Before the

**Federal Communications Commission**

**Washington, D.C. 20554**

+----------------------------------+---+-------------------------------+
| In the Matter of                 | ) | CC Docket No. 01-206          |
|                                  |   |                               |
| 2001 Annual Access Tariff        | ) |                               |
| Filings                          |   |                               |
|                                  | ) |                               |
|                                  |   |                               |
|                                  | ) |                               |
|                                  |   |                               |
|                                  | ) |                               |
|                                  |   |                               |
|                                  | ) |                               |
+----------------------------------+---+-------------------------------+

**MEMORANDUM OPINION AND ORDER**

**Adopted:** December 3, 2001 **Released:** December 3, 2001

By the Commission: Commissioner Martin approving in part, concurring in
part, and issuing a statement.

# introduction

1.  Under section 201 of the Communications Act of 1934 (the Act), as
    amended, all charges, practices, classifications, and regulations
    for communication services are required to be just and
    reasonable.[^1] Sections 204 and 205 of the Act authorize the
    Commission to review the reasonableness of carriers' rates, and to
    prescribe just and reasonable charges.[^2]

2.  On July 2, 2001, the Competitive Pricing Division (Division) of the
    Common Carrier Bureau (Bureau) released the *Suspension Order*,[^3]
    which, *inter alia*, suspended for five months and set for
    investigation the rates for the traffic sensitive basket filed by
    Moultrie Independent Telephone Company, Inc. (Moultrie), suspended
    for one day ALLTEL Telephone Systems' (ALLTEL's) rates for local
    switching, imposed an accounting order, and initiated an
    investigation into the lawfulness of issues raised by these
    carriers' 2001 annual access tariff filings.[^4] The Bureau
    designated for investigation the increase in Moultrie's traffic
    sensitive rates, particularly of its local switching per minute
    rate, as reflected in Moultrie's Transmittal Number 4 to Tariff FCC
    Number 1.[^5] The Bureau also designated for investigation ALLTEL's
    derivation of a dial equipment minutes (DEM) allocation factor in
    setting local switching rates in Transmittal Number 90 to its Tariff
    FCC Number 1.[^6] Moultrie and ALLTEL filed their direct cases on
    September 13, 2001,[^7] AT&T filed oppositions to the direct cases
    on September 26, 2001,[^8] and Moultrie and ALLTEL filed rebuttals
    to the opposition on October 3, 2001.[^9]

3.  After a thorough review of the record, we conclude in this order
    that Moultrie and ALLTEL have failed to demonstrate the
    reasonableness of their local switching rates. As discussed more
    fully below, we direct Moultrie to file tariff revisions reflecting
    corrected local switching rates, taking into account the amount of
    universal service fund (USF) local switching support that is
    available to Moultrie. We also find that ALLTEL incorrectly computed
    its DEM allocation factor and order it to recalculate its local
    switching rates using corrected DEM allocation factors. We direct
    Moultrie and ALLTEL to file tariff revisions reflecting these
    changes within ten days from the release date of this order. In
    addition, we require ALLTEL to make refunds to its customers for
    overcharges resulting from the unreasonable local switching rates
    that went into effect on July 3, 2001.

# Moultrie's calculation of local switching rates

4.  When Moultrie made its 2001 annual access tariff filing, it proposed
    to increase its local switching rate by more than 335 percent, from
    \$0.05713 per minute to \$0.191586 per minute, to reflect the loss
    of USF local switching support payments.[^10] Moultrie's loss of USF
    support stems from a dispute with the National Exchange Carrier
    Association (NECA) over Moultrie's treatment of certain assets in
    its separations cost studies. In 1997, Moultrie transferred
    ownership of certain non-loop-related assets to an affiliate and
    leased them back.[^11] This transaction was designed to maximize
    Moultrie's USF support recovery.[^12] In reporting the transaction
    to NECA for determining its USF support allocation, Moultrie removed
    the investment in the sold assets from its cost calculations while
    including the lease payments to the affiliate in its operating
    expenses. The calculation used to derive USF loop costs compares a
    company's loop-related investment to total investment.[^13] After
    the sale of its non-loop assets, Moultrie's loop investment
    represented a much higher percentage of its total company
    investments. As a result of this transaction, Moultrie's loop cost
    and expense adjustment data for 1997 increased significantly.[^14]

