the long-distance market is competitive.[^342]
     Therefore, we will not alter our rules to require price cap LECs to
     take a proportionate share of the \$2.1 billion reduction from
     tandem-switched rates. If price cap LECs do not make any reductions
     to tandem-switched rates, but target the required additional
     reductions only to direct-trunked transport, the significant
     reductions to these rates should make either the purchase of
     direct-trunked transport or the leasing of transport from larger
     IXCs an affordable alternative for smaller IXCs.

#### X-Factor

160. During the five-year term of the CALLS Proposal, the X-factor as
     adopted herein will not be a productivity factor as it has been in
     past price cap formulas. Instead, the X-factor is now a
     transitional mechanism to lower access charges to target rates for
     switched access, and to lower rates for a specified time period for
     special access. Although the X-factor under the CALLS Proposal will
     not be tied to price cap LEC productivity, it will lower access
     charges over the term of the proposal. As noted by CALLS, the
     prescriptions of prior productivity factors in the price cap
     formula have been the subject of extensive regulatory proceedings
     and litigation, and the Commission's decision to select 6.5 percent
     as the most recent X-factor has been reversed and remanded by the
     court.[^343] The compromise advocated by CALLS will provide a
     solution to the contentious X-factor prescription proceeding for
     the term of the CALLS Proposal for those price cap LECs that do not
     elect to set rates based on a cost study proceeding.[^344]

161. We adopt the CALLS Proposal regarding the targeting of X-factor
     reductions to switching and switched transport services.
     Specifically, we will apply the reductions from imposing an
     X-factor of 6.5 percent to all price cap baskets except special
     access as indicated above: first to the residual per-minute TIC
     until that rate is eliminated; then to the information surcharge
     until that rate is eliminated;[^345] and finally to the local
     switching charge and switched transport charges until the carrier's
     average traffic sensitive interstate access charge equals a
     specified target rate. At the current time, only one filing entity
     in GTE currently retains the TIC, therefore we find that targeting
     X-factor reductions first to eliminate the minimal remaining TIC
     serves the public interest.[^346] We also find that the elimination
     of the information surcharge is consistent with the Commission's
     policy that non-traffic sensitive costs be recovered by a
     non-traffic sensitive charge.

162. We also adopt target rates of 0.55 cents for the BOC price cap LECs
     and GTE, 0.95 cents for very low-density price cap LECs, and 0.65
     cents for other price cap LECs.[^347] For purposes of applying the
     0.95-cent target rate, a very low-density price cap LEC is one with
     a holding company average of less than 19 End User Common Line
     charge lines per square mile served. Target rates for filing
     entities that are purchased by price cap LECs during the term of
     the CALLS Proposal will retain the target rate of the selling price
     cap LEC, subject to the exceptions described above.[^348] Rates for
     price cap LECs that elect to participate in the cost study
     proceeding in lieu of the CALLS Proposal will be set at
     forward-looking costs.

163. Once a price cap LEC reaches the applicable target rate level, the
     X-factor for all baskets except special access will equal GDP-PI.
     For very low-density carriers electing the 0.95-cent target rate,
     X-factor reductions after the target level is reached will be
     targeted to the removal of CCL charges in the common line
     basket.[^349] Upon the earlier of the elimination of the CCL
     charges, or June 30, 2004, the X-factor for very low-density
     carriers will equal GDP-PI.

164. CALLS proposes to include revenues and demand from contract tariff
     services and from UNEs used to provide switched access services in
     calculating whether the target rates have been reached.[^350] We
     decline to include these amounts in the target rate calculations.
     In granting price cap LECs flexibility to offer contract-based
     tariffs, we required the removal of contract tariff offerings from
     price cap regulation. This removal was to ensure that the
     individually-tailored contract tariffs do not adversely impact the
     prices made available to the majority of price cap LEC
     customers.[^351] Including revenue from contract tariffs in the
     calculation of average traffic sensitive target rates as proposed
     by CALLS would thwart this goal. Furthermore, we noted in the
     *Pricing Flexibility Order* that it would be difficult to allocate
     properly demand for contract tariff offerings that include a
     package of two or more access services, and declined to adopt a
     method to do so.[^352] Including contract tariff revenues and
     demand in calculating the CALLS Proposal target rates would require
     implementing such an allocation method, which we have recently
     rejected. We have distinguished between UNEs and interstate access
     charges and have treated them separately under our rules.[^353]
     UNEs are not included in the LEC PCIs. UNEs are irrelevant to
     carriers using switched access services because UNEs are only a
     substitute for access services in the special circumstance where
     the carrier is also providing local service to the end-user
     customer.[^354] Furthermore, even in this circumstance, UNEs and
     access charges are subject to different pricing standards. The
     purpose of establishing a target rate is to guarantee a particular
     rate level for switched access services. Including UNEs may drive
     access charges above or below the intended target rate, depending
     upon whether the total element long-run incremental cost (TELRIC)
     of UNEs is below or above the target rate.

165. Opponents of the CALLS Proposal contend that the proposal
     eviscerates price cap regulation by eliminating the X-factor
     adjustment after target rates are reached.[^355] According to its
     opponents, the CALLS Proposal wrongfully assumes that LECs' costs
     are changing at the rate of inflation and are not affected by
     productivity gains.[^356] As such, the opponents assert, LECs will
     be allowed to avoid about \$1 billion in access reductions in the
     later years of the proposal.[^357] Some opponents suggest that the
     X-factor should continue to apply to all baskets, even after the
     target rate is achieved.[^358] Under this approach, end-user rates
     would decline over time through the application of the X-factor and
     switched access rates would continue to fall even after the target
     rate was achieved.

166. We reject these contentions in the overall context of the CALLS
     Proposal. First, switched access usage charges will be reduced
     immediately by \$2.1 billion on July 1, 2000. The reductions in or
     elimination of some charges, such as the residential PICC, and the
     increases in other charges, such as the SLC, are approximately
     equal. Thus, there is a net reduction in overall access and
     universal service charges of approximately \$2.1 billion, an amount
     \$700 million greater than the reduction that would have been
     achieved through application of the X-factor under our current
     price cap scheme.[^359] Second, we believe that increased
     competition will serve to constrain access rates in the later years
     of the CALLS Proposal as X-factor reductions are phased out. We
     believe that market forces, instead of regulatory prescription,
     should be used to constrain prices whenever possible.[^360] As
     competitors utilizing a range of technologies, including cable,
     cellular, MMDS and LMDS, continue to enter the local exchange
     market, we expect that rates will continue to decrease.[^361] We
     also believe that adoption of the CALLS Proposal will encourage
     competition by removing implicit subsidies in access charges and
     recovering costs from those services that cause them. Therefore,
     the significant up-front reductions coupled with increased
     competition ultimately should result in access charges that are
     comparable to those that would be achieved under our current price
     cap system over the five-year term of the CALLS Proposal.
     Furthermore, after the five-year term we can re-examine the issue
     to determine whether competition has emerged to constrain rates
     effectively.

167. We further disagree with commenters who oppose targeting and argue
     that the X-factor should continue to apply to all baskets
     equally.[^362] The Commission has targeted reductions to certain
     baskets since it first adopted price caps. Even though the same
     productivity factor was applied to all service baskets, the
     Commission specifically targeted certain reductions to the common
     line basket by including a "g factor" reduction, representing
     per-minute growth per access line, in the common line PCI
     formula.[^363] We also targeted X-factor reductions to eliminate
     the per-minute TIC.[^364] In addition, similar to the targeting in
     the CALLS Proposal, we recently sought comment on a proposal to
     target reductions to the traffic sensitive and trunking PCI
     formulas. We proposed introducing a q factor, similar to the g
     factor in the common line PCI, that would share the benefits of
     growth in local switching and tandem switching demand with IXCs,
     because IXCs may be responsible in part for the increase in demand,
     and the increased demand may not lead to a measurable increase in
     switching costs to the LECs.[^365] We find it reasonable and
     consistent with past Commission practice to target the X-factor
     reductions to specific baskets. We note that under the CALLS
     Proposal, an X-factor equal to the GDP-PI, up to 6.5 percent, will
     be applied to all the baskets once the target rate for average
     traffic sensitive access charges is reached, and to the special
     access basket after 2003.[^366] Targeting the X-factor reductions
     to switching and switched transport services will more quickly
     reduce charges for these services toward cost-based levels than
     would be possible under the existing price cap methodology.[^367]

168. Focal characterizes the CALLS Proposal's targeting mechanism as an
     "attempt to escape the price cap rules," arguing that CALLS failed
     to seek a waiver of the Commission's rules.[^368] The CALLS
     Proposal seeks to *amend* the price cap rules, not to *waive* them;
     because we issued a notice of proposed rulemaking to amend our
     price cap rules as proposed by CALLS, there is no need for any
     waiver of these rules.

169. Some commenters argue that the CALLS Proposal's X-factor targeting
     approach would reduce facilities-based local exchange
     competition.[^369] Specifically, these commenters object to the
     targeting of reductions to traffic sensitive rates, which are
     subject to competition, while rate levels in the less-competitive
     common line basket are maintained.[^370] In response, Sprint
     contends that the competitive market has not controlled prices in
     the exchange access market, and that competitive LECs are charging
     access rates that are significantly higher than the above-cost
     rates currently charged by incumbent LECs.[^371]

170. In addition, we observe that the target rates are not
     predatory.[^372] To engage in predatory practices, a price cap LEC
     would have to charge rates below its incremental costs to drive out
     its competitors, and then raise prices to monopoly levels after the
     competitors have left the market.[^373] As evidence that the target
     rates are not below price cap LECs' incremental costs, we note that
     interconnection agreements reached through negotiations in the
     marketplace contain access rates that are below the target
     rates.[^374] In addition, the CALLS signatory LECs have agreed to
     charge these rates for a sustained period of time, which they would
     not do if the rates were predatory. Price cap LECs will not be able
     to increase these prices to monopoly prices; the rates will remain
     at the target rates until July 1, 2005, at which time the
     Commission will re-examine them. We find that targeting is
     appropriate to drive average traffic sensitive charges closer to
     the cost of providing these services, and that it will not harm
     efficient competition.

171. Furthermore, we find it reasonable not to target reductions to the
     common line basket at this time. When price caps were first
     implemented, initial rates were targeted to produce the same return
     across all baskets.[^375] Currently, however, price cap LECs'
     basket earnings are significantly higher for traffic sensitive
     services than for common line services.[^376] This is consistent
     with our observation that the current traffic sensitive rate
     structure provides price cap LECs with more revenue when demand
     increases, regardless of whether costs have increased, resulting in
     higher earnings.[^377] Therefore we find it reasonable to target
     reductions to traffic sensitive services rather than to common line
     services.

172. We also adopt the creation of a special access basket with a
     separate X-factor as proposed by CALLS. The creation of a separate
     special access basket, with its own X-factor, benefits dedicated or
     high-volume users through the reduction of special access rates.
     Separating special access into its own basket, in conjunction with
     the IXC commitments, also will benefit residential and small
     business end users. Under our current rules, special access is
     recovered through the trunking basket. If it were to remain in that
     basket, price cap LECs could reduce special access rates while
     increasing rates for the other rate elements in that basket so that
     the average rate for that basket remains at the target rate. The
     creation of a separate price cap basket for special access will
     preclude price cap LECs from funding reductions in special access
     charges by increasing the rates for switched transport services in
     other baskets once the target rates are reached.

173. Cincinnati Bell and Global Crossing argue that a separate, smaller
     X-factor should be applied to them and other mid-size price cap
     LECs under the CALLS Proposal because these carriers are not able
     to achieve the same levels of productivity growth as larger price
     cap LECs.[^378] As noted above, however, the X-factor adopted under
     the CALLS Proposal is not a productivity offset as past X-factors
     have been, but is instead merely a ramp-down method to reduce
     traffic sensitive charges to the stated target levels.[^379]
     Therefore, the asserted inability of smaller price cap LECs to
     match the productivity growth of larger price cap LECs is
     irrelevant in this proceeding and we decline to adopt a separate
     X-factor for smaller price cap LECs. In addition, the price cap
     low-end adjustment remains available as a backstop mechanism for
     LECs that have earnings below a specified threshold.[^380] Finally,
     we note that the CALLS Proposal recognizes and addresses the
     disparity in subscriber bases and resources by providing higher
     target rates for mid-size and very low-density price cap LECs. We
     believe the differences of smaller price cap LECs are reasonably
     accommodated under the CALLS Proposal, therefore we decline to
     adopt a separate X-factor for smaller price cap LECs.

174. As observed by some commenters, the controversy regarding the
     current status of the X-factor and the concurrent uncertainty over
     the resolution of the controversy disrupts business expectations
     and future investment decisions of both LECs and new
     entrants.[^381] As referenced above, we recently issued a Notice of
     Proposed Rulemaking regarding the prescription of the
     X-factor.[^382] Currently, the Commission has before it comments on
     whether it should prescribe two X-factors to address separately the
     period July 1, 1997 to June 30, 2000 and the period from July 1,
     2000 forward, or a single X-factor to cover the combined periods.
     The CALLS Proposal resolves the uncertainty of whether to prescribe
     one or two X-factors and the uncertainty concerning the appropriate
     level of the X-factor for those price cap LECs that will be
     regulated under the CALLS Proposal. CALLS signatories have agreed
     not to initiate legal or regulatory action to adjust price cap
     determined rates billed for access minutes prior to July 1, 2000,
     including the period covered by the D.C. Circuit's stay of the
     mandate in *USTA v. FCC*.[^383] Therefore, those entities that have
     signed on to the CALLS Proposal have agreed to waive any right to
     recoupment that they might be entitled to seek if we were unable to
     justify the 6.5 percent X-factor remanded by the court.

175. We note that not all affected price cap LECs had voluntarily agreed
     to this term of the CALLS Proposal. The issue of whether recoupment
     may be warranted for the period covered by the D.C. Circuit's stay
     of the *USTA v. FCC* mandate is not obviated with respect to price
     cap LECs that have not voluntarily signed on to the CALLS Proposal.
     The issue of fashioning remedies, however, is well within our
     discretion.[^384] Available data show that non-signatory price cap
     LECs have experienced earnings above the prescribed rate of return
     for interstate access during this period, and thus non-signatory
     price cap LECs have not been subjected to unreasonably low
     rates.[^385] Because available data do not suggest that specific
     recoupment is warranted, we do not generally provide for it here.
     Any non-signatory price cap LEC may, however, seek to show that its
     access charge rates under the 6.5 percent X-factor were
     confiscatory, and therefore may seek recoupment of amounts it
     undercharged during the period of the court's remand.

176. With respect to the interstate average traffic sensitive charge
     target levels proposed by CALLS, we conclude that the target rates
     will significantly reduce per-minute access rates, from today's
     average rate of 1.1 cents per access minute to the target rates of
     0.55 cents for the BOC LECs and GTE; 0.95 cents for very
     low-density price cap LECs; and 0.65 cents for all other price cap
     LECs, thereby lowering long-distance bills.[^386] We find further
     that these target rates are just and reasonable. The target rates
     are within the range of estimated economic costs of switched access
     that have been presented to the Commission.[^387] In addition, the
     fact that both purchasers and suppliers of access services,
     including non-CALLS members, supported the target rates further
     indicates that they are a reasonable temporary estimate of prices
     that might be set in a competitive market. In support of the
     0.55-cent target rate, MCI commented that adoption of the target
     rates during the five-year term of the CALLS Proposal will provide
     an immediate reduction in switched access rates without requiring
     the completion of a time-consuming review of cost studies.[^388]

177. We further conclude that the multi-tier target rate system
     addresses the reality of a diverse LEC population. We find that the
     lower target rate of 0.55 cents is reasonable for the larger BOC
     LECs and GTE due to their economies of scale and broad subscriber
     bases. We find that a slightly higher target rate of 0.65 cents is
     reasonable for other LECs that by definition do not have the
     subscriber bases and resources of the larger BOCs. In addition, we
     find that a target rate of 0.95 cents for very low-density price
     cap LECs is reasonable. Due to the nature of their service areas,
     very low-density price cap LECs experience costs that are
     significantly higher than other price cap LECs of their size, and
     are unable to spread those costs over a large subscriber
     base.[^389] Therefore, we agree that the higher level is
     appropriate for very low-density price cap LECs.

178. Some commenters have argued that the target rates should be lower
     because, according to state approved interconnection rates, access
     costs are actually below one half of one cent per minute.[^390] The
     commenters contend that the Commission should reduce access rates
     to forward-looking costs, like the unbundled network element rates
     for local transport and termination.[^391] The Commission has
     recognized that, as a legal matter, transport and termination of
     local traffic are different services than access service for
     long-distance telecommunications and therefore are regulated
     differently.[^392] As a policy matter, we have determined that a
     market-based approach, instead of a prescriptive approach in which
     we set access charge rates at economic cost levels, better serves
     the public interest.[^393] We believe that the target rates we are
     adopting are a reasonable transitional estimate of rates that might
     be set through competition. Not only are the target rates supported
     by both price cap LECs and IXCs, but competitive LECs have also
     proposed reducing access charges to the same target rates.[^394]
     Reducing the rates to access costs, as the commenters suggest,
     would necessitate a lengthy and complex proceeding.[^395] We
     believe the public interest is better served by the immediate
     reduction in access rates brought about by our adoption of the
     CALLS Proposal target rates. After the five-year term of the CALLS
     Proposal, we can re-examine the issue to determine whether
     competition has emerged to effectively constrain rates.

179. Time Warner has argued that the access charge reductions under the
     CALLS Proposal occur too quickly. Instead, Time Warner urges the
     Commission to phase-in access charge reform rather than adopting a
     flash-cut approach.[^396] In response, we note that we are adopting
     a phased-in approach of reducing access charges. Price cap LECs
     will not reduce access charges to forward-looking cost levels on
     July 1, 2000, or even by the end of the five-year period, unless
     they choose to do so by electing not to be regulated under the
     CALLS Proposal. Instead, we are implementing transitional rates to
     reduce access charges closer to cost-based rates. We disagree with
     Time Warner's contention that the access charge reductions made in
     response to this Order are too steep.[^397] Instead we believe that
     they are a reasonable transitional measure until competition
     develops sufficiently to enable market forces to determine access
     charges.

180. As noted above, CALLS has proposed a method for addressing the
     target rates for filing entities that are being transferred wholly
     or in part among price cap LECs.[^398] We find that this approach
     avoids rate churn and customer confusion. We also believe
     addressing these transfers in the June 16, 2000 TRP filings is the
     most administratively simple way to handle the sale of filing
     entities with different target rates. Therefore, we find that the
     public interest is served by adopting these requirements.

181. Finally, we adopt the CALLS Proposal's treatment of the low-end
     adjustment. Price cap LECs cannot claim this adjustment for rates
     charged during the tariff year beginning July 1, 2000, but will be
     able to claim this adjustment during the remaining years in which
     the CALLS Proposal adopted today is effective.[^399] Allowing price
     cap LECs to claim a low-end adjustment in 2000 would complicate the
     calculation of the \$2.1 billion immediate reduction in switched
     access usage charges called for in the CALLS Proposal. Therefore we
     are precluding price cap LECs from taking the adjustment in that
     year. We note, however, that even without the availability of the
     low-end adjustment mechanism in the first year, price cap LECs are
     protected by the Takings Clause of the Constitution from making
     rate reductions that would be confiscatory. To the extent that
     price cap LECs can demonstrate that rate reductions under the CALLS
     Proposal are confiscatory, they may seek recoupment of the
     confiscatory amounts.

182. We disagree with commenters who argue that the low-end adjustment
     should not be available to price cap LECs in the remaining years of
     the CALLS Proposal.[^400] We have included the low-end adjustment
     in our system of LEC price cap regulation to protect LECs from
     events beyond their control that would affect earnings to an
     extraordinary degree.[^401] Moreover, as noted by commenters, the
     low-end adjustment is not likely to have a significant practical
     effect because it has been rarely invoked in the past, and price
     cap LECs must agree to waive it before taking advantage of pricing
     flexibility under our rules.[^402] We find it reasonable to
     continue to include this adjustment, to the extent applicable under
     the CALLS Proposal.

#### Measure of Inflation

183. In implementing the CALLS Proposal, we use GDP-PI as the measure of
     inflation to which the X-factor will be set once the target levels
     are reached for switching and switched transport rates, and after
     2003 for special access. We take this opportunity to adopt our
     tentative conclusion in the *Pricing Flexibility Order* to use the
     BEA chain-weighted GDP‑PI to measure inflation in the PCI formula.
     The BEA changed its measurement of GDP-PI from fixed-weighted
     indexes, on which our current measure of GDP-PI in the LEC price
     cap rules is based, to chain-weighted indexes because it found that
     the chain-weighted indexes are significantly more accurate.[^403]
     CALLS member AT&T agrees, noting in the *Pricing Flexibility Order*
     proceeding that chain indexes provide the only significant economic
     comparisons for medium and longer term periods, while fixed-weight
     indexes become unrepresentative after only a few years of economic
     change.[^404] Use of the BEA chain-weighted GDP-PI will not affect
     the aggregate switched access usage charge reductions to be taken
     on July 1, 2000; however it will make the average traffic sensitive
     charges reach the target rates slightly faster. The BEA
     chain-weighted GDP-PI will also result in slightly greater special
     access charge reductions.

184. Although the change in the measure of GDP-PI was not proposed in
     the CALLS Proposal, we believe it is in the public interest for the
     reasons stated above and adopt it in this Order. CALLS has informed
     us that its proposal was based on the GDP-PI fixed-weight index and
     changing to a chain-weighted GDP-PI index would materially affect
     its proposal.[^405] We believe instead that this change is merely a
     technical one that reflects an independent agency's refinement of
     one of its measurements. As stated above, the chain-weighted index
     has been found to be more accurate than the fixed-weight index, and
     is therefore BEA's featured measure of GDP-PI.

## Universal Service

### Introduction

185. In the preceding sections of this Order, we have restructured and
     significantly reduced the interstate access charges imposed by
     price cap LECs. In this section, based on the CALLS Proposal, we
     identify a specific amount of access charges as implicit support
     for universal service, and we establish an explicit interstate
     access universal service support mechanism to replace such implicit
     support. In contrast to the Commission's existing high-cost support
     mechanisms for rural and non-rural carriers, which provide support
     to enable states to ensure reasonably affordable and comparable
     *intrastate* rates, the purpose of this federal mechanism is to
     provide explicit support to replace the implicit universal service
     support in *interstate* access charges.

186. As explained below, consistent with the principles of the 1996 Act,
     this interstate access universal service support mechanism proposed
     by CALLS will provide explicit support that is specific,
     predictable, and sufficient to ensure that consumers in all regions
     of the nation have access to telecommunications services at
     affordable and reasonably comparable rates. Moreover, this support
     mechanism will provide support that is portable among competing
     carriers \-- if a competitor serves a supported customer, the
     competitor will receive the interstate access support for that
     customer. Thus, by adopting the interstate access universal service
     support mechanism proposed by CALLS, we are able to serve the 1996
     Act's dual goals of promoting competition in the telecommunications
     marketplace and simultaneously preserving and advancing universal
     service. Specifically, the interstate access universal service
     support mechanism that we establish today has the following
     features:

-   Support is fixed at an annual amount of \$650 million.

-   Support is explicit, rather than implicit.

-   Support is targeted to the density zones that have the greatest need
    for it.

-   Support is provided on a portable, per-line basis.

-   Support is available on a competitively neutral basis to any
    eligible telecommunications carrier serving a supported customer,
    regardless of the technology used by that carrier.

-   Support under the Commission's universal service Lifeline Assistance
    program for low-income consumers is increased to cover the increase
    in the residential SLC.

187. In the remainder of this section, we first provide background on
     universal service principles and Commission actions concerning
     universal service, followed by an overview of the interstate access
     universal service support mechanism proposed by CALLS. We then
     discuss the size of the support mechanism, the distribution of
     interstate access support, including a discussion of the
     portability of interstate access support, the changes to our
     existing Lifeline program, the recovery of universal service
     contributions by incumbent LECs, and implementation issues for the
     support mechanism. Finally, we provide a brief summary of our
     consultations with the Federal-State Joint Board on Universal
     Service (Joint Board) regarding the issues discussed in this
     section.

### Background

188. As previously noted, historically, one of the goals of universal
     service has been to support the provision of telecommunications
     service in areas where the cost of providing such service would
     otherwise be significantly higher than the average cost of
     providing service in the United States as a whole.[^406] This goal
     has been accomplished by providing support to carriers for both
     interstate and intrastate services to enable them to serve
     high-cost consumers at below-cost rates. There are generally three
     sources of universal service support: (1) state support for basic
     telephone service;[^407] (2) federal support for intrastate costs
     of local telephone service that significantly exceed the national
     average;[^408] and (3) federal support for the interstate portion
     of the local loop and port.[^409] In the *Universal Service Ninth
     Report and Order* and *Universal Service Tenth Report and Order*,
     we reformed our high-cost support mechanism for non-rural carriers,
     which provides federal support for *intrastate* costs. In this
     Order, we reform federal support for the *interstate* portion of
     the local loop and port.

189. Universal service support has been both explicit and implicit. For
     example, various federal support mechanisms provide explicit
     monetary support payments to LECs.[^410] LECs have also received
     implicit support from the Commission's interstate access charge
     regime, which permitted LECs to recover the interstate cost of the
     local loop and port in a manner different from the way that cost
     was incurred. For example, instead of allowing LECs to recover the
     entire non-traffic sensitive cost of the local loop and port
     through a flat-rated charge to the customer, the Commission capped
     the amount of that charge because of concerns that customers would
     disconnect their telephone service if the charge were too
     high.[^411] LECs recovered the non-traffic sensitive costs that
     exceeded the cap on flat-rated charges through traffic sensitive
     (per-minute) charges to IXCs, thus creating an implicit support
     flow from the IXCs to the LECs' customers. In addition, the LECs'
     flat-rated charges for business customers were higher than the
     flat-rated charges for residential customers, even though the costs
     of serving these different customer classes did not significantly
     differ. This rate differential created an implicit support flow
     from business customers to residential customers. Finally, LECs
     were permitted to average their flat-rated charges over large
     geographic areas. This geographic averaging created an implicit
     support flow from low-cost customers to high-cost customers.

190. *Universal Service Principles.* In the 1996 Act, Congress codified
     the Commission\'s historical policy of promoting universal service
     to ensure that consumers in all regions of the nation have access
     to telecommunications services.[^412] Specifically, in section 254
     of the Act, Congress instructed the Commission, after consultation
     with the Joint Board, to establish specific, predictable, and
     sufficient mechanisms to preserve and advance universal
     service.[^413] Moreover, recognizing the vulnerability of implicit
     support to competition, Congress directed the Commission and the
     states to take the necessary steps to create universal service
     mechanisms that would be sustainable in a competitive
     environment.[^414] To achieve this end, Congress directed that
     universal service support "should be explicit and sufficient to
     achieve the purposes of \[section 254\]."[^415]

191. The 1996 Act further establishes as a principle, on which we must
     base our universal service policies, that quality services should
     be available across the nation at affordable and reasonably
     comparable rates.[^416] Support mechanisms should also require all
     providers of telecommunications services to make an equitable and
     nondiscriminatory contribution to the preservation and advancement
     of universal service.[^417] Support mechanisms should neither
     unfairly advantage nor disadvantage one provider over another, and
     neither unfairly favor nor disfavor one technology over
     another.[^418] Thus, any telecommunications carrier, using any
     technology, including wireless technology, is eligible to receive
     universal service support if it meets the criteria for "eligible
     telecommunications carrier" status under section 214(e)(1).[^419]

192. In conducting universal service reform pursuant to the principles
     of the Act, the Commission has "broad discretion" to balance the
     dual goals of providing explicit and sufficient universal service
     support while promoting local competition.[^420] Moreover, as long
     as the Commission's universal service methodology provides
     sufficient support for universal service, the Commission is free to
     adopt a methodology that serves its other goal of encouraging local
     competition.[^421]

193. *Initial Efforts to Convert Implicit Support to Explicit Support*.
     In the *Universal Service First Report and Order* and the *Access
     Charge Reform Order*, the Commission began the process of
     identifying and converting implicit interstate universal service
     support to explicit support.[^422] The Commission determined that
     implicit support for universal service should be identified and
     removed from interstate access charges, and should be provided
     instead through explicit support mechanisms.[^423] For example, as
     an initial step toward achieving this task, the Commission reformed
     the mechanism for Long Term Support (LTS).[^424] Historically, the
     Commission's rules required non-pooling LECs (generally, large
     price cap carriers) to make contributions to the LTS mechanism,
     which then made explicit monetary payments to the members of the
     NECA pool. These non-pooling LECs recovered their contributions
     through increased interstate access charges. Thus, while LTS was
     being provided explicitly through direct monetary payments, it was
     being recovered implicitly through inflated interstate access
     charges. In order to eliminate this implicit recovery, the
     Commission directed that LTS be derived from an explicit federal
     support mechanism funded by all interstate carriers, and that
     non-pooling LECs reduce their interstate access charges to reflect
     the elimination of their obligation to contribute directly to the
     NECA pool.[^425]

194. As described below, the CALLS Proposal also seeks to remove
     implicit universal service support from our interstate access
     charge regime. Unlike LTS, where there was an existing mechanism
     providing explicit support but allowing implicit recovery, the
     CALLS Proposal begins by identifying implicit universal service
     support still in interstate access charges, removes that support,
     and then creates a mechanism that allows for the explicit provision
     and recovery of interstate access universal service support.

### The Calls Proposal: Interstate Access Universal Service Support

#### Overview

195. CALLS proposes the establishment of an explicit interstate
     universal service support mechanism that will provide support to
     replace \$650 million of annual implicit support currently
     collected through interstate access charges, which is being phased
     out as part of the CALLS Proposal's common line
     restructuring.[^426] In contrast to the Commission's existing
     high-cost support mechanisms for rural and non-rural carriers,
     which provide support to enable states to ensure reasonable
     comparability of *intrastate* rates, the purpose of the new federal
     interstate access universal service support mechanism is to provide
     explicit support to replace the implicit universal service support
     in *interstate* access charges. As explained below, the new
     mechanism provides support to carriers serving lines in areas where
     they are unable to recover their permitted revenues from the newly
     revised SLCs.

196. Under the CALLS Proposal, in any geographically deaveraged UNE zone
     where the average common line revenue per line for that zone would
     exceed a benchmark of \$7.00 per line for residential and
     single-line business lines and a benchmark of \$9.20 per line for
     multi-line business lines, the interstate access support mechanism
     would provide support for a portion of the difference between
     permitted common line revenue and the benchmarks.[^427] Although
     the aggregate difference between permitted common line revenue per
     line and the benchmarks exceeds \$650 million, CALLS employs a
     series of formulas to pro rate the amount of interstate access
     support so that it does not exceed \$650 million per year.[^428]
     The amount of interstate access support provided in each study area
     is also adjusted on a phased-in basis so that by July 1, 2003, CCL
     charges and multi-line business PICCs will be eliminated for most
     customers served by price cap LECs.[^429] This interstate access
     support will be portable to competing eligible telecommunications
     carriers and targeted to areas with the greatest differential
     between permitted common line revenue and the benchmarks. In
     addition, the CALLS Proposal would increase the maximum amount of
     federal Lifeline support provided under our existing rules in order
     to match the increase in the new residential SLC, thus shielding
     low-income consumers from the cost of the increased residential
     SLC.[^430]

197. As discussed in Section IV above, in this Order, we provide price
     cap LECs the opportunity to choose between the rate levels that are
     part of the CALLS Proposal, including the \$650 million interstate
     access universal service support mechanism, or to elect to submit
     to a cost study based on forward-looking economic cost that would
     be the basis for reinitializing rates to the appropriate level. In
     addition, as discussed in Section IV above, we plan to review any
     increases to residential and single-line business SLC caps above
     \$5.00 to verify that any such increases are appropriate and
     reflect higher costs where they are to be applied. Given the
     relationship between access charges and the interstate access
     universal service support mechanism, in the event that a price cap
     LEC elects to participate in the cost-study proceeding, we will
     consider the sufficiency of the support mechanism, including both
     the size and distribution of support, concurrently with the SLC cap
     proceeding. Any adjustments to the support mechanism shall be
     consistent with the principles that support should be explicit,
     portable and competitively neutral.

#### Size of the Interstate Access Universal Service Support Mechanism

##### Background 

198. CALLS proposes that the interstate access universal service support
     mechanism be sized at \$650 million.[^431] This amount is fixed
     under the CALLS Proposal for five years.[^432] According to the
     proponents of the CALLS Proposal, the size of the proposed
     interstate access universal service support mechanism is the
     product of negotiation between parties with adverse interests,
     *i.e.,* large IXCs, who are the biggest contributors to universal
     service, and certain large LECs, such as GTE and BellSouth, who are
     the biggest recipients of universal service support.[^433] CALLS
     points out that a support mechanism sized at \$650 million is well
     within the estimates of existing implicit support in interstate
     access charges that have been filed with the Commission.

199. For example, the United States Telecom Association ("USTA"),
     estimated that based on embedded costs, current interstate common
     line rates contained \$3.9 billion in implicit universal service
     support.[^434] In another estimate based on embedded costs, William
     Rogerson, the Commission's Chief Economist at the time, and Senior
     Economist Evan Kwerel estimated that interstate access charges
     contained \$1.9 billion in implicit universal service support,
     assuming that residential SLCs were capped at \$ 6.50 per
     month.[^435] On the other hand, the HAI model, relying on
     forward-looking costs, has been used to estimate implicit support
     in interstate common line elements of approximately \$250
     million.[^436]

200. Moreover, according to CALLS, a support mechanism sized at \$650
     million is consistent with AT&T's estimate of implicit support
     based on forward-looking costs.[^437] Using the Commission's
     synthesis model[^438] with the Commission's common inputs as of
     June 2, 1999, AT&T concluded that \$650 million is a reasonable
     estimate of the interstate portion of forward-looking loop and port
     costs exceeding a maximum residential and single-line business SLC
     of \$7.00 and multi-line business SLC of \$9.20.[^439]

##### Discussion

201. We find that the \$650 million interstate access universal service
     support mechanism proposed by CALLS satisfies section 254's goals
     that universal service support be explicit as well as specific,
     predictable, and sufficient. By fixing the amount of support at
     \$650 million per year for five years, the CALLS Proposal provides
     a specific and predictable amount of explicit support.[^440] In
     addition, we believe that this amount is sufficient to keep rates
     affordable and reasonably comparable. As the Fifth Circuit
     observed*,* section 254(e) is ambiguous as to what constitutes
     "sufficient" support, and thus the Commission must use its
     expertise and informed judgment to make a reasonable determination
     concerning the sufficiency of explicit universal service
     support.[^441] The record in this proceeding, as well as our
     experience, reveals that identifying an amount of implicit support
     in our interstate access charge system to make explicit is an
     imprecise exercise. The various implicit support flows (*e.g*.,
     business to residential, high-volume to low-volume, and geographic
     rate averaging) are not easily severable and quantifiable.
     Moreover, the competitive pricing pressures present during this
     transitional period between monopoly and competition present
     additional complexities in identifying a specific amount of
     implicit support. Thus, we recognize that different estimates of
     this amount each may be considered reasonable.

202. We are persuaded, however, that at this time \$650 million is a
     reasonable estimate of the amount of universal service support that
     currently is in our interstate access charge regime. This estimate
     falls within the range of estimates that have been submitted in the
     universal service proceeding. [^442] We also agree with the CALLS
     proponents who argue that the negotiated nature of the \$650
     million estimate provides strong evidence that \$650 million will
     be sufficient, though not excessive, to ensure affordable and
     reasonably comparable rates.[^443] CALLS includes companies such as
     AT&T and Sprint who, with MCI and other IXCs, pay the lion's share
     of universal service contributions, as well as companies such as
     Bell Atlantic and SBC who provide local service in areas that tend
     to be lower cost to serve on average and who therefore are net
     payers of universal service contributions. As net payers, these
     carriers have incentives to minimize the size of universal service
     support mechanisms. Companies such as BellSouth, GTE, and Sprint
     Local, on the other hand, provide service in areas that generally
     have higher costs and therefore are usually net recipients of
     universal service support. As net recipients of universal service
     support, these LECs have incentives to maximize the size of the
     universal service support mechanisms. Because of the divergent
     interests of these parties, we believe that \$650 million
     represents a sufficient amount of explicit universal service
     support to replace the implicit support that has been removed from
     access charges, and should ensure affordable and reasonably
     comparable rates.

203. Consistent with our obligations under section 254, we emphasize
     that reforming access charges and creating an interstate access
     universal service support mechanism sized at \$650 million is a
     necessary first step on the path to a more competitive
     telecommunications marketplace. As discussed above, we will revisit
     the size and operation of this mechanism before the end of the
     five-year plan as part of any changes we make to access charges as
     a result of a price cap LEC cost study. Otherwise, we agree with
     commenters who suggest that this estimate should be reevaluated at
     the end of the five-year plan to determine the sufficiency of the
     fund based on the development of competition and market-based
     pricing.[^444] At that time, we will make any adjustment to the
     fund that is necessary to ensure that such funding is sufficient,
     yet not excessive, to keep rates in high-cost areas affordable and
     reasonably comparable to rates in areas with greater population
     density.[^445] Because we plan to reevaluate the size of the
     interstate access universal service mechanism, and because creation
     of this mechanism is a necessary first step to remove implicit
     support from our interstate access charge regime, we decline
     commenters' suggestions that we delay implementation of the
     mechanism pending further evaluation.[^446]

204. Some commenters argue that the size of the interstate access
     universal service mechanism is too large.[^447] Other commenters
     argue that the size of the interstate access universal service
     support mechanism is too small.[^448] Still other commenters argue
     that the \$650 million estimate is not based on a reasonable
     measure of price cap LECs' forward-looking costs.[^449] These
     commenters also argue that not all CMT revenues arise due to the
     provision of universal service, and thus the FCC must undertake a
     detailed examination of price cap LECs' rates and costs to
     determine the proper amount of implicit universal service support
     that should be recovered through the interstate access universal
     service support mechanism.[^450] The estimates from parties
     commenting on the CALLS Proposal range from \$300 million[^451] to
     \$1.2 billion.[^452] For example, ALTS and Time Warner merely
     assert, without any empirical support, that the interstate access
     universal service support mechanism would be more appropriately
     sized at \$300 million.[^453] U S West, on the other hand,
     estimates support at \$1.2 billion. U S West's effort to quantify
     interstate access universal service support illustrates the
     difficulty in calculating a precise amount of implicit universal
     service support that should be recovered through the interstate
     access universal service support mechanism. For example, U S West's
     estimate assumes a multi-line business SLC of \$6.50, rather than
     \$9.20.[^454] Therefore, U S West's estimate fails to account for a
     significant amount of revenue that will be recovered through the
     multi-line business SLC, and thus does not need to be recovered
     through the interstate access universal service support mechanism.
     Although we do not believe these alternative estimates are more
     reliable than CALLS' \$650 million estimate, we find that the range
     of these estimates by parties with adverse interests supports the
     reasonableness of an interstate access universal service support
     mechanism sized at \$650 million per year.

205. We also reject suggestions by commenters[^455] that the proposed
     \$650 million interstate access universal service support mechanism
     is excessive because it was designed to cover the "gap" between
     capped end user charges and LEC permitted revenues under price caps
     based on embedded costs. Under the universal service distribution
     formulas, as discussed below, the difference between price cap LEC
     permitted revenue and the SLC benchmarks exceeds the \$650 million
     cap on the interstate access universal service support mechanism.
     Nevertheless, price cap LECs, who are the largest net recipients of
     universal service support, have agreed that \$650 million provides
     adequate interstate access universal service support. Thus, we
     agree with CALLS and the Massachusetts Department of
     Telecommunications and Energy[^456] that the \$650 million is a
     reasonable, yet not excessive, estimate of the amount necessary to
     provide sufficient universal service support to ensure affordable
     and reasonably comparable end-user rates.

