**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

In the Matters of: )

)

Federal-State Joint Board on ) CC Docket No. 96-45

Universal Service )

)

Division Announces Release of Revised ) CC Docket Nos. 96-45, 97-21

Universal Service Worksheet, FCC Form 457 ) DA No. 98-1519

)

1998 Biennial Regulatory Review \-- ) CC Docket No. 98-171

Streamlined Contributor Reporting )

Requirements Associated with Administration )

of Telecommunications Relay Services, North )

American Numbering Plan, Local Number )

Portability, and Universal Service Support )

Mechanisms )

**TWENTY-FIRST ORDER ON RECONSIDERATION IN CC DOCKET NO. 96-45, AND**

# MEMORANDUM OPINION & ORDER IN CC DOCKET NOS. 96-45, 97-21, AND 98-171

**Adopted: March 29, 2000 Released: April 11, 2000**

By the Commission: Commissioner Furchtgott-Roth dissenting and issuing a
statement.

**I. INTRODUCTION**

1\. Several parties have challenged the Commission\'s decision to
include in the universal service contribution base those charges
identified by carriers on end-user bills as recovering state or federal
universal service contributions.[^1] As described below, these
challenges are pending before the Commission at various procedural
stages. Because all of the challenges concern the same issue, we address
them together in this order.[^2] For the reasons that follow, we deny
the parties\' challenges.

**II. BACKGROUND**

2\. In section 254 of the Communications Act of 1934 (Act), as added by
the Telecommunications Act of 1996 (1996 Act), Congress instructed the
Commission and the states to establish support mechanisms with the goal
of ensuring the delivery of affordable telecommunications service to all
Americans, including low-income consumers, eligible schools and
libraries, and rural health care providers.[^3] The 1996 Act requires
that \"\[e\]very telecommunications carrier that provides interstate
telecommunications services shall contribute, on an equitable and
nondiscriminatory basis, to the specific, predictable, and sufficient
mechanisms established by the Commission to preserve and advance
universal service.\"[^4] The support mechanisms established by the
Commission also should be competitively neutral, i.e., they should
neither unfairly advantage nor disadvantage one provider over another,
and neither unfairly favor nor disfavor one technology over another.[^5]

**A. Universal Service Contribution Rules**

3\. In the universal service *First Report and Order*, the Commission
decided, *inter alia*, to base contributions to the universal service
support mechanisms on carriers\' end-user telecommunications
revenues.[^6] The Commission concluded that the end-user
telecommunications revenues method is competitively neutral, easy to
administer, and eliminates some economic distortions associated with
alternative contribution bases.[^7] In addition, the Commission found
that, in a dynamic telecommunications marketplace where pricing
flexibility is an important competitive tool, carriers will need the
ability to decide how they should recover their contributions to the
federal universal service support mechanisms.[^8] The Commission decided
to permit, but not require, carriers to recover their contributions to
the universal service support mechanisms from their customers.[^9]
Rather than mandating that carriers recover their contributions from
their customers through a federally imposed end-user surcharge, the
Commission allowed carriers to decide for themselves whether, how, and
how much to recover from their customers.[^10] The Commission required
only that carriers not shift more than an equitable share of their
contributions to any customer or group of customers, and that carriers
provide accurate, truthful, and complete information regarding the
nature of the charge.[^11] In response to the *First Report and Order*,
the Personal Communications Industry Association (PCIA) filed a petition
seeking, *inter alia*, clarification of whether universal service
charges that carriers recover from their customers would be included in
carriers\' end-user telecommunications revenues for purposes of
determining carriers\' contribution bases.[^12]

4\. In the universal service *Second Order on Reconsideration*, the
Commission adopted a rule setting forth the method of computation for
universal service contributions.[^13] Specifically, section 54.709(a) of
the Commission\'s rules provides, in relevant part, that contributions
to the universal service support mechanisms shall be based on
contributors\' end-user telecommunications revenues and a contribution
factor determined quarterly by the Administrator, the Universal Service
Administrative Company (USAC).[^14] The rule further provides that the
quarterly universal service contribution factor shall be based on the
ratio of total projected quarterly expenses of the universal service
support programs to total interstate and international end-user
telecommunications revenues.[^15] Thus, contributions are the product of
a contributor\'s individual interstate and international end-user
telecommunications revenues and a contribution factor that is equal to
the ratio of total projected quarterly expenses of the universal service
support mechanisms to the total interstate and international end-user
telecommunications revenues of all contributors.[^16]

5\. To collect information about end-user telecommunications revenues
from contributors, the Commission adopted a rule in the *Second Order on
Reconsideration* requiring contributors to submit a Universal Service
Worksheet, FCC Form 457 (1997 Worksheet), at regular intervals.[^17] The
1997 Worksheet asks carriers to report their revenues from various
categories of their operations, e.g., fixed local service, mobile
service, toll service, non-telecommunications services, etc. The
Commission delegated authority to the Common Carrier Bureau (Bureau) to
\"require any additional contributor reporting requirements necessary to
the sound and efficient administration of the universal service
programs.\"[^18]