5.  NECA sought a determination from the Bureau as to the calculation of
    USF expense adjustments when affiliate sale/lease-back arrangements
    are involved,[^15] and Moultrie filed a Petition for Declaratory
    Ruling seeking clarification of the "patent ambiguity" between the
    treatment of affiliate sale/lease-back transactions under sections
    32.27(a)-(c), for accounting purposes, and 36.2(a) and (c), for
    separations purposes.[^16] On August 4, 1999, the Bureau responded
    to NECA's request by indicating that, for calculating USF expense
    adjustments, Moultrie's sale/lease-back arrangement as described by
    NECA should be accounted for under section 36.2(c)(2), i.e., by
    including the property and related expenses with, and excluding the
    rent expenses from, the carrier's regulated telephone
    operations.[^17] Based upon this guidance, NECA requested that
    Moultrie file amended cost studies reflecting the sale/lease-back
    arrangement in accordance with section 36.2(c)(2). Moultrie refused
    to do so.[^18] As a result, the Universal Service Administrative
    Company (USAC), the administrative body tasked with administering
    USF support, determined that it could no longer rely on the cost
    data submitted by Moultrie and suspended all high cost loop and
    local switching support USF payments to Moultrie, effective January
    1, 2001.[^19]

6.  On October 5, 2001, the Commission denied Moultrie's petition for
    declaratory ruling, request for waiver of part 36, and motion for
    stay.[^20] The Commission found that there was no patent ambiguity
    between sections 32.27(a)-(c) and 36.2(c)(2). Section 32.27(a)-(c)
    directs carriers on how to value their assets or services involved
    in transactions with affiliates and how to account for such
    transactions on the carriers' books. The rules in section 36.2(c),
    on the other hand, govern the treatment of rented property, related
    expenses, and lease payments between carriers and their affiliates
    for ratemaking purposes, specifically for application of
    jurisdictional separations and high-cost loop expense
    adjustments.[^21] Therefore, the Commission directed Moultrie to
    reflect the application of section 36.2(c)(2) by including the
    property and related expenses with, and excluding the related rent
    expenses from, the carrier's regulated telephone operations in
    revised cost studies where the affiliate sale/lease-back arrangement
    exists.[^22]

7.  In the instant tariff investigation, Moultrie asserts that it
    followed the Commission's rules in calculating its per-minute local
    switching rates. Specifically, section 69.106(b) states:

> The per minute \[local switching\] charge described in paragraph (a)
> of this section shall be computed by dividing the projected annual
> revenue requirement for the Local Switching element, excluding any
> local switching support received by the carrier pursuant to § 54.301
> of this chapter, by the projected annual access minutes of use for all
> interstate or foreign services that use local exchange switching
> facilities.[^23]

According to Moultrie, because it has not received any local switching
support, it must recover its entire local switching revenue requirement
through its rates.[^24] We find that this is an unreasonable application
of the Commission's rules.

8.  Moultrie notes in its rebuttal that it "has received no local
    switching support for 2001 and none is expected, depending only on
    the outcome of the pending petition for declaratory ruling."[^25]
    The Commission has now ruled upon that petition, and Moultrie will
    receive local switching support after it files its revised cost
    studies.[^26] Moultrie's projection of \$0 in local switching
    support for 2001 is therefore incorrect and must be revised.

9.  Even though Moultrie has not yet received its local switching
    support from the USF due to the dispute, Moultrie is not entitled to
    recover this support from its access charge customers. In accordance
    with the *Moultrie Order*, Moultrie has submitted revised cost
    studies to NECA,[^27] and USAC will confirm the amount of USF
    support available to Moultrie. Moultrie's access rates should
    reflect the amount of local switching support available to it, which
    it has foregone pending resolution of the dispute. By contrast,
    allowing Moultrie to recover local switching support instead through
    interstate access charges would create an implicit subsidy.[^28]
    Section 254(e) of the Act states that USF support should be
    explicit,[^29] and the Commission regularly has eliminated implicit
    subsidies in favor of explicit USF support.[^30] As AT&T notes in
    its opposition, interexchange carriers and others that contribute to
    the USF have already paid the local switching support that has been
    collected by USAC on Moultrie's behalf.[^31] The interexchange
    carriers should not have to pay the USF support again in the form of
    Moultrie's increased local switching rates.