#### Distribution of Interstate Access Support

##### Background 

206. The methodology for distributing interstate access universal
     service support consists of a series of mathematical formulas that
     measure the difference between CMT revenue under price caps and
     benchmarks based on the new SLC caps. [^457] These formulas compare
     price cap LEC CMT revenue per line to the SLC benchmarks at both
     the study area and UNE zone levels. These formulas target
     interstate access support to the study areas and UNE zones with the
     greatest difference between CMT revenue and the SLC
     benchmarks.[^458] Because UNE zone prices, and the resulting CMT
     revenues, are based on costs, this methodology is designed to
     direct greater amounts of support to higher cost areas.
     Specifically, an amount up to the first \$75 million is allocated
     to study areas where the study area average revenue requirement per
     line is above the SLC benchmarks.[^459] These study areas also
     receive priority for distribution of the remaining interstate
     access support. After distribution of up to the first \$75 million,
     the remaining interstate access support is distributed to carriers
     serving UNE zones where the UNE zone average CMT revenue per line
     is above the SLC benchmarks. To maintain the \$650 million cap, the
     distribution formulas also account for growth in the number of
     lines eligible to receive universal service support during the
     course of the year.[^460]

207. To distribute the \$650 million of interstate access support among
     service areas served by price cap LECs, the CALLS Proposal derives
     a specific and separate amount of interstate access support for
     certain price cap LEC study areas and UNE zones on a per-line
     basis.[^461] These per-line support amounts are known as Interstate
     Access Universal Service Support Per Line.[^462] To calculate these
     amounts, the CALLS Proposal proposes the following seven steps.

```{=html}
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```
(1) *Study Area Average Price Cap CMT Revenue Per Line Per Month*. To
    calculate this amount, the CALLS Proposal starts with the prior year
    price cap CMT revenue per line, [^463] adjusts it for exogenous
    costs, and multiplies it by the base period lines.[^464] For price
    cap LECs that do not have study area specific common line rates
    (*i.e.,* SLC, PICC, and CCL charge that are study area specific),
    CMT revenue for the filing entity is allocated to study areas based
    on the base factor portion (BFP) costs for each study area.[^465]

(2) *Preliminary Minimum Access Universal Service Support.* To determine
    this amount, the CALLS Proposal calculates the amount by which study
    area Average Price Cap CMT Revenue exceeds the revenue allowed under
    the \$7.00 and \$9.20 SLC benchmarks.[^466]

(3) *Zone Average Revenue Per Line*. To calculate interstate access
    support levels on a geographically zoned basis, using UNE loop
    pricing zones where such zones exist,[^467] deaveraged price cap
    common line revenue per line is calculated for each zone.[^468]

(4) *Study Area Above Benchmark Revenues*. Zone Average Revenue Per Line
    is then compared to the \$7.00 residential and single-line business
    benchmark and the \$9.20 multi-line business benchmark to derive
    Zone Above Benchmark Revenue.[^469] Zone Above Benchmark Revenue for
    each zone in a study area is then summed to arrive at Study Area
    Above Benchmark Revenue.[^470]

(5) *Study Area Access Universal Service Support (SAUSS).* To calculate
    SAUSS, the CALLS Proposal first provides for the calculation of
    Preliminary Study Area Universal Service Support (PSAUSS) and the
    Minimum Support Requirement (MSR). [^471]

> \(a\) *PSAUSS.* To derive PSAUSS, the CALLS Proposal (1) sums Study
> Area Above Benchmark Revenue from each price cap LEC to derive
> Nationwide Total Above Benchmark Revenues, (2) divides \$650 million
> by the Nationwide Total Above Benchmark Revenues to get the Adjustment
> Factor, and (3) multiplies the Study Area Above Benchmark Revenues by
> the Adjustment Factor to derive PSAUSS.[^472] These calculations are
> designed to limit interstate access universal service support to the
> \$650 million cap.
>
> \(b\) *MSR*. To derive MSR, the CALLS Proposal (1) compares
> Preliminary Minimum Access Universal Service Support to PSAUSS to
> derive the Minimum Delta, (2) sums the Minimum Delta amounts of each
> price cap LEC to derive Total National Minimum Delta, (3) calculates a
> Minimum Adjustment Amount (MAA),[^473] and (4) adds the MAA to the
> PSAUSS to get the MSR for study areas with minimum support
> requirements.[^474] The MSR is designed to target interstate access
> universal service support to study areas most in need of support.
> Finally, the PSAUSS for study areas that do not have an MSR must be
> adjusted to account for the distribution of the MSR.[^475]

(6) *Interstate Access Universal Service Support Per Line*. To derive a
    per line support amount per month, SAUSS is allocated as follows:

> \(a\) *Study Areas Without UNE Pricing*. In any study area within
> which the price cap LEC has not established state approved
> geographically deaveraged UNE loop rates, SAUSS is divided by twelve
> and by the total number of eligible telecommunications carriers' base
> period lines. [^476]
>
> \(b\) *Study Areas With UNE Pricing*. If UNE loop rates have been
> established, a per-line support amount is calculated by allocating
> SAUSS to UNE zones first to the lines in the zones with the greatest
> differential between Zone Average Revenue Per Line[^477] and the SLC
> benchmarks, "cascading" to lines in zones with lower differentials to
> the extent that funding remains available.[^478]

(7) *Distribution of Interstate Access Universal Service Support Per
    Line*. Interstate Access Universal Service Support Per Line is
    distributed to all eligible telecommunications carriers based on
    their reported lines.[^479]

##### Discussion

208. Although there may be several methodologies by which the \$650
     million of interstate access universal service support could be
     distributed, we conclude that the distribution methodology proposed
     by CALLS is reasonable and satisfies the universal service
     principles of the 1996 Act. Accordingly, for the reasons discussed
     below, we adopt the distribution methodology proposed by CALLS.

209. Through a series of mathematical formulas, the CALLS distribution
     methodology calculates a per-line support amount for a particular
     UNE zone. This per-line support amount is portable among competing
     eligible telecommunications carriers. In other words, if a
     competitor serves a customer in a supported study area or UNE zone,
     the competitor will receive the incumbent's support for that line.
     Moreover, as described below,[^480] this per-line support amount
     will be published regularly by the Universal Service Administrative
     Company (USAC). Thus, both incumbents and competitors will know the
     per-line support amounts available for serving customers in a
     particular area, and can plan their business strategies
     accordingly.

210. Taken together, these features satisfy the concerns raised by the
     state members of the Joint Board that the interstate access
     universal service mechanism be consistent with the universal
     service principles of specificity, predictability, and competitive
     neutrality.[^481] By calculating per-line support for lines served
     in a particular UNE zone, the CALLS methodology provides a specific
     amount of support for each line served by eligible
     telecommunications carriers in that zone. The CALLS methodology
     also provides predictable support because the total amount of
     interstate access universal service support is fixed at \$650
     million for the five-year life of the proposal[^482] and the
     distribution of that support can be predetermined and published for
     a particular period based on the distribution formulas. Because the
     support provided under the CALLS Proposal is portable among all
     eligible telecommunications carriers serving a supported customer,
     regardless of whether they are incumbents or competitors and
     regardless of the technology they use, the distribution methodology
     is competitively neutral.

211. Some commenters, however, criticize various aspects of the
     distribution methodology and suggest that we modify the methodology
     to address their concerns. U S West and the Washington Commission
     propose that universal service support be targeted to smaller
     geographic areas than UNE zones.[^483] We recognize that targeting
     interstate access universal service support to levels more
     geographically deaveraged than the UNE zone level could, in theory,
     provide a more precise means of distributing universal service
     support than under the CALLS Proposal.[^484] The distribution
     methodology in the interstate access support mechanism proposed by
     CALLS, however, cannot be viewed in isolation. Rather, it is but
     one piece of a larger effort at comprehensive reform for interstate
     access charges and universal service. The decision to deaverage
     interstate access universal service support to the UNE zone is
     directly linked to deaveraging SLCs to the UNE zone and the
     UNE-zone pricing requirements of the Commission's rules. Altering
     the interstate access universal service distribution methodology to
     accomplish a greater degree of geographic deaveraging would create
     dissonance between the universal service and access charge reforms
     achieved by the CALLS Proposal, which, taken as a whole, are
     reasonable.

212. U S West further argues that the distribution mechanism is not
     predictable because any change in UNE deaveraging will shift the
     allocation of universal service support among support
     recipients.[^485] U S West maintains that such volatility in a
     universal service distribution methodology violates the 1996 Act's
     principle of predictability. We disagree. We do not believe that
     the statutory principle of predictability necessitates the level of
     certainty or permanence that U S West appears to be seeking.
     Support amounts provided under all of our universal service support
     mechanisms are intentionally subject to change to some degree,
     depending on the variables used to calculate support (*e.g*., line
     counts, costs reported by carriers, UNE rates, etc.). This dynamic
     feature of our support mechanisms is necessary to ensure that
     support is provided in amounts commensurate with the recipient's
     needs. Although support amounts may change as the underlying
     variables change, the amounts are predictable because support can
     be precisely determined based on a given set of variables.
     Moreover, we do not expect that states will adjust their UNE zones
     so often and by such great magnitudes that the changes would render
     the interstate access universal service support mechanism
     unpredictable. Furthermore, U S West, and any other concerned
     carriers, can work with state commissions to address their concerns
     about fixing UNE zone rates.

213. MCI argues that the distribution formulas should be adjusted to
     target support in greater proportion to areas that have higher
     multi-line business SLCs, rather than to areas that have lower
     multi-line business PICCs.[^486] While MCI's approach would lead to
     lower average multi-line business PICC rates sooner, multi-line
     business PICC rates will fall dramatically in any event under the
     CALLS Proposal.[^487] Thus, we find no reason to adjust the
     distribution methodology based on MCI's claims.

#### Lifeline

##### Background

214. The Commission's Lifeline Assistance program provides federal
     universal service support to reduce the monthly service charges
     paid by qualifying low-income customers. There are three tiers of
     federal Lifeline support that provide up to a maximum of \$7.00 of
     support.[^488] The first tier is the federal baseline Lifeline
     support amount of \$3.50 per qualifying low-income consumer,[^489]
     which is designed to offset the SLC, currently capped at \$3.50. If
     the state commission in a particular state approves an additional
     reduction of \$1.75 in the amount paid by consumers, a second tier
     of federal Lifeline support in the amount of \$1.75 is made
     available to the carrier providing Lifeline service to that
     customer.[^490] Finally, a third tier of up to \$1.75 in federal
     support is available to match 50 percent of any additional state
     support.[^491]

215. The CALLS Proposal would increase Lifeline support for low-income
     consumers to offset the increase to the residential SLC cap. Under
     the CALLS Proposal, the first tier of Lifeline support equals the
     tariffed rate in effect for the primary residential end-user common
     line charge for qualifying low-income consumers.[^492] Today,
     Lifeline consumers pay no SLC, but must pay IXC-billed PICC
     recovery charges, unless the IXC voluntarily waives that fee. Under
     the CALLS Proposal, the entire SLC is waived through a modification
     of first-tier Lifeline support, and the residential PICC is
     eliminated.[^493] The CALLS Proposal also provides that Lifeline
     customers will not be assessed universal service charges by price
     cap LECs.[^494]

##### Discussion

216. We adopt the CALLS Proposal that any increase in the SLC be
     accompanied by a corresponding increase to the first tier of
     federal Lifeline support by the amount necessary to cover any
     increase in the SLC. Such an increase in support is consistent with
     the principles of the 1996 Act as outlined in our *Universal
     Service First Report and Order* because it will provide sufficient
     support to ensure that qualifying low-income consumers have access
     to telecommunications services at affordable and reasonably
     comparable rates.[^495] Without such an increase in Lifeline
     support, the CALLS Proposal would negatively and disproportionately
     affect low-income subscribers by increasing the cost of basic
     telephone service. Consistent with the Commission's decision in the
     *Universal Service First Report and Order*, this first-tier
     Lifeline support shall be available to any eligible
     telecommunications carrier serving a qualifying low-income
     consumer, regardless of whether the carrier charges a SLC or is a
     CALLS signatory.[^496] As the Commission stated in the *Universal
     Service First Report and Order*, an incumbent LEC's SLC is a
     reasonable proxy for the interstate portion of other eligible
     telecommunications carriers' costs, and providing first-tier
     Lifeline support to all eligible telecommunications carriers is a
     competitively neutral way to encourage such carriers to serve
     qualifying low-income consumers.[^497] We estimate that the
     increased Lifeline support associated with the CALLS Proposal will
     be approximately \$60 million in the first year of the plan and
     will gradually increase to approximately \$125 million in the fifth
     year of the plan.[^498]

217. Some commenters question whether the increase in tier-one Lifeline
     support under the CALLS Proposal would be offset by changes to
     other tiers of Lifeline program. Other commenters question whether
     the increase in Lifeline support is included in the \$650 million
     interstate access universal service support mechanism, or whether
     the increase in Lifeline support is separate from and in addition
     to the \$650 million support mechanism. We clarify that tier-one
     Lifeline support proposed by CALLS does not affect the other tiers
     of Lifeline support and is not part of the \$650 million interstate
     access universal service support mechanism.[^499] The additional
     Lifeline support required by CALLS will be collected and disbursed
     through the normal operation of the Commission's universal service
     contribution methodology, which, consistent with section 254 of the
     Act, assesses contributions on all interstate telecommunications
     carriers.

#### LEC Recovery of Universal Service Contributions

##### Background 

218. The CALLS Proposal provides that as of July 1, 2000, price cap LECs
     will establish a separate rate element (*e.g*., line item) to
     recover all contributions to the universal service support
     mechanisms.[^500] The CALLS Proposal allows a price cap LEC to
     assess this rate element on a per-line basis or as a percentage of
     interstate end-user revenues, and, at the option of the carrier, it
     may be combined for billing purposes with other end-user rate
     elements.[^501] As discussed above, the LEC members of CALLS have
     agreed not to assess universal service charges on Lifeline
     customers. Upon implementation of the interstate access universal
     service support mechanism, price cap LECs will make a corresponding
     exogenous adjustment to remove recovery of their universal service
     contributions from price cap baskets at the same percentage
     adjustment as they went into the price cap baskets.[^502]

##### Discussion 

219. We find that the CALLS method for LEC recovery of universal service
     contributions is reasonable and consistent with the Act, Commission
     precedent, and the Fifth Circuit decision in *TOPUC v. FCC*.[^503]
     We reject the claim of commenters that the CALLS plan violates
     section 254(d) of the Act by eliminating price cap LECs'
     contributions to universal service insofar as the plan provides
     that incumbent LECs may recover universal service contributions
     through an end-user charge.[^504] This argument misreads the Act,
     ignores the Fifth Circuit's decision in *TOPUC v. FCC*, and is
     contrary to our *Universal Service Eighth Report and Order*.
     Section 254(d) simply states that "\[e\]very telecommunications
     carrier that provides interstate telecommunications services shall
     contribute, on an equitable and nondiscriminatory basis, to the
     specific, predictable, and sufficient mechanisms established by the
     Commission to preserve and advance universal service." Nothing in
     section 254(d) prohibits any telecommunications carrier from
     recovering its universal service contributions from its customers.

220. In *TOPUC v. FCC*, the Fifth Circuit emphasized, based on section
     254(e), that the Commission should not require incumbent LECs to
     recover their universal service contributions from access
     charges.[^505] In response to the Fifth Circuit's decision, in the
     *Universal Service Eighth Report and Order*, the Commission
     permitted incumbent LECs to recover universal service contributions
     through an explicit line-item charge to end users.[^506] Because
     the CALLS plan permits, but does not require, an incumbent LEC to
     recover contributions through an explicit line-item charge to end
     users, it is consistent with Commission precedent and the *TOPUC v.
     FCC* decision. We, therefore, reject the assertion that allowing
     price cap LECs to recover universal service contributions through
     end-user charges violates section 254(d) of the Act.

221. Other commenters argue that we should require that price cap LECs
     recover their universal service contributions through a flat-rated
     per-line charge, rather than as a percentage charge applied to the
     interstate revenues derived from each customer.[^507] According to
     these commenters, because price cap LECs still possess market
     power, the Commission cannot rely on market forces to discipline
     the price cap LECs' universal service contribution recovery
     practice.[^508] Alternatively, these commenters argue that price
     cap LECs should only be permitted to recover universal service
     costs through a flat-rated charge because such costs are
     non-traffic sensitive.[^509] In the *Universal Service Eighth
     Report and Order*, we decided to provide price cap LECs some
     flexibility to determine how they recover their contributions to
     the universal service support mechanisms from their customers,
     provided that they provide accurate and truthful information about
     the nature of the charge imposed and that they do not shift more
     than an equitable share of their contributions to any customer or
     group of customers.[^510] We believe that permitting price cap LECs
     to recover their universal service contributions as either a
     flat-rated charge, or as a percentage of interstate revenues, is
     consistent with our earlier determination to allow price cap LECs
     some flexibility in how they recover their universal service
     contributions. We therefore reject suggestions that we should
     further restrict a price cap LEC's recovery of its universal
     service contributions. As we have cautioned previously, however, we
     will not hesitate to take action on a case-by-case basis against
     carriers that impose unjust or unreasonable line item
     charges.[^511]

#### Implementation

##### Background

222. Under our existing rules, the administrator of the universal
     service support mechanisms, USAC, submits estimated universal
     service support requirements to the Commission approximately two
     months before the beginning of each quarter.[^512] The Commission
     uses those estimated support requirements to establish a
     contribution factor, which it announces approximately one month
     before the beginning of each quarter.[^513] USAC then uses the
     contribution factor to bill contributors and collect the
     appropriate amount of contributions to fund all of the universal
     service support mechanisms.[^514]

223. The CALLS Proposal for an interstate access universal service
     support mechanism that we adopt today does not change the current
     universal service contribution methodology. Rather, it simply adds
     the new mechanism to the existing methodology. Thus, in addition to
     the support requirements of the existing support mechanisms for
     high-cost, low-income, schools and libraries, and rural health
     care, USAC will submit estimated support requirements for the
     interstate access support mechanism, and the quarterly contribution
     factor will reflect those additional support requirements. The
     quarterly contribution factor also will reflect the increased
     Lifeline support required as a result of the increased SLC caps
     under the CALLS Proposal.

224. As discussed below, in order for USAC to calculate and distribute
     interstate access universal service support, eligible
     telecommunications carriers seeking support will be required to
     file certain line counts and other data on a regular basis.
     Additionally, because of the short time period before the July 1,
     2000 implementation of the access charge and universal service
     reforms adopted in this Order, certain adjustments to the regular
     filing schedule will be necessary during the initial period of
     operation for the interstate access universal service support
     mechanism. In adopting these reporting requirements, we have
     attempted to minimize the reporting burdens on support recipients,
     while at the same time ensuring that we have sufficient information
     to enable the proper calculation and distribution of interstate
     access universal service support.

##### Discussion

225. We agree with CALLS that the interstate access universal service
     support mechanism should be administered by USAC and collected in
     the same manner as the Commission's other universal service support
     mechanisms. No commenters objected to this aspect of the CALLS
     Proposal. We, therefore, make the following changes to our rules to
     facilitate implementation of the CALLS Proposal.

226. *Fund Administration*. We direct USAC to serve as the administrator
     for the interstate access universal service support
     mechanism.[^515] The interstate access universal service support
     mechanism shall be administered by USAC's High Cost and Low Income
     Division under the direction of the High Cost and Low Income
     Committee of the USAC Board.[^516] USAC shall keep separate
     accounts for the amounts of money collected and disbursed for
     interstate access universal service support,[^517] and USAC shall
     account for and recover the administrative expenses that it incurs
     in connection with administering the interstate access universal
     service support mechanism.[^518]

227. *Line Counts*. As specified in the rules listed in Appendix B, each
     eligible telecommunications carrier that is providing service
     within an area served by a price cap LEC in a particular study area
     and wishes to receive support must submit to USAC on the last
     business day of March, June, September, and December of each year
     data showing the number of lines it served in that study area as of
     the last business day of the previous quarter.[^519] The line
     counts must be assigned to UNE Zones if UNE Zones have been
     established within that study area. This line count information
     must also show residential/single-line business line counts
     separate from multi-line business line counts.[^520] The
     residential/single-line business lines reported include single and
     non-primary residential lines, single-line business lines, basic
     rate interface (BRI) integrated services digital network (ISDN)
     service, and other related residence class lines. Similarly, the
     multi-line business class lines reported include multi-line
     business, centrex, ISDN primary rate interface (PRI) and other
     related business class lines.[^521]

228. *Other Data*. In addition to line count information, price cap
     LECs[^522] must file on June 30, 2000, October 15, 2000, April 16,
     2001 and annually after that, the following information: (1)
     Average Price Cap CMT Revenue Per Line Per Month for each price cap
     LEC study area;[^523] (2) the rates established for UNE Loops[^524]
     and UNE Line Ports by UNE Zone in those study areas where UNE Zones
     have been established; and (3) the boundaries of each UNE Zone
     within each price cap study area.[^525]

229. *First Year Implementation*. In order to implement interstate
     access support on July 1, 2000, certain adjustments must be made to
     the reporting schedule described above. First, we direct USAC to
     file with the Commission no later than June 5, 2000, a supplement
     to its third quarter 2000 filing, revising its estimate of the
     universal service support requirements in light of our action in
     this proceeding. This supplement should account for the additional
     support necessitated by the interstate access support mechanism as
     well as additional Lifeline support. To prevent fluctuations in the
     contribution factor and ensure a uniform collection of
     contributions, we direct USAC to estimate support requirements in
     its supplemental filing for the third quarter of 2000 as if all
     carriers potentially eligible for interstate access support will
     file to receive such support. In the event that not all eligible
     carriers ultimately seek such support, USAC shall apply any surplus
     contributions to reduce future collection requirements.

230. In early June, 2000, based on USAC's supplemental filing, we will
     release a Public Notice announcing the third quarter contribution
     factor.[^526] On or before June 30, 2000, all eligible
     telecommunications carriers seeking interstate access universal
     service support shall file the applicable line counts and other
     data necessary to calculate interstate access support. On or around
     August 2, 2000, USAC shall file with the Commission estimated
     universal service support requirements for the fourth quarter. In
     early September 2000, we will release a Public Notice announcing
     the fourth quarter contribution factor. On or around September 29,
     2000, USAC will disburse July and August interstate access support
     based on each eligible telecommunications carriers' June 30, 2000
     line counts.[^527] Thereafter, USAC will distribute interstate
     access support in accordance with its regular disbursement
     schedule, with one exception discussed below. Because a price cap
     LEC will not know precisely how much interstate access universal
     service support it will receive until September 2000, we shall
     allow such a carrier to make a good faith estimate of the amount of
     interstate access universal service support it likely will receive
     for purposes of our June 16, 2000 tariff filing. Carriers filing
     good faith estimates shall true-up their tariffs once the amount of
     their interstate access universal service support is known.

231. Because of the timing of this Order, we believe that it is in the
     public interest to provide eligible telecommunications carriers
     other than price cap LECs with additional time to gather third
     quarter line count information in order to take advantage of the
     portability of interstate access support. Therefore, in the event
     that such eligible telecommunications carriers cannot meet the June
     30, 2000 line count reporting deadline, we shall allow these
     eligible telecommunications carriers to file their March 30, 2000
     line counts on September 29, 2000, and receive interstate access
     support for the third quarter of 2000 retroactively.

232. *Section 254(e) Certification*. Section 254(e) provides that a
     carrier receiving universal service support must use that support
     "only for the provision, maintenance, and upgrading of facilities
     and service for which the support is intended."[^528] In the
     *Universal Service Ninth Report and Order*, we set forth rules
     requiring a state that wishes to receive federal universal service
     high-cost support for non-rural carriers within its territory to
     file a certification with the Commission stating that all federal
     high-cost funds flowing to non-rural carriers in such state will be
     used in a manner consistent with section 254(e).[^529] Because the
     *Universal Service Ninth Report and Order* addressed federal
     universal service support for intrastate rates, we required states
     to file a certification of section 254(e) compliance with the
     Commission because states have jurisdiction over rates for
     intrastate services. In this Order, we address federal support for
     interstate rates, a matter over which the Commission has
     jurisdiction. Thus, to ensure that carriers receiving interstate
     access universal service support will use that support in a manner
     consistent with section 254(e), we shall require carriers seeking
     such support to file a certification with the Commission and
     USAC.[^530] This certification is applicable to price cap LECs and
     eligible telecommunications carriers seeking support from our
     interstate access universal service mechanism. The certification
     shall be filed with the Commission and USAC at the same time a
     carrier files its first set of line count data with USAC.[^531]
     Such certification shall be filed in CC Docket No. 96-45 annually
     thereafter on June 30^th^.[^532] The certification may be filed in
     the form of a letter and must state that the carrier will use its
     interstate access universal service support only for the provision,
     maintenance, and upgrading of facilities and service for which the
     support is intended.[^533] Carriers that fail to abide by this
     certification, or otherwise violate section 245(e), shall be
     subject to enforcement action by the Commission.

### Consultation with Joint Board

233. We wish to point out that our actions today are consistent with our
     obligation under the 1996 Act to consult with the Joint Board, and
     are based on the recommendations that we have received from the
     Joint Board throughout our universal service proceedings. In
     response to the Commission's latest request for input on access
     charge and universal service reform,[^534] the state members of the
     Joint Board filed comments on the CALLS Proposal.[^535] We value
     these suggestions and insights from our state colleagues, and we
     have responded to their comments in the appropriate sections of
     this Order.[^536] We look forward to continued consultation and
     cooperation with the Joint Board in the future as we reform other
     aspects of our universal service support mechanisms in light of
     developments in the increasingly competitive telecommunications
     marketplace.

## Low-Volume Long-Distance Proceeding

### Introduction

234. We initiated an inquiry last summer to ensure that all Americans
     were benefiting from the Commission's pro-competitive
     reforms.[^537] We were prompted to do so when a number of
     individuals and consumer groups questioned whether consumers who
     make few interstate long-distance calls were benefiting to the same
     degree as high-volume users from the Commission's access charge and
     universal service reforms. In that proceeding we sought comments
     from consumers and carriers alike.[^538] Our primary focus
     concerned the impact of certain flat fees that interstate
     long-distance companies had begun charging consumers.

235. The CALLS Proposal will, among other things, benefit low-volume
     long-distance callers by eliminating some of these flat fees, and
     making others avoidable. Although we decline to reach the question
     whether the flat charges at issue in the Notice of Inquiry are
     unreasonable, inequitable, or inconsistent with the Act, we
     conclude that the elimination or avoidability of these charges
     moots the factual premise that prompted us to begin the low-volume
     investigation. In light of our adoption today of the CALLS
     Proposal, we are confident, for the reasons described below, that
     the needs of all consumers will be served by the industry, and that
     low-volume users will share in the benefits of the Commission's
     pro-competitive telecommunication reforms. Thus, we have resolved
     the issues raised by the low-volume long-distance inquiry, and
     bring that proceeding to a close.

### Notice of Inquiry

236. After we adopted our access charge and universal service reforms,
     interstate long-distance providers began assessing new flat fees on
     their end users. AT&T, for example, began charging a \$3.00 minimum
     usage fee that customers are required to pay even if they made no
     long-distance calls in a month.[^539] Similarly, MCI charged its
     basic-rate customers either a \$5.00 or a \$3.00 minimum, depending
     upon when they had initiated their service with MCI.[^540]
     According to these long-distance carriers, the charges were
     intended to recover the costs they incurred in maintaining separate
     account and billing records for their customers.[^541]

237. AT&T, MCI, and Sprint also began charging their residential
     customers a flat, averaged, monthly charge designed to recover the
     PICC that the long-distance carriers were paying regulated local
     carriers. As of August 1, 1999, the charges AT&T, MCI, and Sprint
     were charging were \$1.51, \$1.46, and \$1.50, respectively.[^542]
     These charges exceeded the \$1.04 the carriers actually were
     assessed for residential customers with just one line. In addition,
     AT&T began to recover some of its contributions to the high-cost
     universal service support mechanism,[^543] as well as the
     contributions that regulated local carriers flowed-through to AT&T,
     through a flat charge of 93 cents per month.[^544] AT&T did so even
     though carrier contributions to the universal service support
     mechanism are calculated based on a percentage of a carrier's
     interstate and international end-user revenues.[^545] By November
     2, 1999, AT&T had increased this fee to \$1.38.[^546]

238. As a result of these flat charges, a number of individuals and
     consumer groups questioned whether end users who make few
     long-distance calls were benefiting to the same degree as
     high-volume users from the Commission's access charge and universal
     service reforms. Some argued that customers who make few
     long-distance calls have seen their bills go up, despite the
     reduction in per-minute charges. Consequently, on July 20, 1999, we
     commenced a proceeding seeking comments regarding the impact of
     flat charges on those consumers who make few or no long-distance
     calls. [^547] We asked whether minimum usage fees and other flat
     charges imposed on consumers who make few long-distance calls are a
     reasonable result of competitive market dynamics and the removal of
     implicit subsidies, or whether they warrant regulatory
     intervention.[^548]

239. We asked for comments on a number of possible courses of action.
     One proposal was to rely on competition\--including that resulting
     from dial-around services[^549] and entry into long-distance
     service by regulated local telephone companies[^550]\--to provide
     services suitable to the needs of low-volume residential
     customers.[^551] This proposal was supported by both long-distance
     and regulated local telephone companies.[^552]

240. Another proposal, supported mostly by consumer groups and local
     telephone companies, was to rely on direct regulatory
     intervention.[^553] For instance, we asked whether the Commission
     should require regulated local carriers to bill end users directly,
     rather than long-distance carriers, or require carriers to combine
     into a single line item the charges associated with all of our
     pro-competitive reforms.[^554] Another possibility was to require
     some or all long-distance carriers to maintain rate plans that do
     not include a minimum monthly charge.[^555] Additionally, we asked
     whether the Commission should require all or some subset of
     long-distance carriers to pass through to their low-volume
     customers a specific portion of the cost savings they have received
     as a result of access charge reform.[^556] Another option was to
     set a maximum percentage by which low-volume rates may exceed
     high-volume rates.[^557] Several local telephone companies and
     consumer advocates also supported requiring long-distance carriers
     to recover the charges regulated local carriers assess on them as a
     percentage of the end user's bill, capped at a certain dollar
     level.[^558]

241. We also requested comment on whether efforts by the Commission,
     states, carriers, and consumer groups to educate consumers
     regarding choices they can exercise in the marketplace could reduce
     or eliminate the need for additional regulation.[^559] Finally, we
     asked whether there were any particular enforcement actions that
     the Commission should take.[^560] Several commenters suggested that
     the Commission increase its enforcement efforts against carriers
     that recover more than their share of costs, or regulate the way in
     which carriers characterize their fees.[^561]

### Discussion

242. The CALLS Proposal addresses most of the concerns raised by, and on
     behalf of, low-volume consumers, and may save customers who make no
     long-distance calls as much as \$4.00 to \$5.00 per month in flat
     fees. In view of our decision to adopt the CALLS Proposal, we find
     that other regulatory intervention is not warranted at this time,
     and would not serve the public interest. The record before us
     indicates that the competitive marketplace the Commission is
     fostering is increasingly responsive to the needs of all consumers,
     including low-volume users. Consequently, we conclude that we have
     resolved the issues raised in the low-volume long-distance
     proceeding.

243. A number of carriers have agreed to offer long-distance plans with
     no monthly minimum charges. As part of the CALLS Proposal, for
     example, AT&T has pledged to offer for at least three years\--and
     possibly as long as five\--a basic residential plan that has no
     monthly recurring charge and no minimum usage requirement.[^562]
     Sprint has also committed to offering at least one basic rate plan
     without a minimum usage fee for the duration of the CALLS
     plan.[^563] Now that we have approved Bell Atlantic's application
     to provide long-distance service in New York,[^564] Bell Atlantic
     has also targeted two long-distance plans to residential,
     low-volume users by eliminating minimum use charges.[^565] As of
     May 1, 2000, MCI, which has not signed on to the CALLS Proposal,
     also began a plan that has no monthly minimum charges.[^566] Thus,
     more than eighty percent of long-distance users will have plans
     available to them with no monthly minimums.

244. The CALLS plan will also eventually combine the SLC and the PICC on
     the first line for residential end users, avoiding the concerns
     raised by the long-distance carriers' pass-through of the
     PICC.[^567] In addition, both long-distance carriers and local
     service providers will bill their customers directly for their
     universal service costs, eliminating the similar flow-through
     problem. AT&T has also implemented changes to eliminate its flat
     \$1.38 universal service charge. Instead, effective April 1, 2000,
     it is assessing a fee that is based on a percentage of the
     customer's long-distance bill.[^568] AT&T made this change, in
     part, because of our investigation of its flat universal service
     fee.[^569] MCI and Sprint were already assessing universal service
     fees on a percentage basis.[^570]

245. Thus, under the CALLS plan, AT&T's Basic Schedule customers who
     make no long-distance calls will see their flat fees cut almost in
     half. Previously, such a customer would have paid a \$3.50 SLC, a
     \$1.51 PICC pass-through, a \$1.38 universal service charge, and a
     \$3.00 minimum use fee, for a total of \$9.39.[^571] According to
     CALLS' estimates, that customer will now pay \$4.35 for the SLC and
     \$0.36 for universal service, for a total of \$4.71.[^572] Perhaps
     more significantly, this means that customers who make no
     long-distance calls will pay nothing to their long-distance
     carriers. We conclude, therefore, that our adoption of CALLS,
     evidence that low-volume users are starting to benefit from the
     competition resulting from Commission reforms, and our existing
     regulatory authority eliminate the need to continue the *Low-Volume
     Long-Distance Users NOI* proceeding. We remind carriers, however,
     of our statutory authority to investigate any charges that appear
     unlawful.[^573] As we have cautioned previously, we will not
     hesitate to take action on a case-by-case basis against carriers
     that impose unjust or unreasonable line-item charges. We also will
     monitor the effect of the CALLS Proposal on consumers.

246. Our decision to adopt the CALLS Proposal, and to conclude the
     low-volume inquiry, is based in large part on the availability of
     interstate long-distance plans that meet the needs of low-volume
     users. Sprint and AT&T have committed to making such plans
     available in their support for the CALLS Proposal. They each have
     said, for example, that they will eliminate their PICC pass-through
     charges for residential and single-line business customers, offer
     at least one basic rate plan that does not contain minimum usage
     charges, freeze the per-minute rates on certain plans, and flow
     through their access charge savings to residential and business
     customers.[^574] We expect the IXCs will pass through these access
     charge reductions in a manner that benefits both residential and
     business customers. Sprint and AT&T have also committed to
     informing their residential customers of the various plans they
     offer for long-distance services.[^575]

247. We find the commitments of Sprint and AT&T to be in the public
     interest because they will help ensure that low-volume users of
     long-distance service share in the benefits of the 1996
     Telecommunications Act and the pro-competitive reforms that the
     Commission has adopted. Because we have made the rate structure
     components of the CALLS Proposal mandatory for all price cap LECs,
     and the rate levels mandatory for at least an interim period,
     Sprint and AT&T will in fact receive the benefits provided by the
     CALLS Proposal. Specifically, their switched access usage charges
     will be reduced by their proportionate share of \$2.1 billion, and
     the residential and single-line business PICCs will be eliminated.
     Consequently, we order Sprint and AT&T to comply with all the
     voluntary commitments they made in their respective February 25,
     2000, and March 30, 2000, letters.[^576] If they fail to do so, the
     carriers may be subject to any of the remedies available under the
     Act, including fines, forfeitures, or the rejection of any
     non-conforming rates.

248. In its revised submission to the Commission, the Coalition as a
     whole committed to working with the Commission's Consumer
     Information Bureau to develop a consumer education plan.[^577] This
     plan must focus on educating consumers about important issues
     related to long-distance and local phone pricing and service. These
     markets are changing at an ever-accelerating rate; education by
     CALLS members will empower consumers to make better-informed
     decisions.

249. This education plan will entail informing consumers how they can
     best inventory their long-distance and local service needs, and
     choose the most appropriate calling plan. The education plan will
     promote available government programs that assist low-income
     consumers in obtaining telephone service. Finally, CALLS will
