**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | *  | CC Docket No. 96-45          |
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| Federal-State Joint Board on     | ** |                              |
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| Universal Service                | *  |                              |
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**Recommended Decision**

**Adopted: February 27, 2004 Released: February 27, 2004**

By the Federal-State Joint Board on Universal Service: Commissioners
Abernathy, Jaber, and Dunleavy, and Consumer Advocate Gregg, issuing
separate statements; Commissioner Martin dissenting in part, concurring
in part, and issuing a separate statement; Commissioners Adelstein,
Thompson, and Rowe approving in part, dissenting in part, and issuing a
joint separate statement.

**TABLE OF CONTENTS**

[Heading Para.]{.underline}

I. Introduction 1

II\. ETC DESIGNATION PROCESS 5

A. Background 6B. Discussion 9

III\. SCOPE OF SUPPORT 56

A. Background 58

B. Discussion 62

IV\. BASIS OF SUPPORT 88

A. Background 89

B. Discussion 94

V. OTHER ISSUES 98

A. Identification of Wireless Customer Location 98

B. Accurate, Legible, and Consistent Maps 104

VI\. RECOMMENDING CLAUSE 106

Appendix A -- Parties Filing Comments and Reply Comments

# Introduction

1.  In this Recommended Decision, the Federal-State Joint Board on
    Universal Service ("Joint Board") provides its recommendations
    concerning the process for designation of eligible
    telecommunications carriers (ETCs) and the Commission's rules
    regarding high-cost universal service support. Citing changes in the
    marketplace since the Commission's rules were first adopted in 1997,
    the Commission requested that the Joint Board "review certain of the
    Commission's rules relating to the high-cost universal service
    support mechanisms to ensure that the dual goals of preserving
    universal service and fostering competition continue to be
    fulfilled."[^1] Consistent with the Commission's directive in the
    *Referral Order*, we sought comment and held a public forum to
    address concerns regarding the designation and funding of ETCs in
    high-cost areas. [^2] We provide our recommendations based on our
    review and consideration of the record developed in this proceeding.
    Overall, we believe that our recommendations will preserve and
    advance universal service, maintain competitive neutrality, and
    ensure long-term sustainability of the universal service fund.

2.  Specifically, we recommend that the Commission adopt permissive
    federal guidelines for states to consider in proceedings to
    designate ETCs under section 214 of the Communications Act of 1934,
    as amended ("Act").[^3] We believe that permissive federal
    guidelines for minimum ETC qualifications would allow for a more
    predictable application process among states. We also believe that
    our recommended guidelines would assist states in determining
    whether or not the public interest would be served by a carrier's
    designation as an ETC. In so doing, we believe that guidelines
    should improve the long-term sustainability of the universal service
    fund, as only fully qualified carriers that are capable of, and
    committed to, providing universal service would be able to receive
    support. We recognize that there are instances where carriers are
    not subject to the jurisdiction of a state commission and that the
    Commission has explicit authority to designate carriers in these
    circumstances. Specifically, while section 214(e)(2) of the Act
    gives state commissions the primary responsibility for designating
    ETCs, section 214(e)(6) directs the Commission to designate the
    carriers when those carriers are not subject to the jurisdiction of
    the state commission. In these cases, we believe that the Commission
    should apply the proposed guidelines.

3.  We also recommend that the Commission limit the scope of high-cost
    support to a single connection that provides access to the public
    telephone network. We believe that supporting a single connection is
    more consistent with the goals of section 254 of the Act than the
    present system, and is necessary to preserve the sustainability of
    the universal service fund. We also believe that it would send more
    appropriate entry signals in rural and high-cost areas, and would be
    competitively neutral. To minimize the potential impact of
    restricting the scope of support in areas served by rural carriers,
    we recommend that the Commission seek comment on restating the total
    high-cost support flowing to a rural carrier in terms of first
    connections, and on other possible measures.[^4] As discussed below,
    we also recommend that the Commission seek comment on whether to
    restate support for non-rural carriers.[^5] In conjunction with
    these measures, we also recommend that high-cost support in areas
    served by rural carriers be capped on a per-line basis where a
    competitive carrier is designated as an ETC, and adjusted annually
    by an index factor.[^6]

4.  At this time, we decline to recommend that the Commission modify the
    basis of support (i.e., the methodology used to calculate support)
    in study areas with multiple ETCs. Instead, we recommend that the
    Joint Board and Commission consider possible modifications to the
    basis of support as part of an overall review of the high-cost
    support mechanisms for rural and non-rural carriers.[^7] We believe
    that examining the basis of support for all ETCs under the rural and
    non-rural federal support mechanisms simultaneously would allow the
    Joint Board and the Commission to craft a more comprehensive
    approach and avoid the perils of piecemeal decision-making. If the
    Commission adopts our recommendations to limit the scope of support
    and to ensure that ETC designations are appropriately rigorous, such
    steps should slow fund growth due to competitive entry in the
    meantime.

# ETC DESIGNATION PROCESS

5.  We recommend a variety of measures below that relate to state
    proceedings involving designation of ETCs. To increase the
    opportunities for state commissions to conduct rigorous proceedings,
    we recommend that the Commission adopt permissive guidelines for
    minimum ETC qualifications. We also offer some guidance for state
    commissions in interpreting the public interest test found in
    section 214(e). In addition, we address the annual certification
    requirements under section 254(e) and recommend that the Commission
    encourage states to use that process to ensure that all ETCs use
    federal universal service support to provide the supported services
    and for associated infrastructure costs. Finally, we offer some
    observations regarding the service area redefinition process and
    disaggregation of support by rural carriers. We note here that in
    instances where carriers are not subject to the jurisdiction of a
    state commission, we urge the Commission to apply these same
    measures.

## Background

6.  Section 254(e) of the Act provides that "only an eligible
    telecommunications carrier designated under section 214(e) shall be
    eligible to receive specific Federal universal service support."[^8]
    Pursuant to section 214(e)(1), a common carrier designated as an ETC
    must offer and advertise the services supported by the federal
    universal service mechanisms throughout the designated service area,
    either using its own facilities or a combination of its own
    facilities and resale of another carrier's services (including the
    services offered by another ETC).[^9]

7.  Section 214(e)(2) of the Act gives state commissions the primary
    responsibility for performing ETC designations.[^10] Under section
    214(e)(2), "\[u\]pon request and consistent with the public
    interest, convenience, and necessity, the State commission may, in
    the case of an area served by a rural telephone company, and shall,
    in the case of all other areas, designate more than one common
    carrier as an eligible telecommunications carrier" for a designated
    service area, so long as the requesting carrier meets the
    requirements of section 214(e)(1). Section 214(e)(2) further states:
    "\[b\]efore designating an additional eligible telecommunications
    carrier for an area served by a rural telephone company, the State
    commission shall find that the designation is in the public
    interest."[^11]

8.  A state commission must allow an ETC to relinquish its designation
    in any area served by more than one ETC pursuant to section
    214(e)(4) of the Act.[^12] The relinquishing ETC must provide
    advance notice of such relinquishment to the state commission.[^13]
    Prior to allowing the relinquishing carrier to cease providing
    universal service, the state commission must require the remaining
    ETC or ETCs to ensure that all customers served by the relinquishing
    carrier will continue to be served. The state commission also must
    require sufficient notice to the remaining ETC or ETCs to permit the
    purchase or construction of adequate facilities.[^14] The state
    commission must establish a time, not to exceed one year after the
    state commission approves the relinquishment, within which such
    purchase or construction by the remaining ETC or ETCs must be
    completed.[^15] The same ETC relinquishment procedure is also
    required of the Commission in instances where a carrier is not
    subject to the jurisdiction of a state commission.

## Discussion

### Federal Guidelines for ETC Designations

9.  We recommend that the Commission adopt permissive federal guidelines
    for states to use when determining whether applicants are qualified
    to be designated as ETCs under section 214. We believe that
    guidelines are appropriate because the ETC application and
    designation process should be one that is rigorous. A rigorous ETC
    designation process should ensure that only fully qualified
    applicants receive designation as ETCs and that ETC designees are
    prepared to serve all customers within the designated service area.
    Additionally, a core set of minimum qualifications would allow for a
    more predictable application process among the states. We believe
    that our recommended guidelines would assist states in determining
    whether or not the public interest would be served by a carrier's
    designation as an ETC. We also believe that guidelines should
    improve the long-term sustainability of the fund, as only fully
    qualified carriers that are capable of, and committed to, providing
    universal service would be able to receive support.

10. We believe that federal guidelines concerning ETC qualifications
    should be flexible and non-binding on the states. Under our
    recommendation, state commissions would retain their rights to
    determine eligibility requirements for designating ETCs. Each state
    commission will be uniquely qualified to determine its own ETC
    eligibility requirements as the entity most familiar with the
    service area for which ETC designation is sought. Because these
    guidelines would be permissive, we reject the parties' arguments
    suggesting that such guidelines would restrict the lawful rights of
    states to make ETC designations.[^16] We also believe that federal
    guidelines are consistent with the United States Court of Appeals
    for the Fifth Circuit holding that nothing in section 214(e) of the
    Act prohibits the states from imposing their own eligibility
    requirements beyond the statutory requirements described in section
    214(e)(1).[^17] Even with the advent of permissive federal
    guidelines for ETC designations, states will continue to have the
    flexibility to impose additional eligibility requirements.

11. Federal guidelines concerning minimum qualifications should
    encourage state commissions to conduct rigorous reviews of ETC
    applications, including fact-intensive analyses. Because an ETC must
    be prepared to serve all customers within a designated service area,
    and must be willing to be the sole ETC should other ETCs withdraw
    from the market, states may appropriately establish minimum
    qualifications focused on the carrier's ability to provide the
    supported services to all consumers in the designated area upon
    reasonable request.[^18] Guidelines encouraging a rigorous
    application process are appropriate because section 214(e)(2)
    requires that designation of an additional ETC serve the public
    interest. Consistent with Section 254(b)(3) of the Act, we believe
    that a rigorous application process ensures that consumers in all
    regions of the nation, including rural and low-income consumers,
    have access to telecommunications services that are reasonably
    comparable to services provided in urban areas.[^19]

12. In recommending federal guidelines, we reject the arguments of some
    commenters that the current ETC criteria should not be
    expanded.[^20] Instead, we believe that a specific, fact-intensive
    inquiry is the appropriate way to analyze the public interest when
    evaluating an ETC application for a rural area. For example, some
    commissions have cited generalized benefits of competition when
    evaluating ETC applications. While this may be appropriate, we do
    not believe that such an analysis is sufficient by itself. Section
    214(e)(2) requires states to undertake a fact-intensive analysis to
    ensure that the designation of any additional ETCs will promote the
    goals set forth in section 254 of the Act in the affected area. We
    discuss below some of the factors states may choose to consider in
    conducting this fact-intensive inquiry.

13. We believe that adopting a core set of minimum qualifications will
    promote a predictable application process across states and provide
    certainty for states in terms of what guidelines may be appropriate
    to consider in the public interest analysis. Many commenters,
    including incumbent LECs and their competitors, support this goal
    and achieving this goal should benefit incumbent LECs and
    competitors alike.[^21] Permissive guidelines will enable state
    commissions, when evaluating ETC designation requests, to evaluate
    section 214(e)(2) petitions in light of at least a minimum set of
    criteria. We agree with the commenters that permissive guidelines
    could improve consistency in the treatment of requests for ETC
    status.[^22] However, the goal of predictability will be promoted if
    states and the Commission both apply similar guidelines. Thus, we
    strongly encourage the adoption of the proposed guidelines.
    Guidelines should also help address arguments about what is
    appropriate for states to consider as part of the public interest
    analysis.

#### Applicability of Guidelines

14. We recommend that state commissions apply these permissive federal
    guidelines in all ETC proceedings. An ETC petition presented to a
    state commission can affect an area served by a non-rural
    carrier,[^23] an area served by one or more rural carriers,[^24] or
    both.[^25] A single set of guidelines will encourage states to
    develop a single, consistent body of eligibility standards to be
    applied in all cases, regardless of the characteristics of the
    wireline incumbent carrier.[^26]

15. Permissive federal guidelines for all ETC cases would be consistent
    with section 214(e)(2). That section prescribes that all state
    certification decisions must be consistent with the public interest,
    convenience, and necessity. We believe this statutory requirement
    demonstrates Congress's intention that state commissions evaluate
    local factual situations in ETC cases and exercise broad discretion
    in reaching their ultimate conclusion regarding the public interest,
    convenience and necessity. This view is also consistent with the
    ruling of the Fifth Circuit in *TOPUC v. FCC*, which held that
    states may impose their own eligibility requirements beyond those
    listed in section 254(b)(1).[^27]

16. We also believe that applying the permissive federal guidelines to
    all state ETC proceedings will best promote federal universal
    service goals found in section 254(b). While Congress delegated to
    individual states the right to make ETC decisions, collectively
    these decisions have national implications. They affect not only the
    dynamics of competition in the areas subject to the proceedings, but
    also the national strategies of new entrants. They also affect the
    overall size of the federal fund. We anticipate that the adoption of
    recommended federal guidelines would facilitate results that are
    fully consistent with the goals of section 254. In addition, broadly
    applied recommended federal guidelines would be most likely to
    ensure designation of carriers that are: financially viable, likely
    to remain in the market, willing and able to provide the supported
    services throughout the designated service area, able to be the sole
    ETC in a service area if all other ETCs relinquish their
    designations, and able to provide consumers an evolving level of
    universal service.

17. Rigorous review of ETC applications assumes added importance in
    areas served by rural carriers. The Act contains added requirements
    in these cases. Although Congress provided that states *shall*
    designate more than one ETC in areas served by non-rural carriers
    (provided such designation is consistent with the public interest,
    convenience, and necessity), the Act provides that states *may*
    designate multiple ETCs in areas served by rural carriers ― thereby
    suggesting that states have greater discretion when evaluating
    applications for designation in rural carrier service areas. [^28]
    In addition, before a state may designate an additional ETC in an
    area served by a rural carrier, the state must affirmatively find
    the designation to be in the public interest.[^29] In establishing
    these additional statutory protections, we believe that Congress
    intended state commissions to exercise a higher level of scrutiny
    when evaluating ETC applications for designations in rural carrier
    service areas.[^30] Permissive federal guidelines for minimum
    eligibility should assist states in effectuating that higher level
    of scrutiny in areas served by rural carriers.

18. The characteristics of many rural carrier service areas also support
    a more rigorous standard of eligibility. Rural carrier service areas
    often have low customer densities and high per-customer costs.
    Subsidies flowing from federal and state universal service funds are
    often substantial. The Rural Task Force in White Paper #2 documented
    these effects and explained that rural carriers serve areas with
    lower population and line density and serve a smaller proportion of
    business customers.[^31] These circumstances support our belief that
    state commissions should apply a particularly rigorous standard to
    the minimum qualifications of applicants seeking ETC designation in
    rural carrier service areas.[^32]

#### Existing Minimum Eligibility Requirements

19. Before suggesting new minimum eligibility requirements, we begin
    with a review of the requirements for designation of ETCs as
    specified by section 214(e)(1) of the Act. First, a common carrier
    designated as an ETC must offer the services supported by the
    federal universal service mechanisms throughout the designated
    service area.[^33] The ETC must offer such services either using its
    own facilities or a combination of its own facilities and resale of
    another carrier's services.[^34] The services that are supported by
    the federal universal service support mechanisms are defined as: (1)
    voice grade access to the public switched network;[^35] (2) local
    usage;[^36] (3) Dual Tone Multifrequency (DTMF) signaling or its
    functional equivalent;[^37] (4) single-party service or its
    functional equivalent;[^38] (5) access to emergency services,
    including 911 and enhanced 911; [^39](6) access to operator
    services;[^40] (7) access to interexchange services; [^41](8) access
    to directory assistance;[^42] and (9) toll limitation for qualifying
    low-income customers.[^43] Second, throughout the service area for
    which designation is received, the ETC must advertise the supported
    services and the charges therefore using media of general
    distribution.[^44] Pursuant to section 214(e)(1)(B), an ETC is
    required to advertise the availability and prices charged for the
    services that are supported by federal universal service
    support.[^45] An ETC must also advertise the availability of
    Lifeline and Link Up services in a manner reasonably designed to
    reach those likely to qualify for those services.[^46]

20. While section 214(e)(1) requires an ETC to "offer" the services
    supported by the federal universal service support mechanisms, the
    Commission has determined that this does not require a competitive
    carrier to actually provide the supported services throughout the
    designated service area before designation as an ETC.[^47] In the
    *Section 214(e) Declaratory Ruling*, the Commission concluded that
    interpreting section 214(e)(1)(A) to require the provision of
    service throughout a service area before ETC designation prohibits,
    or has the effect of prohibiting, the ability of competitive
    carriers to provide telecommunications service, in violation of
    section 253(a).[^48] The Commission found that such an
    interpretation of section 214(e)(1) is not competitively neutral,
    consistent with section 254, or necessary to preserve and advance
    universal service. In addition, the Commission concluded that such a
    requirement conflicts with section 214(e) and stands as an obstacle
    to the accomplishment and execution of the full purpose and
    objectives of Congress as set forth in section 254.[^49]
    Consequently, the Commission concluded that requiring the provision
    of service throughout the service area before designation would
    effectively preclude designation of new entrants as ETCs in
    violation of the intent of Congress.

#### Additional Minimum Eligibility Requirements

21. For the reasons stated above, we recommend that state commissions
    consider the additional minimum qualifications listed below when
    evaluating ETC designation requests.

##### Adequate Financial Resources

22. We recommend that the Commission adopt guidelines encouraging states
    to evaluate whether ETC applicants have the financial resources and
    ability to provide quality services throughout the designated
    service area. We believe that it would neither be prudent nor serve
    the public interest if a financially unsound carrier is designated
    as an ETC, receives universal service support and yet is still
    unable to achieve long-term viability that is sufficient to sustain
    its operations. In order to provide guidance in this area, we
    recommend that the Commission seek to further develop the record on
    the ways in which state commissions may determine whether an ETC
    applicant has adequate financial resources. Long-term viability can
    be based, for example, on plans that tie investment to customer
    growth and demands. In this regard, we note that the Commission has
    held that a new entrant "cannot reasonably be expected to be able to
    make the substantial financial investment required to provide the
    supported services in high-cost areas without some assurance that it
    will be eligible for federal universal service support" and "\[i\]n
    fact, the carrier may be unable to secure financing or finalize
    business plans due to uncertainty surrounding its designation as an
    ETC."[^50]

##### Commitment and Ability to Provide the Supported Services

23. We recommend that the Commission adopt a guideline encouraging state
    commissions to require ETC applicants to demonstrate their
    capability and commitment to provide service throughout the
    designated service area to all customers who make a reasonable
    request for service. States should require a demonstration of
    capability and commitment because this will help them ensure that an
    ETC applicant is willing and able to provide the supported services
    throughout the designated service area and to be the sole ETC in a
    service area if the incumbent LEC relinquishes its designation.
    States should have flexibility in implementing this guideline.

24. State commissions may choose to implement this requirement, for
    example, by requiring a formal build-out plan for areas where
    facilities are not yet built out at the time the ETC application is
    considered. State commissions have examined ETC applicants' plans to
    serve new customers and build out their networks in a variety of
    ways. For example, the Arizona Corporation Commission (Arizona
    Commission) has evaluated an ETC's plans to assist potential
    customers to receive service by employing various technical
    means.[^51] The Arizona Commission noted that the ETC had been
    operating for nearly ten years and had worked with five Native
    American tribes to secure adequate cell sites on Native American
    lands.[^52] In another case, a Minnesota Administrative Law Judge
    (Minnesota ALJ) examined an ETC's plans to provide universal service
    to customers using .6-watt handheld phones or a 3-watt telephone and
    noted the applicant's commitment to building 15 specific cell sites
    in high-cost areas that it would not otherwise include in its
    network expansion plans because of cost issues.[^53] In its final
    order, the Minnesota Public Utilities Commission (Minnesota
    Commission) found it adequate that the company was able to offer its
    services through approximately 200 cell sites in and around the
    state; pledged to build an additional 15 cell sites upon designation
    as an ETC; pledged to meet customer orders for new service through a
    variety of measures including additional cell sites, cell extenders,
    rooftop antennae, high-powered phones, and the resale of existing
    service; and was willing to address a customer\'s request for
    service by developing a schedule for extending service.[^54] The
    Regulatory Commission of Alaska (Alaska Commission) recently granted
    ETC status to a commercial mobile radio services (CMRS) provider and
    stated that the provider need not prove its ability to build
    facilities throughout every portion of the incumbent LEC's service
    area but must demonstrate that its methods of providing service
    throughout the incumbent LEC's service area are reasonable.[^55] The
    Alaska Commission found reasonable a seven-step plan that Alaska
    Digitel proposed for serving customers.[^56]

25. In the Minnesota proceeding discussed above, the Minnesota ALJ
    examined the cost of equipment as another way to determine whether
    the carrier was willing and able to compete for local exchange
    service as an ETC.[^57] Specifically, the ALJ determined that the
    cost of installation and customer premises equipment necessary to
    provide the ETC applicant's basic universal service package should
    be considered as part of this analysis. The ALJ found that the cost
    of this equipment to the consumer is relevant in determining whether
    a carrier has a bona fide intent to compete for local exchange
    service. Further, the ALJ determined that the ETC applicant's
    commitment to provide the necessary equipment at little or no cost
    was driven by a desire to compete for local service.

26. State commissions may also choose to require competitive ETCs to
    explore the possibility of serving customers through the resale of
    another carrier's service. If an ETC receives a reasonable request
    for service and yet is unable to extend its network to meet the
    request, it still has the option of serving that customer through
    resale. States have discretion to require ETC applicants to
    incorporate resale in their plans to serve all customers upon
    reasonable request as a condition of ETC designation. The commitment
    to incorporate resale into such plans may demonstrate an applicant's
    capability and commitment to providing service. We note that, while
    section 214(e)(1) permits an ETC to offer the services supported by
    universal service using its own facilities, or a combination of its
    own facilities and resale, ETCs may not provide such services solely
    through resale.[^58] A state commission is not authorized to
    designate as an ETC a carrier that offers the supported services
    solely through the resale of another carrier's services.[^59]

27. States should determine, pursuant to state law, what constitutes a
    "reasonable request" for service. Once designated as an ETC, a new
    entrant is required, as the incumbent LEC is required, to serve new
    customers upon reasonable request.[^60] For example, as part of the
    seven-step plan in the *Alaska Digitel ETC Order*, if the ETC finds
    that it is unable to provide service to a customer short of
    constructing a new cell site, the ETC will report that to the Alaska
    Commission, providing the cost of construction, its position on
    whether the request for service is reasonable and whether high-cost
    funds should be expended on the request.[^61] The Alaska Commission
    found that the ETC applicant's plan was a reasonable means for the
    carrier to provide service throughout the service area upon
    reasonable customer request and determined that it would address any
    requests by the ETC to deny service on a case-by-case basis.[^62] We
    recognize that states have different requirements regarding line
    extensions and policies regarding carrier-of-last resort
    obligations. We recommend that build-out requirements be harmonized
    with any existing policies regarding line extensions and
    carrier-of-last resort obligations.

28. We also recommend that the Commission adopt guidelines encouraging
    states, as a condition of ETC designation, to require competitive
    ETCs to be prepared to provide equal access if all other ETCs in
    that service area exercise their rights to relinquish their
    designations pursuant to section 214(e)(4). Under section 214(e)(4),
    when an ETC seeks to relinquish its ETC designation, the state
    commission will require the remaining ETC or ETCs to serve the
    customers that had been served by the relinquishing carrier.[^63]
    Incumbent LECs are required to provide equal access.[^64] Thus, this
    recommended guideline will protect consumers in the event of
    relinquishment by ensuring that consumers will continue to have
    equal access to long distance providers, without imposing any
    unnecessary administrative burdens on the remaining ETC or
    ETCs.[^65] We recognize that the Commission did not resolve the
    issue of whether to include equal access in the definition of
    universal service.[^66] In the *Definitions Order,* the Commission
    stated that it believed that any determination regarding equal
    access would be premature because of the scope of the instant
    proceeding.[^67] It deferred consideration of the equal access issue
    pending resolution of this proceeding.[^68] As discussed below, we
    decline to recommend that the Commission modify the basis of support
    in areas served by multiple ETCs at this time, but recommend that
    the Joint Board and the Commission continue to consider possible
    modifications to the basis of support in a broader context.[^69] We
    make no recommendation as to whether to include equal access in the
    definition of universal service at this time.