10. We therefore find that Moultrie's proposed local switching rates are
    unreasonable. We direct Moultrie to recalculate its local switching
    rate pursuant to section 69.106(b), excluding from its projected
    local switching annual revenue requirement the amount of USF local
    switching support available to Moultrie. Moultrie must refile its
    tariff to include this corrected local switching rate within ten
    days from the release date of this order. In the interim, Moultrie's
    current local switching rates will remain in effect until Moultrie's
    tariff revisions filed pursuant to this order become effective.

# ALLTEL'S DEM ALLOCATION FACTOR

11. DEM factors are used in calculating access service costs and in
    allocating local switching equipment investment costs between the
    interstate and intrastate jurisdictions. DEMs are defined in section
    36.125(a)(3) of the Commission's rules as the minutes of holding
    time of the originating and terminating local switching
    equipment.[^32] For each one-minute call, there is one minute during
    which the switching equipment originating the call is in use (an
    originating minute), and one minute during which the switching
    equipment terminating the call is in use (a terminating minute). The
    interstate DEM factor is the ratio of the interstate DEM to the
    total DEM.[^33] Under section 36.125(a)(3), each minute of use is
    treated as two DEMs, one terminating and one originating.[^34]
    Historically, because there has to be a terminating minute for each
    originating minute, and to provide a simple method for counting
    DEMs, carriers have counted one terminating minute for each
    originating minute. Although this method does not account for
    imbalances in specific types of traffic, it provides carriers with
    an administratively simple method for separating traffic minutes
    between the interstate and intrastate jurisdictions.[^35]

12. In ALLTEL's 2001 access tariff filing, the interstate DEM factor
    increased in several study areas. ALLTEL explained that it had
    changed its method for estimating terminating interlocal minutes of
    use.[^36] This change reduced in some ALLTEL study areas the amount
    of total DEMs attributable to local traffic, and this caused a
    corresponding increase in the DEMs attributable to interstate
    traffic. Therefore, the interstate DEM factor increased in these
    study areas.

13. ALLTEL states that it is able to determine and allocate between
    local and interstate the total number of originating minutes on each
    of its switches. ALLTEL also explains that it can count the total
    number of terminating minutes on each of its switches. When shared
    trunks carrying both toll and interlocal traffic terminate at an
    ALLTEL switch, however, ALLTEL states that it cannot determine how
    many of the total terminating minutes on those trunks are toll and
    how many are interlocal because switch measurements cannot determine
    where an incoming call originated. Therefore, ALLTEL has to estimate
    how many minutes of traffic on these shared trunks should be counted
    as local.

14. Prior to 2000, ALLTEL had attributed the same number of terminating
    interlocal minutes as originating interlocal minutes on the shared
    trunks. In 2000, however, ALLTEL conducted traffic studies which
    indicated that Internet traffic does not follow this
    one-terminating-minute-to-one-originating-minute relationship.[^37]
    This, ALLTEL argues, is because ALLTEL's customers call ISPs in
    other carriers' exchange areas, creating originating minutes, but
    those ISPs do not call back, therefore ALLTEL does not receive
    terminating minutes corresponding to these originated Internet
    calls. For purposes of calculating its DEM factors, ALLTEL applied a
    one-terminating-minute-to-one-originating-minute relationship only
    to non-Internet interlocal traffic, and applied a factor of 0.5 to
    Internet interlocal originating minutes to derive Internet
    interlocal terminating minutes (i.e., a
    one-terminating-to-two-originating minutes relationship) over the
    shared trunks.[^38]

15. ALLTEL assigned all originating interlocal traffic, including
    Internet, plus the lower number of derived interlocal terminating
    minutes to the local jurisdiction. This decrease in the number of
    minutes attributed as interlocal terminating minutes reduced the
    total amount of traffic allocated as interlocal, and created a
    corresponding increase in the percentage of traffic allocated to
    other jurisdictions, including interstate.[^39] Therefore, ALLTEL's
    decision to apply a 0.5 factor rather than a 1.0 factor to
    terminating Internet interlocal traffic caused its interstate DEM
    allocation factors to increase. This change increased the costs
    attributable to interstate traffic, resulting in an increase in
    ALLTEL's interstate charge for a minute of use of its switches.