     create programs and materials to educate consumers on how to
     understand their phone bills.[^578] Consumer education plan
     materials must be made available in alternative formats and
     languages, in order to reach the maximum number of consumers.

250. Not later than 90 days after the effective date of this order,
     CALLS members must submit to the Consumer Information Bureau a
     compliance statement detailing the actions taken to fulfill their
     consumer education plan, as well as further public education
     efforts they will take over the life of the CALLS plan.

# PROCEDURAL ISSUES

## Final Regulatory Flexibility Analysis

251. As required by the Regulatory Flexibility Act (RFA),[^579] an
     Initial Regulatory Flexibility Analysis (IRFA) was incorporated in
     the *CALLS NPRM*,[^580] and revised in the Public Notice requesting
     comment on the modified CALLS Proposal.[^581] The Commission sought
     written public comment on the proposals in the CALLS NPRM and the
     CALLS Proposal, including comments on the IRFAs. This present Final
     Regulatory Flexibility Analysis (FRFA) conforms to the RFA, as
     amended.[^582] To the extent that any statement in this FRFA is
     perceived as creating ambiguity with respect to our rules or
     statements made in preceding sections of this Order, the rules and
     statements set forth in those preceding sections shall be
     controlling.

### Need for and Objectives of this Order

252. The CALLS members offer the proposal as a comprehensive solution to
     the members\' access charge, universal service, and price cap
     concerns. The CALLS plan would revise the current system of common
     line charges by combining existing carrier and subscriber charges
     into one flat‑rated subscriber line charge (SLC), and would provide
     for limited deaveraging of those charges under specific conditions.
     The CALLS plan also would establish an interstate access universal
     service support mechanism that provides explicit support to replace
     support currently implicit in interstate access charges. In
     addition, the CALLS plan calls for annual reductions in traffic
     sensitive switching access rates until they reach a specified
     level.

253. As stated in Section III above, we believe that the CALLS Proposal
     is in the public interest, and so adopt it to the extent discussed
     in this Order. This Order agrees with the CALLS members that the
     CALLS Proposal is the result of certain segments of the
     telecommunications industry developing a comprehensive approach to
     resolve outstanding issues concerning access charges and universal
     service. By adopting the CALLS Proposal, this Order will result in
     lower rates for both low-volume and high-volume long-distance
     consumers, more competition, greater flexibility for price cap LECs
     to meet competition, and an explicit, portable interstate access
     universal service support mechanism. It is the CALLS Proposal's
     comprehensive solution of historically contentious issues that
     allows the Commission to take these actions while ensuring that
     consumers in high-cost areas will continue to have affordable
     service.[^583]

### Summary of Significant Issues Raised by the Public Comments in Response to the IRFA

254. The Commission received no comments addressing the IRFA. We did,
     however, receive some general small-business-related comments. Some
     commenters request that the CALLS Proposal require a proportionate
     share of the agreed upon local switching rate reductions to come
     from tandem-switched rates. Other commenters argue that the CALLS
     Proposal should have a separate X-factor for mid-size price cap
     incumbent LECs. These comments are addressed in detail in this
     Order,[^584] and are summarized in subsection 5 of the FRFA,
     *infra*.

### Description and Estimate of the Number of Small Entities to Which the Rules Will Apply

255. The RFA directs agencies to provide a description of, and, where
     feasible, an estimate of the number of small entities that may be
     affected by the proposed rules, if adopted.[^585] The Regulatory
     Flexibility Act defines the term "small entity" as having the same
     meaning as the terms "small business," "small organization," and
     "small business concern" under section 3 of the Small Business
     Act.[^586] A small business concern is one which: (1) is
     independently owned and operated; (2) is not dominant in its field
     of operation; and (3) satisfies any additional criteria established
     by the SBA.[^587]

256. The SBA has defined a small business for Standard Industrial
     Classification (SIC) category 4813 (Telephone Communications,
     Except Radiotelephone) to be a small entity that has no more than
     1500 employees.[^588]

     [Total Number of Telephone Companies Affected]{.underline}.

257. *Price Cap Local Exchange Carriers*. The Commission does not have
     data specifying the number of these carriers that are either
     dominant in their field of operations, are not independently owned
     and operated, or have more than 1,500 employees, and thus is unable
     at this time to estimate with greater precision the number of price
     cap LECs that would qualify as small business concerns under the
     SBA\'s definition. However, there are currently only 13 price cap
     LECs, four of which share common ownership.[^589] Consequently,
     significantly fewer than 13 providers of local exchange service are
     estimated to be small entities or small price cap LECs that may be
     affected by these proposals. We have included small price cap LECs
     in this present RFA analysis. As noted above, a \"small business\"
     under the RFA is one that, *inter alia*, meets the pertinent small
     business size standard (*e.g.*, a telephone communications business
     having 1,500 or fewer employees), and \"is not dominant in its
     field of operation.\"[^590] The SBA\'s Office of Advocacy contends
     that, for RFA purposes, small price cap LECs are not dominant in
     their field of operation because any such dominance is not
     \"national\" in scope.[^591] We have therefore included small price
     cap LECs in this RFA analysis, although we emphasize that this RFA
     action has no effect on FCC analyses and determinations in other,
     non-RFA contexts.

258. *Competitive Local Exchange* *Carriers*. Neither the Commission nor
     the SBA has developed a definition of small providers of local
     exchange service. The closest applicable definition under SBA rules
     is for telephone telecommunications companies other than
     radiotelephone (wireless) companies.[^592] The most reliable source
     of information regarding the number of competitive LECs nationwide
     of which the Commission is aware appears to be the data that the
     Commission collects annually in connection with the
     Telecommunications Relay Service (TRS). According to the
     Commission's most recent data, 129 companies reported that they
     were engaged in the provision of either competitive access provider
     services or competitive local exchange carrier services.[^593] The
     Commission does not have data specifying the number of these
     carriers that are either dominant in their field of operations, are
     not independently owned and operated, or have more than 1,500
     employees, and thus is unable at this time to estimate with greater
     precision the number of competitive LECs that would qualify as
     small business concerns under the SBA's definition. Consequently,
     the Commission estimates that fewer than 129 providers of local
     exchange service are small entities or small competitive LECs that
     may be affected by these proposals.

### Description of the Projected Reporting, Recordkeeping, and Other Compliance Requirements

259. It is not clear whether, on balance, the CALLS Proposal will
     increase or decrease price cap incumbent local exchange carriers\'
     administrative burdens. Some of the rate structure reforms in the
     CALLS Proposal will require additional filings. In particular, the
     CALLS Proposal requires price cap LECs to file with the Universal
     Service Administration Corporation (USAC) additional information
     pertaining to line counts by zone and customer class, revenue data,
     and information regarding zone boundaries. Competitive LECs would
     also have to file with USAC line counts by zone and customer class.
     The filings are on a quarterly basis. On the other hand, other
     reforms in the CALLS Proposal, such as the elimination of the PICC,
     should reduce administrative burdens for price cap LECs. Finally,
     some of the reforms in the CALLS Proposal may have a neutral affect
     on administrative burdens. For example, under the CALLS Proposal,
     implicit subsidies now collected by price cap LECs from IXCs
     through access charges will be collected as explicit subsidies from
     USAC. This reform should neither increase nor decrease the
     administrative burden for price cap LECs.

### Steps Taken to Minimize Significant Economic Impact on Small Entities, and Significant Alternatives Considered

260. The proposals made by CALLS could have varying positive or negative
     impacts on price cap LECs, including any such small carriers. The
     alternative to consideration of adopting the CALLS Proposal at this
     time would be to continue in effect the existing access charge and
     universal service fund rules. Neither this alternative, nor any
     other identified by the Commission, would lessen the significant
     economic impact on small entities while remaining consistent with
     this Order's objectives.

261. Several commenters, while not directly responding to our IRFA, did
     raise general small-business-related concerns. Commenters concerned
     about protecting smaller IXCs in competition with large IXCs
     request that the CALLS Proposal require a proportionate share of
     the agreed upon local switching rate reductions to come from
     tandem-switched rates.[^594] This Order explains, however, that 1)
     competition in the long-distance market eliminates the need for
     rules protecting smaller IXCs, and 2) even if price cap LECs target
     their access rate reductions only to direct-trunked transport,
     these reductions should make direct-trunked transport an affordable
     alternative for smaller IXCs.[^595] Other commenters argue that the
     CALLS Proposal should have a separate X-factor for mid-size price
     cap incumbent LECs because these carriers are not able to achieve
     the same levels of productivity growth as larger LECs.[^596] As
     this Order explains, however, the X-factor adopted under the CALLS
     Proposal is not a productivity offset, but is merely a method to
     reduce traffic sensitive charges to the proposal's target
     level.[^597]

262. This Order makes two allowances for smaller price cap LECs. First,
     the Order allows a higher target access rate for smaller and rural
     price cap LECs. Whereas the target for the BOCs and GTE is set at
     0.55 cents, the target is 0.95 cents for small rural price cap LECs
     and 0.65 cents for the other smaller price cap LECs.[^598] Second,
     the Order allows mid-size price cap carriers with at least 20
     percent of total holding company lines serving statutorily rural
     areas to pool their access charge reductions and to temporarily
     recover them from sources other than residential end users and
     per-minute charges.[^599]

### Report to Congress

263. The Commission will send a copy of this Order, including this FRFA,
     in a report to be sent to Congress pursuant to the Small Business
     Regulatory Enforcement Fairness Act of 1996.[^600] In addition, the
     Commission will send a copy of this Order, including this FRFA, to
     the Chief Counsel for Advocacy of the Small Business
     Administration. A copy of this Order and FRFA (or summaries
     thereof) will also be published in the Federal Register.[^601]

## Paperwork Reduction Act

264. The action contained herein has been analyzed with respect to the
     Paperwork Reduction Act of 1995 and found to impose new or modified
     reporting and recordkeeping requirements or burdens on the public.
     Implementation of these new or modified reporting and recordkeeping
     requirements will be subject to approval by the Office of
     Management and Budget (OMB) as prescribed by the Act, and will go
     into effect upon announcement in the Federal Register of OMB
     approval.

# ORDERING CLAUSES

265. IT IS ORDERED, pursuant to sections 1, 4(i) and (j), 201-209,
     218-222, 254, and 403 of the Communications Act, as amended, 47
     U.S.C. §§ 151, 154 (i), 154(j), 201-209, 218-222, 254, and 403 that
     this Order IS HEREBY ADOPTED as described above.

266. We, therefore, ORDER that the Inquiry initiated in CC Docket 99-249
     is hereby TERMINATED. This action is taken pursuant to authority
     contained in Sections 4(i) and 303 of the Communications Act of
     1934, as amended, 47 U.S.C. §§ 4(i), 303.

267. IT IS FURTHER ORDERED that the Commission\'s Consumer Information
     Bureau, Reference Information Center, SHALL SEND a copy of this
     Order, including the Final Regulatory Flexibility Analysis, to the
     Chief Counsel for Advocacy of the Small Business Administration.

268. IT IS FURTHER ORDERED that the provisions in this Order SHALL BE
     EFFECTIVE immediately upon publication in the Federal Register.
     Pursuant to 5 U.S.C. § 553(d)(3), we find good cause exists to have
     the rules take effect immediately upon publication in the Federal
     Register. Local exchange carriers subject to price cap regulation
     must file access reform tariffs no later than June 16, 2000 in
     order for them to be effective by July 1, 2000, as required by
     Section 69.3 of the Commission\'s rules, 47 C.F.R. § 69.3. In
     addition, to ensure that the local exchange carriers subject to
     price cap regulation have actual notice of these rules immediately
     following their release, we are serving those entities by overnight
     mail. The collections of information contained within are
     contingent upon approval by the Office of Management and Budget.

     FEDERAL COMMUNICATIONS COMMISSION

     Magalie Roman Salas

Secretary

APPENDIX A

**Parties Filing Pleadings**[^602]

###### I. CALLS NPRM  {#i.-calls-nprm .unnumbered}

###### *A. Comments* {#a.-comments .unnumbered}

1.  Ad Hoc Telecommunications Users Committee (Ad Hoc)

2.  Alliance for Public Technology (APT)

3.  American Association of Retired Persons (AARP)

4.  American Petroleum Institute (API)

5.  Association For Local Telecommunications Services (ALTS)

6.  AT&T Corp. (AT&T)

7.  Cable and Wireless USA, Inc. (Cable & Wireless)

8.  California Public Utilities Commission (California Commission)

9.  Cincinnati Telephone Company (Cincinnati Bell)

10. Coalition for Affordable Local and Long Distance Service (CALLS)

11. Competition Policy Institute (CPI)

12. Competitive Telecommunications Assoc. (CompTel)

13. Florida Public Service Commission (Florida Commission)

14. General Services Administration (GSA)

15. State of Hawaii (Hawaii)

16. Intermedia Communications Inc. (Intermedia)

17. Texas -- Office of Public Utilities Counsel; Consumer Federation of
    America; and Consumer Union (Joint Consumer Commenters)

18. Level 3 Communications, LLC (Level 3)

19. Massachusetts Department of Telecommunications and Energy (Mass.
    DTE)

20. MCI WorldCom, Inc. (MCI)

21. National Association of Regulatory Utilities Commission (NARUC)

22. National Assoc. of State Utility Consumer Advocates (NASUCA)

23. National Rural Telecom Assoc. (NRTA) and National Telephone
    Cooperative Assoc. (NTCA) (NRTA/NTCA)

24. New Jersey Division of the Ratepayer Advocate (New Jersey Div.)

25. Oncor Communications, Inc. (Oncor)

26. One Call Communications, Inc. (One Call)

27. Pathfinder Communications, Inc. (Pathfinder)

28. Public Utilities Commission of Ohio (Ohio Commission)

29. Qwest Communications Corp. (Qwest)

30. SBC Communications, Inc. (SBC)

31. The Small Company Committee of Wisconsin State Telecommunications
    Assoc. (WSTA-SCC)

32. Smithville Telephone Company, Inc. (Smithville)

33. Telecommunication Resellers Assoc. (TRA)

34. Time Warner Telecom (Time Warner)

35. United States Telecom Association (USTA)

36. Washington Utilities and Transportation Commission (Washington
    Commission)

####### B. Reply Comments {#b.-reply-comments .unnumbered}

1.  Ad Hoc

2.  ALTS

3.  APT

4.  Bell Atlantic Telephone Companies (Bell Atlantic)

5.  BellSouth Corporation (BellSouth)

6.  Frank Bowe

7.  Cable & Wireless

8.  Cincinnati Bell

9.  CALLS

10. CPI

11. Florida Commission

12. GSA

13. GTE Service Corporation (GTE)

14. Harlem Consumer Education Council, Inc.

15. Illinois Commerce Commission (Illinois Commission)

16. Iowa Utilities Board (Iowa Board)

17. Joint Consumer Commenters

18. League of United Latin American Citizens

19. Level 3

20. Michigan Public Service Commission (Michigan Commission)

21. National Association for the Advancement of Colored People
    (Washington Bureau) (NAACP)

22. National Association of Development Organizations (NADO)

23. NASUCA

24. Oncor

25. One Call

26. Personal Communications Industry Assoc. (PCIA)

27. Sprint Corporation (Sprint)

28. Vermont Department of Public Service (Vermont Dept.)

29. Western Wireless Corporation (Western Wireless)

### II. *CALLS Public Notice* {#ii.-calls-public-notice .unnumbered}

**A. Comments**

1\. Ad Hoc

2\. Allegiance Telecom, Inc.

3\. ALTS and Time Warner

4\. American Public Communications Council (APCC)

5\. API

6\. APT

7\. California Commission

8\. CALLS

9\. Cincinnati Bell

10\. Citizens Utility Company (Citizens)

11\. CompTel

12\. CPI

13\. Enterprise Networking Technologies Users Association (ENTUA)

14\. Florida Commission

15\. Focal Communications Corporation (Focal)

16\. Global Crossing North America, Inc. (Global Crossing)

17\. Independent Telephone and Telecommunications Alliance (ITTA)

18\. Iowa Board

19\. Joint Consumer Commenters

20\. Level 3

21\. MCI

22\. Michigan Public Service Commission (Michigan Commission)

23\. Missouri Public Service Commission (Missouri Commission)

24\. Montana Public Service Commission (Montana Commission)

25\. NARUC

26\. NASUCA

27\. New Jersey Division of Ratepayer Advocate (New Jersey Div.)

28\. NTCA/NRTA

29\. Oncor

30\. One Call

31\. Public Utilities Commission of Texas (Texas Commission)

32\. Public Service Commission of Wisconsin (Wisconsin Commission)

33\. Qwest

34\. Rainbow/PUSH Coalition and Citizenship Education Fund

> (Rainbow/PUSH)

35\. Rural Independent Competitive Alliance (RICA)

36\. Shonah P. Jefferson

37\. State Members of the Federal-State Joint Board on Universal Service

> (Joint Board)

38\. TRA

39\. United States Hispanic Chamber of Congress

40\. USTA

41\. U S West Communications, Inc. (U S West)

42\. Valor Telecommunications Southwest, LLC (VALOR)

43\. Wyoming Public Services Commission (Wyoming Commission)

**B. Reply Comments**

1.  AARP

2.  Ad Hoc

3.  Allegiance

4.  ALTS and Time Warner

5.  APCC

6.  AT&T

7.  Bell Atlantic

8.  BellSouth

9.  CALLS

10. CompTel

11. CPI

12. Florida Commission

13. Focal

14. Global Crossing

15. GTE

16. ITTA

17. Indiana Commission

18. Maine Public Utilities Commission (Maine Commission), Massachusetts
    Dept., and Oregon Public Utilities Commission (Oregon Commission)
    (collectively, Maine Joint Commenters)

19. Maryland Commission

20. MCI

21. NASUCA

22. National Consumers League (NCL) and Consumer Action (CA)

23. National Hispanic Council on Aging (NHCA)

24. Eliot Spitzer, Attorney General of the State of New York (New York
    Atty. Gen.)

25. One Call

26. Smithville

27. Sprint

28. Telefónica Larga Distancia de Puerto Rico, Inc. (TLD)

29. United Seniors Health Cooperative (United Seniors)

30. U S West

31. VALOR

32. Washington Utilities and Transportation Commission (Washington
    Commission)

III\. *Low-Volume Notice of Inquiry Proceeding*

A. Comments

1.  AARP

2.  Ad Hoc

3.  Ameritech

4.  AT&T

5.  Bell Atlantic

6.  Bell South

7.  City of New York

8.  CompTel

9.  Excel Communications, Inc.

10. GSA

11. GTE

12. Congressman Baron P. Hill

13. Joint Consumer Commenters

14. Kentucky Payphone Assoc., Michigan Payphone Assoc., and Payphone
    Assoc. of Ohio (collectively, Kentucky Joint Commenters)

15. MCI

16. Michigan Commission.

17. Pennsylvania Office of Consumer Advocate, Maryland Office of
    People's Counsel, New Mexico Attorney General, Missouri Office of
    the Public Counsel, the Connecticut Office of Consumer Counsel, the
    New Hampshire Office of Consumer Advocate, the Washington D.C.
    Office of People's Counsel, and the Washington Office of Attorney
    General) (collectively, Joint Consumer Advocates)

18. Qwest

19. RTC

20. Sprint

21. The Utility Reform Network (TURN)

22. USTA

23. Wisconsin Public Service Commission (Wisconsin Commission)

## B. Reply Comments {#b.-reply-comments-1 .unnumbered}

1.  AT&T

2.  Bell Atlantic

3.  GTE

4.  Individual Commenters[^603]

5.  Joint Consumer Commenters

6.  MCI

7.  Pathfinder

8.  SBC

9.  TRA

10. TURN

APPENDIX B

**AMENDMENTS TO THE CODE OF FEDERAL REGULATIONS**

PART 54

##### Subpart E - Universal Service Support for Low-Income Consumers {#subpart-e---universal-service-support-for-low-income-consumers .unnumbered}

**§ 54.403 Lifeline support amount.**

\(a\) The federal Lifeline support amount for all eligible
telecommunications carriers shall equal:

(1) *Tier One.* The tariffed rate in effect for the primary residential
    End User Common Line charge of the incumbent local exchange carrier
    serving the area in which the qualifying low-income consumer
    receives service, as determined in accordance with § 69.104 or §§
    69.152(d)(1) and 69.152(q) of this chapter, whichever is applicable;

(2) *Tier Two*. If the state commission approves an additional reduction
    of \$1.75 in the amount paid by consumers, additional federal
    Lifeline support in the amount of \$1.75 will be made available to
    the carrier providing Lifeline service to that consumer; and

(3) *Tier Three*. Additional federal Lifeline support in an amount equal
    to one‑half the amount of any state Lifeline support will be made
    available to the carrier providing Lifeline service to a qualifying
    low‑income consumer if the state commission approves an additional
    reduction in the amount paid by that consumer equal to the state
    support multiplied by 1.5.

\(b\) For the qualifying low-income consumer, the federal Lifeline
support amount shall not exceed \$3.50 plus the tariffed rate in effect
for the primary residential End User Common Line charge of the incumbent
local exchange carrier serving the area in which the qualifying
low-income consumer receives service, as determined in accordance with §
69.104 or §§ 69.152(d)(1) and 69.152(q) of this chapter, whichever is
applicable. Eligible telecommunications carriers that charge federal End
User Common Line charges or equivalent federal charges shall apply Tier
One federal Lifeline support to waive Lifeline consumers\' federal End
User Common Line charges. Such carriers shall apply any additional
federal support amount to a qualifying low‑income consumer\'s intrastate
rate, if the state has approved of such additional support. Other
eligible telecommunications carriers shall apply Tier One federal
Lifeline support amount, plus any additional federal support amount, to
reduce their lowest tariffed (or otherwise generally available)
residential rate for the services enumerated in § 54.101(a)(1) through
(a)(9), and charge Lifeline consumers the resulting amount.

\(c\) Lifeline support for providing toll limitation shall equal the
eligible telecommunications carrier\'s incremental cost of providing
either toll blocking or toll control, whichever is selected by the
particular consumer.

**Subpart H---Administration**

**§ 54.701 Administrator of universal service support mechanisms.**

\(a\) The Universal Service Administrative Company is appointed the
permanent Administrator of the federal universal service support
mechanisms, subject to a review after one year by the Federal
Communications Commission to determine that the Administrator is
administering the universal service support mechanisms in an efficient,
effective, and competitively neutral manner.

\(b\) The Schools and Libraries Corporation and the Rural Health Care
Corporation shall merge into the Universal Service Administrative
Company by January 1, 1999; provided, however, that the merger shall not
take place until the Common Carrier Bureau, acting pursuant to delegated
authority, has approved the merger documents, the amended by‑laws, and
the amended articles of incorporation, as set forth in paragraphs (c)
and (d) of this section.

\(c\) By December 1, 1998, the Schools and Libraries Corporation, the
Rural Health Care Corporation and the Universal Service Administrative
Company shall file with the Federal Communications Commission draft
copies of all documents necessary to effectuate the merger.

\(d\) By December 1, 1998, the Universal Service Administrative Company
shall file with the Federal Communications Commission draft copies of
amended by‑laws and amended articles of incorporation.

\(e\) Upon consummation of the merger of the Schools and Libraries
Corporation and the Rural Health Care Corporation into the Universal
Service Administrative Company, the Schools and Libraries Corporation
and the Rural Health Care Corporation shall take all steps necessary to
dissolve such corporations.

\(f\) The Administrator shall establish a nineteen (19) member Board of
Directors, as set forth in § 54.703. The Administrator\'s Board of
Directors shall establish three Committees of the Board of Directors, as
set forth in § 54.705: (1) the Schools and Libraries Committee, which
shall oversee the schools and libraries support mechanism; (2) the Rural
Health Care Committee, which shall oversee the rural health care support
mechanism; and (3) the High Cost and Low Income Committee, which shall
oversee the high cost and low income support mechanism. The Board of
Directors shall not modify substantially the power or authority of the
Committees of the Board without prior approval from the Federal
Communications Commission.

\(g\) The Administrator shall establish three divisions: (1) the Schools
and Libraries Division, which shall perform duties and functions in
connection with the schools and libraries support mechanism under the
direction of the Schools and Libraries Committee of the Board, as set
forth in § 54.705(a); (2) the Rural Health Care Division, which shall
perform duties and functions in connection with the rural health care
support mechanism under the direction of the Rural Health Care Committee
of the Board, as set forth in § 54.705(b); and (3) the High Cost and Low
Income Division, which shall perform duties and functions in connection
with the high cost and low income support mechanism, and the interstate
access universal service support mechanism described in subpart J of
this part, under the direction of the High Cost and Low Income Committee
of the Board, as set forth in § 54.705(c). As directed by the Committees
of the Board set forth in § 54.705, these divisions shall perform the
duties and functions unique to their respective support mechanisms.

\(h\) The Administrator shall be managed by a Chief Executive Officer,
as set forth in § 54.704. The Chief Executive Officer shall serve on the
Committees of the Board established in § 54.705.

613. 

**Sec. 54.702 Administrator\'s functions and responsibilities.**

\(a\) The Administrator, and the divisions therein, shall be responsible
for administering the schools and libraries support mechanism, the rural
health care support mechanism, the high cost support mechanism, the low
income support mechanism, and the interstate access universal service
support mechanism described in subpart J of this part.

\(b\) The Administrator shall be responsible for billing contributors,
collecting contributions to the universal service support mechanisms,
and disbursing universal service support funds.

\(c\) The Administrator may not make policy, interpret unclear
provisions of the statute or rules, or interpret the intent of Congress.
Where the Act or the Commission\'s rules are unclear, or do not address
a particular situation, the Administrator shall seek guidance from the
Commission.

\(d\) The Administrator may advocate positions before the Commission and
its staff only on administrative matters relating to the universal
service support mechanisms.

\(e\) The Administrator shall maintain books of account separate from
those of the National Exchange Carrier Association, of which the
Administrator is an independent subsidiary. The Administrator\'s books
of account shall be maintained in accordance with generally accepted
accounting principles. The Administrator may borrow start up funds from
the National Exchange Carrier Association. Such funds may not be drawn
from the Telecommunications Relay Services (TRS) fund or TRS
administrative expense accounts.

\(f\) Pursuant to its responsibility for billing and collecting
contributions, the Administrator shall compare periodically information
collected by the administrator of the TRS Fund from TRS Fund Worksheets
with information submitted by contributors on Universal Service
Worksheets to verify the accuracy of information submitted on Universal
Service Worksheets. When performing a comparison of contributor
information as provided by this paragraph, the Administrator must
undertake company-by-company comparisons for all entities filing
Universal Service and TRS Fund Worksheets.

\(g\) The Administrator shall create and maintain a website, as defined
in Sec. 54.5, on which applications for services will be posted on
behalf of schools, libraries and rural health care providers.

\(h\) The Administrator shall file with the Commission and Congress an
annual report by March 31 of each year. The report shall detail the
Administrator\'s operations, activities, and accomplishments for the
prior year, including information about participation in each of the
universal service support mechanisms and administrative action intended
to prevent waste, fraud, and abuse. The report also shall include an
assessment of subcontractors\' performance, and an itemization of
monthly administrative costs that shall include all expenses, receipts,
and payments associated with the administration of the universal service
support programs. The Administrator shall consult each year with
Commission staff to determine the scope and content of the annual
report.

\(i\) The Administrator shall report quarterly to the Commission on the
disbursement of universal service support program funds. The
Administrator shall keep separate accounts for the amounts of money
collected and disbursed for eligible schools and libraries, rural health
care providers, low-income consumers, interstate access universal
service support, and high cost and insular areas.

\(j\) Information based on the Administrator\'s reports will be made
public by the Commission at least once a year as part of a Monitoring
Report.

\(k\) The Administrator shall provide the Commission full access to the
data collected pursuant to the administration of the universal service
support programs.

\(l\) Pursuant to Sec. 64.903 of this chapter, the Administrator shall
file with the Commission a cost allocation manual (CAM) that describes
the accounts and procedures the Administrator will use to allocate the
shared costs of administering the universal service support mechanisms
and its other operations.

\(m\) The Administrator shall make available to whomever the Commission
directs, free of charge, any and all intellectual property, including,
but not limited to, all records and information generated by or
resulting from its role in administering the support mechanisms, if its
participation in administering the universal service support mechanisms
ends.

\(n\) If its participation in administering the universal service
support mechanisms ends, the Administrator shall be subject to close-out
audits at the end of its term.

614. 

**Sec. 54.703 and Sec. 54.704 remain unchanged.**

**Sec. 54.705 Committees of the Administrator\'s Board of Directors.**

\(a\) Schools and Libraries Committee.‑‑

(1) Committee functions. The Schools and Libraries Committee shall
    oversee the administration of the schools and libraries support
    mechanism by the Schools and Libraries Division. The Schools and
    Libraries Committee shall have the authority to make decisions
    concerning:

    i.  How the Administrator projects demand for the schools and
        libraries support mechanism;

    ii. Development of applications and associated instructions as
        needed for the schools and libraries support mechanism;

    iii. Administration of the application process, including activities
         to ensure compliance with Federal Communications Commission
         rules and regulations;

    iv. Performance of outreach and education functions;

    v.  Review of bills for services that are submitted by schools and
        libraries;

    vi. Monitoring demand for the purpose of determining when the \$2
        billion trigger has been reached;

    vii. Implementation of the rules of priority in accordance with §
         54.507(g) of this chapter;

    viii. Review and certification of technology plans when a state
          agency has indicated that it will not be able to review such
          plans within a reasonable time;

    ix. The classification of schools and libraries as urban or rural
        and the use of the discount matrix established in § 54.505(c) of
        this chapter to set the discount rate to be applied to services
        purchased by eligible schools and libraries;

    x.  Performance of audits of beneficiaries under the schools and
        libraries support mechanism; and

    xi. Development and implementation of other functions unique to the
        schools and libraries support mechanism.

(2) Committee composition. The Schools and Libraries Committee shall
    consist of the following members of the Administrator\'s Board of
    Directors:

    i.  Three school representatives;

    ii. One library representative;

    iii. One service provider representative;

    iv. One at‑large representative elected by the Administrator\'s
        Board of Directors; and

    v.  The Administrator\'s Chief Executive Officer.

\(b\) Rural Health Care Committee.‑‑

(1) Committee functions. The Rural Health Care Committee shall oversee
    the administration of the rural health care support mechanism by the
    Rural Health Care Division. The Rural Health Care Committee shall
    have authority to make decisions concerning:

    i.  How the Administrator projects demand for the rural health care
        support mechanism;

    ii. Development of applications and associated instructions as
        needed for the rural health care support mechanism;

    iii. Administration of the application process, including activities
         to ensure compliance with Federal Communications Commission
         rules and regulations;

    iv. Calculation of support levels under § 54.609;

    v.  Performance of outreach and education functions;

    vi. Review of bills for services that are submitted by rural health
        care providers;

    vii. Monitoring demand for the purpose of determining when the \$400
         million cap has been reached;

    viii. Performance of audits of beneficiaries under the rural health
          care support mechanism; and

    ix. Development and implementation of other functions unique to the
        rural health care support mechanism.

(2) Committee composition. The Rural Health Care Committee shall consist
    of the following members of the Administrator\'s Board of Directors:

    i.  Two rural health care representatives;

    ii. One service provider representative;

    iii. Two at‑large representatives elected by the Administrator\'s
         Board of Directors;

    iv. One State telecommunications regulator, one state consumer
        advocate; and

    v.  The Administrator\'s Chief Executive Officer.

\(c\) High Cost and Low Income Committee.‑‑

(1) Committee functions. The High Cost and Low Income Committee shall
    oversee the administration of the high-cost and low-income support
    mechanisms and the interstate access universal service support
    mechanism described in subpart J of this Part, by the High Cost and
    Low Income Division. The High Cost and Low Income Committee shall
    have the authority to make decisions concerning:

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(i) How the Administrator projects demand for the high-cost, low-income,
    and interstate access universal service support mechanisms;

(ii) Development of applications and associated instructions as needed
     for the high-cost, low-income, and interstate access universal
     service support mechanisms;

(iii) Administration of the application process, including activities to
      ensure compliance with Federal Communications Commission rules and
      regulations;

(iv) Performance of audits of beneficiaries under the high-cost,
     low-income, and interstate access universal service support
     mechanisms; and

(v) Development and implementation of other functions unique to the
    high-cost, low-income, and interstate access universal service
    support mechanisms.

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(2) Committee composition. The High Cost and Low Income Committee shall
    consist of the following members of the Administrator\'s Board of
    Directors:

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(i) One low income representative;

(ii) One state telecommunications regulator;

(iii) One state consumer advocate;

(iv) Two incumbent local exchange carrier representatives (one shall
     represent rural telephone companies, as that term is defined in 47
     U.S.C. 153(37) and one shall represent non‑rural telephone
     companies);

(v) One interexchange carrier representative;

(vi) One competing local exchange carrier representative;

(vii) One commercial mobile radio service representative; and

(viii) The Administrator\'s Chief Executive Officer.

\(d\) Binding Authority of Committees of the Board.

(1) Any action taken by the Committees of the Board established in
    paragraphs (a) through (c) of this section shall be binding on the
    Board of Directors of the Administrator, unless such action is
    presented for review to the Board by the Administrator\'s Chief
    Executive Officer and the Board disapproves of such action by a
    two‑thirds vote of a quorum of directors, as defined in the
    Administrator\'s by‑laws.

(2) The budgets prepared by each Committee shall be subject to Board
    review as part of the Administrator\'s combined budget. The Board
    shall not modify the budgets prepared by the Committees of the Board
    unless such modification is approved by a two‑thirds vote of a
    quorum of the Board, as defined in the Administrator\'s by‑laws.

**Secs. 54.706 -- 54.714 remain unchanged.**

**Sec. 54.715 Administrative expenses of the Administrator.**

\(a\) The annual administrative expenses of the Administrator should be
commensurate with the administrative expenses of programs of similar
size, with the exception of the salary levels for officers and employees
of the Administrator described in paragraph (b) of this section. The
annual administrative expenses may include, but are not limited to,
salaries of officers and operations personnel, the costs of borrowing
funds, equipment costs, operating expenses, directors\' expenses, and
costs associated with auditing contributors of support recipients.

\(b\) All officers and employees of the Administrator may be compensated
at an annual rate of pay, including any non‑regular payments, bonuses,
or other compensation, in an amount not to exceed the rate of basic pay
in effect for Level I of the Executive Schedule under 5 U.S.C. 5312.

\(c\) The Administrator shall submit to the Commission projected
quarterly budgets at least sixty (60) days prior to the start of every
quarter. The Commission must approve the projected quarterly budgets
before the Administrator disburses funds under the federal universal
service support mechanisms. The administrative expenses incurred by the
Administrator in connection with the schools and libraries support
mechanism, the rural health care support mechanism, the high-cost
support mechanism, the low-income support mechanism, and the interstate
access universal service support mechanism shall be deducted from the
annual funding of each respective support mechanism. The expenses
deducted from the annual funding for each support mechanism also shall
include the Administrator\'s joint and common costs allocated to each
support mechanism pursuant to the cost allocation manual filed by the
Administrator under § 64.903 of this chapter.

**Sec. 54.717 remains unchanged.**

**Subpart J - Interstate Access Universal Service Support Mechanism
\[All New\]**

**§ 54.800 Terms and Definitions**

(a) *Average Price Cap CMT Revenue Per Line Per Month~Study\ Area~* has
    the same meaning as that term is defined in § 61.3(d) of this
    chapter, except that it includes exogenous changes in effect prior
    to the effective date of a calculation made pursuant to § 54.808 and
    exogenous changes not yet effective related to the sale or
    acquisition of exchanges, but excludes any other exogenous changes
    or other changes made pursuant to § 61.45(i)(4)of this chapter that
    are not yet effective.

(b) *Base Period Lines* --For purposes of calculations pursuant to this
    Subpart, Base Period Lines are the number of lines for a given study
    area or zone as of the end of the quarter ending 6 months prior to
    the effective date of a calculation pursuant to § 54.808.

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(c) *Interstate Access Universal Service Support Benchmark* shall mean,
    for residential and single-line business lines, \$7.00, and for
    multi-line business lines, \$9.20.

(d) *Minimum Adjustment Amount (MAA)* is defined in § 54.806(f).

(e) *MAA Phase In Percentage* is**:**

    50% as of July 1, 2000,

    75% as of July 1, 2001

    100% as of July 1, 2002.

(f) *Minimum Delta (MD)* is defined in § 54.806(d).

(g) *Minimum Support Requirement (MSR)* is defined in § 54.806(g).

(h) *Nationwide Total Above Benchmark Revenues* is defined in §
    54.806(b).

(i) *Price cap LEC* is defined in § 54.802(c).

(j) *Preliminary Minimum Access Universal Service Support~study\ area~*
    is the amount calculated pursuant to § 54.804.

(k) *Preliminary Study Area Universal Service Support (PSAUSS)* is
    defined in § 54.806(c).

(l) *Study Area Above Benchmark Revenues* is the sum of all Zone Above
    Benchmark Revenues for all zones in the study area.

(m) *Study Area Access Universal Service Support (SAAUS)* is defined in
    § 54.806(i) and (j).

(n) *Total National Minimum Delta (TNMD)* is the nationwide sum of all
    study area Minimum Deltas.

(o) *Total National Minimum Support Requirement (TNMSR)* is the sum of
    the MSR for all price cap incumbent LEC study areas.

(p) *Zone Above Benchmark Revenues* is defined in § 54.805(a)(2).

(q) *Zone Average Revenue per Line.* The amount calculated as follows:

Zone Average Revenue Per Line = (25% \* (Loop~zone\ price~ +
(Port)~price~))+ U (Uniform revenue per line adjustment) where,

U = \[(Average Price Cap CMT Revenue Per Line Per Month~study\ area~ \*
ILEC Base Period Lines) -- (25% \* Σ (ILEC Base Period Lines~UNE\ Zone~
x ((Loop~zone\ price~ + Port ~Price~) for all zones)))\] ÷ ILEC Base
Period Lines~Study\ Area(s)~

**§ 54.801 General**

\(a\) The total amount of universal service support under this subpart,
excluding administrative expenses, for areas served by price cap
incumbent LECs as of June 30, 2000, is targeted to be \$650 million per
year, if no exchanges, other than those offered for sale prior to
January 1, 2000, are sold to non-price-cap LECs or purchased from
non-price cap LECs by price cap LECs.

\(b\) In the event that all or a portion of a study area served by a
price cap LEC is sold to an entity other than a price cap LEC, and the
study area or portion thereof was not offered for sale prior to January
1, 2000, then the support that would otherwise be provided under this
subpart, had such study area or portion thereof not been sold, will not
be distributed or collected. Subsequent calculations will use the last
reported data for the study area or portion thereof that was sold to
determine the amount that will not be distributed or collected.

\(c\) In the event that a price cap LEC acquires additional exchanges,
from an entity other than a price cap LEC, that acquisition should be
reported to the Administrator pursuant to § 54.802 and included in the
determination of study area support pursuant to § 54.806 for the areas
served by the acquiring price cap LEC, beginning with the next support
recalculation pursuant to § 54.808.

\(d\) In the event that a price cap LEC acquires additional exchanges
from an entity that is also a price cap LEC, the acquiring price cap LEC
will receive support under this subpart at the same level as the selling
price cap LEC formerly received, and both carriers will adjust their
line counts accordingly beginning with the next quarterly report to the
Administrator. At the subsequent report to the Administrator for
purposes of recalculating support as required by § 54.808, the acquiring
and selling price cap LECs will reflect the acquired and sold lines, and
will adjust the average CMT Revenue per Line per Month for the affected
study areas accordingly.

\(e\) The Administrator for the fund created by this subpart shall be
the Universal Service Administrative Company.

**§ 54.802 Obligations of LECs and the Administrator**

\(a\) Each Eligible Telecommunications Carrier that is providing service
within an area served by a price cap LEC shall submit to the
Administrator, on a quarterly basis on the last business day of March,
June, September, and December of each year line count data showing the
number of lines it serves for the period ending three months prior to