29. We recommend that the Commission clarify its decision in the
    *Western Wireless Kansas CMRS Order*.[^70] In that order, the
    Commission determined that Western Wireless' Basic Universal Service
    (BUS) offering in Kansas was a CMRS service and therefore, the
    Kansas Corporation Commission was preempted from regulating BUS
    entry or rates and from requiring equal access for telephone toll
    services.[^71] We believe that this case could be interpreted as
    precluding states from imposing equal access requirements on CMRS
    carriers under any conditions. We believe, however, that section
    332(c)(8) may be interpreted differently, and we recommend that the
    Commission clarify what it intended. For example, in a separate
    proceeding some parties argued that section 332(c)(8) of the Act
    does not prevent the Commission from requiring CMRS providers to
    provide equal access in order to receive universal service
    funds.[^72] They argued that section 332(c)(8) only prevents the
    Commission from requiring CMRS carriers to provide equal access as a
    general condition of mobile service.[^73]

##### Ability to Remain Functional in Emergencies

30. We recommend that the Commission adopt a guideline encouraging
    states to require ETC applicants to demonstrate the ability to
    remain functional in emergency situations. We believe this to be an
    important guideline because as noted by at least one commenter, the
    "security of a carrier's network and the ability to protect critical
    telecommunications infrastructure should be a major consideration in
    evaluating the public interest."[^74] We recommend that the
    Commission further develop the record on specific requirements state
    commissions may choose to consider in evaluating an ETC applicant's
    ability to remain functional in emergencies. For example, the State
    of Vermont Public Service Board (Vermont Commission), in analyzing
    the public interest in an ETC proceeding, recently examined an ETC
    applicant's ability to remain functional in emergencies.[^75] The
    Vermont Commission made a detailed factual finding about the
    applicant's technical capabilities to remain functional in
    emergencies, as well as the applicant's track record for maintaining
    its network in a power outage.[^76] Additionally, the Public Utility
    Commission of Texas (Texas Commission), as a condition of receiving
    universal service support, required an ETC to provide a minimum of
    four hours of battery reserve without voltage falling below the
    level required for proper operation of all equipment.[^77]

##### Consumer Protection

31. We recommend that the Commission adopt a guideline indicating that
    state commissions may properly impose consumer protection
    requirements as part of the ETC designation process. We believe that
    imposing consumer protection requirements as part of the ETC
    designation process may be consistent with "the public interest,
    convenience and necessity" to ensure that consumers are able to
    receive an evolving level of universal service.[^78] Any consumer
    protection requirements imposed on ETCs should further the universal
    service goals contemplated in section 254(b) of the Act, and should
    not be imposed merely for the sake of regulatory parity.[^79]

32. State commissions have imposed various consumer protection
    requirements as a condition of granting a request for ETC
    designation. The Vermont Commission, for example, has subjected ETCs
    to its rules regarding disconnections and treatment of customer
    deposits as a condition of ETC designation.[^80] Similarly, as a
    condition of receiving ETC designation, the Arizona Commission
    required a wireless carrier to submit consumer complaints "arising
    from its offering as an ETC."[^81] In extending consumer protection
    requirements to competitive ETCs as a condition of granting ETC
    designations, state commissions have noted that states are free to
    impose their own eligibility requirements in making ETC
    determinations, consistent with the Fifth Circuit's interpretation
    of the Act.[^82]

33. We reject arguments that subjecting competitive ETCs, particularly
    wireless competitive ETCs, to consumer protection requirements is
    inconsistent with section 332 of the Act.[^83] While section
    332(c)(3) of the Act generally preempts states from regulating the
    rates and entry of CMRS providers, it specifically allows states to
    regulate the other terms and conditions of commercial mobile
    services.[^84] Accordingly, while wireless competitive ETCs, for
    example, otherwise may not be subject to state consumer protection
    requirements, we believe that states may extend generally applicable
    requirements to all ETCs in order to preserve and advance universal
    service, consistent with sections 214 and 254 of the Act.[^85] In
    addition, seeking ETC designation is a choice. We therefore agree
    with commenters that preemption from state regulation afforded under
    section 332 of the Act should not be equated with conditions that
    apply only to carriers that choose to seek ETC designation and
    universal service support.[^86]

34. Even if some ETCs, including CMRS carriers, otherwise would not be
    subject to state consumer protection requirements, states may extend
    generally applicable requirements to all ETCs to ensure that
    universal service goals are met. Our recommendation here, however,
    is not that competitive ETCs should be required to comply with all
    of the standards imposed on wireline incumbent LECs as some
    commenters have proposed.[^87] States should not require regulatory
    parity for parity's sake. Rather, requirements should be imposed on
    ETCs only to the extent necessary to further universal service
    goals, including the provision of high-quality service throughout
    the designated service area.

##### Local Usage

35. Consistent with the requirement that ETCs offer local usage, states
    may consider how much local usage ETCs should offer as a condition
    of federal universal service support. In the *First Universal
    Service Report and Order*, the Commission determined that ETCs
    should provide some minimum amount of local usage as part of their
    \"basic service\" package of supported services.[^88] Thus, local
    usage is one of the supported services that ETCs are required to
    provide in order to receive federal universal service support.
    Although the Commission has not set a minimum local usage
    requirement, there is nothing in the Act, Commission's rules, or
    orders that would limit state commissions from prescribing some
    amount of local usage as a condition of ETC status. As determined by
    the Fifth Circuit in *TOPUC v. FCC*, states may establish their own
    eligibility requirements for ETC applicants.[^89] In fact, in
    recently deciding that unlimited local usage should not be added to
    the list of services supported by federal universal service, the
    Commission found that the states are in a better position to
    determine whether unlimited local usage offerings are beneficial in
    particular circumstances.[^90]

36. In considering local usage, states may choose to compare an
    incumbent LEC's offering of a local calling plan to the local
    calling plan proposed by the ETC applicant. For example, the Arizona
    Commission noted an ETC applicant's plan to propose 30 free minutes
    per month throughout its network, which was a much larger area than
    the local exchange area provided by the LECs in the same
    region.[^91] The Arizona Commission compared the ETC applicant's
    calling plan with that of the landline service offerings and
    determined that based on the size of the calling area, toll calling
    on the ETC applicant's network would cost the same, or less, as it
    would on the incumbent LEC's network.[^92] It also considered the
    applicant's plan to provide unlimited free calls to a long list of
    government, social service, health facilities, educational
    institutions, and emergency numbers.[^93]

### Public Interest Determinations 

37. The minimum eligibility requirements recommended above will assist
    states in ensuring that additional ETCs are able and willing to
    serve all customers in the designated service area upon reasonable
    request. Before an additional ETC can be designated, however, the
    state commission must also determine that the designation is
    consistent with the public interest, convenience and necessity.
    Additionally, for areas served by rural carriers, the Act requires a
    separate finding that designation of an additional ETC is in the
    public interest. While Congress did not specifically prescribe how
    these public interest tests would be applied, state commissions and
    the Commission have developed analyses that address various factors
    affecting the public interest. These include, but are not limited
    to, benefits of increased competition and choice and potential harm
    to consumers. Below, we discuss the statutory public interest
    requirement, how different states have applied it, and additional
    factors states may consider in making public interest
    determinations. Before reaching those factors, however, we make some
    observations concerning the statutory provisions that apply when an
    ETC application covers an area served by a rural carrier.

#### Additional ETCs in Areas Served by Rural Carriers

38. The Joint Board interprets section 214(e)(2) as contemplating use of
    a higher level of scrutiny for ETC applicants seeking designation in
    areas served by rural carriers.[^94] In these areas, the public
    interest determination for an additional ETC is subject to two
    special statutory rules. First, section 214(e)(2) requires states to
    designate more than one ETC in areas served by non-rural carriers
    (so long as doing so is "consistent with the public interest,
    convenience, and necessity"); but it confers discretion on the
    states to designate more than one ETC in areas served by rural
    carriers. In these areas, the Act provides that a state commission
    "may" grant the designation.[^95] Also, as noted above, the last
    sentence of section 214(e)(2) requires that before a state
    designates an additional ETC in an area served by a rural carrier,
    the state must find the designation to be in the public
    interest.[^96] These two additional requirements demonstrate
    Congress's recognition that supporting competition might not always
    serve the public interest in areas served by rural carriers, and
    Congress' intent that state commissions exercise discretion in
    deciding whether the designation of an additional ETC serves the
    public interest. As discussed above, the low customer densities and
    high per-customer cost characteristics of many rural carrier study
    areas also support a more rigorous standard of eligibility.[^97]
    Thus, we agree with commenters that section 214(e)(2) provides the
    state commissions with the obligation and statutory duty to perform
    an in-depth public interest analysis concerning ETC applications in
    rural carrier study areas.[^98]

#### Public Interest Considerations

39. While Congress did not establish specific criteria to be applied
    under the public interest tests in section 214(e)(2) of the Act, it
    is clear that the public interest must be analyzed in a manner that
    is consistent with the purposes and goals of the Act itself.[^99]
    Certain state commissions have already based their public interest
    findings on relevant universal service principles. For example, the
    public interest test performed by the Texas Commission is guided by
    the fundamental goals of preserving and advancing universal service,
    and the component goals of ensuring the availability of quality
    telecommunications services at just, reasonable and affordable
    rates, and promoting the deployment of advanced telecommunications
    and information services to all regions of the Nation, including
    rural and high-cost areas.[^100]

40. Several state commissions have considered various additional factors
    in analyzing the public interest, such as the potential benefits
    consumers could receive from designation of an additional ETC in a
    particular area.[^101] The elements that the Alaska Commission has
    considered in determining the public interest include: new choices
    for customers; affordability; quality of service; service to
    unserved customers; comparison of benefits to public cost; and
    considerations of material harm.[^102] Similarly, the Commission has
    considered whether consumers were likely to benefit from increased
    competition; whether the additional designation will provide
    benefits not available from incumbent carriers; whether consumers
    may be harmed should the incumbent withdraw from the service area;
    and whether there would be harm to a rural incumbent LEC.[^103]

41. These commissions have also applied the public interest factors to
    the particular facts before them in an ETC proceeding. In evaluating
    service to unserved customers, the Alaska Commission took note of an
    ETC's plan to build out six additional cell sites and ability to
    reach unserved customers in three specific communities if it
    received ETC designation.[^104] The Commission, in evaluating
    whether an additional designation would provide benefits not
    available from incumbent carriers, noted that the ETC applicant
    could offer a wider local calling area than that provided by the
    rural incumbent LEC and could provide a variety of calling plans to
    consumers.[^105] The Commission determined that such options may
    make intrastate toll calls more affordable to those consumers.[^106]
    The Commission also evaluated whether there would be harm to the
    rural incumbent LEC and affected rural consumers by undertaking an
    extensive cream skimming analysis.[^107] Based on the analysis, the
    Commission determined that the ETC applicant would not be serving
    only low-cost areas at the exclusion of any high-cost areas.[^108]

42. We disagree with commenters who contend that we should encourage
    states to adopt a specific cost-benefit test for the purpose of
    making public interest determinations.[^109] Several commenters
    propose that state commissions should more explicitly balance the
    benefits of granting an ETC application (e.g., enhancement of
    competition, extension of service to previously unserved areas, or
    introduction of mobile services) against the costs (e.g., impact of
    supporting multiple ETCs on fund growth).[^110] While we agree that
    a consideration of both benefits and costs is inherent in conducting
    a public interest analysis, we decline to provide any more specific
    guidance on how this balancing should be performed. We believe that
    the difficulty of quantifying and weighing the various factors that
    may be relevant to determining the public interest militate against
    attempting to create a rigid formula for balancing costs and
    benefits.

43. We believe, however, that states making public interest
    determinations may properly consider the level of federal high-cost
    per-line support to be received by ETCs.[^111] High-cost support is
    an explicit subsidy that flows to areas with demonstrated levels of
    costs above various national averages. Thus, one relevant factor in
    considering whether or not it is in the public interest to have
    additional ETCs designated in any area may be the level of per-line
    support provided to the area. If the per-line support level is high
    enough, the state may be justified in limiting the number of ETCs in
    that study area, because funding multiple ETCs in such areas could
    impose strains on the universal service fund. Moreover, if the
    Commission were to cap per-line support upon entry of a competitive
    ETC and impose a primary-connection restriction, as discussed below,
    designating an excessive number of ETCs could dilute the amount of
    support available to each ETC to the point that each carrier's
    ability to provide universal service might be jeopardized. State
    commission consideration of high-cost support on a dollar per line
    basis would allow equivalent comparison of support among study
    areas. Per-line support is a single "marker" that encompasses
    various underlying factors that may impact the determination of
    whether it is in the public interest to have an additional
    subsidized carrier entering a carrier's study area. Many factors
    mentioned by commenters as relevant to the public interest
    determination -- such as topography, population density, line
    density, distance between wire centers, loop lengths and levels of
    investment -- may all affect the level of high-cost support received
    in an individual study area. High-cost support is also a concrete,
    objective, transparent, and readily obtainable factor that may help
    state commissions avoid generalized or abstract arguments about the
    harms or benefits of additional ETCs.[^112]

44. Although we believe that state commissions may consider the amount
    of per-line support as part of the public interest analysis, we
    decline to adopt specific benchmarks based on per-line support to
    guide the states' public interest determinations. We are concerned
    that any benchmark we recommend would be arbitrary. We do, however,
    recommend that the Commission solicit comment on whether such
    national benchmarks merit additional consideration. We recommend
    that the Commission solicit comment on the basis, calculation,
    practical impact, and examples of any proposed benchmarks based on
    per-line support.

45. We also recommend that the Commission seek comment on the
    applicability of the proposed designation guidelines to ETCs that
    have already been designated. We believe states (and the Commission)
    already possess the authority to rescind ETC determinations for
    failure to comply with the requirements of Section 214(e) of the Act
    and any other conditions imposed by the state.[^113] The Commission
    should provide guidance on whether states choosing to apply the new
    federal guidelines to currently designated competitive ETCs should
    also rescind the designation of a previously designated competitive
    ETC if the state finds that the competitive ETCs designation no
    longer serves the public interest. We believe the Commission should
    also consider if it would be beneficial to issue guidance on whether
    states should allow ETCs some reasonable transition period to bring
    their operations into compliance with any new state ETC
    requirements. Alternatively, the Commission may wish to consider
    whether ETC designation for competitive carriers could be
    grandfathered for some period of time to avoid significant market
    disruptions.

### Annual Certification Requirement

46. We recommend that the Commission encourage states to use the annual
    certification process for all ETCs to ensure that federal universal
    service support is used to provide the supported services and for
    associated infrastructure costs. We make this recommendation in
    order to ensure the accountability of all ETCs for proper use of
    funds. Annual review provides states the opportunity for periodic
    review of ETC fund use.[^114] Additionally, we continue to believe
    that the state certification process provides the most reliable
    means of determining whether carriers are using support in a manner
    consistent with section 254.[^115]

47. States should use the annual certification process to ensure that
    federal universal service support is used to provide the supported
    services and for associated infrastructure costs. States should
    examine compliance with build-out plans. Some commenters also
    suggest that states should consider instituting reporting
    requirements and conducting audits on all ETCs.[^116] States could
    implement regulatory provisions similar to those in Alaska where the
    competitive ETC is required to make the same filing that the rural
    carriers makes through the Alaska Commission's annual use-of-funds
    certification process.[^117] As a condition of ETC status, the
    Public Service Commission of West Virginia required a competitive
    carrier to file annual certifications including the amount of
    support it received in the year and a statement of how such funds
    were spent or invested.[^118] The Minnesota Commission requires ETCs
    to file affidavits, additional documentation pertaining to the
    amount of federal high-cost support received for the prior year, and
    the ETC's operational and capital expenditures.[^119] These are
    merely examples of what a state commission's annual certification
    requirement may entail. State commissions will, of course, have the
    flexibility to adopt certification requirements that are appropriate
    for their state and the particular service area in which an ETC is
    designated.[^120]

48. Where an ETC fails to comply with requirements in section 214(e) and
    any additional requirements proposed by the state commission, the
    state commission may decline to grant an annual certification or may
    rescind a certification granted previously.[^121] Several states
    have already adopted such requirements in their ETC designation
    processes. The Alaska Commission required a competitive ETC to file
    an annual certification in order to monitor the continued
    appropriate use of funds.[^122]

### Service Area Redefinition Process/Rural Carrier Disaggregation of Support

49. In this subsection, we review the service area redefinition process
    for areas served by rural carriers and assess the impact that
    disaggregation and targeting of support has on that process. We
    begin by reviewing service area redefinition procedures*.* Section
    214(e)(5) of the Act provides that states may establish geographic
    service areas within which ETCs are required to comply with
    universal service obligations and are eligible to receive universal
    service support.[^123] However, the Act states that for an area
    served by a rural carrier, a company's service area for the purposes
    of ETC designation will be the rural carrier's study area "unless
    and until the Commission and the States, after taking into account
    the recommendations of a Federal-State Joint Board instituted under
    section 410(c), establish a different definition of service area for
    such company."[^124] Thus, the Act established different procedures
    and standards for determining ETC service areas depending on whether
    a rural or non-rural carrier's study area is involved.

50. In the *First Recommended Decision,* the Joint Board generally
    recommended that the Commission retain the study areas of rural
    telephone companies as the service areas for ETCs. The Joint Board
    provided three reasons for its recommendation: (1) the potential for
    "cream skimming" is minimized by retaining study areas because
    competitors, as a condition of eligibility, must provide services
    throughout the rural carrier\'s study area; (2) the 1996 Act, in
    many respects, places rural carriers on a different competitive
    footing from other local exchange companies; and (3) there would be
    an administrative burden imposed on rural carriers by requiring them
    to calculate costs at something other than the study area
    level.[^125]

51. In response to the Joint Board's recommendations, the Commission
    agreed that, at that time, the study areas of rural telephone
    companies should be retained as the rural carrier service
    areas.[^126] However, the Commission also discussed the state
    commissions' authority to redefine the service area served by a
    rural carrier and adopted rules providing the process for service
    area redefinition.[^127] Section 54.207(c) of the Commission's rules
    provides the mechanism by which a state commission may propose to
    redefine a rural carrier's service area for purposes of determining
    universal service obligations and support mechanisms.[^128] Section
    54.207(c)(3) provides that the Commission may initiate a proceeding
    to consider a state commission's proposal to redefine the area
    served by a rural carrier within ninety days of the release date of
    a public notice.[^129] If the Commission initiates a proceeding to
    consider the petition, the proposed definition will not take effect
    until both the state commission and the Commission agree upon the
    definition of a rural carrier service area, in accordance with
    section 214(e)(5) of the Act.[^130] If the Commission does not act
    on a petition to redefine a service area within 90 days of the
    release of the public notice, the definition proposed is deemed
    approved by the Commission and takes effect in accordance with state
    procedures.[^131] The Commission's intent in adopting these
    procedures was, in part, to minimize administrative delay.[^132]

52. In the *First Universal Service Report and Order*, the Commission
    also interpreted the language in Section 214(e)(5) of the Act
    requiring state commissions and the Commission to take into account
    the recommendations of the Joint Board.[^133] The Commission
    concluded that this language indicates that the states and the
    Commission must give full consideration to the Joint Board's
    recommendations on service area redefinition and must explain why
    they are not adopting the recommendations of the Joint Board.[^134]
    When proposing to redefine service areas, state commissions and the
    Commission have considered the Joint Board's recommendations in the
    *First Recommended Decision* and evaluated the Joint Board's reasons
    for recommending that the Commission retain the study area of a
    rural carrier as the service area.[^135] Therefore, when proposing
    to redefine rural carrier service areas, state commissions and the
    Commission have analyzed the potential for cream skimming as a
    result of the proposed redefinition.[^136]

53. In evaluating whether a service area redefinition will provide
    opportunities for cream skimming, some state commissions and the
    Commission have considered, among other things, whether universal
    service support in the affected rural service area has been
    disaggregated.[^137] In the *Rural Task Force Order*, the Commission
    determined that support should be disaggregated and targeted below
    the study area level to eliminate uneconomic incentives for
    competitive entry caused by the averaging of support across all
    lines served by a carrier within its study area.[^138] Under
    disaggregation and targeting, per-line support is more closely
    associated with the cost of providing service.[^139] In the *Rural
    Task Force Order,* the Commission also concluded that one of the
    factors the state commissions should consider in determining whether
    to certify new ETCs for a service area other than the entire study
    area of a rural carrier is the level of disaggregation.[^140]

54. The provisions contained in the *Rural Task Force Order* for
    disaggregation and targeting of universal service support may help
    alleviate some concerns regarding cream skimming. Permitting rural
    carriers to disaggregate and target universal service support allows
    them to direct universal service support to those zones within the
    study area where support is most needed. Targeting support in this
    manner also promotes a better matching of per-line support to the
    rural carriers' costs of providing service, and helps reduce the
    economic distortions that could lead to cream skimming. In a study
    area with disaggregated support, a competitive ETC designated for a
    service area smaller than the study area will be limited to
    receiving only the per-line support established for that area. In
    many cases, the levels of disaggregated support have been
    established by the rural carrier itself under "Path 3"
    disaggregation.[^141] Although disaggregation may alleviate some
    concerns regarding cream-skimming by competitive ETCs, we hesitate
    to say that it necessarily addresses all concerns. For instance, the
    Commission has recognized that cream skimming may still be a concern
    where a competitor proposes to serve only the low-cost areas of a
    rural carrier's study area to the exclusion of high-cost
    areas.[^142]

55. We continue to endorse the procedures established by the Commission
    in 1997 for redefinition of rural service areas. These procedures
    establish a presumption that a rural carrier's study area should be
    the service area for a new ETC, unless and until the state and the
    Commission working in concert decide that a different service area
    definition would better serve the public interest.[^143] In making
    this determination, the states and the Commission place the burden
    of proof upon the ETC applicant. If a service area redefinition is
    proposed, the existing rules also require the states and the
    Commission to analyze the Joint Board's previously expressed
    concerns about cream skimming in the particular area covered by the
    ETC application.[^144] Public comment is invited during every step
    in this process. Because we believe these rules are working to
    thoroughly examine public interest concerns inherent in service area
    redefinition, we do not believe any change is needed in these rules
    at this time. As with other aspects of the ETC designation process
    discussed above, we encourage the states and the Commission to
    conduct a rigorous and fact-intensive analysis of requests for
    service area redefinition.

# SCOPE OF SUPPORT

56. We recommend that the Commission limit the scope of high-cost
    support to a single connection that provides access to the public
    telephone network. As discussed below, we believe that supporting a
    single connection is more consistent with the goals of section 254
    than the present system, and is necessary to preserve the
    sustainability of the universal service fund. We also believe that
    it would send more appropriate entry signals in rural and high-cost
    areas, and would be competitively neutral. To minimize the potential
    impact of restricting the scope of support in areas served by rural
    carriers, we recommend that the Commission seek comment on
    restating, or "rebasing," the total high-cost support flowing to a
    rural carrier's study area on "primary" or single connections, and
    on other possible measures. Restating support would avoid any
    immediate effect on the total amount of high-cost support that a
    rural carrier receives: its support would be reduced in the future
    only to the extent that a competitive ETC captures primary
    connections. In conjunction with these measures, we also recommend
    that high-cost support in areas served by rural carriers be capped
    on a per-line basis when a competitive carrier is designated as an
    ETC and be adjusted annually by an index factor.[^145]

57. We recognize that implementing support for a single connection may
    present significant administrative challenges. As discussed below,
    the record contains proposals under which consumers with more than
    one line would designate a primary connection, and carriers would be
    free to compete for the "primary" designation. These proposals hold
    the promise of allowing consumers, the intended beneficiaries of
    universal service,[^146] to make their own universal service
    choices. Questions remain about the administrative feasibility of
    such proposals, however. We recommend that the Commission further
    develop the record on these and other proposals for limiting the
    scope of high-cost support. Our recommendations to limit the scope
    of support, as described herein, are conditioned on the Commission's
    ability to develop competitively neutral rules and procedures that
    do not create undue administrative burdens.[^147]

## Background

58. Under the Commission's current rules, all residential and business
    connections provided by ETCs are eligible for high-cost
    support.[^148] In its 1996 recommendations to the Commission
    regarding universal service, the Joint Board recommended that
    support for designated services be limited to those services carried
    on a single connection to a subscriber's primary residence and to
    businesses with only a single connection.[^149] The Joint Board
    concluded that support for a single connection providing the
    supported services would allow the "access" to telecommunications
    and information services contemplated in section 254(b)(3) of the
    Act.[^150]

59. In the *First Universal Service Report and Order*, the Commission
    declined to adopt the Joint Board's recommendation regarding the
    scope of support for designated services.[^151] While the Commission
    stated that it shared the Joint Board's concern that supporting
    multiple connections for residences and businesses in high-cost
    areas may be inconsistent with the goals of universal service, the
    Commission concluded at that time that limiting the scope of support
    prior to the introduction of a forward-looking cost methodology was
    unnecessary.[^152] At the request of the Joint Board and rural
    carriers, the Commission concluded that it would establish a
    forward-looking mechanism for non-rural carriers prior to reforming
    the high-cost support mechanism for rural carriers.[^153]

60. Consistent with the blueprint for universal service reform
    established in the *First Universal Service Report and Order*, the
    Commission took action to establish a forward-looking cost mechanism
    for non-rural carriers in 1999.[^154] In May 2001, the Commission
    adopted a modified embedded cost mechanism for rural carriers for a
    five-year period.[^155] The Commission found that continuing to base
    high-cost support for rural carriers on embedded costs for five
    years, rather than attempting to modify the forward-looking
    high-cost support mechanism for non-rural carriers so that it could
    be applied to rural carriers, was a reasonable approach to take in
    light of the record in the proceeding.[^156] In so doing, the
    Commission and the Joint Board recognized that the plan adopted in
    the *Rural Task Force* *Order* was an interim plan.[^157]

61. The Commission did not adopt the Rural Task Force's specific
    proposal to freeze per-line high-cost loop support upon competitive
    entry into a rural carrier study area, concluding that adoption of
    the proposal was not warranted at that time.[^158] The stated
    purpose of this proposal was to prevent excessive growth in the
    universal service fund as a result of an incumbent carrier's loss of
    lines to a competitive ETC.[^159] While the Commission recognized
    that excessive growth in the fund might be possible during the life
    of the five-year plan under certain circumstances, it concluded that
    the likelihood of excessive fund growth due to an incumbent
    carrier's loss of lines to a competitive ETC in the immediate future
    was speculative.[^160] The Commission, however, indicated its intent
    to closely monitor these matters, consistent with its obligation
    under section 254 to maintain a specific, predictable, and
    sufficient universal service fund.[^161]

## Discussion

### Supporting a Single Connection Is Consistent With the 1996 Act

62. We believe that limiting the scope of high-cost support to a single
    connection to the public telephone network would be more consistent
    with the goals of section 254 than the present system. Supporting a
    single connection to the public telephone network fulfills the goal
    of "reasonably comparable" access in all regions of the
    Nation.[^162] Section 254(b)(3)'s objective is that consumers in
    rural areas have access to rates and services, including advanced
    services, that are reasonably comparable to those available in urban
    areas.[^163] Supporting a single connection provides access to all
    of the services included in the definition of universal service
    under section 254(c), because each ETC is required to provide all of
    the supported services.[^164] Supporting a single connection also
    provides access to all of the additional telecommunications and
    information services, including advanced services, available to
    consumers through the public telephone network.[^165] Thus,
    supporting multiple connections is not necessary to achieve
    reasonably comparable access in rural areas. Supporting a single
    connection faithfully accomplishes this objective.[^166]

63. We disagree with commenters who argue that supporting a single point
    of access is inconsistent with section 254(b)(3) because rates might
    rise for second lines, which are often used for access to
    information services such as dial-up Internet access or fax
    services.[^167] We recognize, of course, that supporting multiple
    connections is advantageous to consumers in high-cost areas. Section
    254(b)(3) encourages access to connectivity, however, not unlimited
    connections at supported rates. Advanced services increasingly are
    being provided along with voice services over a single
    connection.[^168] Nothing in the Act supports the argument that
    multiple connections should be supported for access to dial-up
    Internet access or fax services, neither of which is a supported
    service. For similar reasons, we disagree with commenters who argue
    that supporting multiple connections is necessary to ensure
    reasonably comparable access to wireless service in rural
    areas.[^169] Mobility is not a supported service.[^170] Deployment
    of rural wireless infrastructure is an important policy goal,[^171]
    but the reasonable comparability principle does not justify
    supporting multiple connections to achieve it. We emphasize that,
    under our recommended approach, support would be available for
    wireless connections to the extent that customers choose to obtain
    connectivity through primary connections provided by wireless ETCs.