**B. 1998 Worksheet**

6\. Pursuant to the authority delegated by the Commission in the *Second
Order on Reconsideration*, the Bureau, through its Accounting Policy
Division (APD),[^19] released a revised Universal Service Worksheet
(1998 Worksheet) on July 31, 1998.[^20] The 1998 Worksheet contains a
new Line 48, which requires a carrier to report, as a separate
line-item, the amount of revenues derived from charges assessed on
end-users to recover the carrier\'s contributions to state or federal
universal service support mechanisms.[^21] In response to the 1998
Worksheet, PCIA and Metrocall, Inc. (Metrocall) filed petitions for
reconsideration challenging Line 48.[^22] PCIA and Metrocall claim that
Line 48 constitutes a new substantive rule that: (1) exceeds the
Bureau\'s delegated authority; (2) was promulgated in violation of the
Administrative Procedure Act; and (3) increases contributions by
artificially inflating a carrier\'s contribution base.[^23]

**C. Telecommunications Reporting Worksheet**

7\. On September 25, 1998, the Commission released the
*Telecommunications Reporting Worksheet NPRM*, which proposed
simplifying carrier reporting requirements for various Commission
support and cost recovery mechanisms so that a single worksheet would
replace the multiple forms then required by those mechanisms.[^24]
Specifically, the *Telecommunications Reporting Worksheet NPRM* proposed
consolidating the reporting requirements of the universal service
support mechanisms, the Telecommunications Relay Services Fund, the cost
recovery mechanism for administration of the North American Numbering
Plan, and the cost recovery mechanism for administration of long-term
local number portability.[^25] The Commission noted, however, that it
did not seek to revisit the substantive requirements of the four support
and cost recovery mechanisms, the class of contributors to each
mechanism, or the services whose revenues are included in the
contribution bases.[^26]

8\. The Commission released a draft copy of the proposed
Telecommunications Reporting Worksheet, FCC Form 499, as an appendix to
the *Telecommunications Reporting Worksheet NPRM*.[^27] Consistent with
the Commission\'s decision not to revisit the substantive requirements
of the various programs, the draft Telecommunications Reporting
Worksheet contains a line-item (Line 215) which is substantively
identical to Line 48 on the 1998 Worksheet and requires a carrier to
report the amount of revenues derived from charges assessed on end-users
to recover the carrier\'s contributions to state or federal universal
service support mechanisms. The Commission explained that this reporting
requirement is designed to: (1) \"ensure that these revenues are
properly reported and included in carriers\' contribution bases\", and
(2) \"make it easier for the Commission to verify that contributors are
not over-recovering from subscribers.\"[^28] In response to the
*Telecommunications Reporting Worksheet NPRM*, PCIA filed comments, and
Blooston, Mordkofsky, Jackson & Dickens (Blooston) and GTE Service
Corporation (GTE) filed reply comments, all claiming that Line 215
increases contributions by artificially inflating carriers\'
contribution bases.[^29] On July 14, 1999, the Commission adopted the
Telecommunications Reporting Worksheet, and deferred consideration of
the pending challenges to the inclusion of carrier-imposed universal
service charges in the contribution base.[^30] We now address those
challenges.

**III. DISCUSSION**

**A. Alleged Procedural Violations**

9\. The Commission\'s rules provide that contributions to the universal
service support mechanisms shall be based on \"revenues derived from
domestic end users for telecommunications or telecommunications
services.\"[^31] The parties claim that charges assessed on end users to
recover a carrier\'s contributions to state or federal universal service
support mechanisms do not qualify as revenues derived from
telecommunications or telecommunications services.[^32] Thus, the
parties assert that Line 48 on the 1998 Worksheet, which treats
universal service charges as telecommunications revenues, constitutes a
new substantive rule.[^33] Based on the assertion that Line 48 is a new
substantive rule, the parties further allege that APD committed two
procedural violations in adding Line 48 to the 1998 Worksheet. First,
the parties claim that APD exceeded the authority delegated to the
Bureau by adopting a new substantive rule, which is a task reserved to
the Commission in Part 1, Subpart C, of the Commission\'s rules.[^34]
Second, the parties allege that APD violated section 553 of the
Administrative Procedure Act (APA) by adopting a new substantive rule
without an opportunity for notice and comment.[^35] We disagree.

10\. The parties have erred in their underlying assertion that Line 48
constitutes a new substantive rule. In the *First Report and Order*,
released on May 8, 1997, the Commission decided to assess contributions
to the universal service support mechanisms on telecommunications
revenues that carriers derive from end users.[^36] The Commission
permitted carriers to recover their universal service contributions from
their customers and \"to specify that fact on customers\' bills,\" e.g.,
through a line-item charge.[^37] The Commission codified the
contribution requirement at section 54.709(a)(1) of its rules, which
states that contributions to the universal service support mechanisms
shall be based on \"revenues derived from domestic end users for
telecommunications or telecommunications services.\"[^38] The 1996 Act
defines telecommunications as \"the transmission, between or among
points specified by the user, of information of the user\'s choosing,
without change in the form or content of the information sent and
received.\"[^39] The 1996 Act also defines telecommunications services
as \"the offering of telecommunications *for a fee* directly to the
public . . . .\"[^40] The charge assessed on an end-user to recover a
carrier\'s contributions to state or federal universal service support
mechanisms is simply one part of the carrier\'s fee for the provision of
telecommunications to that end-user. Although a carrier may choose to
assess a particular cost of providing telecommunications or
telecommunications services separately from other such costs, the
carrier's choice does not change the nature of the revenues received
from the end-user. Thus, carrier-imposed universal service charges are,
and always have been, revenues derived from the provision of
telecommunications. As such, carrier-imposed universal service charges
are part of the universal service contribution base.[^41]