16. We find that the DEM allocation factors proposed by ALLTEL in this
    matter are not reasonable, and therefore ALLTEL's local switching
    rates calculated based on these factors are unreasonable in
    violation of section 201(b) of the Communications Act of 1934, as
    amended.[^40] Where carriers are unable to accurately measure the
    number of terminating DEMs, the Commission has affirmed the standard
    industry practice of counting one terminating DEM for each
    originating DEM.[^41] ALLTEL did not use this
    one-originating-minute-to-one-terminating-minute approach, but
    instead used a flawed method of calculating terminating DEMs over
    shared traffic trunks. ALLTEL did not adequately address types of
    traffic imbalances other than the purported Internet traffic
    imbalance. For example, ALLTEL has not shown that it properly
    accounted for the fact that ISPs may be served by ALLTEL's exchanges
    and that these ISPs may receive calls from customers of other
    carriers. In that circumstance, ALLTEL's switch serving its ISP
    customer would be receiving more traffic in terminating minutes, but
    would have fewer originating minutes because ALLTEL's ISP customer
    would not be making any outgoing calls. ALLTEL adjusted its DEM
    factors only to account for ISPs served by other carriers'
    exchanges. If we were to allow carriers selectively to calculate
    their DEM factors in this manner, reducing terminating DEMs for
    outgoing ISP calls without making any similar increases to
    terminating DEMs for incoming ISP calls, the DEM factor would be
    improperly skewed. Minutes that should properly be attributed to the
    intrastate jurisdiction would be included in the interstate
    jurisdiction, and interstate access rates would be unreasonably
    inflated.

17. Furthermore, ALLTEL made an adjustment to correct for only one type
    of traffic imbalance. ALLTEL chose to adjust DEMs for Internet
    traffic, which caused its intrastate DEM factors to decrease and its
    interstate DEM factors to increase, but did not address other
    imbalances that would presumably have the opposite effect, such as
    wireless traffic. Due to typical calling patterns, it is likely that
    ALLTEL switches terminate more minutes of calls from wireless
    carriers than they originate, yet ALLTEL did not address this issue,
    instead continuing to rely on the
    one-originating-minute-to-one-terminating-minute ratio for this type
    of traffic. We find that it is unreasonable to allow ALLTEL to
    choose to address purported Internet traffic imbalances while
    ignoring other traffic imbalances that may offset the effect of the
    Internet traffic. Allowing carriers to pick and choose which traffic
    imbalances to address would undermine the
    one-originating-minute-to-one-terminating-minute approach, which
    provides all carriers with an administratively simple method of
    separating traffic between the jurisdictions without requiring them
    to measure and account for each and every type of traffic imbalance.

18. In the *Separations Freeze Order*, the Commission recognized that
    some parties believed that Internet usage may be affecting local
    DEMs. The Commission found that commenters had not supplied reliable
    data upon which to set the amount of any local DEM factor reduction
    that might be warranted.[^42] Instead, the Commission committed to
    seek specific comment on the status of this issue when it examines
    the effects of the separations freeze at a future date, and to work
    with the Joint Board to address the impact of the Internet and the
    growth of local minutes during the interim freeze.[^43] The
    Commission to date has not altered its jurisdictional separations
    rules or policies due to Internet usage, therefore ALLTEL is not
    justified in its attempt to alter its DEM allocation factors to
    account for the alleged Internet traffic imbalance.

19. Therefore, we direct ALLTEL, in the absence of a reasonable manner
    of estimating this traffic, to recalculate its DEM allocation
    factors counting one terminating minute for each minute of
    originating traffic, and to recalculate its interstate local
    switching rates based on the revised DEM allocation factors. In
    accordance with the *Separations Freeze Order*, ALLTEL must use only
    data from calendar year 2000 in calculating its DEM allocation
    factors.[^44]

# ORDERING CLAUSES

20. Accordingly, IT IS ORDERED, that, pursuant to sections 4(i), 4(j),
    201(b), 203(a), 204(a), 205, and 403 of the Communications Act, 47
    U.S.C. §§ 154(i), 154(j), 201(b), 203(a), 204(a), 205, and 403,
    Moultrie Independent Telephone Company, Inc. SHALL FILE REVISED
    RATES, as described in paragraphs 3 and 10 above, no later than
    ten (10) calendar days from the release date of this order. These
    rates SHALL BE EFFECTIVE on five (5) days' notice. For this purpose,
    we waive section 61.58 of the Commission's rules, 47 C.F.R. § 61.58.