64. We also believe that supporting a single connection would fulfill
    the statutory principles of sufficiency and predictability.[^172]
    The Joint Board and the Commission have defined sufficiency as
    enough support to achieve relevant universal service goals without
    unnecessarily burdening all consumers for the benefit of support
    beneficiaries.[^173] The Fifth Circuit similarly noted that
    excessive funding may violate the sufficiency requirements of the
    Act, because excess support may detract from universal service by
    causing unnecessary increases in rates, thereby pricing some
    consumers out of the market.[^174] Supporting multiple connections
    for multiple networks is not necessary to achieve reasonably
    comparable access in rural areas, and creates a potential for fund
    growth that threatens the sustainability of the universal service
    fund.[^175] Accordingly, supporting primary connections better
    fulfills the sufficiency requirements of the Act.

65. Furthermore, contrary to the arguments of some commenters, the
    sufficiency and predictability principles do not provide that cost
    recovery should be guaranteed for particular carriers. OPASTCO, for
    example, argues that "\[i\]f rural ILECs are uncertain that they
    will be able to recover their network costs due to a primary
    connection support restriction, the incentive to continue investing
    in infrastructure will be inhibited. As a result, rural consumers'
    access to high-quality services that are reasonably comparable to
    those offered in urban areas will be jeopardized."[^176] Notably, no
    rural carrier would lose any high-cost support under our recommended
    approach unless a competitive ETC captures primary connections from
    the rural carrier following competitive ETC entry.[^177] But even if
    a rural carrier were to lose support in the future, that would not
    be inconsistent with sufficiency or predictability. The Fifth
    Circuit explained that "\[t\]he Act does *not* guarantee all local
    telephone service providers a sufficient return on investment; quite
    to the contrary, it is intended to introduce competition into the
    market. . . . The Act only promises universal service, and that is a
    goal that requires sufficient funding of *customers*, not
    *providers*."[^178] Congress clearly envisioned the presence of
    competitive ETCs in some areas served by rural carriers, provided a
    state makes the threshold determination that designating a
    competitive ETC is in the public interest.[^179] The Act does not
    require or encourage supporting multiple connections for multiple
    networks, however. Supporting a single connection may not ensure
    sufficient funding of every ETC, but it would provide sufficient
    support for universal service.[^180]

66. Although we do not believe that the federal support mechanism should
    continue to support multiple connections, we believe that states
    have the flexibility to establish their own support mechanisms for
    multiple connections, mobility, or other functionalities not
    supported at the federal level. Section 254(f) makes clear that
    states "may adopt regulations not inconsistent with the Commission's
    rules to preserve and advance universal service" and that a state
    may "provide for additional definitions and standards" so long as
    those supplements do not rely on or burden the federal support
    mechanisms.[^181] Although such state support would go beyond the
    scope of federal high-cost support, we do not believe that such
    supplementary state funding would "rely on or burden Federal
    universal service support mechanisms" in contravention of section
    254(f) of the Act.

### Supporting a Single Connection Is Necessary to Protect Fund Sustainability 

67. Continued support of multiple connections for multiple networks in
    rural and high-cost areas threatens fund sustainability. Currently,
    the support flowing to a high-cost area increases automatically when
    a competitive ETC is designated, according to the number of
    connections it serves.[^182] Competitive ETCs now receive a small
    fraction of total high-cost support, but their support has increased
    dramatically over the past few years.[^183] Much of this growth
    represents supported wireless connections that supplement, rather
    than replace, wireline service.[^184] Our examination of the record
    reveals a potential for uncontrolled growth as more and more
    competitive ETCs are designated in rural and high-cost areas.[^185]
    This potential is compounded by the calculation of support under the
    current rules.[^186] The Commission declined to adopt the Joint
    Board's recommendation to limit support to single connections in
    1997, based largely on its expectation that a forward-looking
    support methodology could be implemented for all incumbent LECs as
    early as January 1, 2001.[^187] Support for rural carriers likely
    will continue to be based on embedded costs at least until mid-2006,
    however.[^188] We believe that the Commission should no longer defer
    limiting the scope of high-cost support. By limiting fund growth due
    to competitive ETC entry in rural and high-cost areas, our
    recommended approach would protect fund sustainability. High-cost
    support would increase with primary connection growth, rather than
    with growth in the total number of connections provided by both
    incumbent and competitive ETCs.

68. We reject arguments that supporting a single connection is not an
    effective means to slow fund growth because competitive ETCs receive
    a small percentage of total high-cost support and most fund growth
    over the past few years is attributable to support increases
    received by incumbent LECs.[^189] The total amount of support
    received by competitive ETCs, for what appear to be supplemental
    connections for many subscribers, has increased substantially over
    the past few years. We believe that further growth due to supporting
    multiple connections presents a significant threat to fund
    sustainability. Our recommended approach addresses this concern
    directly in a manner that is consistent with statutory goals. To the
    extent that increases in high-cost funding for incumbent LECs
    present additional fund sustainability concerns, we expect to
    address those concerns in conjunction with our reexamination of the
    basis of support for all ETCs.[^190]

### Supporting a Single Connection Would Send More Appropriate Entry Signals and Would Be Competitively Neutral

69. Supporting a single point of access would send more appropriate
    entry signals in rural and high-cost areas. Some commenters argue
    that carriers increasingly are seeking ETC designation based on
    perverse incentives created by the current rules.[^191] Our
    recommended approach would not artificially encourage entry by
    competitive ETCs in areas where a rational business case cannot be
    made absent assumptions of support for *all* connections.
    Competitive ETCs instead would have incentives to enter rural and
    high-cost areas only where doing so makes rational business sense
    under a model assuming incremental support only for subscribers
    captured from, or unserved by, the incumbent LEC. Furthermore, by
    preventing automatic support of multiple connections, supporting a
    single point of access would address alleged incentives under the
    current rules for states to designate additional ETCs to attract
    more universal service funding.[^192]

70. Supporting a single connection also would be competitively
    neutral.[^193] Support would be available to all ETCs for providing
    primary connections. To the extent that a competitive ETC replaced
    an incumbent ETC as the primary connection provider, the competitive
    ETC would receive support for providing the connection.[^194] In
    addition, rural carriers would no longer be insulated from the
    effects of universal service competition, because they would lose
    per-line support to the extent that they lose primary
    connections.[^195] Our recommended approach also would prevent
    upward spirals in per-line support amounts as a result of loss of
    lines by incumbent carriers, an unfortunate effect of the current
    rules that commenters argue creates potential windfalls for
    competitive ETCs.[^196]

71. We disagree with commenters who argue that limiting support to a
    single connection would unfairly advantage imcumbent LECs because
    they preceded competitive ETCs in rural and high-cost areas.[^197]
    Under our recommended approach, consumers would be free to designate
    any ETC as "primary" based on the service attributes that it
    offers.[^198] We also reject an alternative proposal from Western
    Wireless to cap total high-cost support in an area upon competitive
    ETC entry and allocate the support among ETCs based on market share,
    in lieu of limiting support to a single connection.[^199] Western
    Wireless contends that its alternative proposal would contain fund
    growth due to competitive ETC entry, but would be more competitively
    neutral and less administratively burdensome than a
    primary-connection limitation.[^200] In our view, however, this
    measure would continue support of multiple connections for multiple
    networks, contrary to the provisions of the Act discussed above. It
    also could lead to sudden, major shifts in support in areas where a
    new competitive ETC already serves a significant number of
    connections.

### Maintaining Sufficient Support for Rural Areas

72. We recommend that the Commission take steps to avoid or mitigate
    reductions in the amount of high-cost support flowing to rural areas
    as a result of implementing a primary-line restriction.

#### Restatement Proposal

73. One way the Commission might accomplish this end would be to restate
    total current support paid to a rural carrier in terms of first
    lines. Rural carriers are eligible for high-cost support based on
    total embedded costs averaged on a study-area level.[^201] The total
    amount of high-cost support flowing to an area served by a rural
    carrier could be restated in terms of support *per first line*,
    rather than support *per line*, without any effect on the amount of
    support received by the rural carrier at the time support is
    restated.[^202] Restating support is a method of limiting the scope
    of support in areas served by rural carriers without modifying the
    basis of support (that is, the methodology used to calculate
    support).[^203]

#### Lump Sum Payment Proposal

74. Alternatively, rather than increase the amount of per-line support
    available in areas served by rural carriers by restating support in
    terms of first lines, the Commission could provide supplemental lump
    sum payments to avoid any immediate effects on rural carriers as a
    result of limiting the scope of support. Under this approach, a
    rural carrier would receive the same amount of high-cost support on
    a per-line basis as it did previously, but would receive such
    support only for primary lines. The rural carrier also would receive
    a lump sum payment to compensate for the loss of support associated
    with existing second lines. Thus, this interim lump sum proposal,
    like the restatement proposal described in the previous paragraph,
    would prevent support reductions in rural areas based on the
    termination of support for second lines; high-cost support would be
    reduced only with the future loss of primary lines *to competitors*.
    But unlike the restatement proposal, the lump sum payment
    alternative would not increase the amount of per-line support for
    incumbent carriers, and thus would not encourage competitive
    carriers to seek ETC status merely for arbitrage purposes.[^204] On
    the other hand, we recognize that making lump-sum payments available
    to incumbents, but not to competitive ETCs, could be inconsistent
    with the principle of competitive neutrality.[^205]

#### "Hold Harmless" Proposal

75. We also seek comment on a different alternative designed to maintain
    support for rural areas that does not encourage competitive carriers
    to seek ETC status merely for arbitrage purposes. Under this
    proposal, per line support available to competitive ETCs would
    freeze upon competitive entry. Competitive ETCs would only be able
    to obtain USF support for customers who designated their service as
    the primary line. We recognize that many parties contend that a
    per-line approach would jeopardize the sufficiency of support
    distributed to incumbent carriers. Such parties note that incumbent
    LECs have made substantial investments in infrastructure in reliance
    on such support. This proposal would not cap per-line support for
    incumbent carriers and would thus "hold harmless" incumbent carriers
    from the loss of universal service support.

76. We recommend that the Commission seek comment on the relative pros
    and cons of the restatement, the lump sum and hold harmless
    proposals. Leaving aside the question of which of these approaches
    has the most merit, we believe that if the Commission implements a
    primary-line restriction, it must adopt some means of preventing or
    mitigating reductions in the support available to rural carriers.
    The Joint Board and the Commission consistently have recognized the
    importance of a cautious approach to universal service reform in
    areas served by rural carriers, in light of their size, diversity,
    and regulatory history.[^206] Restating support or implementing the
    lump sum or hold harmless proposal would avoid any immediate effects
    on rural carriers as a result of limiting the scope of support, by
    placing them in the same total support position as they were in
    beforehand.[^207] In other words, a rural carrier would not be
    required to forego any of the support that it received before
    implementation of the primary-line restriction. Its support would be
    reduced in the future only to the extent that a competitive ETC
    captures primary lines from the rural carrier (except under the hold
    harmless proposal). Rural carriers also would forego future support
    increases associated with new, non-primary lines.[^208] Restating
    support, providing a lump sum payment, or adopting a hold-harmless
    proposal will ensure that the transition to supporting basic access
    is not unduly disruptive in areas served by rural carriers.[^209] We
    also recommend that the Commission seek comment on whether to
    restate support, provide lump sum payments or hold-harmless support
    in areas served by non-rural carriers.[^210]

### Cap on Per-Line Support Upon Competitive Entry

77. In conjunction with the measures discussed above, we recommend that
    high-cost support in areas served by rural carriers be capped on a
    per-primary line basis when a competitive ETC is present or when a
    competitive ETC enters the market and be adjusted annually by an
    index factor. This recommendation is a modified version of a Rural
    Task Force proposal.[^211] Under our recommended approach, the total
    support flowing to a rural carrier (including high-cost loop
    support, local switching support, long term support, and interstate
    common line support[^212]) would be capped on a per-primary line
    basis upon competitive entry. Thereafter, per-primary line support
    would be adjusted annually based on an index factor, rather than
    changes in the rural carrier's embedded costs. We also recommend
    that the Commission seek comment on the alternative approach of
    capping per-primary line support available to competitive ETCs upon
    competitive entry, consistent with the "hold-harmless" proposal
    discussed above.[^213]

78. Capping per-primary line support in areas served by rural carriers
    is necessary to implement a primary-line limitation and to prevent
    an upward spiral in support due to capture of primary connections by
    competitive ETCs. As we have stated, the high-cost universal service
    mechanisms calculate support for rural carriers based on total
    embedded costs averaged on a study-area basis. Under these
    mechanisms, a rural carrier's per-primary line support automatically
    increases as its total embedded costs are spread over fewer
    lines.[^214] This has several implications for purposes of a
    primary-connection limitation. First, absent a per-primary line cap,
    a rural carrier would continue to receive support for new lines
    served---regardless of whether such lines provide primary
    connectivity---because any costs associated with the new connections
    would increase the rural carrier's total embedded costs and,
    therefore, the per-line support associated with the primary lines it
    serves. Likewise, a rural carrier would not lose support if it loses
    primary connections to a competitive ETC. Thus, the absence of a
    per-line cap would obviate the effect of a single-connection
    limitation. Moreover, fund size could grow significantly if rural
    carriers lose primary connections to competitive ETCs, because rural
    carriers would continue to receive the same total support, but the
    per-line support amounts available to both the incumbent LEC and
    competitive ETCs would increase as rural carriers' per-line costs
    were spread over fewer primary lines.[^215]

79. We recognize that the Commission declined to cap per-line support in
    the *Rural Task Force Order*.[^216] Nevertheless, we believe that
    the Commission should adopt a modified version of the Rural Task
    Force's proposal at this time. As discussed above, support for
    competitive ETCs has increased dramatically since 2001, and the
    danger of excessive fund growth that the Commission recognized at
    the time of the *Rural Task Force Order* is now clear and
    present.[^217] In addition, the Commission viewed the Rural Task
    Force proposal as having a relatively narrow purpose---to limit fund
    growth due to capture of connections by competitive
    ETCs[^218]---whereas our recommendations have the broad purpose of
    limiting the scope of high-cost support to primary connections.
    Furthermore, the danger of an upward spiral in support would be
    exacerbated because, to the extent that a competitive ETC captures
    primary connections, there would be fewer supported lines over which
    to spread a rural carriers' increased per-line costs.

80. We recommend that the Commission further develop the record on what
    index factor should be used to adjust capped per-line support each
    year. The Rural Task Force originally recommended the rural growth
    factor, which is equal to the sum of annual changes in the total
    number of lines served by rural carriers and the Gross Domestic
    Product-Chained Price Index (GDP-CPI), an inflation measure.[^219]
    Alternatively, a modified rural growth factor that reflects annual
    changes in the total number of *primary* lines served by rural
    carriers might be appropriate. The Commission also should consider
    using the GDP-CPI alone. In this regard, the Commission noted in the
    *Rural Task Force Order* that because the rural growth factor
    includes annual rural line growth, "its application to individual
    lines receiving frozen support would result in double counting of
    line growth."[^220] Some commenters express similar concerns.[^221]

### Administrative Issues

81. We recommend that the Commission seek comment on how best to
    implement our recommended approach for supporting primary
    connections. Opponents raise various administrative concerns
    regarding a primary-connection limitation.[^222] On the other hand,
    proponents argue that limiting the scope of high-cost support is
    administratively feasible, and that the burdens would be small
    compared to the potential benefits.[^223] We reject arguments that a
    primary-connection limitation is inherently unworkable. As NASUCA
    points out, rules distinguishing between primary and other
    connections are not unprecedented, and the Commission has
    successfully implemented regulatory initiatives involving consumer
    choice.[^224] Nevertheless, we recognize that limiting the scope of
    high-cost support presents administrative challenges. The present
    record does not allow us to resolve these issues. We recommend,
    therefore, that the Commission further develop the record on how to
    implement support for primary connections. Our recommendations are
    conditioned on the Commission's ability to develop competitively
    neutral rules and procedures that do not create undue administrative
    burdens.

82. In particular, we recommend that the Commission further develop the
    record on proposals to allow consumers with more than one connection
    to designate an ETC's service as "primary."[^225] We believe that
    this is a promising approach because it would allow consumers---the
    intended beneficiaries of universal service[^226]---to decide
    whether an ETC's service is "truly a substitute for basic universal
    service."[^227] Such proposals also have the merit of competitive
    neutrality, as consumers would be free to designate a primary ETC
    based on the service attributes that the ETC offers. In addition,
    they may avoid the need for complex and possibly artificial
    distinctions between primary and other connections by placing choice
    in the hands of consumers. We are not persuaded by arguments that
    competition for primary designations would disserve the public
    interest by diverting ETCs' resources from infrastructure investment
    to marketing and promotion.[^228] Where a state makes the threshold
    determination under the Act that universal service competition in a
    rural area would serve the public interest,[^229] we expect that
    increased competition and choice will encourage investment and
    benefit consumers.

83. We also recommend that the Commission further develop the record on
    rate issues associated with supporting primary connections. Some
    commenters argue that limiting the scope of high-cost support would
    require local rate increases or pricing flexibility for second
    connections, and create ratemaking complexities for states.[^230]
    Others argue that supporting a single point of access need not mean
    different end-user rates for primary and other connections.[^231]
    AT&T argues that rate-of-return carriers should be permitted to
    increase federal subscriber line charges on non-supported lines to
    recover any lost interstate common line revenues, although it
    maintains that such increases are unlikely.[^232] States will
    determine local rate issues in the intrastate ratemaking process,
    but further development of the record may assist states in
    addressing these issues.

### Other Issues

84. We also recommend that the Commission further develop the record on
    the appropriate treatment of businesses with multiple connections,
    particularly small businesses, under our recommended approach.[^233]
    Historically, the Joint Board and Commission have concluded that
    universal service concerns are not as great for multi-line business
    customers.[^234] Some commenters, however, have raised concerns that
    limiting support to a single point of access provided for
    residential and business customers may discourage operation of
    businesses, particularly small businesses, in rural areas.[^235]
    Commenters have noted that rural economies are highly dependent on
    the presence of businesses to provide jobs and services.[^236]
    Restating support should address these concerns to a large extent by
    avoiding upward pressure on rates for all customers in rural
    areas.[^237] Nevertheless, we believe that these concerns warrant
    careful consideration. One possible means to address such concerns
    with regard to small businesses is to allow high-cost support for
    some designated number of multiple connections for businesses,
    rather than restricting support to a single business
    connection.[^238]

85. As the Commission develops the record in this proceeding, it also
    should consider the treatment of lines provided by unbundled network
    element (UNE)-based competitive ETCs under our recommended approach.
    Unlike loss of a customer to a facilities-based carrier, loss of a
    customer to a UNE-based provider does not eliminate the need to
    continue operating the incumbent's network for the benefit of that
    customer.[^239] UNE rates compensate incumbent LECs for the
    forward-looking economic costs of providing UNEs under the current
    rules.[^240] Some commenters, however, argue that UNE rates do not
    compensate incumbents for their embedded costs of providing UNEs and
    that this disparity creates arbitrage opportunities.[^241] Under the
    current universal service rules, incumbent LECs do not normally
    receive high-cost support when they lose lines to UNE-based
    competitive ETCs unless the support exceeds the UNE price.[^242] We
    believe that these matters warrant consideration by the Commission.

86. More generally, we encourage the Commission to seek comment on the
    impact of our primary connection proposal on investment in rural
    areas. Opponents of this proposal contend that it would undermine
    investment by incumbent LECs and competitors.[^243] We do not expect
    such an outcome, but we urge the Commission to give this issue
    careful consideration.

87. Finally, we encourage the Commission to consider whether it should
    adopt transitional measures for support in areas where competitive
    ETCs are operating as of the release date of this Recommended
    Decision. We recognize that business plans may be contingent on
    support received under the current rules. Like restating per-line
    support for rural carriers, transitional measures for support
    received by competitive ETCs may be appropriate. Transitional
    measures also may be appropriate to avoid rapid shifts in support
    and provide all ETCs with time needed to adjust their business
    plans. One possible approach would be to establish a transitional
    period during which support for non-primary connections is phased
    down annually.[^244] In addition, any shifts in support due to
    customer choice of a primary connection provider could be limited to
    a given percentage for all ETCs during the transition period.[^245]

# BASIS OF SUPPORT

88. We decline to recommend that the Commission modify the basis of
    support in areas with multiple ETCs at this time, but we will
    continue to consider possible modifications to the basis of support
    in this proceeding. We recommend that the Joint Board and the
    Commission continue to consider possible modifications to the basis
    of support in a broader context. Specifically, we recommend that the
    Joint Board and the Commission consider possible modifications to
    the basis of support for all ETCs when they undertake the
    "comprehensive review of the high-cost support mechanisms for rural
    and non-rural carriers as a whole to ensure that both mechanisms
    function efficiently and in a coordinated fashion" in the
    Rural/Non-Rural Review proceeding.[^246] Examining the basis of
    support in areas with multiple ETCs in conjunction with review of
    the rural and non-rural mechanisms would allow the Joint Board and
    the Commission to craft a more comprehensive approach and avoid the
    perils of piecemeal decision-making. For the present, the Joint
    Board will continue its review of the methodology for calculating
    support for ETCs in areas with multiple ETCs.

## Background

89. In the *First Universal Service Report and Order*, the Commission
    determined that federal high-cost support for all eligible carriers
    eventually should be based on the forward-looking economic cost of
    constructing and operating the network facilities and functions used
    to provide the supported services.[^247] The Commission agreed with
    the Joint Board that, "in the long run, forward-looking economic
    cost best approximates the costs that would be incurred by an
    efficient carrier in the market,"[^248] and, therefore, the use of
    forward-looking economic cost as the basis for determining support
    will send the correct signals for entry, investment, and
    innovation.[^249] The Commission concluded that "the 1996 Act's
    mandate to foster competition in the provision of telecommunications
    services in all areas of the country and the principle of
    competitive neutrality compel \[the Commission\] to implement
    support mechanisms that will send accurate market signals to
    competitors."[^250]

90. Although the Commission generally concluded that federal high-cost
    support should be based on forward-looking economic costs rather
    than embedded costs, it agreed with the Joint Board that rural
    carriers should transition to support based on forward-looking costs
    at a later date than non-rural carriers.[^251] The Commission wanted
    to allow ample time for rural carries to adjust to any changes in
    support calculations. In the meantime, rural carriers would receive
    support based on the existing embedded cost mechanisms, as modified
    in the *First Universal Service Report and Order*.[^252]

91. In order not to discourage competition in high-cost areas, the
    Commission determined that an incumbent's high-cost support should
    be portable to other eligible carriers prior to the transition to
    forward-looking economic cost mechanisms.[^253] The Commission found
    that the least burdensome way to administer the support mechanisms
    would be to calculate an incumbent LEC's per-line support amount
    based on its embedded costs and provide this per-line amount to all
    ETCs serving customers within the service territory.[^254] The
    Commission recognized that a competitive ETC may have different
    costs than the incumbent LEC, but explained that competitive ETCs
    must comply with section 254(e) of the Act, and that section 214(e)
    requirements would prevent competitive ETCs from profiting by
    limiting service to low cost areas.[^255] In addition, the
    Commission determined that the alternative, requiring competitive
    ETCs to submit forward-looking cost studies without requiring the
    incumbent LEC's support to be calculated in the same manner, could
    place either the incumbent LEC or the competitive ETC at a
    competitive disadvantage.[^256]

92. In the *Rural Task Force Order*, the Commission further modified the
    embedded cost support mechanisms for rural carriers for a five-year
    period based on the recommendations of the Rural Task Force. The
    Commission stated its intention to refer to the Joint Board the
    issue of the appropriate rural mechanism to succeed the Rural Task
    Force plan.[^257] In the context of the Joint Board's consideration
    of an appropriate rural mechanism, the Commission stated that it
    anticipated "conducting a comprehensive review of high-cost support
    mechanisms for rural and non-rural carriers as a whole to ensure
    that both mechanisms function efficiently and in a coordinated
    fashion."[^258] The Commission said that it would "use the
    transitional period during which a modified embedded cost mechanism
    is in place to develop a long-term universal service plan that
    better targets support to rural telephone companies serving the
    highest cost areas and recognizing the significant distinctions
    among rural carriers and between rural and non-rural
    carriers."[^259] The Commission also said that it would include
    consideration of general issues related to excessive fund growth and
    competitive neutrality in that comprehensive review.[^260]

93. In the *Referral Order*, the Commission asked the Joint Board to
    review the methodology for calculating support for ETCs in
    competitive study areas.[^261] The Commission noted that some groups
    have argued that basing a competitive ETC's support on the incumbent
    LEC's embedded costs provides a windfall and creates an unfair
    advantage for competitive ETCs with lower costs, whereas others have
    argued that the current rules are necessary for competitive
    neutrality and are the least administratively burdensome way to
    administer support.[^262] The Joint Board sought comment regarding
    the methodology for calculating support for ETCs in areas served by
    multiple ETCs.[^263] Among other things, the Joint Board sought
    comment on: whether the current rules promote efficient competition
    in high-cost areas and operate in a competitively neutral manner;
    whether the Commission should calculate support for a competitive
    ETC based on it own costs; whether the methodology used to calculate
    competitive ETC support should be the same as the methodology used
    to calculate support for the incumbent; and whether support in
    competitive areas should be based on the lowest-cost provider's
    costs, in order to promote efficiency.[^264]

## Discussion

94. We recommend that the Commission ask the Joint Board to continue to
    consider possible modifications to the basis for determining support
    for competitive ETCs in conjunction with review of the appropriate
    high-cost mechanism for rural carriers to succeed the five-year plan
    adopted in the Rural Task Force Order. The Commission recently
    reiterated its intention to ask the Joint Board "to conduct a
    comprehensive review of the high-cost support mechanism for rural
    and non-rural carriers as a whole to ensure that both mechanisms
    function efficiently in a coordinated fashion."[^265] Because the
    Commission anticipates that the Joint Board will conduct a
    comprehensive review of both rural and non-rural mechanisms in the
    context of our consideration of an appropriate rural mechanism, we
    recommend that the Joint Board be asked to consider the basis of
    support for all ETCs in all areas in the Rural/Non-Rural Review
    proceeding. For the present, the Joint Board will continue its
    review of the methodology for calculating support for ETCs in areas
    with multiple ETCs.[^266]

95. Considering the basis of support under the rural and non-rural
    mechanisms simultaneously would allow the Joint Board to craft a
    more comprehensive approach and avoid the perils of piecemeal
    decision-making. We anticipate that the Commission in the
    Rural/Non-Rural Review proceeding will ask us to simultaneously
    consider both the rural and non-rural support mechanisms and to
    develop recommendations regarding the possible harmonization of the
    divergent approaches (embedded costs vs. forward-looking
    costs).[^267] We believe that it would be appropriate to consider
    the basis of support in competitive areas in this broader context.
    Our approach to harmonizing the two mechanisms will necessarily
    influence our recommendations on the basis of support in competitive
    areas.[^268]

96. For areas served by rural carriers, we are concerned that funding a
    competitive ETC based on the incumbent LEC's embedded costs may not
    be the most economically rational method for calculating support.
    However, we do not yet have an adequate record to analyze and
    understand the consequences of recommending a change in the basis of
    support for areas served by rural carriers that face competition. We
    agree that universal service payments should not distort the
    development of nascent competitive markets. Universal service
    support should neither incent nor discourage competitive entry. We
    also believe that further work may be needed to decide if and how
    support should be adjusted to reflect differences in service
    obligations, service quality and functionality. While we do not have
    an adequate record at this time to determine how, and if, the
    current basis of support should be modified to achieve these goals,
    we are concerned about any potential negative consequences for rural
    markets. Therefore, we believe that further analysis should be
    conducted before potential changes are made. Rural carriers were put
    on notice that the Joint Board and Commission would begin reviewing
    the current mechanism that provides support to rural carriers based
    on their embedded costs before 2006. In the Rural/Non-Rural Review
    proceeding, we plan to consider methods for determining support to
    high cost areas. These methods should be competitively neutral,
    administratively simple and consistent with the Commission's goal of
    ensuring that the high-cost mechanisms function efficiently. We
    encourage all carriers that may be affected by this potential change
    to actively participate in the development of the record. We also
    emphasize that we have not yet determined whether it is appropriate
    to continue to maintain separate support mechanisms for rural and
    non-rural carriers.