11\. Moreover, we believe that the parties misapprehend the nature of
carrier-imposed universal service charges. Instead of forcing carriers
to recover their universal service contributions through a mandatory
surcharge on their customers, the Commission gave carriers the
flexibility to decide whether, how, and how much to recover from their
customers.[^42] For example, carriers may recover their universal
service contributions by raising their rates or by adding a separate
line-item universal service charge to their customers\' bills. In either
event, the carrier is recovering its contribution from its end-users.
Merely because the Commission allowed carriers to identify a portion of
their fees as recovering the carriers\' universal service contributions,
the monies so collected are not somehow rendered non-telecommunications
revenues. Indeed, but for the provision of telecommunications to its
customers, a carrier would not have telecommunications revenues, would
not be required to contribute to the universal service support
mechanisms,[^43] and would not have any lawful basis to assess a
universal service charge on its customers.[^44]

12\. Because carrier-imposed universal service charges are end-user
telecommunications revenues, the addition of Line 48 on the 1998
Worksheet does not constitute a new substantive rule. Rather, Line 48 is
merely the Bureau\'s implementation and clarification of the existing
Commission rule requiring that contributions be based on end-user
telecommunications revenues.[^45] Because Line 48 is not a new
substantive rule, the Bureau neither exceeded its delegated authority
nor violated the notice and comment requirements of the APA.[^46]
Accordingly, we reject the parties\' procedural claims.

**B. Substantive Arguments Regarding the Inclusion of Carrier-Imposed
Universal Service Charges in the Contribution Base**

13\. The parties argue that including carrier-imposed universal service
charges in the contribution base creates a circular formula that drives
up the contribution base, causing increased contributions, which result
in higher carrier-imposed universal service charges that further drive
up the contribution base.[^47] Thus, the parties claim that the
inclusion of carrier-imposed universal service charges in the
contribution base disserves the public interest because it results in an
upwardly spiraling \"vicious cycle\" of perpetual increases in carrier
contributions to the universal service support mechanisms.[^48] For
example, PCIA supplies the following description of this alleged
effect:[^49]

\[I\]f a carrier receives \$100 in revenues for flat-rated services from
an end-user over a given period, and assuming a 10 percent contribution
rate, the carrier\'s contribution would be \$10. If the carrier passes
the \$10 through to the customer, the revenues received from the
customer (in the next comparable period) would increase to \$110. If the
\$10 pass through is considered \"end user telecommunications
revenues,\" the contribution would increase to \$11, as an assessment
would be included on the recovery of contributions from the customer.

Metrocall and Blooston provide similar examples.[^50] Upon closer
examination, however, the inclusion of carrier-imposed universal service
charges in the contribution base does not have the effect claimed by the
parties.

14\. In each of their examples, the parties assume that, all other
things being equal, the contribution factor remains constant as the
contribution base increases.[^51] This assumption, however, is
mathematically impossible. The contribution factor is the ratio of total
universal service program costs to the contribution base.[^52] Stated as
a mathematical equation, the contribution factor can be described as
follows:[^53]

Total Program Costs

Contribution Factor =

Contribution Base

The total program costs and the contribution base are independent
variables in this equation. The contribution factor, on the other hand,
is the dependent variable, i.e., the contribution factor is dependent on
the amount of the total program costs and the contribution base. Because
the contribution base is the denominator in this equation, the
contribution factor is inversely proportional to the contribution base.
In other words, as the contribution base increases, all other things
being equal, the contribution factor must decrease.

15\. As demonstrated by the exhibit in Appendix B hereto, all other
things being equal, when carrier-imposed universal service charges are
included in the contribution base, the contribution base increases, the
contribution factor decreases in proportion to the increase in the
contribution base, and the amount of each carrier's contribution remains
constant. Therefore, the parties' \"vicious cycle\" argument is
unfounded.[^54] Moreover, if carrier-imposed universal service charges
were *not* included in the contribution base, there would be a
competitive imbalance in the Commission\'s contribution methodology. All
other things being equal, a carrier that chose to recover its
contributions by increasing its rates would have an increased individual
contribution base and an increased contribution. A carrier that chose to
recover its contributions by imposing a line-item charge would not have
an increased individual contribution base or an increased contribution.
Such a result would put carriers choosing to raise their rates at a
disadvantage compared to carriers choosing to impose a line-item charge,
would render illusory the "choice" of recovery methods, and would
violate the universal service principle of competitive neutrality.[^55]
Accordingly, for all of the foregoing reasons, we reject the parties\'
claims that carrier-imposed universal service charges should be excluded
from the contribution base.

**IV. ORDERING CLAUSES**

16\. IT IS ORDERED that, pursuant to the authority contained in sections
1-4, 201-205, 218-220, 254, 303(r), 403, and 405 of the Communications
Act of 1934, as amended, 47 U.S.C. §§ 151-154, 201-205, 218-220, 254,
303(r), 403, and 405, and section 1.429 of the Commission\'s rules, 47
C.F.R. § 1.429, the TWENTY-FIRST ORDER ON RECONSIDERATION in CC docket
No. 96-45 and the MEMORANDUM OPINION and ORDER in CC Docket Nos. 96-45,
97-21, and 98-171 ARE ADOPTED.