21. IT IS FURTHER ORDERED, that, pursuant to sections 4(i), 4(j),
    201(b), 203(a), 204(a), 205, and 403 of the Communications Act of
    1934, as amended, 47 U.S.C. §§ 154(i), 154(j), 201(b), 203(a),
    204(a), 205, and 403, ALLTEL Telephone Systems SHALL FILE REVISED
    RATES, as described in paragraphs 3 and 19 above, no later than
    ten (10) calendar days from the release date of this order. These
    rates SHALL BE EFFECTIVE on five (5) days' notice. For this purpose,
    we waive section 61.58 of the Commission's rules, 47 C.F.R. § 61.58.

22. IT IS FURTHER ORDERED, that ALLTEL Telephone Systems SHALL ISSUE
    REFUNDS, plus interest, for the period from July 3, 2001 through the
    effective date of its revised local switching rates filed as
    prescribed in this order.

23. IT IS FURTHER ORDERED, that ALLTEL Telephone Systems SHALL submit to
    the Common Carrier Bureau for review and approval plans for issuing
    refunds pursuant to our delegation of authority under section 0.291
    of the Commission's rules, 47 C.F.R. § 0.291, within 60 days of the
    release of this order. Refunds shall be calculated in accordance
    with the requirements of this order.

24. IT IS FURTHER ORDERED, that the investigation and accounting order
    imposed in the July 2, 2001 Memorandum Opinion and Order, DA
    01-1563, IS TERMINATED.

FEDERAL COMMUNICATIONS COMMISSION

> Magalie Roman Salas

Secretary

**STATEMENT OF\
COMMISSIONER KEVIN J . MARTIN, APPROVING IN PART AND CONCURRING IN
PART**

*Re: 2001 Annual Access Tariff Filings*, Memorandum Opinion and Order,
CC Docket No. 01-206

I have concerns with this Order's discussion of ALLTEL's tariff filing
and thus, with respect to that part of the Order (Part III), I concur
only in the result. Part III of the Order addresses ALLTEL's effort, in
setting its access rates, to account for the impact of Internet traffic.
Although I agree with the Commission that the particular method used by
ALLTEL was not reasonable, I reject the Order's suggestion that carriers
may not, in allocating costs between the interstate and intrastate
jurisdictions, attempt to account for the unique nature of Internet
traffic. Despite requests from the States and the Federal-State Joint
Board on Separations to provide a systematic method to address Internet
traffic in the separations process, the FCC has failed to do so. In the
absence of Commission action on this issue -- which I continue to
encourage -- carriers should not be prohibited from addressing the
problem.

At issue here is ALLTEL's recognition that Internet phone calls
frequently move in only one direction: customers call ISPs, but ISPs do
not call customers. Based on this premise, ALLTEL assumed that, for
calls made from its exchanges to ISPs in other exchanges, there would be
only half as many minutes of calls being made to ALLTEL's exchanges. For
other calls made from its exchanges to other exchanges, ALLTEL assumed
an equal number of minutes of calls would be made to its exchanges.

The Commission finds this methodology unreasonable, concluding that
ALLTEL measured traffic imbalances selectively. According to the
Commission, ALLTEL took into account only ISPs in other exchanges,
failing to address the fact that ISPs served by its local exchanges will
generate more terminating traffic than originating traffic.
Additionally, however, the Commission finds fault with the fact that
ALLTEL addressed only imbalances caused by Internet usage and did not
consider other traffic imbalances, such as those caused by the use of
wireless phones. The Commission strongly encourages ALLTEL to use a
one-to-one presumption for all traffic.

While I agree that ALLTEL should have considered ISPs served by its
local exchanges and thus concur with the Commission's resolution of this
issue, I have concerns with the rest of the Commission's discussion.
Specifically, I disagree with the Commission's suggestion that ALLTEL
was required to account for all types of traffic imbalances or else use
a one-to-one presumption for all traffic. There is no Commission rule
stating such a requirement, and I am unaware of any reason why we should
create one. A fair and balanced approach to consider solely the impact
of Internet traffic should not render a tariff unreasonable --
especially when States and the Separations Joint Board specifically
called on the Commission to adjust the separations process to take this
phenomenon into account and the Commission failed to do so.

As many States and the Separations Joint Board have recognized, the
growing amount of Internet traffic has a significant impact on cost
allocations. The Commission has nevertheless failed to act on their
request to reform the separations process. As I have stated, I believe
the Commission should move forward on this issue and alter the
separations rules in some manner, as was proposed by the Joint Board.
The Separations Joint Board even suggested a specific adjustment if the
Commission could not determine the precise impact of Internet traffic.
The Commission rejected this proposal, arguing that it had insufficient
information to make such an estimate. It is thus particularly ironic
that we find fault with a carrier that has attempted to gather some of
this information and adopt a process to address an issue that we failed
to address. In the meantime, while the Commission has failed to act, I
cannot find fault with individual carriers taking reasonable steps to
address the impact of Internet traffic.