97. We do not believe that delaying our consideration of the basis of
    support will undermine the sustainability of the universal service
    fund. Because the Commission determined that the Rural Task Force
    plan should remain in place until 2006, the Joint Board and the
    Commission have adequate time to conduct a comprehensive proceeding
    on the basis of support.[^269] Moreover, if the Commission adopts
    the Joint Board's recommendations, discussed above, to adopt a
    primary-connection restriction and measures to ensure that ETC
    designations are appropriately rigorous, such steps should slow fund
    growth due to competitive ETC entry in the meantime. Accordingly, we
    recommend that the Commission refer to the Joint Board early this
    year the Rural/Non-Rural Review proceeding, including the
    consideration of the basis of support for all ETCs.

# OTHER ISSUES

## Identification of Wireless Customer Location

### Background

98. Currently, competitive ETCs that provide mobile wireless service are
    required to use the customer's billing address to identify the
    location of a mobile wireless customer within a disaggregation
    zone.[^270] In the *Rural Task Force Order*, the Commission
    concluded that this approach was reasonable and the most
    administratively simple solution to the problem of determining the
    location of a wireless customer for universal service
    purposes.[^271] The Commission recognized, however, that the use of
    a customer's address could allow arbitrage, such as "identifying a
    customer in a high-cost zone when service is primarily taken in a
    low-cost zone for the purpose of receiving a higher level of
    per-line support."[^272] The Commission stated that it would take
    appropriate enforcement action if an ETC were to engage in such
    arbitrage, and that it might revisit the use of a customer's billing
    address as more mobile wireless carriers are designated as eligible
    to receive support.[^273]

99. The Commission declined to use the Mobile Telecommunications
    Sourcing Act (MTSA) definition of "place of primary use" to
    determine a mobile wireless customer's location.[^274] The MTSA,
    which was intended to address the difficulty in identifying the
    sites of a mobile telephone call for transactional tax purposes,
    sources all wireless calls and mobile telecommunications services to
    the "place of primary use."[^275] The place of primary use is
    defined as "the street address representative of where the
    customer's use of the mobile telecommunications service primarily
    occurs, which must be---(A) the residential street address or the
    primary business street address of the customer; and (B) within the
    licensed service area of the \[customer's mobile telecommunications
    service provider\]."[^276] In declining to adopt the MTSA definition
    to determine wireless customer location for universal service
    purposes, the Commission expressed concern that states might not
    have established databases pursuant to the Act, and that use of the
    MTSA definition might impose undue administrative burdens on mobile
    wireless ETCs.[^277]

100. Commenters allege that some ETCs may be engaged in the type of
     arbitrage that the Commission identified in the *Rural Task Force
     Order*, and state that the Commission should direct the Universal
     Service Administrative Company (USAC) to take measures to prevent
     abuse regarding the location of the connections of the wireless
     provider's customers[^278] A number of commenters also express a
     general concern that the billing address for a mobile wireless
     phone number has no relationship to where the customer actually
     uses the phone.[^279] Other commenters advocate defining mobile
     wireless customer location in terms of the place of primary use,
     and offer different proposals for defining this concept, including
     the MTSA definition.[^280] The Texas Commission requires wireless
     ETCs to provide a wireless access unit (WAU) to determine the
     actual location of a connection for universal service
     purposes.[^281]

101. Other commenters advocate the continued use of billing addresses to
     determine mobile wireless customer location.[^282] One commenter
     asserts that billing address is an accurate means to determine the
     location for high-cost support purposes,[^283] and others point out
     that line counts are publicly available and can be audited by USAC.
     BellSouth suggests that wireless ETCs be required to demonstrate
     that they provide a signal to a customer's billing address.
     BellSouth states that this demonstration could take the form of a
     customer certification that service at the billing address is
     available, working, and adequate.[^284]

### Discussion

102. The Joint Board recommends that the Commission further develop the
     record on defining mobile wireless customer location in terms of
     place of primary use for universal service purposes. The Joint
     Board believes that the place of primary use represents the
     preferred definition of wireless customer location for universal
     service purposes because it reflects whether a customer actually
     uses mobile wireless phone service as a primary connection in a
     high-cost area. Based on our examination of the present record,
     however, we cannot determine whether any of the definitions
     proposed by commenters, including the MTSA definition, are capable
     of being implemented in a competitively neutral manner that would
     not impose undue administrative burdens. Accordingly, the Joint
     Board recommends that the Commission further develop the record on
     this matter.

103. In particular, the Joint Board recommends that the Commission
     develop the record on the following issues: First, is the MTSA's
     place of primary use approach an efficient method to redefine the
     location of mobile service lines? This may in part depend on the
     extent to which post office boxes are used to misrepresent customer
     locations. Second, should the use of a place of primary use-based
     definition be optional or mandatory? Third, what amount of
     fraudulent use of billing addresses is occurring today that use of
     a definition based on place of primary use would address? If place
     of primary use is adopted how should it work in conjunction with
     virtual NXX?

## Accurate, Legible, and Consistent Maps

### Background

104. Under the Commission's rules, a rural carrier electing to
     disaggregate and target high-cost support must submit to USAC "maps
     which precisely identify the boundaries of the designated
     disaggregation zones of support within the carrier's study
     area."[^285] In the *Rural Task Force Order*, the Commission
     explained that "the integrity and flow of information to
     competitors is central to ensuring that support is distributed in a
     competitively neutral manner." [^286] The Commission went on to
     state that, "in order to ensure portability and predictability in
     the delivery of support," it would require rural carriers to
     "submit to USAC maps in which the boundaries of the designated
     disaggregation zones of support are clearly specified."[^287] USAC
     was directed to make those maps available for public inspection by
     competitors and other interested parties.[^288] Some commenters
     indicate that the maps filed by rural carriers pursuant to section
     54.315(f)(1) and the information available through USAC are of
     varying quality and utility.[^289] Others suggest that improved
     quality and reliability of maps submitted by incumbents would allow
     for better targeting of support.[^290]

### Discussion

105. We recommend that the Commission delegate authority to USAC to
     develop standards for the submission of any maps that ETCs are
     required to submit to USAC under the Commission's rules in a
     uniform, electronic format. We believe that the development of such
     standards would promote the integrity and flow of information to
     competitive ETCs by increasing the accuracy, consistency, and
     usefulness of maps submitted to USAC, and that as the universal
     service administrator USAC is the appropriate entity to develop
     such standards.

# RECOMMENDING CLAUSE

106. For the reasons discussed herein, the Federal-State Joint Board on
     Universal Service, pursuant to sections 254(a)(1) and 410(c) of the
     Communications Act of 1934, as amended, 47 U.S.C. §§ 254(a)(1),
     410(c), recommends that the Commission adopt recommendations set
     forth herein concerning the process for designation of eligible
     telecommunications carriers and the Commission's rules regarding
     high-cost universal service support.

FEDERAL COMMUNICATIONS COMMISSION

Marlene H. Dortch

Secretary

**APPENDIX A**

**PARTIES FILING COMMENTS AND REPLY COMMENTS**

**[Commenter]{.underline} [Abbreviation]{.underline}**

ACS of Fairbanks, Inc. ACS-F

Alaska Telephone Association Alaska Tel. Ass'n

AT&T Corp. AT&T

Beacon Telecommunications Advisors, LLC Beacon

BellSouth Corporation BellSouth

Cellular Telecommunications & Internet Association CTIA

CenturyTel, Inc. CenturyTel

Dobson Communications Corporation Dobson

Fred Williamson and Associates, Inc. .

Chouteau Telephone Company (Oklahoma)

H&B Telephone Communications, Inc. (Kansas)

Moundridge Telephone Company, Inc. (Kansas)

Pine Telephone Company, Inc. (Oklahoma)

Pioneer Telephone Association, Inc. (Kansas)

Totah Telephone Company, Inc. (Kansas & Oklahoma)

Twin Valley Telephone, Inc. (Kansas) Fred Williamson & Assocs.

General Communication, Inc. GCI

GVNW Consulting, Inc. GVNW

ICORE, Inc. ICORE

Idaho Telephone Association Idaho Tel. Ass'n

Interstate Telcom Consulting, Inc. ITCI

Montana Telecommunications Association Montana Telecomms. Ass'n

Montana Universal Service Task Force MUST

Moultrie Independent Telephone Company Moultrie Indep. Tel. Co.

National Association of State Utility Consumer

Advocates NASUCA

National Telecommunications Cooperative Association NTCA

Nebraska Rural Independent Companies Nebraska Rural Indep. Cos.

Nextel Communications, Inc. and Nextel Partners, Inc. Nextel

Organization for the Promotion and Advancement

of Small Telecommunications Companies OPASTCO

Rural Cellular Association and Alliance of Rural

CMRS Carriers Rural Cellular Ass'n/Alliance of

Rural CMRS Carriers

Rural Independent Competitive Alliance Rural Indep. Competitive Alliance

Rural Telephone Finance Cooperative Rural Tel. Finance Coop.

SBC Communications Inc. SBC

Several Rural Telephone Companies

Accipiter Communications, Inc. (Arizona)

Alenco Communications, Inc. d/b/a ACI (Texas)

Arkansas Telephone Company, Inc. (Arkansas)

Beehive Telephone Company, Inc. Nevada (Nevada)

Beehive Telephone Company, Inc. (Utah)

Blossom Telephone Company, Inc. (Texas)

Central Arkansas Telephone Cooperative, Inc. (Arkansas)

Chickasaw Telephone Company (Oklahoma)

Goodman Telephone Company, Inc. (Missouri)

North Central Telephone Cooperative, Inc. (Tennessee)

Ozark Telephone Company (Missouri)

Pioneer Telephone Cooperative, Inc. (Oklahoma)

San Carlos Apache Telecommunications Utility, Inc. (Arizona)

Santa Rosa Telephone Cooperative, Inc. (Oklahoma)

Scott Country Telephone Company, Inc. (Arkansas)

Seneca Telephone Company (Missouri)

South Arkansas Telephone Company, Inc. (Arkansas)

Star Telephone Company, Inc. (Louisiana

Valliant Telephone Company (Oklahoma) Assorted Rural Tel. Cos.

Smith Bagley, Inc. Smith Bagley

Sprint Corporation Sprint

TCA, Inc. -- Telcom Consulting Associations TCA

Texas Public Utility Commission Texas Commission

Texas Statewide Telephone Cooperative, Inc. Texas Statewide Tel. Coop.

Townes Telecommunications, Inc. Townes et al.

United States Cellular Corporation USCC

United States Telecom Association USTA

United Utilities, Inc. United Utilities

Verizon Telephone Companies Verizon

Washington Independent Telephone Association Washington Indep. Tel.
Ass'n

Washington Utilities and Transportation Commission Washington Commission

Western Alliance Western Alliance

Western Wireless Corporation Western Wireless

WorldCom, Inc., D/B/A MCI MCI

**[Reply Commenter]{.underline} [Abbreviation]{.underline}**

AT&T Corp. AT&T

ACS of Fairbanks, Inc. ACS-F

Alabama Rural Local Exchange Carriers

Ardmore Telephone Company

Blountsville Telephone Company

Brindlee Mountain Telephone Company, Inc.

Butler Telephone Company, Inc.

Farmers Telephone Cooperative, Inc.

Frontier Communications of Alabama, Inc.

Frontier Communications of Lamar County, Inc.

Frontier Communications of the South, Inc.

Graceba Total Communications, Inc.

GTC, Inc.

Gulf Telephone Company

Hayneville Telephone Company, Inc.

Hopper Telecommunications Company, Inc.

Interstate Telephone Company

Millry Telephone Company, Inc.

Mon-Cre Telephone Cooperative, Inc.

Moundville Telephone Company, Inc.

National Telephone Company of Alabama, Inc.

New Hope Telephone Cooperative, Inc.

Oakman Telephone Company

OTELCO Telephone LLC

Peoples Telephone Company

Pine Belt Telephone Company, Inc.

Ragland Telephone Company

Roanoke Telephone Company, Inc.

Union Springs Telephone Company, Inc.

Valley Telephone Company Alabama Rural LECs

Alaska Telephone Association Alaska Tel. Ass'n

Beacon Telecommunications Advisors, LLC Beacon

BellSouth Corporation BellSouth

Cellular Telecommunications & Internet Association CTIA

Centennial Communications Corp. Centennial

CenturyTel, Inc. CenturyTel

Dobson Communications Corporation Dobson

General Communication, Inc. GCI

GVNW Consulting, Inc. GVNW

Independent Telephone & Telecommunications Alliance Indep. Tel. &
Telecomms. Alliance

Montana Universal Service Taskforce MUST

National Association of State Utility Consumer Advocates NASUCA

National Telecommunications Cooperative Association NTCA

Nebraska Rural Independent Companies Nebraska Rural Indep. Cos.

Organization for the Promotion and Advancement

of Small Telecommunications Companies OPASTCO

Rural Cellular Association-The Alliance of Rural

CMRS Carriers Rural Cellular Ass'n/Alliance of

Rural CMRS Carriers

Rural Independent Competitive Alliance Rural Indep. Competitive Alliance

South Dakota Telecommunications Association South Dakota Telecomms.
Ass'n

Sprint Corporation Sprint

United States Cellular Corporation USCC

United States Telecom Association USTA

Verizon Verizon

Washington Independent Telephone Association Washington Indep. Tel.
Ass'n

Western Wireless Corporation Western Wireless

WorldCom, Inc. D/B/A MCI MCI

SEPARATE STATEMENT OF

COMMISSIONER KATHLEEN Q. ABERNATHY

Re: Federal-State Joint Board on Universal Service, Recommended Decision

This Recommended Decision addresses several critical issues regarding
the distribution of universal service support to carriers serving rural
areas. These issues concern the designation and funding of eligible
telecommunications carriers (ETCs) in rural areas facing competition,
and they go to the heart of the Commission's administration of the
federal high-cost support mechanisms. As Chair of the Joint Board, I
have made this undertaking our highest priority, and I am grateful that
my colleagues have responded with extremely thoughtful recommendations.
While our work continues in some important respects, I am proud of the
progress we have made, and I commend my colleagues and the outstanding
staff for their diligent and insightful participation in this
proceeding. We were able to reach consensus on several critical issues
and we narrowed our differences on others. Where we have been forced to
disagree, our divergences have been principled and respectful. It has
been a privilege for me to serve with such a committed group of public
servants.

A major impetus for initiating this proceeding was widespread
uncertainty regarding the appropriate standards for determining whether
the designation of a competitive ETC serves the public interest. We have
responded to requests for guidance from state commissions and carriers
by setting forth a comprehensive set of recommended minimum standards
for the designation of ETCs. As I explained in a recent FCC designation
decision, I believe that an ETC must be prepared to serve all customers
upon reasonable request, and it must offer high-quality services at
affordable rates throughout the designated service area.[^291] State
commissions, acting under section 214(e)(2), and the FCC, acting under
section 214(e)(6), plainly should be able to impose conditions designed
to ensure that all ETCs are appropriately qualified. Perhaps most
importantly, the certifying authority should make sure that a
prospective ETC has the ability and commitment to build out facilities
as necessary to serve the entire designated area. I am pleased that my
federal and state colleagues have unanimously agreed on this principle
as well as other core standards that should make the designation process
more rigorous, and also more uniform and predictable. I hope that state
commissions and the FCC heed this guidance in upcoming designation
proceedings.

The Commission's other principal charge to the Joint Board was to
consider a variety of means to ensure the sustainability of high-cost
funding in rural areas as competition grows. A majority of the Joint
Board believe that the most promising proposals call for some kind of
modification to the current system that funds all connections from all
carriers (although, as discussed below, I believe that we must also
continue to explore possible changes to the basis for calculating
support). I do not know at this stage whether I will ultimately vote to
adopt a primary-line restriction of the sort discussed in this
Recommended Decision, but it seems clear that the universal service fund
can no longer subsidize an unlimited number of connections provided by
an unlimited number of carriers. Nor do I believe that the
Communications Act contemplates such a result. Section 254 at bottom
requires a "lifeline" connection to the PSTN ― in other words,
reasonably priced access to the network that provides the core
"supported services" that make up universal service.[^292] That goal
will be fulfilled as long as the Commission continues to support a
primary connection for every consumer living in high-cost rural areas.

Critics of primary-line proposals have raised legitimate concerns about
administrability and the impact on investment in rural communities. In
response, the Joint Board's recommendation is contingent on the
Commission's ability to develop a workable primary-line rule. Moreover,
my colleagues and I have worked hard to develop a variety of proposals
that should mitigate the impact of any support restriction on rural
consumers and carriers, and we have expressly recommended seeking
further comment on this issue. Contrary to what some parties may have
assumed, the Joint Board has never contemplated a sudden withdrawal of
support for existing second lines. Rather, we have suggested further
consideration of two straightforward propositions. First, a competitive
carrier should receive support only to the extent that it "wins" the
customer. And second, an incumbent ETC might risk losing the support
associated with a customer when it no longer serves that customer. In
rural areas that lack multiple ETCs ― which is the vast majority of them
― the primary-line proposals outlined in this Recommended Decision would
bring about *no change* in the flow of high-cost funding. And even where
competition has eroded rural carriers' customer base to some extent, the
Joint Board has recognized the need to proceed cautiously before
imposing any restrictions on the amount of available support. Given
these efforts to protect consumers in rural areas, I believe it would be
short-sighted to terminate our consideration of these proposals at this
early stage.

Finally, I am pleased that we will continue to examine proposals to
modify the basis of support for ETCs. Notably, every member of the Joint
Board has recognized that "funding a competitive ETC based on the
incumbent LEC's embedded costs may not be the most economically rational
method for calculating support."[^293] While we agree on the problem,
the solution has been elusive. If the Commission wanted to fund
competitors based on their own embedded costs, the record does not tell
us how to calculate such costs, given that competitive carriers are not
subject to a regulatory accounting regime. More troublingly, several
parties have suggested that wireless carriers' per-line support would be
*higher* than incumbents' if calculated based on their own network
costs, given the new entrants' lower penetration rates ― and obviously
that would frustrate our goal of *restraining* growth in high-cost
funding. Alternatively, if we were to pursue a forward-looking cost
methodology, similar questions remain about how to implement such an
approach at this time. And several parties have argued convincingly
that, instead of focusing narrowly on the basis of support for
competitive carriers, the Joint Board should comprehensively review the
basis of support for *all* ETCs ― as the Commission pledged in its
*Rural Task Force Order* to do by 2006. The Joint Board has accordingly
recommended that the Commission refer this broader issue for its
consideration, and I hope that the FCC takes that step in the very near
future.

**SEPARATE STATEMENT OF COMMISSIONER LILA A. JABER,**

**FLORIDA PUBLIC SERVICE COMMISSION**

Re: Federal-State Joint Board on Universal Service, Recommended Decision

The FCC has asked the Joint Board to review the FCC's current rules
relating to high-cost universal service support mechanisms to ensure
that the dual goals of preserving universal service and promoting
competition continue to be fulfilled. By no means is this an easy task.
On the other hand, this review is overdue in light of an evolving
telecommunications market and the ongoing responsibility to maintain
accessible, affordable telephone service for every American, while
addressing the unintended consequence of a rapidly growing federal
universal service fund. In meeting these obligations, I am optimistic
that the recommended decision, if adopted by the FCC, has the potential
of advancing the goal of universal service, ensuring long-term
sustainability of the fund, and maintaining competitive neutrality. With
that said, I recognize that there may be administrative difficulties
that will have to be overcome should the FCC choose to go forward with
our recommendations. I do believe that these difficulties, or
"opportunities," can be addressed. This recommended decision at the very
least will generate additional comments and constructive implementation
suggestions to the FCC from various stakeholders.

I recognize the hard work of the universal service joint board staff and
offer my sincere thanks. Their dedication and expertise in putting this
complex matter into a simple form is evident in the work product. This
document is yet another example of federal-state cooperation. In that
same spirit, I applaud the tireless efforts of my joint board
colleagues. This was an extremely difficult decision with good,
plausible arguments on each side of every issue. At the end of the
proverbial day, I remain hopeful that the ongoing dialogue from this
point forward will result in optimal solutions to these matters.

[ETC Designation Process]{.underline}

In the recommended decision, we propose that the FCC adopt permissive,
minimum guidelines that state commissions and the FCC may use for
[all]{.underline} ETC designation proceedings. Use of these permissive
guidelines should provide a more consistent application process among
states. More importantly, these guidelines should further assist state
regulators in determining if the public interest would be served by
designating additional carriers as ETCs, thereby qualifying additional
carriers for federal universal service support. I agree with the
commenters who suggested that encouraging a more rigorous fact-finding
ETC designation process for all carriers, in both rural and nonrural
areas, should ensure that only carriers fully committed to meeting
universal service obligations have access to the already-growing federal
universal service fund.[^294] Examples of the guidelines we propose be
considered in the review process include suggesting that a carrier
demonstrate its overall financial viability as well as its technical
ability to provide quality services throughout its entire designated
area. I find these permissive guidelines eminently reasonable. In fact,
it should be clear that a state may impose additional requirements for
ETC certification if the state so chooses. By this recommended decision,
we clearly intend to maintain state flexibility in the ETC designation
process --- authority some state commissions can clearly find in Section
214(e)(2). For other states, where certain carriers are not subject to
the jurisdiction of a state commission, this recommended decision
clarifies that the FCC, in implementing Section 214(e)(6), should apply
these same guidelines.

[Scope of Support]{.underline}

At the center of this recommended decision is a proposal to limit
high-cost support to a primary connection for residential and business
customers. This is a departure from the current structure that allows
all ETCs to receive federal universal service support for all lines.
This structure has created a situation where multiple ETCs in high-cost
rural areas automatically receive support even if a carrier does not
have an economically rational business case to support such entry. We
should not support the current framework that allows subsidies to flow
to multiple competitors where it is already cost prohibitive for a
single provider. Some commenters believe that states have used multiple
carrier ETC designation as a means to attract more universal service
funds into the state.[^295] While I do not know if this has happened, I
do believe that the universal service fund should [not]{.underline} be
used to artificially induce competitive entry that would not have
otherwise occurred. Instead, universal service funds should be used for
the purpose intended \-\-- to provide universal access to a customer by
providing the appropriate funding for a single connection. This is the
goal of universal service, as recognized as early as 1996 by the Joint
Board. Implementation of the primary-connection proposal may well be
essential in order to preserve the long-term sustainability of the
federal universal service fund. Otherwise, excess support and resulting
increases in USF assessment fees which flow through to consumers,
thereby directly impacting their bills, can detract from the goal of
universal access and affordability. Moreover, if this proposal is
administratively feasible and can be implemented reasonably, the
potential exists to provide the appropriate entry signals in rural and
high cost areas. Carriers can and should compete for the primary
connection since that is the trigger for receiving support from the fund
under this proposal.