17\. IT IS FURTHER ORDERED that, pursuant to the authority contained in
sections 4(i) and 405 of the Communications Act of 1934, as amended, 47
U.S.C. §§ 154(i) and 405, and section 1.429 of the Commission\'s rules,
47 C.F.R. § 1.429, the Petition for Partial Reconsideration and
Clarification filed by the Personal Communications Industry Association
on July 17, 1997 IS DENIED to the extent stated herein.

18\. IT IS FURTHER ORDERED that, pursuant to the authority contained in
sections 4(i) and 405 of the Communications Act of 1934, as amended, 47
U.S.C. §§ 154(i) and 405, and section 1.106 of the Commission\'s rules,
47 C.F.R. § 1.106, the Petition for Reconsideration filed by the
Personal Communications Industry Association on August 31, 1998 IS
DENIED.

19\. IT IS FURTHER ORDERED that, pursuant to the authority contained in
sections 4(i) and 405 of the Communications Act of 1934, as amended, 47
U.S.C. §§ 154(i) and 405, and section 1.106 of the Commission\'s rules,
47 C.F.R. § 1.106, the Petition for Reconsideration filed by Metrocall,
Inc. on August 31, 1998 IS DENIED.

FEDERAL COMMUNICATIONS COMMISSION

Magalie Roman Salas

Secretary

**Appendix A**

**Commission Items and Relevant Responses from Parties**

1\. *Federal-State Joint Board on Universal Service*, CC Docket No.
96-45, Report and Order, 12 FCC Rcd 8776 (1997)

[Petition for Reconsideration]{.underline}

Personal Communications Industry Association (filed July 17, 1997)

(PCIA 1997 Petition)

[Reply Comments in Response to Comments on Petitions for
Reconsideration]{.underline}

Personal Communications Industry Association (filed Sept. 3, 1997)

(PCIA 1997 Reply Comments)

2\. *Division Announces Release of Revised Universal Service Worksheet,
FCC Form 457*, CC Docket Nos. 97-21, 96-45, Public Notice, DA 98-1519
(APD, rel. July 31, 1998)

[Petitions for Reconsideration]{.underline}

Personal Communications Industry Association (filed Aug. 31, 1998)

(PCIA 1998 Petition)

Metrocall, Inc. (filed Aug. 31, 1998)

(Metrocall Petition)

[Public Notice Seeking Comment on Petitions for
Reconsideration]{.underline}

*Petitions for Reconsideration and Clarification of Action in Rulemaking
Proceedings*, Public Notice, Report No. 2298 (APD, rel. Sept. 22, 1998)

[Comments]{.underline}

GTE Service Corporation (filed Sept. 10, 1998)

(GTE Comments)

MCI WorldCom, Inc. (filed Oct. 13, 1998)

(MCI WorldCom Comments)

United States Telephone Association (filed Oct. 19, 1998)[^56]

(USTA Comments)

[Reply Comments]{.underline}

Arch Communications Group, Inc. (filed Oct. 23, 1998)

(Arch Reply Comments)

RSL Com USA, Inc. (filed Oct. 23, 1998)

(RSL Reply Comments)

3\. *1998 Biennial Regulatory Review \-- Streamlined Contributor
Reporting Requirements Associated with Administration of
Telecommunications Relay Services, North American Numbering Plan, Local
Number Portability, and Universal Service Support Mechanisms*, Notice of
Proposed Rulemaking and Notice of Inquiry, 13 FCC Rcd 19295 (1998).

[Comments]{.underline}

Personal Communications Industry Association (filed Oct. 30, 1998)

(PCIA TRW Comments)

Sprint Corporation (filed Oct. 30, 1998)

(Sprint Comments)

GTE Service Corporation (filed Oct. 30, 1998)

(GTE TRW Comments)

[Reply Comments]{.underline}

Blooston, Mordkofsky, Jackson & Dickens (filed Nov. 16, 1998)

(Blooston TRW Reply Comments)

GTE Service Corporation (filed Nov. 17, 1998)

(GTE TRW Reply Comments)

\* *See also* Notice of *Ex Parte* Meeting - Metrocall, Inc.; Personal
Communications Industry Association; and Blooston Mordkofsky, Jackson &
Dickens (filed Feb. 23, 1999).

**Appendix B**

[Effect of Including Carrier-Imposed Universal Service Charges in
Contribution Base]{.underline}[^57]

**[Period 1]{.underline}**

Number of Carriers: 10

Revenue per Carrier: \$100

Contribution Base: (10 x \$100) = \$1000

Total Program Costs: \$100

Contribution Factor: \$100 / \$1000 = .10

Contribution per Carrier: (.10 Contribution Factor x \$100 Revenue per
Carrier) = \$10

**[Period 2]{.underline}**

Number of Carriers: 10

Revenue per Carrier: (\$100 Service Revenue + \$10 Universal Service
Charge) = \$110

Contribution Base: (10 x \$110) = \$1100

Total Program Costs: \$100

Contribution Factor: \$100 / \$1100 = .0909

Contribution per Carrier: (.0909 Contribution Factor x \$110 Revenue per
Carrier) = \$10

**[Period 3]{.underline}**

Number of Carriers: 10

Revenue per Carrier: (\$100 Service Revenue + \$10 Universal Service
Charge) = \$110

