**Before the**

Federal Communications Commission

Washington, D.C. 20554

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| In the Matter of                 | * | WC Docket No. 05-337         |
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| High-Cost Universal Service      | ) | CC Docket No. 96-45          |
| Support                          | * |                              |
|                                  | * | WC Docket No. 03-109         |
| Federal-State Joint Board on     |   |                              |
| Universal Service                | * | WC Docket No. 06-122         |
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| Lifeline and Link Up             | ) | CC Docket No. 99-200         |
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| Universal Service Contribution   | * | CC Docket No. 96-98          |
| Methodology                      |   |                              |
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| Numbering Resource Optimization  | * |                              |
|                                  | ) | CC Docket No. 99-68          |
| Implementation of the Local      | * |                              |
| Competition Provisions in the    | * | WC Docket No. 04-36          |
| Telecommunications Act of 1996   |   |                              |
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| Developing a Unified             | * |                              |
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+----------------------------------+---+------------------------------+

Order on Remand and report and order

AND FURTHER NOTICE OF PROPOSED RULEMAKING

**Adopted: November 5, 2008 Released: November 5, 2008**

**Comment Date: (14 days after publication in the Federal Register)**

**Reply Comment Date: (21 days after publication in the Federal
Register)**

**By the Commission: Chairman Martin issuing a separate statement;
Commissioners Copps, Adelstein, Tate, and McDowell issuing a joint
statement.**

Table of Contents

I. ORDER ON REMAND -- ISP-BOUND TRAFFIC 1

A. Background 2

B. Discussion 6

1\. Scope of Section 251(b)(5) 7

2\. Authority Under Section 201 17

3\. Other Issues 23

II\. RePORT AND ORDER -- reform of high-cost universal service SUPPORT
30

A. Background 31

B. Discussion 37

III\. FURTHER NOTICE OF PROPOSED RULEMAKING 38

IV\. procedural matters 42

A. *Ex Parte* Presentations 42

B. Comment Filing Procedures 43

C. Initial Regulatory Flexibility Analysis 51

D. Paperwork Reduction Act 52

E. Accessible Formats 53

F. Congressional Review Act 54

V. ordering clauses 55

APPENDIX A -- Chairman's Draft Proposal

APPENDIX B -- Narrow Universal Service Reform Proposal

APPENDIX C -- Alternative Proposal

APPENDIX D -- Relevant Ex Partes

APPENDIX E -- Initial Regulatory Flexibility Analysis

# ORDER ON REMAND -- ISP-BOUND TRAFFIC

1.  The actions we take in this order respond to the writ of mandamus
    granted by the United States Court of Appeals for the District of
    Columbia Circuit (D.C. Circuit) directing the Commission to respond
    to its prior remand of the Commission's intercarrier compensation
    rules for Internet Service Provider (ISP)-bound traffic.[^1] As
    discussed below, we conclude that we have authority to impose
    ISP-bound traffic rules.

## Background

2.  On February 26, 1999, the Commission issued a Declaratory Ruling and
    Notice of Proposed Rulemaking in which it held that ISP-bound
    traffic is jurisdictionally interstate because end users access
    websites across state lines.[^2] Because the *Local Competition
    First Report and Order* concluded that the reciprocal compensation
    obligation in section 251(b)(5) applied only to local traffic, the
    Commission found in the *Declaratory Ruling* that ISP-bound traffic
    is not subject to section 251(b)(5).[^3] On March 24, 2000, in the
    *Bell Atlantic* decision, the D.C. Circuit vacated certain
    provisions of the *Declaratory Ruling*.[^4] The court did not
    question the Commission's finding that ISP-bound traffic is
    interstate. Rather, the court held that the Commission had not
    adequately explained how its end-to-end jurisdictional analysis was
    relevant to determining whether a call to an ISP is subject to
    reciprocal compensation under section 251(b)(5).[^5] In particular,
    the court noted that a LEC serving an ISP appears to perform the
    function of "termination" because the LEC delivers traffic from the
    calling party through its end office switch to the called party, the
    ISP.[^6]

3.  On April 27, 2001, the Commission released the *ISP Remand Order*,
    which concluded that section 251(g) excludes ISP-bound traffic from
    the scope of section 251(b)(5).[^7] The Commission explained that
    section 251(g) maintains the pre-1996 Act compensation requirements
    for "exchange access, information access, and exchange services for
    such access," thereby excluding such traffic from the reciprocal
    compensation requirements that the 1996 Act imposed.[^8] The
    Commission concluded that ISP-bound traffic was "information access"
    and, therefore, was subject instead to the Commission's section 201
    jurisdiction over interstate communications.[^9] The Commission also
    found "convincing evidence in the record" that carriers had
    "targeted ISPs as customers merely to take advantage of . . .
    intercarrier payments" (including offering free service to ISPs,
    paying ISPs to be their customers, and sometimes engaging in
    outright fraud). It therefore adopted an ISP payment regime in order
    to "limit, if not end, the opportunity for regulatory
    arbitrage."[^10] The Commission concluded that a bill-and-keep
    regime might eliminate incentives for arbitrage and force carriers
    to look to their own customers for cost recovery.[^11] To avoid a
    flash cut to bill-and-keep, however, the Commission adopted a
    compensation regime pending completion of the *Intercarrier
    Compensation* proceeding.[^12] Specifically, the regime adopted by
    the Commission consisted of: (1) a gradually declining cap on
    intercarrier compensation for ISP-bound traffic, beginning at
    \$.0015 per minute-of-use and declining to \$.0007 per
    minute-of-use; (2) a growth cap on total ISP-bound minutes for which
    a LEC may receive this compensation; (3) a "new markets rule"
    requiring bill-and-keep for the exchange of this traffic if two
    carriers were not exchanging traffic pursuant to an interconnection
    agreement prior to the adoption of the regime; and (4) a "mirroring
    rule" that gave incumbent LECs the benefit of the rate cap only if
    they offered to exchange all traffic subject to section 251(b)(5) at
    the same rates.[^13] These rate caps reflected the downward trend in
    intercarrier compensation rates contained in then-recently
    negotiated interconnection agreements.[^14]

4.  On May 3, 2002, the D.C. Circuit found that the Commission had not
    provided an adequate legal basis for the rules it adopted in the
    *ISP Remand Order*.[^15] Once again, the court did not question the
    Commission's finding that ISP-bound traffic is jurisdictionally
    interstate. Rather, the court held that section 251(g) of the Act
    did not provide a basis for the Commission's decision. The court
    held that section 251(g) is simply a transitional device that
    preserved obligations that predated the 1996 Act until the
    Commission adopts superseding rules, and that there was no pre-1996
    Act obligation with respect to intercarrier compensation for
    ISP-bound traffic.[^16] Although the court rejected the legal
    rationale for the compensation rules, the court remanded, but did
    not vacate, the *ISP Remand Order* to the Commission, and it
    observed that "there is plainly a non-trivial likelihood that the
    Commission has authority" to adopt the rules.[^17] Accordingly, the
    rules adopted in the *ISP Remand Order* have remained in effect.

5.  On November 5, 2007, Core filed a petition for writ of mandamus with
    the D.C. Circuit seeking to compel the Commission to enter an order
    resolving the court's remand in the *WorldCom* decision.[^18] On
    July 8, 2008, the court granted a writ of mandamus and directed the
    Commission to respond to the *WorldCom* remand in the form of a
    final, appealable order which explains its legal authority to issue
    the pricing rules for ISP-bound traffic adopted in the *ISP Remand
    Order* .[^19] The court directed the Commission to respond to the
    writ of mandamus by November 5, 2008.[^20]

## Discussion

6.  In this order, we respond to the D.C. Circuit's remand order in
    *WorldCom v. FCC*,[^21] and the court's writ of mandamus in *Core
    Communications Inc.*[^22] Specifically, we hold that although
    ISP-bound traffic falls within the scope of section 251(b)(5), this
    interstate, interexchange traffic is to be afforded different
    treatment from other section 251(b)(5) traffic pursuant to our
    authority under section 201 and 251(i) of the Act.

### Scope of Section 251(b)(5)

7.  As an initial matter, we conclude that the scope of section
    251(b)(5) is broad enough to encompass ISP-bound traffic. To be
    sure, we acknowledge that, in the *Local Competition First Report
    and Order*, the Commission found that section 251(b)(5) applies only
    to local traffic,"[^23] and some commenters continue to press for
    such an interpretation.[^24] As other commenters recognize, however,
    the Commission, in the *ISP Remand Order*, reconsidered that
    judgment and concluded that it was a mistake to read section
    251(b)(5) as limited to local traffic, given that "local" is not a
    term used in section 251(b)(5).[^25] We recognize, as the Supreme
    Court noted in *AT&T Corp. v.* *Iowa Utilities Board*, that "\[i\]t
    would be a gross understatement to say that the 1996 Act is not a
    model of clarity."[^26] Nevertheless, we find that the better view
    is that section 251(b)(5) is not limited to local traffic.

8.  We begin by looking at the text of the statute. Section 251(b)(5)
    imposes on all LECs the "duty to establish reciprocal compensation
    arrangements for the transport and termination of
    telecommunications."[^27] The Act broadly 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 as sent and
    received."[^28] Its scope is not limited geographically ("local,"
    "intrastate," or "interstate") or to particular services ("telephone
    exchange service,"[^29] telephone toll service,"[^30] or "exchange
    access"[^31]). We find that the traffic we elect to bring within
    this framework fits squarely within the meaning of
    "telecommunications." We also observe that had Congress intended to
    preclude the Commission from bringing certain types of
    telecommunications traffic within the section 251(b)(5) framework,
    it could have easily done so by incorporating restrictive terms in
    section 251(b)(5). Because Congress used the term
    "telecommunications," the broadest of the statute's defined terms,
    we conclude that section 251(b)(5) is not limited only to the
    transport and termination of certain types of telecommunications
    traffic, such as local traffic.

9.  In the *Local Competition First Report and Order* the Commission
    concluded that section 251(b)(5) applies only to local traffic, but
    recognized that "\[u\]ltimately . . . the rates that local carriers
    impose for the transport and termination of local traffic and for
    the transport and termination of long distance traffic should
    converge."[^32] In the *ISP Remand Order*, the Commission reversed
    course on the scope of section 251(b)(5), finding that "the phrase
    'local traffic' created unnecessary ambiguities, and we correct that
    mistake here."[^33] The *ISP Remand Order* noted that "the term
    'local,' not being a statutorily defined category, . . . is not a
    term used in section 251(b)(5)."[^34] The Commission found that the
    scope of section 251(b)(5) is limited only by section 251(g), which
    temporarily grandfathered the pre-1996 Act rules governing "exchange
    access, information access, and exchange services for such access"
    provided to interexchange carriers and information service providers
    until "explicitly superseded by regulations prescribed by the
    Commission."[^35] On appeal, the D.C. Circuit left intact the
    Commission's findings concerning the scope of section 251(b)(5),
    although it took issue with other aspects of the *ISP Remand
    Order*.[^36]

10. We disagree with commenters who argue that section 251(b)(5) only
    can be applied to traffic exchanged between LECs, and not traffic
    exchanged between a LEC and another carrier.[^37] The Commission
    rejected that argument in the *Local Competition Order*, finding
    that section 251(b)(5) applies to traffic exchanged by a LEC and any
    other telecommunications carrier, and adopted rules implementing
    that finding.[^38] In a specific application of that principle, the
    Commission concluded that "CMRS providers will not be classified as
    LECs,"[^39] but nevertheless found that "LECs are obligated,
    pursuant to section 251(b)(5) (and the corresponding pricing
    standards of section 252(d)(2)), to enter into reciprocal
    compensation agreements with all CMRS providers."[^40] No one
    challenged that finding on appeal, and it has been settled law for
    the past 12 years. We see no reason to revisit that conclusion now.
    While section 251(b)(5) indisputably imposes the duty to establish
    reciprocal compensation arrangements on LECs alone, Congress did not
    limit the class of potential beneficiaries of that obligation to
    LECs.[^41]

11. We also disagree with commenters who argue that section
    252(d)(2)(A)(i) limits the scope of section 251(b)(5).[^42] Section
    252(d)(2)(A)(i) provides that a state commission "shall not consider
    the terms and conditions for reciprocal compensation to be just and
    reasonable" unless "such terms and conditions provide for the mutual
    and reciprocal recovery by each carrier of costs associated with the
    transport and termination on each carrier's network facilities of
    calls that originate on the network facilities of the other
    carrier."[^43] Verizon and others argue that this provision
    necessarily excludes interexchange traffic from the scope of section
    251(b)(5), because at the time the 1996 Act was passed calls neither
    originated nor terminated on an interexchange carrier's
    network.[^44] We reject this reasoning because it erroneously
    assumes that Congress intended the pricing standards in section
    252(d)(2) to limit the otherwise broad scope of section 251(b)(5).
    We do not believe that Congress intended the tail to wag the dog.

12. Section 251(b)(5) defines the scope of traffic that is subject to
    reciprocal compensation. Section 252(d)(2)(A)(i), in turn, deals
    with the mechanics of who owes what to whom, it does not define the
    scope of traffic to which section 251(b)(5) applies. Section
    252(d)(2)(A)(i) provides that, at a minimum, a reciprocal
    compensation arrangement must provide for the recovery by each
    carrier of costs associated with the transport and termination on
    each carrier's network of calls that originate on the network of the
    other carrier.[^45] Section 252(d)(2)(A)(i) does not address what
    happens when carriers exchange traffic that originates or terminates
    on a third carrier's network. This does not mean, as Verizon
    suggests, that section 251(b)(5) must be read as limited to traffic
    involving only two carriers. Rather, it means that there is a gap in
    the pricing rules in section 252(d)(2), and the Commission has
    authority under section 201(b) to adopt rules to fill that gap.

13. We also reject Verizon's argument that a telecommunications carrier
    that delivers traffic to an ISP is not eligible for reciprocal
    compensation because the carrier does not "terminate"
    telecommunications traffic at the ISP.[^46] In the *Local
    Competition Order*, the Commission defined "termination" as "the
    switching of traffic that is subject to section 251(b)(5) at the
    terminating carrier's end office switch ... and delivery of that
    traffic to the called party's premises."[^47] As the D.C. Circuit
    suggested in the *Bell Atlantic* decision, "Calls to ISPs appear to
    fit this definition: the traffic is switched by the LEC whose
    customer is the ISP and then delivered to the ISP, which is clearly
    the 'called party.'"[^48] We agree.[^49]

14. Verizon also argues that the reference to reciprocal compensation in
    the competitive checklist in section 271,[^50] which was designed to
    ensure that local markets are open to competition, somehow shows
    that Congress intended to limit the scope of section 251(b)(5) to
    local traffic.[^51] We do not see how this argument sheds any light
    on the scope of section 251(b)(5). Congress no doubt included the
    reference to reciprocal compensation in section 271 because section
    251(b)(5) applies to local traffic, a point that no one disputes.
    That does not suggest, however, that section 251(b)(5) applies
    *only* to local traffic.