I also recognize that it is absolutely necessary to mitigate any
potentially adverse impact of a primary line restriction on the rural
carriers. Therefore, I support the proposal to seek further comment on
"rebasing" the high-cost support that carriers currently receive. In
areas where only one ETC is present, carriers should receive no less
support than they receive now. In areas served by more than one ETC, we
envision that customers would select their primary carrier.

Notably, a rural carrier would lose support under this
primary-connection proposal [only]{.underline} if it loses the customer
to another ETC, whether it be a wireline or wireless competitor. I
believe this answers, at least in part, the concern raised by some
commenters that primary line restrictions will limit the availability of
wireless service in rural areas, which could negatively impact the
area's economic development. Under this recommended decision, wireless
carriers can be selected by customers as the primary carrier, thus
enabling wireless carriers to receive support from the fund in rural and
other areas. Recently in addressing Virginia Cellular's application for
ETC designation, FCC Chairman Powell stated that, "\[d\]espite the
importance of making rural, facilities-based competition a reality, we
must ensure that increasing demands on the fund should not be allowed to
threaten its viability."[^296] I wholeheartedly agree. Consistent with
Chairman Powell's statement, our recommended decision on this issue is
an example of balancing legitimate concerns of our rural citizens with
the goal of ensuring the long-term sustainability to the fund.

**SEPARATE STATEMENT OF COMMISSIONER THOMAS J. DUNLEAVY,**

NEW YORK STATE PUBLIC SERVICE COMMISSION

Re: Federal-State Joint Board on Universal Service, Recommended Decision

The issues referred to us in this phase of this proceeding are among the
most complex and contentious we have been asked to address. They go to
the heart of what we expect a universal service program to achieve and
how we expect it to interact with the forces of a competitive market.
Although this Recommended Decision does not resolve all the issues
before us, I believe the recommendations we make here today will help
sustain the federal universal service program, enabling it to more
effectively achieve our dual goals of fostering competition while
preserving universal service. I support this Recommended Decision as a
reasonable step in the right direction.

Perhaps the most significant recommendation we make here today is to
provide federal high cost support only for a subscriber\'s or
household\'s primary connection to the telephone network. I believe this
recommendation is entirely consistent with the fundamental purpose of
the federal universal service program -- ensuring that all homes and
businesses can affordably connect to the rest of the world. When the
Telecommunications Act of 1996 was being crafted, I doubt many people
anticipated that in less than a decade most households would have both a
wireline [and]{.underline} a wireless phone and that many would have
[multiple]{.underline} wireless phones. I am convinced that, however
much we might like to, we simply cannot sustain a universal service
program that provides support to two, three, four or more phones in most
households. At the same time, rules that would effectively preclude
support to wireless services would not be competitively or
technologically neutral and might artificially slow the deployment of
desirable and potentially less costly services to high cost areas. While
implementation of our recommendation to support only primary lines will
no doubt involve some administrative complexities, I am confident that
reasonable solutions will be found through further development of the
record, as we here recommend. I also am confident that resolution of
those challenges will place far fewer demands on the high cost support
mechanism than will continuing to support multiple lines per household.

That said, I am keenly aware that our primary line proposal could
significantly affect the support currently provided to existing eligible
telecommunications carriers. No rule should be thought to be permanent,
yet when changes are made reasonable efforts should be made on a
transitional basis to mitigate sudden and severe negative consequences.
I am pleased that our Recommended Decision recognizes this by offering
several alternative proposals for further comment. Without expressing a
preference for any of the alternatives, I would emphasize that no
mitigation effort can be expected to live on in perpetuity, nor should
one be used as a means to forestall competition in any area. Congress
was quite clear; it intended to open [all]{.underline}
telecommunications markets to competition, not just markets in low cost
or urban areas.

It is a testament to the dedication and professionalism of my Joint
Board colleagues that we are able to suggest some significant changes to
improve the federal universal service program, even as we continue to
seek a fuller record on several issues. The state and federal staffs
supporting this Joint Board once again have done an exemplary job
helping us to understand the issues and our options and reducing our
thoughts to writing. I offer them all my sincere appreciation.

**SEPARATE STATEMENT OF BILLY JACK GREGG,**

**DIRECTOR OF THE CONSUMER ADVOCATE DIVISION,**

**PUBLIC SERVICE COMMISSION OF WEST VIRGINIA**

Re: Federal-State Joint Board on Universal Service, Recommended Decision

The most important aspect of our recommendation today is the decision to
limit support to primary lines. Not only will this action slow the
growth of the high cost fund stemming from support of multiple lines of
multiple networks within the same area, but it will also fundamentally
change the calculus for designating additional eligible
telecommunications carriers (ETC's) in areas served by rural carriers.
Since current Commission rules provide support to all lines of all
ETC's, states have been faced with the perverse incentive of gaining
more federal universal service support the more ETC's they
approve.[^297] By limiting support to primary lines, we eliminate this
incentive and return to the original concept of universal service in a
competitive environment: namely, that carriers will compete for the
universal service subsidy,[^298] and that competition will eventually
drive down the overall cost of subsidizing service in high-cost
areas.[^299]

Several of my colleagues on the Joint Board have expressed concern over
the fate of small, rural incumbent carriers if support is limited to
primary lines. I share these concerns. However, under the Act, the
proper place for these concerns is at the point when the decision is
made whether to designate an additional ETC in an area served by a rural
carrier.[^300] If a state or the Commission believes that a particular
rural area or a particular rural carrier cannot stand the loss or
dilution of current levels of support, then under Section 214(e)(2) of
the Act, it should find that additional ETC's are not "in the public
interest." [^301] If, on the other hand, states or the Commission find
that multiple ETC's are appropriate in a particular area, then the
portability rules should apply equally to all ETC's, regardless of the
technology used, and regardless of whether the ETC is an incumbent or a
new-comer. Proposals to reserve some support as the exclusive province
of incumbent ETC's - regardless of previous public interest decisions
under Section 214(e)(2) --violate, in my judgment, the principle of
competitive neutrality.[^302]

I believe that there are certain areas of this country where it is so
expensive to provide service that it makes no sense to have more than
one carrier subsidized by the federal universal service fund.[^303]
Moreover, I believe that it is relatively easy to determine where these
areas are. The universal service fund provides various levels of support
to over 1400 incumbent study areas in this country. At root, these
support levels are based on the cost to provide service to the number of
customers within each area. By comparing the average levels of per line
support provided to each study area, the Commission should be able to
determine per line support benchmarks that divide study areas where
multiple ETC's are presumably in the public interest, and those areas
where they are not.

Adoption of such benchmarks will provide guidance to competitors and
incumbents, will introduce a degree of certainty into the
telecommunications marketplace, and will greatly simplify ETC decisions
for state commissions. After further development in proceedings before
the Commission, I hope that this benchmarking concept is adopted to
guide public interest determinations under Section 214(e)(2) of the Act.

**SEPARATE STATEMENT OF**

**COMMISSIONER KEVIN J. MARTIN**

Dissenting in Part, Concurring in Part

Re: Federal-State Joint Board on Universal Service, Recommended Decision

I am troubled by today's Recommended Decision because it fails to
provide sufficient guidance or a meaningful public interest test on the
process for designating and funding eligible telecommunications carriers
("ETCs") that enter the market in high cost areas to serve rural
consumers.

As I have stated in the past, I have concerns with policies that use
universal service support as a means of creating "competition" in high
cost areas.[^304] In my view, the main goals of the universal service
program are to ensure that all consumers\--including those in high cost
areas\--have access at affordable rates. I remain hesitant to subsidize
multiple competitors to serve areas in which costs are prohibitively
expensive for even one carrier. The Joint Board's recommendations may
continue to make it difficult for any one carrier to achieve the
economies of scale necessary to serve all of the customers in rural
areas.

I believe the Joint Board should have recommended more immediate steps
that the Commission should take to reform the ETC designation process.
For example, I would have preferred that the Joint Board recommend that
the Commission require ETCs to provide the same type and quality of
services throughout the same geographic service area as a condition of
receiving universal service support. In my view, competitive ETCs
seeking universal service support should have the same "carrier of last
resort" obligations as incumbent service providers in order to receive
universal service support. Adopting the same "carrier of last resort"
obligation for all ETCs is fully consistent with the Commission's
existing policy of competitive and technological neutrality amongst
service providers.

As I have supported in the past, I would have recommended that the
Commission require ETCs to provide equal access. Equal access provides a
direct, tangible consumer benefit that allows individuals to decide
which long distance plan, if any, is most appropriate for their needs.
As I have stated previously, I believe an equal access requirement would
allow ETCs to continue to offer bundled local and long distance service
packages, while also empowering consumers with the ability to choose the
best calling plan for their needs.[^305] An equal access obligation is
also fully consistent with the Commission's existing policy of
competitive neutrality amongst service providers, facilitating
competition on the basis of price and service quality for comparable
service offerings.

I would have also preferred that the Joint Board recommend that the
Commission require ETCs to provide service throughout the same
geographic service area in order to receive universal service support.
This obligation would help guard against the potential for
creamskimming. I would have supported a recommendation to deny future
requests to redefine the service areas of incumbent rural telephone
companies\--and to deny ETC designations in instances where an ETC's
proposed service area does not cover the entire service area of the
incumbent service provider.

Given that a majority of my colleagues were unwilling to recommend that
the Commission adopt these same competitively neutral obligations for
all ETCs, I concur in the Joint Board's recommendation to seek
alternative means of limiting fund growth. To help slow the growth of
the universal service fund, I specifically support one particular
alternative of the primary line proposal. My support for the primary
line proposals is limited to that "hold harmless" proposal.

Under the "hold harmless" alternative, per line support available to
competitive ETCs would freeze upon competitive entry. Competitive ETCs
would only be eligible for universal service support for customers who
designated their service as the primary line. Unlike the other primary
line proposals, however, this alternative would not cap per-line support
for incumbent carriers and would thus "hold harmless" incumbent carriers
from the loss of universal service support. As my colleague Commissioner
Rowe has observed, this proposal would work to address the incumbents
overall network costs that are incurred.

I look forward to working with my colleagues on the Commission as we
address these critical issues regarding the distribution of universal
service support to ETCs in high cost areas while ensuring that we
maintain and preserve universal service in rural America.

**JOINT Separate Statement of**

**Commissioners Jonathan S. Adelstein,**

**G. Nanette Thompson, REGULATORY COMMISSISSION OF ALASKA,**

**and Bob Rowe, MONTANA PUBLIC SERVICE COMMISSION**

**Approving in Part, Dissenting in Part**

Re: Federal-State Joint Board on Universal Service, Recommended Decision

We are pleased that this Joint Board has determined that it is useful to
employ guidelines to ascertain whether it is appropriate to designate
multiple eligible telecommunications carriers in particular areas. We
are pleased that this Joint Board recognizes, as Congress did in 1996,
that when designating an ETC in an area served by a rural telephone
company we must take greater care in examining the public interest to
determine the wisdom of multiple ETCs in rural, high cost areas.
Establishing a meaningful public interest test[^306] and providing
meaningful guidance on ETC designations will help to limit federal
universal service funding to those providers who are committed to serve
rural communities.[^307]

We disagree, however, with the majority's recommendation to limit
funding to primary lines. We believe it is inconsistent with Congress'
intent when codifying the Universal Service provisions in the 1996 Act.
It is also inconsistent with the December 18, 2003 letter from Senators
Dorgan, Burns, Snowe, Johnson, Baucus, Lincoln and Daschle, stating that
a primary line restriction would be "a major step backward that would
thwart the essential purpose of universal service." A primary line
restriction would reduce incentives for deployment of both wireless and
wireline networks. We are also disappointed that the Joint Board cannot
yet make progress on how to determine the basis of support, which was a
core element of this "portability" referral.

The majority's recommendation to restrict funding to primary lines is a
well-intentioned effort that will have a deleterious effect on the
provision of universal service. Restricting funding to primary lines is
not necessary to control fund growth. There are other better means to
control fund growth that do not have the same draconian consequences for
rural consumers and that would better advance the long term goal of an
equitable support system that affords all Americans reasonable access to
telecommunications services.

In this referral, the Joint Board faces the question of how the Act's
goals of competition and universal service are to be reconciled and
balanced in rural areas. The majority's recommendation would discourage
network investment in rural areas. It also would distort rural markets
in a way that would ultimately undermine the goal of universal service.
Such a result is anathema to the purpose of universal service funding
and the intent of Congress.

We believe that a better policy would be to put in place a more
stringent public interest test, as we recommend today, and to move away
from the identical support rule by basing each ETC's support on its own
costs. This would limit fund growth, comply with Section 254(e) and
encourage continued investment in rural markets. It also would limit
funding only to those providers, whether incumbents or new entrants, who
are committed to serve rural communities.

[Designating Primary Lines]{.underline}

The majority recommends that support be distributed based on a carrier's
number of primary lines and that support, under one option, be "rebased"
to ensure that the amount does not change initially. If the number of
primary lines were to increase in the future, however, support would
increase. Likewise, if the number of primary lines were to decrease,
support would decrease in proportion. Future support therefore depends
upon an ETC's ability to get customers who will designate their line as
primary. We foresee a number of harmful effects from such a system.

The primary line recommendation would be harmful to consumers. Section
254(b)(3) of the statute directs us to make reasonably comparable
services available to consumers nationwide at reasonably comparable
rates:

> 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 are available at rates that are reasonably comparable to
> rates charged for similar services in urban areas.

This section provides not only that *the rates for* services should be
reasonably comparable, but also that *access* should be reasonably
comparable. Moreover, the statute covers not just basic service, but
also advanced telecommunications services and information
services.[^308] Limiting support to primary lines would deny rural
consumers comparable access to a variety of telecommunications services:
voice, data, fixed, and mobile.

The majority's recommendation would deny support for all second lines,
including those used as second voice lines and data lines.[^309] The
economic development effects in rural areas could be quite harmful.
Rates could become unaffordable for second lines in high cost areas
because all consumers will be asked to pay the cost of a second line
without any offsetting support. While the majority has offered options
(e.g., rebasing, hold harmless provisions) to attempt to ameliorate the
harmful affects of the lost support, we believe these options are likely
to be anti-competitive, or will prove ineffective and impractical.

Rural business customers would be particularly disadvantaged because
they frequently have more than one line. Net costs for telephone service
would increase significantly for many of these rural business
customers.[^310] Consumers would also face higher costs for "data lines"
or fax lines. Given the distance limitations inherent in DSL services,
these fax and data lines are essential to the economic life of rural
communities. Just as one example, it will be very difficult to attract
telecommuters to an area that not only has no DSL but that has high
rates for fax and data lines. These higher costs could severely affect
small business investment in rural areas and would be very likely to
restrict rural economic development. The rural areas most in need of
economic development will be left further behind. If we don't care for
these communities as Congress intended, photographs may well be all that
is left as rural areas dwindle when faced with additional economic
hardships.

The primary line recommendation will also be harmful to existing ETCs,
especially rural carriers. The majority says that its proposal would
protect rural providers. In reality, the proposal offers only a limited
and temporary protection. It presumes not only that services and rates
are now comparable between rural and urban areas, but also that the
level of service will remain adequate in perpetuity. Markets are not
static, and as time progresses, existing ETCs in many areas will lose
primary line "market share." If the competitor is a wireless ETC, the
loss in primary line market share may occur though the incumbent
continues to serve their existing wireline customer base. Under the
primary line proposal, even with the initial rebasing option, ETCs that
lose primary line market share will lose support. Over time, this will
jeopardize the ability of carriers to provide rural consumers with
access to comparable services at comparable rates.

For at least seventy years, and both before and after 1996 when
universal service principles were codified, universal service policies
have supported the cost of *networks* in high cost areas. Customers are
not served by individual lines, but by networks.[^311] While "basic
access" has been the touchstone of the Lifeline program, the rural high
cost program has traditionally recognized the importance of network
support and cost recovery of network investment to keep rates and
services comparable. Adopting a primary line approach would reverse this
historical policy and fundamentally redefine universal service for rural
communities. The primary lines approach is contrary to the Act because,
as its authors understood, communications work through networks, not
individual connections.[^312]

Support limited to primary lines would not be sufficient in rural areas.
Congress stated in Section 254(b)(5) that support must be "specific,
predictable and sufficient." Rural carriers have higher operating costs
and equipment costs because they have lower subscriber density and lack
economies of scale. Losing support for "all lines" would potentially
undermine the ability of these carriers to recoup their network costs
without raising rates for rural consumers. Rebasing and similar hold
harmless and lump sum payments would at best only temporarily address
this problem. We should not be applying more temporary solutions to
remedy the universal service programs. It is time to fix them with an
eye towards the long term sustainability of the programs.

Telecommunications technology is advancing rapidly. If, as the Act
provides, rural services are to be comparable to urban services, rural
carriers must continue to invest in state-of-the-art equipment. But
under the majority's primary line method, future revenues become much
more uncertain. Any primary line market share loss to a competitor not
only reduces the incumbent's customer revenue, but it also reduces
universal service revenue. This magnification of investor risk is likely
to discourage prudent carriers from installing costly new technology.

The Joint Board majority has cited with approval several recommendations
in the 2000 report of the Rural Task Force.[^313] An important concept
in the Rural Task Force report was that there should be "no barriers" to
deployment of advanced facilities.[^314] While the Commission has never
endorsed that concept fully, it has agreed that universal service
policies should not inadvertently create barriers to the provision of
access to advanced services. It also has stated a belief that the
current universal service system does not create such barriers.[^315]
The majority here moves away from effectuating a "no barriers" approach.
By basing support on primary lines, the majority would substantially
reduce the incentive for continued rural investment in any facilities by
creating uncertainty of sufficient universal service funding. This is
indeed a substantial barrier and one that is contrary to the spirit of
the Rural Task Force Report.

The Act also anticipates that universal service will support an evolving
level of services.[^316] We cannot simultaneously put future investment
at risk and increase the level of service. More Americans than ever have
access to the Internet and mobile communications.[^317] Unless providers
can invest in their rural networks, they cannot provide that "evolving"
level of service. Limiting support to primary lines may not only chill
investment generally, but also may jeopardize funding for advanced
services and cause networks to lag technologically for want of adequate
investment.

The majority's recommendation also would jeopardize the continued
availability of carriers of last resort. We cannot reasonably expect
carriers to maintain responsibility as carrier of last resort if we deny
them the funding necessary to build and maintain the network we
demand.[^318] The principle of a carrier of last resort is essential to
universal service. However, by limiting funding to primary lines, we may
inadvertently destroy the incentive to accept this responsibility.[^319]

The majority's recommendation would effectively establish a virtual
voucher system. Congress squarely addressed this issue in 1995, and
dispatched it. During the debates about high cost funding, an amendment
was offered that would have replaced the high cost funding mechanism
with a voucher mechanism under which low income individuals would
receive a voucher and then determine which carrier would get that
funding. Essentially, the individual customer would have been given the
opportunity choose his or her primary carrier. This amendment would have
conflated the high-cost and low-income programs. It was soundly
defeated. Congress clearly rejected efforts to merge the high-cost and
low-income funds and to establish a voucher system. The majority's
primary line recommendation violates Congressional intent in both ways.

Basing support on primary lines would raise serious administrative
issues and would create opportunities for gaming that will disadvantage
and confuse consumers. Defining primary lines is problematic in a
multitude of housing and living situations. We cannot expect providers
to investigate and police the panoply of American housing and living
arrangements. Who is to decide which line is primary? If we shift the
focus away from funding the network and give each individual or
household a choice of primary line, we will have to define "household"
and "individual." The telecommunications industry and its regulators are
not well equipped to resolve these questions.

A primary line restriction is also unauditable. A consumer could easily
have his wireline bill sent to a residence, and a wireless bill sent to
a post office box. The inability to verify that the funds are being used
appropriately compromises both the fund's integrity and the FCC's
ability to ensure that the funds are being properly expended. We are
concerned that any potential gains from restricting funding to primary
lines will be outweighed by the administrative costs of administering
funding only to primary lines and the risks that necessarily follow an
unauditable restriction.

The FCC has moved away from its primary/non-primary residential line
distinction in the interstate ratemaking process. For price-cap carrier,
the FCC found that different Subscriber Line Charges (SLCs) created
consumer confusion and unnecessary costs that were ultimately borne by
consumers. Later, the FCC abandoned the distinction entirely in the
Multi Association Group (MAG) proceeding and cited the Federal
Regulatory Flexibility Act, which requires the Commission to take into
account the potential impact of its rules on small, local telephone
companies.

Carriers and customers would have a real opportunity for gaming with the
primary line designation. The problem here is greater than with
residential SLCs because there is potentially more money at stake.
Carriers would have incentives to "slam" customers, and consumers would
have incentives to game the system in order to maximize their
household's funding. Past problems with slamming in long distance
competition will pale in comparison to those that could arise when
carriers can collect funding for winning primary line designations.
Rather than competing to best serve customers, providers will compete
for new ways to win designation as the primary carrier.

## [Basis of Support]{.underline} {#basis-of-support-1 .unnumbered}

We are disappointed that the Joint Board did not make greater progress
on the issue of the basis of support. We believe that we have a
sufficient record to recommend a policy goal that the amount of
universal service support paid to competitive providers should not be
based on the incumbent's costs.[^320] We understand that our record does
not support a final decision on how we would fairly administer support
based on the competitors' costs.[^321] We are pleased that our Joint
Board colleagues recognize the need to consider modifying the basis of
support.[^322] However, we believe that a clear policy statement here
would better guide the development of the record and better enable the
FCC to resolve sooner this complex issue.

[Equal Access]{.underline}

Commissioner Adelstein deferred his vote on the inclusion of equal
access in the list of supported services to this proceeding because he
believed that there was intent to address and resolve the basis of
support question. We should at least have addressed the issue of the
funding impact of equal access.[^323]

Under the MAG plan, the Commission reduced access charges, and to make
the universal service mechanism more explicit, moved that amount into
the universal service fund. This was responsive to the need to make
explicit, as far as possible, those federal universal service subsidies
that were implicit, as intended by Congress. The resulting program,
Interstate Common Line Support (ICLS) includes the cost of providing
equal access. At the very least, this Joint Board should recommend to
the Commission that, pending determination of the appropriate basis of
support, competitors that do not provide equal access should not receive
at least that portion of ICLS that is based upon equal access costs.

For these reasons, we approve in part and dissent in part. We concur in
the portion of the recommended decision relating to certification of
eligible telecommunications carriers, but dissent from the portion
relating to designation of primary lines.

[^1]: *Federal-State Joint Board on Universal Service*, Order, CC Docket
    No. 96-45, 17 FCC Rcd 22642, para. 1 (2002) (*Referral Order*).

[^2]: On February 7, 2003, the Joint Board issued a Public Notice
    inviting public comment on whether the Commission's rules concerning
    high-cost support and the ETC designation process continue to
    fulfill their intended purposes. *See* *Federal-State Joint Board on
    Universal Service Seeks Comment on Certain of the Commission's Rules
    Relating to High-Cost Universal Service Support and the ETC
    Designation Process*, Public Notice, CC Docket No. 96-45, 18 FCC Rcd
    1941 (Jt. Bd. 2003) (*Joint Board Portability-ETC Public Notice*).
    On July 31, 2003, the Joint Board held an en banc hearing on the
    Commission's rules on designation and funding of ETCs in high-cost
    areas. *See*
    <http://www.fcc.gov/wcb/universal_service/documents/030731.pdf>.
    *See also Federal-State Joint Board on Universal Service to Hold En
    Banc Hearing on the Portability of High-Cost Universal Service
    Support and the ETC Designation Process*, Public Notice, CC Docket
    No. 96-45, 18 FCC Rcd 14486 (Wir. Comp. Bur. 2003) (providing notice
    of Joint Board *en banc* hearing).

[^3]: *See* 47 U.S.C. § 214. The Communications Act of 1934 was amended
    by the Telecommunications Act of 1996. Pub. L. No. 104-104, 110
    Stat. 56 (1996) (1996 Act).

[^4]: The term "rural carriers" refers to incumbent local exchange
    carriers (LECs) that meet the statutory definition of rural
    telephone company in section 153(37) of the Act. *See* 47 U.S.C. §
    153(37). Under this definition, rural telephone companies are
    incumbent LECs that either serve study areas with fewer than 100,000
    access lines or meet one of three alternative criteria. *Id.* The
    term "non-rural carriers" refers to incumbent LECs that do not meet
    the statutory definition of a rural telephone company.

[^5]: *See supra* para. 76.

[^6]: We note that, if the Commission were to adopt the "hold harmless"
    approach discussed below, per-line support would not be capped for
    incumbent carriers. *See* *infra* at para. 75. For purposes of this
    Recommended Decision, references to "line" or "per-line" are
    generally synonymous with "connection" or "per-connection." The use
    of the term "line" is intended to relate to services provisioned
    over either wireline or wireless technology.

[^7]: *See Federal-State Joint Board on Universal Service,
    Multi-Association Group (MAG) Plan for Regulation of Interstate
    Services of Non-Price Cap Incumbent Local Exchange Carriers and
    Interexchange Carriers,* Fourteenth Report and Order, Twenty-Second
    Order on Reconsideration, and Further Notice of Proposed Rulemaking
    in CC Docket No. 96-45, Report and Order in CC Docket No. 00-256, 16
    FCC Rcd 11244, 11310, para. 169 (2001) (*Rural Task Force Order*);
    s*ee also Federal-State Joint Board on Universal Service*, Order on
    Remand, Further Notice of Proposed Rulemaking, and Memorandum
    Opinion and Order, CC Docket No. 96-45, FCC 03-249 (rel. Oct. 27,
    2003) at para. 25 (*Tenth Circuit Remand Order*).

[^8]: 47 U.S.C. § 254(e).