Contribution Base: (10 x \$110) = \$1100

Total Program Costs: \$100

Contribution Factor: \$100 / \$1100 = .0909

Contribution per Carrier: (.0909 Contribution Factor x \$110 Revenue per
Carrier) = \$10

# DISSENTING STATEMENT 

**OF COMMISSIONER HAROLD FURCHTGOTT‑ROTH**

*Re: Federal-State Joint Board on Universal Service, Division Announces
Release of Revised Universal Service Worksheet, FCC Form 457, 1998
Biennial Regulatory Review -- Streamlined Contributor Reporting
Requirements Associated with Administration of Telecommunications Relay
Services, North American Numbering Plan, Local Number Portability, and
Universal Service Support Mechanisms*, Twenty-First Order on
Reconsideration in CC Docket No. 96-45, and Memorandum Opinion and Order
in CC Docket Nos. 96-45, 97-21, and 98-171.

I do not agree with the Commission's decision to require carriers to
include in their universal service contribution base the charges that
carriers assess on end users in order to recover their universal service
expenses. The order concludes, with no explanation whatsoever, that the
charges "are simply one part of the carrier's fee for the provision of
telecommunications to \[an\] end-user," *see* Order ¶ 10, and therefore
must be included in the universal service contribution base.

But by this reasoning, *any* tax or fee collected from an end-user by
the carrier, and paid by the carrier to the taxing authority,
constitutes a "fee for the provision of telecommunications." Why should
the federal excise tax that is assessed on consumers not also be
included in a carrier's "revenues"?

In my view, since the universal service fees at issue are essentially
gross receipts fees -- in that they are a percentage of a carrier's
gross revenues -- the rational approach would be to exclude these
amounts from the universal service contribution base. Drawing an analogy
to the retail industry, the end user's universal service charge
parallels the gross receipt sales tax that consumers pay in retail
stores. For a given retail purchase, taxes that are due are calculated
as a percentage of the customer's purchase cost, placed on a separate
line, and added to the customer's bill. Thus, if a state has five
percent sales tax, and a customer purchases \$Y worth of goods, he
receives a bill for \$Y = 1.05\*\$Y. He does *not* receive a bill for
1.05\*(\$Y+0.05\*\$Y). Indeed, this is how carriers pay the federal
excise tax assessed on telecommunications services.

The Commission's approach makes sense only for those fees or taxes that
are based on *net* receipts or profits, rather than *gross* receipts.
Since net receipts taxes vary with a carrier's profits, it is not
possible to calculate at the time of purchase the contribution that the
purchase makes to the tax liability of the seller. Again drawing a
parallel to retail stores, the same department store that places a line
item for sales taxes does not have a separate line item for the
corporate tax or real estate tax liability of the department store
owner. This is because in neither case can the tax be directly allocated
to a consumer at the time of purchase. Consequently, the tax payments
are implicitly raised in the corporate overhead. Universal service
contributions, however, are precise receipts tax, and there is no reason
to bury them in corporate overhead.

[^1]:     ^?^ A list of the items concerning the inclusion of
    carrier-imposed universal service charges in the contribution base,
    and the parties\' responses thereto, is attached as Appendix A.

[^2]:     ^?^ *See* 47 C.F.R. § 1.1 (Commission shall follow procedures
    that best serve the purposes of the proceedings before it).

[^3]:     ^?^ The 1996 Act amended the Communications Act of 1934, 47
    U.S.C. § 151, *et seq*. *See* Pub. L. No. 104-104, 110 Stat. 56
    (1996).

[^4]:     ^?^ 47 U.S.C. § 254(d). In addition to interstate
    telecommunications providers, "\[a\]ny other provider of interstate
    telecommunications may be required to contribute to the preservation
    and advancement of universal service if the public interest so
    requires." *Id.* *See also* 47 C.F.R. § 254 (b)(4), (5) (Commission
    policy on universal service shall be based, in part, on the
    principles that contributions should be equitable and
    nondiscriminatory, and support mechanisms should be specific,
    predictable, and sufficient).

[^5]:     ^?^ Besides the universal service principles specified in the
    1996 Act, Congress directed that the Federal-State Joint Board on
    Universal Service (Joint Board) and the Commission shall be guided
    by such other principles that they determine to be consistent with
    the Act, and necessary and appropriate for the protection of the
    public interest, convenience, and necessity. 47 U.S.C. § 254(b)(7).
    At the recommendation of the Joint Board, the Commission adopted
    competitive neutrality as an additional principle for universal
    service. *First Report and Order*, 12 FCC Rcd at 8801-03, paras.
    46-51.

[^6]:     ^?^ *Federal-State Joint Board on Universal Service*, CC
    Docket No. 96-45, Report and Order, 12 FCC Rcd 8776, 9206, para. 844
    (1997), as corrected by *Federal-State Joint Board on Universal
    Service*, CC Docket No. 96-45, Erratum, FCC 97-157 (rel. June 4,
    1997), *aff\'d in part, rev\'d in part, and remanded in part sub nom
    Texas Office of Public Utility Counsel v. FCC*, 183 F.3d 393 (5th
    Cir., July 30, 1999), *petitions for cert. filed*, 68 U.S.L.W. 3433
    (U.S. Dec. 23, 1999) (No. 99-1072), 68 U.S.L.W. 3496 (U.S. Jan. 26,
    2000) (Nos. 99-1244, 99-1249) (*First Report and Order*). In *Texas
    Office of Public Utility Counsel*, the Fifth Circuit reversed
    certain Commission decisions regarding the revenues on which
    universal service contributions are based. The present matter,
    however, concerns a specific aspect of the Commission\'s underlying
    contribution methodology, and the Fifth Circuit's decision regarding
    the contribution base does not affect our decision here.