15. We need not respond to every other variation of the argument that
    the history and structure of the Act somehow demonstrate that
    section 251(b)(5) is limited to local traffic. At best, these
    arguments show that one plausible interpretation of the statute is
    that section 251(b)(5) applies only to local traffic, a view that
    the Commission embraced in the *Local Competition First Report and
    Order*. These arguments do not persuade us, however, that this is
    the only plausible reading of the statute. Moreover, many of the
    same arguments based on the history and context of the adoption of
    section 251 to limit its scope to local traffic were rejected by the
    D.C. Circuit in the context of section 251(c).[^52] We find that the
    better reading of the Act as a whole, in particular the broad
    language of section 251(b)(5) and the grandfather clause in section
    251(g), supports our view that the transport and termination of all
    telecommunications exchanged with LECs is subject to the reciprocal
    compensation regime in sections 251(b)(5) and 252(d)(2).

16. Notwithstanding section 251(b)(5)'s broad scope, we agree with the
    finding in the *ISP Remand Order* that traffic encompassed by
    section 251(g) is excluded from section 251(b)(5) except to the
    extent that the Commission acts to bring that traffic within its
    scope. Section 251(g) preserved the pre-1996 Act regulatory regime
    that applies to access traffic, including rules governing "receipt
    of compensation."[^53] Here, however, the D.C. Circuit has held that
    ISP-bound traffic did not fall within the section 251(g) carve out
    from section 251(b)(5) as "there had been *no* pre-Act obligation
    relating to intercarrier compensation for ISP-bound traffic."[^54]
    As a result, we find that ISP-bound traffic falls within the scope
    of section 251(b)(5).

### Authority Under Section 201

17. The section 251(b)(5) finding above, however, does not end our legal
    analysis here. That is because the ISP-bound traffic at issue here
    is clearly interstate in nature and thus also subject to our section
    201 authority. The Commission unquestionably has authority to
    regulate intercarrier compensation with respect to interstate access
    services, rates charged by CMRS providers, and other traffic subject
    to Commission authority such as ISP-bound traffic. Section 2(a) of
    the Act establishes the Commission's jurisdiction over interstate
    services, for which the Commission ensures just, reasonable, and not
    unjustly and unreasonably discriminatory rates under section 201 and
    202.[^55] Likewise, the Commission has authority over the rates of
    CMRS providers pursuant to section 332 of the Act.[^56]

18. In sections 251 and 252 of the Act, Congress altered the traditional
    regulatory framework based on jurisdiction by expanding the
    applicability of national rules to historically intrastate issues
    and state rules to historically interstate issues.[^57] In the
    *Local Competition First Report and Order*, the Commission found
    that the 1996 Act created parallel jurisdiction for the Commission
    and the states over interstate and intrastate matters under sections
    251 and 252.[^58] The Commission and the states "are to address the
    same matters through their parallel jurisdiction over both
    interstate and intrastate matters under sections 251 and 252."[^59]
    Moreover, section 251(i) provides that "\[n\]othing in this section
    shall be construed to limit or otherwise affect the Commission's
    authority under section 201."[^60] In the *Local Competition First
    Report and Order*, the Commission concluded that section 251(i)
    "affirms that the Commission's preexisting authority under section
    201 continues to apply for purely interstate activities."[^61]

19. In implementing sections 251 and 252 in the *Local Competition First
    Report and Order*, the Commission's treatment of LEC-CMRS traffic
    provides an instructive example. Prior to the 1996 Act, the
    Commission expressly preempted "state and local regulations of the
    kind of interconnection to which CMRS providers are entitled" based
    on its authority under section 201 and 332 of the Act.[^62]
    Nevertheless, in the *Local Competition First Report and Order*, the
    Commission brought LEC-CMRS interconnection within the section 251
    framework as it relates to intraMTA (including interstate intraMTA)
    traffic.[^63] The Commission recognized, however, that it continued
    to retain separate authority over CMRS traffic.[^64]

20. Courts confirmed that, in permitting LEC-CMRS interconnection to be
    addressed through the section 251 framework, the Commission did not
    in any way lose its independent jurisdiction or authority to
    regulate that traffic under other provisions of the Act. Thus,
    although the Eighth Circuit invalidated the Commission's TELRIC
    pricing rules in general,[^65] it recognized that "because section
    332(c)(1)(B) gives the FCC the authority to order LECs to
    interconnect with CMRS carriers, we believe that the Commission has
    the authority to issue the rules of special concern to the CMRS
    providers, \[including the reciprocal compensation rules\] but only
    as these provisions apply to CMRS providers. Thus, \[the pricing\]
    rules . . . remain in full force and effect with respect to the CMRS
    providers, and our order of vacation does not apply to them in the
    CMRS context."[^66] Subsequently, the D.C. Circuit held that CMRS
    providers were entitled to pursue formal complaints under section
    208 of the Act for violations of the Commission's reciprocal
    compensation rules.[^67]

21. We build upon our actions in the *Local Competition First Report and
    Order* and find here that addressing ISP-bound traffic through the
    section 251 framework does not diminish the Commission's independent
    jurisdiction or authority to regulate traffic under other provisions
    of the Act. Specifically, we retain our authority under section 201
    to regulate ISP-bound traffic, despite acknowledging that such
    traffic is section 251(b)(5) traffic. With respect to interstate
    services, the Act has long provided us with the authority to
    establish just and reasonable "charges, practices, classifications,
    and regulations."[^68] The Commission thus retains full authority to
    regulate charges for traffic and services subject to federal
    jurisdiction, even when it is within the sections 251(b)(5) and
    252(d)(2) framework. Because we re-affirm our findings concerning
    the interstate nature of ISP-bound traffic, which have not been
    vacated by any court, it follows that such traffic falls under the
    Commission's section 201 authority preserved by the Act and that we
    therefore have the authority to issue pricing rules pursuant to that
    section.[^69] This conclusion is reinforced by section 251(i) of the
    Act. As the Commission explained in the *ISP Remand Order,* section
    251(i) "expressly affirms the Commission's role in an evolving
    telecommunications marketplace, in which Congress anticipates that
    the Commission will continue to develop appropriate pricing and
    compensation mechanisms for traffic that falls within the purview of
    section 201."[^70] It concluded that section 251(i), together with
    section 201, equips the Commission with the tools necessary to keep
    pace with regulatory developments and new technologies.[^71] When
    read together, these statutory sections preserve the Commission's
    authority to address new issues that fall within its section 201
    authority over interstate traffic, including compensation for the
    exchange of ISP-bound traffic. Consequently, in the *ISP Remand
    Order*, the Commission properly exercised its authority under
    section 201(b) to issue pricing rules governing the payment of
    compensation between carriers for ISP-bound traffic.[^72]

22. Our result today is consistent with the D.C. Circuit's opinion in
    *Bell Atlantic*, which concluded that the jurisdictional nature of
    traffic is not dispositive of whether reciprocal compensation is
    owed under section 251(b)(5).[^73] It is also consistent with the
    D.C. Circuit's *WorldCom* decision, in which the court rejected the
    Commission's view that section 251(g) excluded ISP-bound traffic
    from the scope of section 251(b)(5), but made no other
    findings.[^74] Finally, this result does not run afoul of the Eighth
    Circuit's decision on remand from the Supreme Court in the *Iowa
    Utilities Board* litigation, which held that "the FCC does not have
    the authority to set the actual prices for the state commissions to
    use" under section 251(b)(5).[^75] At the time of that decision,
    under the *Local Competition First Report and Order*, section
    251(b)(5) applied only to local traffic. Thus, the Eighth Circuit
    merely held that the Commission could not set reciprocal
    compensation rates for local traffic. The court did not address the
    Commission's authority to set reciprocal compensation rates for
    interstate traffic.[^76] In sum, the Commission plainly has
    authority to establish pricing rules for interstate traffic,
    including ISP-bound traffic, under section 201(b), and that
    authority was preserved by section 251(i).

### Other Issues

23. Most commenters urge the Commission to maintain the compensation
    rules governing ISP-bound traffic until the Commission is able to
    complete comprehensive intercarrier compensation reform.[^77] These
    parties contend that a higher compensation rate would create new
    opportunities for arbitrage[^78] and impose substantial financial
    burdens on wireless companies, incumbent LECs and state public
    utility commissions.[^79] They further claim that the existing
    regime has simplified interconnection negotiations.[^80]

24. In the *ISP Remand Order*, the Commission found that the one-way
    nature of ISP-bound traffic creates significant arbitrage
    opportunities. Due to the unbalanced nature of ISP-bound traffic,
    the Commission observed that reciprocal compensation arrangements
    created enormous incentives for competitive LECs to sign up ISPs as
    customers.[^81] The Commission cited evidence that competitive LECs,
    on average, terminated eighteen times more traffic than they
    originated, resulting in annual CLEC reciprocal compensation
    billings of approximately two billion dollars, 90 percent of which
    was for ISP-bound traffic.[^82] The Commission concluded that "the
    record strongly suggests that CLECs target ISPs in large part
    because of the availability of reciprocal compensation
    payments."[^83] This undermined the operation of competitive markets
    because competitive LECS were able to recover a disproportionate
    share of their costs from other carriers.[^84] To limit arbitrage
    opportunities that arose from "excessively high reciprocal
    compensation rates,"[^85] the Commission adopted a gradually
    declining cap on intercarrier compensation for ISP-bound traffic,
    beginning at \$.0015 per minute of use and declining to \$.0007 per
    minute of use, the current cap.[^86] The Commission derived the rate
    caps from contemporaneous interconnection agreements, in which
    carriers voluntarily agreed to rates comparable to the rate caps
    adopted by the Commission.[^87] The interconnection agreements
    included lower rates for unbalanced traffic than for balanced
    traffic, and the rates declined over time, like the rate caps.[^88]
    Although the Commission made no specific findings with regard to the
    actual costs associated with delivering traffic to ISPs, it noted
    evidence in the record that technological advances were reducing the
    costs incurred by carriers when handling all forms of traffic.[^89]
    The Commission also noted that "negotiated reciprocal compensation
    rates continue to decline as ILECS and CLECs negotiate new
    agreements."[^90]

25. On July 14, 2003, Core Communications, Inc. ("Core") filed a
    petition pursuant to Section 10 of the Communications Act[^91]
    requesting that the Commission forbear from enforcing the rate caps
    and certain other provisions set forth in the *ISP Remand Order*
    with respect to the exchange of ISP-bound traffic between
    telecommunications carriers. In 2004, the Commission denied the
    petition with respect to rate caps and the mirroring rule,
    determining that Core had satisfied none of the three prongs of the
    statutory test for forbearance.[^92] First, the Commission found
    that forbearance from enforcement of the rate caps was not
    consistent with the public interest. To the contrary, the Commission
    concluded that rate caps remained necessary to prevent regulatory
    arbitrage and to promote efficient investment in telecommunications
    services and facilities.[^93] Second, the Commission found limited
    potential for discrimination under the rate caps. The caps applied
    to ISP-bound traffic only to the extent that an incumbent carrier
    offered to exchange all traffic at the same rate under Section
    251(b)(5).[^94] Accordingly, the Commission concluded that Core had
    not proven that the rate caps resulted in impermissible
    discrimination against or between competitive carriers or
    services.[^95] Finally, the Commission found that Core had not
    demonstrated that enforcement of the rate caps was not necessary for
    the protection of consumers. Core advanced speculative general
    claims that the caps caused artificially high rates, had forced
    competitive carriers from the market, and had deterred investment in
    telecommunications services, all to consumers' detriment. The
    Commission rejected these unsupported claims, explaining that the
    rate caps were designed to prevent the subsidization of dial-up
    Internet access customers at the expense of consumers of basic
    telephone service and to avoid regulatory arbitrage and
    discrimination between services.[^96] For these reasons, the
    Commission denied Core's petition for forbearance insofar as rate
    caps were concerned.[^97]

26. In 2006, the D.C. Circuit affirmed our decision not to forbear from
    the rate cap (and the mirroring rule).[^98] The Court found
    reasonable the Commission's "view that the rate caps are necessary
    to prevent the subsidization of dial-up Internet access consumers by
    consumers of basic telephone service" that would occur if reciprocal
    compensation rates applied to one-way ISP-bound traffic.[^99] The
    Court likewise rejected Core's contention that the rate cap was
    "unreasonably discriminatory," both because one-way ISP-bound calls
    were fundamentally different from other forms of traffic and because
    the mirroring rule ensures that "'the caps apply to ISP-bound
    traffic only if an incumbent LEC offers to exchange all Section
    251(b)(5) traffic at the same rate.'"[^100] Finally, the Court
    concluded that the Commission's concern than the rate cap was
    necessary to prevent "'regulatory arbitrage' and 'distorted economic
    incentives'" was reasonable.[^101]

27. The policy justifications provided by the Commission in 2001 for the
    rules at issue here have not been questioned by any court. In
    addition, the policy justifications provided by the Commission for
    refusing to forbear from enforcement of these rules were upheld by
    the D.C. Circuit in 2006. We therefore disagree with parties who
    suggest that the Commission, in responding to the D.C. Circuit's
    remand in *WorldCom*, must offer detailed new justifications for the
    ISP intercarrier payment regime[^102]; We have already offered our
    justifications for that regime. Moreover, both the *Worldcom* remand
    and *Core* writ of mandamus focused on the issue of legal authority.
    We also reject arguments that the Commission unlawfully delegated
    its authority in the *ISP Remand Order* and arguments that the
    Commission addressed previously in the *Core Forbearance
    Order*.[^103]

28. The Commission long has stated its intention to move to a more
    unified intercarrier compensation regime. Progress is difficult due
    to competing priorities, such as competition, innovation, universal
    service, and other goals. The Commission recognized in 2001 that
    ISP-bound traffic represented a unique arbitrage problem that
    required immediate attention, based on the policy concerns discussed
    above. The Commission remains committed to moving towards a more
    unified intercarrier compensation regime, as evidenced by the
    Further Notice issued in conjunction with this order.

29. In sum, we maintain the \$.0007 cap and the mirroring rule pursuant
    to our section 201 authority.  These rules shall remain in place
    until we adopt more comprehensive intercarrier compensation reform.

# RePORT AND ORDER -- reform of high-cost universal service SUPPORT

30. In this report and order, we address the "Recommended Decision" of
    the Federal-State Joint Board on Universal Service (Joint Board),
    which was released on November 20, 2007.[^104] As discussed below,
    we appreciate the great efforts expended by the Joint Board and its
    staff in considering how best to reform the current high-cost
    support mechanism and in developing its recommendations. We choose
    not to implement the recommendations contained in the
    *Comprehensive* *Reform Recommended Decision* at this time, however.