Accordingly, I concur in the result of Part III and approve the
remainder of the Order.

[^1]: 47 U.S.C. § 201(b).

[^2]: 47 U.S.C. §§ 204 and 205.

[^3]: *2001 Annual Access Tariff Filings*, CCB/CPD File No. 01-08,
    Memorandum Opinion and Order, 16 FCC Rcd 13123 (Comp. Pric. Div.
    2001) (*Suspension Order*).

[^4]: The Division subsequently reconsidered on its own motion its
    decision to suspend and investigate the proposed multi-line business
    subscriber line charges of Ameritech Operating Companies, Frontier
    Telephone of Rochester, Inc., Pacific Bell Telephone Company, Qwest
    Communications, Inc., and Sprint Local Telephone Companies-Nevada.
    *2001 Annual Access Tariff Filings*, CCB/CPD File No. 01-08, Order
    on Reconsideration, 16 FCC Rcd 14857 (Comp. Pric. Div. 2001).

[^5]: *2001 Annual Access Tariff Filings*, CC Docket No. 01-206, Order
    Designating Issues for Investigation, 16 FCC Rcd 15929, 15932,
    paras. 7-8 (Comm. Carr. Bur. 2001) (*Designation Order*).

[^6]: *Designation Order*, 16 FCC Rcd at 15934-35, paras. 11-14.

[^7]: Direct Case of Moultrie Independent Telephone Company, CC Docket
    No. 01-206 (filed Sept. 13, 2001) (Moultrie Direct Case); Direct
    Case of ALLTEL Telephone Systems, Inc., CC Docket No. 01-206 (filed
    Sept. 13, 2001) (ALLTEL Direct Case). Both parties filed motions to
    accept late-filed pleadings which we hereby grant.

[^8]: Opposition of AT&T Corp. to the Direct Cases of ALLTEL Telephone
    Systems, Inc. & Moultrie Independent Telephone Company, CC Docket
    No. 01-206 (filed Sept. 26, 2001) (AT&T Opposition).

[^9]: Rebuttal of Moultrie Independent Telephone Company, CC Docket No.
    01-206 (filed Oct. 3, 2001) (Moultrie Rebuttal); Reply Comments of
    ALLTEL Communications, Inc. to the Opposition of AT&T Corp. to the
    Direct Case of ALLTEL Telephone Systems, Inc., CC Docket No. 01-206
    (filed Oct. 3, 2001) (ALLTEL Rebuttal). Moultrie also filed a
    supplement to its direct case on October 3, 2001. *See* Supplement
    to Direct Case of Moultrie Independent Telephone Company, CC Docket
    No. 01-206 (filed Oct. 3, 2001) (Moultrie Supplement).

[^10]: *See* Letter from Steve Bowers, President, Moultrie Independent
    Telephone Company, Inc., to Secretary, FCC, Description and
    Justification (June 18, 2001) (Moultrie Transmittal No. 4).

[^11]: *See* Moultrie Independent Telephone Company Petition for
    Declaratory Ruling, CC Docket No. 96-45 at 5 (filed Mar. 29, 1999)
    (Moultrie Petition). These assets include motor vehicles, other work
    equipment, land and buildings, furniture, office equipment, general
    purpose computers, circuit equipment, and non-loop-related buried
    cable. *See* Letter from Gina Harrison, Senior Counsel and Director,
    NECA Washington Office, to Magalie Roman Salas, Secretary, Federal
    Communications Commission at 2 (Mar. 10, 1999) (NECA Mar. 10, 1999
    *Ex Parte* Letter).

[^12]: In its petition, Moultrie states, "Moultrie structured the
    transfer to optimize its recovery under the USF and to maximize tax
    benefits." Moultrie Petition at 5.

[^13]: *See* NECA Mar. 10, 1999 *Ex Parte* Letter at 2.

[^14]: Specifically, the sale/lease-back transaction as reported by
    Moultrie would have increased Moultrie's USF support by 2887
    percent, from \$15 per loop per year to \$433 per loop per year.
    *See* NECA Mar. 10, 1999 *Ex Parte* Letter at 3.