[^9]: 47 U.S.C. § 214(e)(1). The "service area" is the geographic area
    established by the state commission for the purposes of determining
    universal service support obligations and support mechanisms. 47
    U.S.C § 214(e)(5). In the case of an area served by a rural carrier,
    "service area" means such company's "study area" unless and until
    the Commission and the States, after taking into account the
    recommendations of a Federal-State Joint Board instituted under
    section 410(c), establish a different definition of service area for
    such company. *Id.*; *see infra* paras. 49-53.

[^10]: 47 U.S.C. § 214(e)(2). We note that the Commission has authority
    for performing ETC designations for carriers that are not "subject
    to the jurisdiction of a State commission" pursuant to 214(e)(6). 47
    U.S.C. § 214(e)(6). The Commission's requirements for ETC
    designations in section 214(e)(6) parallel the states' requirements
    for ETC designations in section 214(e)(2). *Id.*

[^11]: 47 U.S.C. § 214(e)(2).

[^12]: *See* 47 U.S.C. § 214(e)(4).

[^13]: *Id.*

[^14]: *Id.*

[^15]: *Id.*

[^16]: *See, e.g.,* CTIA Comments at 10; Idaho Tel. Ass'n Comments at
    12; Montana Telecomms. Ass'n Comments at 10; Nebraska Rural Indep.
    Cos. Comments at 27.

[^17]: *See Texas Office of Public Utility Counsel v. FCC*, 183 F.3d
    393, 418 (5th Cir. 1999) (*TOPUC v. FCC*). The Fifth Circuit
    addressed the question of whether states may subject carriers
    designated as ETCs to eligibility requirements above and beyond the
    eligibility requirements of section 214(e)(1) of the Act. *Id*. *See
    also* Washington Indep. Tel. Ass'n Comments at 17.

[^18]: *See* 47 U.S.C. § 214(e)(4).

[^19]: 47 U.S.C. § 254(b)(3).

[^20]: *See, e.g.*, GCI Reply Comments at 27-28; Western Wireless Reply
    Comments at 42; Rural Cellular Ass'n/Alliance of Rural CMRS Carriers
    Reply Comments at 16-17.

[^21]: *See, e.g.,* Alaska Tel. Ass'n Comments at 3-5; BellSouth Reply
    Comments at 2-4; Dobson Comments at 15; MCI Comments at 7. *See
    also* NASUCA Comments at 9.

[^22]: *See, e.g.,* Dobson Comments at 15 (stating that uniform
    applications and procedures for analyzing the statutory ETC
    designation criteria might make the ETC designation process easier
    and more predictable for states and carriers).

[^23]: *See, e.g., Designation of Eligible Telecommunications Carriers
    Under the Telecommunications Act of 1996, RCC Atlantic, Inc. d/b/a
    Unicel*, Docket No. 5918 (Vt. Pub. Serv. Bd. June 26, 2003)
    (*Vermont Unicel ETC Order*).

[^24]: *See, e.g., Request by Alaska Digitel, LLC for Designation as a
    Carrier Eligible to Receive Federal Universal Service Support Under
    the Telecommunications Act of 1996*, U-02-39, Order No. 10, Order
    Granting Eligible Telecommunications Carrier Status and Requiring
    Filings (Reg. Comm'n of Ala. Aug. 28, 2003) (*Alaska Digitel ETC
    Order*).

[^25]: *See, e.g., Wisconsin U.S. Cellular ETC Order*.

[^26]: Although we intend the guidelines to apply in areas served by
    both rural carriers and non-rural carriers, we believe that states
    and the Commission should apply a higher level of scrutiny when
    evaluating ETC applications for designations in areas served by
    rural carriers. *See* *infra* paras. 17-18.

[^27]: *See TOPUC v. FCC*, 183 F.3d at 418.

[^28]: 47 U.S.C. § 214(e)(2). *See also TOPUC v. FCC,* 183 F.3d at 418.
    We note that the Arkansas Telecommunications Regulatory Reform Act
    of 1997 states that for purposes of the Arkansas state universal
    service fund and the federal universal service fund, there "shall be
    only one. . . \[ETC\] which shall be the incumbent \[LEC\] that is a
    rural telephone company. . ." *See* Act 77 of 1997, Senate Bill 54,
    81st General Assembly, Regular Session, codified at Ark. Code. Ann.
    § 23-17-405(d)(1).

[^29]: 47 U.S.C. § 214(e)(2).

[^30]: In its comments, OPASTCO argues that Congress recognized in
    section 214(e)(2) of the Act that supporting competition would not
    always serve the public interest in areas served by rural telephone
    companies. *See* OPASTCO Comments at 40-41.

[^31]: The Rural Difference, Rural Task Force, White Paper 2, January
    2000, at 9-11 (*RTF White Paper*).

[^32]: We also recognize that there are rural communities that are
    served by non-rural carriers. *See RTF White Paper* at 8 (stating
    that both rural and non-rural carriers service rural communities).

[^33]: 47 U.S*.*C. § 214(e)(1)(A).

[^34]: *Id*. An entity that offers the supported services exclusively
    through resale shall not be designated as an ETC. *See* 47 C.F.R. §
    54.201(i).

[^35]: "Voice grade access" is defined as a "functionality that enables
    a user of telecommunications services to transmit voice
    communications, including signaling the network that the caller
    wishes to place a call, and to receive voice communications,
    including receiving a signal indicating there is an incoming call."
    For the purposes of Part 54, bandwidth for voice grade access should
    be, at a minimum, 300 to 3,000 Hertz. 47 C.F.R. § 54.101(a)(1).

[^36]: "Local usage" means an "amount of minutes of use of exchange
    service, prescribed by the Commission, provided free of charge to
    end users." 47 C.F.R. § 54.101(a)(2).

[^37]: "Dual tone multi-frequency\'" (DTMF) is a defined as a "method of
    signaling that facilitates the transportation of signaling through
    the network, shortening call set-up time." 47 C.F.R. § 54.101(a)(3).

[^38]: "Single-party service" is defined as "telecommunications service
    that permits users to have exclusive use of a wireline subscriber
    loop or access line for each call placed, or, in the case of
    wireless telecommunications carriers, which use spectrum shared
    among users to provide service, a dedicated message path for the
    length of a user\'s particular transmission." 47 C.F.R. §
    54.101(a)(4).

[^39]: "Access to emergency services\'\' includes access to services,
    such as 911 and enhanced 911, provided by local governments or other
    public safety organizations. "911" is defined as a "service that
    permits a telecommunications user, by dialing the three-digit code
    "911," to call emergency services through a Public Service Access
    Point (PSAP) operated by the local government." "Enhanced 911" is
    defined as "911 service that includes the ability to provide
    automatic numbering information (ANI), which enables the PSAP to
    call back if the call is disconnected, and automatic location
    information (ALI), which permits emergency service providers to
    identify the geographic location of the calling party." "Access to
    emergency services" includes access to 911 and enhanced 911 services
    to the extent the local government in an eligible carrier\'s service
    area has implemented 911 or enhanced 911 systems. 47 C.F.R. §
    54.101(a)(5).

[^40]: "Access to operator services" is defined as "access to any
    automatic or live assistance to a consumer to arrange for billing or
    completion, or both, of a telephone call." 47 C.F.R. § 54.101(a)(6).

[^41]: "Access to interexchange service" is defined as the "use of the
    loop, as well as that portion of the switch that is paid for by the
    end user, or the functional equivalent of these network elements in
    the case of a wireless carrier, necessary to access an interexchange
    carrier\'s network." 47 C.F.R. § 54.101(a)(7).

[^42]: "Access to directory assistance" is defined as "access to a
    service that includes, but is not limited to, making available to
    customers, upon request, information contained in directory
    listings." 47 C.F.R. § 54.101(a)(8).

[^43]: "Toll limitation" means either toll blocking or toll control for
    ETCs that are incapable of providing both services. For ETCs that
    are capable of providing both services, "toll limitation" means both
    toll blocking and toll control. 47 C.F.R. §§ 54.101(a)(9) and
    54.400(d). "Toll blocking" is a service provided by carriers that
    allows consumers to elect not to allow the completion of outgoing
    toll calls from their telecommunications channel. 47 C.F.R. §
    54.400(b). "Toll control" is a service provided by carriers that
    allows consumers to specify a certain amount of toll usage that may
    be incurred on their telecommunications channel per month or per
    billing cycle. 47 C.F.R. § 54.400(c).

[^44]: 47 U.S.C. § 214(e)(1)(B).

[^45]: *Id*.

[^46]: 47 C.F.R. §§ 54.405(b) and 54.411(d). Lifeline is a program that
    provides discounts to consumers on their monthly telephone bills.
    *See* 47 C.F.R. §§ 54.401-54.409. Link Up helps consumers with
    telephone installation costs. *See* 47 C.F.R. §§ 54.411-54.415. In
    its *Twelfth Report and Order*, the Commission created a fourth tier
    (\$25.00 per month) of federal Lifeline support and established
    additional Link-Up support (\$70.00 per consumer) which is available
    to ETCs serving qualifying low-income individuals living on tribal
    lands. *See Federal-State Joint Board on Universal Service;
    Promoting Deployment and Subscribership in Unserved and Underserved
    Areas, Including Tribal and Insular Areas*, Twelfth Report and
    Order, Memorandum Opinion and Order, and Further Notice of Proposed
    Rulemaking, CC Docket No. 96-45, 15 FCC Rcd 12208 (2000) (*Twelfth
    Report and Order*).

[^47]: *Federal-State Joint Board on Universal Service; Western Wireless
    Corporation Petition for Preemption of an Order of the South Dakota
    Public Utilities Commission*, Declaratory Ruling, CC Docket No.
    96-45, 15 FCC Rcd 15168, 15172-73 (2000), *recon. pending* (*Section
    214(e) Declaratory Ruling*).

[^48]: *Id.*

[^49]: *Section 214(e) Declaratory Ruling*, 15 FCC Rcd at 15179-81.

[^50]: *Id*. at 15173, para. 13.

[^51]: *See Arizona Smith Bagley ETC Order* at 6.

[^52]: *Id.*

[^53]: *See Petition of Midwest Wireless Communications, L.L.C., for
    Designation as an Eligible Telecommunications Carrier (ETC) Under 47
    U.S.C. § 214(e)(2)*, OAH Docket No. 3-2500-14980-2, PUC Docket No.
    PT-6153/AM-02-686, Findings of Fact, Conclusions of Law, and
    Recommendation at 6, 11 (Minn. Office of Admin. Hearings Dec. 31,
    2002) (*Minnesota ALJ ETC Recommendation*).

[^54]: *See Minnesota* *Midwest Wireless ETC Order* at 6.

[^55]: *See Alaska Digitel ETC Order* at 8-9. A "commercial mobile
    service" is defined as any mobile service that is provided for
    profit and makes interconnected service available to the public or
    to such classes of eligible users as to be effectively available to
    a substantial portion of the public, as specified by regulation by
    the Commission. 47 U.S.C. § 332(d)(1). A "mobile service" is defined
    as a radio communication service carried on between mobile stations
    or receivers and land stations, and by mobile stations communicating
    among themselves, and includes: (1) both one-way and two-way radio
    communication services; (2) a mobile service which provides a
    regularly interacting group of base, mobile, portable, and
    associated control and relay stations (whether licensed as an
    individual, cooperative, or multiple basis) for private one-way or
    two-way land mobile radio communications by eligible users over
    designated areas of operation; and (3) any service for which a
    license is required in a personal communications service established
    pursuant to the proceeding entitled "Amendment to the Commission's
    Rules to Establish New Personal Communications Services" or any
    successor proceeding. 47 U.S.C. § 153(27).

[^56]: *See Alaska Digitel ETC Order* at 8-9*.* The plan states that if
    a customer is not in an area where the CMRS provider, Alaska
    Digitel, currently provides service, Alaska Digitel will: (1)
    Determine whether the customer's equipment can be modified or
    replaced to provide acceptable service; (2) Determine whether a
    roof-mounted antenna or other network equipment can be deployed at
    the premises to provide service; (3) Determine whether adjustments
    at the nearest cell site can be made to provide service; (4)
    Determine whether a cell extender or repeater can be employed to
    provide service; (5) Determine whether there are any other
    adjustments to network or customer facilities that can be made to
    provide service; (6) Explore the possibility of resale; and (7)
    Determine whether an additional cell site can be constructed to
    provide services, and evaluate the costs and benefits of using high
    cost support to serve the number of customers.

[^57]: *See Minnesota ALJ ETC Recommendation* at 14-15.

[^58]: 47 U.S.C. § 214(e)(1).

[^59]: 47 C.F.R. § 54.201(i).

[^60]: *See Section 214(e) Declaratory Ruling*, 15 FCC Rcd at 15175,
    para. 17 (stating that once designated as an ETC, a new entrant is
    required, as the incumbent is required, "to extend its network to
    serve new customers upon reasonable request.").

[^61]: *Alaska Digitel ETC Order* at 9.

[^62]: *Id.*

[^63]: 47 U.S.C. § 214(e)(4). The statutory provision states that "\[a\]
    State commission . . . shall permit an eligible telecommunications
    carrier to relinquish its designation as such a carrier in any area
    served by more than one eligible telecommunications carrier." *Id*.
    The carrier seeking to relinquish its designation must give advance
    notice to the state commission. Prior to allowing the carrier to
    cease providing universal service in the area, the remaining ETC or
    ETC will be required to ensure that all customers served by the
    relinquishing carrier will continue to be served. The remaining ETC
    or ETCs will be permitted up to one year from the approval of the
    request to relinquish ETC status to purchase facilities or equipment
    and complete construction to be able to serve the relinquishing
    carrier's customers. *Id*.

[^64]: *See* 47 U.S.C. § 251(g).

[^65]: We note that as stated above, the remaining ETC or ETCs will have
    one year from the date of a state commission's approval of
    relinquishment to purchase equipment and/or construct facilities in
    order to serve the relinquishing carrier's customers. *See* 47
    U.S.C. § 214(e)(4).

[^66]: *See Federal-State Joint Board on Universal Service*, Order and
    Order on Reconsideration, CC Docket No. 96-45, 18 FCC Rcd 15090,
    15104, para. 33 (2003) (*Definitions Order*).

[^67]: *Id.*

[^68]: *Id.*

[^69]: *See* *infra* discussion at Part IV.

[^70]: *Petition of the State Independent Alliance and the Independent
    Telecommunications Group for a Declaratory Ruling that the Basic
    Universal Service Offering Provided by Western Wireless in Kansas Is
    Subject to Regulation as Local Exchange Service*, Memorandum Opinion
    and Order, WT-Docket No. 00-239, 17 FCC Rcd 14802 (2002) (*Western
    Wireless Kansas CMRS Order*).

[^71]: *Id.* at 14820, para. 34.

[^72]: *Definitions Order*, 18 FCC Rcd at 15103, para. 31.

[^73]: *Id.*

[^74]: OPASTCO Comments, Attachment at 35.

[^75]: *See Vermont Unicel ETC Order* at 12-13.

[^76]: *Id.* (\"RCC provides most cell sites with backup power to
    maintain the continuity of its service in the event its main power
    supply goes down. RCC uses batteries that provide between two to
    three hours of power backup. RCC also equips hub cell cites . . . or
    remote cell cites with additional power backup from a propane or
    diesel generator, which extends the power backup to at least 12
    hours. RCC maintains a large diesel generator at its switch location
    in Colchester, Vermont, that will provide up to two days of extended
    power backup before requiring refueling. The power backup facilities
    enable RCC to maintain its wireless network, including its 911
    service, even in the event of a sustained power outage. RCC
    demonstrated its ability to maintain its network during the 1998 ice
    storm, with its resultant extended power and
    landline-telephone-service outages, when RCC kept a majority of its
    cell sites and switch operational, served as the primary line of
    communications for public-safety personnel, and donated numerous
    cell phones to the National Guard, Red Cross and the State Police to
    ensure those organizations maintained critical lines of
    communications.\").

[^77]: *See Application of WWC Texas RSA Limited Partnership for
    Designation as an Eligible Telecommunications Carrier Pursuant to 47
    U.S.C. § 214(e) and PUC Subst. R. 26.418,* PUC Docket No. 22289,
    SOAH Docket No. 473-00-1167, Order at 25 (Tex. Pub. Util. Comm'n
    Oct. 30, 2000) (*Texas WWC ETC Order*).

[^78]: *See* 47 U.S.C. § 254(c).

[^79]: 47 U.S.C. § 254(b).

[^80]: *Vermont Unicel ETC Order* at 74.

[^81]: *Arizona Smith Bagley ETC Order* at 14 (finding that Smith
    Bagley's ETC designation application should be granted subject to
    the condition that the carrier submit consumer complaints arising
    from its offering as an ETC to the Arizona Commission's Consumer
    Service Division and provide a regulatory contact).

[^82]: *Vermont Unicel ETC Order* at 23-34; *Arizona Smith Bagley ETC
    Order* at 12-14.

[^83]: Western Wireless Reply Comments at 45-47; Rural Cellular
    Ass'n/Alliance of Rural CMRS Carriers Comments at 18.

[^84]: *See* 47 U.S.C. § 332(c)(3)*.* Additionally, section 332(c)(3) of
    the Act also states that "\[n\]othing in this subparagraph shall
    exempt providers of commercial mobile services (where such services
    are a substitute for land line telephone exchange service for a
    substantial portion of the communications within such State) from
    requirements imposed by a State commission on all providers of
    telecommunications services necessary to ensure the universal
    availability of telecommunications services at affordable rates." We
    note, however, that at this time, although they may reach this level
    in the future, commercial mobile services are not yet known to be a
    substitute for a substantial portion of communications in any state.

[^85]: 47 U.S.C. §§ 214, 254.

[^86]: *See, e.g.,* CenturyTel Reply Comments at 7-9; Nebraska Rural
    Indep. Cos. Comments at 30; OPASTCO Reply Comments at 27-28.

[^87]: *See, e.g.*, CenturyTel Reply Comments at 6-8; OPASTCO Reply
    Comments at 25-28; USTA Comments at 14.

[^88]: *See Federal-State Joint Board on Universal Service,* Report and
    Order, CC Docket No. 96-45, 12 FCC Rcd 8776, 8812-14 (1997) (*First
    Universal Service Report and Order*) (subsequent history omitted).
    Although the Commission\'s rules define \"local usage\" as \"an
    amount of minutes of use of exchange service, prescribed by the
    Commission, provided free of charge to end users,\" the Commission
    has not specified a number of minutes of use. *See* 47 C.F.R. §
    54.101(a)(2).

[^89]: *See TOPUC v. FCC*, 183 F.3d at 418.

[^90]: *See Definitions Order*, 18 FCC Rcd at 15096, para. 14.

[^91]: *Arizona Smith Bagley ETC Order* at 6.

[^92]: *Id.* at 7 (noting that a local incumbent LEC charged \$15.90 for
    a single residential access line but that this access provides a
    local calling area which is a small fraction of that being provided
    by Smith Bagley (SBI), and with most calls being toll, 30 minutes of
    toll calling will result in an approximate total charge of \$25.40
    for the wireline package as opposed to \$24.99 for the equivalent
    SBI offering).

[^93]: *Id.*

[^94]: 47 U.S.C. § 214(e)(2).

[^95]: *Id*. *See also TOPUC v. FCC,* 183 F.3d at 418.

[^96]: 47 U.S.C. § 214(e)(2).

[^97]: *See* *supra* para. 18.

[^98]: *See, e.g.,* Fred Williamson and Assocs. Comments at 19; OPASTCO
    Comments at 40-41.

[^99]: Western Wireless Comments, Attachment E at 7.

[^100]: *See generally Texas WWC ETC Order*. *See also* 47 U.S.C. § 254.

[^101]: *See Alaska Digitel ETC Order* at 12.

[^102]: *Id.* at 12-16.

[^103]: *See, e.g, Federal-State Joint Board on Universal Service;
    Western Wireless Corporation Petition for Designation as an Eligible
    Telecommunications Carrier for the Pine Ridge Reservation in South
    Dakota*, Memorandum Opinion and Order, CC Docket No. 96-45, 16 FCC
    Rcd 18133 (2001) (*Western Wireless Pine Ridge Order*); *see also
    Federal State Joint Board on Universal Service; RCC Holdings, Inc.
    Petition for Designation as an Eligible Telecommunications Carrier
    Throughout its Licensed Service Area In the State of Alabama*,
    Memorandum Opinion and Order, CC Docket No. 96-45, 17 FCC Rcd 23532
    (Wir. Comp. Bur. 2002) (*RCC Holdings Order*).

[^104]: *See Alaska Digitel ETC Order* at 14.

[^105]: *RCC Holdings Order,* 17 FCC Rcd at 23541, para. 24.

[^106]: *Id.*

[^107]: *Id.* at 23542-44, paras. 27-31.

[^108]: *Id*. at 23543-44, para. 30.

[^109]: *See, e.g.,* OPASTCO Comments at 41-42; USTA Comments at 11-14;
    Western Alliance Comments at 11-14.

[^110]: *See, e.g.,* OPASTCO Comments, Attachment A at 27-30.

[^111]: As used here, "high-cost support" means high-cost model support,
    high-cost loop support, safety net additive support, local switching
    support, long-term support, interstate access support, and
    interstate common line support.

[^112]: Line counts and support amounts for each study area served by
    rural carriers are published quarterly by the Universal Service
    Administrative Company (USAC).

[^113]: *See* *Section 214(e) Declaratory Ruling*, 15 FCC Rcd at 15174,
    para. 15. By this Recommended Decision, it is not the intent of the
    Joint Board to limit the discretion possessed by states and the
    Commission to review and rescind previous ETC determinations.

[^114]: *See Federal-State Joint Board on Universal Service*, Ninth
    Report and Order and Eighteenth Order on Reconsideration, CC Docket
    No. 96-45, 14 FCC Rcd 20432, 20482-83, para. 95 (1999) (*Ninth
    Report and Order*) (stating that accountability for the use of
    federal funds in the state ratemaking process is an appropriate
    mechanism to ensure that non-rural carriers use high-cost support
    for the provision, maintenance and upgrading of facilities and
    services for which the support is intended); *see also* *Rural Task
    Force Order*, 16 FCC Rcd at 11317-18, para. 187 (anticipating that
    states would take the appropriate steps to account for the receipt
    of high-cost support and ensure that federal support is being
    applied in a manner consistent with section 254).

[^115]: *Rural Task Force Order*, 16 FCC Rcd at 11317-18, para. 187.

[^116]: *See* Letter from David L. Sieradzki, Counsel for Western
    Wireless, to Marlene Dortch, FCC, dated Sept. 8, 2003 (Western
    Wireless Sept. 8 *ex parte*).

[^117]: *See Alaska Digitel ETC Order* at 18-19.

[^118]: *See Petition for Consent and Approval for Highland Cellular to
    be Designated as an Eligible Telecommunications Carrier, in Areas
    Served by Citizens Telecommunications Company of West Virginia,*
    Case No. 02-1453-T-PC, Recommended Decision at Conclusions of Law
    para. 30 (Pub. Serv. Comm'n of W.Va. Sept. 15, 2003).

[^119]: *See Minnesota* *Midwest Wireless ETC Order* at 9.

[^120]: We note that states are currently subject to annual
    certification requirements in order for ETCs operating within their
    jurisdictions to receive federal universal service support. *See* 47
    C.F.R. §§ 54.313, 54.314, 54.316.

[^121]: *See Section 214(e) Declaratory Ruling*, 15 FCC Rcd at 15174,
    para. 15.

[^122]: *See Alaska Digitel ETC Order* at 18-19.

[^123]: *See* 47 U.S.C. § 214(e)(5). "The term 'service area' means a
    geographic area established by a State commission (or the Commission
    under paragraph (6)) for the purpose of determining universal
    service obligations and support mechanisms."

[^124]: *Id.*

[^125]: *See Federal-State Joint Board on Universal Service*,
    Recommended Decision, CC Docket No. 96-45, 12 FCC Rcd 87, 179-80,
    paras. 172-74 (Jt. Bd. 1996) (*First Recommended Decision*).

[^126]: *First Universal Service Report and Order*, 12 FCC Rcd at
    8881-82, para. 189.

[^127]: *Id.* at 8880-81, para. 186-88. As required by Section 214(e)(5)
    of the Act, the rural service area redefinition rules require the
    state commission to take into account the Joint Board's
    recommendations cited above, and provide for approval of the service
    area redefinition by both the state and the Commission. *See* 47
    C.F.R. § 54.207.

[^128]: *See* 47 C.F.R. §§ 54.207(a), (c). The Commission has authority
    to propose a service area redefinition on its own motion under
    section 54.207(d) of the Commission's rules but such redefinition
    would not go into effect without the agreement of the relevant state
    commission. *See* 47 C.F.R. § 54.207(d).

[^129]: 47 C.F.R. § 54.207(c)(3). Under section 54.207(c)(1), a state
    may petition the Commission for a redefinition or a party may
    petition the Commission with the state's proposal to redefine. The
    petition must contain: (i) the definition proposed by the state
    commission; and (ii) the state commission's ruling or other official
    statement presenting the state commission's reason for adopting its
    proposed definition, including an analysis that takes into account
    the recommendations of any Federal-State Joint Board convened to
    provide recommendations with respect to the definition of a service
    area served by a rural carrier. *See* 47 C.F.R. § 54.207(c)(1).

[^130]: *See* 47 C.F.R. § 54.207(c)(3)(i); 47 U.S.C. § 214(e)(5). Under
    section 54.207(e) of the Commission's rules, the Commission
    delegates its authority under section 54.207(c) to the Chief of the
    Wireline Competition Bureau. 47 C.F.R. § 54.207(e).

[^131]: 47 C.F.R. § 54.207(c)(3)(ii).

[^132]: *First Universal Service Report and Order*, 12 FCC Rcd at 8881,
    para. 188.

[^133]: By its rules the Commission has concluded that the Joint Board
    referred to in Section 214(e)(5) of the Act is the Federal-State
    Joint Board on Universal Service. We endorse this interpretation. We
    do not believe that the Act requires a special Joint Board to be
    convened every time there is a request for rural service area
    redefinition. Such an interpretation would obviously be
    administratively unworkable.