## Background

31. The 1996 Act amended the Communications Act of 1934 with respect to
    the provision of universal service.[^105] In the 1996 Act, Congress
    sought to preserve and advance universal service, while at the same
    time opening all telecommunications markets to competition.[^106]
    Section 254(b) of the Act directs the Joint Board and the Commission
    to base policies for the preservation and advancement of universal
    service on several general principles, plus other principles that
    the Commission may establish.[^107] Among other things, section
    254(b) directs that there should be specific, predictable, and
    sufficient federal and state universal service support mechanisms;
    quality services should be available at just, reasonable, and
    affordable rates; and access to advanced telecommunications and
    information services should be provided in all regions of the
    nation.[^108]

32. The Commission implemented the universal service provisions of the
    1996 Act in the 1997 *Universal Service First Report and
    Order*.[^109] Among other things, the Commission adopted rules to
    create explict universal service support mechanisms for customers
    living in rural and high cost areas. Pursuant to section 254(e) of
    the Act, an entity must be designated as an eligible
    telecommunications carrier (ETC) to receive high-cost universal
    service support.[^110] ETCs may be incumbent LECs, or non-incumbent
    LECs, which are referred to as "competitive ETCs."[^111] Under the
    existing high-cost support distribution mechanism, incumbent LEC
    ETCs receive high-cost support for their intrastate services based
    on their costs.[^112] Competitive ETCs receive support for each line
    based on the support the incumbent LEC would receive for that line
    in the service area.[^113] This support to competitive ETCs is known
    as "identical support." The Commission's universal service high-cost
    support rules do not distinguish between primary and secondary
    lines; therefore, high-cost support may go to a single end user for
    multiple connections.[^114] Further, the Commission's rules result
    in subsidizing multiple competitors in the same high-cost area.

33. High-cost support for competitive ETCs has grown rapidly over the
    last several years, placing extraordinary pressure on the federal
    universal service fund.[^115] In 2001, high-cost universal service
    support totaled approximately \$2.6 billion.[^116] By 2007, the
    amount of high-cost support had grown to approximately \$4.3 billion
    per year.[^117] In recent years, this growth has been due mostly to
    increased support provided to competitive ETCs, which receive
    high-cost support based on the per-line support that the incumbent
    LECs receive pursuant to the identical support rule. Competitive ETC
    support, in the six years from 2001 through 2007, has grown from
    under \$17 million to \$1.18 billion---an annual growth rate of over
    100 percent.[^118] This "funded competition" has grown significantly
    in a large number of rural, insular, or high-cost areas; in some
    study areas more than 20 competitive ETCs currently receive
    support.[^119]

34. To address the growth in competitive ETC support, the Joint Board
    recommended an interim cap on the amount of high-cost support
    available to competitive ETCs, pending comprehensive high-cost
    universal service reform.[^120] The Commission adopted this
    recommendation on May 1, 2008.[^121]

35. For the past several years, the Joint Board and the Commission have
    been exploring ways to reform the Commission's high-cost program. In
    the most recent high-cost support comprehensive reform efforts, the
    Joint Board issued a recommended decision on November 20,
    2007.[^122] The Universal Service Joint Board's recommended decision
    included several recommendations to address the growth in high cost
    support and to reform the high cost mechanisms.[^123] Specifically,
    the Universal Service Joint Board recommended that the Commission
    should: (1) deliver high-cost support through a provider of last
    resort fund, a mobility fund, and a broadband fund;[^124] (2) cap
    the high-cost fund at \$4.5 billion, the approximate level of 2007
    high-cost support;[^125] (3) reduce the existing funding mechanisms
    during a transition period;[^126] (4) add broadband and mobility to
    the list of services eligible for support under section 254 of the
    Act;[^127] (5) eliminate the identical support rule;[^128] and (6)
    "explore the most appropriate auction mechanisms to determine
    high-cost universal service support."[^129]

36. On January 29, 2008, the Commission released the *Joint Board
    Comprehensive Reform NPRM*, seeking comment on the Joint Board's
    *Comprehensive Reform* *Recommended Decision*.[^130] Pursuant to
    section 254(a)(2), the Commission "shall complete any proceeding to
    implement subsequent recommendations from any Joint Board on
    universal service within one year after receiving such
    recommendations."[^131]

## Discussion

37. We have carefully reviewed the Joint Board's *Comprehensive Reform
    Recommended Decision* and the comments that were filed in response
    to the Commission's *Joint Board Comprehensive Reform NPRM.* We
    thank the Joint Board and its staff for their hard work in studying
    these difficult issues and in developing their recommendations. We
    choose not to implement these recommendations at this time, however.

# FURTHER NOTICE OF PROPOSED RULEMAKING

38. In enacting the Act, Congress sought to introduce competition into
    local telephone service, which traditionally was provided through
    regulated monopolies. Recognizing that in introducing such
    competition, it was threatening the implicit subsidy system that had
    traditionally supported universal service, it directed the
    Commission to reform its universal service program to make support
    explicit and sustainable in the face of developing competition.

39. The communications landscape has undergone many fundamental changes
    that were scarcely anticipated when the 1996 Act was adopted. The
    Internet was only briefly mentioned in the 1996 Act,[^132] but now
    has come into widespread use, with broadband Internet access service
    increasingly viewed as a necessity. Consistent with this trend,
    carriers are converting from circuit-switched networks to IP-based
    networks. These changes have benefited consumers and should be
    encouraged. Competition has resulted in dramatically lower prices
    for telephone service, and the introduction of innovative broadband
    products and services has fundamentally changed the way we
    communicate, work, and obtain our education, news, and
    entertainment. At the same time, however, these developments have
    challenged the outdated regulatory assumptions underlying our
    universal service and intercarrier compensation regimes, forcing us
    to reassess our existing approaches. We have seen unprecedented
    growth in the universal service fund, driven in significant part by
    increased support for competitive ETCs. The growth of competition
    also has eroded the universal service contribution base as the
    prices for interstate and international services have dropped.
    Finally, we have seen numerous competitors exploit arbitrage
    opportunities created by a patchwork of above-cost intercarrier
    compensation rates.

40. We seek comment today on three specific proposals. The first,
    attached as Appendix A, is the Chairman's Draft Proposal circulated
    to the Commission on October 15, 2008, which was placed on the
    Commission's agenda for a vote on November 4, 2008. This item
    subsequently was removed from the Agenda on November 3, 2008.[^133]
    The second, attached as Appendix B, is a Narrow Universal Service
    Reform Proposal circulated to the Commission on October 31, 2008.
    The third, attached as Appendix C, is a draft Alternative Proposal
    first circulated by the Chairman on the evening of November 5, 2008.
    Appendix C incorporates changes proposed in the *ex parte*
    presentations attached as Appendix D. We note that members of
    industry, Congress, and the general public have urged the Commission
    to seek comment on these proposals.

41. We seek particular comment on two questions. First, should the
    additional cost standard utilized under § 252(d)(2) of the Act
    be: (i) the existing TELRIC standard; or (ii) the incremental cost
    standard described in the draft order? Second, should the
    terminating rate for all § 251(b)(5) traffic be set as: (i) a
    single, statewide rate; or (ii) a single rate per operating company?

# procedural matters

## *Ex Parte* Presentations

42. The rulemaking this Further Notice initiates shall be treated as a
    "permit-but-disclose" proceeding in accordance with the Commission's
    ex parte rules.[^134] Persons making oral ex parte presentations are
    reminded that memoranda summarizing the presentations must contain
    summaries of the substance of the presentations and not merely a
    listing of the subjects discussed. More than a one or two sentence
    description of the views and arguments presented generally is
    required.[^135] Other requirements pertaining to oral and written
    presentations are set forth in section 1.1206(b) of the Commission's
    rules.[^136]

## Comment Filing Procedures

43. Pursuant to sections 1.415 and 1.419 of the Commission's
    rules,[^137] interested parties may file comments and reply comments
    regarding the Further Notice on or before the dates indicated on the
    first page of this document. **All filings should refer to CC Docket
    Nos. 96-45, 96-98, 99-68, 99-200, 01-92 and WC Docket Nos. 03-109,
    04-36, 05-337, and 06-122.** Comments may be filed using: (1) the
    Commission's Electronic Comment Filing System (ECFS); (2) the
    Federal Government's e-Rulemaking Portal, or; (3) by filing paper
    copies. *See* Electronic Filing of Documents in Rulemaking
    Proceedings, 63 FR 24121 (1998).

44. Electronic Filers: Comments may be filed electronically using the
    Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/ or the
    Federal e-Rulemaking Portal: http://www.regulations.gov. Filers
    should follow the instructions provided on the website for
    submitting comments.

45. ECFS filers must transmit one electronic copy of the comments for CC
    Docket Nos. 96-45, 96-98, 99-68, 99-200, 01-92 and WC Docket Nos.
    03-109, 04-36, 05-337, and 06-122, respectively. In completing the
    transmittal screen, filers should include their full name, U.S.
    Postal Service mailing address, and the applicable docket number.
    Parties may also submit an electronic comment by Internet e-mail. To
    get filing instructions, filers should send an e-mail to
    ecfs@fcc.gov, and include the following words in the body of the
    message, "get form." A sample form and directions will be sent in
    response.

46. Paper Filers: Parties who choose to file by paper must file an
    original and four copies of each filing. Filings can be sent by hand
    or messenger delivery, by commercial overnight courier, or by
    first-class or overnight U.S. Postal Service mail (although we
    continue to experience delays in receiving U.S. Postal Service
    mail). All filings must be addressed to the Commission's Secretary,
    Marlene H. Dortch, Office of the Secretary, Federal Communications
    Commission, 445 12th Street, S.W., Washington, D.C. 20554.

47. The Commission's contractor will receive hand-delivered or
    messenger-delivered paper filings for the Commission's Secretary at
    236 Massachusetts Avenue, N.E., Suite 110, Washington, D.C. 20002.
    The filing hours at this location are 8:00 a.m. to 7:00 p.m. All
    hand deliveries must be held together with rubber bands or
    fasteners. Any envelopes must be disposed of [before]{.underline}
    entering the building.

48. Commercial overnight mail (other than U.S. Postal Service Express
    Mail and Priority Mail) must be sent to 9300 East Hampton Drive,
    Capitol Heights, MD 20743.

49. U.S. Postal Service first-class, Express, and Priority mail should
    be addressed to 445 12th Street, S.W., Washington D.C. 20554.
    Parties should send a copy of their filings to Victoria Goldberg,
    Pricing Policy Division, Wireline Competition Bureau, Federal
    Communications Commission, Room 5-A266, 445 12th Street, S.W.,
    Washington, D.C. 20554, and to Jennifer McKee, Telecommunications
    Access Policy Division, Wireline Competition Bureau, Federal
    Communications Commission, Room 5-A423, 445 12th Street, S.W.,
    Washington, D.C. 20554, or by e-mail to cpdcopies@fcc.gov. Parties
    shall also serve one copy with the Commission's copy contractor,
    Best Copy and Printing, Inc. (BCPI), Portals II, 445 12th Street,
    S.W., Room CY-B402, Washington, D.C. 20554, (202) 488-5300, or via
    e-mail to fcc@bcpiweb.com.

50. Documents in CC Docket Nos. 96-45, 96-98, 99-68, 99-200, 01-92 and
    WC Docket Nos. 03-109, 04-36, 05-337, and 06-122 will be available
    for public inspection and copying during business hours at the FCC
    Reference Information Center, Portals II, 445 12th Street S.W., Room
    CY-A257, Washington, D.C. 20554. The documents may also be purchased
    from BCPI, telephone (202) 488-5300, facsimile (202) 488-5563,
    TTY (202) 488-5562, e-mail fcc@bcpiweb.com.

## Initial Regulatory Flexibility Analysis

51. As required by the Regulatory Flexibility Act of 1980,[^138] the
    Commission has prepared an Initial Regulatory Flexibility Analysis
    (IRFA) of the possible significant economic impact on small entities
    of the policies and rules addressed in this document. The IRFA is
    set forth as Appendix E. Written public comments are requested on
    this IRFA. Comments must be identified as responses to the IRFA and
    must be filed by the deadlines for comments on the Notice provided
    on or before the dates indicated on the first page of this Notice.

## Paperwork Reduction Act

52. This document contains proposed new or modified information
    collection requirements. The Commission, as part of its continuing
    effort to reduce paperwork burdens, invites the general public and
    the Office of Management and Budget (OMB) to comment on the
    information collection requirements contained in this document, as
    required by the Paperwork Reduction Act of 1995, Public Law 104-13.
    In addition, pursuant to the Small Business Paperwork Relief Act of
    2002, Public Law 107-198,[^139] we seek specific comment on how we
    might "further reduce the information collection burden for small
    business concerns with fewer than 25 employees."

## Accessible Formats

53. To request materials in accessible formats for people with
    disabilities (Braille, large print, electronic files, audio format),
    send an e-mail to fcc504@fcc.gov or call the Consumer & Governmental
    Affairs Bureau at 202-418-0530 (voice) or 202-418-0432 (TTY).
    Contact the FCC to request reasonable accommodations for filing
    comments (accessible format documents, sign language interpreters,
    CART, etc.) by e‑mail: FCC504@fcc.gov; phone: 202-418-0530 or TTY:
    202-418-0432.

## Congressional Review Act

54. The Commission will include a copy of this **ORDER ON REMAND AND
    REPORT AND ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING** in a
    report to be sent to Congress and the Government Accountability
    Office pursuant to the Congressional Review Act. *See* 5 U.S.C. §
    801(a)(1)(A).

# ordering clauses

55. Accordingly, IT IS ORDERED that, pursuant to Sections 1--4,
    201--209, 214, 218--220, 224, 251, 252, 254, 303(r), 332, 403, 502,
    and 503 of the Communications Act of 1934, as amended, and Sections
    601 and 706 of the Telecommunications Act of 1996, 47 U.S.C.
    §§ 151--154, 157 nt, 201--209, 214, 218-220, 224, 251, 252, 254,
    303(r), 332, 403, 502, 503, and sections 1.1, 1.411--1.429, and
    1.1200--1.1216 of the Commission's rules, 47 C.F.R. §§ 1.1,
    1.411--1.429, 1.1200--1.1216, the ORDER ON REMAND AND REPORT AND
    ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING ARE ADOPTED.

56. IT IS FURTHER ORDERED, in light of the opinion of the United States
    Court of Appeals for the District of Columbia Circuit in
    *WorldCom v. FCC*, 288 F.3d 429 (D.C. Cir. 2002), we consider our
    obligations met from the writ of mandamus issued in *In re Core
    Communications, Inc. on Petition for Writ of Mandamus to the Federal
    Communications Commission*, D.C. Cir. No. 07-1446 (decided July 8,
    2008).

57. IT IS FURTHER ORDERED that this FURTHER NOTICE OF PROPOSED
    RULEMAKING shall become effective on the date of publication of the
    text of a summary thereof in the Federal Register, pursuant to 47
    C.F.R. §§ 1.4, 1.13.