[^7]:     ^?^ *First Report and Order*, 12 FCC Rcd at 9206-09, paras.
    844-50.

[^8]:     ^?^ *Id.* at 9210-11, para. 853.

[^9]:     ^?^ *Id.* at 9199, para. 829. For price cap local exchange
    carriers that elect to recover their contributions, however, the
    Commission determined that such carriers may treat their
    contributions as exogenous changes to their price cap indices. *Id*.
    at 9200, para. 830. For all other incumbent local exchange carriers,
    the Commission decided to permit recovery of contributions by
    applying a factor to increase their carrier common line charge
    revenue requirement. *Id*. In *Texas Office of Public Utility
    Counsel v. FCC*, the Fifth Circuit found that the Commission
    required incumbent local exchange carriers to recover their
    contributions through access charges. *Texas Office of Public
    Utility Counsel v. FCC*, 183 F.3d at 425. The court held that this
    requirement maintained an implicit subsidy in violation of section
    254(e) of the Act, and reversed the Commission's decision to impose
    the requirement. *Id*. In the *Universal Service Remand Order*, the
    Commission revised its rules to allow incumbent local exchange
    carriers to recover their contributions through access charges or
    through end-user charges. *Federal-State Joint Board on Universal
    Service*, CC Docket No. 96-45, *Access Charge Reform*, CC Docket No.
    96-262, Sixteenth Order on Reconsideration in CC Docket No. 96-45,
    Eighth Report and Order in CC Docket No. 96-45, Sixth Report and
    Order in CC Docket No. 96-262, FCC 99-290 at paras. 30-33 (rel. Oct.
    8, 1999) (*Universal Service Remand Order*).

[^10]:     ^?^ *First Report and Order*, 12 FCC Rcd at 9210-11, para.
    853.

[^11]:     ^?^ *Id*. at 9199, para. 829, 9211, para. 855.

[^12]:     ^?^ PCIA 1997 Petition. PCIA\'s 1997 Petition also sought
    reconsideration of the Commission\'s decision to require paging
    carriers to contribute to the universal service support mechanisms.
    *Id*. at 4-8. The Commission addressed that aspect of PCIA\'s 1997
    Petition in the universal service *Fourth Order on Reconsideration*.
    *Federal-State Joint Board on Universal Service*, Fourth Order on
    Reconsideration in CC Docket No. 96-45, Report and Order in CC
    Docket Nos. 96-45, 96-262, 94-1, 91-213, 95-72, 13 FCC Rcd 5318
    (1997) (*Fourth Order on Reconsideration*).

[^13]:     ^?^ *Changes to the Board of Directors of the National
    Exchange Carrier Association, Inc*., CC Docket No. 97-21,
    *Federal-State Joint Board on Universal Service*, CC Docket No.
    96-45, Report and Order and Second Order on Reconsideration, 12 FCC
    Rcd 18400 (1997) (*Second Order on Reconsideration*).

[^14]:     ^?^ An explanation of the Commission\'s contribution factor
    is contained in section 54.709(a) of the Commission\'s rules, which
    was recently amended to comply with the Fifth Circuit's decision. 47
    C.F.R. § 54.709(a). *See* note 6, *supra*.

[^15]:     ^?^ 47 C.F.R. § 54.709(a).

[^16]:     ^?^ *Id*.

[^17]:     ^?^ *Second Order on Reconsideration*, 12 FCC Rcd 18400,
    Appendix B. *See also* 47 C.F.R. § 54.711(a) (\"Contributions shall
    be calculated and filed in accordance with the Universal Service
    Worksheet. The Universal Service Worksheet sets forth information
    that the contributor must submit to the Administrator \[(USAC)\] on
    a semi-annual basis. . . . .\"). The Commission adopted the 1997
    Worksheet and attached it as Appendix C to the *Second Order on
    Reconsideration*. The 1997 Worksheet was adopted in draft form
    pending approval from the Office of Management and Budget (OMB)
    pursuant to the Paperwork Reduction Act of 1995. *Id*. at 18442,
    para. 80. A summary of the *Second Order on Reconsideration* was
    published in the Federal Register on August 1, 1997. 62 Fed. Reg.
    41294 (1997). On August 4, 1997, the Commission announced that it
    had received OMB approval, and officially released the 1997
    Worksheet. *FCC Announces Release of Universal Service Worksheet*,
    *FCC Form 457*, CC Docket Nos. 97-21, 96-45, Public Notice, DA
    97-1671 (rel. Aug. 4, 1997).

[^18]:     ^?^ *Second Order on Reconsideration*, 12 FCC Rcd at 18442,
    para. 81. *See also* 47 C.F.R. § 54.711(c) (the Bureau may \"require
    additional reporting requirements that the Bureau deems necessary to
    the sound and efficient administration of the universal service
    support mechanisms.\").

[^19]:     ^?^ *See* 47 C.F.R. § 0.204(a), (b) (authority delegated to
    any official to issue action documents may be delegated to
    appropriate subordinate officials).