the reporting date, within each price cap LEC study area disaggregated
by UNE Zone if UNE Zones have been established within that study area,
showing residential/single-line business and multi-line business line
counts separately. For purposes of this report, and for purposes of
computing support under this subpart, the aggregated
residence/single-line business class lines reported include single and
non-primary residence lines, single-line business lines, ISDN BRI and
other related residence class lines. Similarly, the multi-line business
class lines reported include multi-line business, centrex, ISDN PRI and
other related business class lines assessed the End User Common Line
charge pursuant to § 69.152 of this chapter. For purposes of this report
and for purposes of computing support under this subpart, lines served
using resale of the price cap LEC's service pursuant to Section
251(c)(4) of the Communications Act of 1934, as amended, shall be
considered lines served by the price cap LEC only and must be reported
accordingly.

\(b\) In addition to the information submitted pursuant to paragraph (a)
of this section, each price cap LEC must submit to the Administrator, on
June 30, 2000, October 15, 2000, and April 16, 2001 and annually
thereafter or as determined by the Administrator according to § 54.808:

(1) Average Price Cap CMT Revenue Per Line Per Month~Study\ Area~ for
    each of its study areas;

(2) The rates established for UNE Loops and UNE Line Ports, by zone in
    those study areas where UNE Zones have been established as of the
    date of filing; and

(3) Make available information sufficient to determine the boundaries of
    each UNE Zone within each of its study areas where such zones have
    been established;

provided, however, that after the June 30, 2000 filing, if there have
been no changes since its previous filing a company may submit a
statement that there have been no changes in lieu of such information,
and further provided that, for study areas in which UNE Zones have been
newly established since the last filing pursuant to this paragraph, the
price cap LEC shall also report the information required by
subparagraphs (2) and (3) of this section to the Administrator on July
15, 2000, or January 15, 2001, as required.

\(c\) An eligible telecommunications carrier shall be eligible for
support pursuant to this subpart only after it has filed all of the
information required by paragraphs (a) through (c) of this section,
where applicable. An eligible telecommunications carrier shall receive
payment of support pursuant to this subpart only for such months the
carrier is actually providing service to the end user. The Administrator
shall ensure that there is periodic reconciliation of support payments.

\(d\) Upon receiving the information required to be filed in paragraphs
(a) and (b) of this section, the Administrator shall:

(1) Perform the calculations described in §§ 54.804 through 54.807 of
    this subpart;

(2) Publish the results of these calculations showing Interstate Access
    Universal Service Support Per Line available in each price cap LEC
    study area, by UNE Zone and customer class;

(3) Collect the funds necessary to provide support pursuant to this
    subpart in accordance with subpart H; and

(4) Distribute support calculated pursuant to the rules contained in
    this subpart; and

(5) Report quarterly to the Commission on the collection and
    distribution of funds under this subpart as described in §
    54.701(g). Fund distribution reporting will be by state and by
    eligible telecommunications carrier within the state.

**§ 54.803 Universal Service Zones**

\(a\) The zones used for determining interstate access universal service
support shall be the same zones that would be used for End User Common
Line (EUCL) charge deaveraging as described in §69.152(q)(2) of this
chapter.

\(b\) In a price cap study area where the price cap LEC has not
established state-approved prices for UNE loops by zone, the
Administrator shall develop an estimate of the ILEC's Zone Above
Benchmark Revenues for transitional purposes, in order to reserve a
portion of the fund for that study area. This estimate will be included
by the Administrator in the Nationwide Study Area Above Benchmark
Revenues calculated pursuant to §54.806.

(1) For the purpose of developing this transitional estimate, the loop
    and port costs estimated by the FCC cost model, or other substitute
    method if no model is available, shall be used.

(2) For the purpose of developing this transitional estimate, the
    administrator shall construct three zones. Wire centers within the
    study area will be grouped into these zones in such a way that each
    zone is assigned approximately one third of ILEC base period lines
    in the study area, with the lowest cost wire centers assigned to
    Zone 1, the highest cost wire centers assigned to Zone 3, and the
    remainder to Zone 2.

**§ 54.804 Preliminary Minimum Access Universal Service
Support~Study\ Area~ Calculated by the Administrator.**

\(a\) If Average Price Cap CMT Revenue Per Line Per Month~Study\ Area~
is greater than \$9.20 then: Preliminary Minimum Access Universal
Service Support~study\ area~ = (Average Price Cap CMT Revenue Per Line
Per Month~study\ area~ x ILEC Base Period Lines x 12) - ((\$7.00 x ILEC
Base Period Residential & Single-Line Business Lines~study\ area~ x
12) + (\$9.20 x ILEC Base Period Multi-line Business Lines~study\ area~
x 12))

\(b\) If Average Price Cap CMT Revenue Per Line Per Month~Study\ Area~
is greater than \$7.00 but less than \$9.20 then: Preliminary Minimum
Access Universal Service Support~study\ area~ = (Average Price Cap CMT
Revenue Per Line Per Month~Study\ Area~ - \$7.00) x (ILEC Base Period
Residential & Single-Line Business Lines~study\ area~ x 12)

\(c\) If Average Price Cap CMT Revenue Per Line Per Month~Study\ Area~
is less than \$7.00 then the Preliminary Minimum Access Universal
Service Support~study\ area~ is zero.

**§54.805 Zone and Study Area Above Benchmark Revenues Calculated by the
Administrator.**

\(a\) The following steps shall be performed by the Administrator to
determine Zone Above Benchmark Revenues for each price cap LEC.

(1) Calculate Zone Average Revenue Per Line.

(2) Calculate Zone Above Benchmark Revenues. Zone Above Benchmark
    Revenues is the sum of Zone Above Benchmark
    Revenues~Residence&SingleLineBusiness~ and Zone Above Benchmark
    Revenues ~Multi-lineBusiness.~ Zone Above Benchmark Revenues
    ~Residence&SingleLineBusiness~ is, within each zone, the product of
    Zone Average Revenue Per Line minus \$7.00 multiplied by all
    eligible telecommunications carrier Base Period Line
    ~Residence\ and\ Single-Line\ Business~ times 12. If negative, the
    Zone Above Benchmark Revenues ~Residence&SingleLineBusiness~ for the
    zone is zero. Zone Above Benchmark Revenues ~Multi-lineBusiness~ is,
    within each zone, the product of Zone Average Revenue Per Line minus
    \$9.20 multiplied by all eligible telecommunications carrier zone
    Base Period Lines ~Multi-lineBusiness~ times 12. If negative, the
    Zone Above Benchmark Revenues ~Multi-lineBusiness~ for the zone is
    zero.

\(b\) Study Area Above Benchmark Revenues is the sum of Zone Above
Benchmark Revenues for all zones in the study area.

**§ 54.806 Calculation by the Administrator of Interstate Access
Universal Service Support for Areas Served by Price cap LECs**

\(a\) The Administrator, based on the calculations performed in §§
54.804 and 54.805, shall calculate the Interstate Access Universal
Service Support for areas served by price cap LECs according to the
following methodology:

\(b\) Calculate Nationwide Total Above Benchmark Revenues. Nationwide
Total Above Benchmark Revenues is the sum of all Study Area Above
Benchmark Revenues for all study areas served by price cap ILECs,

\(c\) Calculate Preliminary Study Area Universal Service Support
(PSAUSS).

(1) If the Nationwide Total Above Benchmark Revenues is greater than
    \$650 million, then the Preliminary Study Area Universal Service
    Support (PSAUSS) equals the Study Area Above Benchmark Revenues
    multiplied by the ratio of \$650 million to Nationwide Total Above
    Benchmark Revenues (i.e. Preliminary Study Area Universal Service
    Support = Study Area Above Benchmark Revenues X (\$650 Million /
    Nationwide Total Above Benchmark Revenues).

(2) If the Nationwide Total Above Benchmark Revenues is not greater than
    \$650 million, PSAUSS equals the Study Area Above Benchmark
    Revenues.

\(d\) Calculate the Minimum Delta (MD) by study area. Within each study
area the Minimum Delta will be equal to the Preliminary Minimum Access
Universal Service Support~Study\ Area~ less the PSAUSS, if the
difference is greater than zero. If the difference is less than or equal
to zero, the MD is equal to zero.

\(e\) Calculate the Total National Minimum Delta (TNMD) by summing all
study are Minimum Deltas nationwide.

## (f) Calculate the Minimum Adjustment Amount.  {#f-calculate-the-minimum-adjustment-amount. .unnumbered}

(1) If the TNMD is greater than \$75 million, then the Minimum
    Adjustment Amount (MAA) equals the product of the MAA Phase In
    Percentage times the MD by study area times the ratio of \$75
    million to TNMD Or:

> Minimum Adjustment Amount = (MAA Phase In Percentage) X
>
> (Minimum Delta) X (\$75 million / Total National Minimum Delta).

(2) If the TNMD is less than \$75 million, then the MAA equals the
    product of the MAA Phase In Percentage and the MD by study area.

\(g\) Calculate the Minimum Support Requirement (MSR). The Minimum
Support Requirement for a study area equals the PSAUSS plus the MAA.

\(h\) Calculate the Total National Minimum Support Requirement (TNMSR),
which equals the sum of the MSR for all study areas in which the
Preliminary Minimum Access Universal Service Support is greater than or
equal to the PSAUSS.

\(i\) Calculate Study Area Access Universal Service Support (SAAUS) for
a study area in which the price cap incumbent LEC has geographically
deaveraged state-approved rates for UNE loops:

(1) For study areas in which the Preliminary Minimum Access Universal
    Service Support is greater than PSAUSS, and within which the price
    cap incumbent LEC has established geographically deaveraged
    state-approved rates for UNE loops, the SAAUS for that study area is
    the MSR.

(2) For study areas in which the Preliminary Minimum Access Universal
    Service Support is less than PSAUSS, and within which the price cap
    incumbent LEC has established geographically deaveraged
    state-approved rates for UNE loops, the SAAUS for that study area is
    equal to:

> Preliminary Study Area Universal Service Support x (\$650 million --
> TNMSR) ÷ (the sum of PSAUSS of study areas where the Preliminary
> Minimum Access Universal Service Support is less than PSAUSS).

\(j\) Calculate Study Area Access Universal Service Support (SAAUS) for
a price cap incumbent LEC that has not established geographically
deaveraged state-approved rates for UNE loops. In such study areas, the
SAAUS shall be the lesser of the Preliminary Minimum Access Universal
Service Support or:

(1) For study areas in which the Preliminary Minimum Access Universal
    Service Support is greater than PSAUSS, and for which an estimate
    has been made for deaveraged UNE loop costs, the SAAUS for that
    study area is the MSR.

(2) For study areas in which the Preliminary Minimum Access Universal
    Service Support is less than PSAUSS, and for which an estimate has
    been made for deaveraged UNE loop costs, the SAAUS for that study
    area is equal to:

> Preliminary Study Area Universal Service Support x (\$650 million --
> TNMSR) ÷ (the sum of PSAUSS of study areas where the Preliminary
> Minimum Access Universal Service Support is less than PSAUSS).

**§ 54.807 Interstate Access Universal Service Support**

\(a\) Each Eligible Telecommunication Carrier (ETC) that provides
supported service within the study area of a price cap LEC shall receive
Interstate Access Universal Service Support for each line that it serves
within that study area.

\(b\) In any study area within which the incumbent LEC has not
established state approved geographically deaveraged rates for UNE
loops, the Administrator shall calculate the Interstate Access Universal
Service Support Per Line by dividing Study Area Access Universal Service
Support by twelve times all eligible telecommunications carriers' base
period lines in that study area adjusted for growth during the relevant
support period based on the average nationwide annual growth in eligible
lines during the three previous years. For the purpose of calculating
growth, the Administrator shall use a simple average of annual growth
rates for total switched access lines for the three most recent years as
reported in the Common Carrier Bureau Report, Statistics of
Communications Common Carriers, Table 6.10 -- Selected Operating
Statistics.

\(c\) In any study area within which the incumbent LEC has established
state approved geographically deaveraged rates for UNE loops, the
Administrator shall calculate the Interstate Access Universal Service
Support Per Line for each customer class and zone using all eligible
telecommunications carriers' base period lines by customer class and
zone adjusted for growth during the relevant support period based on the
average nationwide annual growth in eligible lines during the three
previous years. For the purpose of calculating growth, the Administrator
shall use a simple average of annual growth rates for total switched
access lines for the three most recent years as reported in the Common
Carrier Bureau Report, Statistics of Communications Common Carriers,
Table 6.10 -- Selected Operating Statistics. Support shall be allocated
to lines in the highest cost UNE zone first, and will "cascade" to lines
in lower cost UNE zones to the extent that sufficient funding is
available. Beginning with the zone with the highest Zone Average Revenue
Per Line, support will be applied in the following order of priority:

(1) To all lines in the highest zone, to eliminate the amount per line
    by which Zone Average Revenue Per Line exceeds the higher of \$9.20
    or the Average Revenue Per Line in the next highest zone;

(2) If the Zone Average Revenue Per Line in the next highest zone is
    greater than \$9.20, then to all lines in both zones to eliminate
    the amount per line by which Zone Average Revenue per Line exceeds
    \$9.20 or the Zone Average Revenue Per Line in the third highest
    zone. This application of support will continue to additional zones
    in the same fashion until the amount per line by which Zone Average
    Revenue Per Line exceeds \$9.20 has been eliminated in all zones, or
    until the available support has been exhausted;

(3) To all residential and single-line business lines in the highest
    zone, to eliminate the remaining amount per line that Zone Average
    Revenue Per Line for these lines exceeds the higher of \$7.00 or
    Zone Average Revenue Per Line in the next highest zone;

(4) If the Zone Average Revenue per Line in the next highest zone is
    greater than \$7.00, then to all residential and single-line
    business lines in both zones to eliminate the remaining amount per
    line by which Zone Average Revenue Per Line exceeds \$7.00. This
    application of support will continue to additional zones in the same
    fashion until the difference between Zone Average Revenue Per Line
    and \$7.00 has been eliminated in all zones, or until the available
    support has been exhausted.

\(d\) Notwithstanding the provisions of § 54.307(a)(2), the per-line
support amount determined within each zone by applicable customer class
under paragraph (b) or (c) of this section is portable among all
eligible telecommunications carriers providing service within that zone.

**§ 54.808 Transition Provisions and Periodic Calculation.**

Study Area Access Universal Service Support amounts for the area served
by each price cap incumbent LEC will be calculated as of July 1, 2000,
January 1, 2001, July 1, 2001 and thereafter as determined by the
Administrator, but at least annually.

**§ 54.809 Carrier Certification**

(a) *Certification*. Carriers that desire to receive support pursuant to
    § 54.807 must file a certification with the Administrator and the
    Commission stating that all interstate access universal service
    support provided to such carrier will be used only for the
    provision, maintenance, and upgrading of facilities and services for
    which the support is intended. Support provided pursuant to § 54.807
    shall only be provided to the extent that the carrier has filed the
    requisite certification pursuant to this section.

(b) *Certification Format*. A certification pursuant to this section may
    be filed in the form of a letter from an authorized representative
    for the carrier, and must be filed with both the Office of the
    Secretary of the Commission clearly referencing CC Docket No. 96-45,
    and with the Administrator of the interstate access universal
    service support mechanism, on or before the filing deadlines set
    forth below in paragraph (c) of this section. All of the
    certifications filed by carriers pursuant to this section shall
    become part of the public record maintained by the Commission.

(c) *Filing Deadlines*. In order for a price cap local exchange carrier,
    and/or an eligible telecommunications carriers serving lines in the
    service area of a price cap local exchange carrier, to receive
    interstate access universal service support, such carrier must file
    an annual certification, as described in paragraph (b) of this
    section, on the date that it first files its line count information
    pursuant to section 54.802, and thereafter on June 30^th^ of each
    year.

PART 61 -- TARIFFS

616. 

§ 61.3 Definitions

\(a\) ***Act**.* The Communications Act of 1934 (48 Stat. 1004; 47
U.S.C. chapter 5), as amended.

\(b\) ***Actual Price Index (API***). An index of the level of aggregate
rate element rates in a basket, which index is calculated pursuant to §
61.46.

\(c\) ***Association***. This term has the meaning given it in §
69.2(d).

\(d\) ***Average Price Cap CMT Revenue per Line month.*** Price Cap CMT
Revenue (as defined in § 61.3(cc)) per month as of July 1, 2000
(adjusted to remove Universal Service Contributions assessed to Local
Exchange Carriers pursuant to § 54.702 of this chapter) using 2000
annual filing base period demand, divided by the 2000 annual filing base
period demand. In filing entities with multiple study areas, if it
becomes necessary to calculate the Price Cap CMT Revenue Per Line for a
specific study area, then the Price Cap CMT Revenue Per Line for that
study area is determined as follows, using base period demand revenues
(adjusted to remove Universal Service Contributions assessed to Local
Exchange Carriers pursuant to § 54.702 of this chapter), Base Factor
Portion (BFP) and 2000 annual filing base period lines:

*PriceCapCMTRevenuePerLineMonth~StudyArea~ =*

*PriceCapCMTRevenue~FilingEntity~ × (BFP~StudyArea~ ÷ BFP~FilingEntity~)
÷ Lines~StudyArea~*

Nothing in this definition precludes a price cap local exchange carrier
from continuing to average rates across filing entities containing
multiple study areas, where permitted under existing rules.

Average Price Cap CMT Revenues Per Line month may be adjusted after July
1, 2000 to reflect exogenous costs pursuant to § 61.45(d).

Average Price Cap CMT Revenues Per Line month may also be adjusted
pursuant to § 61.45 (b)(1)(iii).

\(e\) ***Average Traffic Sensitive Charge.***

\(1\) The Average Traffic Sensitive Charge (\"ATS charge\") is the sum
of the following two components:

\(i\) The Local Switching (LS) component. The Local Switching component
will be calculated by dividing the proposed Local Switching revenues
(End Office Switch, LS trunk ports, Information Surcharge, and
signalling transfer point (STP) port) by the base period LS minutes of
use (MOUs); and

\(ii\) The Transport component. The Transport component will be
calculated by dividing the proposed Transport revenues (Switched Direct
Trunk Transport, Signalling for Switched Direct Trunk Transport,
Entrance Facilities for Switched Access traffic, Tandem Switched
Transport, Signalling for Tandem Switching and residual per minute
Transport Interconnection Charge (TIC) pursuant to §69.155 by incumbent
LEC only base period MOUs (including meet-point billing arrangements for
jointly-provided interstate access by an incumbent LEC and any other
LEC).

\(2\) For the purposes of determining whether the ATS charge has reached
the Target Rate as set forth in § 61.3(qq), the calculations should
include all the relevant revenues and minutes for services provided
under generally available price cap tariffs.

\(f\) ***Band***. A zone of pricing flexibility for a service category,
which zone is calculated pursuant to § 61.47.

\(g\) ***Base period***. For carriers subject to §§ 61.41 through 61.49,
the 12-month period ending six months prior to the effective date of
annual price cap tariffs. Base year or base period earnings shall
exclude amounts associated with exogenous adjustments to the PCI for the
lower formula adjustment mechanism permitted by § 61.45(d)(1)(vii).

\(h\) ***Basket.*** Any class or category of tariffed service or charge:

(1) Which is established by the Commission pursuant to price cap
    regulation;

(2) The rates of which are reflected in an Actual Price Index; and

(3) The related revenues of which are reflected in a Price Cap Index.

\(i\) ***Change in rate structure***. A restructuring or other
alteration of the rate components for an existing service.

\(j\) ***Charges**.* The price for service based on tariffed rates.

\(k\) ***Commercial contractor***. The commercial firm to whom the
Commission annually awards a contract to make copies of Commission
records for sale to the public.

\(l\) ***Commission***. The Federal Communications Commission.

\(m\) ***Concurring carrier***. A carrier (other than a connecting
carrier) subject to the Act which concurs in and assents to schedules of
rates and regulations filed on its behalf an issuing carrier or
carriers.

\(n\) ***Connecting carrier***. A carrier engaged in interstate or
foreign communication solely through physical connection with the
facilities of another carrier not directly or indirectly controlling or
controlled by, or under direct or indirect common control with, such
carrier.

\(o\) ***Contract-based tariff***. A tariff based on a service contract
entered into between a non-dominant carrier and a customer, or between a
customer and a price cap local exchange carrier which has obtained
permission to offer contract-based tariff services pursuant to part 69,
subpart H, of this chapter.

\(p\) ***Corrections***. The remedy of errors in typing, spelling, or
punctuation.

\(q\) ***Dominant carrier***. A carrier found by the Commission to have
market power (*i.e*., power to control prices).

\(r\) ***GDP Price Index (GDP-PI)**.* The estimate of the Chain-Type
Price Index for Gross Domestic Product published by the United States
Department of Commerce, which the Commission designates by Order.

\(s\) ***GNP Price Index (GNP-PI***). The estimate of the
\"Fixed-Weighted Price Index for Gross National Product, 1982 Weights\"
published by the United States Department of Commerce, which the
Commission designates by Order.

\(t\) ***Issuing carrier***. A carrier subject to the Act that publishes
and files a tariff or tariffs with the Commission.

\(u\) ***Line Month.*** Line demand per month multiplied by twelve.

\(v\) ***Local Exchange Carrier***. Any person that is engaged in the
provision of telephone exchange service or exchange access as defined in
section 3(26) of the Act.

\(w\) ***Mid-size Company**.* All price cap local exchange carriers
other than the Regional Bell Operating Companies and GTE.

\(x\) ***New service offering**.* A tariff filing that provides for a
class or sub-class of service not previously offered by the carrier
involved and that enlarges the range of service options available to
ratepayers.

\(y\) ***Non-dominant carrier***. A carrier not found to be dominant.

\(z\) ***Other participating carrier***. A carrier subject to the Act
that publishes a tariff containing rates and regulations applicable to
the portion or through service it furnishes in conjunction with another
subject carrier.

(aa) ***Price cap LEC**.* *See* § 61.41(a) of this section.

(bb) ***Local Switching Pooled Revenue***, for certain qualified
companies as set forth in §61.48 (m), is the amount of additional Local
Switching reductions in the July 2000 Annual filing allowed to be moved
and recovered in the Common Line Basket.

\(cc\) ***Price Cap CMT Revenue**.* The maximum total revenue a filing
entity would be permitted to receive from End User Common Line charges
under § 69.152 of this chapter, Presubscribed Interexchange Carrier
charges (PICCs) under § 69.153 of this chapter, Carrier Common Line
charges under § 69.154 of this chapter, and Marketing under 69.156 of
this chapter, using Base Period lines. Price Cap CMT Revenue does not
include the local exchange carrier universal service contributions as of
July 1, 2000. The Price Cap CMT revenue does not include the Local
Switching Pooled revenue outlined in paragraph (bb) of this section.

(dd) ***Price Cap Index (PCI)**.* An index of prices applying to each
basket of services of each carrier subject to price cap regulation, and
calculated pursuant to § 61.45.

(ee) ***Price cap regulation***. A method of regulation of dominant
carriers provided in §§ 61.41 through 61.49.

(ff) ***Price cap tariff filing***. Any tariff filing involving a
service subject to price cap regulation, or that requires calculations
pursuant to §§ 61.45, 61.46, or 61.47.

(gg) \[Reserved\]

(hh) ***Rate**.* The tariffed price per unit of service.

\(ii\) ***Rate increase***. Any change in a tariff which results in an
increased rate or charge to any of the filing carrier\'s customers.

(jj) ***Rate level change***. A tariff change that only affects the
actual rate associated with a rate element, and does not affect any
tariff regulations or any other wording of tariff language.

(kk) ***Regulations***. The body of carrier prescribed rules in a tariff
governing the offering of service in that tariff, including rules,
practices, classifications, and definitions.

(ll) ***Restructured service**.* An offering which represents the
modification of a method of charging or provisioning a service; or the
introduction of a new method of charging or provisioning that does not
result in a net increase in options available to customers.

\(mm\) ***Rural Company**.* A company that, as of December 31, 1999, was
certified to the Commission as a rural telephone company.

(nn) ***Service Band Index (SBI)**.* An index of the level of aggregate
rate element rates in a service category, which index is calculated
pursuant to § 61.47.

(oo) ***Service category***. Any group of rate elements subject to price
cap regulation, which group is subject to a band.

(pp) ***Supplement***. A publication filed as part of a tariff for the
purpose of suspending or canceling that tariff, or tariff publication
and numbered independently from the tariff page series.

(qq) ***Target Rate***. The applicable Target Rate shall be defined as
follows:

(1) For regional Bell Operating Companies and GTE, \$0.0055 per ATS
    minute of use;

(2) For a holding company with a holding company average of less than 19
    Switched Access End User Common Line charge lines per square mile
    served such company may elect to use a Target Rate of \$0.0095 with
    respect to all exchanges owned by that holding company on July 1,
    2000, or which that holding company is, as of April 1, 2000, under a
    binding and executed contract to purchase;

(3) For other price cap local exchange carriers, \$0.0065 per ATS minute
    of use.

(rr) ***Tariff**.* Schedules of rates and regulations filed by common
carriers.

(ss) ***Tariff publication, or publication***. A tariff, supplement,
revised page, additional page, concurrence, notice of revocation,
adoption notice, or any other schedule of rates or regulations filed by
common carriers.

(tt) ***Tariff year***. The period from the day in a calendar year on
which a carrier\'s annual access tariff filing is scheduled to become
effective through the preceding day of the subsequent calendar year.

(uu) ***Text change***. A change in the text of a tariff which does not
result in a change in any rate or regulation.

(vv) ***United States**.* The several States and Territories, the
District of Columbia, and the possessions of the United States.

(ww) ***Corridor service***. \"Corridor service\" refers to interLATA
services offered in the \"limited corridors\" established by the
District Court in United States v. Western Electric Co., Inc., 569 F.
Supp. 1057, 1107 (D.D.C. 1983).

\(xx\) ***Toll dialing parity***. \"Toll dialing parity\" exists when
there is dialing parity, as defined in § 51.5 of this chapter, for toll
services.

(yy) ***Loop-based services***. Loop-based services are services that
employ Subcategory 1.3 facilities, as defined in § 36.154 of this
chapter.

(zz) ***Zone Average Revenue per Line***. The Price Cap CMT Revenue per
Line allocated to a particular state-defined zone used for deaveraging
of UNE loop prices. The Zone Average Revenue per Line is computed
according to the following formula:

Zone Average Revenue Per Line = (25% \* (Loop~zone\ price~ +
(Port)~price~))+ U

Where:

> U(Uniform revenue per line adjustment) =
>
> \[(Average Price Cap CMT Revenue Per Line Month ~study\ area~ \* ILEC
> Base Period Lines) -- (25% \* Σ (ILEC Base Period Lines~UNE\ Zone~ x
> ((Loop~zone\ price~ + Port ~Price~) for all zones)))\] ÷ ILEC Base
> Period Lines~Study\ Area(s)~

Where:

> Loop~zone\ price~ = the price for unbundled loop in a UNE zone.
>
> Port ~Price~ = price for switch ports in that UNE zone.

**§ 61.41 Price cap requirements generally.**

(a) Sections 61.42 through 61.49 shall apply as follows:

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(1) \[Reserved\]

(2) To such local exchange carriers as specified by Commission order,
    and to all local exchange carriers, other than average schedule
    companies, that are affiliated with such carriers; and

(3) On an elective basis, to local exchange carriers, other than those
    specified in paragraph (a)(2) of this section, that are neither
    participants in any Association tariff, nor affiliated with any such
    participants, except that affiliation with average schedule
    companies shall not bar a carrier from electing price cap regulation
    provided the carrier is otherwise eligible.

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(b) If a telephone company, or any one of a group of affiliated
    telephone companies, files a price cap tariff in one study area,
    that telephone company and its affiliates, except its average
    schedule affiliates, must file price cap tariffs in all their study
    areas.

(c) The following rules apply to telephone companies subject to price
    cap regulation, as that term is defined in § 61.3(ee), which are
    involved in mergers, acquisitions, or similar transactions.

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(1) Any telephone company subject to price cap regulation that is a
    party to a merger, acquisition, or similar transaction shall
    continue to be subject to price cap regulation notwithstanding such
    transaction.

(2) Where a telephone company subject to price cap regulation acquires,
    is acquired by, merges with, or otherwise becomes affiliated with a
    telephone company that is not subject to price cap regulation, the
    latter telephone company shall become subject to price cap
    regulation no later than one year following the effective date of
    such merger, acquisition, or similar transaction and shall
    accordingly file price cap tariffs to be effective no later than
    that date in accordance with the applicable provisions of this part
    61.

(3) Notwithstanding the provisions of § 61.41(c)(2) above, when a
    telephone company subject to price cap regulation acquires, is
    acquired by, merges with, or otherwise becomes affiliated with a
    telephone company that qualifies as an \'average schedule\' company,
    the latter company may retain its \'average schedule\' status or
    become subject to price cap regulation in accordance with §
    69.3(i)(3) of this chapter and the requirements referenced in that
    section.

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(d) Local exchange carriers that become subject to price cap regulation
    as that term is defined in § 61.3(ee) shall not be eligible to
    withdraw from such regulation.

**§ 61.42 Price cap baskets and service categories.**

(a)-(c) \[Reserved\]

\(d\) Each local exchange carrier subject to price cap regulation shall
establish baskets of services as follows:

(1) A basket for the common line, marketing, and certain residual
    interconnection charge interstate access elements as described in §§
    69.115, 69.152, 69.153, 69.154, 69.155, 69.156, and 69.157 of this
    chapter. For purposes of §§ 61.41 through 61.49, this basket shall
    be referred to as the \"CMT basket.\"

(2) A basket for traffic sensitive switched interstate access elements.
    For purposes of §§ 61.41 through 61.49 of this chapter, this basket
    shall be referred to as the \"traffic sensitive basket.\"

(3) A basket for trunking services as described in §§ 69.110, 69.111,
    69.112, 69.125(b), 69.129, and 69.155 of this chapter. For purposes
    of §§ 61.41 through 61.49, this basket shall be referred to as the
    \"trunking basket.\"

(4) i.  To the extent that a local exchange carrier specified in §
        61.41(a) (2) or (3) offers interstate interexchange services
        that are not classified as access services for the purpose of
        part 69 of this chapter, such exchange carrier shall establish a
        fourth basket for such services. For purposes of §§ 61.41
        through 61.49 of this chapter, this basket shall be referred to
        as the \"interexchange basket.\"

    ii. If a price cap carrier has implemented interLATA and intraLATA
        toll dialing parity everywhere it provides local exchange
        services at the holding company level, that price cap carrier
        may file a tariff revision to remove corridor and interstate
        intraLATA toll services from its interexchange basket.

(5) A basket for special access services as described in § 69.114 of
    this chapter.

(e)(1) The traffic sensitive switched interstate access basket shall
contain such services as the Commission shall permit or require,
including the following service categories:

i.  Local switching as described in § 69.106(f) of this chapter;

ii. Information, as described in § 69.109 of this chapter;

iii. Data base access services;

iv. Billing name and address, as described in § 69.128 of this chapter;

v.  Local switching trunk ports, as described in § 69.106(f)(1) of this
    chapter; and

vi. Signalling transfer point port termination, as described in §
    69.125(c) of this chapter.

    2.  The trunking basket shall contain such switched transport as the
        Commission shall permit or require, including the following
        service categories and subcategories:

        i.  Voice grade entrance facilities, voice grade direct-trunked
            transport, voice grade dedicated signalling transport,

        ii. High capacity flat-rated transport, including the following
            service subcategories:

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(A) DS1 entrance facilities, DS1 direct-trunked transport, DS1 dedicated
    signalling transport, and

(B) DS3 entrance facilities, DS3 direct-trunked transport, DS3 dedicated
    signalling transport.

    i.  Tandem-switched transport, as described in § 69.111 of this
        chapter; and

    ii. Signalling for tandem switching, as described in § 69.129 of
        this chapter.

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    2.  The special access basket shall contain special access services
        as the Commission shall permit or require, including the
        following service categories and subcategories:

        i.  Voice grade special access, WATS special access, metallic
            special access, and telegraph special access services;

        ii. Audio and video services;

        iii. High capacity special access, and DDS services, including
             the following service subcategories:

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(A) DS1 special access services; and

(B) DS3 special access services;

    i.  Wideband data and wideband analog services.

\(f\) Each local exchange carrier subject to price cap regulation shall
exclude from its price cap baskets such services or portions of such
services as the Commission has designated or may hereafter designate by
order.

\(g\) New services, other than those within the scope of paragraph (f)
of this section, must be included in the affected basket at the first
annual price cap tariff filing following completion of the base period
in which they are introduced. To the extent that such new services are
permitted or required to be included in new or existing service
categories within the assigned basket, they shall be so included at the
first annual price cap tariff filing following completion of the base
period in which they are introduced.

**§ 61.45 Adjustments to the PCI for Local Exchange Carriers.**

\(a\) Local exchange carriers subject to price cap regulation shall file
adjustments to the PCI for each basket as part of the annual price cap
tariff filing, and shall maintain updated PCIs to reflect the effect of
mid-year exogenous cost changes.

(b)(1)(i) Adjustments to local exchange carrier PCIs, in those
carriers\' annual access tariff filings, for the traffic sensitive
basket described in § 61.42(d)(2), the trunking basket described in §
61.42(d)(3), the special access basket described in § 61.42(d)(5) and
the Interexchange Basket described in § 61.42(d)(4)(i), shall be made
pursuant to the following formula:

PCIt = PCIt-1\[1+w\[GDP-PI - X \] + Z/R\]

> Where the terms in the equation are described:
>
> GDP-PI = For annual filings only, the percentage change in the GDP-PI
> between the quarter ending six months prior to the effective date of
> the new annual tariff and the corresponding quarter of the previous
> year. For all other filings, the value is zero.
>
> X = For the CMT, traffic sensitive, and trunking baskets, for annual
> filings only, the factor is set at the level prescribed in paragraphs
> (b)(1)(ii) and (iii) of this section. For the interexchange basket,
> for annual filings only, the factor is set at the level prescribed in
> paragraph (b)(1)(v) of this section. For the special access basket,
> for annual filings only, the factor is set at the level prescribed in
> paragraph (b)(1)(iv) of this section. For all other filings, the value
> is zero.
>
> g = For annual filings for the CMT basket only, the ratio of minutes
> of use per access line during the base period, to minutes of use per
> access line during the previous base period, all minus 1.
>
> Z = the dollar effect of current regulatory changes when compared to
> the regulations in effect at the time the PCI was updated to PCI~t-1~,
> measured at base period level of operations.

Targeted Reduction = the actual possible dollar value of the (GDP-PI‑X)
reductions that will be targeted to the ATS Charge pursuant to §
61.45(i)(3). The reductions calculated by applying the (GDP-PI-X)
portion of the formula to the CCL element within the CMT basket will
contain the "g" component, as defined above.

> R = base period quantities for each rate element \"I\", multiplied by
> the price for each rate element \"I\" at the time the PCI was updated
> to PCI~t-1~.
>
> w = R + Z, all divided by R (used for the traffic sensitive, trunking,
> and special access baskets).
>
> w~ix~ = R ‑ (access rate in effect at the time the PCI was updated to
> PCI~t-1~ x base period demand) + Z, all divided by R.
>
> PCI~t~ = the new PCI value.
>
> PCI~t-1~ = the immediately preceding PCI value.

(b)(1)(ii) The X value applicable to the baskets specified in §§
61.42(d)(1), (d)(2), and (d)(3), shall be 6.5%, to the extent necessary
to reduce a tariff entity\'s ATS Charge to its Target Rate as set forth
in § 61.3(qq). Once an ILEC tariff entity's ATS Charge is equal to the
Target Rate as set forth in § 61.3(qq) for the first time (the former
NYNEX telephone companies may be treated as a separate tariff entity),
then, except as provided in paragraph (b)(1)(iii) of this section, X is
equal to GDP-PI and no further reductions will be mandated (i.e*.* if
applying the full X-factor reduction for a given year would reduce the
ATS Charge below the Target Rate as set forth in § 61.3(qq), the amount
of X-factor reduction applied that year will be the amount necessary to
reach the Target Rate as set forth in § 61.3(qq)). A filing entity does
not reach the Target Rate as set forth in § 61.3(qq) in any year in
which it exercises an exogenous adjustment pursuant to § 61.45(d)(vii).
For companies with separate tariff entities under a single price cap,
the following rules shall apply:

> \(A\) Targeting amounts as defined in § 61.45(i)(1) shall be
> identified separately, using the revenue for each of the tariff
> entities under the cap.
>
> \(B\) Each tariff entity shall only be required to use the amount of
> targeting necessary to get to the Target Rate as set forth in §
> 61.3(qq).

(b)(1)(iii)(A) Except as provided in paragraph (b)(1)(iii)(B) of this
section, once the Tariff Entity's Target Rate as set forth in § 61.3(qq)
is achieved, the X-factor for the CMT basket will equal GDP-PI as long
as GDP-PI is less than or equal to 6.5% and greater than 0%. If GDP-PI
is greater than 6.5%, and an entity has eliminated its CCL and
multi-line business PICs charges, the X-factor for the CMT basket will
equal 6.5%, and all End User Common Line charges, rates and nominal
caps, will be increased by the difference between GDP-PI and the 6.5%
X-factor. If GDP-PI is less than 0, the X-factor for the CMT basket will
be 0.

\(B\) For tariff filing entities with a Target Rate of \$0.0095, or for
the portion of a filing entity consolidated pursuant to § 61.48(o) that,
prior to such consolidation, had a Target Rate of \$0.0095, in which the
ATS charge has achieved the Target Rate but in which the carrier common
line (CCL) charge has not been eliminated, the X-factor for the CMT
basket will be 6.5% until the earlier of June 30, 2004, or until CCL
charges are eliminated pursuant to paragraph (i)(4) of this section.
Thereafter, in any filing entity in which a CCL charge remains after
July 1, 2004, the X-factor for the CMT basket will be determined
pursuant to paragraph (b)(1)(iii)(A) of this section as if CCL charges
were eliminated.

(b)(1)(iv) For the special access basket specified in § 61.42(d)(5), the
value of X shall be 3.0% for the 2000 annual filing. The value of X
shall be 6.5% for the 2001, 2002 and 2003 annual filings. Starting in
the 2004 annual filing, X shall be equal to GDP-PI for the special
access basket.

(b)(1)(v) For the interexchange basket specified in § 61.42(d)(4), the
value of X shall be 3.0% for all annual filings.

(b)(2) Adjustments to local exchange carrier PCIs and average price cap
CMT revenue per line, in tariff filings other than the annual access
tariff filing, for the CMT basket described in § 61.42(d)(1), the
traffic sensitive basket described in § 61.42(d)(2), the trunking basket
described in § 61.42(d)(3), the interexchange basket described in §
61.42(d)(4), and the special access basket described in § 61.42(d)(5),
shall be made pursuant to the formulas set forth in paragraph (b)(1)(i)
of this section, except that the \"w(GDP-PI-X)\" component of those PCI
formulas shall not be employed.

\(c\) Effective July 1, 2000, the prices of the CMT basket rate
elements, excluding special access surcharges under § 69.115 of this
chapter and line ports in excess of basic under § 69.157 of this
chapter, shall be set based upon Average Price Cap CMT revenue per line
month.

\(d\) The exogenous cost changes represented by the term \"Z\" in the
formula detailed in paragraphs (b)(1)(i) of this section shall be
limited to those cost changes that the Commission shall permit or
require by rule, rule waiver, or declaratory ruling.

1.  Subject to further order of the Commission, those exogenous changes
    shall include cost changes caused by:

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(i) The completion of the amortization of depreciation reserve
    deficiencies;

(ii) Such changes in the Uniform System of Accounts, including changes
     in the Uniform System of Accounts requirements made pursuant to §
     32.16 of this chapter, as the Commission shall permit or require be
     treated as exogenous by rule, rule waiver, or declaratory ruling;

(iii) Changes in the Separations Manual;

(iv) \[Reserved\];

(v) The reallocation of investment from regulated to nonregulated
    activities pursuant to § 64.901 of this chapter;

(vi) Such tax law changes and other extraordinary cost changes as the
     Commission shall permit or require be treated as exogenous by rule,
     rule waiver, or declaratory ruling;

(vii) Retargeting the PCI to the level specified by the Commission for
      carriers whose base year earnings are below the level of the lower
      adjustment mark, subject to the limitation in § 69.731 of this
      chapter. The allocation of LFAM amounts will be allocated pursuant
      to §61.45(d)(3). This section shall not be applicable to tariff
      filings during the tariff year beginning July 1, 2000, but is
      applicable in subsequent years;

(viii) Inside wire amortizations;

(ix) The completion of amortization of equal access expenses.

     1.  Local exchange carriers specified in §§ 61.41(a)(2) or (a)(3)
         shall, in their annual access tariff filing, recognize all
         exogenous cost changes attributable to modifications during the
         coming tariff year in their Subscriber Plant Factor and the
         Dial Equipment Minutes factor, and completions of inside wire
         amortizations and reserve deficiency amortizations.

     2.  Exogenous cost changes shall be apportioned on a cost-causative
         basis between price cap services as a group, and excluded