58. IT IS FURTHER ORDERED that this ORDER ON REMAND AND REPORT AND ORDER
    SHALL BE EFFECTIVE upon release.

59. IT IS FURTHER ORDERED that the Commission's Consumer & Governmental
    Affairs Bureau, Reference Information Center, SHALL SEND a copy of
    this ORDER ON REMAND AND REPORT AND ORDER AND FURTHER NOTICE OF
    PROPOSED RULEMAKING, including the Initial Regulatory Flexibility
    Analysis, to the Chief Counsel for Advocacy of the Small Business
    Administration.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Marlene H. Dortch\
> Secretary

**APPENDIX A**

**Chairman's Draft Proposal**

+----------------------------------+---+------------------------------+
| In the Matter of                 | * | WC Docket No. 05-337         |
|                                  | * |                              |
| High-Cost Universal Service      | ) | CC Docket No. 96-45          |
| Support                          | * |                              |
|                                  | * | WC Docket No. 03-109         |
| Federal-State Joint Board on     |   |                              |
| Universal Service                | * | WC Docket No. 06-122         |
|                                  | * |                              |
| Lifeline and Link Up             | ) | CC Docket No. 96-98          |
|                                  | * |                              |
| Universal Service Contribution   | * | CC Docket No. 01-92          |
| Methodology                      |   |                              |
|                                  | * | CC Docket No. 99-68          |
| Implementation of the Local      | * |                              |
| Competition Provisions in the    | ) | WC Docket No. 04-36          |
| Telecommunications Act of 1996   | * |                              |
|                                  | * | CC Docket No. 99-200         |
| Developing a Unified             |   |                              |
| Intercarrier Compensation Regime | * |                              |
|                                  | * |                              |
| Intercarrier Compensation for    | ) |                              |
| ISP-Bound Traffic                | * |                              |
|                                  | * |                              |
| IP-Enabled Services              |   |                              |
|                                  | * |                              |
| Numbering Resource Optimization  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
|                                  | * |                              |
|                                  |   |                              |
|                                  | ) |                              |
|                                  |   |                              |
|                                  | ) |                              |
+----------------------------------+---+------------------------------+

Order on Remand AND report and order

and further notice of proposed rulemaking

**Adopted: Insert Adopted Date Released: Insert Release Date**

**Comment Date: \[XX days after date of publication in the Federal
Register\]**

**Reply Comment Date: \[XX days after date of publication in the Federal
Register\]**

Table of Contents

Heading Paragraph \#

I. introduction 1

II\. Reform of high-cost universal service SUPPORT 4

A. Background 5

B. Discussion 12

1\. Controlling the Growth of the High-Cost Fund 14

2\. Conditioning Support on Offering Broadband Internet Access Service
19

a\. Definition of Broadband Internet Access Service 24

b\. Broadband Internet Access Service Obligations 25

3\. Incumbent LECs' Commitment to Offer Broadband 28

4\. Reverse Auctions for Study Areas Unserved by Broadband 32

a\. Geographic Area 35

b\. Reserve Price 36

c\. Auctioned Support 38

d\. Selecting a Winning Bid 43

e\. Bidder Qualifications 48

5\. Competitive Eligible Telecommunications Carriers 51

a\. Background 51

b\. Certification by Existing Competitive ETCs 52

c\. Calculation of Support 53

6\. Build-Out Milestones and Monitoring, Compliance, and Enforcement 57

III\. Broadband for lifeline/link up customers 64

A. Background 65

B. Discussion 71

1\. Available Funding 77

2\. Eligible Services and Equipment 80

3\. Selection Criteria 85

4\. Implementation and Reporting Requirements 88

5\. Program Oversight 91

IV\. Reform of Universal Service contributions 92

A. Background 93

B. Discussion 97

1\. Legal Authority 98

2\. The New Numbers-Based Assessment Methodology for Residential
Services 105

a\. Benefits of a Numbers-Based Contribution Methodology 106

b\. Assessable Numbers 115

3\. Contribution Assessment Methodology for Business Services 130

4\. Wireless Prepaid Plans 135

5\. Exceptions to Contribution Obligations 140

6\. Reporting Requirements and Recordkeeping 147

7\. Transition to New Methodology 154

V. Reform of intercarrier compensation 157

A. A Brief History of Intercarrier Compensation 159

1\. Intercarrier Compensation Regulation Before the Telecommunications
Act of 1996 160

2\. Intercarrier Compensation Regulation Since the 1996 Act 169

3\. Problems Associated With the Existing Intercarrier Compensation
Regimes 178

B. Comprehensive Reform 186

1\. Introduction 186

2\. A New Approach to Intercarrier Compensation 188

3\. Legal Authority 207

a\. Legal Authority for Comprehensive Reform---Interpretation of
Sections 251(b)(5) and 251(g) 207

b\. Legal Authority for the Transition 230

4\. Additional Costs Standard 236

a\. Background 237

b\. The Importance of Incremental Cost In Regulated Pricing 240

c\. The Incremental Cost of Call Termination on Modern Networks 253

d\. Reconsideration of Additional Costs Standard 262

C. Implementation 269

1\. Direction to the States 270

a\. Setting Final Reciprocal Compensation Rates Based on Incremental
Cost 271

b\. Symmetry 276

c\. Modifications and Suspensions under Section 251(f)(2) 282

d\. Existing Agreements 291

2\. Revenue Recovery Opportunities 294

a\. End-User Charges 296

b\. Universal Service Support 311

D. Measures to Ensure Proper Billing 326

1\. Introduction 326

2\. Background 327

3\. Discussion 329

a\. Signaling Information 330

b\. Financial Responsibilities 336

VI\. FURTHER NOTICE OF PROPOSED RULEMAKING 343

A. Universal Service Contributions 343

B. Intercarrier Compensation Further Notice 345

VII\. procedural matters 350

A. *Ex Parte* Presentations 350

B. Comment Filing Procedures 351

C. Initial Regulatory Flexibility Analysis 362

D. Final Regulatory Flexibility Analysis 363

E. Paperwork Reduction Act 364

F. Accessible Formats 365

G. Congressional Review Act 366

VIII\. ordering clauses 367

# introduction

1.   In enacting the Telecommunications Act of 1996 (1996 Act),[^140]
    Congress sought to introduce competition into local telephone
    service, which traditionally was provided through regulated
    monopolies. Recognizing that in introducing such competition, it was
    threatening the implicit subsidy system that had traditionally
    supported universal service, it directed the Commission to reform
    its universal service program to make support explicit and
    sustainable in the face of developing competition.

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60. For the most part, Congress's vision has been realized. Competition
    in local telephone markets has thrived. At the same time, the
    communications landscape has undergone many fundamental changes that
    were scarcely anticipated when the 1996 Act was adopted. The
    Internet was only briefly mentioned in the 1996 Act,[^141] but now
    has come into widespread use, with broadband Internet access service
    increasingly viewed as a necessity. Consistent with this trend,
    carriers are converting from circuit-switched networks to Internet
    Protocol (IP)-based networks. These changes have benefited consumers
    and should be encouraged. Competition has resulted in dramatically
    lower prices for telephone service, and the introduction of
    innovative broadband products and services has fundamentally changed
    the way we communicate, work, and obtain our education, news, and
    entertainment. At the same time, however, these developments have
    challenged the outdated regulatory assumptions underlying our
    universal service and intercarrier compensation regimes, forcing us
    to reassess our existing approaches. We have seen unprecedented
    growth in the universal service fund, driven in significant part by
    increased support for competitive eligible telecommunications
    carriers (ETCs). The growth of competition also has eroded the
    universal service contribution base as the prices for interstate and
    international services have dropped. Finally, we have seen numerous
    competitors exploit arbitrage opportunities created by a patchwork
    of above-cost intercarrier compensation rates. Although the
    Commission has attempted to address many of these issues on a
    case-by-case basis, it has become increasingly clear that piecemeal
    efforts to respond to these developments are inadequate---only
    comprehensive reform can address the fundamental challenges that
    they present.[^142]

61. Today we adopt a comprehensive approach to addressing these
    difficult, but critical issues. First, we spur widespread deployment
    of broadband by ensuring that carriers receiving universal service
    high-cost support offer broadband throughout their service areas.
    Second, we help Lifeline/Link Up customers participate in this new
    broadband world by creating a pilot program to provide discounted
    access to broadband services. Third, we broaden and stabilize our
    universal service contribution base through equitable and
    non-discriminatory contributions. Fourth, having placed our
    universal service fund on solid footing, we now take the
    long-overdue step of moving toward uniform intercarrier compensation
    rates that provide efficient incentives for the investment in and
    use of broadband networks. Finally, our approach minimizes
    disruptions to carriers and safeguards universal service for
    consumers by adopting sensible transition plans and ensuring that
    universal service is used to support service in high-cost areas, not
    carriers' dividends.

# Reform of high-cost universal service SUPPORT

62. Today we take a monumental step toward our goal of ensuring that
    broadband is available to all Americans. We do this by requiring
    that all recipients of high-cost support offer broadband Internet
    access service to all customers within their supported areas as a
    condition of receiving future support. Taking this action will
    promote the deployment of broadband Internet access service to all
    areas of the nation, including high-cost, rural, and insular areas
    where customers may not currently have access to such services. In
    particular, as a condition of receiving continued high-cost support,
    we will require all incumbent local exchange carriers (LECs) to
    commit to offer broadband Internet access service within five years
    to all customers in study areas where the incumbent LECs receive
    high-cost support. Competitive eligible telecommunications carriers
    (ETCs) likewise will be required to commit to offer broadband
    Internet access services to all customers in their service areas
    within five years to continue to receive high-cost support, which
    will be distributed based on the competitive ETCs' own costs.
    Competitive ETCs that do not make this commitment will not be
    eligible to receive high-cost support; incumbent LECs that do not
    make this commitment will gradually lose their high-cost support, as
    this support will be awarded via reverse auction to an ETC who will
    meet carrier of last resort obligations and will commit to offering
    broadband Internet access to all customers in the entire study area
    within ten years. With these reforms, we take great strides toward
    ensuring that all Americans, regardless of where they live, will
    have broadband Internet access service available to them, without
    increasing the size of the high-cost fund.

## Background

63. The 1996 Act amended the Communications Act of 1934 (the Act) with
    respect to the provision of universal service.[^143] Congress sought
    to preserve and advance universal service, while at the same time
    opening all telecommunications markets to competition.[^144] Section
    254(b) of the Act directs the Federal-State Joint Board on Universal
    Service (Joint Board) and the Commission to base policies for the
    preservation and advancement of universal service on several general
    principles, plus other principles that the Commission may
    establish.[^145] Among other things, section 254(b) directs that
    there should be specific, predictable, and sufficient federal and
    state universal service support mechanisms; quality services should
    be available at just, reasonable, and affordable rates; and access
    to advanced telecommunications and information services should be
    provided in all regions of the nation.[^146]

64. The Commission implemented the universal service provisions of the
    1996 Act in the 1997 *Universal Service First Report and
    Order*.[^147] In considering methods to determine universal service
    support in rural, insular, and high-cost areas, the Commission
    examined the use of competitive bidding, and identified several
    advantages of competitive bidding as a method for allocating
    high-cost universal service support.[^148] First, the Commission
    found that "a compelling reason to use competitive bidding is its
    potential as a market-based approach to determining universal
    service support, if any, for any given area."[^149] Second, "by
    encouraging more efficient carriers to submit bids reflecting their
    lower costs, another advantage of a properly structured competitive
    bidding system would be its ability to reduce the amount of support
    needed for universal service."[^150] Despite these advantages, the
    Commission determined that the record at the time was insufficient
    to support adoption of a competitive bidding mechanism.[^151]
    Moreover, the Commission found it unlikely that competitive bidding
    mechanisms would be useful at that time because there likely would
    be no competition in a significant number of rural, insular, or
    high-cost areas in the near future.[^152] The Commission, therefore,
    declined to adopt a competitive bidding mechanism at that time, but
    found that competitive bidding warranted further consideration as a
    potential mechanism for determining levels of high-cost support in
    the future.[^153]

65. Pursuant to section 254(e) of the Act, an entity must be designated
    as an eligible telecommunications carrier (ETC) to receive high-cost
    universal service support.[^154] ETCs may be incumbent LECs, or
    non-incumbent LECs, which are referred to as "competitive
    ETCs."[^155] Under the existing high-cost support distribution
    mechanism, incumbent LEC ETCs receive high-cost support for their
    intrastate services based on their costs.[^156] Competitive ETCs, on
    the other hand, receive support for each of their lines based on the
    per-line support the incumbent LEC receives in the service
    area.[^157] This support to competitive ETCs is known as "identical
    support." The Commission's universal service high-cost support rules
    do not distinguish between primary and secondary lines; therefore,
    high-cost support may go to a single end user for multiple
    connections.[^158] Further, the Commission's rules may result in
    multiple competitors in the same high-cost area receiving identical
    per-line support.

66. High-cost support for competitive ETCs has grown rapidly over the
    last several years, which has placed extraordinary pressure on the
    federal universal service fund.[^159] In 2001, high-cost universal
    service support totaled approximately \$2.6 billion.[^160] By 2007,
    the amount of high-cost support had grown to approximately \$4.3
    billion per year.[^161] In recent years, this growth has been due
    mostly to increased support provided to competitive ETCs, which
    pursuant to the identical support rule receive high-cost support
    based on the incumbent LEC's per-line support. Competitive ETC
    support, in the six years from 2001 through 2007, has grown from
    under \$17 million to \$1.18 billion---an annual growth rate of over
    100 percent.[^162] This "funded competition" has grown significantly
    in a large number of rural, insular, or high-cost areas; in some
    study areas, more than 20 competitive ETCs currently receive
    support.[^163]

67. To address the growth in competitive ETC support, the Joint Board
    recommended an interim cap on the amount of high-cost support
    available to competitive ETCs, pending comprehensive high-cost
    universal service reform. The Commission adopted this recommendation
    in 2008.[^164]

68. For the past several years, the Joint Board and the Commission have
    been exploring ways to reform the Commission's high-cost program. In
    the most recent high-cost support comprehensive reform efforts, the
    Joint Board issued a recommended decision on November 20,
    2007.[^165] The Joint Board recommended that the Commission address
    reforms to the high-cost program and make "fundamental revisions in
    the structure of existing Universal Service mechanisms."[^166]
    Specifically, the Joint Board recommended that the Commission
    should: (1) deliver high-cost support through a provider of last
    resort fund, a mobility fund, and a broadband fund[^167]; (2) cap
    the high-cost fund at \$4.5 billion, the approximate level of 2007
    high-cost support[^168]; (3) reduce the existing funding mechanisms
    during a transition period[^169]; (4) add broadband and mobility to
    the list of services eligible for support under section 254 of the
    Act[^170]; (5) eliminate the identical support rule[^171]; and (6)
    "explore the most appropriate auction mechanisms to determine
    high-cost universal service support."[^172]

69. On January 29, 2008, the Commission released three notices of
    proposed rulemaking addressing proposals for comprehensive reform of
    high-cost universal service support.[^173] In the *Identical Support
    NPRM*, the Commission sought comment on the Commission's rules
    governing the amount of high-cost universal service support provided
    to competitive ETCs.[^174] It tentatively concluded that the
    Commission should eliminate the identical support rule.[^175] The
    Commission also tentatively concluded that support to a competitive
    ETC should be based on the competitive ETC's own costs of providing
    the supported services, and it sought comment on how the support
    should be calculated, the reporting obligations to be applied, and
    whether the Commission should cap such support at the level of the
    incumbent LEC's support.[^176] In the *Reverse Auctions NPRM*, the
    Commission tentatively concluded that reverse auctions offer several
    potential advantages over current high-cost mechanisms and sought
    comment on whether they should be used as the disbursement mechanism
    to determine the amount of high-cost universal service support for
    ETCs serving rural, insular, and high-cost areas, and it sought
    comment on how to implement reverse auctions for this purpose.[^177]
    The Commission also sought comment on a number of specific issues
    regarding auctions and auction design.[^178] The Commission also
    released the *Joint Board Comprehensive Reform NPRM*, seeking
    comment on the Joint Board's *Comprehensive Reform* *Recommended
    Decision* and incorporating by reference the *Identical Support
    NPRM* and the *Reverse Auctions NPRM*.[^179] The discussion that
    follows represents our response to the Joint Board's *Comprehensive
    Reform Recommended Decision*, pursuant to section 254(a)(2).[^180]

## Discussion

70. Today we comprehensively reform the high-cost universal service
    support mechanism, and take steps to ensure that broadband Internet
    access service is deployed quickly to all areas of the country,
    including rural and insular areas. The steps we take today will
    provide certainty to providers as to the levels of support available
    to them in providing supported services and broadband Internet
    access service to all customers within the supported areas. This
    will assist providers in creating business plans to deploy services
    in currently unserved areas and will ensure efficiency in the
    deployment of services to these areas. Specifically, we are defining
    the level of high-cost support available to providers that commit to
    offer broadband to all customers within a service area. Support in
    incumbent LEC service areas will be set at the total amount of
    high-cost support disbursed to the incumbent LEC ETC in December
    2008 on an annualized basis. Incumbent LEC ETCs will continue to
    receive this level of support if they commit to offer broadband
    Internet access services to all customers within the service area
    within five years. If an incumbent LEC does not make this broadband
    commitment for a particular service area, the support will be
    transitioned to the winning bidder of a reverse auction that will
    commit to deploy broadband throughout the service area within ten
    years, and to take on carrier of last resort obligations.
    Competitive ETCs will receive high-cost support, based on their own
    costs as compared to the relevant high-cost support thresholds, so
    long as they, too, commit to offer broadband Internet access service
    to all customers in their service areas within five years. While
    ensuring that broadband Internet access service is made available to
    customers in rural and high-cost areas, we also cap the overall size
    of the high-cost mechanism to protect customers in all areas of the
    nation from increasing universal service contribution assessments.