[^134]: *First Universal Service Report and Order*, 12 FCC Rcd at
    8880-81, para. 187.

[^135]: *See, e.g., Petition of the Minnesota Public Utilities
    Commission for Agreement to Redefine the Service Areas of Twelve
    Minnesota Rural Telephone Companies,* CC Docket No. 96-45, filed on
    August 7, 2003 (*Minnesota Redefinition Petition*); *Petition by the
    Colorado Public Utilities Commission, Pursuant to 47 C.F.R. §
    54.207(c), for Commission Agreement in Redefining the Service Area*
    *of Wiggins Telephone Association, A Rural Telephone Company,* CC
    Docket No. 96-45, filed on May 30, 2003; *RCC Holdings Order*, 17
    FCC Rcd at 23547-48, paras. 38-41.

[^136]: *Id. See also Federal-State Joint Board on Universal Service,
    Virginia Cellular, LLC Petition for Designation as an Eligible
    Telecommunications Carrier in the Commonwealth of Virginia*,
    Memorandum Opinion and Order, CC Docket No. 96-45, FCC 03-338 (rel.
    Jan. 22, 2004), at paras. 41-42 (*Virginia Cellular ETC Order*).

[^137]: *See, e.g., RCC Holdings Order¸* 17 FCC Rcd at 23544, para. 31;
    *Minnesota Redefinition Petition* at 11-12.

[^138]: *See* *Rural Task Force Order*, 16 FCC Rcd at 11302, para. 145.

[^139]: *Id.*

[^140]: *Id*. at 11308-09, para. 164. The Commission stated that it
    believed that the level of disaggregation should be considered to
    ensure that competitive neutrality is maintained between incumbents
    and competitive ETCs. *Id*.

[^141]: 47 C.F.R. § 54.315(d). The rules establishing procedures for
    disaggregation and targeting of support provided rural carriers
    three choices or "paths." Under Path 1 a carrier could choose not to
    disaggregate support. Under Path 2 a carrier could seek to
    disaggregate subject to state commission approval. Under Path 3 a
    carrier could file a self-certified disaggregation plan with the
    state commission. Such self-certified plans were effective upon
    filing. *See* 47 C.F.R. § 54.315. We are aware that most rural
    carriers voluntarily chose Path 1 and did not disaggregate support.
    *See* USAC Universal Service Projections for the 4th Quarter 2002
    (Aug. 2, 2002), Appendix HC19. Some commenters have argued that
    rural carriers should be allowed another round of self-certified
    disaggregation if there is a change in the basis of high-cost
    support. *See, e.g*., OPASTCO Comments at 48-51. We do not believe
    another round of self-certification is necessary since the
    Commission's rules already allow rural carriers, state commissions
    or other interested parties to seek subsequent modifications of
    disaggregation plans. *See* 47 C.F.R. §§ 54.315(b)(4), 54.315(c)(5)
    and 54.315(d)(5).

[^142]: *See, e.g., RCC Holdings Order*, 17 FCC Rcd at 23546, para. 35;
    *Virginia Cellular ETC Order*, FCC 03-338 at paras. 32-33.

[^143]: *See* *generally Virginia Cellular ETC Order*, FCC 03-338 at
    para. 41(outlining procedures for redefinition of rural service
    areas).

[^144]: As discussed in Section V.B. below, we recommend that USAC be
    delegated authority to develop uniform standards for support
    disaggregation maps in electronic format. The ready availability of
    such support disaggregation maps should assist in the analysis of
    the potential for cream skimming in any particular area.

[^145]: As discussed below, if the Commission were to adopt the "hold
    harmless" approach to avoid reductions in the amount of high-cost
    support flowing to rural areas, the per-line support would not be
    capped for incumbent carriers. *See infra* para. 75. We also
    recommend that the Commission seek comment on whether to restate
    support for non-rural carriers, and on whether transitional measures
    should be adopted for support received by competitive ETCs operating
    as of the release date of this Recommended Decision. *See infra*
    paras. 76, 87.

[^146]: *Alenco Communications, Inc. v. FCC*, 201 F.3d 601, 621 (5th
    Cir. 2001) (*Alenco v. FCC*) ("The purpose of universal service is
    to benefit the customer, not the carrier.").

[^147]: *See* *infra* paras. 81-83.

[^148]: *First Universal Service Report and Order*, 12 FCC Rcd at
    8829-30, paras. 95-96.

[^149]: *See First Recommended Decision*, 12 FCC Rcd at 132-33, para.
    89.

[^150]: *Id*.

[^151]: *First Universal Service Report and Order*, 12 FCC Rcd at
    8829-30, paras. 95-96.

[^152]: *Id*. In the *First Universal Service Report and Order*, the
    Commission concluded that, ultimately, universal service support
    should be based on the forward-looking economic costs of
    constructing and operating the network used to provide the supported
    services, rather than embedded costs. The Commission indicated that,
    as it developed a forward-looking methodology, it would evaluate
    whether it was appropriate to continue supporting multiple
    connections for residences and businesses. *Id*. at 8829-30, 8927,
    8937, paras. 95-96, 274, 296.

[^153]: *Id*. at 8934-37, paras. 291-95. The Commission established
    timeframes for transitioning carriers to a forward-looking cost
    methodology. Recognizing that, compared to non-rural LECs, rural
    LECs generally serve fewer subscribers, serve more sparsely
    populated areas, and generally do not benefit as much from economies
    of scale and scope, the Commission established a more gradual
    transition period for rural LECs. *Id*. at 8936, para. 294.

[^154]: *See Ninth Report and Order* 14 FCC Rcd at 20439; *Federal-State
    Joint Board on Universal Service, Forward-Looking Mechanism for
    High-Cost Support for Non-Rural LECs*, Tenth Report and Order, CC
    Docket Nos. 96-45, 97-160, 14 FCC Rcd 20156 (1999) (*Tenth Report
    and Order*), *affirmed*, *Qwest Corp. v. FCC*, 258 F.3d 1191 (10th
    Cir. 2001). The forward-looking mechanism for non-rural carriers
    became effective on January 1, 2000. *See Ninth Report and Order*,
    14 FCC Rcd at 20439, para. 11. The Commission recently modified the
    non-rural high-cost support mechanism and adopted measures to induce
    states to ensure reasonably comparable rural and urban rates in
    areas served by non-rural carriers. *See Tenth Circuit Remand
    Order*, FCC 03-249.

[^155]: *See Rural Task Force Order*, 16 FCC Rcd at 11246, para. 1. In
    the *First Universal Service Report and Order*, the Commission
    determined that federal high-cost support should be based on
    forward-looking economic costs, but that non-rural carriers would
    transition to forward-looking mechanisms first. *First Universal
    Service Report and Order*, 12 FCC Rcd at 8899, 8935-36, paras. 224,
    293-94. Subsequently, the Joint Board established the Rural Task
    Force to assist in developing a forward-looking mechanism
    appropriate for rural carriers. The Rural Task Force recommended
    modifying the existing high-cost loop support mechanism for a
    five-year period, rather than attempting to modify the non-rural
    mechanism so that it could be applied to rural carriers. The Joint
    Board recommended that the Commission use the Rural Task Force
    recommendation as a foundation for implementing a universal service
    plan for rural carriers for five years, and undertake a
    comprehensive review of the high-cost support mechanisms for rural
    and non-rural carriers to ensure that both mechanisms function
    efficiently and in a coordinated action. *See Federal-State Joint
    Board on Universal Service*, Recommended Decision, CC Docket No.
    96-45, 16 FCC Rcd 6153, 6159, 6162-63, paras. 13, 21 (Jt. Bd. 2000).

[^156]: *See Rural Task Force Order*, 16 FCC Rcd at 11248-49, paras.
    8-10.

[^157]: *Id.* at 11248, para. 8.

[^158]: *Id.* at 11294, para. 123. The proposed per-line cap would have
    applied to high-cost loop support. *Id*.

[^159]: *Id*. at 11294, para. 125.

[^160]: *Id.* at 11294, 11325-26, paras. 123-24, 207 ("\[A\]s an
    incumbent "loses" lines to a competitive eligible telecommunications
    carrier, the incumbent must recover its fixed costs from fewer
    lines, thus increasing its per-line costs. With higher per-line
    costs, the incumbent would receive greater per-line support, which
    would also be available to the competitive eligible
    telecommunications carrier for each of the lines that it serves.
    Thus, a substantial loss of an incumbent's lines to a competitive
    eligible telecommunications carrier could result in excessive fund
    growth.").

[^161]: *Id.* at 11297-98, para. 131.

[^162]: 47 U.S.C. § 254(b)(3).

[^163]: *Id.*; *see also id.* at § 254(b)(2) ("Access to advanced
    telecommunications and information services should be provided in
    all regions of the Nation.").

[^164]: *Id.* at § 254(c); *see id.* at § 214(e)(1)(A).

[^165]: *See Rural Task Force Order*, 16 FCC Rcd at 11322, para. 200
    ("The public switched telephone network is not a single-use network.
    Modern network infrastructure can provide access not only to voice
    services, but also to data, graphics, video, and other services.");
    *see also Appropriate Framework for Broadband Access to the Internet
    over Wireline Facilities, Universal Service Obligations of Broadband
    Providers, Computer III Further Remand Proceedings: Bell Operating
    Company Provision of Enhanced Services; 1998 Biennial Regulatory
    Review - Review of Computer III and ONA Safeguards and
    Requirements*, Notice of Proposed Rulemaking, CC Docket Nos. 02-33,
    95-20, 98-10, 17 FCC Rcd 3019, 3025-26, para. 11 n.19 (2002) ("With
    the addition of certain electronics to the telephone line, carriers
    can transform the copper loop that already provides voice service
    into a conduit for high-speed traffic.").

[^166]: *See First Recommended Decision*, 12 FCC Rcd at 132-33, para. 89
    ("We conclude that support for a single residential connection will
    permit a household complete access to telecommunications and
    information services.").

[^167]: *See, e.g.,* Idaho Tel. Ass'n Comments at 9; OPASTCO Reply
    Comments at 21; Texas Statewide Tel. Coop. Comments at 11. Some
    commenters challenge the assumption that rates for second lines will
    rise if support is limited to single connections. *See, e.g.,* AT&T
    Comments at 16 ("The costs of digging the trench or erecting the
    poles must be incurred fully in order to provide first-line service.
    There are few incremental costs to providing additional
    connections."); NASUCA Reply Comments at 14-15 ("Given the
    architecture of both wireline and wireless facilities, it is very
    likely that the cost of subsequent connections by either type of
    provider is much lower than the initial connection. Second lines
    provided by a single firm to a single household or business tend to
    be more profitable than the initial line. . . . Therefore, second
    lines may be provided at an affordable price in rural areas even
    without support, obviating concerns about increases to the price of
    second lines."); *see also* GCI Comments at 68-69 ("The vast
    majority of multiple connections provided today -- the overwhelming
    bulk of the 148 million CMRS handsets -- are not subsidized. . . .
    Moreover, studies have shown little if any difference in pricing
    between rural and urban markets.").

[^168]: *See* OPASTCO Comments at 6 ("many rural \[incumbent\] LECs
    provide DSL services, which provide a substitute for the second line
    a customer may have purchased to use for dial-up Internet access.").
    Commission data indicate that most asymmetric DSL connections are
    provided by LECs, which generally provision the service over the
    same line as their voice service. *See* Industry Analysis and
    Technology Division, Wireline Competition Bureau, *High-Speed
    Services for Internet Access: Status as of December 31, 2002* at
    Tbl. 5 (rel. June 10, 2003), available at
    [www.fcc.gov/wcb/stats](http://www.fcc.gov/wcb/stats) (high-speed
    asymmetric DSL technologies in service increased by 27% during the
    second half of 2002, from 5.1 million to 6.5 million lines).

[^169]: *See, e.g.,* Western Wireless Comments at 10-11, Attachment B at
    3-7.

[^170]: *See* AT&T Comments at 10-11 ("if wireless functionality were
    added to the characteristics of a supported service in Section
    54.101(a), non-wireless carriers (including \[incumbent\] LECs'
    wireline operations) could no longer be ETCs because they would not
    be able to provide a component of the supported services.").

[^171]: *See generally Facilitating the Provision of Spectrum-Based
    Services to Rural Areas and Promoting Opportunities for Rural
    Telephone Companies to Provide Spectrum-Based Services*, Notice of
    Inquiry, WT Docket No. 02-381, 17 FCC Rcd 25554 (2003).

[^172]: *See* 47 U.S.C. §§ 254(b)(5), 254(e).

[^173]: *Tenth Circuit Remand Order*, FCC 03-239 at paras. 36-37 ("We
    also agree with the Joint Board that the principle of sufficiency
    encompasses the idea that the amount of support should be only as
    large as necessary to achieve the relevant statutory goal. Because
    support is ultimately recovered from customers, collecting more
    support than is necessary to benefit certain customers would
    needlessly burden all customers."); *see also Federal-State Joint
    Board on Universal* Service, Second Recommended Decision, CC Docket
    No. 96-45, 13 FCC Rcd 24744, 24746, para. 3 (Jt. Bd. 1998) (*Second
    Recommended Decision*).

[^174]: *Alenco v. FCC*, 201 F.3d at 620.

[^175]: *See infra* paras. 67-68.

[^176]: OPASTCO Reply Comments at 20.

[^177]: *See infra* paras. 72-76. We note, however, that one proposal
    discussed below would "hold-harmless" incumbent carriers from any
    loss of universal service support. *See infra* para. 75.

[^178]: *Alenco v. FCC*, 201 F.3d at 620; *see also id.* at 623 ("the
    Commission reasonably construed the predictability principle to
    require only predictable *rules* that govern distribution of the
    subsidies, and not to require predictable *funding amounts*. Indeed,
    to construe the predictability principle to require the latter would
    amount to protection from competition and thereby would run contrary
    to one of the primary purposes of the Act.").

[^179]: *See* 47 U.S.C. §§ 214(e)(1), (2). As discussed in Section II
    above, we recommend establishing rigorous and fact-intensive
    guidelines for public interest determinations required in ETC
    applications.

[^180]: *See Alenco v. FCC*, 201 F.3d at 620 ("So long as there is
    sufficient and competitively-neutral funding to enable all customers
    to receive basic telecommunications services, the FCC has satisfied
    the Act and is not further required to ensure sufficient funding of
    every local telephone provider as well."). Congress thought that
    competition and new technologies would reduce, not increase, the
    overall need for universal service support by lowering costs. *See*
    S. Rep. No. 23, 104^th^ Cong., 1st Sess. 26 ("The Committee expects
    that competition and new technologies will greatly reduce the actual
    cost of providing universal service over time, thus reducing or
    eliminating the need for universal service support mechanisms as
    actual costs drop to a level that is at or below the affordable rate
    for such service in an area . . .") (cited in *Tenth Circuit Remand
    Order*, FCC 03-249 at para. 77 n.296).

[^181]: 47 U.S.C. § 254(f).

[^182]: *See* NASUCA Comments at 5 (current rules "allow each new
    competitive entrant to impose incremental costs on all existing
    telecommunications customers").

[^183]: Based on USAC data, 2 competitive ETCs received just over
    \$500,000 in high-cost support in 1999, 4 competitive ETCs received
    \$1.5 million in 2000, 25 competitive ETCs received \$17 million in
    2001, and 64 competitive ETCs received \$47 million in 2002. In
    2003, 109 competitive ETCs received approximately \$131.5 million in
    high-cost support. Based on USAC quarterly projections, support for
    competitive ETCs will increase from \$62.9 million in the fourth
    quarter of 2003, to \$111.5 million in the second quarter of 2004,
    an increase of 77%. *See* Federal Universal Service Support
    Mechanisms Fund Size Projections and Contribution Base for the
    Second Quarter 2004, Appendix HC 18-21 (Universal Service
    Administrative Company, Jan. 31, 2004). We note that USAC quarterly
    projections include ETC applicants that have filed line count data
    with USAC, but are not yet designated as ETCs.

[^184]: One study estimates that 3 to 5 percent of wireless customers
    use their wireless phones as their only phone. *See Implementation
    of Section 6002(B) of the Omnibus Budget Reconciliation Act of 1993,
    Annual Report and Analysis of Competitive Market Conditions With
    Respect to Commercial Radio Services*, Seventh Report, 17 FCC Rcd
    12985, 12989-90, para. 33 (*Seventh Annual CMRS Report*). *See also*
    AT&T Comments at 6-7; Sprint Comments at 7-8. There also is evidence
    in the record reflecting that some customers are replacing wireline
    phone *usage* with wireless service, and relying on wireless as
    their "primary" service. *See* OPASTCO Comments at 5; Smith Bagley
    Comments at 7; Texas Statewide Tel. Comments at 3; Western Wireless
    Comments, Attachment B at 5-6, Attachment C at 1-7.

[^185]: *See, e.g.,* Independent Tel. & Telecomms. Alliance Reply
    Comments at 2-3; NASUCA Comments at 1-3; NTCA Comments at 10;
    OPASTCO Comments at 9-11. *See supra* note 183.

[^186]: *See, e.g.*, AT&T Comments at 20-21 ("as a \[competitive\] ETC
    enters and takes lines from an \[incumbent\] LEC, total High Cost
    support to the study area *increases* because the \[incumbent\]
    LEC's support does not fall to offset the \[competitive\] ETC's
    support. . . . The amount of support increases to even higher levels
    because there is a subsequent up-tick in \[competitive\] ETC support
    based on the \[incumbent\] LEC's now-increased effective per-line
    support."); *see also Rural Task Force Order*, 16 FCC Rcd at
    11294-95, para. 125.

[^187]: *First Universal Service Report and Order*, 12 FCC Rcd at
    8829-30, paras. 95-96. *See also* *supra* paras. 59-60.

[^188]: *See Rural Task Force Order*, 16 FCC Rcd at 11246, 11248-49,
    paras. 1, 8-11.

[^189]: *See, e.g.*, Centennial Reply Comments at 2-3; CTIA Reply
    Comments at 2-4; Nextel Comments at 2, 6-8.

[^190]: *See* *infra* paras. 94-97.

[^191]: *See, e.g.,* ACS-F Comments at 7, 12-13; AT&T Comments at 22;
    GCI Comments at 41-43; OPASTCO Comments at 9-11.

[^192]: *See, e.g.,* NASUCA Comments at 8-9 ("Under current rules,
    states have something of a conflict of interest. That is, here may
    be a bias toward granting of ETC status because, when new ETCs are
    created, more federal dollars flow into the state. Conversely, there
    is a disincentive for states to ensure that the public interest is
    fulfilled on a national basis because the benefit of additional
    federal funds may outweigh state regulators' concerns about the
    sustainability of the federal program.").

[^193]: *See First Universal Service Report and Order*, 12 FCC Rcd at
    8801-02, paras. 46-48 (pursuant to section 254(b)(7), adopting the
    principle that federal support mechanisms should be competitively
    neutral, neither unfairly advantaging nor disadvantaging particular
    service providers or technologies).

[^194]: *See* AT&T Comments at 15-16; NASUCA Comments at 6.

[^195]: *See* GCI Comments at 38 ("In an unsubsidized market, an
    \[incumbent\] LEC loses all of the revenue associated with service
    to a customer when it loses that customer to a competitor. By
    contrast, in an area receiving high cost support, although the
    \[incumbent\] LEC loses the end user revenue associated with that
    customer, it *retains* the high cost support associated with the
    facilities that were formerly used to serve that customer, because
    its high cost support does not decline when it loses the line.");
    *see also* AT&T Comments at 15-16. We note, however, that if the
    Commission adopts the "hold-harmless" approach discussed below,
    incumbent carriers would not lose high-cost support upon capture of
    primary lines by a competitive ETC. *See infra* para. 75.

[^196]: *See Rural Task Force Order*, 16 FCC Rcd at 11294-95, para. 125;
    AT&T Comments at 22 ("Over the long term, these revenue guarantees
    give \[competitive\] ETCs a windfall by increasing the amount of
    \[competitive\] ETC support per line as ILEC per-line support
    increases. This allows \[competitive\] ETCs to enjoy increased
    revenue per connection, without any work or ingenuity on their
    part."); *see also* OPASTCO Comments at 13-14 (arguing that
    competitive ETCs receive a windfall under the current rules).

[^197]: *See generally* Western Wireless Reply Comments, Attachment B
    (arguing that any distinction based on which connection is the
    "first line" would operate to benefit incumbent LECs and would not
    be competitively neutral because being "first" should not provide a
    carrier with "regulatorily conferred advantages.").

[^198]: In this regard, we note that Western Wireless cites studies
    indicating that "more and more consumers view their wireless phones
    as their 'primary' voice services" because of the service attributes
    offered by wireless carriers. Western Wireless Comments, Attachment
    J at 4; *see id.* at Attachment B at 4-6 (providing data to support
    contention that subscribers are "substituting wireless for
    traditional wireline service").

[^199]: *See* Western Wireless Comments at 18.

[^200]: *See* Western Wireless Comments, Attachment J at 7-8.

[^201]: *See* 47 C.F.R §§ 36.601, *et seq.* (high-cost loop support),
    54.301 (local switching support), 54.303 (long term support),
    54.901, *et seq.* (interstate common line support). Interstate
    access support also is available to rural carriers subject to price
    cap regulation of their interstate access rates. *See* 47 C.F.R. §
    54.801, *et seq.* The Joint Board does not recommend limiting the
    scope of interstate access support at this time, because the
    interstate access support methodology prevents support increases due
    to competitive ETC entry. *See* AT&T Comments at 13 ("Because
    \[interstate access support\] is subject to a hard cap, it cannot be
    the source of uncontrolled High Cost Support growth.").

[^202]: *See* AT&T Comments at 13.

[^203]: As discussed below, we recommend that the Joint Board and the
    Commission consider possible modifications to the basis of support
    for all ETCs when they undertake the "comprehensive review of the
    high cost support mechanisms for rural and non-rural carriers as a
    whole to ensure that both mechanisms function efficiently and in a
    coordinated fashion" in the Rural/Non-Rural Review proceeding. Our
    recommendations do not impact or prejudge anything that the Joint
    Board and Commission may do in the future in examining the basis of
    support for all ETCs in all areas.

[^204]: Several commenters argue that providing support to competitive
    carriers based on the incumbent LEC's costs creates arbitrage
    opportunities, because competitive carriers generally have lower
    costs. *See* *e.g.*, Alaska Tel. Ass'n Reply Comments at 18-19;
    CenturyTel Comments at 32-39; South Dakota Telecomms. Ass'n Reply
    Comments 4-6. To the extent this problem exists in some areas,
    increasing the amount of per-line support available to competitive
    carriers would exacerbate it.

[^205]: We recommend that the Commission seek comment on whether to
    phase out the lump sum available to incumbent carriers, and, if so,
    over what time period.

[^206]: *See, e.g., Multi-Association Group (MAG) Plan for Regulation of
    Interstate Services of Non-Price Cap Incumbent Local Exchange
    Carriers and Interexchange Carriers, Federal-State Joint Board on
    Universal Service, Access Charge Reform for Incumbent Local Exchange
    Carriers Subject to Rate-of-Return Regulation, Prescribing the
    Authorized Rate of Return From Interstate Services of Local Exchange
    Carriers*, Second Report and Order and Further Notice of Proposed
    Rulemaking in CC Docket No. 00-256, Fifteenth Report and Order in CC
    Docket No. 96-45, Report and Order in CC Docket No. 98-77, Report
    and Order in CC Docket 98-166, 16 FCC Rcd 19613, 19620, 19668-69,
    paras. 12, 130-31 (2001) (*MAG Order*), *recons. pending; Rural Task
    Force Order*, 16 FCC Rcd at 11247, paras. 4-5*.*

[^207]: For example, if an incumbent rural ETC receives \$10,000 in
    high-cost support based on its embedded costs for that study area,
    and provides supported services to 9,000 first lines and 1,000
    additional lines, it receives high-cost support that equates to
    \$1.00 per line under the current rules. Under our recommended
    approach, that incumbent rural ETC would continue to receive a total
    of \$10,000 in high-cost support based on its embedded costs, but
    restating its support in terms of first lines would translate into
    \$1.11 effective per-first line support.

[^208]: We believe that such increases likely would be minimal due to
    trends such as the provision of voice and data services over a
    single digital subscriber line. *See* OPASTCO Comments at 6-7. Both
    rural carriers and competitive ETCs would be eligible for additional
    support for primary service to new customers previously unserved by
    any ETC. *See* NASUCA Comments at 6.

[^209]: *See e.g.,* NASUCA Reply Comments at 25-26 (asserting that
    rebasing "will reduce the impact on the smaller rural incumbent
    LECs" of a single-line limitation).

[^210]: We also recommend that the Commission seek comment on whether
    transitional measures should be adopted for support paid to
    competitive ETCs operating as of the release date of this
    Recommended Decision. *See infra* para. 87.

[^211]: *See Rural Task Force Order*, 16 FCC Rcd at 11293, para. 120;
    *see also supra* para. 61.

[^212]: *See supra*, para. 61, n.158. We, however, recommend a broader
    cap on per-line support. *See* AT&T Comments at 23 (advocating a cap
    on high-cost loop support (HCLS), local switching support (LSS),
    long-term support (LTS), and interstate common line support (ICLS)).

[^213]: *See* *supra* para. 75.

[^214]: *See Rural Task Force Orde*r, 16 FCC Rcd at 11294-95, para. 125;
    *see also* AT&T Comments at 17-18 ("an \[incumbent\] LEC will only
    lose support under HCLS, LSS and ICLS to the extent that its study
    areas costs decline, irrespective of the number of lines served.").

[^215]: *See Rural Task Force Order*, 16 FCC Rcd at 11294-95, para. 125;
    AT&T Reply Comments at 17-18; GCI Comments at 36-38.

[^216]: *See Rural Task Force Order*, 16 FCC Rcd at 11294-97, paras.
    123-130; *see also supra,* para. 61.