         services as a group. Total exogenous cost changes thus
         attributed to price cap services shall be recovered from
         services other than those used to calculate the ATS charge.

\(e\) \[Reserved\]

\(f\) The exogenous costs caused by new services subject to price cap
regulation must be included in the appropriate PCI calculations under
paragraphs (b) and (c) of this section beginning at the first annual
price cap tariff filing following completion of the base period in which
such services are introduced.

\(g\) In the event that a price cap tariff becomes effective, which
tariff results in an API value (calculated pursuant to § 61.46) that
exceeds the currently applicable PCI value, the PCI value shall be
adjusted upward to equal the API value.

\(h\) \[Reserved\]

(i)(1)(i) Price cap local exchange carriers that are recovering revenues
through rates pursuant to §§ 69.106, 69.108, 69.109, 69.110, 69.111,
69.112, 69.113, 69.118, 69.123, 69.124, 69.125, 69.129, or § 69.155 of
this chapter shall target, to the extent necessary to reduce the ATS
Charge to the Target Rate as set forth in § 61.3(qq) for the first time,
any PCI reductions associated with the dollar impact of application of
the (GDPPI-X) portion of the formula in § 61.45(b)(1)(i) to the traffic
sensitive and trunking baskets. In order to calculate the actual dollars
to transfer to the trunking and traffic sensitive baskets, carriers will
first determine the "Targeted Revenue Differential" that will be
transferred to the trunking and traffic sensitive baskets to reduce the
ATS Charge to the Target Rate as set forth in § 61.3(qq). The Targeted
Revenue Differential shall be applied only to the trunking and traffic
sensitive baskets to the extent necessary to reduce the ATS charge to
the Target Rate as set forth in § 61.3(qq), and shall not be applied to
reduce the PCIs in any other basket or to reduced average price cap CMT
Revenue per line, except as provided in § 61.45(i)(4).

(ii) For the purposes of § 61.45(i)(1)(i), Targeted Revenue Differential
     will be determined by adding together the following amounts:

     A.  R \* (GDP-PI -- X) for the traffic sensitive basket, trunking
         basket, and the CMT basket excluding CCL revenues; and

     B.  CCL Revenues \* \[(GDP-PI -- X -- (g/2)\]/ \[1 + (g/2)\]

Where "g" is defined in § 61.45(b)(1)(i) above.

\(2\) Until a tariff entity\'s ATS Charge equals the Target Rate as set
forth in § 61.3(qq) for the first time, the Targeted Revenue
Differential will be targeted to reduce the following rates for that
tariff filing entity, in order of priority:

(i) To the residual per minute Transport Interconnection Charge, until
    that rate is \$0.00; then

(ii) To the Information Surcharge, until that rate is \$0.00; then

(iii) To the other Local Switching charges and Switched Transport
      charges until the tariff entity\'s ATS Rate equals the Target Rate
      as set forth in § 61.3(qq) for the first time. In making these
      reductions, the reductions to Local Switching rates as a
      percentage of total X-factor reductions must be greater than or
      equal to the percentage proportion of Local Switching revenues to
      the total sum of revenues for Local Switching, Local Switching
      Trunk Ports, Signalling Transfer Point Port Termination, Switched
      Direct Trunked Transport, Signalling for Switched Direct Trunked
      Transport, Entrance Facilities for switched access traffic, Tandem
      Switched Transport, and Signalling for Tandem Switching (*i.e.*,
      Local Switching gets at least its proportionate share of
      reductions).

\(3\) After a price cap LEC reaches the Target Rate as set forth in §
61.3(qq) level, the ATS Rate will be recalculated each subsequent Annual
Filing. This process will identify the new ATS Charge for the new base
period level. Due to change in base period demand and inclusion of new
services for that annual filing, the absolute level of a tariff
entity\'s ATS Charge may change. The resulting new ATS Charge level will
be what that tariff entity will be measured against during that base
period. For example, if a company whose target is \$0.0055 reached the
Target Rate during the 2000 annual filing, that level may change to
\$0.0058 in the 2001 annual filing due to change in demand and inclusion
of new services. Therefore, it will be the \$0.0058 average rate that
the tariff entity will be measured against for all non-annual filings.
Likewise, if that same company was at the Target Rate during the 2000
filing, that level may change to \$0.0053 average rate in the 2001
annual filing due to change in demand and inclusion of new services. In
that case, it will be at the \$0.0053 average rate that the tariff
entity will be measured.

\(4\) A company electing a \$0.0095 Target Rate will, in the tariff year
it reaches the Target Rate, apply any Targeted Revenue Differential
remaining after reaching the Target Rate to reduce Average Price Cap CMT
Revenue per Line month until the CCL charge is eliminated. In subsequent
years, until the earlier of June 30, 2004 or when the CCL charge is
eliminated, tariff filing entities with a Target Rate of \$0.0095, or
the portion of a filing entity consolidated pursuant to § 61.48(o) that,
prior to such consolidation, had a Target Rate of \$0.0095, will reduce
Average Price Cap CMT Revenue per Line month according to the following
method:

(i) Filing entity calculates the maximum allowable carrier common line
    revenue, as defined in § 61.46(d), that would be permitted in the
    absence of further adjustment pursuant to this paragraph;

(ii) Filing entity identifies maximum amount of dollars available to
     reduce Average Price Cap CMT Revenue per Line month by the
     following:

> (CMT revenue~.0095\ Area~ less CCL revenue~.0095\ Area~) \* (GDPPI-X)
> +
>
> (CCL Revenue~.0095\ Area~) \* \[GDPPI-X -(g/2)\]/\[1+(g/2)\]

(iii) The Average Price Cap CMT Revenue per Line month shall then be
      reduced by the lesser of the amount described in paragraph
      (i)(4)(i) of this section and the amount described in paragraph
      (i)(4)(ii) of this section, divided by base period Switched Access
      End User Common Line Charge lines.

**§ 61.46 Adjustments to the API.**

\(a\) Except as provided in paragraphs (d) and (e) of this section, in
connection with any price cap tariff filing proposing rate changes, the
carrier must calculate an API for each affected basket pursuant to the
following methodology:

API~t~ = API~t-1~\[S ~1~ v~i~,(p~t~/p~t‑1~)i\]

Where

API\[t\] = the proposed API value,

API\[t-1\] = the existing API value,

P\[t\] = the proposed price for rate element \"i,\"

P\[t-1\] = the existing price for rate element \"i,\" and

> v\[i\] = the current estimated revenue weight for rate element \"i,\"
> calculated as the ratio of the base period demand for the rate element
> \"i\" priced at the existing rate, to the base period demand for the
> entire basket of services priced at existing rates.

\(b\) New services subject to price cap regulation must be included in
the appropriate API calculations under paragraph (a) of this section
beginning at the first annual price cap tariff filing following
completion of the base period in which they are introduced. This index
adjustment requires that the demand for the new service during the base
period must be included in determining the weights used in calculating
the API.

\(c\) Any price cap tariff filing proposing rate restructuring shall
require an adjustment to the API pursuant to the general methodology
described in paragraph (a) of this section. This adjustment requires the
conversion of existing rates into rates of equivalent value under the
proposed structure, and then the comparison of the existing rates that
have been converted to reflect restructuring to the proposed
restructured rates. This calculation may require use of carrier data and
estimation techniques to assign customers of the preexisting service to
those services (including the new restructured service) that will remain
or become available after restructuring.

\(d\) The maximum allowable carrier common line (CCL) revenue shall be
computed pursuant to the following methodology:

> CCL = CMT -- EUCL -- Interstate Access Universal Service Support
> Mechanism Per Line -- PICC
>
> Where
>
> CMT = Price Cap CMT Revenue as defined in § 61.3(cc).
>
> EUCL = Maximum allowable EUCL rates established pursuant to § 69.152
> of this chapter multiplied by base period lines.
>
> Interstate Access Universal Service Support Per Line = the amount as
> determined by the Administrator pursuant to §54.807 of this chapter
> times the number of base period lines for each customer class and zone
> receiving Interstate Access USF support pursuant to part 54, subpart
> J.
>
> PICC = Maximum allowable PICC rates established pursuant to § 69.153
> of this chapter multiplied by base period lines.

\(e\) In no case shall a price cap local exchange carrier include data
associated with services offered pursuant to contract tariff in the
calculations required by this section.

**§ 61.47 Adjustments to the SBI; pricing bands.**

\[PUBLISHER\'S NOTE: 64 FR 46584, 46590, Aug. 26, 1999, effective Sept.
27, 1999, purported to remove and reserve paragraph (i)(1) in § 61.49.
However, this instruction could not be implemented, because the text
does not exist within the section. Upon calling the agency, it was
determined that the amendment should instead be implemented in § 61.47.
In accordance with the apparent intent of the agency, the amendment has
been implemented. It is expected that the agency will issue a correction
in the Federal Register.\]

\(a\) In connection with any price cap tariff filing proposing changes
in the rates of services in service categories, subcategories, or
density zones, the carrier must calculate an SBI value for each affected
service category, subcategory, or density zone pursuant to the following
methodology:

SBI~t~ = SBI~t‑1~\[S~i~v~i~(p~t~/p~t‑1~)i\]

> where
>
> SBI\[t\] = the proposed SBI value,
>
> SBI\[t-1\] = the existing SBI value,
>
> P\[t\] = the proposed price for rate element \"i,\"
>
> P\[t-1\] = the existing price for rate element \"i,\" and
>
> v\[i\] = the current estimated revenue weight for rate element \"i,\"
> calculated as the ratio of the base period demand for the rate element
> \"i\" priced at the existing rate, to the base period demand for the
> entire group of rate elements comprising the service category priced
> at existing rates.

\(b\) New services that are added to existing service categories or
subcategories must be included in the appropriate SBI calculations under
paragraph (a) of this section beginning at the first annual price cap
tariff filing following completion of the base period in which they are
introduced. This index adjustment requires that the demand for the new
service during the base period must be included in determining the
weights used in calculating the SBI.

\(c\) In the event that the introduction of a new service requires the
creation of a new service category or subcategory, a new SBI must be
established for that service category or subcategory beginning at the
first annual price cap tariff filing following completion of the base
period in which the new service is introduced. The new SBI should be
initialized at a value of 100, corresponding to the service category or
subcategory rates in effect the last day of the base period, and
thereafter should be adjusted as provided in paragraph (a) of this
section.

\(d\) Any price cap tariff filing proposing rate restructuring shall
require an adjustment to the affected SBI pursuant to the general
methodology described in paragraph (a) of this section. This adjustment
requires the conversion of existing rates in the rate element group into
rates of equivalent value under the proposed structure, and then the
comparison of the existing rates that have been converted to reflect
restructuring to the proposed restructured rates. This calculation may
require use of carrier data and estimation techniques to assign
customers of the preexisting service to those services (including the
new restructured service) that will remain or become available after
restructuring.

\(e\) Pricing bands shall be established each tariff year for each
service category and subcategory within a basket. Each band shall limit
the pricing flexibility of the service category, subcategory, as
reflected in the SBI, to an annual increase of a specified percent
listed in this paragraph, relative to the percentage change in the PCI
for that basket, measured from the levels in effect on the last day of
the preceding tariff year. For local exchange carriers subject to price
cap regulation as that term is defined in § 61.3(ee), there shall be no
lower pricing band for any service category or subcategory.

(1) Five percent:

    i.  Local Switching (traffic sensitive basket)

    ii. Information (traffic sensitive basket)

    iii. Database Access Services (traffic sensitive basket)

    iv. 800 Database Vertical Services subservice (traffic sensitive
        basket)

    v.  Billing Name and Address (traffic sensitive basket)

    vi. Local Switching Trunk Ports (traffic sensitive basket)

    vii. Signalling Transfer Point Port Termination (traffic sensitive
         basket)

    viii. Voice Grade (trunking and special access basket)

    ix. Audio/Video (special access basket)

    x.  Total High Capacity (trunking and special access baskets)

    xi. DS1 Subservice (trunking and special access baskets)

    xii. DS3 Subservice (trunking and special access baskets)

    xiii. Wideband (special access basket)

(2) Two percent:

    i.  Tandem-Switched Transport (trunking basket)

    ii. Signalling for Tandem Switching (trunking basket)

\(f\) A local exchange carrier subject to price cap regulation may
establish density zones pursuant to the requirements set forth in §
69.123 of this chapter, for any service in the trunking and special
access baskets, other than the interconnection charge set forth in §
69.124 of this chapter. The pricing flexibility of each zone shall be
limited to an annual increase of 15 percent, relative to the percentage
change in the PCI for that basket, measured from the levels in effect on
the last day of the preceding tariff year. There shall be no lower
pricing band for any density zone.

\(g\) \[Reserved\]

\(h\) \[Reserved\]

(i)(l) \[Reserved\]

(2) Effective January 1, 1998, notwithstanding the requirements of
    paragraph (a) of this section, if a local exchange carrier is
    recovering interconnection charge revenues through per-minute rates
    pursuant to § 69.155 of this chapter, any reductions to the PCI for
    the basket designated in § 61.42(d)(3) resulting from the
    application of the provisions of § 61.45(b)(1)(i) and from the
    application of the provisions of §§ 61.45 (i)(1) and 61.45(i)(2)
    shall be directed to the SBI of the service category designated in §
    61.42(d)(i).

(3) \[Reserved\]

(4) Effective January 1, 1998, the SBI reduction required by paragraph
    (i)(2) of this section shall be determined by dividing the sum of
    the dollar amount of any PCI reduction required by §§ 61.45(i)(1)
    and 61.45(i)(2), by the dollar amount associated with the SBI for
    the service category designated in § 61.42(e)(2)(vi), and
    multiplying the SBI for the service category designated in §
    61.42(e)(2)(vi) by one minus the resulting ratio.

(5) Effective July 1, 2000, notwithstanding the requirements of
    paragraph (a) of this section and subject to the limitations of §
    61.45(i), if a local exchange carrier is recovering an ATS Charge
    greater than its Target Rate as set forth in 61.3(qq), any
    reductions to the PCI for the Traffic Sensitive or Trunking baskets
    designated in §§ 61.42(d)(2) and 61.42(d)(3) resulting from the
    application of the provisions of § 61.45(b), and the formula in §
    61.45(b) and from the application of the provisions of §§
    61.45(i)(1), and 61.45(i)(2) shall be directed to the SBIs of the
    service categories designated in §§ 61.42(e)(1) and 61.42(e)(2).

\(j\) \[Reserved\]

\(k\) In no case shall a price cap local exchange carrier include data
associated with services offered pursuant to contract tariff in the
calculations required by this section.

**47 CFR 61.48 Transition rules for price cap formula calculations.**

(a)-(h) \[Reserved\]

\(i\) Transport and Special Access Density Pricing Zone Transition
Rules.

(1) Definitions. The following definitions apply for purposes of
    paragraph (i) of this section:

> Earlier date is the earlier of the special access zone date and the
> transport zone date.
>
> Earlier service is special access if the special access zone date
> precedes the transport zone date, and is transport if the transport
> zone date precedes the special access zone date.
>
> Later date is the later of the special access zone date and the
> transport zone date.
>
> Later service is transport if the special access zone date precedes
> the transport zone date, and is special access if the transport zone
> date precedes the special access zone date.
>
> Revenue weight of a given group of services included in a zone
> category is the ratio of base period demand for the given service rate
> elements included in the category priced at existing rates, to the
> base period demand for the entire group of rate elements comprising
> the category priced at existing rates.
>
> Special access zone date is the date on which a local exchange carrier
> tariff establishing divergent special access rates in different zones,
> as described in § 69.123(c) of this chapter, becomes effective.
>
> Transport zone date is the date on which a local exchange carrier
> tariff establishing divergent switched transport rates in different
> zones, as described in § 69.123(d) of this chapter, becomes effective.

(2) Simultaneous Introduction of Special Access and Transport Zones.
    Local exchange carriers subject to price cap regulation that have
    established density pricing zones pursuant to § 69.123 of this
    chapter, and whose special access zone date and transport zone date
    occur on the same date, shall initially establish density pricing
    zone SBIs and bands pursuant to the methodology in § 61.47(e)
    through (f).

(3) Sequential Introduction of Zones in the Same Tariff Year.
    Notwithstanding §§ 61.47(e) through (f), local exchange carriers
    subject to price cap regulation that have established density
    pricing zones pursuant to § 69.123 of this chapter, and whose
    special access zone date and transport zone date occur on different
    dates during the same tariff year, shall, on the earlier date,
    establish density pricing zone SBIs and pricing bands using the
    methodology described in §§ 61.47(e) through (f), but applicable to
    the earlier service only. On the later date, such carriers shall
    recalculate the SBIs and pricing bands to limit the pricing
    flexibility of the services included in each density pricing zone
    category, as reflected in its SBI, as follows:

    i.  The upper pricing band shall be a weighted average of the
        following:

        A.  The upper pricing band that applied to the earlier services
            included in the zone category on the day preceding the later
            date, weighted by the revenue weight of the earlier services
            included in the zone category; and

        B.  1.05 times the SBI value for the services included in the
            zone category on the day preceding the later date, weighted
            by the revenue weight of the later services included in the
            zone category.

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(ii) \[Reserved\]

(iii) On the later date, the SBI value for the zone category shall be
      equal to the SBI value for the category on the day preceding the
      later date.

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(4) Introduction of Zones in Different Tariff Years. Notwithstanding §§
    61.47(e) through (f), those local exchange carriers subject to price
    cap regulation that have established density pricing zones pursuant
    to § 69.123 of this chapter, and whose special access zone date and
    transport zone date do not occur within the same tariff year, shall,
    on the earlier date, establish density pricing zone SBIs and pricing
    bands using the methodology described in §§ 61.47(e) through (f),
    but applicable to the earlier service only.

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(i) On the later date, such carriers shall use the methodology set forth
    in paragraphs (a) through (d) of § 61.47 to calculate separate SBIs
    in each zone for each of the following groups of services:

    A.  DS1 special access services;

    B.  DS3 special access services;

    C.  DS1 entrance facilities, DS1 direct-trunked transport, and DS1
        dedicated signalling transport;

    D.  DS3 entrance facilities, DS3 direct-trunked transport, and DS3
        dedicated signalling transport;

    E.  Voice grade entrance facilities, voice grade direct-trunked
        transport, and voice grade dedicated signalling transport;

    F.  Tandem-switched transport; and

    G.  Such other special access services as the Commission may
        designate by order.

(ii) From the later date through the end of the following tariff year,
     the annual pricing flexibility for each of the subindexes specified
     in paragraph (i)(4)(i) of this section shall be limited to an
     annual increase of five percent or an annual decrease of fifteen
     percent, relative to the percentage change in the PCI for the
     trunking basket, measured from the levels in effect on the last day
     of the tariff year preceding the tariff year in which the later
     date occurs.

(iii) On the first day of the second tariff year following the tariff
      year during which the later date occurs, the local exchange
      carriers to which this paragraph applies shall establish the
      separate subindexes provided in § 61.47(e), and shall set the
      initial SBIs for those density pricing zone categories that are
      combined (specified in paragraphs (i)(4)(i)(A), (i)(4)(i)(B),
      (i)(4)(i)(C), (i)(4)(i)(D), (i)(4)(i)(E), and (i)(4)(i)(G) of this
      section) by computing the weighted averages of the SBIs that
      applied to the formerly separate zone categories, weighted by the
      revenue weights of the respective services included in the zone
      categories.

\(j\) \[Reserved\]

(k) \[Reserved\]

\(l\) Average Traffic Sensitive Revenues.

(1) In the July 1, 2000 annual filing, price cap LECs will make an
    additional reduction to rates comprising ATS Charge, and to
    associated SBI upper limits and PCIs. This reduction will be
    calculated to be the amount that would be necessary, when calculated
    as if all price cap LECs elect to be price cap LECs, to achieve a
    total \$2.1 billion reduction in carrier common line and ATS rates
    by all price cap LECs, compared with those rates as they existed on
    June 30, 2000 using 2000 annual filing base period demand.

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(i) The net change in revenue associated with Carrier Common Line Rate
    elements resulting from:

    A.  The removal from access of ILEC contributions to the Federal
        universal service mechanisms;

    B.  ILEC receipts of Interstate Access USF pursuant to subpart J of
        part 54;

    C.  Changes in End User Common Line Charges and PICC rates;

    D.  Changes in Carrier Common Line charges due to GDPPI-X targeting
        for \$0.0095 filing entities.

(ii) Reductions in Average Traffic Sensitive charges resulting from:

     A.  Targeting of the application of the (GDPPI-X) portion of the
         formula in § 61.45(b), and any applicable "g" adjustments;

     B.  The removal from access of ILEC contributions to the Federal
         universal service mechanisms;

     C.  Additional ATS charge reductions defined in paragraph (2) of
         this section.

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(2) Once the reductions in paragraph (l)(1)(i) and paragraphs
    (l)(1)(ii)(A) and (l)(1)(ii)(B) of this section are identified, the
    difference between those reductions and \$2.1 billion is the total
    amount of additional reductions that would be made to ATS rates of
    price cap LECs if all price cap LECs were price cap LECs. This
    amount will then be restated as the percentage of total price cap
    LEC Local Switching revenues as of June 30, 2000 using 2000 annual
    filing base period demand ("June 30 Local Switching revenues")
    necessary to yield the total amount of additional reductions and
    taking into account the fact that, if participating, a price cap LEC
    would not reduce ATS rates below its Target Rate as set forth in §
    61.3(qq). Each price cap LEC then reduces ATS rate elements, and
    associated SBI upper limits and PCIs, by a dollar amount equivalent
    to the percentage times the June 30 Local Switching revenues for
    that filing entity, provided that no price cap LEC shall be required
    to reduce its ATS rates below its Target Rate as set forth in §
    61.3(qq). Each carrier can take its additional reductions against
    any of the ATS rate elements, provided that at least a proportional
    share must be taken against Local Switching rates.

\(m\) Local Switching Pooled Revenues.

\(1\) Price cap local exchange carriers are permitted to pool local
switching revenues in their common line basket under one of the
following conditions.

> \(i\) Any price cap local exchange carrier that would otherwise have
> July 1, 2000 price cap reductions as a percentage of Base Period Price
> Cap Revenues at the holding company level greater than the industry
> wide total July 1, 2000 price cap revenue reduction as a percentage of
> Base Period Price Cap Revenues may elect temporarily to pool the
> amount of the additional reductions above 25% of the Local Switching
> element revenues necessary to yield that carrier's proportionate share
> of a total \$2.1 billion reduction in switched access usage rates on
> July 1, 2000. The basis of the reduction calculation will be R at PCI
> ~(t-1)~ for the upcoming tariff year. The percentage reductions per
> line amounts will be calculated as follows:
>
> (Total Price Cap Revenue Reduction / Base Period Price Cap Revenues)
>
> Pooled local switching revenue for each filing entity within a holding
> company that qualifies under this subparagraph (i) will continue until
> such pooled revenues are eliminated under this subparagraph.
> Notwithstanding the provisions of § 61.45(b)(1), once the Average
> Traffic Sensitive (ATS) rate reaches the applicable Target Rate as set
> forth in § 61.3(qq), the Targeted Revenue Differential as defined in §
> 61.45(i) shall be targeted to reducing pooled local switching revenue
> until the pooled local switching revenue is eliminated. Thereafter,
> the X-factor for these baskets will be determined in accordance with §
> 61.45(b)(1).
>
> \(ii\) Price cap local exchange carriers other than the Bell companies
> and GTE with at least 20% of total holding company lines operated by
> companies that as of December 31, 1999 were certified to the
> Commission as rural carriers, may elect to pool up to the following
> amounts:

(A) for a price cap holding company's predominantly non-rural filing
    entities (*i.e.* filing entities within which more than 50% of all
    lines are operated by telephone companies other than those that as
    of December 31, 1999 were certified to the Commission as rural
    telephone companies), the amount of the additional reductions to
    Average Traffic Sensitive Charge rates as defined in § 61.48(l)(2),
    to the extent such reductions exceed 25% of the Local Switching
    element revenues (measured in terms of June 30, 2000 rates times
    1999 base period demand);

(B) for a price cap holding company's predominantly rural filing
    entities (i.e. filing entities with greater than 50% of lines
    operated by telephone companies that as of December 31, 1999 were
    certified to the Commission as rural telephone companies), the
    amount of the additional reductions to Average Traffic Sensitive
    Charge rates as defined in § 61.48(l)(2).

\(2\) Allocation of Pooled Local Switching Revenue to Certain Common
Line Elements

> \(i\) The pooled local switching revenue for each filing entity is
> shifted to the common line basket within price caps. Pooled local
> switching revenue will not be included in calculations to determine
> the eligibility for interstate access universal service funding.
>
> \(ii\) Pooled local switching revenue will be capped on a revenue per
> line basis.
>
> \(iii\) Pooled local switching revenue is included in the total
> revenue for the common line basket in calculating the X-factor
> reduction targeted to the traffic sensitive rate elements, and for
> companies qualified under paragraph (m)(1)(i) of this section, to
> pooled elements after the Average Traffic Sensitive Charge reaches the
> target level. For the purpose of targeting X-factor reductions,
> companies that allocate pooled local switching revenue to other filing
> entities pursuant to § 61.48(m)(2)(vii) shall include pooled local
> switching revenue in the total revenue of the common line basket of
> the filing entity from which the pooled local switching revenue
> originated.
>
> \(iv\) Pooled local switching revenue shall be kept separate from CMT
> revenue in the CMT basket. CMT rate elements for each filing entity
> shall first be set based on CMT revenue per line without regard to the
> presence of pooled local switching revenue for each filing entity.
>
> \(v\) If the rates generated without regard to the presence of pooled
> local switching revenue for multi-line business (MLB) PICC and/or MLB
> SLC are below the nominal caps of \$4.31 and \$9.20, respectively,
> pooled amounts can be added to these rate elements to the extent
> permitted by the nominal caps.
>
> \(vi\) Notwithstanding the provisions of § 69.152(k), pooled local
> switching revenue is first added to the MLB SLC until the rate equals
> the nominal cap (\$9.20) or the pooled local switching revenue is
> fully allocated. If pooled local switching revenue remains after
> applying amounts to the MLB SLC, notwithstanding the provisions of §
> 69.153, the remaining pooled local switching revenue may be added to
> the MLB PICC until the rate equals the nominal cap (\$4.31) or the
> pooled local switching revenue is fully allocated. Unallocated pooled
> local switching revenue may still remain. For companies pooling
> pursuant to § 61.48(m)(1)(i), these unallocated amounts may not be
> recovered from the CCL charge, the primary residential and single-line
> business SLC, a non-primary residential SLC, or from CMT elements in
> any other filing entity.
>
> \(vii\) For companies pooling pursuant to § 61.48(m)(1)(ii), pooled
> local switching revenue that can not be allocated to the MLB PICC and
> MLB SLC rates within an individual filing entity may not be recovered
> from the CCL charge, primary residential and single-line business SLC
> or residential/single-line business SLC charges, but may be allocated
> to other filing entities within the holding company, and collected by
> adding these amounts to the MLB PICC and MLB SLC rates. The allocation
> of pooled local switching revenue among filing entities will be
> re-calculated at each annual filing. In subsequent annual filings,
> pooled local switching revenue that was allocated to another filing
> entity will be reallocated to the filing entity from where it
> originated, to the full extent permitted by the nominal caps of \$9.20
> and \$4.31.
>
> \(viii\) Notwithstanding the provisions of §69.152(k) of this chapter,
> these unallocated local switching revenues that cannot be recovered
> fully pursuant to (vii) are first added to the MLB SLC of other filing
> entities until the resulting rate equals the nominal cap (\$9.20) or
> the pooled local switching revenue for the holding company is fully
> allocated. If the pooled local switching revenue can be fully
> allocated to the MLB SLC, the amount is distributed to each filing
> entity with a rate below the nominal cap (\$9.20) based on its
> below-cap MLB SLC revenue as a percentage of the total holding
> company's below-cap MLB SLC revenue.
>
> \(ix\) If pooled local switching revenue remains after applying
> amounts to the MLB SLC of all filing entities in the holding company,
> pooled local switching revenue may be added to the MLB PICC of other
> filing entities. Notwithstanding the provisions of § 69.153 of this
> chapter, the remaining pooled local switching revenue is distributed
> to each filing entity with a rate below the nominal cap (\$4.31) based
> on its below-cap MLB PICC revenue as a percentage of the total holding
> company's below-cap MLB PICC revenue.
>
> \(x\) If pooled local switching is added to the MLB SLC but not to the
> MLB PICC for a filing entity that qualified to de-average SLCs without
> regard to pooled local switching, the resulting SLC rates can still be
> de-averaged. Total pooled local switching is added to the de-averaged
> zone 1 MLB SLC rate until the per line rate in zone 1 equals the rate
> in zone 2 or until the pooled local switching is fully allocated to
> the de-averaged MLB SLC rate for zone 1. If pooled local switching
> revenue remains after the rate in zone 1 equals zone 2, the
> de-averaged rates of zone 1 and zone 2 are increased until the pooled
> local switching is fully allocated to the de-averaged MLB SLC rates of
> zone 1 and 2 or until those rates reaches zone 3 MLB SLC rate level.
> This process continues until pooled local switching revenue is fully
> allocated to the zone de-averaged rates.

\(n\) Establishment of the special access basket, effective July 1,
2000.

(1) On the effective date, the PCI value for the special access basket,
    as defined in § 61.42(d)(5) shall be equal to the PCI for the
    trunking basket on the day preceding the establishment of the
    special access basket.

(2) On the effective date, the API value for the special access basket,
    as defined in § 61.42(d)(5) shall be equal to the API for the
    trunking basket on the day preceding the establishment of the
    special access basket.

(3) Service Category, Subcategory, and Density Zone SBIs and Upper
    Limits

    i.  Interconnection, Tandem Switched Transport, and Signalling
        Interconnection will retain the SBIs and upper limits and remain
        in the trunking basket.

    ii. Audio/Video and Wideband will retain the SBIs and upper limits
        and be moved into the special access basket.

    iii. For Voice Grade, the SBIs and upper limits in both baskets will
         be equal to the SBIs and upper limits in the existing trunking
         basket on the day preceding the establishment of the special
         access basket. Voice Grade density zones in the trunking basket
         will retain their indices and upper limits. Voice Grade density
         zones will be initialized in the special access basket when
         services are first offered in them.

    iv. For High Cap/DDS, DS1, and DS3 category and subcategories, the
        SBIs and upper limits in both baskets will be equal to the SBIs
        and upper limits in the existing trunking basket on the day
        preceding the establishment of the special access basket. SBIs
        and upper limits for services that are in both combined density
        zones and either DTT/EF or special access density zones will be
        calculated by using weighted averages of the indices in the
        affected zones.

    v.  For each DTT/EF-related zone remaining in the trunking basket,
        the values will be calculated by taking the sum of the products
        of the DTT/EF revenues times the DTT/EF index (or upper limit)
        and the DTT/EF-related revenues in the combined zone times the
        combined index (or upper limit), and dividing by the total
        DTT/EF-related revenues for that zone.

    vi. For each special access-related zone in the special access
        basket, the values will be calculated by taking the sum of the
        products of the special access revenues times the special access
        index (or upper limit) and the special access-related revenues
        in the combined zone times the combined index (or upper limit),
        and dividing by the total special access-related revenues for
        that zone.

\(o\) Treatment of acquisitions of exchanges with different ATS Target
Rates as set forth in 61.3(qq):

(1) In the event that a price cap LEC acquires a filing entity or
    portion thereof from a price cap LEC after July 1, 2000, and the
    price cap LEC did not have a binding and executed contract to
    purchase that filing entity or portion thereof as of April 1, 2000,
    those properties retain their pre-existing Target Rates as set forth
    in § 61.3(qq). If those properties are merged into a filing entity
    with a different Target Rate as set forth in § 61.3(qq), the Target
    Rate as set forth in § 61.3(qq) for the merged filing entity will be
    the weighted average of the Target Rates as set forth in § 61.3(qq)
    for the properties being combined into a single filing entity, with
    the average weighted by local switching minutes. When a property
    acquired as a result of a contract for purchase executed after April
    1, 2000 is merged with \$0.0095 Target Rate properties, the
    obligation to apply price-cap reductions to reduce CCL, pursuant to
    § 61.45(b)(iii) does not apply to the properties purchased under
    contracts executed after April 1, 2000, but continues to apply to
    the other properties.

(2) For sale of properties for which a holding company was, as of April
    1, 2000, under a binding and executed contract to purchase but which
    close after June 30, 2000, but during tariff year 2000, and that are
    subject to the \$0.0095 Target Rate as set forth in § 61.3(qq), the
    Average Traffic Sensitive Rate charged by the purchaser for that
    property will be the greater of \$0.0095 or the Average Traffic
    Sensitive Rate for that property.

# PART 69 -- ACCESS CHARGES {#part-69-access-charges .unnumbered}

# Sec. 69.4 Charges to be Filed {#sec.-69.4-charges-to-be-filed .unnumbered}

\(d\) Recovery of Contributions to the Universal Service Support
Mechanisms by Incumbent Local Exchange Carriers.\
\
(1) Incumbent local exchange carriers other than price cap LECs of this
chapter may recover their contributions to the universal service support
mechanisms through carriers\' carrier charges.\
\
(i) \[Reserved\]\
\
(ii) Non-price cap local exchange carriers may recover their
contributions to the universal service mechanism by applying a factor to
their carrier common line charge revenue requirements.\
\
(2)(i) In lieu of the carriers\' carrier charges described in paragraph
(d)(1) of this section, price cap local exchange carriers may recover
their contributions to the universal service support mechanisms through
explicit, interstate, end-user charges that are equitable and
nondiscriminatory.\
\
(ii) To the extent that price cap local exchange carriers implement
explicit, interstate, end-user charges to recover their contributions to
the universal service support mechanisms, they must make corresponding
reductions in their access charges to avoid any double recovery.

**Sec. 69.115 Special access surcharges.**

\(a\) Pending the development of techniques to accurately measure usage
of exchange facilities that are interconnected by users with means of
interstate or foreign telecommunications, a surcharge that is expressed
in dollars and cents per line termination per month shall be assessed
upon users that subscribe to private line services or WATS services that
are not exempt from assessment pursuant to paragraph (e) of this
section.

\(b\) Such surcharge shall be computed to reflect a reasonable
approximation of the carrier usage charges which, assuming non-premium
interconnection, would have been paid for by average interstate or
foreign usage of common lines, end office facilities, and transport
facilities, attributable to each special access line termination which
is not exempt from assessment pursuant to paragraph (e) of this section.

\(c\) If the association, carrier or carriers that file the tariff are
unable to estimate such average usage for a period ending May 31, 1985,
the surcharge for such period shall be twenty-five dollars (\$25) per
line termination per month. As of June 30, 2000, these rates will remain
and be capped at the current levels until June 30, 2005.

\(d\) A telephone company may propose reasonable and nondiscriminatory
end user surcharges, to be filed in its federal access tariffs and to be
applied to the use of exchange facilities which are interconnected by
users with means of interstate or foreign telecommunication which are
not provided by the telephone company, and which are not exempt from
assessment pursuant to paragraph (e) of this section. Telephone
companies which wish to avail themselves of this option must undertake
to use reasonable efforts to identify such means of interstate or
foreign telecommunication, and to assess end user surcharges in a
reasonable and nondiscriminatory manner.

\(e\) No special access surcharges shall be assessed for any of the
following terminations:

\(1\) The open end termination in a telephone company switch of an FX
line, including CCSA and CCSA-equivalent ONALs;

\(2\) Any termination of an analog channel that is used for radio or
television program transmission;

\(3\) Any termination of a line that is used for telex service;

\(4\) Any termination of a line that by nature of its operating
characteristics could not make use of common lines;

\(5\) Any termination of a line that is subject to carrier usage charges
pursuant to Sec. 69.5; and

\(6\) Any termination of a line that the customer certifies to the
exchange carrier is not connected to a PBX or other device capable of
interconnecting a local exchange subscriber line with the private line
or WATS access line.

**§ 69.152 End user common line for price cap local exchange
carriers.**\
\
\[PUBLISHER\'S NOTE: Paragraph (h) was added at 64 FR 16353, 16358, Apr.
5, 1999, effective July 1, 1999.\]\
\
(a) A charge that is expressed in dollars and cents per line per month
shall be assessed upon end users that subscribe to local exchange
telephone service or Centrex service to the extent they do not pay
carrier common line charges. A charge that is expressed in dollars and
cents per line per month shall be assessed upon providers of public
telephones. Such charge shall be assessed for each line between the
premises of an end user, or public telephone location, and a Class 5
office that is or may be used for local exchange service transmissions.\
\
(b) \[Reserved\]\
\
(c) The charge for each subscriber line associated with a public
telephone shall be equal to the monthly charge computed in accordance
with paragraph (k) of this section.

(d)(1) Beginning July 1, 2000, in a study area that does not have
deaveraged End User Common Line Charges, the maximum monthly charge for
each primary residential or single-line business local exchange service
subscriber line shall be the lesser of (i) the Average Price Cap CMT
Revenue Per Line as defined in § 61.3(d) of this chapter or (ii) the
following:

> \(A\) On July 1, 2000, \$4.35.
>
> \(B\) On July 1, 2001, \$5.00.
>
> \(C\) On July 1, 2002, \$6.00.
>
> \(D\) On July 1, 2003, \$6.50.

\(2\) In the event that GDP-PI exceeds 6.5% or is less than 0%, the
maximum monthly charge in paragraph (d)(1)(ii) of this section and the
cap will be adjusted pursuant to § 61.45(b)(1)(iii) of this chapter.

(e)(1) Beginning July 1, 2000, in an study area that does not have
deaveraged End User Common Line Charges, the monthly charge for each
non-primary residential local exchange service subscriber line shall be
the lesser of:

> \(i\) \$7.00, or
>
> \(ii\) the greater of:

(A) The rate as of June 30, 2000 less reductions needed to ensure over
    recovery of CMT Revenues does not occur, or

(B) Average Price Cap CMT Revenue Per Line.

\(2\) In the event that GDP-PI is greater than 6.5% or is less than 0%,
the maximum monthly charge in paragraph (e)(1)(i) of this section and
the cap will be adjusted pursuant to § 61.45(b)(1)(iii) of this chapter.

\(3\) Where the local exchange carrier provides a residential line to
another carrier so that the other carrier may resell that residential
line to a residence that already receives a primary residential line,
the local exchange carrier may collect the non-primary residential
charge described in paragraph (e) of this section from the other
carrier.\
\
(f) The charge for each primary residential local exchange service
subscriber line shall be the same as the charge for each single-line
business local exchange service subscriber line.\
\
(g) A line shall be deemed to be a residential subscriber line if the
subscriber pays a rate for such line that is described as a residential
rate in the local exchange service tariff.\
\
(h) \[Effective July 1, 1999.\] Only one of the residential subscriber
lines a price cap LEC provides to a location shall be deemed to be a
primary residential line.\
\
(1) \[Effective July 1, 1999.\] For purposes of § 69.152(h) of this
chapter, \"residential subscriber line\" includes residential lines that
a price cap LEC provides to a competitive LEC that resells the line and
on which the price cap LEC may assess access charges.\
\
(2) \[Effective July 1, 1999.\] If a customer subscribes to residential
lines from a price cap LEC and at least one reseller of the price cap
LEC\'s lines, the line sold by the price cap LEC shall be the primary
line, except that if a resold price cap LEC line is already the primary
line, the resold line will remain the primary line should a price cap
LEC subsequently sell an additional line to that residence.\
\
(i) A line shall be deemed to be a single-line business subscriber line
if the subscriber pays a rate that is not described as a residential
rate in the local exchange service tariff and does not obtain more than
one such line from a particular telephone company.\
\
(j) No charge shall be assessed for any WATS access line.\
\
(k)(1) Beginning on July 1, 2000, for any study area that does not have
deaveraged End User Common Line charges and in the absence of voluntary
reductions, the maximum monthly End User Common Line Charge for
multi-line business lines will be the lesser of:

(i) \$9.20, or