71. The requirements that we adopt for disbursement of high-cost
    universal service support do not apply to providers operating in
    Alaska, Hawaii, or any U.S. Territories and possessions.[^181] We
    find that these areas have very different attributes and related
    cost issues than do the continental states.[^182] For this reason,
    we are exempting providers in Alaska, Hawaii and U.S. Territories or
    possessions from the high-cost support requirements and rules
    adopted herein, and we will address them in a subsequent
    proceeding.[^183]

### Controlling the Growth of the High-Cost Fund

72. Consistent with the recommendation of the Joint Board, we cap the
    total amount of high-cost universal service support.[^184] As the
    Joint Board recognized, high-cost support currently accounts for
    more than half of total federal universal service support.[^185]
    Since 1997, when the Commission implemented the universal service
    requirements of section 254 of the Act, high-cost support has
    increased by 240 percent.[^186] Although, earlier this year, we took
    an initial step to address high-cost fund growth by capping support
    to competitive ETCs, that cap was an interim, emergency measure,
    pending a closer examination of the steps necessary to achieve
    comprehensive reform.[^187] Many commenters have urged the
    Commission to cap the overall amount of high-cost support, rather
    than limiting the cap only to competitive ETCs.[^188] Although other
    commenters oppose the adoption of a cap on the total amount of
    high-cost support or on the amount of support available to incumbent
    LEC ETCs,[^189] we find that, to manage the high-cost support
    mechanism effectively, we must control its growth, and that capping
    support in the manner discussed below will provide specific,
    predictable, and sufficient support to preserve and advance
    universal service.[^190]

73. We find it necessary to cap the high-cost mechanism as a first step
    toward fulfilling our statutory obligation to create specific,
    predictable and sufficient universal service support
    mechanisms.[^191] As the United States Court of Appeals for the
    Fifth Circuit held in *Alenco*: "\[t\]he agency's broad discretion
    to provide sufficient universal service funding includes the
    decision to impose cost controls to avoid excessive expenditures
    that will detract from universal service."[^192] The *Alenco* court
    also found that "excessive funding may itself violate the
    sufficiency requirements,"[^193] and the United States Court of
    Appeals for the Tenth Circuit has stated that "excessive
    subsidization arguably may affect the affordability of
    telecommunications services, thus violating the principle in
    \[section\] 254(b)(1)."[^194] Given the excessive growth in
    high-cost support, we find it necessary to cap this mechanism to
    ensure that unsubsidized users who contribute to the fund are not
    harmed by excessive subsidization.

74. Therefore, we take several steps to limit the growth of high-cost
    support. First, we cap the overall high-cost fund at the total
    amount of high-cost support disbursed by the Universal Service
    Administrative Company (USAC) for December 2008 on an annualized
    basis, net of any prior or past period adjustments. Although we
    agree with the Joint Board's recommendation to cap the high-cost
    mechanism, rather than set such a cap at the 2007 level of high-cost
    support as the Joint Board recommended, we find it is more
    appropriate to set the cap at the level of support disbursed by USAC
    in December 2008 on an annualized basis. Furthermore, we freeze each
    incumbent LEC ETC's individual, annual high-cost support at the
    amount of support, on a lump sum basis, that the ETC received in
    December 2008 annualized, net of any prior or past period
    adjustments, on a study area or service area basis.[^195]

75. As discussed below, we also eliminate the identical support rule for
    competitive ETCs. Competitive ETCs' support levels will be based on
    their costs as compared to the relevant high-cost support mechanism
    benchmarks, and frozen at the amount of support, on a lump sum
    basis, that the competitive ETC received in 2008 on a study area
    basis.[^196]

76. Consistent with section 254(b)(5) of the Act, we find that capping
    high-cost support in this manner will enable ETCs to predict the
    specific level of support that they will receive should they choose
    to participate in the program.[^197] To the extent that an incumbent
    LEC ETC determines that it cannot offer broadband Internet access
    service throughout its service area at the specified level of
    support, as discussed below, that particular study area will be
    deemed an "Unserved Study Area," and we will conduct a reverse
    auction to determine the entity capable of meeting our service
    requirements and the amount of support to provide for that area. In
    fact, through the reverse auction process, it will be the bidders,
    not the Commission, that determine how much support they would need
    to offer service. Finally, as discussed below, if the reverse
    auction process does not yield a winning bidder, the Commission will
    reexamine whether it needs to take further action with regard to
    this situation, should it arise.

### Conditioning Support on Offering Broadband Internet Access Service

77. The broadband era is here. Those of us who have broadband Internet
    access service use it to communicate, to work, to get vital
    information, to be educated, and to be entertained. Broadband
    Internet access service---a novelty at the time of the passage of
    the 1996 Act---is now mainstream. Yet some Americans still lack
    access to this vital service, and as Commissioner Copps has said,
    "does America at the beginning of the 21st century become
    technologically stagnant or the leader of the Digital Age? For me,
    the answer to that question depends in some significant measure upon
    whether we succeed in bringing high-speed, high-value broadband and
    an open Internet to all Americans . . . rural as well as urban folks
    . . . ."[^198]

78. Today, we modify our high-cost support system fundamentally to spur
    deployment and ensure that all Americans have access to broadband.
    Specifically, we make offering broadband Internet access service a
    condition of being eligible to receive high-cost support. As we
    explain below, we will require all incumbent LECs to certify whether
    or not they will commit to offering broadband Internet access
    throughout their supported study areas in five years.[^199] Those
    who make that commitment will continue to receive their current
    levels of support. Existing competitive ETCs likewise will have the
    opportunity to commit to offering broadband Internet access service
    throughout their supported service areas, and will be eligible to
    receive high-cost support based on their actual costs. Auction
    winners, as well, must commit to offering broadband Internet access
    service throughout their supported areas as a condition of receiving
    even initial support. In other words, all ETCs are subject to the
    same basic obligation---to offer broadband Internet access
    throughout their supported service areas. We also explain the
    obligations related to this condition, including
    carrier-of-last-resort-type obligations.

79. We believe that imposing this condition on the receipt of high-cost
    support is fully consistent with and indeed promotes Congress's
    overall objectives as stated in section 254 of the Communications
    Act and section 706 of the 1996 Act.[^200] Section 254(b)(2) of the
    Act instructs the Commission to base policies for the advancement of
    universal service on the principle that "\[a\]ccess to *advanced*
    telecommunications *and information services* should be provided in
    all regions of the Nation."[^201] Similarly, section 254(b)(3)
    states that "\[c\]onsumers . . . in rural, insular, and high-cost
    areas, should have access to . . . *advanced* telecommunications and
    *information services*, that are reasonably comparable to those
    services provided in urban areas and that are available at rates
    charged for similar services in urban areas."[^202] Indeed, Congress
    even established the definition of universal service as "an
    *evolving* level of telecommunications services . . . taking into
    account advances in telecommunications and information technologies
    and services."[^203] We believe that imposing a broadband condition
    on receipt of high-cost support advances the general purposes of
    section 254 of the Act as just described and also advances
    Congress's objective stated in section 706 of the 1996 Act to
    "encourage the deployment on a reasonable and timely basis of
    advanced telecommunications capability to all Americans."[^204] We
    also see no reason why conditioning the receipt of high-cost support
    on offering broadband Internet access service is not permissible
    under the Commission's authority to promulgate general rules related
    to universal service.[^205]

80. *Broadband Internet Access As a Condition to Receiving High-Cost
    Support.* Consistent with the objectives of sections 254 and 706 as
    just described, all ETCs must offer broadband Internet access
    service to all customers in their supported service areas as a
    condition of receiving universal service high-cost support. Since
    the Commission adopted universal service rules in response to the
    1996 Act, broadband Internet access service has evolved into a
    critical service for American consumers. The importance of this
    evolution is reflected in Congress's recent finding that "\[t\]he
    deployment and adoption of broadband technology has resulted in
    enhanced economic development and public safety for communities
    across the Nation, improved heath care and education opportunities,
    and a better quality of life for all Americans, \[and\]
    \[c\]ontinued progress in the deployment and adoption of broadband
    technology is vital to ensuring that our Nation remains competitive
    and continues to create business and job growth."[^206] The majority
    of consumers who use broadband Internet access service today rely on
    it for telework, access to banking services, interaction with
    government, entertainment, shopping, access to news and other
    information, and so many other uses.[^207] Broadband Internet access
    plays a special role in rural areas, reducing the burdens of
    distance.[^208] For example, high-speed connections to the Internet
    allow children in rural areas to have access to the same information
    as school children in urban areas. Telemedicine networks made
    possible by broadband Internet access service also save lives and
    improve the standard of healthcare in sparsely populated, rural
    areas that may lack access to the breadth of medical expertise and
    advanced medical technologies available in other areas.[^209]
    Broadband service also enables the sharing of critical,
    time-sensitive information with first responders, government
    officials, and health care providers, thereby improving the
    government's ability to provide a comprehensive and cohesive
    response to a public health crisis in coordination.[^210]

81. Despite the advances in broadband technology and the deployment of
    infrastructure to accommodate higher bandwidth speeds, ubiquitous
    broadband availability does not exist throughout the
    nation---especially for those consumers in rural areas.[^211] In
    March 2008, the Commission's most recent data revealed that more
    than half of the households in the United States now subscribe to a
    high-speed service provider and at least one high-speed service
    provider is providing service in excess of 200 kbps in at least one
    direction in 99.9 percent of zip codes in the country.[^212] The
    broadband subscription rate is much lower in rural areas, however. A
    2008 survey finds that the percentage of rural households
    subscribing to broadband service is only 38 percent---well below the
    57 percent and 60 percent subscription rates found in urban and
    suburban areas, respectively.[^213] This survey concludes that the
    lack of broadband availability very likely accounts for some of this
    disparity.[^214] Moreover, this conclusion is consistent with the
    results of residential surveys in several states.[^215] We find that
    making the offering of broadband Internet access service a condition
    of receiving universal service high-cost support can bring this
    critical service to the remainder of Americans who await its
    deployment.[^216] In addition, doing so will further the objective
    of section 254(b)(3) that consumers in rural, insular, and high-cost
    areas have access to advanced telecommunications and information
    services that are reasonably comparable to those services provided
    in urban areas and that are available at rates charged for similar
    services in urban areas.[^217]

#### Definition of Broadband Internet Access Service

82. For purposes of satisfying the condition to receive high-cost
    support, we adopt a definition of broadband Internet access service
    that focuses on the end user's experience, without regard to the
    types of facilities, protocols, or other technologies used to
    deliver that experience. Broadband Internet access service is
    therefore defined as an "always on" service that combines computer
    processing, information provision, and computer interactivity with
    data transport, enabling end users to access the Internet and use a
    variety of applications, at speeds discussed elsewhere in this
    order.[^218] We refer specifically to broadband Internet access
    service---an information service---and not to broadband transmission
    alone because our goal is to ensure that all Americans have access
    to the Internet.[^219]

#### Broadband Internet Access Service Obligations

83. Section 254(b)(1) instructs the Commission to base policies for the
    advancement of universal service on the principle that quality
    services should be offered at just, reasonable, and affordable
    rates.[^220] Below we provide requirements for offering broadband
    Internet access service as a condition of receiving universal
    service high-cost support. In sum, all ETCs must offer broadband
    Internet access service, along with all supported services, to all
    customers throughout their service areas by the end of a five- or
    ten-year build-out period consistent with the requirements of this
    order.

84. Except as described just below, an ETC may offer broadband Internet
    access service using any technology, or combination of technologies,
    that meets the requirements for speed set forth in this order. An
    ETC may also combine services provided over its own facilities with
    those provided over another provider's facilities pursuant to
    agreement. Indeed, there may be service areas where it is more
    economic to offer broadband Internet access service via one
    technology than another and we explicitly provide for even a single
    provider to take advantage of the inherent benefits of different
    technologies for different areas.[^221] Furthermore, an ETC can
    combine a common carrier offering of broadband transmission[^222]
    with the information processing capabilities described above,[^223]
    so long as what the end user receives is in fact broadband Internet
    access service.

85. An ETC cannot use satellite broadband technology to meet its
    obligations under this order, however, absent a waiver from the
    Commission. We are concerned that broadband Internet access service
    provided via satellite differs from broadband Internet access
    provided over other technologies in two important ways. First,
    satellite-provided broadband Internet access service is subject to
    latency due to the amount of time it takes a signal to travel
    between the satellite and the user. [^224] Latency ranges from a
    quarter of a second to almost a second, making the use of
    applications that require a very fast response difficult or
    impossible, and substantially degrading the quality of other
    applications like voice over Internet protocol. [^225] Second,
    satellite-provided broadband Internet access service is subject to
    degradation due to weather events ("rain fade") to a greater degree
    than other wireless technologies.[^226] For these reasons, we find
    that satellite-provided broadband Internet access service cannot be
    the primary means by which we serve rural America. We recognize,
    however, that for certain customers, satellite-provided broadband
    may be the only economic means of reaching them. Therefore, ETCs may
    apply to the Commission for a waiver to be able to meet their
    commitments under this order by offering broadband Internet access
    service via satellite to certain customers, based on a specific,
    detailed showing that there is no other economic option for serving
    those customers.[^227] If the Commission grants such a waiver with
    regard to particular customers, that waiver may be transferred if a
    different ETC becomes subject to the obligation to offer broadband
    to those customers.