[^15]: *See* NECA Mar. 10, 1999 *Ex Parte* Letter. In its direct case
    and rebuttal, Moultrie claims that NECA violated the Commission's
    *ex parte* rules by failing to serve a copy of the March 10, 1999
    letter on Moultrie. *See* Moultrie Direct Case at 4; Moultrie
    Rebuttal at 4. Moultrie is incorrect. The Commission's *ex parte*
    rules do not require filers to serve copies on parties to the
    proceeding; on the contrary, the definition of an *ex parte*
    presentation is "\[a\]ny presentation which . . . \[i\]f written, is
    not served on the parties to the proceeding." 47 C.F.R. §
    1.1202(b)(1). NECA complied with the *ex parte* rule requirements by
    submitting two copies of the filing to the Commission's secretary.
    47 C.F.R. § 1.1206(b)(1).

[^16]: Moultrie Petition at 1. *See also* Moultrie Independent Telephone
    Company Motion for Stay of Section 69.605 of the Commission's Rules,
    CC Docket No. 96-45 (filed Feb. 2, 2001) (Motion for Stay) (seeking
    to preclude NECA from collecting cost information from Moultrie
    until the Commission rules on the Petition for Declaratory Ruling);
    Moultrie Independent Telephone Company Amendment to Petition for
    Declaratory Ruling, CC Docket No. 96-45 (filed Apr. 6, 1999)
    (requesting the Commission to direct NECA to re-open the 24-month
    window in which members may adjust cost studies); *and* Moultrie
    Independent Telephone Company Amendment to Motion for Stay of
    Section 69.605 of the Commission's Rules, CC Docket No. 96-45 (filed
    Feb. 6, 2001) (requesting expedited action on the Motion for Stay).

[^17]: Letter from Lisa Zaina, Acting Deputy, Federal Communications
    Commission Common Carrier Bureau, to John A. Ricker, Executive
    Director-Universal Service Program Support, National Exchange
    Carrier Association, Inc. (Aug. 4, 1999) (Aug. 4 Bureau Letter).

[^18]: *See* Letter from David A. Irwin, Irwin, Campbell & Tannenwald,
    P.C., to Jane Mago, General Counsel, Federal Communications
    Commission, Attachment (July 17, 2001).

[^19]: *See* Letter from David A. Irwin, Irwin, Campbell & Tannenwald,
    P.C., to Dorothy Attwood, Chief, Federal Communications Commission
    Common Carrier Bureau, Attachment (Dec. 29, 2000).

[^20]: *Moultrie Independent Telephone Company, Motion for Stay of Part
    69.605(a) of the Commission's Rules and Petition for Declaratory
    Ruling, Request for Waiver of Part 36 of the Commission's Rules,
    Federal-State Joint Board on Universal Service*, CC Docket No.
    96-45, Order, FCC 01-292 (Oct. 5, 2001) (*Moultrie Order*).

[^21]: *See Moultrie Order* at paras. 9-10.

[^22]: *See Moultrie Order* at para. 17.

[^23]: 47 C.F.R. § 69.106(b).

[^24]: *See* Moultrie Direct Case at 4-5; Moultrie Rebuttal at 2.

[^25]: Moultrie Rebuttal at 2.

[^26]: *See Moultrie Order* at para. 21.

[^27]: Moultrie submitted the revised cost studies to NECA on November
    2, 2001. *See* Letter from David A. Irwin, Irwin, Campbell &
    Tannenwald, P.C., to Roberta L. Alvir, Manager, Midwest Region,
    National Exchange Carrier Association (Nov. 2, 2001).

[^28]: *See Alenco Communications, Inc. v. FCC*, 201 F.3d 608, 623
    (5^th^ Cir. 2000) (finding that the distinction between explicit
    funding and implicit funding "turns on the difference between direct
    subsidies from support funds and recovery through access charges and
    rate structures.").

[^29]: 47 U.S.C. § 254(e).