(ii) the greater of:

> \(A\) the rate as of June 30, 2000, less reductions needed to ensure
> over recovery of CMT Revenues does not occur, or
>
> \(B\) Average Price Cap CMT Per Line as defined in § 61.3(d) of this
> chapter.
>
> Note to §69.152 paragraph (k)(1): Except when the incumbent LEC
> reduces the rate through voluntary reductions, the multi-line business
> End User Common Line charge will be frozen until the study area\'s
> multi-line business PICC and CCL charge are eliminated.

\(2\) In the event that GDP-PI is greater than 6.5% or is less than 0%,
the maximum monthly charge in paragraph (k)(1)(i) of this section and
the cap will be adjusted pursuant to § 61.45(b)(1)(iii) of this chapter.

(l)(1) Beginning January 1, 1998, local exchange carriers shall assess
no more than one End User Common Line charge as calculated under the
applicable method under paragraph (e) of this section for Basic Rate
Interface integrated services digital network (ISDN) service.\
\
(2) Local exchange carriers shall assess no more than five End User
Common Line charges as calculated under paragraph (k) of this section
for Primary Rate Interface ISDN service.\
\
(m) In the event the local exchange carrier charges less than the
maximum End User Common Line charge for any subscriber lines, the local
exchange carrier may not recover the difference between the amount
collected and the maximum from carrier common line charges or PICCs.\
\
(n) \[Reserved\]

\(o\) \[Reserved\]

\(p\) \[Reserved\]

\(q\) End User Common Line Charge De-Averaging. Beginning on July 1,
2000, ILECs may geographically deaverage End User Common Line charges
subject to the following conditions:

(1) In order for a price cap LEC to be allowed to de-average End User
    Common Line charges within a study area, the price cap LEC must have
    state Commission approved geographically deaveraged rates for UNE
    loops within that study area. Except where an incumbent LEC
    geographically deaverages through voluntary reductions, before a
    price cap LEC may geographically deaverage its End User Common Line
    rates, its Originating and Terminating CCL and Multi-line Business
    PICC rates in that study area must equal \$0.00.

> \(2\) All geographic deaveraging of End User Common Line charges by
> customer class within a study area must be according to the state
> commission-approved UNE loop zone. Solely for the purposes of
> determining interstate subscriber line charges and the interstate
> access universal service support described in §§ 54.806 and 54.807 of
> this chapter, a price cap LEC may not have more than four geographic
> End User Common Line Charge/USF zones absent a review by the
> Commission. Where a price cap LEC has more than four state-created UNE
> zones and the Commission has not approved use of additional zones, the
> price cap LEC will determine, at its discretion, which state-created
> UNE zones to consolidate so that it has no more than four zones for
> the purpose of determining interstate subscriber line charges and
> interstate access universal service support.
>
> \(3\) Within a given zone, Multi-line Business End User Common Line
> rates cannot fall below Primary Residential and Single-line Business
> or Non-Primary Residential End User Common Line charges. Non-Primary
> End User Common Line charges cannot fall below Primary Residential and
> Single-line Business charges.
>
> \(4\) For any given class of customer in any given zone, the Zone
> de-averaged End User Common Line Charge in that zone must be greater
> than or equal to the Zone de-averaged End User Common Line charge in
> the zone with the next lower Zone Average Revenue Per Line.
>
> \(5\) The sum of all revenues per month that would be generated from
> all deaveraged End User Common Line charges in all zones within a
> study area plus Interstate Access USF Support Per Line (as defined in
> § 54.807 of this chapter) for the applicable customer classes and
> zones receiving such support multiplied by corresponding base period
> lines, divided by the number of base period lines in that study area
> cannot exceed Average Price Cap CMT Revenue Per Line as defined in §
> 61.3(d) of this chapter for that study area. In addition, the sum of
> revenues per month that would be generated from all deaveraged End
> User Common Line charges in all End User Common Line charge
> deaveraging zones within a study area plus revenues per month from all
> End User Common Line charge, multi-line business PICC and CCL charges
> from study areas within that study area that have not geographically
> deaveraged End User Common Line charges plus the sum of all Interstate
> Access USF Support Per Line (as defined in § 54.807 of this chapter)
> for the applicable customer classes and zones receiving such support,
> multiplied by the corresponding base period lines for the applicable
> customer classes and zones within the study area, divided by the
> number of total base period lines in the study area cannot exceed
> Average Price Cap CMT Revenue Per Line as defined in § 61.3(d) of this
> chapter for the study area.
>
> \(6\) Maximum Charge. The maximum zone deaveraged End User Common Line
> Charge that may be charged in any zone is the applicable cap specified
> in § 69.152(d)(1), § 69.152(e)(1)(i) or § 69.152 (k)(1)(i) Zone
> Average Revenue Per Line is the Price Cap CMT Revenue Per Line
> allocated to a particular state-defined zone used for deaveraging of
> UNE loop prices. The zone average revenue per line is computed
> pursuant to § 61.3(zz) of this chapter.
>
> \(7\) Minimum Charge. Except where an incumbent LEC chooses to lower
> the deaveraged End User Common Line Charge through voluntary
> reductions, the minimum zone deaveraged End User Common Line Charge in
> any zone in a study area is at least the Minimum EUCL. Minimum EUCL is
> Zone Average Revenue Per Line for the zone with the lowest Zone
> Average Revenue Per Line in that study area plus an amount per line
> calculated to recover the difference between Interstate Access USF
> Support Per Line (as defined in § 54.807 of this chapter) multiplied
> by base period lines for the applicable customer class and zones
> receiving such support and Study Area Above Benchmark Revenues, first
> from Zone 1 until the End User Common Line Charges in Zone 1 equal to
> the End User Common Line Charges in Zone 2, and then from lines in
> Zones 1 and 2 equally until the End User Common Line Charges in those
> Zones reach Zone 3 (with all End User Common Line Charges subject to
> the applicable residential and multi-line business lines nominal
> caps).

(i) For the purposes of this part, "Study Area Above Benchmark Revenues
    is the sum of all Zone Above Benchmark Revenues.

(ii) For the purposes of this part, "Zone Above Benchmark Revenues" is
     calculated as follows:

> Zone Above Benchmark Revenues is the sum of Zone Above Benchmark
> Revenues~Residence&SingleLineBusiness~ and Zone Above Benchmark
> Revenues~Multi-lineBusiness.~ Zone Above Benchmark
> Revenues~Residence&SingleLineBusiness~ is, within each zone, the
> product of Zone Average Revenue Per Line minus \$7.00 multiplied by
> all ILEC Base Period Lines ~Residence\ and\ Single-Line\ Business~
> times 12. If negative, the Zone Above Benchmark
> Revenues~Residence&SingleLineBusiness~ for the zone is zero. Zone
> Above Benchmark Revenues~Multi-lineBusiness~ is, within each zone, the
> product of Zone Average Revenue Per Line minus \$9.20 multiplied by
> all ILEC zone Base Period ~multi-line\ business~ lines times 12. If
> negative, the Zone Above Benchmark Revenues~Multi-lineBusiness~ for
> the zone is zero.
>
> \(8\) Voluntary Reductions. A "Voluntary Reduction" is one in which
> the ILEC reduces prices other than through offset of net increases in
> End User Common Line charge revenues or Interstate Access USF support
> received pursuant to § 54.807 of this chapter, or through increases in
> other zone deaveraged End User Common Line charges.

**§ 69.153 Presubscribed interexchange carrier charge (PICC).**\
\
(a) A charge expressed in dollars and cents per line may be assessed
upon the Multi-line business subscriber\'s presubscribed interexchange
carrier to recover revenues totaling Average Price Cap CMT Revenues Per
Line times the number of base period lines less revenues recovered
through the End User Common Line charge established under § 69.152 and
Interstate Access USF Support Per Line (as defined in § 54.807 of this
chapter) multiplied by base period lines for the applicable customer
class and zones receiving such support, up to a maximum of \$4.31 per
line per month. In the event the ceilings on the PICC prevent the PICC
from recovering all the residual common line/marketing and residual
interconnection charge revenues, the PICC shall recover all residual
common line/marketing revenues before it recovers residual
interconnection charge revenues.\
\
(b) If an end-user customer does not have a presubscribed interexchange
carrier, the local exchange carrier may collect the PICC directly from
the end user.\
\
(c) \[Reserved\]\
\
(d) Local exchange carriers shall assess no more than five PICCs as
calculated under paragraph (a) of this section for Primary Rate
Interface ISDN service.\
\
(e) The maximum monthly PICC for Centrex lines shall be one-ninth of the
maximum charge determined under paragraph (a) of this section, except
that if a Centrex customer has fewer than nine lines, the maximum
monthly PICC for those lines shall be the maximum charge determined
under paragraph (a) of this section divided by the customer\'s number of
Centrex lines.

\(f\) \[Reserved\]

\(g\) \[Reserved\]

\(h\) \[Reserved\]

**§ 69.154 Per-minute carrier common line charge. \[Effective Jan. 1,
1998.\]**\
\
\[PUBLISHER\'S NOTE: This section was added at 62 FR 31868, 31937, June
11, 1997, effective Jan. 1, 1998.\]\
\
(a) Local exchange carriers may recover a per-minute carrier common line
charge from interexchange carriers, collected on originating access
minutes and calculated using the weighting method set forth in paragraph
(c) of this section. The maximum such charge shall be the lower of:\
\
(1) The per-minute rate using base period demand that would recover the
maximum allowable carrier common line revenue as defined in § 61.46(d)
of this chapter; or\
\
(2) The sum of the local switching, carrier common line and
interconnection charge charges assessed on originating minutes on
December 31, 1997, minus the local switching charges assessed on
originating minutes.\
\
(b) To the extent that paragraph (a) of this section does not recover
from interexchange carriers all permitted carrier common line revenue,
the excess may be collected through a per-minute charge on terminating
access calculated using the weighting method set forth in paragraph (c)
of this section.\
\
(c) For each Carrier Common Line access element tariff, the premium
originating Carrier Common Line charge shall be set at a level that
recovers revenues allowed under paragraphs (a) and (b) of this section.
The non-premium charges shall be equal to .45 multiplied by the premium
charges.

**§ 69.155 Per-minute residual interconnection charge. \[Effective Jan.
1, 1998.\]**\
\
\[PUBLISHER\'S NOTE: This section was added at 62 FR 31868, 31938, June
11, 1997, effective Jan. 1, 1998. 62 FR 56121, 56133, Oct. 29, 1997,
revised paragraph (c), effective Jan. 1, 1998.\]\
\
(a) Local exchange carriers may recover a per-minute residual
interconnection charge on originating access. The maximum such charge
shall be the lower of:\
\
(1) The per-minute rate that would recover the total annual residual
interconnection charge revenues permitted less the portion of the
residual interconnection charge allowed to be recovered under § 69.153;
or\
\
(2) The sum of the local switching, carrier common line and residual
interconnection charges assessed on originating minutes on December 31,
1997, minus the local switching charges assessed on originating minutes,
less the maximum amount allowed to be recovered under § 69.154(a).\
\
(b) To the extent that paragraph (a) of this section prohibits a local
exchange carrier from recovering all of the residual interconnection
charge revenues permitted, the residual may be collected through a
per-minute charge on terminating access.\
\
(c)(1) No portion of the charge assessed pursuant to paragraphs (a) or
(b) of this section that recovers revenues that the local exchange
carrier anticipates will be reassigned to other, facilities-based rate
elements, including the tandem-switching rate element described in §
69.111(g), the three-part tandem switched transport rate structure
described in § 69.111(a)(2), and port and multiplexer charges described
in § 69.111(l), shall be assessed upon minutes utilizing the local
exchange carrier\'s local switching facilities, but not the local
exchange carrier\'s transport service.\
\
(2) If a local exchange carrier cannot recover its full residual
interconnection charge revenues through the PICC mechanism established
in § 69.153, and will consequently recover a portion of its residual
interconnection charge revenues through per-minute charges assessed
pursuant to paragraphs (a) and (b) of this section, then the local
exchange carrier must allocate its residual interconnection charge
revenues subject to the exemption established in paragraph (c)(1) of
this section between the PICC and the per-minute residual
interconnection charge in the same proportion as other residual
interconnection charge revenues are allocated between these two recovery
mechanisms.

**§ 69.156 Marketing expenses.**

Effective July 1, 2000, the marketing expenses formerly allocated to the
common line and traffic sensitive baskets, and the switched services
within the trunking basket pursuant to § 32.6610 of this chapter and §
69.403 will now be recovered in the CMT basket created pursuant to §
61.42(d)(1) of this chapter. These marketing expenses will be recovered
through the elements outlined in §§ 69.152, 69.153 and 69.154.

**§ 69.157 Line port costs in excess of basic, analog service.
\[Effective Jan. 1, 1998.\]**\
\
\[PUBLISHER\'S NOTE: This section was added at 62 FR 31868, 31938, June
11, 1997, effective Jan. 1, 1998.\]\
\
To the extent that the costs of ISDN line ports, and line ports
associated with other services, exceed the costs of a line port used for
basic, analog service, local exchange carriers may recover the
difference through a separate monthly end-user charge. As of June 30,
2000, these rates will be capped until June 30, 2005.

**§ 69.158 Universal Service End User Charges**

To the extent the company makes contributions to the Universal Service
Support Mechanisms pursuant to §§ 54.706 and 54.709 of this chapter and
the incumbent LEC seeks to recover some or all of the amount of such
contribution, the incumbent LEC shall recover those contributions
through a charge to end users other than Lifeline users. These
contributions are not a part of any price cap baskets, and the charge to
recover these contributions is not part of any other element established
pursuant to part 69. Such a charge may be assessed on a per-line basis
or as a percentage of interstate retail revenues, and at the option of
the incumbent LEC it may be combined for billing purposes with other end
user retail rate elements. An incumbent LEC opting to assess the USF
end-user rate element on a per-line basis may apply that charge using
the \"equivalency\" relationships established for the multi-line
business PICC for Primary Rate ISDN service, as per § 69.153(d), and for
Centrex lines, as per § 69.153(e).

**§§ 69.201-69.205 \[Removed\]**

**§ 69.206 \[Deleted\]**

**§ 69.207 \[Deleted\]**

**§ 69.208 \[Deleted\]**

**§ 69.209 \[Deleted\]**

**APPENDIX C**

\[Insert pdf file Graphs 1, 2, and 3\]

**APPENDIX C**

**CHART 1**

# SLC and PICC Caps under current access rules (assumes 2% inflation) {#slc-and-picc-caps-under-current-access-rules-assumes-2-inflation .unnumbered}

Current 7/2000 7/2001 7/2002 7/2003 7/2004

Primary Residential

SLC \$3.50 \$3.50 \$3.50 \$3.50 \$3.50 \$3.50

PICC \$1.04 \$1.56 \$2.09 \$2.63 \$3.18 \$3.74

Non-Primary Residential

SLC \$6.07 \$7.19 \$8.33 \$9.51 \$9.96 \$10.16

PICC \$2.53 \$3.58 \$4.65 \$5.74 \$6.86 \$8.00

Multi-line Business

SLC \$9.20 \$9.38 \$9.57 \$9.76 \$9.96 \$10.16

PICC \$4.31 \$5.90 \$7.52 \$9.17 \$10.85 \$11.57

## SLC and PICC Caps under CALLS (assumes 2% inflation) {#slc-and-picc-caps-under-calls-assumes-2-inflation .unnumbered}

Primary Residential

SLC \$3.50 \$4.35 \$5.00 \$6.00 \$6.50 \$6.50

PICC \$1.04 0 0 0 0 0

Non-Primary Residential

SLC \$6.07 \$7.00 \$7.00 \$7.00 \$7.00 \$7.00

PICC \$2.53 0 0 0 0 0

Multi-line Business

SLC \$9.20 \$9.20 \$9.20 \$9.20 \$9.20 \$9.20

PICC \$4.31 \$4.31 \$4.31 \$4.31 \$4.31 \$4.31

**APPENDIX D**

\[Insert *Sprint Feb. 25 Letter* and *AT&T March 30 Letter*\]

**APPENDIX E**

**CALLS *Ex Parte* Filings Modifying the Proposal**

-   Letter from John T. Nakahata, Counsel to CALLS, to Magalie Roman
    Salas, Secretary, FCC, February 25, 2000.

-   Letter from Joel E. Lubin, Vice President, Federal Government
    Affairs, AT&T, to Magalie Roman Salas, Secretary, FCC, February 25,
    2000 (*AT&T February 25 Letter*).

-   Letter from Richard Juhnke, General Attorney, Sprint, to Magalie
    Roman Salas, Secretary, FCC, February 25, 2000 (*Sprint February 25
    Letter*).

-   Letter from Kathleen M. H. Wallman, Wallman Strategic Consulting,
    L.L.C., to Magalie Roman Salas, Secretary, FCC, March 30, 2000
    (*Wallman March 30 Letter*).

-   Letter from Joel E. Lubin, Vice President, Federal Government
    Affairs, AT&T, to Magalie Roman Salas, Secretary, FCC, March 30,
    2000 (*AT&T March 30 Letter*).

-   Letter from John T. Nakahata, Counsel to CALLS, to Magalie Roman
    Salas, Secretary, FCC, April 7, 2000.

-   Letter from John T. Nakahata, Counsel to CALLS, to Richard Lerner,
    Deputy Chief, Competitive Pricing Division, Common Carrier Bureau,
    FCC, April 14, 2000.

-   Letter from Anne K. Bingaman, Chairman and CEO, VALOR
    Telecommunications Southwest, LLC, and John T. Nakahata, Counsel to
    CALLS, to Larry Strickling, Chief, Common Carrier Bureau, FCC, April
    14, 2000 (*VALOR April 14 Letter*).

-   Letter from John T. Nakahata, Counsel to CALLS, to Jack Zinman,
    Legal Counsel, Common Carrier Bureau, FCC, April 14, 2000.

-   Letter from John T. Nakahata, Counsel to CALLS, to Magalie Roman
    Salas, Secretary, FCC, April 24, 2000.

-   Letter from John T. Nakahata, Counsel to CALLS, to Magalie Roman
    Salas, Secretary, FCC, April 28, 2000 (*CALLS April 28 Letter*).

-   Letter from John T. Nakahata, Counsel to CALLS, to Magalie Roman
    Salas, May 2, 2000.

-   Letter from John T. Nakahata, Counsel to CALLS, to Jack Zinman,
    Legal Counsel, Common Carrier Bureau, FCC, May 22, 2000.

-   Letter from John T .Nakahata, Counsel to CALLS, to Magalie R. Salas,
    Secretary, FCC, May 25, 2000.

-   Letter from John T. Nakahata, to Jack Zinman, Legal Counsel, Common
    Carrier Bureau, FCC, May 25, 2000.

# STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT‑ROTH, CONCURRING IN PART AND DISSENTING IN PART

*Re: Access Charge Reform, Price Cap Performance Review for Local
Exchange Carriers, Low-Volume Long Distance Users, Federal-State Joint
Board on Universal Service*, Report and Order, CC Docket Nos. 96-262,
94-1, 99-249, 96-45.

The current structure of interstate access charges is irrational, and
substantial revision of the Commission's access charge rules is needed.
At present, the price of access to the local exchange carriers' networks
bears very little relation to the way in which the costs of access are
actually incurred -- per-minute charges for access are far higher than
they should be, whereas fixed charges are artificially low. As
substitutes for traditional circuit-switched long-distance services,
such as packet-switched Internet-based telephony, become more widely
available, the regulatory distortions created by the Commission's rules
are increasingly untenable.

Today's restructure of the access charge regime takes some steps in the
right direction, and I concur in those aspects of this decision that
permit price-cap local exchange carriers more fully to recover the fixed
costs of the local loop through flat-rated charges. Indeed, I would have
moved even more aggressively in this regard. I write separately,
however, to express my profound disagreement with three aspects of this
order.

**The Process Through Which this Order Was Adopted Was Fundamentally
Defective.** This order is a product of a proposal that was originally
submitted last summer by the Coalition for Affordable Local and Long
Distance Service ("CALLS"). The Commission sought comment on this
proposal last fall. *See* Notice of Proposed Rulemaking, *Access Charge
Reform, Low-Volume Long Distance Users, Federal-State Joint Board on
Universal Service*, CC Docket Nos. 92-262, 94-1, 99-249, 96-45 (Sept.
15, 1999).

In ordinary circumstances, the Commission would simply have rendered a
decision on the CALLS proposal based on comments submitted by interested
parties. The course the Commission took here, however, was very
different. In the early part of this year, apparently prompted by
objections to the original CALLS proposal raised by groups purporting to
represent consumer interests, the Commission, acting chiefly through the
Common Carrier Bureau, held a series of meetings with a select group of
some -- but by no means all -- of the parties with interests in this
proceeding. The substance of what was discussed at these meetings was
not publicly disclosed. And a number of parties with interests in the
outcome of this proceeding, including the Ad Hoc Telecommunications
Users Committee, Time Warner Telecom, and the Association for Local
Telecommunications Services, were not allowed to participate.

The Commission evidently refereed the negotiations at these meetings,
and a "modified" CALLS proposal was reached near the end of February.
Although this order announces that this "modified proposal" was put
forth by members of the Coalition, *see* Order ¶ 1, it is undeniable
that the proposal was a product of the negotiations that took place
between the Commission and those parties that were allowed to
participate in the negotiations -- that is, members of the Coalition and
some groups that purport to represent the interests of residential and
small-business consumers. The Coalition's "modified proposal" simply
memorialized aspects of the agreement that was reached between these
parties and the Commission in the course of the meetings held in January
and February of this year.

Even more dismaying, however, is what the "modified proposal" does not
disclose. At some point in the course of the CALLS negotiations,
proceedings that were unrelated to the issue of access charge reform
became part of the negotiations. Incumbent local exchange carrier
members of the Coalition apparently contended that they could not commit
to certain modifications of the CALLS proposal unless they had
confidence that two separate matters -- a depreciation waiver item[^604]
and the pending special access proceeding, which concerns the
circumstances in which carriers may purchase combinations of unbundled
loops and transport network elements[^605] -- would be resolved
favorably to them. As a consequence, part of the final agreement reached
by the participants to the CALLS negotiations concerned these two
separate matters. With respect to this depreciation item, the Bureau
agreed to recommend to the Commission that it approve the waiver that is
the subject of this Notice and terminate the CPR audits. Additionally,
the Bureau agreed to recommend to the Commission that it "clarify" the
existing rules regarding special access and defer further rulemaking
until 2001. The linkage between these unrelated items and the CALLS
docket was very clear -- at least internally. To brief the Commissioners
and their staff regarding the outcome of the CALLS negotiations, the
Bureau distributed briefing sheets outlining the incumbent carriers'
concerns and making plain that the depreciation and special access
matters had become a key part of the CALLS package. Nothing in this
order, however, tells the public of this connection between this order
and these other dockets.

In my view, the process by which the original CALLS proposal was
modified is fundamentally inconsistent with principles of neutrality and
transparency that must govern agency decisionmaking. By participating in
the CALLS negotiations, the Commission plainly reached a view as to how
the CALLS proceeding should be

resolved, and its review of the comments it subsequently received
regarding the "modified proposal" could not have been uninfluenced by
the role it had played earlier. In addition, it was entirely improper
for the Commission to have permitted the unrelated matters of
depreciation and special access become part of the negotiations.

If the Bureau thought it would be helpful to narrow the differences
between the various parties with interests in this docket in advance of
a formal rulemaking proceeding, it could legally have done so by
following the framework set forth in the Negotiated Rulemaking Act, 5
U.S.C. § 561 *et seq*. This statute provides for the formation of a
committee that will, with the assistance of the relevant agency,
negotiate to reach a consensus on a given issue. 5 U.S.C. § 563. An
agency that undertakes a negotiated rulemaking must publish in the
Federal Register a notice that, among other things, (1) announces the
establishment of the committee; (2) describes the issues and scope of
the rule to be developed; and (3) proposes a list of persons that will
participate on the committee. 5 U.S.C. § 564(a). In addition, the agency
must give persons with interests that will be affected by the new rule
an opportunity to apply to participate in the negotiated rulemaking
process. *Id.* § 564(b). If the committee reaches a consensus, the
statute requires it to transmit to the agency that established the
committee a report on a proposed rule. *Id.* § 566(f). Significantly,
although the agency may nominate a federal employee to facilitate the
committee's negotiations, "\[a\] person designated to represent the
agency in substantive issues *may not* serve as facilitator or otherwise
chair the committee." *Id.* § 566(c) (emphasis added).

None of those procedures was followed here. The public generally was not
notified that the CALLS negotiations were taking place, nor were a
number of parties that wished to be included in these negotiations
permitted to participate. Not surprisingly, the final CALLS deal does
not reflect the views of parties that were not included in the CALLS
negotiations, such as the Ad Hoc Telecommunications Users Committee. For
example, Ad Hoc has pointed out, in its comments and in a series of *ex
parte* presentations to the Commission, that the retention of the
multi-line business presubscribed interexchange carrier charge (or
"PICC") imposes substantial costs on multi-line business consumers.
*See, e.g.*, Letter from James S. Blasak to Harold Furchtgott-Roth (May
23, 2000). Ad Hoc contended that the multi-line business PICC is often
marked up by long-distance carriers, with the result that business
subscribers pay more than they otherwise would. It therefore proposed
that the multi-line business PICC be consolidated with the multi-line
business subscriber line charge (or "SLC") and billed directly from the
price-cap LEC to the end-user, to avoid a mark-up by the interexchange
carrier. *See* Order ¶¶ 105-110. Elimination of the multi-line business
PICC would have been consistent with the approach the Commission took
with respect to the residential and single-line PICC. (Notably, groups
purporting to represent the interests of residential and small-business
consumers *were* at the table when the CALLS negotiations were held.)
But the order declines to take Ad Hoc's approach. Had this

party been permitted to present its views in the context of a negotiated
rulemaking, I think the treatment of the multi-line business PICC might
well have been different. And other aspects of this order would have
been different as well.

Not only were interested parties excluded from the CALLS negotiations,
but also the substance and scope of the CALLS negotiations was not made
public, and there is no public record describing whatever consensus was
finally reached. And, inconsistent with the policy set forth in 5 U.S.C.
§ 566(c), the Bureau participated in these negotiations both
substantively *and* as a facilitator. Had the Commission adhered to the
statutory requirements set forth in the Negotiated Rulemaking Act, I
believe it could have accomplished its goal of reforming the current
access charge regime in a way that preserved its neutrality, allowed
representatives of *all* interested parties to participate, and kept the
public informed about the process taking place.[^606]

To be clear, I do not believe that any employee of this agency acted in
bad faith, nor do I call into question the propriety of public
participation in the Commission's decisionmaking process by making *ex
parte* presentations. In addition, I believe that the inefficiencies of
the current access charge regime should be eliminated. But I cannot
escape the conclusion that the process by which this Notice has been
promulgated falls short of certain fundamental principles that govern
the behavior of administrative agencies.

**The Universal Service Subsidy Created in this Order Is Illegitimate.**
This order establishes a new \$650 million fund universal service
subsidy mechanism, which will be paid from contributions made by *all*
interstate carriers almost exclusively to price-cap local exchange
carriers. The Commission claims that this new subsidy is needed to
replace the implicit "universal service" support mechanism currently
present in interstate access charges.

It is important to understand what is occurring with the creation of
this new subsidy. Until now, it has been interexchange carriers that
have paid to local exchange carriers whatever "implicit subsidy" exists
in access charges, and local exchange carriers have used this money to
subsidize the cost of providing certain types of services within a
limited geographical area (typically within a state). Thus, money might
flow from a business end-user to a residential user, both within the
incumbent's territory. Under this new mechanism, however, *all* carriers
that provide interstate services will fund the access subsidy, and the
costs of the subsidy will be spread nationwide. Thus, a wireless carrier
in California (which is not eligible to receive any support from the
\$650 million

fund) will now find itself footing the bill to subsidize local exchange
carriers nationwide.

I do not think that the creation of this new fund is consistent with the
statute's directive that the Commission "preserve and advance" universal
service support mechanisms. *See* 47 U.S.C. §254. In my view, the
subsidies present in the existing access charge regime do not come
within the scope of section 254, and the Commission's reliance on
section 254 as a basis for creating this new fund is inconsistent with
the statute. Moreover, the only economically rational way for local
exchange carriers to recover whatever subsidies are currently included
in access charges is to increase the flat fees that subscribers pay for
access. Paradoxically, this order decreases those charges. Although
consumers may pay less in flat charges in the short term, I believe that
this order does them a great disservice, since they will ultimately wind
up paying far more to fund the subsidies that this Commission continues
to manufacture in the name of "universal service."

The Commission's Requirement that Sprint and AT&T Comply with the
Commitments these Companies Made in Letters to the Commission Is
Unenforceable. In various letters to the Commission, Sprint and AT&T
have made "commitments" regarding the CALLS proposal. Among other
things, these companies have said they will "pass through" to consumers
the savings that they realize in access charge reductions and that they
will make various rate plans available to different types of consumers.
The Commission orders Sprint and AT&T to comply with all the supposedly
"voluntary" commitments they have made in these letters. *See* Order
¶ 247.

In my view, the Commission lacks the power to regulate AT&T's and
Sprint's rates in this manner. As the Commission recognized in 1996, the
long-distance market is a competitive one, and the Commission therefore
no longer regulates the rates of any long-distance carrier. Order,
*Motion of AT&T To Be Classified as a Non-Dominant Carrier*, 11 FCC Rcd
3271 (1996). In a competitive market, it is consumers -- through their
buying power -- who tell carriers whether their rates are reasonable or
not. Government regulation is no longer warranted. I therefore do not
see how, even if these carriers fail to live up to their "commitment"
letters, the Commission could possibly find these carriers' rates
"unjust" or "unreasonable."

[^1]: CALLS consists of the following members: AT&T, Bell Atlantic,
    BellSouth, GTE, SBC, and Sprint. They represent four of the five
    largest local exchange companies and two of the three largest
    long-distance companies in the nation. These local and long-distance
    companies have historically been adversaries in our access reform
    and universal service proceedings. CALLS first submitted its
    proposal on July 29, 1999 (Letter from John T. Nakahata, Counsel to
    CALLS, to Magalie Roman Salas, Secretary, FCC, July 29, 1999;
    resubmitted with edits on August 20, 1999 (Original Proposal)).
    CALLS submitted a modified proposal on March 8, 2000 (Letter from
    John T. Nakahata, Counsel to CALLS, to Magalie Roman Salas,
    Secretary, FCC, March 8, 2000 (Modified Proposal)). CALLS has made
    some refinements to its proposal since that date. *See* Appendix E.
    Unless otherwise indicated, the terms "CALLS Proposal" and
    "proposal" refer to the Modified Proposal, as revised by CALLS in
    its subsequent filings.

    In reviewing the CALLS Proposal, the Commission has twice requested
    and received comment. Access Charge Reform, CC Docket 96-262, Notice
    of Proposed Rulemaking, 14 FCC Rcd 16872 (1999) (*CALLS NPRM*);
    Coalition for Affordable Local and Long Distance Services (CALLS)
    Modified Proposal, CC Docket No. 96-262, Public Notice, DA-00-533
    (Comm. Carr. Bur., rel. Mar. 8, 2000). A comment or reply comment to
    the *CALLS NPRM* is identified as Comment or Reply, respectively. A
    comment or reply comment to the supplemental request for comment in
    the Public Notice is identified as Supp. Comment or Supp. Reply,
    respectively. Appendix A includes a list of parties filing comments
    on the CALLS Proposal and Low-Volume Long-Distance Users, CC Docket
    No. 99-249, Notice of Inquiry, 15 FCC Rcd 6298 (1999) (*Low-Volume
    Long-Distance Users NOI*).

[^2]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56
    (1996) (1996 Act). The 1996 Act amended the Communications Act of
    1934. 47 U.S.C. §§ 151 *et seq*.

[^3]: 47 U.S.C. § 254(e).

[^4]: A local loop is the connection between the telephone company's
    central office building and the customer's premises.

[^5]: For additional background on the ENFIA agreement, *see, e.g.,*
    Investigation of Access and Divestiture-Related Tariffs, CC Docket
    No. 83-1145, Phase I and Phase II, Part 1, FCC 85-100, 57 Rad.Reg.2d
    1229, 1241 (rel. March 8, 1985).

[^6]: MTS and WATS Market Structure, CC Docket No. 78-72, Third Report
    and Order, Phase 1, 93 FCC 2d 241, (1983) (*1983 Access Charge
    Order*), *recon.*, 97 FCC 2d 682 (1983), *second recon.*, 97 FCC 2d
    834 (1984).

[^7]: These rules are referred to as the Uniform System of Accounts and
    are contained in Part 32 of the Commission\'s Rules. *See* 47 C.F.R.
    §§ 32.1-.9000.

[^8]: This is governed by sections 64.901-.904 of our Rules. *See* 47
    C.F.R. §§ 64.901-.904.

[^9]: This step is governed by Part 36 of the Rules. *See* 47 C.F.R. §§
    36.1-.741.

[^10]: 47 C.F.R. §§ 69.1-69.731.

[^11]: The general process of separating these costs between the
    interstate and intrastate jurisdictions is discussed by the Supreme
    Court in *Smith v. Illinois Bell Tel. Co*., 282 U.S. 133 (1930).

[^12]: *See*, *e.g.*, Access Charge Reform, CC Docket No. 96-262, First
    Report and Order, 12 FCC Rcd 15982, 16010-11 (1997) (*Access Charge
    Reform Order*), *aff'd sub. nom.*, *Southwestern Bell v. FCC*, 153
    F.3d 523 (8^th^ Cir. 1998).

[^13]: Since 1981, the Commission has allowed certain smaller incumbent
    LECs to base their access rates on historic, rather than projected,
    cost and demand. *See* 47 C.F.R. § 61.39.

[^14]: The Commission required price cap regulation for the BOCs and
    GTE, and permitted other LECs to elect price cap regulation
    voluntarily, provided that all their affiliates also convert to
    price cap regulation and that they withdraw from the pools
    administered by the National Exchange Carrier Association (NECA).
    Policy and Rules Concerning Rates for Dominant Carriers, CC Docket
    No. 87-313, Second Report and Order, 5 FCC Rcd 6786, 6818-20 (1990)
    (*LEC Price Cap Order*).

[^15]: The price cap regulations also give incumbent LECs greater
    flexibility in determining the amount of revenues that may be
    recovered from a given access service. The price cap rules group
    services together into different baskets, service categories, and
    service subcategories. The rules then identify the total permitted
    revenues for each basket or category of services. Within these
    baskets or categories, incumbent LECs are given some discretion to
    determine the portion of revenue that may be recovered from specific
    services. Subject to certain restrictions, this flexibility allows
    incumbent LECs to alter the access charge rate level associated with
    a given service. For example, within the category of switching
    services, an incumbent LEC may choose to recover a greater portion
    of its switching revenues through access charges assessed to one
    kind of switching service rather than through charges assessed to
    another switching service. Although the LEC must still observe the
    switched-access rate structure that is set forth in Part 69 of our
    rules (which determines what services may be offered and whether
    charges may be imposed on a per-minute or flat-rated basis), the
    rate level of the access charge will vary depending on the amount of
    revenues that the LEC chooses to recover from a given service.

[^16]: Price Cap Performance Review for Local Exchange Carriers, Second
    Further Notice of Proposed Rulemaking in CC Docket No. 94-1, Further
    Notice of Proposed Rulemaking in CC Docket No. 93-124, and Second
    Further Notice of Proposed Rulemaking in CC Docket No. 93-197, 11
    FCC Rcd 858, 862 (1995) (*Price Cap Second FNPRM*).

[^17]: Price Cap Performance Review for Local Exchange Carriers, Fourth
    Report and Order in CC Docket No. 94-1 and Second Report and Order
    in CC Docket No. 96-262, 12 FCC Rcd 16642, 16700 (1997) (*1997 Price
    Cap Review Order*), *aff\'d in part, rev\'d in part*, *USTA v. FCC*,
    188 F.3d 521 (D.C. Cir. 1999).

[^18]: *Access Charge Reform Order*, 12 FCC Rcd at 16007-33.

[^19]: *Access Charge Reform Order*, 12 FCC Rcd at 16001-02.

[^20]: Access Charge Reform Order, 12 FCC Rcd at 16003.

[^21]: *Access Charge Reform Order*, 12 FCC Rcd at 16002-03.

[^22]: *Access Charge Reform Order*, 12 FCC Rcd at 16003.

[^23]: The "designated" or "core" services a carrier must provide in
    order to be eligible to receive universal service support include:
    single-party voice service; voice grade access to the public
    switched network; DTMF signaling or its functional equivalent;
    access to emergency services; access to operator services; access to
    interexchange service; access to directory assistance; and toll
    limitation services for qualifying low-income consumers. *See*
    Federal-State Joint Board on Universal Service, CC Docket No. 96-45,
    Report and Order, 12 FCC Rcd 8776, 8809 (1997) (*Universal Service
    First Report and Order*), as corrected by Federal-State Joint Board
    on Universal Service, CC Docket No. 96-45, Errata, FCC 97-157 (rel.
    June 4, 1997), *aff'd in part*, *rev'd in part*, *and remanded in
    part*, *Texas Office of Public Utility Counsel v. FCC*, 183 F.3d 393
    (5^th^ Cir. 1999) (affirming in relevant part the Commission's
    decisions regarding implementation of the high-cost universal
    service support mechanism).

[^24]: *See* *Access Charge Reform Order*, 12 FCC Rcd at 16022-26.

[^25]: *See, e.g.,* [H. Rep. No.]{.smallcaps} 204, 104th Cong., 1st
    Sess. 68 (1995) (The bill \"would make such internal subsidies much
    less viable because deregulation would remove the near-guaranteed
    returns allowed in a regulated market, and with them the ability of
    the regulated firm to subsidize high-cost customers.\")

[^26]: *See*, *e.g.*, U S West Forbearance Petition (Phoenix), CC Docket
    No. 98-157 (filed Aug. 24, 1998); SBC Communications, Inc.
    Forbearance Petition, CC Docket No, 98-227 (filed Dec. 7, 1998); U S
    West Forbearance Petition (Seattle), CC Docket No. 99-1 (filed Dec.
    30, 1998); and Ameritech Forbearance Petition, CC Docket No. 99-65
    (filed Feb. 5, 1999).

[^27]: 47 U.S.C. § 254(a), (d). *See also* Federal-State Joint Board on
    Universal Service, CC Docket No. 96-45, Notice of Proposed
    Rulemaking and Order Establishing Joint Board, 11 FCC Rcd 18092
    (1996) (*Universal Service NPRM*).

[^28]: 47 U.S.C. § 254(b), (e). According to the Joint Explanatory
    Statement, the purpose of the 1996 Act is \"to provide for a
    pro-competitive, de-regulatory national policy framework designed to
    accelerate rapidly private sector deployment of advanced
    telecommunications and information technologies and services to all
    Americans by opening all telecommunications markets to competition .
    . . .\" Joint Explanatory Statement of the Committee of Conference,
    H.R. Conf. Rep. No. 458, 104th Cong., 2d Sess. at 113 (Joint
    Explanatory Statement).

[^29]: Federal-State Joint Board on Universal Service, Seventh Report
    and Order and Thirteenth Order on Reconsideration in CC Docket No.
    96-45, and Fourth Report and Order in CC Docket No. 96-262 and
    Further Notice of Proposed Rulemaking, 14 FCC Rcd 8078 (1999),
    petition for review filed *sub. nom. Vermont Department of Public
    Service v. FCC*, No. 99-60530 (5^th^ Cir., filed June 23, 1999)
    (*Universal Service Seventh Report and Order*); Federal-State Joint
    Board on Universal Service, CC Docket No. 96-45, Ninth Report and
    Order and Eighteenth Order on Reconsideration, 14 FCC Rcd 20432
    (1999) (*Universal Service Ninth Report and Order*).

[^30]: *Universal Service First Report and Order*, 12 FCC Rcd at 9162;
    *Access Charge Reform Order*, 12 FCC Rcd at 16144-50 .

[^31]: *See, e.g., Universal Service First Report and Order*, 12 FCC Rcd
    at 9007.

[^32]: *Universal Service Seventh Report and Order*, 14 FCC Rcd at 8078.

[^33]: Price Cap Performance Review For Local Exchange Carriers, CC
    Docket No. 94-1, Further Notice of Proposed Rulemaking, 14 FCC Rcd
    19717 (1999) (*1999 Price Cap FNPRM*).

[^34]: *Low-Volume Long-Distance Users NOI*, 15 FCC Rcd 6298.

[^35]: Access Charge Reform, CC Docket No. 96-262, Fifth Report and
    Order and Further Notice of Proposed Rulemaking, 14 FCC Rcd 14221,
    14320-23 (1999) (*Pricing Flexibility Order*).

[^36]: *1997 Price Cap Review Order*, 12 FCC Rcd at 16707.

[^37]: The X-factor is a mechanism used to reduce access rates. *See*
    Section IV.B. *infra* for a full discussion.

[^38]: 47 U.S.C. § 254(e).

[^39]: The interstate access universal service support is distinct from
    the intrastate high-cost support already in place for local rates.
    *See*, *e.g.*, *Universal Service Ninth Report and Order*, 14 FCC
    Rcd at 20436.

[^40]: *Universal Service Seventh Report and Order*, 14 FCC Rcd at 8139.

[^41]: As revised, the CALLS Proposal acknowledges that at the time of
    the cost proceeding, parties can argue that certain revenues, rather
    than be incorporated into the SLC, should be disallowed. *See
    Wallman March 30 Letter* at 2.

[^42]: *Wallman March 30 Letter* at 3; Appendix B § 69.158.

[^43]: Indeed, in a similar context, the D.C. Circuit has admonished the
    Commission that "\[t\]he best must not become the enemy of the good,
    as it does when the FCC delays making any determination while
    pursuing the perfect tariff." *MCI v. FCC*, 627 F.2d 322, 341-42
    (D.C. Cir. 1980).

[^44]: As explained below, price cap LECs that do not elect the
    rate-level components of the CALLS Proposal will be subject to a
    forward-looking costs proceeding for those rates.

[^45]: We note that the Commission has the authority to modify the rules
    we adopt today before the end of the five-year term of the CALLS
    Proposal. This Order addresses a marketplace that is dynamic and
    evolving, and the Commission may exercise its authority should the
    need arise.

[^46]: Mass. DTE Comments at 8.

[^47]: *See, e.g., Access Charge Reform Order*, 12 FCC Rcd at 16249-51.

[^48]: *See* 47 U.S.C. § 254.

[^49]: *See* Section IV.C.3.b *infra*.

[^50]: *See 1997 Price Cap Review Order*.

[^51]: *See* Appendix C, Graphs 1 and 2. These calculations assume that
    the X-factor remains at 6.5 percent, but that inflation remains
    relatively low, at 1.95%. If inflation is higher, the CALLS Proposal
    produces lower overall rates relative to the status quo. Our
    estimates are based on applying our current rules and the CALLS
    Proposal's proposed rules to publicly available data, so we are
    puzzled by MCI's insistence that CALLS should have released its own
    estimates. *See* MCI Supp. Comments at 3-5; *see also* New Jersey
    Div. Supp. Comments at 4-5; Ad Hoc Supp. Reply at 5-6.

[^52]: *See also* CALLS Supp. Reply at 39-41.

[^53]: ALTS and Time Warner Supp. Comments, Exhibit.

[^54]: The Original Proposal was, despite its shortcomings,
    exceptionally well developed. Nevertheless, it is only now being
    adopted, after 10 months and significant modification.

[^55]: ALTS and Time Warner Supp. Comments at 8.

[^56]: *Access Charge Reform Order*, 12 FCC Rcd at 16097.

[^57]: ALTS and Time Warner Supp. Comments at 3, 11-12.

[^58]: ALTS and Time Warner Supp. Comments at 4, 16.

[^59]: ALTS Supp. Comments at 8-10.

[^60]: ALTS Supp. Comments at 4, 16.