[^20]:     ^?^ *Division Announces Release of Revised Universal Service
    Worksheet, FCC Form 457*, CC Docket Nos. 97-21, 96-45, Public
    Notice, DA 98-1519 (APD, rel. July 31, 1998).

[^21]:     ^?^ 1998 Worksheet at 2, 16.

[^22]:     ^?^ PCIA 1998 Petition; Metrocall Petition. APD issued a
    public notice seeking comment on each of the petitions. *Petitions
    for Reconsideration and Clarification of Action in Rulemaking
    Proceedings*, Public Notice, Report No. 2298 (APD, rel. Sept. 22,
    1998). A list of the comments and reply comments filed in response
    to the public notice is included in Appendix A.

[^23]:     ^?^ PCIA 1998 Petition at 1-4; Metrocall Petition at 2-11.
    MCI WorldCom, Inc. (MCI WorldCom), among others, filed comments in
    support of the petitions by PCIA and Metrocall. In addition to
    echoing the concerns of PCIA and Metrocall, MCI WorldCom claims that
    the Commission has unfairly allowed local exchange carriers \"to
    recover their federal universal service assessments by increasing
    interstate access charges instead of imposing a charge on
    end-users.\" MCI WorldCom Comments at 2. Those issues were addressed
    by the Fifth Circuit in *Texas Office of Public Utility Counsel v.
    FCC*, and are not relevant to this proceeding. *See* note 9,
    *supra*.

[^24]:     ^?^ *1998 Biennial Regulatory Review \-- Streamlined
    Contributor Reporting Requirements Associated with Administration of
    Telecommunications Relay Services, North American Numbering Plan,
    Local Number Portability, and Universal Service Support Mechanisms*,
    CC Docket No. 98-171, Notice of Proposed Rulemaking and Notice of
    Inquiry, 13 FCC Rcd 19295 (1998) (*Telecommunications Reporting
    Worksheet NPRM*).

[^25]:     ^?^ *Id.* at 19303-06, paras. 16-20.

[^26]:     ^?^ *Id.* at 19298, para. 4.

[^27]:     ^?^ *Id.* at 19339, Appendix B.

[^28]:     ^?^ *Id*. at 19307, para. 22.

[^29]:     ^?^ PCIA TRW comments; Blooston TRW Reply comments; GTE TRW
    reply comments. Sprint Corporation (Sprint) also filed comments in
    response to the *Telecommunications Reporting Worksheet NPRM*.
    Sprint claims that Line 215 will not allow the Commission to verify
    that contributors are not over-recovering from subscribers because
    \"\[t\]here is no way for the Commission to know whether a
    particular carrier . . . intends its line item to recover only its
    explicit payments to USAC or its total Universal Service Fund
    obligation (including the implicit contribution made through access
    charges).\" Sprint TRW comments at 6. We believe that this argument
    raises issues beyond the scope of this Order and would be more
    appropriately addressed in the Commission\'s ongoing
    truth-in-billing proceeding. *See Truth-in-Billing and Billing
    Format*, CC Docket No. 98-170, First Report and Order and Further
    Notice of Proposed Rulemaking, FCC 99-72 (1999).

[^30]:     ^?^ *1998 Biennial Regulatory Review \-- Streamlined
    Contributor Reporting Requirements Associated with Administration of
    Telecommunications Relay Services, North American Numbering Plan,
    Local Number Portability, and Universal Service Support Mechanisms*,
    CC Docket No. 98-171, Report and Order, FCC 99-175, paras. 1, 26
    (1999). *See also Common Carrier Bureau Announces Release of
    September Version of Telecommunications Reporting Worksheet (FCC
    Form 499-S) for Contributions to the Universal Service Support
    Mechanisms*, CC Docket No. 98-171, Public Notice, DA 99-1520 (rel.
    July 30, 1999).

[^31]:     ^?^ 47 C.F.R. § 54.709(a)(1).

[^32]:     ^?^ Metrocall Petition at 2-4; USTA comments at 2; Arch reply
    comments at 2; RSL reply comments at 4-6.

[^33]:     ^?^ Metrocall Petition at 2-4; Arch reply comments at 2; RSL
    reply comments at 4-6.

[^34]:     ^?^ Metrocall Petition at 5-6. *See* 47 C.F.R. § 1.411
    (\"Rulemaking proceedings are commenced by the Commission, either on
    its own motion or on the basis of a petition for rulemaking.\"); 47
    C.F.R. § 1.425 (\"The Commission will consider all-relevant comments
    and material of record before taking final action in a rule-making
    proceeding and will issue a decision incorporating its finding and a
    brief statement of the reasons therefor.\"). *See also* 47 C.F.R. §
    0.291 (\"The Chief, Common Carrier Bureau, shall not have authority
    to issue notices of proposed rulemaking, notices of inquiry, or
    reports and orders . . . .\").

[^35]:     ^?^ Metrocall Petition at 4-5. *See* 5 U.S.C. § 553(b) (a
    notice of the proposed rulemaking shall be published in the Federal
    Register, and shall include: (1) a statement of the time, place, and
    nature of the public rulemaking proceedings; (2) a reference to the
    legal authority under which the rule is proposed; and (3) either the
    terms or substance of the proposed rule or a description of the
    subjects and issues involved).

[^36]:     ^?^ *First Report and Order*, 12 FCC Rcd at 9206, para. 844.