[^217]: *See supra* para. 67; *Rural Task Force Order*, 16 FCC Rcd at
    11326, para. 209.

[^218]: *See Rural Task Force Order*, 16 FCC Rcd at 11294, para. 123
    ("the purpose of this proposal is to prevent excessive fund growth
    in the universal service fund as a result of an incumbent carrier's
    loss of lines to a competitive \[ETC\]."). The Commission concluded
    that the likelihood of such growth occurring in the near future was
    speculative because, among other things, it would occur "only if a
    competitive \[ETC\] captures subscriber lines from an incumbent, not
    if it adds new lines." *Id.* at 11295-96, para. 126.

[^219]: *See Rural Task Force Order*, 16 FCC Rcd at 11266, para. 48.

[^220]: *Id*. at 11295, para. 126.

[^221]: *See* AT&T Comments at 23 n.57.

[^222]: Opponents argue, among other things, that limiting the scope of
    high-cost support would require complex new rules to define
    "primary" lines, require costly tracking of primary lines, give rise
    to consumer gaming and a new type of carrier "slamming," and intrude
    on consumer privacy. *See, e.g.,* Alabama Rural LECs Reply Comments
    at 9; Centennial Reply Comments at 12; Fred Williamson and Assocs.
    Comments at 26-27.

[^223]: *See, e.g.,* AT&T Reply Comments at 12-13; GCI Comments at 69;
    NASUCA Comments at 6-7; *see also* NASUCA Reply Comments at 13
    ("None of the commenters' concerns appear to be without a readily
    available remedy.").

[^224]: NASUCA Comments at 7 (asserting that LECs are currently required
    to distinguish between primary and other lines for assessing
    subscriber line charges (SLCs) and allowing Lifeline support, and
    noting that "\[w\]hen equal access and intraLATA presubscription
    began, every customer had to make new choices that were more
    complicated than a selection of what firm provides the primary
    line."). Opponents argue that difficulties in administering a
    primary/non-primary line distinction for price cap carriers' SLC
    rates would be exacerbated for small rural carriers in a
    multi-carrier environment. *See e.g.,* OPASTCO Comments at 35-37.

[^225]: *See* NASUCA Comments at 6 ("The primary line should be
    designated by each customer with more than one line, and carriers
    should be free to compete for the designation as 'primary.' The
    Commission should allow a reasonable transition period within which
    consumers could exercise their choice if they have more than one
    line or if they are served by more than one ETC. However, the
    Commission will have to devise a system to deal with customers who
    fail to indicate a choice by the end of the transition period. One
    way to determine the primary line would be to designate the initial
    \[incumbent\] LEC line as the default primary connection. Another
    alternative is to require a ballot to be submitted by every customer
    with multiple connections, which entails more administrative burden.
    While the default assumption would be that a single address
    represents a single household, there should be flexibility to allow
    a customer to rebut that presumption by submitting contrary
    information to the carrier."); *see also* Western Wireless Comments,
    Attachment J at 6-7 (advocating use of vouchers or "phone stamps" as
    a means of implementing a primary connection restriction with
    consumer choice)..

[^226]: *Alenco v. FCC*, 201 F.3d at 621 ("The purpose of universal
    service is to benefit the customer, not the carrier.").

[^227]: NASUCA Comments at 6.

[^228]: *See, e.g.,* Rural Cellular Ass'n/Alliance of Rural CMRS
    Carriers Comments, Exhibit 1 at 20; Letter from Karen Brinkman,
    Counsel for CenturyTel Inc., to Marlene Dortch, FCC, dated Dec. 18,
    2003 (CenturyTel Dec. 18 *ex parte*)

[^229]: *See* 47 U.S.C. § 214(e)(2).

[^230]: *See, e.g.,* OPASTCO Comments at 38-39; MUST Comments at 36;
    Townes et al. Comments at 8-9; *see also* AT&T Comments at 24-27;
    SBC Comments at 16-17.

[^231]: *See* NASUCA Reply Comments at 10-11. NASUCA argues that
    carriers can charge averaged rates, and that states can provide
    support for secondary connections if they so choose. *See id.* at
    13-14, 22-23.

[^232]: *See* AT&T Comments at 24-27.

[^233]: Under the Regulatory Flexibility Act, the term "small business"
    has the same meaning as the term "small business concern" under the
    Small Business Act. *See* 5 U.S.C. § 601(3) (incorporating by
    reference the definition of "small business concern" in the Small
    Business Act, 15 U.S.C. § 632). 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 Small Business Administration. 15 U.S.C. § 632.

[^234]: *See, e.g., Access Charge Reform, Price Cap Performance Review
    for Local Exchange Carriers, Transport Rate Structure and Pricing,
    End User Common Line Charges*, First Report and Order, CC Docket
    Nos. 96-262, 91-213, 95-72, 12 FCC Rcd 15982, 16005, paras. 58-60
    (1997) (*Access Charge Reform Order*) (subsequent history omitted)
    (concluding that higher SLC caps were warranted for such users).

[^235]: *See* *e.g.,* Idaho Tel. Ass'n Comments at 9; OPASTCO Comments
    at 37-38; USTA Comments at 6; Washington Commission Comments at 15.

[^236]: Washington Commission Comments at 15-16. *See also* OPASTCO
    Comments at 37.

[^237]: *See supra* para. 76. *See also* AT&T Comments at 12-16.

[^238]: In Texas, for example, lines eligible for intrastate support are
    currently limited to all flat rate residential lines and the first
    five flat rate single-line business lines at the business customer's
    location within the state of Texas. *See* Texas Commission Comments
    at 10.

[^239]: *See e.g.,* ACS-F Reply Comments 9-12.

[^240]: 47 C.F.R. § 54.307(a)(2). *See also* GCI Comments at 58-61
    (noting that "the Commission rejected embedded costs as a measure of
    the \[incumbent\] LEC's true economic costs for the purposes of
    setting UNE prices based on costs").

[^241]: *See* ACS-F Comments at 13-17; NTCA Comments at 13; OPASTCO
    Comments at 18-22.

[^242]: *See* 47 C.F.R. § 54.307(a)(2).

[^243]: *See, e.g.,* Idaho Tel. Ass'n Comments at 9; OPASTCO Comments at
    31-33; Texas Statewide Tel. Coop. Comments at 11.

[^244]: *See e.g.*, *Federal-State Joint Board on Universal Service*,
    Thirteenth Report and Order and Further Notice of Proposed
    Rulemaking, CC Docket No. 96-45, 15 FCC Rcd 24422 (2000)
    (*Thirteenth Report and Order*) (phasing down interim hold-harmless
    support for non-rural carriers).

[^245]: *See* NASUCA Reply Comments at 21-33; SBC Comments at 14-16.

[^246]: *Rural Task Force Order*, 16 FCC Rcd at 11310, para. 169; *see
    also Tenth Circuit Remand Order*, FCC 03-249 at para. 25.

[^247]: *See First Universal Service Report and Order*, 12 FCC Rcd at
    8899, para. 224; *see also First Recommended Decision*, 12 FCC Rcd
    at 230-32.

[^248]: *First Universal Service Report and Order*, 12 FCC Rcd at 8899,
    para. 224; *see also First Recommended Decision*, 12 FCC Rcd at 230,
    para. 270.

[^249]: *See First Universal Service Report and Order*, 12 FCC Rcd at
    8899, para. 224

[^250]: *First Universal Service Report and Order*, 12 FCC Rcd at 8935,
    para. 292.

[^251]: *Id.* at 8934-37, paras. 291-95.

[^252]: *Id*. at 8937-45, paras. 297-313.

[^253]: *Id*. at 8934, 8944, paras. 291, 311.

[^254]: *Id*. at 8933, 8945, paras. 288, 313.

[^255]: *Id*. at 8933, para. 289.

[^256]: *Id*. at 8945, para. 313. It does not appear that the Commission
    considered the alternative of requiring competitive ETCs to submit
    *embedded* cost studies. This is not surprising given the emphasis
    in the *First Universal Service Report and Order* on eventually
    basing support for all carriers on forward-looking economic cost.

[^257]: *Rural Task Force Order*, 16 FCC Rcd at 11310, para. 168.

[^258]: *Id*. at 11310, para. 169.

[^259]: *Id*.

[^260]: *Id*.

[^261]: *Referral Order*, 17 FCC Rcd at 22645-46, para. 7.

[^262]: *Id*.

[^263]: *Joint Board Portability-ETC Public Notice*, 18 FCC Rcd at
    1948-51, paras. 15-23.

[^264]: *Id*. at 1948-50, paras. 16, 18-19.

[^265]: *Tenth Circuit Remand Order*, FCC 03-249 at para. 25.

[^266]: *Referral Order*, 17 FCC Rcd at 22645, para. 7 (asking Joint
    Board \"to review the methodology for calculating support for ETCs
    in competitive study areas.").

[^267]: In developing a long-term universal service plan, the Commission
    said that it intends "to consider all options, including the use of
    forward-looking costs, to determine appropriate support levels for
    both rural and non-rural carriers." *Rural Task Force Order*, 16 FCC
    Rcd at 11310, para. 170. The Commission also emphasized that the Act
    does not require separate rural and non-rural support mechanisms.
    *Id.* at 11310, para. 171 n.402. Although the Commission found that
    a distinct rural mechanism, based on embedded cost, was appropriate
    for the five-year period, it expressed its belief "that there may be
    significant problems inherent in indefinitely maintaining separate
    mechanisms based on different economic principles." *Id.* at 11311,
    para. 173.

[^268]: Many commenters agree that the basis of support for competitive
    ETCs is \"inextricably linked\" with broader issues in the
    Rural/Non-Rural Review proceeding. *See, e.g.,* Western Wireless
    Comments at 4 (\"the issues raised to date in this proceeding are
    inextricably linked with the broader issues involved with the
    forthcoming 'comprehensive review of the high-cost support
    mechanisms for rural and non-rural carriers as a whole to ensure
    that both mechanisms function efficiently and in a coordinated
    fashion,' a process that the Commission has stated it intends to
    complete by 2006.").

[^269]: In the *Rural Task Force Order*, the Commission determined that
    the modified embedded cost mechanisms should remain in place to
    "provide certainty and stability for rural carriers for the next
    five years." *Rural Task Force Order*, 16 FCC Rcd at 11249, para.
    11. *See also* Western Wireless Comments at 4 (\"the industry
    remains in year two of a five-year plan for supporting universal
    service in rural \[incumbent\] LEC areas. The Commission found that
    the five-year duration of Rural Task Force ('RTF') plan, in which
    full portability of all explicit funding plays a critical role, was
    important to establish a stable and predictable environment for
    rural service providers.\").

[^270]: *Rural Task Force Order*, 16 FCC Rcd at 11314, para. 180.

[^271]: *Id.* at 11314-15, paras. 180-181.

[^272]: *Id.* at 11315-16, para. 183.

[^273]: *Id.*

[^274]: *Id*. at 11315, para. 182.

[^275]: The MTSA gives states the option of providing mobile providers
    with a statewide database that designates the appropriate taxing
    jurisdiction for each street address in the state, including, to the
    extent practicable, multiple postal addresses applicable to one
    street location. If the state fails to provide such a database, the
    mobile provider may use an enhanced zip code system to assign each
    street address to a specific taxing jurisdiction. Under the MTSA, a
    mobile provider that uses a state-assigned database or an enhanced
    zip code system to assign addresses will be held harmless for any
    taxes that might otherwise be due as a result of erroneous
    assignment. Mobile Telecommunications Sourcing Act, 4 U.S.C. §§
    116-126.

[^276]: *Id*.

[^277]: *Rural Task Force Order*, 16 FCC Rcd 11315, para. 182.

[^278]: *See* OPASTCO Comments at 24-26, Reply Comments at 15-16.
    OPASTCO cites comments filed by the Washington Indep. Tel. Ass'n,
    USTA, and SBC to support the contention that the record documents
    the potential abuse of the rules that use a customer's billing
    address to identify the service location of a mobile wireless
    customer's service area.

[^279]: *See, e.g.*, CenturyTel Comments at 35-36; Rural Indep.
    Competitive Alliance Comments at 19, 21.

[^280]: *See, e.g.,* Montana Telecomms. Ass'n Comments at 11-12;
    Washington Indep. Tel. Ass'n Comments at 14; Western Wireless Sept.
    8 *ex parte*. Montana Telecomms. Ass'n and Western Wireless support
    use of the MTSA definition of place of primary use. Washington
    Indep. Tel. Ass'n recommends requiring a wireless carrier to certify
    that at least 50% of the originating calls on a wireless service
    originate in a cell cite within the exchange for which the lie is
    designated to receive USF support.

[^281]: Texas Commission Comments at 12. Wireless carriers report access
    lines in accordance with the actual location of the WAU that is
    utilized to provide the service.

[^282]: Rural Cellular Ass'n/Alliance of Rural CMRS Carriers Comments at
    26; Smith Bagley Comments at 13; Western Wireless Comments at 49-50.

[^283]: Rural Cellular Ass'n/Alliance of Rural CMRS Carriers Comments at
    26.

[^284]: *See* BellSouth Comments at 2, Reply Comments at 5; *see also*
    GVNW Comments at 11, Reply Comments at 8-9.

[^285]: 47 C.F.R. § 54.315(f)(4).

[^286]: *Rural Task Force Order*, 16 FCC Rcd at 11307-08, para. 161

[^287]: *Id*.

[^288]: *Id*.

[^289]: *See, e.g.*, USCC Comments at 17-18; Rural Indep. Competitive
    Alliance Comments at 27.

[^290]: Rural Cellular Ass'n/Alliance of Rural CMRS Carriers Comments at
    26 ("What will improve the ability to target subscribers is an FCC
    requirement that ILECs who disaggregate support submit accurate and
    legible cost zone maps in a consistent electronic format so that
    competitive ETCs are able to easily determine the appropriate cost
    zones for customers.").

[^291]: Separate Statement of Commissioner Kathleen Q. Abernathy,
    *Federal-State Joint Board on Universal Service, Virginia Cellular,
    LLC Petition for Designation as an Eligible Telecommunications
    Carrier in the Commonwealth of Virginia*, Memorandum Opinion and
    Order, CC Docket No. 96-45, FCC 03-338 (rel. Jan. 22, 2004).

[^292]: Support for the networks that provide the core services also
    enables consumers in rural areas to receive all of the other
    services ― including advanced services ― available over those
    networks.

[^293]: Recommended Decision, para. 96.

[^294]: *See, e.g.*, BellSouth Comments at 2 ("Strengthening the
    eligibility requirements for obtaining ETC status is a critical step
    in ensuring that the universal service fund remains 'specific,
    predictable and sufficient,' as required by Section 254."); *see
    also* NASUCA Comments at 8-9.

[^295]: *See, e.g. ,*NASUCA Comments at 8-9.

[^296]: *See* Separate Statement of Chairman Michael K. Powell in
    Federal-State Joint Board on Universal Service, Virginia Cellular,
    LLC Petition for Designation as an Eligible Telecommunications
    Carrier in the Commonwealth of Virginia, Memorandum Opinion and
    Order, CC Docket No. 96-45, FCC 03-338 (rel. January 22, 2004).

[^297]: This perverse incentive is especially strong in areas served by
    rural carriers since these areas generally receive higher levels of
    federal support.

[^298]: *See Federal-State Joint Board on Universal Service*, Report and
    Order, CC Docket No. 96-45, 12 FCC Rcd 8776 (May 8, 1997) (*First
    Report and Order*) at ¶¶19; 287-289; 311-312; "The \[FCC's universal
    service\] order provides that the universal service subsidy be
    portable so that it moves with the customer, rather than stay with
    the incumbent LEC, whenever the customer makes the decision to
    switch local service providers... ." [Alenco Communications, Inc. v.
    FCC]{.underline}, 201 F.3d 608, 621 (5th Cir. 2000) (*Alenco*).

[^299]: *See* House Report No. 104-204 (I)(1995), Arnold & Porter
    Legislative History P.L. 104-104 (*A&P*) at 60: "...as the current
    system of internal and external subsidies is replaced by a system
    consisting primarily of external subsidies, the total amount of
    subsidies collected from low-cost customers and passed on to
    high-cost customers would not change significantly. Over time, CBO
    expects that the operating costs of telephone companies would tend
    to fall as a result of competitive pressures and the total amount of
    subsidies necessary would decline." This view was also expressed by
    Senator Stevens during debate on the Act: "\[The Act\] opens up the
    local market to competition while still preserving the concept of
    universal service. It does so by taking advantage of new
    technologies which are intended to reduce the cost of all services,
    including universal service. In fact, I find it interesting that the
    Congressional Budget Office has said that this bill will reduce the
    cost of universal service from the existing system by at least \$3
    billion over the next five years." 141 Congressional Record S7881
    (1995), *A&P* at 210. *See also* Senate Report No. 104-23, *A&P* at
    254 (1995): "...competition and new technologies will greatly reduce
    the actual cost of providing universal service over time, thus
    reducing or eliminating the need for universal service support
    mechanisms as actual costs drop to a level that is at or below the
    affordable rate for such service in an area... ."

[^300]: It should be pointed out that under the integrated approach to
    primary line support outlined in the Recommended Decision, there
    would be no change in current support for a rural carrier unless and
    until an additional ETC is designated within the rural carrier's
    study area by the state or Commission.

[^301]: *See Alenco*, at 621-622: "To the extent petitioners argue
    Congress recognized the precarious competitive positions of rural
    LEC's, their concerns are addressed by 47 U.S.C. §214(e), which
    empowers state commissions to regulate entry into rural markets."

[^302]: The Commission has defined "competitive neutrality" as
    "...universal service support mechanisms and rules \[that\] neither
    unfairly advantage nor disadvantage one provider over another, and
    neither unfairly favor nor disfavor one technology over another."
    *First Report and Order*, ¶47. In *Alenco* the 5^th^ Circuit found
    competitive neutrality to be an integral component of portability:
    "...portability is not only consistent with predictability, but also
    is dictated by principles of competitive neutrality and the
    statutory command that universal service support be spent 'only for
    the provision, maintenance, and upgrading of facilities and services
    for which the \[universal service\] support is intended.' "
    *Alenco*, at 622. The Commission has also previously addressed the
    inappropriateness of support programs available only to incumbents:
    "We have previously held, in interpreting section 254 of the
    Communications Act, that 'competitive neutrality in the collection
    and distribution of funds and determination of eligibility in
    universal service support mechanisms is consistent with
    congressional intent and necessary to promote a procompetitive,
    de-regulatory national policy framework.' As discussed above, it is
    doubtful that a universal service funding program that restricts
    eligibility to ILECs could be considered competitively neutral.
    Thus, a program of this nature may well be found to be inconsistent
    with and to impede the achievement of important Congressional and
    Commission goals." *In the Matter of Western Wireless Corp. Petition
    for Preemption*, Memorandum Opinion and Order, File No. CWD 98-90,
    15 FCC Rcd 16227 (Aug. 28, 2000) at ¶11.

[^303]: Indeed, but for explicit subsidies from the universal service
    fund and other federal programs, there would be no telephone service
    in large areas of this country.

[^304]: Separate Statement of Commissioner Kevin J. Martin,
    *Multi-Association Group (MAG) Plan for Regulation of Interstate
    Services of Non-Price Cap Incumbent Local Exchange Carriers and
    Interexchange Carriers, Second Report and Order and Further Notice
    of Proposed Rulemaking,* CC Docket (No. 00-256)(rel. October, 11,
    2002): Separate Statement of Commissioner Kevin J. Martin,
    *Federal-State Joint Board on Universal Service, Virginia Cellular,
    LLC Petition for Designation as an Eligible Telecommunications
    Carrier in the Commonwealth of Virginia,* Memorandum Opinion and
    Order, CC Docket No. 96-45, FCC 03-338 (Jan. 22, 2004).

[^305]: Separate Statement of Commissioner Kevin J. Martin,
    *Federal-State Joint Board on Universal Service,* CC Docket
    No.96-45, (rel. July 10, 2002)*;* Separate Statement of Commissioner
    Kevin J. Martin, *Federal-State Joint Board on Universal Service,
    FCC 03-170,* CC Docket No. 96-45, (rel. July 14, 2003).

[^306]: A meaningful public interest test will allow commissions to
    withhold granting ETC status to additional carriers if they believe
    that the dilution of support caused by the designation will
    undermine the ability of all carriers to offer comparable service at
    comparable rates as is required by Section 254(b)(3) of the Act.

[^307]: After further development of the record, it may be possible for
    the FCC to adopt more specific standards for consideration and
    adoption by the Commission or the states. For example, we note the
    specific recommendations offered by the Montana Independent
    Telecommunications Systems in an ex parte filed January 5, 2004. The
    ex parte suggested, *inter alia*, very specific provisions
    concerning coverage, network congestion, cost reporting based on
    existing NECA forms, and a method for achieving service quality
    standard comparability.

[^308]: If this provision applied only to "access," then the statute
    would use the singular "is" to describe what must be reasonably
    comparable. We therefore conclude that the "reasonably comparable"
    language in Section 254(b)(3) focuses both on telecommunications
    *and* information services."

[^309]: In some cases, the consumer may be able to receive wireline and
    wireless service under the majority's recommendation, but only one
    of these services will be the primary "line" that is funded. And in
    some cases, the consumer may be able to receive more than one type
    of service over a single wireline connection. For example, some
    consumers can receive voice and data over a DSL connection. However,
    the decision to restrict funding to one line is not
    technology-neutra[l]{.underline} because it favors carriers who can
    provide multiple services over one connection. We acknowledge that
    providing an economic incentive for technological efficiency is a
    good result, but we are more concerned that where dual technologies
    are not available, a consumer will be limited to one means of
    communication.

[^310]: The following chart illustrates the problem for rural
    businesses.

    Customer TypeTotal LinesPrimary LinesCurrent FundingPrimary Line
    FundingChange in Per Line FundingPer Line FundingTotal FundingPer
    Primary Line FundingPer Line FundingEffective Per Line
    FundingCentrex 250 20
    \$10.00\$2,500\$15.27\$305\$1.22(\$8.78)Residential 10,000 7,500
    \$10.00\$100,000\$15.27\$114,557\$11.46\$1.46 Business 2,000 500
    \$10.00\$20,000\$15.27\$7,637\$3.82(\$6.18)    Total 12,250 8,020
     \$122,500 \$122,500 Average\$10.00 \$15.27 

[^311]: Technology has not yet obviated the need for physical networks.
    Even the most exciting new technologies are deployed either in or
    over networks. Networks are efficient in themselves, and they create
    opportunities for innovation by network users of all kinds. That's
    what customers need and expect.

[^312]: The economics of providing telephone service results in
    substantial fixed costs for the network capable of providing any
    service throughout the service area. Those costs do not vary
    significantly if the lines per customer location change. Therefore,
    reducing support to a carrier if its primary lines decrease almost
    guarantees insufficient support in the future for that carrier.

[^313]: E.g.: Recommendation, para. 18 (costs of rural carriers); paras.
    53-54 (disaggregation); paras. 76-78 (cap on per-line support on
    competitive entry); para. 91 (adoption of embedded cost basis for
    support).

[^314]: The Rural Task Force recommended that the "no barriers" policy
    incorporate the following general principles: (1) support should be
    provided for plant "that can, either as built or with the addition
    of plant elements, when available, provide access to advanced
    services\[;\]" (2) "carriers should be encouraged by regulatory
    measures to remove infrastructure barriers relating to access to
    advanced services\[;\]" and (3) "\[t\]he federal universal service
    support fund should be sized so that it presents no barriers to
    investment in plant needed to provide access to advanced services."
    *Rural Task Force Order*, FCC 01-157 (released May 23, 2001), para.
    197, citing Rural Task Force Recommendation at 22-23.

[^315]: *Rural Task Force Order*, FCC 01-157 (released May 23, 2001),
    para. 199.

[^316]: In Section 254(c)(1) Congress states that: "Universal service is
    an evolving level of telecommunications services that the Commission
    shall establish periodically under this section, taking into account
    advances in telecommunications and information technologies and
    services."

[^317]: According to the CTIA Semi-Annual Wireless Survey, published
    June 2003, the number of wireless subscribers has increased from 10%
    from 2002 to 2003. As of the report, there were 148,065,824 wireless
    subscribers. From 2002-2003, the number of cell sites increased 12%
    to 147, 719. According to the FCC Industry Analysis and Technology
    Division High-Speed Services for Internet Access Report, from Dec.
    2002-June 2003, subscribership to high speed services increased by
    18% during the first half of 2003 to a total of 23.5 million lines.
    High speed ADSL lines in service increased by 19% during the first
    half of 2003 and high speed connections over coaxial cable systems
    increased by 20%. High speed connections to end users by means of
    satellite or fixed wireless technologies increased by 12% during the
    first half of 2003.

[^318]: States assign the COLR obligation differently, but it has
    consistently been an important policy tool to insure that all
    potential customers in high cost and hard to serve areas receive
    service.

[^319]: If the cost of acting as COLR is definable, the FCC should
    consider it as part of a funding system that bases support on
    provider costs.

[^320]: Commissioners Adelstein and Rowe recommend that carriers receive
    support based on their own costs. Commissioner Thompson would not
    yet rule out the options that in high cost competitive markets
    support be based on a forward looking methodology or a bidding
    process.

[^321]: For example, we need to understand how support will be
    calculated when providers use different technologies to serve
    customers, have different accounting systems and varying levels of
    service. We would consider specific interim measures to address
    immediate concerns, like a rigorous, interactive workshop to develop
    an appropriate costing regime. We suggest that the FCC ask for
    comments on whether reopening the "Path 3" window for
    self-certification of disaggregation would address cream-skimming
    concerns until a new basis of support is implemented.

[^322]: The deadline for review of the use of embedded costs to
    determine rural carrier support looms, and providers in those
    markets are better served by as much advance notice of possible
    changes as we can provide so that they can make reasonable planning
    decisions.

[^323]: Commissioner Thompson opposed including equal access in the list
    of supported services. Commissioner Rowe supported its inclusion.