[^61]: *See* CALLS Supp. Reply at 43.

[^62]: We do in fact make some minor and technical changes to the CALLS
    Proposal. *See e.g.* Section IV.B.2.c. *infra* (changing the
    inflation measurement used to calculate the price cap indices). *But
    see* *e.g.*, Letter from John T. Nakahata, Counsel to CALLS, to
    Magalie Roman Salas, Secretary, FCC, April 24, 2000 (asserting that
    CALLS considers this change in the CALLS Proposal to be a material
    one).

[^63]: *See*, *e.g.*, Ad Hoc Supp. Comments at 3; Allegiance Supp.
    Comments at 4; Cincinnati Bell Supp. Comments at 1-2.

[^64]: We note that courts allow for pragmatic adjustments in the rate
    setting context. *FPC v. National Gas Pipeline Co.*, 315 U.S. 575,
    586 (1942). Indeed, in reviewing rate setting decisions, the courts
    focus on the "net effect," allowing that "\[e\]rrors to the
    detriment of one party may well be canceled out by countervailing
    errors or allowances in another part of the proceeding." *Duquesne
    Light Co. v. Barasch*, 488 U.S. 299, 314 (1989).

[^65]: *See* APT Supp. Comments at 8; Rainbow/PUSH Supp. Comments at 2;
    NHCA Supp. Reply at 1; United Seniors Supp. Reply at 1; Letter from
    Martin A. Corry, Director, Federal Affairs, AARP, to William
    Kennard, Chairman, FCC, April 13, 2000. *But see* Joint Consumer
    Commenters Supp. Comments at 2.

[^66]: *See* Mass. DTE Comments at 9; Maine Joint Commenters Supp. Reply
    at 2. *But see,* Maryland Commission Supp. Reply Comments at 4;
    Florida Commission Comments at 1.

[^67]: *See* Qwest Supp. Comments at 3; CompTel Supp. Reply at 2
    (generally supporting CALLS Proposal). *But see* ALTS Supp. Reply at
    4.

[^68]: 47 U.S.C. § 254(g) ("\[R\]ates charged by providers of
    interexchange telecommunications services to subscribers in rural
    and high cost areas shall be no higher than the rates charged by
    each such provider to its subscribers in urban areas. Such rules
    shall also require that a provider of interstate interexchange
    telecommunications services shall provide such services to its
    subscribers in each State at rates no higher than the rates charged
    to its subscribers in any other State.")

[^69]: *AT&T March 30 Letter* at 1.

[^70]: Modified Proposal at § 3.2.4.

[^71]: *Sprint February 25 Letter* at 1 ("Sprint will not impose a
    minimum usage charge ("MUC") on at least one basic rate plan for the
    duration of the CALLS plan, provided that if any other interexchange
    carrier that is now or hereafter a party to the CALLS plan reserves
    the right to impose a MUC on its basic rate plan prior to the
    termination of the CALLS plan, Sprint reserves the right to do so as
    well under similar terms and circumstances.").

[^72]: We note that the national rate averaging requirement of section
    254(g) already places nationwide IXCs at a competitive disadvantage
    because they must average rates for all areas, including regions
    served by rate-of-return LECs. Permitting large carriers such as U S
    West to maintain rates significantly above the CALLS target levels
    would exacerbate this competitive disadvantage.

[^73]: *See* Letter from John Kure, Executive Director, Federal
    Regulatory, U S West, to Magalie Roman Salas, Secretary, FCC, April
    28, 2000.

[^74]: *Access Charge Reform Order***,** 12 FCC Rcd at 16096-97.

[^75]: *Access Charge Reform Order*, 12 FCC Rcd at 16092-99.

[^76]: *Access Charge Reform Order*, 12 FCC Rcd at 16099.

[^77]: These carriers may still obtain pricing flexibility for those
    services that are subject to competition pursuant to the *Pricing
    Flexibility Order*.

[^78]: *See*, *e.g.*, CompTel Comments at 7-8; CPI Reply at 4, 9; Iowa
    Utilities Board Supp. Comments at 6.

[^79]: CompTel Comments at 8.

[^80]: *LEC Price Cap Order*, 5 FCC Rcd at 6787.

[^81]: *1983 Access Charge Order*, 93 F.C.C.2d at 241. Although we had
    not moved to a price cap regulatory regime at that time, LECs who
    later became price cap LECs were subject to the access charge
    system.

[^82]: *1983 Access Charge Order*, 93 F.C.C.2d at 264-65. The Commission
    found that a subscriber who does not use the subscriber line to
    place or receive interstate calls imposes the same NTS costs as a
    subscriber who does use the line. Thus, simply by requesting
    telephone service, the subscriber causes local loop costs whether
    she uses the service for intrastate or interstate calls. *1983
    Access Charge Order*, 93 F.C.C.2d at 278.

[^83]: Thus, LEC common line revenues = end-user SLC "plus" (CCL charge
    "times" usage), when access charges were first adopted.

[^84]: *Access Charge Reform Order*, 12 FCC Rcd at 16007-33. Incumbent
    LECs that are subject to rate-of-return regulation remain under the
    original 1983 common line rate structure rules.

[^85]: *Access Charge Reform Order*, 12 FCC Rcd at 16004.

[^86]: *Access Charge Reform Order*, 12 FCC Rcd at 16010-11.

[^87]: 47 C.F.R. § 69.153; *Access Charge Reform Order*, 12 FCC Rcd at
    16019-20. Thus, after access reform, price cap LEC common line
    revenues = end-user SLC "plus" IXC PICC "plus" (CCL charge "times"
    usage).

[^88]: *Access Charge Reform Order*, 12 FCC Rcd at 16005.

[^89]: *Access Charge Reform Order*, 12 FCC Rcd at 16005.

[^90]: *Access Charge Reform Order*, 12 FCC Rcd at 16022.

[^91]: *Access Charge Reform Order*, 12 FCC Rcd at 15999-00, 16005.

[^92]: *Access Charge Reform Order*, 12 FCC Rcd at 16005.

[^93]: The CCL charge already has been eliminated for Ameritech, Bell
    Atlantic, PacTel, Southwestern Bell Telephone, U S WEST, Aliant,
    SNET and Cincinnati Bell.

[^94]: *Pricing Flexibility Order*, 14 FCC Rcd at 14320-24.

[^95]: *Pricing Flexibility Order*, 14 FCC Rcd at 14324-26.

[^96]: Modified Proposal at § 2.1.2.1.

[^97]: Modified Proposal at § 2.1.2.2.1. *See* Appendix C, Chart 1 for a
    comparison of the SLC and PICC caps under our current rules and as
    proposed by CALLS.

[^98]: Although the CALLS Proposal describes this cost review proceeding
    to be limited to primary residential and single-line business lines,
    CALLS subsequently clarified its submission to include all
    residential lines as part of the proposed cost review proceeding.
    *See* *Wallman March 30 Letter* at 2.

[^99]: A UNE Zone is a state created zone pursuant to section 51.507(f)
    of the Commission rules, which requires states to establish
    different rates for unbundled network elements in at least three
    defined geographic areas within the state to reflect geographic cost
    differences. 47 C.F.R. § 51.507(f).

[^100]: Modified Proposal at §§ 2.1.1.1, 2.1.2.2.1.

[^101]: Under the CALLS Proposal, the price cap LEC common line revenues
    for residential and single-line businesses = end-user SLC "plus"
    (CCL charge "times" usage).

[^102]: Modified Proposal at § 2.1.1.1.

[^103]: Modified Proposal at §§ 2.1.3.1, 2.1.3.2.1.

[^104]: Modified Proposal at § 2.1.3.2.3.

[^105]: Under the CALLS Proposal, the price cap LEC common line revenues
    for multi-line businesses = end-user SLC "plus" IXC PICC "plus" (CCL
    charge "times" usage).

[^106]: Modified Proposal at § 2.1.4.1.

[^107]: Modified Proposal at §§ 2.1.4.1, 2.1.6.

[^108]: Modified Proposal at § 2.1.4.2.1.

[^109]: Modified Proposal at § 2.1.4.2.1. "Voluntary Reduction" is one
    in which the price cap LEC reduces prices other than through offset.
    Modified Proposal at § 2.1.5.6.3.

[^110]: Modified Proposal at § 2.1.5.

[^111]: Modified Proposal at §§ 2.1.5.1, 2.1.5.5, 2.1.5.6.1.

[^112]: Modified Proposal at §§ 2.1.5.2, 2.1.5.6.1.

[^113]: Modified Proposal at § 2.1.5.3.

[^114]: Modified Proposal at § 2.1.5.4.

[^115]: Modified Proposal at § 2.1.5.6.2.

[^116]: Modified Proposal at § 3.2.4.

[^117]: Modified Proposal at §§ 3.2.4.1, 3.2.4.2; *see* Section IV. B.
    *infra* for discussion of this portion of the CALLS Proposal.

[^118]: 47 U.S.C. § 254(k).

[^119]: Cable & Wireless Comments at 1-3; CompTel Comments at 2, 10;
    Western Wireless Reply at 2; Cincinnati Bell Comments at 2;
    Cincinnati Bell Supp. Comments at 6; Global Crossing Supp. Comments
    at 1; Qwest Supp. Comments at 2-3.

[^120]: 47 U.S.C. §§ 4(i), 201-205; *see* *National Association of
    Regulatory Utility Commissioners v. Federal Communications
    Commission*, 737 F.2d 1095, 1114 (D.C. Cir. 1984) (*NARUC v. FCC)*
    (Commission may properly order recovery, through charges imposed on
    telephone subscribers, of the portion of loop costs placed in the
    interstate jurisdiction); *see also* *Smith v. Illinois Bell*, 282
    U.S. at 148-49 (portion of the costs of local subscriber plant
    relating to interstate services may be recovered only under the
    authority of a body with interstate regulatory powers).

[^121]: *See 1983 Access Charge Order*, 93 F.C.C.2d at 264-65, 278; *see
    also Access Charge Reform Order*, 12 FCC Rcd at 16007.

[^122]: Truth-in-Billing and Billing Format, CC Docket No. 98-170, First
    Report and Order, 14 FCC Rcd 7492 (1999) (*Truth-in-Billing Order*);
    *Low-Volume Long-Distance Users NOI*; *see also* CALLS Comments at
    9.

[^123]: *See* CALLS Comments at 9-10.

[^124]: The "blended PICC pass-through charge" is the flat, averaged,
    monthly IXC charge to end users designed to recover the PICC that
    the long-distance carriers were paying regulated local carriers for
    primary and secondary lines.

[^125]: Indeed, under our existing rules, we have permitted LECs to bill
    the PICC directly to end users who do not presubscribe to an IXC.
    The PICC charged in these situations has generally been less than
    those charged by IXCs. *See Access Charge Reform Order*, 12 FCC Rcd
    at 15999; *see also* American Petroleum Comments at 4.

[^126]: This estimate is based upon a weighted average of the primary
    residential PICC and the non-primary residential PICC as of January
    1, 2000. This figure is estimated to increase under our current
    rules to \$1.46 on July 1, 2000.

[^127]: This assumes that long-distance carriers eliminate PICC
    pass-through charges for residential customers, consistent with the
    commitment letters from AT&T and Sprint. *See* *AT&T March 30
    Letter* at 2; *Sprint February 25 Letter* at 1.

[^128]: The inflation rate adjustment would result in an additional
    increase of approximately 2.8 per cent based upon the inflation rate
    during the time period specified under the Commission rules. *See*
    47 C.F.R. § 69.152(k)(2).

[^129]: Our estimate is based upon publicly available data filed by the
    price cap LECs with their tariffs and the CALLS Proposal's
    projections of the sum of the primary line SLC (charged to end
    users) and the primary line PICC charge (charged to carriers) over
    the five-year term of the proposal. In addition, GTE estimates that
    the primary residential SLC at the end of the plan will be
    approximately \$5.80 which is only \$0.30 more than the combined
    flat-rate amount that consumers could expect to pay for the SLC
    under existing rules beginning July 1, 2000, plus the IXC blended
    PICC pass-through charge IXCs could be expected to charge at that
    time. GTE Supp. Reply at 24.

[^130]: 47 U.S.C. § 69.152(e)(2)(ii).

[^131]: Modified Proposal at § 2.1.3.2.1.

[^132]: We estimate that the non-primary residential SLC cap on July 1,
    2000 under current Commission rules will be approximately \$7.24
    based upon a Gross Domestic Product Price Index (GDP-PI) of 2.8% for
    the 18 month period ending March 31, 2000. Because the PICC
    pass-through charge is currently assessed by IXCs on a per-account
    basis, most consumers do not pay an additional PICC for non-primary
    lines. For this reason, we do not take the elimination of the
    non-primary PICC into consideration when considering the difference
    between the status quo and the CALLS Proposal.

[^133]: *See 1999 Price Cap FNPRM*; *Low-Volume Long-Distance Users
    NOI*; *Truth-in-Billing Order*.

[^134]: *Texas Office of Public Utility Counsel v. FCC*, 183 F.3d 393
    (5^th^ Cir. 1999) (affirming in part the Commission's decisions
    regarding implementation of the high-cost universal service support
    system, and reversed in part the Commission's decision that
    incumbent LECs could recover their universal service contributions
    from access charges). *See* Section IV. C. *infra* for a discussion
    of the interstate access universal service support mechanism portion
    of the CALLS Proposal.

[^135]: We note that in other proceedings, we are considering allowing
    price cap LECs to adjust their depreciation rates to amortize the
    difference between their regulatory books and financial books
    through a five-year above-the-line amortization. *See* 1998 Biennial
    Review -- Review of Depreciation Requirements for Incumbent Local
    Exchange Carriers, CC Docket 98-137, Further Notice of Proposed
    Rulemaking, FCC 00-119 (rel. Apr. 3, 2000) (*Depreciation Relief
    NPRM*). We emphasize here that any decision to permit above-the-line
    amortization in that docket will have no affect on the Commission's
    cost proceeding.

[^136]: *See Wallman March 30 Letter* at 1.

[^137]: Wyoming Commission Supp. Comments at 3-4; NASUCA Supp. Comments
    at 5, 20; New Jersey Div. Supp. Comments at 5; Joint Consumer
    Commenters Supp. Comments at 15-18.

[^138]: The universal service policies of 47 U.S.C. § 254(b), among
    others, provide that

    > Consumers in all regions of the Nation, including low-income
    > consumers and those in rural, insular, and high cost areas, should
    > have access to telecommunications and information services,
    > including interexchange services and advanced telecommunications
    > and information services, that are reasonably comparable to those
    > services provided in urban areas and that are available at rates
    > that are reasonably comparable to rates charged for similar
    > services in urban areas.

    47 U.S.C. § 254(b)(3).

[^139]: *See Access Charge Reform Order*, 12 FCC Rcd at 16008-09.

[^140]: Carrier common line charges would have decreased more rapidly
    than they have to date had the SLC caps been adjusted over time for
    inflation. This would have resulted in a more efficient recovery of
    non-traffic sensitive per-line common line costs through flat
    charges than what has occurred to date.

[^141]: *See Access Charge Reform Order*, 12 FCC Rcd at 16015-16. As in
    our *Access Charge Reform Order*, adjustments for inflation are
    based upon the Consumer Price Index (CPI) rather than GDP-PI, for
    comparison purposes because consumer affordability issues relate
    more to the CPI than to the GDP-PI.

[^142]: *See Access Charge Reform Order*, 12 FCC Rcd at 16010-11.

[^143]: *See* Telephone Subscribership in the United States, FCC Common
    Carrier Bureau, Industry Analysis Division (released January 2000).

[^144]: Joint Board Supp. Comments at 12.

[^145]: Joint Board Supp. Comments at 11.

[^146]: Federal-State Joint Board on Universal Service, CC Docket No.
    96-45, Second Recommended Decision, 13 FCC Rcd 24744, 24755 (1998)
    (*Second Recommended Decision)*.

[^147]: 47 U.S.C. § 254(f); Policy and Rules Concerning the Interstate,
    Interexchange Marketplace, CC Docket 96-61, Report and Order, 11 FCC
    Rcd 9564 (1996).

[^148]: NADO Reply at 5.

[^149]: *See AT&T March 30 Letter* at 2; *Sprint February 25 Letter* at
    2.

[^150]: 47 U.S.C. § 254(g).

[^151]: The Rural Task Force is scheduled to make recommendations to the
    Joint Board in early Fall 2000. *See also* Letter from David B.
    Cohen, Vice President -- Small Company Affairs, United States
    Telecom Association, to Magalie Roman Salas, Secretary, FCC, March
    17, 2000, CC Docket 98-77 (submitting Multi-Association Group Plan
    for Rate-of-Return Regulated Services).

[^152]: New Jersey Div. Comments at 11; NASUCA Comments at 33; New
    Jersey Div. Supp. Comments at 7-8; NASUCA Supp. Comments at 8-9,
    17-18.

[^153]: GTE Supp. Reply Attachment B at 2.

[^154]: *See* CALLS Reply at 29.

[^155]: 47 USC § 201(b) states

    > All charges, practices, classifications, and regulations for and
    > in connection with such communication service, shall be just and
    > reasonable, any such charge, practice, classification, or
    > regulation that is unjust or unreasonable is hereby declared to be
    > unlawful.
    >
    > 47 U.S.C. § 201(b).

[^156]: 47 USC § 202(a) states

    > It shall be unlawful for any common carrier to make any unjust or
    > unreasonable discrimination in charges, practices,
    > classifications, regulations, facilities, or services for or in
    > connection with like communication service, directly or
    > indirectly, by any means or device, or to make or give any undue
    > or unreasonable preference or advantage to any particular person,
    > class of person, or locality, or to subject any particular person,
    > class of persons, or locality to any undue or unreasonable
    > prejudice or disadvantage.
    >
    > 47 U.S.C. § 202(a).

[^157]: *See* CALLS Supp. Reply at 17-18.

[^158]: 47 U.S.C. § 254(k) states

    > A telecommunications carrier may not use services that are not
    > competitive to subsidize services that are subject to competition.
    > The Commission, with respect to interstate services, and the
    > States, with respect to intrastate services, shall establish any
    > necessary cost allocations rules, accounting safeguards, and
    > guidelines to ensure that services included in the definition of
    > universal service bear no more than a reasonable share of the
    > joint and common costs of facilities used to provide those
    > services.

    47 U.S.C. § 254(k).

[^159]: *E.g.*, Smithville Comments at 5; NASUCA Comments at 20-22;
    Washington Commission Comments at 9-10; California Commission
    Comments at 11; Joint Consumer Commenters Reply at 3-5; New Jersey
    Div. Comments at 7-8; Michigan Commission Supp. Comments at 3;
    Montana Commission Supp. Comments at 3; Wisconsin Commission Supp.
    Comments at 5-7; Joint Board Supp. Comments at 9-10; Joint Consumer
    Commenters Supp. Comments at 4, 26, 37-38; NASUCA Supp. Comments at
    6, 21-22.

[^160]: 47 U.S.C. § 254(k); *see* Implementation of Section 254(k) of
    the Communications Act of 1934, as Amended, 12 FCC Rcd 6415, 6419
    (1997) (*Section 254(k) Order*).

[^161]: *See Southwestern Bell Telephone v. Federal Communications
    Commission*, 153 F.3d 523, 559 (8^th^ Cir. 1998).

[^162]: *Section 254(k) Order*, 12 FCC Rcd at 6419-20.

[^163]: *See Southwestern Bell v. FCC*, 153 F.3d at 559.

[^164]: *See* CALLS Reply at 27; *see also* *NARUC v. FCC*, 737 F.2d at
    1115.

[^165]: *See Southwestern Bell v. FCC*, 153 F.3d at 559.

[^166]: *See Southwestern Bell v. FCC*, 153 F.3d at 559.

[^167]: *See Southwestern Bell v. FCC*, 153 F.3d at 559.

[^168]: *See Southwestern Bell v. FCC*, 153 F.3d at 558-59.

[^169]: *See Southwestern Bell v. FCC*, 153 F.3d at 559.

[^170]: *See Southwestern Bell v. FCC*, 153 F.3d at 558.

[^171]: 47 U.S.C. § 254(k); *see Southwestern Bell v. FCC*, 153 F.3d at
    559.

[^172]: *Section 254(k) Order*, 12 FCC Rcd at 6420.

[^173]: *See, e.g.,* 47 C.F.R. §§ 69.401-414.

[^174]: *See, e.g.*, Regulatory and Policy Problems Presented by the
    Interdependence of Computer and Communications Services and
    Facilities, Tentative Decision, 28 FCC 2d 291 (1970); Final Decision
    and Order, 28 FCC 2d 267 (1971), *aff\'d sub. nom* *GTE Services
    Corp. v. FCC*, 474 F.2d 724 (2d Cir. 1973); *decision on remand*, 40
    FCC 2d 293 (1973); Amendment of Section 64.702 of the Commission\'s
    Rules and Regulations, 77 FCC 2d 384 (1980), *recon.* 84 FCC 2d 50
    (1980), *further recon*. 88 FCC 2d 512 (1981), *aff\'d sub nom.*
    *Computer and Communications Industry Ass\'n v. FCC*, 693 F.2d 198
    (D.C. Cir. 1982), *cert. denied*, 461 U.S. 938 (1983); Policy and
    Rules Concerning Rates for Competitive Carrier Services and
    Facilities Authorizations Thereof, CC Docket No. 79-252, Fifth
    Report and Order, 98 FCC 2d 1191 (1984); Separation of Costs of
    Regulated Telephone Service from Costs of Nonregulated Activities,
    Amendment of Part 31, the Uniform System of Accounts for Class A and
    Class B Telephone Companies, CC Docket No. 86-111, Report and Order,
    2 FCC Rcd 1298 (1987) (*Joint Cost Order*), *recon.* 2 FCC Rcd 6283
    (1987), *further recon.* 3 FCC Rcd 6701 (1988), *aff\'d sub nom.*
    *Southwestern Bell Corp. v. FCC*, 896 F.2d 1378 (D.C. Cir. 1990).

[^175]: *See Southwestern Bell v. FCC*, 153 F.3d at 559.

[^176]: *Universal Service First Report and Order*, 12 FCC Rcd at 8807.

[^177]: NASUCA Supp. Comments at 7; Deployment of Wireline Services
    Offering Advanced Telecommunications Capability, CC Docket 98-147,
    Third Report and Order, 14 FCC Rcd 20912 (1999) (*Line Sharing
    Order*).

[^178]: *Line Sharing Order*, 14 FCC Rcd at 20976.

[^179]: NASUCA Comments at 19-22; Joint Consumer Commenters Comments at
    16-18; NRTA/NTCA Comments at 9-10; *see also Smith v. Illinois
    Bell*, 282 U.S. 133.

[^180]: *See NARUC v. FCC*, 737 F.3d at 1112.

[^181]: *See NARUC v. FCC*, 737 F.3d at 1112.

[^182]: *See NARUC v. FCC*, 737 F.3d at 1112; *see also Rural Telephone
    Coalition v. Federal Communications Commission,* 838 F.2d 1307, 1314
    (D.C. Cir. 1988).

[^183]: *See NARUC v. FCC*, 737 F.3d at 1114

[^184]: We estimate that by July 2004, the distinction can be eliminated
    for approximately two-thirds of all non-primary lines.

[^185]: 47 C.F.R. § 69.156. Marketing expenses can be recovered from
    multi-line business and non-primary residential SLCs, then
    multi-line business and non-primary residential PICCs, then CCL
    charges.

[^186]: Modified Proposal at § 2.1.1.1.

[^187]: *See Access Charge Reform Order*, 12 FCC Rcd at 16121.

[^188]: *See Access Charge Reform Order*, 12 FCC Rcd at 16122.

[^189]: *See Access Charge Reform Order*, 12 FCC Rcd at 16122.

[^190]: *See Access Charge Reform Order*, 12 FCC Rcd at 16122.

[^191]: *See* Letter from Anthony M. Alessi, Director, Federal
    Relations, Ameritech, to William F. Caton, Acting Secretary, Federal
    Communications Commission, September 11, 1997, CC Docket No. 96-262;
    Letter from Frank G. Kennedy, Director, Legal and Regulatory
    Affairs, United States Telephone Association, to William F. Caton,
    Acting Secretary, Federal Communications Commission, September 29,
    1997, CC Docket No. 96-262.

[^192]: GSA Comments at 7-9; Pathfinder Comments at 5; Ad Hoc Supp.
    Comments at 8-10; U S WEST Supp. Comments at 5, 10-12; TRA Supp.
    Comments at 2, 4-7; MCI Supp. Comments at 29.

[^193]: Ad Hoc Supp. Comments at 8-9; TRA Supp. Comments at 8.

[^194]: Ad Hoc Supp. Comments at 8-10.

[^195]: *See* 47 U.S.C. §§ 204-205. *See also* Interexchange Carrier
    End-User Charges to Recover Universal Service Contributions, CC
    Docket No. 99-324, Suspension Order, 14 FCC Rcd 20032 (1999).

[^196]: *See* 47 U.S.C. § 201(b). See also Truth-in-Billing Order.

[^197]: Our estimates are based upon applying our current rules and the
    CALLS Proposal's proposed rules to publicly available data.

[^198]: MCI Supp. Comments at 29.

[^199]: *See, e.g.,* Ad Hoc Supp. Reply at 5.

[^200]: *See Southwestern Bell v. FCC*, 153 F.3d at 537-38.

[^201]: *See Access Charge Reform Order*, 12 FCC Rcd at 16022.

[^202]: *See Southwestern Bell v. FCC*, 153 F.3d at 538.

[^203]: *See* Modified Proposal at § 2.1.6.

[^204]: *See Access Charge Reform Order*, 12 FCC Rcd at 16023-24.

[^205]: *See Access Charge Reform Order*, 12 FCC Rcd at 16023-24.

[^206]: *See* Robert W. Crandall and Jeffrey H. Rohlfs, The Economic
    Case for the CALLS Proposal, December 3, 1999.

[^207]: Expanded Interconnection with Local Telephone Company
    Facilities; Amendment of the Part 69 Allocation of General Support
    Facility Costs, CC Docket Nos. 91-141 and 92-333, Report and Order,
    7 FCC Rcd 7369, 7454 (1992) (*Special Access Expanded
    Interconnection Order*), *vacated in part and remanded*, *Bell
    Atlantic Tel. Cos. v. FCC*, 24 F.3d 1441 (D.C. Cir 1994); Switched
    Transport Expanded Interconnection with Local Telephone Company
    Facilities, CC Docket No. 91-141, Second Report and Order and Third
    Notice of Proposed Rulemaking, 8 FCC Rcd 7374, 7425-32 (1993)
    (*Switched Transport Expanded Interconnection Order*).

[^208]: Interconnection Between Local Exchange Carriers and Commercial
    Mobile Radio Service Providers, 11 FCC Rcd 15499 (1996); *Iowa
    Utilities Board v. FCC*, 96 F. 3d 1116 (8^th^ Cir. 1996) (*per
    curiam*); *see also* *Iowa Utilities Board v. FCC*, 109 F.3d 418
    (8^th^ Cir. 1996); *Iowa Utilities Board v. FCC*, 120 F.3d 753
    (8^th^ Cir. 1997), *rev'd in part and aff'd in part*, *AT&T v. Iowa
    Utilities Board*, 119 S.Ct. 721 (1999), *on remand* Implementation
    of the Local Competition Provisions of the Telecommunications Act of
    1996, 14 FCC Rcd 8300 (1999).

[^209]: *Pricing Flexibility Order*, 14 FCC Rcd at 14249-51.

[^210]: *Access Charge Reform Order*, 11 FCC Rcd at 21434; *Pricing
    Flexibility Order*, 14 FCC Rcd at 14253-54.

[^211]: *Special Access Expanded Interconnection Order*, 7 FCC Rcd at
    7454.

[^212]: *Access Charge Reform Order*, 11 FCC Rcd at 21434; *Pricing
    Flexibility Order*, 14 FCC Rcd at 14253-54.

[^213]: *Access Charge Reform Order*, 11 FCC Rcd at 21434; *Pricing
    Flexibility Order*, 14 FCC Rcd at 14253-54.

[^214]: *CALLS NPRM*, 14 FCC Rcd at 16969-70; *see also*, *e.g.*, ALTS
    Comments at 7-8; USTA Comments at 2; Western Wireless Comments at 5;
    Time-Warner Comments at 2; Intermedia Reply at 4-5; GTE Reply at 16;
    U S WEST Comments at 2-6 (safeguards should be simplified); USTA
    Supp. Comments at 5; Global Crossing Supp. Comments at 3-4..

[^215]: *CALLS NPRM*, 14 FCC Rcd at 16969-70.

[^216]: *CALLS NPRM*, 14 FCC Rcd at 16972.

[^217]: 47 U.S.C. § 254(b)(3).

[^218]: Implementation of the Local Competition Provisions in the
    Telecommunications Act of 1996, CC Docket No. 96-98, First Report
    and Order, 11 FCC Rcd 15499, 15882 (1996) (*Local Competition
    Order*). States could establish more than three zones where cost
    differences in geographic regions are such that it finds that
    additional zones are needed to adequately reflect the costs of
    providing service. *Local Competition Order*, 11 FCC Rcd at 15882.

[^219]: Joint Consumer Commenters Supp. Comments at 40; NRTA/NTCA Supp.
    Reply at 9; Joint Board Supp. Comments at 12. In response to the
    *Pricing Flexibility Order* FNPRM, many commenters also argue that
    common line costs should not be deaveraged prior to certain
    prerequisites having been met in a study area.

[^220]: NRTA/NTCA Comments at 5; Joint Board Supp. Comments at 13.

[^221]: NRTA/NTCA Comments at 9.

[^222]: NRTA/NTCA Comments at 6.

[^223]: NRTA/NCTA Comments at 6-7; *see also Access Charge Reform
    Order*, 12 FCC Rcd at 16022.

[^224]: NRTA/NTCA Comments at 6-7; New Jersey Div. Comments at 16-18.

[^225]: Vermont Dept. Reply at 16-17.

[^226]: Vermont Dept. Reply at 17.

[^227]: 47 U.S.C. 254(g); *see* CALLS Reply at 28; NADO Reply at 5.

[^228]: NADO Reply at 5.

[^229]: CALLS Reply at 28; NADO Reply at 5.

[^230]: NADO Reply at 5.

[^231]: *See, e.g.,* Bell Atlantic Tariff No. 1, Section 4.1.7 and Bell
    Atlantic Tariff No. 11, Section 31.4.1.

[^232]: Under the prior system, these SLCs were capped at \$6.00.

[^233]: *See NARUC v. FCC*, 737 F.2d at 1113-14.

[^234]: *See* CALLS Reply at 28-29.

[^235]: NRTA/NCTA Comments at 6-7; New Jersey Div. Comments at 16-18;
    *see also Access Charge Reform Order*, 12 FCC Rcd at 16022.

[^236]: *See Access Charge Reform Order*, 12 FCC Rcd at 16021-22.

[^237]: *See Access Charge Reform Order*, 12 FCC Rcd at 16022.

[^238]: 47 USC § 10(a) states

    > \[T\]he Commission shall forbear from applying any regulation or
    > any provision of this Act to a telecommunications carrier or
    > telecommunications services, in any or some of its or their
    > geographic markets, if the Commission determines that --
    >
    > \(1\) enforcement of such regulation or provision is not necessary
    > to ensure that the charges, practices, classifications, or
    > regulations by, for, or in connection with that telecommunications
    > carrier or telecommunications service are just and reasonable and
    > are not unjustly or unreasonably discriminatory;
    >
    > \(2\) enforcement of such regulation or provision is not necessary
    > for the protection of consumers; and
    >
    > \(3\) forbearance from applying such provision or regulation is
    > consistent with the public interest.

    47 U.S.C. § 10 (a). The Commission concluded that the information in
    the record at the time did not demonstrate that it was required by
    section 10(a) of the 1996 Act to forbear from applying section
    254(g) as it relates to the manner in which IXCs recover their
    costs. *See Access Charge Reform Order*, 12 FCC Rcd at 16022.

[^239]: CALLS Reply at 29; Smithville Comments at 2.

[^240]: NRTA/NTCA Comments at 11; Florida Commission Comments at 6-8;
    Vermont Dept. Reply at 14-15.

[^241]: *Universal Service Seventh Report and Order*, 14 FCC Rcd at
    8094.

[^242]: *Universal Service Seventh Report and Order*, 14 FCC Rcd at
    8092.

[^243]: *Universal Service Seventh Report and Order*, 14 FCC Rcd at
    8092.

[^244]: *Universal Service Seventh Report and Order*, 14 FCC Rcd at
    8092.

[^245]: *Universal Service Seventh Report and Order*, 14 FCC Rcd at
    8092.

[^246]: *Universal Service Seventh Report and Order*, 14 FCC Rcd at
    8094.

[^247]: *Access Charge Reform Order*, 12 FCC Rcd at 16013.

[^248]: *See* Section IV. C. *infra*.

[^249]: U S WEST Supp. Comments at 12-13.

[^250]: *See* U S West Comments, CC Docket No. 96-262 at 3-5 (Oct. 29,
    1999).

[^251]: *CALLS NPRM*, 14 FCC Rcd at 16971.

[^252]: *CALLS NPRM*, 14 FCC Rcd at 16971.

[^253]: *Access Charge Reform Order*, 12 FCC Rcd at 15995-96, 15998;
    Investigation of Interstate Access Tariff Non-Recurring Charges, CC
    Docket No. 85-166, Memorandum Opinion and Order, 2 FCC Rcd 3498,
    3501-02 (1987).

[^254]: *See Access Charge Reform Order*, 12 FCC Rcd at 15996, 16008.

[^255]: 47 C.F.R. Part 69.

[^256]: A POP is the physical point where an IXC connects its network
    with the LEC network.

[^257]: Access Charge Reform, CC Docket No. 96-262, Notice of Proposed
    Rulemaking, 11 FCC Rcd 21354, 21367 (1996) (*Access Charge Reform
    NPRM*).

[^258]: *Access Charge Reform NPRM*, 11 FCC Rcd at 21367.

[^259]: *See* 47 C.F.R. § 69.110 (requiring LECs to impose flat-rated
    charges on IXCs to recover the costs of entrance facilities).

[^260]: *See* 47 C.F.R. § 69.112 (requiring LECs to impose a flat-rated
    charge on IXCs to recover the costs of direct-trunked transport).

[^261]: *See* 47 C.F.R. § 69.111 (prescribing a three-part rate
    structure for LEC recovery from IXCs of tandem-switched transport
    costs: a flat-rated charge for the dedicated facility from the LEC
    SWC to the tandem switch, a per-minute tandem switching charge, and
    a per-minute charge for common transport from the tandem switch to
    the LEC end office).

[^262]: *LEC Price Cap Order*, 5 FCC Rcd at 6788. Originally,
    interexchange services were to be included in the basket containing
    special access offerings, however, the Commission concluded that
    combining these services into one basket "raised issues concerning
    the flow-through of exogenous costs that can be solved by separating
    the interexchange activity from interstate access." *Id*.
    Accordingly, the Commission created the interexchange basket for
    those LECs that offer interexchange services. *Id*.

[^263]: Transport Rate Structure and Pricing, CC Docket No. 91-213,
    Second Report and Order, 9 FCC Rcd 615, 622 (1994) (*Second
    Transport Order*). Additionally, in the *Access Charge Reform
    Order*, the Commission determined that, "consistent with principles
    of cost-causation and economic efficiency, NTS costs associated with
    local switching should be recovered on a flat-rated, rather than
    usage sensitive, basis. Accordingly, for price-cap LECs, \[the
    Commission\] reassign\[ed\] all line side port costs from the Local
    Switching rate element to the Common Line rate elements." *Access
    Charge Reform Order*, 12 FCC Rcd at 16035. *See also* Section IV.A.1
    *supra.*

[^264]: *LEC Price Cap Order*, 5 FCC Rcd at 6788.

[^265]: *Price Cap Second FNPRM*, 11 FCC Rcd at 863. For a complete
    discussion of the "X-Factor," *see* Price Cap Performance Review for
    Local Exchange Carriers, CC Docket No. 94-1, First Report and Order,
    10 FCC Rcd 8961, 9005-06 (1995) (*1995 Price Cap Review Order*);
    *see also* *1997 Price Cap Review Order*, 12 FCC Rcd at 16642.

[^266]: *LEC Price Cap Order*, 5 FCC Rcd at 6792, 6807. Exogenous costs
    are those triggered by administrative, legislative, or judicial
    action beyond the carriers' control. These costs are created by such
    events as: the expiration of amortizations; changes in the Uniform
    System of Accounts; separations changes; changes in universal
    service fund obligations; the reallocation of regulated and
    nonregulated costs; tax law changes; retargeting the PCI for price
    cap carriers taking advantage of the low-end adjustment mechanism;
    inside wire amortizations; and the completion of amortization of
    equal access expenses. 47 C.F.R. § 61.45(d)(1).

[^267]: Transport Rate Structure and Pricing, CC Docket No. 91-213,
    Report and Order, 7 FCC Rcd 7006 (1992) (*First Transport Order*).

[^268]: *First Transport Order*, 7 FCC Rcd at 7009-10, 7029. Under the
    equal charge rule, which arose from the AT&T divestiture of the
    BOCs, the BOCs were required to charge a per-minute, distance
    sensitive rate for their transport offerings, regardless of how the
    underlying costs were incurred.

[^269]: *First Transport Order*, 7 FCC Rcd at 7038-42.

[^270]: *Access Charge Reform Order*, 12 FCC Rcd at 16073.

[^271]: *Access Charge Reform Order*, 12 FCC Rcd at 16073-86. At present
    only GTE still retains a per-minute TIC.

[^272]: Line cards connect subscriber lines to the switch, and trunk
    ports connect interoffice trunks to the switch. *Access Charge
    Reform Order*, 12 FCC Rcd at 16034.

[^273]: *Access Charge Reform Order*, 12 FCC Rcd at 16034.

[^274]: *Pricing Flexibility Order*, 14 FCC Rcd at 14327-33.

[^275]: *Pricing Flexibility Order*, 14 FCC Rcd at 14330-31, 14333.

[^276]: The q factor would operate as a mechanism to allocate revenue
    between price cap LECs and IXCs, similar to the g factor present in
    the common line PCI formula. *See Pricing Flexibility Order*, 14 FCC
    Rcd at 14330-31. The g factor is used to share with IXCs the
    benefits of demand growth that LECs receive from per-minute growth
    per access line. *LEC Price Cap Order*, 5 FCC Rcd at 6794.

[^277]: Rules governing price cap LECs are set forth in Part 61 of our
    rules. 47 C.F.R. Part 61.

[^278]: *LEC Price Cap Order*, 5 FCC Rcd at 6796.

[^279]: *LEC Price Cap Order*, 5 FCC Rcd at 6796.

[^280]: The price cap sharing requirement established three sharing
    zones determined by specified rate-of-return levels. In the first
    "no-sharing zone," price cap LECs were allowed to keep all of their
    earnings up to the first rate-of-return ceiling. Above that ceiling,
    in the "50-50 sharing zone," price cap LECs were entitled to retain
    50 percent of their earnings and were required to return 50 percent
    of their earnings to ratepayers up to the second ceiling. Price cap
    LECs were required to return 100 percent of any earnings above the
    "50-50 sharing zone" ceiling to ratepayers. *LEC Price Cap Order*, 5
    FCC Rcd at 6801.

[^281]: *LEC Price Cap Order*, 5 FCC Rcd at 6787. These amounts included
    the CPD.

[^282]: The low-end adjustment mechanism permits incumbent LECs earning
    rates of return less than 10.25 percent in a given year to increase
    their PCIs to a level that would allow them to earn 10.25 percent.
    *LEC Price Cap Order*, 5 FCC Rcd at 6804; *1997 Price Cap Review
    Order*, 12 FCC Rcd at 16691. In the *Pricing Flexibility Order*, the
    Commission eliminated the low-end adjustment for price cap LECs that
    qualify for and elect to exercise either Phase I or Phase II pricing
    flexibility*. Pricing Flexibility Order*, 14 FCC Rcd at 14304.

[^283]: *LEC Price Cap Order*, 5 FCC Rcd at 6789.

[^284]: *1995 Price Cap Review Order*, 10 FCC Rcd at 9055-56. These
    amounts included a 0.5 percent CPD. No sharing obligations were
    imposed on LECs that chose the 5.3 percent option.

[^285]: *1997 Price Cap Review Order*, 12 FCC Rcd at 16645.

[^286]: *1997 Price Cap Review Order*, 12 FCC Rcd at 16645. TFP
    measurement is a methodology commonly used to measure productivity
    and productivity growth in the economy as a whole. Productivity is
    measured as the ratio of an index of the outputs of a firm (or
    industry, or nation) to an index of its inputs. Productivity growth
    is measured by changes in this ratio over time. The 1997 Staff TFP
    Study calculated the historical difference in productivity growth
    between LECs and the economy nationwide for the period 1986 through
    1995. Specifically, it calculated the difference between LEC TFP
    change and economy-wide TFP change. The study then calculated an
    input price differential reflecting the difference in the rate of
    change of LEC input prices as compared with the economy as a whole.
    These two factors were then added together for each year.

[^287]: *1997 Price Cap Review Order*, 12 FCC Rcd at 16649.

[^288]: *Pricing Flexibility Order*, 14 FCC Rcd at 14338.

[^289]: Although the *Pricing Flexibility Order* states that the Bureau
    of Labor Statistics (BLS) measures inflation with a chain-weighted
    GDP-PI, the inflationary measure is actually created by the BEA.
    *Pricing Flexibility Order*, 14 FCC Rcd at 14338.

[^290]: *Pricing Flexibility Order*, 14 FCC Rcd at 14338.

[^291]: *USTA v. FCC*, 188 F.3d at 521, 530 (D.C. Cir. 1999).

[^292]: *Id.* at 525-26.

[^293]: *Id.* at 526.

[^294]: *Id.* at 527.

[^295]: *See USTA v. FCC*, Order, No. 97-1469 *et al.* (June 21, 1999);
    *USTA v. FCC*, Order, No. 97-1469 *et al.* (Apr. 13, 2000).

[^296]: *1999 Price Cap FNPRM*, 14 FCC Rcd at 19718.

[^297]: *1999 Price Cap FNPRM*, 14 FCC Rcd at 19718.

[^298]: *See* USTA Reply, CC Docket No. 94-1 at 13 (Jan. 24, 2000).

[^299]: *See* AT&T Comments, CC Docket No. 94-1 at 12-15, 20 (Jan. 7,
    2000) (arguing that the historical component of the X-factor should
    have been 10.1 percent during the period 1997-2000, and the CPD
    should have been 1.1 percent during the period 1997-2000 and going
    forward).

[^300]: *CALLS NPRM*, 14 FCC Rcd at 16984-85; Modified Proposal at §§
    3.2.2 and 3.2.7; Appendix B § 61.45(b)(1).

[^301]: The "information surcharge" is a rate element by which carriers
    recover the costs of white pages directory expenses. It applies to
    all interstate access switched minutes of use. *See* Petitions for
    Waiver Concerning 1985 Annual Access Tariff Filings, Memorandum
    Opinion and Order, Mimeo No. 5007 (Com. Car. Bur., June 7, 1985).

[^302]: Modified Proposal at § 3.2.2; *CALLS NPRM*, 14 FCC Rcd at
    16989-90; Appendix B § 61.45(*i*)(2). The "average traffic sensitive
    charge" is the sum of the local switching component and the
    transport component. The local switching component will be
    calculated by dividing the proposed local switching revenues (end
    office switch, local switching trunk ports, information surcharge,
    and signalling transfer point port) by the base period local
    switching minutes of use. The transport component will be calculated
    by dividing the proposed transport revenues (switched direct trunk
    transport, signaling for switched direct trunk transport, entrance
    facilities for switched access traffic, tandem switched transport,
    signaling for tandem switching and TIC) by incumbent LEC-only base
    period transport minutes of use (including meet-point billing
    arrangements for jointly-provided interstate access by an incumbent
    LEC and any other LEC). Appendix B § 61.3(e).

[^303]: Modified Proposal at §§ 3.1.2 and 3.1.3; *CALLS NPRM*, 14 FCC
    Rcd at 16985; Appendix B § 61.3(qq).

[^304]: *See VALOR April 14 Letter*. The 0.95-cent target rate would be
    available to price cap LECs with a holding company average of less
    than 19 End User Common Line charge lines per square mile served.
    Appendix B § 61.3(qq)(2).

[^305]: *VALOR April 14 Letter*; Appendix B § 61.48(o).

[^306]: Letter from John T. Nakahata, Counsel to CALLS, to Magalie R.
    Salas, Secretary, FCC, May 25, 2000.

[^307]: Modified Proposal at § 3.2; *CALLS NPRM*, 14 FCC Rcd at 16988;
    Appendix B § 61.45(b)(1)(ii).

[^308]: *VALOR April 14 Letter*; Appendix B § 61.45(*i*)(4).

[^309]: *VALOR April 14 Letter*; Appendix B § 61.45(b)(1)(iii)(B).

[^310]: Modified Proposal at § 3.2.3; Appendix B § 61.45(b)(1)(iii)(A).

[^311]: Modified Proposal at § 4.4; Appendix B § 61.45(d)(1)(vii).

[^312]: However, payees may accept, and payors may not resist any
    refunds ordered by the Commission. Modified Proposal at §4.3; *CALLS
    April 28 Letter*.

[^313]: Modified Proposal at § 3.2.4. The reductions necessary to
    achieve this amount are calculated under Appendix B § 61.48(*l*).

[^314]: Modified Proposal at § 3.2.4; Appendix B § 61.48(*l*).

[^315]: Modified Proposal at § 3.2; *VALOR April 14 Letter*; Appendix B
    § 61.48(*l*)(1)(ii)(A).

[^316]: Modified Proposal at §§ 2.1.6; Appendix B § 61.48(*l*)(1)(i)(A)
    and (B).

[^317]: Modified Proposal at § 2.1.6; Appendix B § 61.48(*l*)(1)(i)(C).

[^318]: *VALOR April 14 Letter*; Appendix B §§ 61.45(b)(1)(iii)(B) and
    61.48(*l*)(1)(i)(D).

[^319]: Modified Proposal at § 3.2.4; Appendix B § 61.48(*l*)(2).

[^320]: Modified Proposal at §§ 3.2.4.1 and 3.2.4.2; Appendix B §
    61.48(m).

[^321]: Modified Proposal at § 3.2.4.1; Appendix B § 61.48(m)(1)(ii).

[^322]: Non-rural filing entities are those within which more than 50
    percent of all lines are operated by telephone companies other than
    those that as of December 31, 1999 were certified by the holding
    company as rural. *See Universal Service First Report and Order*, 12
    FCC Rcd at 8943-44; Self-Certification as a Rural Telephone Company,
    Public Notice, 12 FCC Rcd 12093 (1997) (*Rural Certification Public
    Notice)*. Modified Proposal at § 3.2.4.1(i); Letter from John T.
    Nakahata, Counsel to CALLS, to Jack Zinman, Legal Counsel, FCC, May
    25, 2000 at 3; Appendix B § 61.48(m)(1)(ii)(A).

[^323]: Predominantly rural filing entities are those with greater than
    50 percent of lines operated by telephone companies that as of
    December 31, 1999 were certified by the holding company as rural.
    *See Universal Service First Report and Order*, 12 FCC Rcd at
    8943-44; *Rural Certification Public Notice*. Modified Proposal at §
    3.2.4.1(ii); Letter from John T. Nakahata, Counsel to CALLS, to Jack
    Zinman, Legal Counsel, FCC, May 25, 2000 at 3; Appendix B §
    61.48(m)(1)(ii)(B).

[^324]: Modified Proposal at § 3.2.4.1; *CALLS April 14 Letter*,
    Appendix B § 61.48(m)(2)(vii). The redistributed switching revenue
    will not be included in calculations to determine eligibility for
    interstate access universal service support. *CALLS April 14
    Letter*, Appendix B § 61.48(m)(2)(i).

[^325]: For purposes of this option, July 1, 2000 price cap reductions
    are as a percentage of base period price cap revenues. Appendix B §
    61.48(m)(1)(i).

[^326]: Modified Proposal at § 3.2.4.2; *CALLS April 14 Letter*,
    Appendix B §§ 61.48(m)(1)(i) and 61.48(m)(2)(vi).

[^327]: Modified Proposal at § 3.2.7; Appendix B §§ 61.42(d)(5),
    61.42(e)(3), and 61.48(n).

[^328]: Modified Proposal at § 3.2.7; Appendix B § 61.45(b)(1)(iv).

[^329]: *See AT&T March 30 Letter*; *Sprint February 25 Letter*.

[^330]: Intermedia Comments at 7-8; Time Warner Comments at 2; ALTS
    Reply at 5; Joint Consumer Commenters Reply at 15.

[^331]: Modified Proposal at § 3.2.4.1; Appendix B § 61.48(m)(1)(ii).

[^332]: Citizens Supp. Comments at 9-10; Global Crossing Supp. Comments
    at 7-8.

[^333]: The shifted amounts are restricted to reduction amounts that
    exceed 25 percent of local switching element revenues necessary to
    yield the carrier's proportionate share of a total \$2.1 billion
    reduction of switched access usage rates on July 1, 2000. Modified
    Proposal at § 3.2.4.2; *CALLS April 14 Letter*, Appendix B §
    61.48(m)(1)(i).

[^334]: *CALLS April 14 Letter*, Appendix B § 61.48(m)(2)(vi).

[^335]: *CALLS April 14 Letter*, Appendix B § 61.48(m)(1)(i).

[^336]: *See AT&T March 30 Letter*; *Sprint February 25 Letter*; CALLS
    Supp. Comments at 2-4; USTA Supp. Comments at 2. For a full
    discussion of the IXC commitments, see Section IV.D.3 *infra*.

[^337]: *Low-Volume Long-Distance Users NOI*, 15 FCC Rcd at 6301.

[^338]: *See* Global Crossing Supp. Comments at 12.

[^339]: *See* MCI Comments at 6; Sprint Supp. Reply Comments at 6.

[^340]: Cincinnati Bell Supp. Comments at 5-6; Global Crossing Supp.
    Comments at 11-12; CompTel Supp. Reply at 1-3.

[^341]: Global Crossing Supp. Comments at 11-12.

[^342]: *See Pricing Flexibility Order*, 14 FCC Rcd at 14329; *Access
    Charge Reform Order*, 12 FCC Rcd at 16060.

[^343]: *See CALLS NPRM*, 14 FCC Rcd at 16983-84; Section IV.B.1.b
    *supra*.

[^344]: If a price cap LEC elects to set rates based upon a cost study,
    the X-factor would be based on LEC productivity.

[^345]: The information surcharge permits LECs, upon receipt of a waiver
    from the Commission, to recover costs presently assigned to the
    information rate element that are intrastate in nature and do not
    relate to the provision of interstate directory assistance. 47
    C.F.R. § 69.109(b). Carriers calculate these costs on a traffic
    sensitive basis, per minute of access use.

[^346]: As noted above in Section IV.B.1.a, we established a mechanism
    to eliminate the TIC in the *Access Charge Reform Order*.

[^347]: Modified Proposal at §§ 3.1.2 and 3.1.3; *VALOR April 14
    Letter*; Appendix B §§ 61.3(qq).

[^348]: Specifically, target rates for properties that are merged into a
    filing entity with a different target rate will be a weighted
    average of the prior and new target rates. The 0.95-cent target rate