### Incumbent LECs' Commitment to Offer Broadband

86. As discussed above, as a condition of receiving federal high-cost
    universal service support, all ETCs must offer broadband Internet
    access service.[^228] Therefore, incumbent LECs receiving high-cost
    support must certify to the Commission, for each study area[^229]
    for which they receive high-cost support, whether or not they will
    offer broadband Internet access service to all customers within that
    study area, consistent with the requirements of this order, within
    five years of the due date of their commitment.[^230] This
    certification must include a commitment to offer broadband Internet
    access service with download speeds equal to or greater than 768
    kbps and upload speeds greater than 200 kbps.[^231]

87. Incumbent LECs that file a certification for a particular study area
    indicating that they will offer broadband Internet access service
    under the terms specified in this order will continue to receive
    their current levels of high-cost support for that study area, which
    will be deemed a "Committed Study Area." We specify the precise
    benchmarks that the incumbent LEC must meet over the five-year
    build-out period, and the consequences for failure to do so,
    below.[^232]

88. As discussed above, we freeze each incumbent LEC ETC's individual
    high-cost support at the amount of support, on a lump sum basis, the
    ETC received in December 2008 annualized, net of any prior or past
    period adjustments, on a study area or service area basis.[^233]
    Incumbent LEC ETCs committing to offer broadband Internet access
    service within a study area consistent with the requirements of this
    order will continue to receive the frozen high-cost support amount
    for that study area.[^234]

89. Study areas for which incumbent LECs either certify that they will
    not offer broadband in five years as described herein, or for which
    the incumbent LECs fail to file any certification at all, will be
    deemed "Unserved Study Areas." For these areas, the Commission will
    conduct a reverse auction as described below, awarding high-cost
    support to a bidder that will commit to take on carrier of last
    resort obligations and to offer broadband Internet access service
    throughout the study area.

### Reverse Auctions for Study Areas Unserved by Broadband

90. The Joint Board recommended that the Commission's universal service
    goals include universal availability of broadband Internet service
    at affordable and comparable rates for all rural and non-rural
    areas.[^235] While we are not adopting the Joint Board's
    recommendation to create a separate broadband fund, we agree with
    the Joint Board's goal that broadband Internet access service should
    be universally and affordably available. We are therefore allowing
    incumbent LECs and competitive ETCs receiving high-cost support to
    continue to receive such support if they commit to offer broadband
    services throughout their supported service areas by the end of a
    five-year build-out period. We anticipate, however, that in some
    study areas, the incumbent LEC may decline to make that commitment.
    For these Unserved Study Areas, we will conduct a reverse auction
    for the right to receive high-cost support.[^236]

91. We sought comment in our *Reverse Auctions NPRM* on the merits of
    using reverse auctions, a form of competitive bidding, to decide how
    much high-cost support to provide to ETCs serving rural, insular,
    and high-cost areas.[^237] In a reverse auction, support generally
    would be determined by the lowest bid to serve the auctioned
    area.[^238] We conclude that using a reverse auction method for
    identifying both the recipient of high-cost support for an Unserved
    Study Area, as well as the amount of support, is appropriate because
    the winning bid should approach the minimum level of subsidy
    required to achieve our universal service goals.[^239] In contrast,
    a support mechanism based on cost or on a cost model provides no
    incentive for an ETC to provide supported services at the minimum
    possible cost.[^240] In addition, a reverse auction provides a fair
    and efficient means of eliminating or reducing the subsidization of
    multiple ETCs in a given region.[^241] For these reasons, we find
    that a reverse auction offers advantages over the current high-cost
    support distribution mechanisms and we adopt a reverse auction plan,
    as discussed below.[^242]

92. To implement the reverse auctions, there are several issues that
    must be addressed. We describe in this part: (1) the geographic area
    to be auctioned; (2) the reserve price for the reverse auction; (3)
    what a winning bidder will receive; (4) how the winning bidder will
    be selected; and (5) the qualifications a bidder must demonstrate
    before it may participate in a reverse auction.

#### Geographic Area

93. In the *Reverse Auctions NPRM*, we sought comment on whether we
    should use the study area[^243] as the geographic area for reverse
    auctions.[^244] We observed that high-cost support today is
    generally based on the wireline incumbent LEC's study area.[^245] We
    tentatively concluded that the wireline incumbent LEC's study area
    would be the appropriate geographic area on which to base reverse
    auctions.[^246] We adopt our tentative conclusion that the study
    area is the best geographic area to use for several reasons. First,
    if we allowed bidders to bid to provide service in smaller
    geographic areas, we would encourage bidders to bid on areas that
    are easier or cheaper to serve, leaving our most difficult-to-serve
    populations still without broadband service.[^247] Conversely, if we
    required bidders to bid on even larger geographic areas, we might
    discourage bidders from entering the auction because of the
    difficulty in committing to serve an even larger area. Although some
    commenters oppose using the incumbent LEC's study area,[^248] use of
    the study area is consistent with the area we ask incumbent LECs to
    consider in making their commitments. Finally, selecting smaller
    geographic areas for auction would increase the number of auctions
    to be held, potentially delaying the conduct of the auction and,
    therefore, the deployment of broadband to unserved areas.[^249] For
    these reasons, we conclude that the study area is the best available
    geographic area to consider for the auction. We will conduct a
    reverse auction for each study area for which the incumbent LEC
    receiving high-cost support has not committed to offer broadband
    Internet access service pursuant to the requirements explained above
    (Unserved Study Areas).[^250]

#### Reserve Price

94. In the *Reverse Auctions NPRM*, we noted that we should establish a
    reserve price---a maximum level of high-cost support that
    participants in the auction would be allowed to place as a
    bid.[^251] We observed that a reserve price that is set too low is
    likely to discourage bidders from participating, while one that is
    set too high raises the possibility of providing too much
    support.[^252] We conclude that the reserve price should be the
    amount of high-cost support that the incumbent LEC would have been
    entitled to receive had it committed to offer broadband Internet
    access service within the study area.[^253]

95. We set the reserve price in each study area at the incumbent LEC's
    current level of high-cost support for several reasons. First, we
    are capping the overall high-cost fund at its current level. Setting
    a reserve price will help ensure that overall high-cost funding
    remains within this amount, because the high-cost funding for each
    Unserved Study Area will merely be transferred to another ETC, not
    increased. In addition, setting a reserve price at this level will
    ensure that, even in reverse auctions for particular Unserved Study
    Areas that do not garner many bids, those bids will be made by
    providers who are confident that they can assume all the obligations
    of the carrier of last resort,[^254] as well as the new broadband
    service obligations, and provide service more efficiently than the
    incumbent LEC.[^255] Indeed, we expect that bidders frequently will
    offer to provide service using newer and more efficient technologies
    than the incumbent LEC uses today. For these reasons, we set the
    reserve price at the level described above.

#### Auctioned Support

96. For Unserved Study Areas, we will auction the award of high-cost
    support to provide all supported services to the entire Unserved
    Study Area, on a carrier of last resort basis, consistent with the
    requirements of this order. The maximum annual award amount will be
    equal to the amount of the winning bid (Award Amount), paid out as
    described in more detail below as certain geographic areas are built
    out.[^256]

97. The Award Amount is conditioned on the winning bidder providing all
    supported services as a carrier of last resort, as the incumbent LEC
    does today under state law, and meeting the ETC requirements set
    forth in the *ETC Designation Order*.[^257] Competitive ETCs are
    currently required to provide supported services throughout their
    service area, even though they may not be, under state law, the
    carrier of last resort.[^258] In the *ETC Designation Order*, the
    Commission adopted additional requirements for ETC designation
    proceedings in which the Commission acts pursuant to section
    214(e)(6).[^259] The Commission requires that applicants seeking ETC
    designation from this Commission demonstrate the following: (1) a
    commitment and ability to provide services, including providing
    service to all customers within its proposed service area; (2) that
    it will remain functional in emergency situations; (3) that it will
    satisfy consumer protection and service quality standards; (4) that
    it offers local usage comparable to that offered by the incumbent
    LEC; and (5) an understanding that it may be required to provide
    equal access if all other ETCs in the designated service area
    relinquish their designations pursuant to section 214(e)(4).[^260]
    We find that the universal service obligations in the *ETC
    Designation Order* will apply to all competitive ETCs winning
    reverse auctions; in addition, the auction winner must accept all of
    the carrier of last resort obligations of the incumbent LEC for that
    study area, whether such obligations are imposed on the LEC pursuant
    to state or federal law.

98. In addition to the *ETC Designation Order* requirements, we add two
    additional requirements to competitive ETCs winning reverse
    auctions. First, they must, as a condition of receiving the Award
    Amount, offer broadband Internet access service to all customers
    within the Unserved Study Area. Second, competitive ETCs winning
    reverse auctions must offer supported services at a retail price
    comparable to the retail price charged by the incumbent LEC in that
    same study area for the same or equivalent service.[^261] In this
    manner, we ensure that competitive ETCs receiving high-cost support
    will continue to make supported services at least as affordable and
    available as they are today.

99. We recognize that a transition mechanism is needed to shift
    high-cost support from the incumbent LEC currently receiving it to
    another ETC that wins an Award Amount. A flash cut would be harmful
    in at least two ways. First, the incumbent LEC would immediately
    lose support upon which it may rely to maintain supported services
    as a carrier of last resort to consumers today. It is possible that
    removing support from the incumbent LEC would, in some cases,
    jeopardize its provision of services to some users. In addition,
    granting a full Award Amount immediately to a winning ETC would
    provide little incentive for the competitive ETC to build out new
    facilities to difficult-to-serve areas until the last possible
    moment, as in many cases those areas will be the most expensive to
    serve. As a result, we conclude that, prior to the initiation of an
    auction, the incumbent LEC for the Unserved Study Area will be
    required to identify the distribution of support by geographic area
    for purposes of the auction and the transfer of support to the
    winning bidder. As the winning ETC builds out to those geographic
    areas and certifies that it complies with all its obligations under
    this order for that area, it will receive high-cost support for that
    portion of the Unserved Study Area, and the incumbent LEC will no
    longer receive such support for that area.[^262] As the winning
    bidder takes on carrier of last resort obligations and obtains
    high-cost support for an area, the incumbent LEC will no longer
    receive high-cost support for that area and will be relieved of its
    carrier of last resort obligations at both the state and federal
    levels. We require winning auction bidders to comply fully with all
    the requirements of this order by the end of a ten-year build-out
    period.

100. Finally, we address the question of transferability of the Award
     Amount. We conclude that auction winners may transfer their right
     to the Award Amount. This transfer could take one of several
     forms---an auction winner could be purchased by another entity, the
     winner could sell assets used to provide the supported services, or
     the auction winner could transfer just the right to the Award
     Amount itself. The transferee will, in all events, step into the
     shoes of the auction winner and will be responsible for meeting all
     obligations as if it had been the original auction winner. Any such
     transfer, however, must be authorized by the Commission before it
     is consummated.

#### Selecting a Winning Bid

101. In the *Reverse Auctions NPRM*, we sought comment on whether the
     reverse auction should award high-cost support to a single winner
     or to multiple winners.[^263] We observed that if only one winner
     receives support, this could provide a fair and efficient means of
     eliminating the subsidization of multiple ETCs in a region,
     particularly in areas in which costs are prohibitive.[^264] We
     tentatively concluded that universal service support auctions
     should award high-cost support to a single winner.[^265] We now
     conclude that the single winner format will provide the most
     effective mechanism for determining the support amount sufficient
     to meet the universal service goals in any given area.[^266] We
     therefore adopt our tentative conclusion to select one winner in
     each reverse auction.

102. As we have explained above, in requiring the offering of broadband
     Internet access service as a condition of receiving high-cost
     support, one of our main goals is to ensure that all Americans have
     access to affordable, quality broadband services.[^267] Achieving
     this goal will require careful selection of the winning bidder for
     a particular Unserved Study Area. As explained in more detail
     below, the winning bidder will be the one who commits to offer the
     highest speed of broadband service---throughout the entire Unserved
     Study Area---at a bid amount that is equal to or less than the
     reserve price (the incumbent LEC's current high-cost support
     amount). In so doing, we work towards making quality,
     technologically advanced broadband services available to all
     Americans, including those in difficult- or expensive-to-serve
     areas, rather than settling for lesser broadband service for those
     Americans who live in high-cost areas. We acknowledge that, in many
     cases, the winning bid will not be the cheapest one. But we believe
     that encouraging bidders to offer better broadband services at or
     below a set reserve price will help us achieve our broadband goals,
     while keeping an appropriate limit on the amount of high-cost
     support disbursed to achieve that goal.

103. For purposes of our reverse auction, we establish three tiers of
     broadband service. We will use the term "Basic Broadband Tier 1" to
     refer to service with download speeds equal to or greater than 768
     kbps but less than 1.5 mbps, and upload speeds greater than 200
     kbps. We will use the term "Broadband Tier 2" to refer to service
     with download speeds equal to or greater than 1.5 mbps and less
     than 3 mbps, and upload speeds greater than 200 kbps. We will use
     the term "Broadband Tier 3" to refer to service with download
     speeds equal to or greater than 3 mbps, and upload speeds greater
     than 200 kbps.[^268]

104. We will evaluate bids as follows: for any Unserved Study Area, a
     bidder will submit a bid to commit to offering a service falling
     within Basic Broadband Tier 1, Broadband Tier 2, or Broadband Tier
     3 to all customers in the Unserved Study Area. To qualify for an
     award, the bid must be equal to or less than the reserve
     price---that is, equal to or less than the amount of high-cost
     support received by the incumbent LEC for that Unserved Study
     Area.[^269] The bidder need not specify a specific speed to which
     it will commit in any of the three tiers, but it must disclose in
     which tier its proposed service will fall. The bid amount will be
     an amount of high-cost support to provide all supported services in
     the Unserved Study Area as carrier of last resort, subject to all
     the requirements of this order, including the condition to offer
     broadband throughout the Unserved Study Area. The winning bid will
     be selected through a two-step process. First, we will identify the
     highest speed tier for which there is a valid bid. If there is only
     one bid for that tier, then that is the winning bid. If there are
     multiple bids within that tier, then the winning bid will be the
     lowest price bid within that tier.[^270]

105. If a particular reverse auction produces no winner, the study area
     will be identified as a truly high-cost study area. The fact that
     there is no winning bidder may indicate that the reserve price was
     set at too low an amount of support. The Commission will reexamine
     any such study area to determine whether the frozen high-cost
     support amount is sufficient, and, if it is not, the Commission
     will determine what further actions should be taken to ensure that
     the study area is served by a provider that will meet the broadband
     commitment and carrier of last resort requirements. For example,
     the Commission may consider disaggregating the study area on a wire
     center basis for reverse auction purposes, or increasing the amount
     of high-cost support set as the reserve price for the study
     area.[^271] To ensure continued service to customers during the
     limited period of time in which the Commission examines these
     issues, the existing incumbent LEC will continue to have all
     carrier of last resort and ETC obligations, and will continue to
     receive high-cost support frozen at its current level pending
     transfer of such support to the winning bidder of the reverse
     auction.

#### Bidder Qualifications

106. We adopt a number of conditions that bidders must meet before they
     can participate in any auction. We adopt these requirements to help
     ensure that any bidder who wins an auction will be capable of
     meeting the commitments that flow from being a winning bidder.