[^37]:     ^?^ *Id.* at 9211-12, para. 855.

[^38]:     ^?^ 47 C.F.R. § 54.709(a)(1).

[^39]:     ^?^ 47 U.S.C. § 153(43).

[^40]:     ^?^ 47 U.S.C. § 153(46) (emphasis added).

[^41]:     ^?^ *See* 47 C.F.R. § 54.709(a)(1). In support of its
    argument against including carrier-imposed universal service charges
    in the contribution base, PCIA points out that the Commission
    decided not to include support payments *from* the universal service
    support mechanisms in the contribution base. PCIA 1997 Petition at
    10. We find no merit in this analogy. Unlike carrier-imposed
    universal service charges, support payments are not end-user
    telecommunications revenues because support payments are derived
    from the universal service support mechanisms, not end-users. *See
    First Report and Order*, 12 FCC Rcd at 9212, para. 857.

[^42]:     ^?^ *Universal Service Order*, 12 FCC Rcd at 9210-12, paras.
    853, 855.

[^43]:     ^?^ *See* 1997 Worksheet at 17 (\"Contributors may have
    revenues on their books that are not derived from telecommunications
    or telecommunications-related functions that should not be included
    in the universal service contribution base.\").

[^44]:     ^?^ We believe that it would be a clear violation of section
    201(b) of the Act for a carrier to assess a universal service charge
    on its customers where the carrier does not have an obligation to
    contribute to the universal service support mechanisms. *See* 47
    U.S.C. § 201(b) (all charges for communications services shall be
    just and reasonable).

[^45]:     ^?^ *See* 47 C.F.R. § 54.709(a)(1). *See also* 47 C.F.R. §
    54.711(c) (the Bureau may \"require additional reporting
    requirements that the Bureau deems necessary to the sound and
    efficient administration of the universal service support
    mechanisms.\").

[^46]:     ^?^ *See* 47 C.F.R. § 0.291(g); 5 U.S.C. § 553(b).

[^47]:     ^?^ GTE comments at 3. *See also* PCIA 1997 Petition at 9-11;
    PCIA 1997 reply comments at 7; PCIA 1998 Petition at 3; Metrocall
    Petition at 9; USTA comments at 2; MCI WorldCom comments at 1-2;
    Arch reply comments at 2; RSL reply comments at 6-7; PCIA TRW
    comments at 4-7; GTE TRW comments at 2-3; Blooston TRW reply
    comments at 3; GTE TRW reply comments at 6.

[^48]:     ^?^ Metrocall Petition at 9. *See also* PCIA 1997 Petition at
    9-11; PCIA 1997 reply comments at 7; PCIA 1998 Petition at 3; GTE
    comments at 3; USTA comments at 2; MCI WorldCom comments at 1-2;
    Arch reply comments at 2; RSL reply comments at 6-7; PCIA TRW
    comments at 4-7; GTE TRW comments at 2-3; Blooston TRW reply
    comments at 3; GTE TRW reply comments at 6.

[^49]:     ^?^ PCIA 1997 Petition at 10.

[^50]:     ^?^ Metrocall Petition at Exhibit 1; Blooston reply comments
    at Attachment B.

[^51]:     ^?^ PCIA 1997 Petition at 10 (assuming a constant 10 percent
    contribution factor); Metrocall Petition at Exhibit 1 (assuming a
    constant 3.93 percent contribution factor); Blooston reply comments
    at Attachment B (\"\[W\]e will assume that there is only one
    contribution factor, and that it remains constant . . . .\").

[^52]:     ^?^ 47 C.F.R. § 54.709(a)(2).

[^53]:     ^?^ *See Proposed Third Quarter 1999 Universal Service
    Contribution Factors*, CC Docket No. 96-45, Public Notice, DA
    99-1091 at 7 (Com. Car. Bur., rel. June 4, 1999).

[^54]:     ^?^ Metrocall Petition at 9. *See also* PCIA 1997 Petition at
    9-11; PCIA 1997 reply comments at 7; PCIA 1998 Petition at 3; GTE
    comments at 3; USTA comments at 2; MCI WorldCom comments at 1-2;
    Arch reply comments at 2; RSL reply comments at 6-7; PCIA TRW
    comments at 4-7; GTE TRW comments at 2-3; Blooston TRW reply
    comments at 3; GTE TRW reply comments at 6.

[^55]:     ^?^ *See First Report and Order*, 12 FCC Rcd at 8801-03,
    paras. 46-51.

[^56]:     ^?^ Comments in response to the petitions by PCIA and
    Metrocall were due on October 13, 1998. *See* 63 Fed. Reg. 51576
    (1998). Although USTA\'s comments were filed on October 19, 1998, we
    will deem them informal requests for Commission action and consider
    them in this proceeding. *See* 47 C.F.R. § 1.41; *Pacific Telesis
    Group*, 12 FCC Rcd 2624, 2630, para. 10 (1997) (late-filed comments
    may be treated as an informal request for Commission action pursuant
    to section 1.41 of the Commission\'s rules).

[^57]:     ^?^ For the purpose of simplicity, this exhibit assumes an
    industry composed of ten carriers and constant total universal
    service program costs of \$100. We recognize that total program
    costs normally will vary from period to period. Because total
    program costs are an independent variable, however, we can properly
    assume constant total program costs in order to demonstrate the
    effect of including carrier-imposed universal service charges in the
    contribution base.