    will be available for all filing entities which were, as of April 1,
    2000, under a binding and executed contract for purchase by a very
    low-density price cap LEC. *See* para. 143 *supra*; *VALOR April 14
    Letter*; Appendix B §§ 61.3(qq)(2) and 61.48(o).

[^349]: *VALOR April 14 Letter*; Appendix B § 61.45(b)(1)(iii)(B).

[^350]: Modified Proposal at § 3.1.1; Letter from John T. Nakahata,
    Counsel to CALLS, to Magalie R. Salas, Secretary, FCC, May 17, 2000.

[^351]: *Pricing Flexibility Order*, 14 FCC Rcd at 14287-88; 47 C.F.R. §
    69.727(a)(2)(ii).

[^352]: *Pricing Flexibility Order*, 14 FCC Rcd at 14305-06.

[^353]: *See Access Charge Reform Order*, 12 FCC Rcd at 16129.

[^354]: *See* Implementation of the Local Competition Provisions in the
    Telecommunications Act of 1996, CC Docket Nos. 96-98, 95-185, Third
    Order on Reconsideration and Further Notice of Proposed Rulemaking,
    12 FCC Rcd 12460, 12483-84 (1997). The Commission is examining the
    issue of using shared transport for switched access where a
    competitive LEC is not providing local service in a Further Notice
    of Proposed Rulemaking. Implementation of the Local Competition
    Provisions of the Telecommunications Act of 1996, CC Docket No.
    96-98, Third Report and Order and Fourth Further Notice of Proposed
    Rulemaking, 15 FCC Rcd 3696, 3914-15 (1999) (*UNE Remand Order*).

[^355]: CPI Comments at 2, 5; MCI Comments at 17; ALTS Reply at 6-7;
    NASUCA Reply at 16-17; Focal Supp. Comments at 13.

[^356]: CPI Comments at 5.

[^357]: MCI Comments at 9.

[^358]: MCI Comments at 17; Focal Supp. Comments at 10-11; NASUCA Supp.
    Comments at 19.

[^359]: *See* Appendix C, Graph 2.

[^360]: *See UNE Remand Order*, 15 FCC Rcd at 3906 ("\[T\]he market
    price should prevail, as opposed to a regulated rate which, at best,
    is designed to reflect the pricing of a competitive market.");
    *Pricing Flexibility Order*, 14 FCC Rcd at 14233 (The Commission
    eliminated limitations in the density zone pricing plan after
    concluding that "market forces, as opposed to regulation, are more
    likely to compel LECs to establish efficient prices.")

[^361]: *See* CALLS Reply at 55.

[^362]: ALTS and Time Warner Supp. Comments at 8-11; Focal Supp.
    Comments at 6-15.

[^363]: *LEC Price Cap Order*, 5 FCC Rcd at 6787, 6794-95; 47 C.F.R. §
    61.45(c).

[^364]: *See Access Charge Reform Order*, 12 FCC Rcd at 16081; Section
    IV.B.1.a *supra*.

[^365]: *Pricing Flexibility Order*, 14 FCC Rcd at 14331, 14333.

[^366]: *See* Modified Proposal at §§ 3.2, 3.2.3, and 3.2.7; Appendix B
    §§ 61.45(b)(1)(ii), 61.45(b)(1)(iii)(A), and 61.45(b)(1)(iv).

[^367]: *See* GTE Supp. Reply at 30-31.

[^368]: Letter from Richard J. Metzger, Vice President Regulatory and
    Public Policy, Focal Communications, to Magalie R. Salas, Secretary,
    FCC, May 8, 2000 at 2 (*Focal May 8 Letter*).

[^369]: ALTS and Time Warner Supp. Comments at 10; CPI Supp. Comments at
    9-10; Allegiance Supp. Reply at 3; Focal Supp. Reply at 2-3.

[^370]: CPI Supp. Comments at 10; Allegiance Supp. Reply at 3; ALTS and
    Time Warner Supp. Reply at 7; Focal Supp. Reply at 2.

[^371]: Sprint Supp. Reply at 7.

[^372]: Although no commenter alleges that the target rates are
    predatory, Focal argues that adoption of the CALLS Proposal would
    permit predation by circumventing the PCI and the upper pricing
    bands. *Focal May 8 Letter* at 2-3. We are not eliminating either
    the PCI or the upper pricing bands in this Order. PCIs will continue
    to apply to each price cap basket, and upper pricing bands will
    continue to apply to service categories and subcategories within the
    price cap baskets. *See* Appendix B §§ 61.45, and 61.47(e).

[^373]: *See* *Price Cap Second FNPRM*, 11 FCC Rcd at 870; Telephone
    Company-Cable Television Cross-Ownership Rules, Sections 63.54 -
    63.58, CC Docket No. 87-266, Memorandum Opinion and Order on
    Reconsideration and Third Further Notice of Proposed Rulemaking, 10
    FCC Rcd 244, 343 (1994).

[^374]: *See* Cable & Wireless Comments at 4.

[^375]: *See* *LEC Price Cap Order*, 5 FCC Rcd at 6814-17.

[^376]: Based on 1999 ARMIS data, Commission staff calculated
    approximate rates of return of 85 percent for the traffic sensitive
    basket, 20 percent for the trunking basket, and 15 percent for the
    common line basket. AT&T has also provided estimates based on 1997
    data that show rates of return of 45 percent for the switching
    basket, 15 percent for the trunking basket, and 9 percent for the
    common line basket. *See* Letter from Bruce K. Cox, Government
    Affairs Vice President, AT&T, to Magalie R. Salas, Secretary, FCC,
    CC Docket No. 96-262, Feb. 19, 1999 at 6. *See also* Letter from
    Pete Sywenki, Director, Sprint, to Magalie R. Salas, Secretary, FCC,
    May 12, 2000 at 6.

[^377]: *Pricing Flexibility Order*, 14 FCC Rcd at 14332 (seeking
    comment on whether to require a one-time downward adjustment to
    price cap LECs' traffic sensitive PCIs to correct for the earnings
    imbalance).

[^378]: Cincinnati Bell Supp. Comments at 2-4; Global Crossing Supp.
    Comments at 8-10; Letter from John S. Morabito, Vice President
    Federal Legislative and Regulatory Affairs, Global Crossing, to
    Magalie R. Salas, Secretary, FCC, May 11, 2000.

[^379]: Modified Proposal at § 3.2; Appendix B § 61.45(b)(1).

[^380]: The low-end adjustment permits incumbent LECs with rates of
    return less than 10.25 percent to increase their PCIs to a level
    that would enable them to earn 10.25 percent.

[^381]: GTE Reply at 37-38; Global Crossing Supp. Comments at 5.

[^382]: *1999 Price Cap FNPRM*, 14 FCC Rcd at 19717.

[^383]: *See* Modified Proposal § 4.3; *CALLS April 28 Letter*.

[^384]: *See Public Utilities Comm'n of the State of California v.
    FERC*, 988 F.2d 154, 163 (D.C. Cir. 1993) ("agency discretion 'is
    often at its "zenith" when the challenged action relates to the
    fashioning of remedies.'"); *Natural Gas Clearinghouse v. FERC*, 965
    F.2d 1066, 1073 (D.C. Cir. 1992).

[^385]: *See* Interstate Rate of Return Summary for 1999 Based on
    Initial Reports Filed by Price-Cap Carriers (Apr. 4, 2000). This
    report showed that the weighted arithmetic mean for all price cap
    LECs' interstate rate of return was 18.52 percent, up from 16.52
    percent for 1998.

[^386]: *See CALLS NPRM*, 14 FCC Rcd at 16984; APT Comments at 7.

[^387]: *See* Bell Atlantic/NYNEX Comments, CC Docket No. 96-262 at 22
    (Jan. 29, 1997) (cost study supporting traffic sensitive switching
    costs of approximately one cent a minute); Letter from Joel E.
    Lubin, Vice President, Federal Government Affairs, AT&T, to Magalie
    R. Salas, Secretary, FCC, CC Docket No. 96-262 (Feb. 25, 1999)
    (estimating the economic cost of a switched access minute at
    \$0.00255 for BOCs and \$0.00373 to \$0.00544 as a potential proxy
    for interstate switched access costs); GTE Comments, CC Docket Nos.
    96-262, 94-1, 97-250 at 7 (Oct. 26, 1998) (estimating universal
    service support using a switched access rate of \$0.008/minute).

[^388]: MCI Comments at 4-5.

[^389]: For example, because VALOR and Citizens have fewer lines per
    square mile of service area than higher-density price cap LECs,
    their lines must run farther, and the cost of exchanges is
    distributed among fewer end users. *See* VALOR Supp. Comments at 3,
    7. *See also* Citizens Supp. Comments at 5.

[^390]: Cable & Wireless Comments at 4; Level 3 Comments at 7; Illinois
    Commission Reply at 7; NASUCA Reply at 10.

[^391]: Level 3 Comments at 4-10.

[^392]: *See Local Competition Order*, 11 FCC Rcd at 16012-13.

[^393]: *See Access Charge Reform Order*, 12 FCC Rcd at 16001, 16107
    ("Regulation cannot replicate the complex and dynamic ways in which
    competition will affect the prices, service offerings, and
    investment decisions of both incumbent LECs and their competitors. A
    market-based approach to rate regulation should produce, for
    consumers of telecommunications services, a better combination of
    prices, choices, and innovation than can be achieved through rate
    prescription.").

[^394]: *See* ALTS and Time Warner Supp. Comments at 18; ALTS and Time
    Warner Supp. Reply at 7. ALTS and Time Warner submitted an alternate
    plan to the CALLS Proposal that would reduce access charges to the
    target rates more slowly.

[^395]: *See* MCI Comments at 4.

[^396]: Letter from Donald F. Shepheard, Vice President Federal
    Regulatory Affairs & Policy, Time Warner Telecom, to Magalie R.
    Salas, Secretary, FCC (May 8, 2000) (*Time Warner May 8 Letter*).

[^397]: Time Warner May 8 Letter at 1.

[^398]: *See* para. 143 *supra*; Letter from John T. Nakahata, Counsel
    to CALLS, to Magalie R. Salas, Secretary, FCC, May 25, 2000.

[^399]: Modified Proposal at § 4.4; Appendix B § 61.45(d)(1)(vii).

[^400]: California Commission Supp. Comments at 8-9; MCI Supp. Comments
    at 23-27; Ad Hoc Supp. Reply at 14-15.

[^401]: *LEC Price Cap Order*, 5 FCC Rcd at 6804.

[^402]: Bell Atlantic Supp. Reply at 9; Sprint Supp. Reply at 8-9;
    *Pricing Flexibility Order*, 14 FCC Rcd at 14304-07.

[^403]: *See* J. Steven Landefeld and Robert P. Parker, *BEA's Chain
    Indexes, Time Series, and Measures of Long-Term Economic Growth*, 77
    Surv. of Current Bus. 58 (May 1997).

[^404]: AT&T Reply, CC Docket No. 96-262 at 25 (Nov. 29, 1999), citing
    F.G. Forsyth and R.F. Fowler, *The Theory and Practice of Chain
    Price Index Numbers*, 144 J. Stat. Soc'y Am. 224 (1981).

[^405]: Letter from John T. Nakahata, Counsel to CALLS, to Magalie R.
    Salas, Secretary, FCC, April 24, 2000.

[^406]: *See, e.g., Universal Service Ninth Report and Order*, 14 FCC
    Rcd at 20439.

[^407]: Some state rate designs have provided implicit high-cost support
    flowing from (1) urban areas to rural areas; (2) business customers
    to residential customers; (3) vertical services to basic service;
    and/or (4) intrastate long-distance service to local service. First,
    many states have adopted the practice of setting uniform local rates
    throughout the territory that a given company serves within the
    state, thereby enabling incumbent LECs to charge above-cost rates in
    urban (low-cost) areas to support the below-cost rates they charge
    in rural (high-cost) areas. Second, some state regulators have
    allowed incumbent LECs to charge business customers higher rates
    than residential customers even though the costs of serving business
    and residential customers in the same area are roughly the same,
    thereby creating a business-to-residential support flow. Third,
    through rate regulation in some states, incumbent LECs are able to
    charge above-cost rates for vertical services (e.g., touch tone,
    conference calling, speed dialing, call waiting, caller
    identification, etc.) in order to support the rates for basic local
    service. Fourth, incumbent LECs in some states have been able to
    charge relatively high intrastate access charges to interexchange
    carriers to cover costs not recovered through local rates. IXCs pass
    these access charges on to their long-distance customers in the form
    of higher usage charges for intrastate long-distance service, thus
    creating implicit support from long-distance service to local
    service. In addition, some states provide explicit universal service
    support through direct monetary payments to carriers.

[^408]: *See, e.g., Universal Service Ninth Report and Order*, 14 FCC
    Rcd at 20453.

[^409]: *See, e.g., Universal Service Ninth Report and Order*, 14 FCC
    Rcd at 20451-52 (deferring the issue of identification and removal
    of implicit support in the interstate access charge system).

[^410]: *See, e.g.,* 47 C.F.R. §§ 54.301 (Local Switching Support),
    54.303 (Long Term Support) and 54.309 (Forward-looking high-cost
    support for non-rural carriers).

[^411]: *Access Charge Reform Order*, 12 FCC Rcd at 15992-93.

[^412]: According to the Joint Explanatory Statement, the purpose of the
    1996 Act is \"to provide for a pro-competitive, de-regulatory
    national policy framework designed to accelerate rapidly private
    sector deployment of advanced telecommunications and information
    technologies and services to all Americans by opening all
    telecommunications markets to competition . . . .\" Joint
    Explanatory Statement of the Committee of Conference, H.R. Conf.
    Rep. No. 458, 104th Cong., 2d Sess. at 113 (Joint Explanatory
    Statement).

[^413]: 47 U.S.C. § 254(a), (d); *see also Universal Service NPRM*, 11
    FCC Rcd 18092.

[^414]: *See* 47 U.S.C. § 254; *see also* H. Rep. No. 204, 104^th^
    Cong., 1^st^ Sess. 80 (1995).

[^415]: 47 U.S.C. § 254(e).

[^416]: *See* 47 U.S.C. § 254(b)(1) and (3).

[^417]: 47 U.S.C. § 254(b)(4).

[^418]: *Universal Service First Report and Order*, 12 FCC Rcd at 8802.
    Besides the universal service principles specified in the 1996 Act,
    Congress directed that the Joint Board and the Commission be guided
    by such other principles they determine to be consistent with the
    Act, and necessary and appropriate for the protection of the public
    interest, convenience, and necessity. 47 U.S.C. § 254(b)(7). At the
    recommendation of the Joint Board, the Commission adopted
    competitive neutrality as an additional principle for universal
    service*. Universal Service First Report and Order*, 12 FCC Rcd at
    8801-03.

[^419]: *Universal Service First Report and Order*, 12 FCC Rcd at
    8858-59.

[^420]: *Alenco v. FCC*, 201 F.3d 608, 620 (5^th^ Cir. 2000); *Texas
    Office of Public Utility Counsel v. FCC*, 183 F. 3d at 412.

[^421]: *Texas Office of Public Utility Counsel v. FCC*, 183 F. 3d at
    412.

[^422]: *Universal Service First Report and Order*, 12 FCC Rcd at 8782;
    *see generally Access Charge Reform Order*, 12 FCC Rcd 15982.

[^423]: *Universal Service First Report and Order*, 12 FCC Rcd at 8786,
    9163-66; *Access Charge Reform Order*, 12 FCC Rcd at 15986-87.

[^424]: The LTS mechanism supports carriers with higher-than-average
    loop costs by providing LECs that are members of the NECA pool
    (generally, small non-price cap carriers) with enough support to
    enable them to charge a nationwide average CCL interstate access
    rate element. *Universal Service First Report and Order*, 12 FCC Rcd
    at 8893.

[^425]: *Universal Service First Report and Order*, 12 FCC Rcd at 9169.

[^426]: Modified Proposal at § 2.0.

[^427]: Modified Proposal at § 2.0. The SLC cap on non-primary
    residential lines and single-line business lines is set at \$7.00,
    and the SLC cap on multi-line business lines is set at \$9.20.
    Although the maximum residential SLC cap changed from \$7.00 in the
    Original CALLS Proposal to \$6.50 in the Modified Proposal, the
    CALLS members continue to use \$7.00 for purposes of allocating
    interstate access support to each price cap LEC's service area to
    maintain consistency of benchmarks between primary and non-primary
    residential lines. Letter from John T. Nakahata, Counsel to CALLS,
    to Jack Zinman, Legal Counsel, Common Carrier Bureau, FCC, April 14,
    2000.

[^428]: Modified Proposal at § 2.0.

[^429]: Modified Proposal at § 2.0.

[^430]: Modified Proposal at § 2.1.2.3. Additional Lifeline support is
    estimated to be \$60 million for the first year of the plan.

[^431]: *See* Modified Proposal at § 2.2.1. This amount does not include
    administrative expenses recovered pursuant to 47 C.F.R. § 54.709.
    *See* Section IV.C.3.f *infra.*

[^432]: Modified Proposal at § 2.2.1.

[^433]: *See* CALLS Supp. Reply at 25; GTE Supp. Comments at 11-12.

[^434]: USTA Comments, CC Docket Nos. 96-45 and 96-262 (filed July 23,
    1999). The level of implicit support estimated using USTA's
    methodology, however, would be lower using the SLC rates that are
    described in the Modified Proposal.

[^435]: Rogerson and Kwerel also estimated implicit support to be \$3.2
    billion at a residential SLC cap of \$4.50 per month. *See A
    Proposal for Universal Service and Access Reform*, Rogerson and
    Kwerel, CC Docket Nos. 96-45 and 96-262 (filed May 27, 1999).

[^436]: This estimate was provided by AT&T using the HAI Model Version
    5.0a. *See* CALLS Reply at 11 n. 20 (citing HAI Model Version 5.0a,
    Docket No. 96-45, using SLC caps of \$7.00 for residential and
    single-line business lines and \$9.20 for multi-line business lines
    and FCC Common Inputs as of March 10, 1999). The HAI model uses a
    series of algorithms designed to estimate the cost of building a
    telephone network. *See Universal Service Tenth Report and Order*,
    14 FCC Rcd at 20162.

[^437]: *See* Declaration of Joel E. Lubin, Modified Proposal, Appendix
    D.

[^438]: The Commission's synthesis model is a series of algorithms that
    allow the user to estimate the cost of building a telephone network.
    *See* *generally* Federal State Joint Board on Universal Service,
    and Forward-Looking Mechanism for High-Cost Support for Non-Rural
    LECs, CC Docket No. 96-45, Fifth Report and Order, 13 FCC Rcd 21323
    (1998) (*Universal Service* *Fifth Report and Order*); *Universal
    Service Tenth Report and Order*, 14 FCC Rcd at 20162-64.

[^439]: According to CALLS, AT&T used the following methodology to
    arrive at the \$650 million estimate:

    AT&T aggregated the serving wire centers in each price cap LEC study
    area into three cost zones: low, medium and high, such that the
    number of lines in each cost zone were roughly equal. Then, AT&T
    used the FCC's Synthesis Model with FCC inputs as of June 2, 1999,
    to calculate the unseparated forward-looking costs of the loop and
    ports in all zones. AT&T then applied a 25% separations factor
    against the unseparated forward-looking costs of the loop and port,
    and compared 25% of the average forward-looking cost within each
    cost zone against a maximum affordable SLC of \$7 per residence and
    single line business line, and \$9.20 per multi-line business. To
    the extent that the forward-looking costs in a high-cost zone
    exceeded the SLC cap, the difference between 25% of the projected
    loop and port cost and the applicable SLC cap represents the amount
    to be funded by the Interstate Access-Related High-cost Fund. When
    summed across all zones in all price cap LEC study areas, the total
    forward-looking cost-based estimate of implicit support to be funded
    through the Interstate-Access-related USF is \$613 million. On the
    basis of this analysis, \[AT&T\] concluded that \$650 million would
    be a reasonably conservative estimate.

    *See* *CALLS NPRM*, Appendix C, 14 FCC Rcd at 16977.

[^440]: *See* 47 U.S.C § 254(e).

[^441]: *TOPUC v. FCC*, 183 F.3d at 425-26.

[^442]: The record in our universal service proceeding illustrates that
    there can be substantial variations in model-produced estimates of
    forward-looking costs, and therefore estimates of the amount of
    universal service support that is implicit in our interstate access
    regime. This largely is due to variations in model inputs. Estimates
    vary due to the cost of capital, depreciation rates, the number of
    entities sharing telephone poles, and the actual location of
    customers. *See* *Universal Service Fifth Report and Order*, 13 FCC
    Rcd 21323.

[^443]: CALLS Reply Comments at 11.

[^444]: *See, e.g*., MCI Comments at 4.

[^445]: *See Alenco v. FCC,* 201 F.3d at 620 (observing that "excessive
    funding may itself violate the sufficiency requirements of the Act.
    . . . Because universal service is funded by a general pool
    subsidized by all telecommunications providers---and thus indirectly
    by the customers---excess subsidization in some cases may detract
    from universal service by causing rates unnecessarily to rise,
    thereby pricing some consumers out of the market.")

[^446]: *See e.g.,* Joint Board Supp. Comments at 6; California
    Commission Supp. Comments at 6.

[^447]: ALTS and Time Warner Supp. Comments at 17 (arguing for a \$300
    million interstate access mechanism); California Commission Supp.
    Comments at 6.

[^448]: Montana Commission Supp. Comments at 2; Wyoming Commission Supp.
    Comments at 2-3; U S West Supp. Reply at 1 (advocating a \$1.2
    billion interstate access universal service support mechanism).

[^449]: California Commission Supp. Comments at 6; MCI Comments at 4;
    Ohio Commission Comments at 21; Joint Consumer Commenters Supp.
    Comments at 17; Washington Commission Comments at 6.

[^450]: California Commission Supp. Comments at 5-6;

[^451]: ALTS and Time Warner Supp. Comments at 17.

[^452]: U S West Supp. Comments at 7.

[^453]: ALTS and Time Warner Supp. Comments at 17.

[^454]: *See* U S West Supp. Comments at 8.

[^455]: *See, e.g*., Cable & Wireless Comments at 5.

[^456]: *See* Mass. DTE Comments at 5.

[^457]: *See* Modified Proposal at § 2.2.3-2.2.6; Appendix B §§
    54.800-54.807.

[^458]: In this proceeding, the SLC "benchmarks" are used to quantify
    the relative differential between the maximum revenue recoverable
    through the SLC caps and a price cap LEC's permitted CMT revenue.
    The CALLS Proposal targets support to areas with the greatest
    differential between these two measures. By contrast, in the
    high-cost proceeding for non-rural carriers, we adopted a support
    mechanism that compares the estimated state-wide average
    intrastate-allocated costs of providing universal service to a
    national benchmark set at 135 percent of the national average
    intrastate-allocated cost of providing universal service. *See
    Universal Service Ninth Report and Order*, 14 FCC Rcd at 20463-64.
    The non-rural high-cost support mechanism targets support to areas
    with the greatest costs relative to the national benchmark.

[^459]: This \$75 million is phased-in in the first two years of the
    plan. *See* MAA Phase In Percentage, Appendix B § 54.800 (e).

[^460]: Appendix B § 54.807. If reported line growth were to exceed
    projected line growth, the interstate access universal service
    support mechanism could slightly exceed \$650 million in a
    particular year. If reported line growth is less than projected line
    growth, the interstate access universal service support mechanism
    could be slightly below \$650 million in a particular year.

[^461]: Modified Proposal at §§ 2.2.2.-2.2.3; Appendix B §§ 54.800(m);
    54.806(i) and (j); and 54.807.

[^462]: Appendix B § 54.807. The per line support amount is derived by
    dividing a price cap LEC's study area universal service support
    (SAUSS), Appendix B § 54.800(m), by twelve months and all eligible
    telecommunications carriers' base period lines in such study area.
    *See* Appendix B § 54.807.

[^463]: Price cap common line, marketing, and transport interconnection
    charge (TIC) revenue (collectively, CMT Revenue) is the total
    revenue a filing entity would be permitted to receive for SLCs,
    PICCs, and CCL charges, including marketing expenses presently
    collected pursuant to 47 C.F.R. § 69.156(a), and residual
    interconnection charge revenues collected through PICCs, but it does
    not include the current recovery of incumbent LEC universal service
    contributions that are first removed from existing price cap
    baskets. *See* Modified Proposal at §2.1.1.1.

[^464]: *See* Appendix B § 54.800(a); 47 C.F.R. § 61.3(d). This is done
    prior to Tariff Review Plan (TRP) preparation.

[^465]: *See* Appendix B § 54.800(a).

[^466]: Modified Proposal at § 2.2.2. To derive this amount, the
    Administrator must perform the following calculations:

    \(a\) If Average Price Cap CMT Revenue Per Line Per
    Month~Study\ Area~ is greater than \$9.20 then: Preliminary Minimum
    Access Universal Service Support~study\ area~ = (Average Price Cap
    CMT Revenue Per Line Per Month~study\ area~ x ILEC Base Period Lines
    x 12) - ((\$7.00 x ILEC Base Period Residential & Single-Line
    Business Lines~study\ area~ x 12) + (\$9.20 x ILEC Base Period
    Multi-line Business Lines~study\ area~ x 12));

    > \(b\) If Average Price Cap CMT Revenue Per Line Per
    > Month~Study\ Area~ is greater than \$7.00 but less than \$9.20
    > then: Preliminary Minimum Access Universal Service
    > Support~study\ area~ = (Average Price Cap CMT Revenue Per Line Per
    > Month~Study\ Area~ - \$7.00) x (ILEC Base Period Residential &
    > Single-Line Business Lines~study\ area~ x 12); and,
    >
    > \(c\) If Average Price Cap CMT Revenue Per Line Per
    > Month~Study\ Area~ is less than \$7.00 then the Preliminary
    > Minimum Access Universal Service Support~study\ area~ is zero.

    Appendix B § 54.804.

[^467]: Modified Proposal at § 2.2.3; Appendix B § 54.805. According to
    CALLS, where a state has not yet established geographically
    deaveraged UNE loop pricing zones, CALLS proposes the following:

    the Universal Service Administrator would preliminarily calculate
    the potential universal service support for price cap LEC study
    areas within that state using a model or other appropriate tool, and
    roughly apportion lines by wire center into three zones with
    relatively equal numbers of lines. Those zones are used as a
    "placeholder" to size, but not actually distribute, the relative
    share of universal service support going to a given state.

    *See* *CALLS NPRM*, Appendix C, 14 FCC Rcd at 16980 n. 65 (citing
    Original Proposal at § 2.2.3.1.1(b)).

[^468]: Modified Proposal at § 2.1.1.3; Appendix B § 54.805. The
    relative price cap revenue per line in each zone reflects the
    relative UNE rates in that zone, and the level of revenue per line
    in each zone is such that the price cap LEC can recover total
    permitted price cap common line revenues. *See* Modified Proposal at
    § 2.2.3.2; Appendix B § 54.800(q).

[^469]: Modified Proposal at § 2.2.3.1.1; Appendix B § 54.805.

[^470]: Modified Proposal at § 2.2.3.1.2; Appendix B § 54.805.

[^471]: Modified Proposal at § 2.2.3.2; Appendix B § 54.806.

[^472]: Modified Proposal at § 2.2.3.2; Appendix B § 54.806(c).

[^473]: The MAA is one of the following: (1) if the Total National
    Minimum Delta is greater than \$75 million, MAA equals the Minimum
    Delta multiplied by the current phase-in percentage; or (2) if the
    Total National Minimum Delta is less than \$75 million, MAA equals
    the Minimum Delta times the current phase-in percentage. *See*
    Appendix B § 54.806(f).

[^474]: *See* Appendix B § 54.806(g).

[^475]: To adjust the PSAUSS, the CALLS Proposal (1) sums the MSR
    amounts to get Total National Minimum Support Requirements (Total
    National MSR) for areas with MSRs, (2) subtracts this amount from
    \$650 million to get funds available for study areas with no MSR,
    (3) sums PSAUSS amounts for study areas with no MSR, (4) divides the
    funds available from (2) by (3) to obtain the PSAUSS adjustment
    factor, and (5) multiplies PSAUSS by the PSAUSS adjustment factor to
    get SAUSS for study areas with no MSR. *See* Appendix B § 54.806(c).

[^476]: Modified Proposal at § 2.2.4.1; Appendix B §54.807(b). The base
    period lines for the relevant quarter are adjusted for growth.

[^477]: *See* Appendix B § 54.800(q).

[^478]: *See* Modified Proposal at § 2.2.4.1; Appendix B § 54.807(c).
    Because interstate access support is capped and does not allow each
    price cap LEC to recover all of its common line price cap revenue
    shortfall created by the new SLC caps and geographic rate
    deaveraging, the CALLS Proposal suggests this cascading distribution
    methodology to ensure that interstate access universal service
    support is made available first to eligible telecommunications
    carriers serving customers in the zones with the greatest
    differential between CMT revenue and the SLC benchmarks.

[^479]: *See* Appendix B § 54.807.

[^480]: *See* Section IV.C.3.f *infra.*

[^481]: *See* Joint Board Supp. Comments at 6.

[^482]: *See* Section IV *supra* discussing the optional forward-looking
    cost study.

[^483]: Washington Commission Comments at 4-5; U S West Supp. Comments
    at 5 (requesting distribution of universal service support targeted
    to density zones with less than five lines per square mile).

[^484]: Indeed, in reforming our high-cost universal service support
    mechanism for non-rural carriers, we chose to distribute support
    using a wire-center approach. *See Universal Service Ninth Report
    and Order*, 14 FCC Rcd at 20471. The support provided by that
    mechanism is designed to assist states in achieving reasonable
    comparability of *intrastate* rates within their borders by ensuring
    that no state faces costs significantly above the average among
    states nationwide. *See Universal Service Ninth Report and Order* 14
    FCC Rcd at 20463. By contrast, the goal of the instant proceeding is
    to remove implicit universal service support from *interstate*
    access charges and replace it with explicit support. In achieving
    the different goals of these two proceedings, it does not
    necessarily follow that we must adopt support methodologies that
    mirror each other. So long as the support mechanisms that we adopt
    are consistent with the principles of the 1996 Act, we have the
    discretion to craft those mechanisms in the manner that best suits
    the needs of the particular proceeding before us. *See Alenco v.
    FCC,* 201 F.3d at 620.

[^485]: U S West Supp. Comments at 9-10. For example, in the case of
    Colorado, U S West argues that a shift to more averaged UNE rates
    would dramatically reduce the amount of universal service funding
    allocated to that state from \$60 million to only \$12 million. U S
    West Supp. Comments at 10.

[^486]: MCI Supp. Comments at 29.

[^487]: *See* CALLS Supp. Reply at 28.

[^488]: Appendix B § 54.403(a).

[^489]: Appendix B § 54.403(a).

[^490]: Appendix B § 54.403(a).

[^491]: *See* Appendix B § 54.403(a)(1).

[^492]: *See* Appendix B § 54.403(a)(1).

[^493]: Modified Proposal at § 2.1.2.3.

[^494]: *Wallman March 30 Letter* at 3; Appendix B § 69.158.

[^495]: *Universal Service First Report and Order*, 12 FCC Rcd at 8954.

[^496]: *Universal Service First Report and Order*, 12 FCC Rcd at 8970.

[^497]: *Universal Service First Report and Order*, 12 FCC Rcd at
    8969-70.

[^498]: The estimate of \$125 million is based on a residential SLC cap
    of \$6.50 per line. As discussed in section IV.A. above, however,
    the Commission will initiate a cost proceeding to review whether the
    residential SLC should be increased above \$5.00.

[^499]: *See* Appendix B § 54.403(a)(1).

[^500]: Modified Proposal at § 1.

[^501]: Modified Proposal at § 1.2*.*

[^502]: Modified Proposal at § 1.3.

[^503]: Some commenters argue that recovery of interstate access
    universal service support from all interstate telecommunications
    carriers revenues negatively affects carriers, such as Commercial
    Mobile Radio Services Providers and rural LECs, who receive limited
    benefits from reductions in access charges. *See, e.g*., Joint Board
    Supp. Comments at 8-9. The Commission fully addressed its decision
    to require all interstate telecommunications carriers to contribute
    to universal service mechanisms in the *Universal Service First
    Report and Order,* and the Fifth Circuit affirmed the Commission's
    decision on appeal. *Universal Service First Report and Order,* 12
    FCC Rcd at 9171-88 (requiring all interstate telecommunications
    carriers to contribute to universal service funding with a few
    limited exceptions); *see also TOPUC v. FCC*, 183 F.3d at 429-30.
    Thus, we decline to revisit this issue here.

[^504]: *See, e.g.,* Joint Consumer Commenters Supp. Comments at 37.

[^505]: Texas Office of Public Utility Counsel v. FCC, 183 F. 3d at 425.

[^506]: Universal Service Eighth Report and Order, 15 FCC Rcd at 1693.

[^507]: *See, e.g.,* Ad Hoc Supp. Comments at 10-11.

[^508]: *See, e.g.,* Ad Hoc Supp. Comments at 10.

[^509]: *See, e.g.,* Ad Hoc Supp. Comments at 10.

[^510]: *See Universal Service Eighth Report and Order*, 15 FCC Rcd at
    1692-93; *Universal Service First Report and Order*, 12 FCC Rcd at
    9211-12 (stating that "\[i\]f contributors \[to universal service\]
    choose to pass through part of their contributions and to specify
    that fact on customer's bills, contributors must be careful to
    convey information in a manner that does not mislead by omitting
    important information that indicates that the contributor has chosen
    to pass through the contribution or part of the contribution to its
    customers and that accurately describes the nature of the charge").

[^511]: *See* 47 U.S.C. § 201(b); *Truth-in-Billing Order*, 14 FCC Rcd
    at 7528.

[^512]: 47 C.F.R. § 54.709(a).

[^513]: 47 C.F.R. § 54.709(a).

[^514]: 47 C.F.R. § 54.709(a). Pursuant to the 1996 Act, providers of
    interstate telecommunications services are required to contribute to
    the Commission's universal service support mechanisms. *See* 47
    U.S.C. § 254(d); *see also* Appendix B § 54.706.

[^515]: *See* Appendix B § 54.702.

[^516]: *See* Appendix B §§ 54.701(g) and § 54.705(c)(1).

[^517]: *See* Appendix B § 54.702(i).

[^518]: *See* Appendix B § 54.715(c).

[^519]: Appendix B § 54.802(a).

[^520]: Appendix B § 54.802(a).

[^521]: Such lines include all business class lines assessed the end
    user common line charge pursuant to 47 C.F.R. § 69.152.

[^522]: This reporting requirement does not apply to eligible
    telecommunications carriers other than price cap LECs.

[^523]: *See* Appendix B § 54.800(a).

[^524]: *See* Appendix B § 54.802(b)(2).

[^525]: Appendix B, § 54.802(b).

[^526]: *See* 47 C.F.R. § 54.709(a)(3).

[^527]: As stated below, however, eligible telecommunications carriers
    other than participating price cap LECs may file their March 30,
    2000 line counts on September 29, 2000.

[^528]: 47 U.S.C. § 254(e).

[^529]: Universal Service Ninth Report and Order, 14 FCC Rcd at 20483.

[^530]: *See* Appendix B § 54.809; *see also* Joint Board Supp. Comments
    at 6 (raising the issue of certification pursuant to Section
    254(e)).

[^531]: *See* Appendix B § 54.809(c).

[^532]: *See* Appendix B § 54.809.

[^533]: *See* Appendix B § 54.809(b).

[^534]: Coalition for Affordable Local and Long Distance Services
    (CALLS) Modified Proposal, CC Docket No. 96-262, Public Notice, DA
    00-533 (Comm. Carr. Bur., rel. Mar. 8, 2000).

[^535]: Joint Board Supp. Comments.

[^536]: *See* Sections IV.A.3.a and IV.A.3.c. *supra*.

[^537]: *See Low-Volume Long-Distance Users NOI*, 15 FCC Rcd 6298.

[^538]: Among those individuals who filed comments were: Mr. Eric
    Anderson, Mr. Richard A. Arsinow, Mr. Bob Beaudoin, Mr. and Mrs.
    James Besenger, Mr. Fred Bethke, Ms. Nancy T. Clark, Robert W.
    Cooper, Jr., Mr. Allan DeSmet, Ms. Sandra Farrell, D.D.S., Mr.
    Jonathan Freidin, Ms. Barbara N. Gibbons, Ms. Frances Gizerian, Mr.
    Frank A. Griffith, Mr. Donald G. Hyatt, Mr. Barry D. Johnson, Mr. T.
    David Krauser, Mr. Robert L. Lehr, Mr. Roger Merel, Ms. Ruth J.
    Pelt, Ms. Gwen Petitjean, Mr. Mark Plemmons, R. Rivera, Mr. Paul F.
    Schaeffer, Mr. Michael Schneider, Robert Sullivan, Mr. Richard
    Stallworthy, and Ms. Davena Swinford.

[^539]: AT&T Tariff FCC No. 27, 1st Rev. P. 4-7.3, at § 4.1.1.N (eff.
    June 15, 1999); 1st Rev. P. 24-57.39, at § 24.1.1.U.2 (eff. Sept. 5,
    1998).

[^540]: MCI Tariff FCC No. 1, 140th Rev. P. 19.1, at § C.3.021211 (eff.
    Feb. 1, 1999); 3rd Rev. P. 19.183, at § C.3.421 (eff. Jan. 3, 1998).

[^541]: *Low-Volume Long-Distance Users NOI*, 15 FCC Rcd at 6303-04.

[^542]: AT&T Tariff FCC No. 27, 3^rd^ Rev. P. 24-555 at §24.1.18 C (eff.
    July 1, 1999); MCI Tariff FCC No. 1, 16^th^ Rev. P. 16.3,
    §1.061111A. (eff. August 1, 1999); Sprint Tariff FCC No. 1, 6^th^
    Rev. P. 38.2, § 3.11.10 (eff. Aug. 1, 1999).

[^543]: As discussed in Section IV.C.2, in the *Universal Service Ninth
    Report and Order* we reformed our high-cost universal service
    support mechanism for non-rural carriers to enable states to
    maintain reasonably comparable intrastate rates.

[^544]: *See* AT&T Tariff FCC No. 27, 2^nd^ Rev. P. 24-555 at §24.1.18 D
    (eff. July 1, 1998).

[^545]: *See Universal Service Ninth Report and Order*, 14 FCC Rcd at
    20489.

[^546]: *See* AT&T Tariff FCC No. 27, 5^th^ Rev. P. 24-555 at
    §24.1.18.D. (eff. Nov. 2, 1999).

[^547]: *See Low-Volume Long-Distance Users NOI*, 15 FCC Rcd 6298.

[^548]: *Id.*, 15 FCC Rcd at 6301-03.

[^549]: Dial-around services are long-distance providers that are
    accessible on a per-call basis by dialing a 101-xxxx number.

[^550]: Until relatively recently, most regulated local telephone
    companies were absolutely prohibited from providing long-distance
    service in their immediate areas because of their market power. As
    of 1996, however, these carriers may ask the Commission to allow
    them to provide long-distance services once they open their local
    markets to competition. *See* 47 U.S.C. § 271.

[^551]: *See Low-Volume Long-Distance Users NOI*, 15 FCC Rcd at 6304.

[^552]: Ameritech Low-Volume Comments at 2; AT&T Low-Volume Comments at
    2, 13, 24, and Declaration of Gregory L. Rosston at 3, 17; Bell
    Atlantic Low-Volume Comments at 1-3; BellSouth Low-Volume Comments
    at 3-4, SBC Low-Volume Reply at 2; CompTel Low-Volume Comments at
    2-3, 6-7; MCI Low-Volume Comments at 1-2; Sprint Low-Volume Comments
    at 5-6; TRA Low-Volume Comments at 13; USTA Low-Volume Comments at
    2, 5.

[^553]: *See Low-Volume Long-Distance Users NOI*, 15 FCC Rcd at 6303-05.

[^554]: *See id.*, 15 FCC Rcd at 6304-05, 6307. S*ee also* AARP
    Low-Volume Comments at 4-5; Ad Hoc Low-Volume Comments at 7; Bell
    Atlantic Low-Volume Comments at 1-2; BellSouth Low-Volume Comments
    at 7-8; GSA Low-Volume Comments at 8; TRA Low-Volume Reply at 5;
    TURN Low-Volume Comments at 2.

[^555]: *See Low-Volume Long-Distance Users NOI*, 15 FCC Rcd at 6305-06.
    *See also* AARP Low-Volume Comments at 3, 5; CFA Low-Volume Comments
    at v-vi, 26; CompTel Low-Volume Comments at 4, 6; TURN Low-Volume
    Comments at 2.

[^556]: *Low-Volume Long-Distance Users NOI*, 15 FCC Rcd at 6305-06.
    *See also* Ameritech Low-Volume Comments at 3; CFA Low-Volume
    Comments at 26; GSA Low-Volume Comments at 7; Rep. Hill Low-Volume
    Comments at 4; RTC Low-Volume Comments at 2, 4; USTA Low-Volume
    Comments at 4.

[^557]: *Low-Volume Long-Distance Users NOI*, 15 FCC Rcd at 6306. This
    option was supported by TURN. *See* TURN Low-Volume Comments at 7-8.

[^558]: *Low-Volume Long-Distance Users NOI*, 15 FCC Rcd at 6305-07.
    *See also* Bell Atlantic Low-Volume Comments at 3; TURN Low-Volume
    Comments at 7-8.

[^559]: *Low-Volume Long-Distance Users NOI*, 15 FCC Rcd at 6304-06*.
    See also* GTE Low-Volume Comments at 10; TURN Low-Volume Comments at
    2-3, 10-12; USTA Low-Volume Comments at 5; Qwest Low-Volume Comments
    at 16-17, and Sprint Low-Volume Comments at 7-8.

[^560]: *See Low-Volume Long-Distance Users NOI*, 15 FCC Rcd at 6305-06.

[^561]: *See* Ad Hoc Low-Volume Comments at 9-10; CompTel Low-Volume
    Comments at 9; GTE Low-Volume Comments at 16-17; TURN Low-Volume
    Reply at 5-6.

[^562]: *See AT&T March 30 Letter*.

[^563]: *See Sprint February 25 Letter*.

[^564]: Application of Bell Atlantic New York for Authorization under
    Section 271 of the Communications Act to Provide In-Region,
    Inter-Lata Service in the State of New York, CC Docket No. 99-295,
    Memorandum Opinion and Order, 15 FCC Rcd 75 (1999).

[^565]: The "Timeless" plan would charge ten cents per minute at all
    times for calls that are dialed directly, with no monthly minimum.
    The "E-Values" plan, which also has no minimums, charges five cents
    per minute for weekend calls, and nine cents per minute weekdays for
    Internet customers who sign up via Bell Atlantic's web site.

[^566]: MCI FCC Tariff No. 1, 1^st^ Rev. P. 364 §C.3.02.021 (eff. May 1,
    2000).

[^567]: *See AT&T March 30 Letter*.

[^568]: AT&T Tariff FCC No. 13, 9^th^ Rev. P. No. 38.6.3, §19.L.2; AT&T
    Tariff FCC No. 27, 6^th^ Rev. P. 3-19.6, § 3.5.12.B. (eff. Feb. 19,
    2000).

[^569]: *See* Interexchange Carrier End-User Charges To Recover
    Universal Service Contributions, CC Docket No. 99-324, Order, 14 FCC
    Rcd 20032 (Comp. Pric. Div. Nov. 1, 1999) (*IXC Universal Service
    Suspension Order*).

[^570]: MCI Tariff FCC No. 1, 3^rd^ Rev. P. No. 16.4, § C-1.061 (eff.
    Jan. 1, 1998); Sprint Tariff FCC No. 1, 2^nd^ Rev. P. No. 38,
    §3.3.11.8 (eff. Jan. 1, 1998).

[^571]: CALLS Supp. Comments at 3.

[^572]: *Id.*

[^573]: See 47 U.S.C. §§ 204, 205. See also IXC Universal Service
    Suspension Order, 14 FCC Rcd 20032.

[^574]: *See* *Sprint February 25 Letter*; *AT&T March 30 Letter.* State
    members of the Federal-State Joint Board have expressed concern that
    Sprint and AT&T have not indicated when they will flow through these
    saving, or that low-volume consumers will benefit from such
    reductions. Joint Board Supp. Comments at 4. We note, however, that
    Sprint and AT&T have said that they will not increase the per-minute
    rates on their "no minimum use" plans for at least one year. *Sprint
    February 25 Letter*; *AT&T March 30 Letter*. Moreover, even if
    Sprint and AT&T do not flow the per-minute savings through to
    low-volume users, such users will have greatly benefited from the
    elimination of flat fees such as the minimum use charges.

[^575]: *Sprint February 25 Letter*; *AT&T March 30 Letter*.

[^576]: *See Sprint February 25 Letter; AT&T March 30 Letter*. *Cf*.
    Motion of AT&T Corp. to be Reclassified as a Non-Dominant Carrier,
    11 FCC Rcd 3271, 3356 (1995) (*AT&T Non-dominance Order*) (ordering
    AT&T to comply with voluntary commitments from September 21 and
    October 5, 1995, *ex parte* letters it filed in a proceeding
    regarding its treatment as a non-dominant provider of interstate,
    domestic, interexchange service).

[^577]: Modified Proposal at § 7.

[^578]: We further note that our *Truth-in-Billing Order* and rules
    address the way carriers characterize their fees, as well as many of
    the problems that consumers have understanding charges. *See
    Truth-in-Billing Order*, 14 FCC Rcd at 7496. A carrier is required
    to list, item-by-item, each charge it bills to the consumer. *Id.*,
    14 FCC Rcd at 7516. The language used must be clear to the average
    consumer, and the bill must include telephone numbers that consumers
    can call for further explanations of their telephone bills. *Id*.

[^579]: *See* 5 U.S.C. § 603. The RFA, 5 U.S.C. § 601 *et seq.*, has
    been amended by the Contract With America Advancement Act of 1996,
    Pub. L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the
    CWAAA is the Small Business Regulatory Enforcement Fairness Act of
    1996 (SBREFA).

[^580]: *CALLS NPRM*, 14 FCC Rcd at 16875-76.

[^581]: Coalition for Affordable Local and Long Distance Services
    (CALLS) Modified Proposal, CC Docket No. 96-262, Public Notice,
    DA-00-533, at 1-3 (Comm. Carr. Bur., rel. Mar. 8, 2000).

[^582]: *See* 5 U.S.C. § 604.

[^583]: *See* Section II above.

[^584]: *See* Section IV.B.2 above.

[^585]: 5 U.S.C. § 603(b)(3).

[^586]: *Id*. § 601(3).

[^587]: *Id*. § 632.

[^588]: 13 C.F.R. § 121.201.

[^589]: Two carriers, VALOR and Iowa Telecom, are under contract to
    purchase exchanges from price cap LECs, and will be subject to this
    Order. Both carriers are probably small entities.

[^590]: 5 U.S.C. § 601(3).

[^591]: Letter from Jere W. Glover, Chief Counsel for Advocacy, SBA, to
    William E. Kennard, Chairman, FCC, May 27, 1999. The Small Business
    Act contains a definition of \"small business concern,\" which the
    RFA incorporates into its own definition of \"small business.\"
    *See* 15 U.S.C. § 632(a) (Small Business Act); 5 U.S.C. § 601(3)
    (RFA). SBA regulations interpret \"small business concern\" to
    include the concept of dominance on a national basis. 13 C.F.R. §
    121.102(b). Since 1996, out of an abundance of caution, the
    Commission has included small incumbent LECs in its regulatory
    flexibility analyses. *See*, *e.g*., Implementation of the Local
    Competition Provisions of the Telecommunications Act of 1996, CC
    Docket, 96-98, First Report and Order, 11 FCC Rcd 15499, 16144‑45
    (1996).

[^592]: Standard Industrial Classification (SIC) Code 4813.

[^593]: FCC, Common Carrier Bureau, *Carrier Locator: Interstate Service
    Providers*, Figure 1 (number of carriers paying into the TRS Fund by
    type of carrier) (Jan. 1999).

[^594]: *See* Section IV.B.2.a above.

[^595]: *See* Section IV.B.2.a above.

[^596]: *See* Section IV.B.2.b above.

[^597]: *See* Section IV.B.2.b above.

[^598]: *See* Appendix B § 61.3(qq).

[^599]: *See* Section IV.B.2.b above.

[^600]: *See* 5 U.S.C. § 801(a)(1)(A).

[^601]: *See* 5 U.S.C. § 604(b).

[^602]: We note that, in addition to the listed commenters, the
    Commission has received in excess of 15,000 "form" postcards
    identical in their wording from individuals in opposition to CALLS.

[^603]: Richard A. Arsinow, Bob Beaudoin, Mr. And Mrs. James Besenger,
    Fred Bethke, Nancy T. Clark, Robert W. Cooper, Jr., Allan DeSmet,
    Sandra Farrell,D.D.S., Jonathan Freidin, Barbara N. Gibbons, Ms.
    Frances Gizerian, Frank Griffith, Donald G. Hyatt, Barry D. Johnson,
    David Krauser, Robert Lehr, Roger Merel, Ruth J. Pelt, Gwen
    Petitjean, Mark Plemmons, R. Rivera, Paul Schaeffer, Michael
    Schneider, Robert Sullivan, Richard Stallworthy.

[^604]: *See* Further Notice of Proposed Rulemaking,1998 Biennial
    Regulatory Review \-- Review Of Depreciation Requirements For
    Incumbent Local Exchange Carriers, Ameritech Corporation Telephone
    Operating Companies\' Continuing Property Records Audit, et al., CC
    Docket Nos. 98-137, 99-117 (Rel. Apr. 3, 2000).

[^605]: *See, e.g.*, Supplemental Order, *Implementation of the Local
    Competition Provisions of the Telecommunications Act of 1996*, CC
    Docket 96-98 (rel. Nov. 24, 1999).

[^606]: Even under the Negotiated Rulemaking Act, however, the Bureau
    could not have promised that this Commission would abide by the
    negotiated rulemaking committee's consensus. *See* *USA Group Loan
    Servs. Inc. v. Riley*, 82 F.3d 708, 714 (7^th^ Cir. 1996).