107. First, we require that a bidder be an ETC, certified by the
     Commission or by a state. In the *Reverse Auctions NPRM*, we
     tentatively concluded that an auction bidder must be an ETC
     covering the relevant geographic area prior to participating in the
     auction.[^272] We hereby adopt that tentative conclusion. Winning
     bidders must be designated as ETCs before receiving high-cost
     support pursuant to sections 214 and 254 of the Act; therefore,
     requiring bidders to receive this designation prior to
     participating in an auction entails only a small additional burden.
     This burden is offset by the potential delay in deploying broadband
     Internet access service that would result while a non-ETC winning
     bidder seeks and obtains ETC designation.[^273] We note that ETCs
     are not required to provide all supported services with their own
     facilities.[^274] ETCs may enter into contracts with other entities
     to provide some supported services in part or all of the study
     area.

108. As a general matter, in our spectrum auctions we require an upfront
     payment to deter frivolous or insincere bidding.[^275] In the
     reverse auctions we adopt today, we are not requiring an upfront
     payment. Instead, we are requiring participants to demonstrate to
     the Commission a capability to meet the milestone requirements.
     This showing will include, for example, evidence of financial
     resources with which to undertake the construction or upgrading of
     facilities necessary to offer broadband Internet access service. In
     addition, in areas where the bidder does not currently offer
     telecommunications services, we will require the bidder to submit a
     plan demonstrating the timetable for building the necessary
     facilities and obtaining any required permits.

### Competitive Eligible Telecommunications Carriers

#### Background

109. In the *Identical Support NPRM*, the Commission tentatively
     concluded that it should eliminate the current identical support
     rule for competitive ETCs, because the rule bears no relationship
     to the amount of money competitive ETCs have invested in rural and
     other high-cost areas of the country.[^276] In that notice, the
     Commission tentatively concluded that a competitive ETC should
     receive high-cost support based on its own costs, which better
     reflect real investment in rural and other high-cost areas of the
     country, and which create greater incentives for investment in
     those areas.[^277] Because a competitive ETC's per-line support is
     based solely on the per-line support received by the incumbent LEC,
     rather than its own network investments in an area, the competitive
     ETC has little incentive to invest in, or expand, its own
     facilities in areas with low population densities, thereby
     contravening the Act's universal service goal of improving the
     access to telecommunications services in rural, insular and
     high-cost areas.[^278] Instead, competitive ETCs have a greater
     incentive to expand the number of subscribers, particularly those
     located in the lower-cost parts of high-cost areas, rather than to
     expand the geographic scope of their networks. As discussed above,
     the Joint Board recommended elimination of the identical support
     rule; we agree with the Joint Board and adopt this recommendation
     and our tentative conclusion.[^279] Under the new high-cost support
     mechanism that we adopt today, competitive ETCs will be eligible to
     receive support based on their own costs as compared to the
     relevant support benchmarks, contingent upon a commitment to offer
     broadband Internet access service to all customers in a service
     area within five years.[^280]

#### Certification by Existing Competitive ETCs

110. As discussed above, as a condition of continuing to receive federal
     high-cost universal service support, incumbent LEC ETCs must offer
     broadband Internet access service to all customers in their service
     areas within five years.[^281] Similarly, to be eligible to receive
     high-cost support on a going-forward basis, competitive ETCs must
     also certify that they will offer broadband Internet access service
     to all customers within a supported service area, consistent with
     the requirements of this order, within five years of the due date
     of their commitment.[^282] Consistent with the certification
     required of incumbent LEC ETCs, competitive ETC certifications must
     include a commitment to offer broadband Internet access service
     with download speeds equal to or greater than 768 kbps and upload
     speeds greater than 200 kbps.[^283] Failure to make this commitment
     or to meet the milestones and requirements established herein shall
     result in loss of ETC status for the service area.

#### Calculation of Support

111. We adopt our tentative conclusion in the *Identical Support NPRM*
     that competitive ETCs should receive high-cost support based on
     their own costs.[^284] We are not persuaded by arguments that, by
     requiring competitive ETCs to demonstrate that their own costs
     exceed a high-cost threshold as a condition of receiving universal
     service support, we will be placing undue administrative burdens on
     the competitive ETCs and providing incentives for them to maximize
     their costs.[^285] Instead, we find that competitive ETCs should
     demonstrate eligibility for high-cost support in the same manner as
     incumbent LEC ETCs, based on their costs, as this will better
     reflect competitive ETCs' investment in their service areas.[^286]
     Specifically, we require competitive ETCs to file cost information
     for the total costs of a service area, from which will be developed
     a cost per line. Spectrum costs are not included for purposes of
     calculating a cost per line.[^287] We will then apply the same
     benchmarks that are applied to incumbent LECs' costs to determine
     whether the competitive ETCs qualify to receive high-cost support.
     In the case of a competitive ETC providing service in a non-rural
     service area, the cost per line would be compared to the benchmark
     threshold for support calculated by the High-Cost Proxy
     Model.[^288] For a competitive ETC providing service in a rural
     service area, support will be determined by comparing the
     competitive ETC's cost per loop incurred to provide the supported
     services to the same national average cost per loop used to
     determine incumbent LEC support for the same service area.[^289]

112. Because a competitive ETC may have few or no lines when it first
     receives its ETC designation, performing a calculation of per-line
     costs at the initial time of market entry likely would result in a
     considerable upward bias in the resulting amount. Similarly, a
     competitive ETC that has not gained customers in high-cost areas
     would have low line counts, skewing upward its costs per line.
     Conversely, a competitive ETC that has successfully gained
     customers will have lower costs per line due to the larger number
     of lines over which to spread its costs. To correct this issue,
     rather than relying on the competitive ETCs' line counts to
     determine per-line costs, we will use the same line counts used to
     determine the incumbent LEC cost per line for the same service
     area.

113. Consistent with the freeze on incumbent LEC high-cost support based
     on December 2008 support levels, we will use December 2008 as the
     base period for both the incumbent LEC lines used to determine the
     competitive ETCs' per-line costs, and for the benchmarks against
     which the competitive ETCs' costs will be compared for high-cost
     support purposes. Once the competitive ETC has demonstrated that
     its costs exceed the relevant benchmark, that competitive ETC will
     be entitled to continue to receive support for the relevant service
     area, frozen at the amount of support, on a lump sum basis, that
     the competitive ETC received in 2008. If a competitive ETC does not
     commit to the broadband build-out requirements set forth herein, or
     does not demonstrate that its costs exceed the relevant benchmark,
     it shall no longer be entitled to receive support.

114. If no competitive ETC elects to show its own costs in a particular
     study area, we will conduct a reverse auction to award support to a
     broadband mobility provider. The reserve price for such auction
     shall be the largest amount of high-cost support received by a
     competitive ETC in the study area in 2008. There shall be no
     interim support in such study area to an existing competitive ETC
     that does not commit to the broadband requirements pending the
     completion of the reverse auction.[^290]

### Build-Out Milestones and Monitoring, Compliance, and Enforcement

115. We find that a rigorous monitoring, compliance and enforcement
     program is necessary to ensure that all ETCs receiving high-cost
     support adhere to their obligation to offer broadband Internet
     access service throughout their supported service areas by the end
     of their respective build-out periods. We therefore establish
     build-out requirements to monitor providers' progress toward their
     build-out commitment. Specifically, and as described in detail
     below, we require each provider receiving high-cost support to meet
     specific milestones with regard to broadband deployment in the
     years preceding completion.

116. *Applicability of Requirements*. As an initial matter, we find that
     the monitoring, compliance and enforcement requirements we adopt
     today will apply equally to all recipients of high-cost support
     that commit to offer broadband Internet access service as a
     condition of receiving support. Consumers should expect to receive
     the benefits of today's order, irrespective of whether an incumbent
     LEC, competitive ETC, or winning auction bidder receives high-cost
     support in their area. We find that the milestone obligations we
     impose today will not unduly burden any company; rather, they
     represent efforts we believe carriers would undertake in the normal
     course of constructing a broadband network. We therefore apply the
     monitoring, compliance, and enforcement requirements below to all
     recipients of high-cost support.

117. *Milestones for Committed Incumbent LECs and Existing Competitive
     ETCs.* To ensure that incumbent LECs that commit to offering
     broadband and competitive ETCs other than auction winners make
     steady progress towards offering broadband Internet access service
     throughout their entire service areas as required in this order, we
     adopt milestones based on customer locations where the incumbent
     LEC or competitive ETC is not yet offering broadband Internet
     access service (Unserved Customers).[^291] Specifically, we require
     incumbent LECs and competitive ETCs to be capable of providing
     broadband Internet access service to an additional 20 percent of
     their Unserved Customers by the end of each year of the five-year
     build-out period. This requirement means that, of the total number
     of Unserved Customers in the service area, these carriers must
     offer broadband to 20 percent by the end of year one, 40 percent by
     the end of year two, 60 percent by the end of year three, 80
     percent by the end of year four, and 100 percent by the end of year
     five. This five-year period starts from the due date of the
     incumbent LEC or competitive ETC commitment.

118. *Milestones for Auction Winners.* To ensure that auction winners
     make good progress toward meeting their obligation to become fully
     compliant with the requirements of this order*,* we require every
     auction winner to be capable of serving 10 percent of the potential
     customers in the service area by the end of year two, 25 percent by
     the end of year three, 50 percent by the end of year four, 65
     percent by the end of year five, 75 percent by the end of year six,
     85 percent by the end of year seven, 90 percent by the end of year
     eight, 95 percent by the end of year nine, 100 percent by the end
     of year ten. The absence of a milestone at the end of year one is
     intended to allow new service providers sufficient time to plan
     their network and to start deploying and marketing it within some
     parts of the service area. Similarly, the ascending milestones in
     the remaining years are intended to permit the auction winner a
     reasonable time in which to build its network and services while
     ensuring that it does not delay in reaching customers who need this
     vital service. The ten-year build-out period starts on the date on
     which that carrier wins the auction.

119. *Consequences of Not Meeting Milestones.* For all ETCs receiving
     high-cost support, failure to achieve any milestone will result in
     loss of eligibility for support (and, where this Commission has
     jurisdiction over the designation of ETC status, loss of ETC
     status) for that service area. If the ETC that loses its
     eligibility for support is an incumbent LEC or an auction winner,
     the study area will be subject to re-auction. If at the end of the
     build-out period, the ETC is not fully compliant with all its
     obligations under this order, including its obligation to offer
     broadband Internet service throughout the service area, the ETC
     will forfeit its eligibility for support and, if its ETC
     designation was made by this Commission, lose its ETC status.

120. *Milestone Audits*. All milestone data will be subject to audit by
     the Commission's Office of Inspector General and, if necessary,
     investigated by the Office of Inspector General, to determine
     compliance with the build-out requirements, the Act, and Commission
     rules and orders.[^292] Service providers will be required to
     comply fully with the Office of Inspector General's audit
     requirements, including, but not limited to, providing full access
     to all accounting systems, records, reports, and source documents
     of the service providers and their employees, contractors, and
     other agents, in addition to all other internal and external audit
     reports that are involved, in whole or in part, in the
     administration of this program.[^293] Such audits or investigations
     may provide information showing that a service provider failed to
     comply with the Act or the Commission's rules, and thus may reveal
     instances in which universal service support was improperly
     distributed or used.

121. We emphasize that we retain the discretion to evaluate the uses of
     monies disbursed through the high-cost program and to determine on
     a case-by-case basis whether waste, fraud, or abuse of program
     funds occurred and whether recovery is warranted. We remain
     committed to ensuring the integrity of the universal service
     program and will aggressively pursue instances of waste, fraud, and
     abuse under the Commission's procedures and in cooperation with law
     enforcement agencies. In doing so, we intend to use any and all
     enforcement measures, including criminal and civil statutory
     remedies, available under law.[^294]

# Broadband for lifeline/link up customers

122. In this Part, pursuant to section 254(b) of the Act, we establish a
     Broadband Lifeline/Link Up Pilot Program (Pilot Program) to examine
     how the Lifeline and Link Up universal service support mechanism
     can be used to enhance access to broadband Internet access services
     for low-income Americans.[^295] Specifically, we conclude that we
     will make available \$300 million each year for the next three
     years to enable ETCs to support broadband Internet access service
     and the necessary access devices. In particular, if an ETC provides
     Lifeline service to an eligible customer, the Pilot Program will
     support 50 percent of the cost of broadband Internet access
     installation, including a broadband Internet access device, up to a
     total amount of \$100. In addition, if an ETC provides Lifeline
     service to an eligible household, the Pilot Program will double, up
     to an additional \$10, the household's current monthly subsidy to
     offset the cost of broadband Internet access service.

## Background

123. Since 1985, the Commission, pursuant to its general authority under
     sections 1, 4(i), 201, and 205 of the Act and in cooperation with
     state regulators and local telephone companies, has administered
     two programs designed to increase subscribership by reducing
     charges to low-income consumers.[^296] The Commission\'s Lifeline
     program reduces qualifying consumers\' monthly charges, and Link Up
     provides federal support to reduce eligible consumers' initial
     connection charges by up to one half.[^297]

124. Under the Commission's current rules, states and territories have
     the authority to establish their own Lifeline/Link Up programs that
     provide additional support to low-income consumers that incorporate
     the unique characteristics of each state or territory.[^298] For
     example, in establishing eligibility criteria, states have the
     flexibility to consider federal and state-specific public
     assistance programs with high rates of participation among
     low-income consumers in the state. State certification procedures
     and outreach efforts can also take into account existing state laws
     and budgetary limits. Some states and territories, however, have
     elected to use the federal criteria as their default standard.
     These "federal default states" include not only states and
     territories with their own Lifeline/Link Up programs that have
     adopted the federal default criteria, but also states and
     territories that have not adopted their own Lifeline/Link Up
     program. In April 2004, the Commission released an order expanding
     the federal default eligibility criteria to include an income-based
     criterion and additional means-tested programs.[^299]

125. *Eligibility for Lifeline and Link Up.* In states that provide
     state Lifeline and Link Up support, Lifeline and Link Up are
     available to all subscribers who meet state eligibility
     requirements. Although states have some latitude in selecting means
     tests, state commissions must establish narrowly targeted
     qualification criteria that are based solely on income or factors
     directly related to income for low-income residents to be eligible
     for Lifeline and Link Up. In addition, states with eligible
     residents of tribal lands must ensure that their qualification
     criteria are reasonably designed to apply to residents of tribal
     lands, if applicable.[^300] To receive Lifeline and Link Up in a
     state that does not mandate state Lifeline support, consumers must
     certify that their household income is at or below 135 percent of
     the Federal Poverty Guidelines, or that they participate in one of
     the following seven federal programs: Medicaid, Food Stamps,
     Supplemental Security Income (SSI), Federal Public Housing
     Assistance (Section 8), the Low-Income Home Energy Assistance
     Program (LIHEAP), the National School Lunch Program's free lunch
     program, or Temporary Assistance for Needy Families (TANF).[^301]
     Subscribers living on tribal lands qualify to receive federal
     Lifeline support if: (1) they qualify under state criteria in a
     state that provides Lifeline support; (2) they certify that their
     household income is at or below 135 percent of the Federal Poverty
     Guidelines; (3) they certify that they receive benefits from one of
     the seven federal programs listed above; or (4) they certify that
     they participate in one of the following additional federal
     assistance programs: Bureau of Indian Affairs General Assistance
     (GA), Tribally administered Temporary Assistance for Needy Families
     (Tribal TANF), or Head Start (meeting the income-qualifying
     standard).[^302]