[^30]: *See Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Report and Order, 12 FCC Rcd 8776, 8940-42, paras. 303-04
    (1997) (converting the DEM weighting factor from implicit recovery
    through interstate access rates to explicit recovery through the
    USF), *aff'd in part, rev'd in part by Texas Office of Public
    Utility Counsel v. FCC*, 183 F.3d 393 (5^th^ Cir. 1999) (*TOPUC*);
    *Access Charge Reform, Price Cap Performance Review for Local
    Exchange Carriers, Transport Rate Structure and Pricing, End User
    Common Line Charges*, CC Docket Nos. 96-262, 94-1, 91-213, and
    95-72, First Report and Order, 12 FCC Rcd 15982, 15986-87, paras.
    5-8 (1997) (*Access Charge Reform Order*) (determining that implicit
    support for universal service should be identified and removed from
    interstate access charges and should be provided instead through
    explicit support mechanisms), *aff'd sub nom.*, *Southwestern Bell
    v. FCC*, 153 F.3d 523 (8^th^ Cir. 1998); *Access Charge Reform,
    Price Cap Performance Review for Local Exchange Carriers, Low-Volume
    Long-Distance Users, Federal-State Joint Board on Universal
    Service*, Sixth Report and Order in CC Docket Nos. 96-262 and 94-1,
    Report and Order in CC Docket No. 99-249, Eleventh Report and Order
    in CC Docket No. 96-45, 15 FCC Rcd 12962, 13039-62, paras. 185-232
    (2000) (*CALLS Order*) (identifying as implicit support for
    universal service a specific amount of interstate access charges and
    replacing this implicit support with an explicit interstate access
    universal service support mechanism). *See also 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 for 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, and Report and
    Order in CC Docket Nos. 98-77 and 98-166, FCC 01-304, para. 8 (Nov.
    8, 2001) (*MAG Order*) (concluding that leaving the removal of
    implicit support to the discretion of individual carriers is neither
    consistent with the mandate of the 1996 Act nor justified from a
    public policy standpoint).

[^31]: *See* AT&T Opposition at 5.

[^32]: 47 C.F.R. § 36.125(a)(3). Holding time is the time in which an
    item of telephone plant is in actual use either by a customer or an
    operator. 47 C.F.R. Part 36 Appendix-Glossary.

[^33]: 47 C.F.R. § 36.125(a)(5).

[^34]: *See* *id.* *See also General Communication, Inc. v. Alaska
    Communications Sys. Holdings, Inc.*, EB-00-MD-016, Memorandum
    Opinion and Order, 16 FCC Rcd 2834, 2852, para. 44 (2001) (*GCI
    Order*).

[^35]: *See, e.g., Amendment of Part 67 of the Commission's Rules and
    Establishment of a Joint Board*, CC Docket No. 80-286, Recommended
    Decision and Order, 2 FCC Rcd 2551, 2559, para. 48 (Fed.-State Jt.
    Bd. 1987) (Recommending the use of measured DEM "because it is a
    simple allocator that is easy to implement and administer.").

[^36]: Reply Comments of ALLTEL Corporation, CCB/CPD File No. 01-08,
    (filed June 29, 2001) (ALLTEL Reply). Interlocal calls are those in
    which lines are connected to local trunks, i.e., calls with
    different originating and terminating switches.

[^37]: ALLTEL Reply at 1.

[^38]: To determine the number of its originating Internet minutes,
    ALLTEL identified numbers with high call durations, i.e., calls that
    lasted for more than 60 minutes with at least 500 total minutes to
    the number per month. ALLTEL then called the numbers to which these
    calls were placed. Any numbers that were answered with a modem tone
    were determined to be ISP numbers and the corresponding minutes were
    determined to be Internet minutes. *See* Letter from David Bartlett,
    ALLTEL Corporation, to Magalie Roman Salas, Secretary, Federal
    Communications Commission (July 23, 2001) (ALLTEL July 23 *Ex Parte*
    Letter).

[^39]: ALLTEL Reply at 1-2.

[^40]: 47 U.S.C. § 201(b).

[^41]: *See GCI Order*, 16 FCC Rcd at 2852, para. 44.

[^42]: *Jurisdictional Separations and Referral to the Federal-State
    Joint Board*, CC Docket No. 80-286, Report and Order, 16 FCC Rcd
    11382, 11402, para. 40 (2001) (*Separations Freeze Order*) ("We have
    no reliable data, therefore, upon which to set any reasonable local
    DEM reduction on an across-the-board, nationwide basis in order to
    compensate for any effects that Internet usage may have had on
    jurisdictional allocations or consumers.").

[^43]: *Separations Freeze Order*, 16 FCC Rcd at 11403, para. 42.

[^44]: *See Separations Freeze Order*, 16 FCC Rcd at 11396, para. 27.