126. *TracFone and Computer and Communications Industry Association
     Petitions.* On October 9, 2008, TracFone Wireless, Inc. (TracFone)
     submitted a petition requesting that the Commission establish a
     trial basis program to support broadband Internet access service
     and the devices that support this service.[^303] Citing data
     demonstrating that a significant amount of low-income families are
     unable to afford broadband Internet access, TracFone proposes that
     the Commission, on a temporary basis, provide affordable access to
     low-income consumers by supporting broadband Internet access
     service and the devices used to access these services.[^304]
     TracFone proposes limiting the program to 500,000 to 100,000
     low-income households in Florida, Virginia, Tennessee, and the
     District of Columbia.[^305] Doing so, according to TracFone, will
     enable to the Commission to examine how to better make available
     broadband Internet access service to low-income consumers
     throughout the Nation.[^306]

127. On October 7, 2008, the Computer and Communications Industry
     Association (CCIA) filed a petition requesting the Commission
     revise the definition of universal service supported services to
     allow low-income consumers receive support for broadband Internet
     access services.[^307] CCIA states that, despite a critical need
     for broadband Internet access service, low-income consumers still
     have a considerably low broadband Internet access deployment rate.
     Accordingly, CCIA argues the definition of supported services for
     purposes of universal service should be revised to provide support
     for broadband Internet access service to low-income
     consumers.[^308]

128. In recent proceedings, other parties have also urged the Commission
     to provide low-income consumers with support for broadband
     services. For example, Windstream argues that the Commission should
     direct broadband support to low-income consumers where such support
     is most needed.[^309] AARP also concludes that the Commission
     should provide Lifeline/Link Up support for broadband services and
     urges the Commission to conduct a proceeding to examine the
     matter.[^310] AARP proposes that in addition to examining
     supporting broadband services, the Commission should also examine
     how to increase low-income consumers' access to devices that
     support broadband services and education on how to use such
     devices.[^311] Many consumer groups and service providers have also
     commented in support of TracFone and CCIA's proposals to support
     the provision to low-income consumers of broadband Internet access
     service and the devices used to access these services.[^312]

## Discussion

129. Consistent with the Commission's authority under sections 1, 4(i),
     201, 205, and 254 of the Act, we establish a Lifeline and Link Up
     pilot program to support the provision of broadband Internet access
     service and the devices used to access this service to low-income
     consumers.[^313] In doing so, we explain the justification for
     establishing this program and provide criteria and obligations
     applicants must satisfy for selection to participate in this
     program. Further, we establish requirements for oversight and
     administration of the Pilot Program.

130. *Broadband Internet Access Service and Devices Eligible for Low
     Income Support.* In the *Universal Service First Report and Order*,
     consistent with its statutory obligations, the Commission
     maintained the authority to adopt changes to the Lifeline program
     to make it more consistent with Congress's mandates in the 1996 Act
     if such changes would serve the public interest.[^314] We believe
     that a Lifeline and Link Up pilot program comports with the goals
     of universal service, and advances the public interest by providing
     new technologies and services to low-income consumers. Section
     254(b)(2) of the Act instructs the Commission to base policies for
     the advancement of universal service on the principle that
     "\[a\]ccess to *advanced* telecommunications *and information
     services* should be provided in all regions of the Nation."[^315]
     Similarly, section 254(b)(3) states that "low-income consumers . .
     . should have access to . . . *advanced* telecommunications and
     *information services*, that are reasonably comparable to those
     services provided in urban areas and that are available at rates
     charged for similar services in urban areas."[^316]

131. Since the Commission first adopted its universal service rules in
     response to the 1996 Act, broadband Internet access service has
     evolved into a critical service for American consumers.[^317] The
     majority of consumers who use broadband Internet access service
     today rely on it for telework, access to banking services,
     interaction with government, entertainment, shopping, access to
     news and other information, and many other uses. Access to
     broadband Internet access service is especially important to
     low-income consumers for purposes of education, public health and
     public safety.[^318] High-speed connections to the Internet allow
     children in low-income families access to distance learning and
     research.[^319] Telemedicine networks made possible by broadband
     Internet access service also save lives and improve the standard of
     healthcare to low-income families living in areas that may lack
     access to the breadth of medical expertise and advanced medical
     technologies available in other areas.[^320] Broadband Internet
     access service also enables the sharing of critical, time-sensitive
     information with first responders, government officials, and health
     care providers, thereby improving the government's ability to
     provide a comprehensive and cohesive response to a public health
     crisis.

132. Despite the advances in broadband technology, broadband
     availability still lags for low-income consumers.[^321] The
     Commission's most recent data reveal that where the median income
     is under \$21,000, approximately 99.5 percent of households have
     high-speed service available with speeds in excess of 200 kbps in
     at least one direction.[^322] Yet, according to the Pew Internet &
     American Life Project, only 25 percent of households with annual
     incomes below \$20,000 have broadband service.[^323] In contrast,
     among those living in households with annual incomes in excess of
     \$100,000, broadband adoption is approximately 85 percent.[^324]

133. According to the Commission's data, there are approximately 6.9
     million consumers participating in the Lifeline universal service
     program.[^325] Providing an additional \$300 million in annual
     support through the low-income universal service support mechanisms
     over a three-year period should increase the broadband
     subscribership for low-income customers to over fifty
     percent.[^326]

134. We therefore find that this Pilot Program furthers the universal
     service objectives of section 254 of the Act and serves the public
     interest by making this critical service available to the
     low-income Americans who cannot otherwise afford it. In addition,
     the Pilot Program will provide the Commission with a more complete
     and practical understanding of how to ensure the best use of
     Lifeline and Link Up universal service support to deploy advanced
     services to low-income consumers.[^327]

### Available Funding

135. We establish a maximum annual funding level for this broadband
     Lifeline and Link Up Pilot Program at \$300 million for each of the
     next three years. In its petition, TracFone proposes that a pilot
     program should fund up to either \$180 million or \$360 million per
     year for Lifeline broadband Internet access service support, and up
     to \$125 million or \$250 million for the Link Up portion of the
     program, for a total of either \$305 million or \$610 million,
     depending on whether the program would support 500,000 participants
     or one million participants.[^328]

136. While we recognize the importance of making sufficient funds
     available for this Pilot Program to enable us to determine whether
     and, if so, how to make broadband Internet access service funding a
     permanent part of the Lifeline and Link Up programs, we find that
     the levels of funding proposed by TracFone are not sufficiently
     tied to a specific improvement in the adoption of broadband by
     Lifeline subscribers, as discussed above. In 2007, the overall size
     of the universal service fund's disbursement mechanisms was
     approximately \$7.0 billion.[^329] Of that amount, approximately
     \$823 million went to fund the universal service low-income
     program.[^330] TracFone's proposal represents a potential 74
     percent increase over existing low-income program disbursements,
     and would be limited to targeting low-income consumers in only
     three states and the District of Columbia.[^331] We are concerned
     that such a large funding commitment for a limited geographic area
     would not provide the Commission with sufficient information to
     assess the benefits of expanding the low-income support mechanisms
     upon the conclusion of the Pilot Program. When extrapolated to all
     states and territories, the low-income pilot program proposed by
     TracFone could potentially double the size of the \$7 billion
     universal service fund.[^332] We find it more appropriate to fund a
     pilot program that better correlates with providing broadband
     Internet access service to all eligible low-income support
     recipients as this provides better information regarding the
     permanent adoption of such support.

137. Instead, we set the size of the Lifeline and Link Up Pilot Program
     at up to \$300 million per year over the next three years. We find
     that this amount provides benefits to low-income consumers while
     not overly increasing the amount of low-income support disbursed
     from the universal service fund. Specifically, this level of
     funding should enable the program to increase the broadband
     subscribership for these customers to over fifty percent.[^333]

### Eligible Services and Equipment

138. For the broadband Lifeline/Link Up Pilot Program we adopt today, we
     limit support to one subsidy per household. For purposes of this
     order, we define "household" as one adult and his/her dependants,
     living together in the same residence.[^334] Participating
     households who remain eligible for the program will be entitled to
     remain in the program beyond the first year, subject to the
     requirement that participating ETCs verify their customers'
     continued eligibility under the applicable income-based or
     program-based criteria, as they are required to do for their
     current voice Lifeline customers. We do not require state or
     carrier matching requirements. The Pilot Program is exempt from
     fees and taxes to the same degree as the current Lifeline programs.

139. Under the Link Up portion of the Pilot Program we adopt today, we
     seek to overcome barriers that low-income households might face in
     subscribing to broadband services, such as lacking the equipment
     necessary to connect to broadband services. Therefore, if an ETC
     currently provides or seeks to provide Lifeline voice service to an
     eligible customer, the Pilot Program will support 50 percent of the
     cost of broadband Internet access service installation, including a
     broadband Internet access device, up to a total amount of \$100.
     The device can be a laptop computer, a desktop computer, or a
     handheld device, so long as the equipment has the capability to
     access the Internet at the speeds established per this order, and
     the equipment carries at least a warranty.[^335] The device subsidy
     is a one-time subsidy and is limited to one unit per qualified
     household.[^336] The subsidy amount will be paid by USAC to the
     participating ETC that provides the device and the service to the
     customer, utilizing the same process that USAC uses for the current
     Link Up program.[^337]

140. Once low-income households have the ability to connect to the
     Internet, we seek to ensure that they can afford to subscribe to
     broadband Internet access service. Under the Lifeline portion of
     the program, if an ETC currently provides or seeks to provide
     Lifeline voice service to an eligible household, and that ETC
     provides broadband Internet access service, the Pilot Program will
     double the current monthly subsidy for the Lifeline subscriber up
     to \$10 per month to offset the cost of broadband Internet access
     service.[^338] As defined in this order, broadband Internet access
     service is an "always on" service that combines computer
     processing, information provision, and computer interactivity with
     data transport, enabling end users to access the Internet and use a
     variety of applications, at speeds discussed below.[^339] This
     monthly support provided to participating customers under the Pilot
     Program is separate from and in addition to their monthly Lifeline
     support for voice telephone service.[^340]

141. All ETCs participating in the existing low-income programs are
     eligible to participate, provided that they notify the Commission
     and USAC of their election to participate at least a month in
     advance and certify that they will comply with all program
     requirements, including those set forth herein. Such certification
     must identify the service area in which the ETC plans to offer such
     Lifeline/Link Up broadband services, the costs of such service and
     broadband device, and all costs, both recurring and nonrecurring,
     to the customer participating in the program. The ETC must offer
     the services supported in the Pilot Program throughout the entire
     service area. The Wireline Competition Bureau will release a public
     notice establishing a deadline by which ETCs must notify the
     Commission of their intention to participate.

142. The program we adopt today is technologically and competitively
     neutral; however, we establish minimum speeds at which
     participating ETCs must be able to provide broadband service. ETCs
     participating in the Pilot Program must offer broadband Internet
     access service with download speeds equal to or greater than 768
     kbps and upload speeds greater than 200 kbps.[^341]

### Selection Criteria

143. TracFone suggests that all ETCs notifying the Commission of their
     intent to participate in the Pilot Program should be allowed to
     provide the broadband Internet access service and devices under the
     Pilot Program.[^342] TracFone also argues that the Commission
     should limit the Pilot Program to 500,000 to 100,000 low-income
     households in Florida, Virginia, Tennessee and the District of
     Columbia.[^343] We agree with TracFone that all ETCs should be
     allowed to provide services under the Pilot Program, but we
     disagree that the consumers who are eligible to participate should
     be limited to three states and the District of Columbia.[^344]
     Instead, it is consistent with the public interest to allow all
     ETCs and consumers that meet the criteria discussed in this order
     to participate in the Pilot Program, limited only by the
     availability of funds. Support will be disbursed on a "first come,
     first served basis" where priority is established according to
     ETCs' submission of reimbursement requests to USAC and compliance
     with program eligibility.

144. *Consumer Qualifications*. To receive reimbursement under the Pilot
     Program, an ETC must provide support to a consumer eligible for
     support under the current Lifeline and Link Up programs.
     Specifically, the consumer must meet the eligibility criteria
     specified in section 54.409 of the Commission's rules.[^345] We
     agree with TracFone that only one connection and device per
     household should be funded. Accordingly, we limit Pilot Program
     support to one new connection and device per household. Lifeline
     consumers who currently have a broadband connection and related
     Internet device are excluded from participation in this Pilot
     Program. In addition to their obligations under section 54.409 of
     our rules, consumers must demonstrate that they do not currently
     have a broadband Internet access service subscription or broadband
     Internet access device.[^346]

145. *ETC Obligation to Offer Pilot Program Services*. Prior to
     participation, ETCs must notify the Commission and USAC of their
     intention to participate. A participating ETC must offer the
     services and supported devices to all qualifying low-income
     consumers throughout its service areas. It must also follow the
     carrier obligations identified in section 54.405, as applicable, of
     the Commission's rules.[^347] Consumers and ETCs must follow the
     framework and requirements of the existing Lifeline and Link Up
     program.[^348]

### Implementation and Reporting Requirements

146. To be eligible for support, ETCs must submit a reimbursement
     request to USAC 30 days from the date a customer subscribes to
     service or purchases a device. We require participating each ETC to
     file with USAC on a monthly basis the number of Pilot Program
     consumers it is serving, the types and prices of devices offered,
     the type of technology used (including make and model of equipment
     used) and the speeds at which it is providing service to each of
     those consumers. ETCs in their monthly submission must also report
     the number of subscribers served for the past month and projections
     for the number of subscribers for the next 2 months. Such monthly
     reporting is required to allow USAC to monitor availability of
     funds under the Pilot Program and notify participating ETCs when
     funds may no longer be available for additional customers. In
     determining and/or projecting funds availability, USAC should
     consider the recurring costs of existing customers; we decline to
     specifically allocate the available funding between Lifeline and
     Link Up, relying instead on the certification and reporting
     requirements herein to enable USAC to properly administer the Pilot
     Program.

147. Similar to current recordkeeping requirements, we also require ETCs
     to maintain records to document compliance with all Commission
     requirements governing this Pilot Program for the three full
     preceding calendar years and provide that documentation to the
     Commission or USAC upon request.[^349] Additionally, ETCs must
     maintain documentation for as long as the consumer is receiving
     broadband Lifeline service from that ETC pursuant to the Pilot
     Program, and for three additional years after the consumer stops
     receiving service pursuant to the Pilot Program.

148. ETCs may receive reimbursement for the revenue they forego in
     reducing the price of any qualified consumers' broadband Internet
     access service and related device. As a condition of participation,
     it is the ETC's responsibility to make available a wide array of
     cost efficient broadband Internet access devices capable of
     providing the speeds described above to qualified consumers under
     this program. ETCs must also comply with the self-certification
     procedures, and submit certifications with their monthly
     submissions, consistent with sections 54.410 and 54.416 of the
     Commission's rules.[^350] Any services or equipment supported under
     this order are non-transferable and the devices must be returned to
     the ETC if they are not used in compliance with the terms of this
     order or other applicable laws or regulations. We delegate to the
     Wireline Competition Bureau the authority to disqualify an ETC or
     consumer from the Pilot Program and seek recovery of support not
     used in a manner consistent with this order.

### Program Oversight

149. We are committed to guarding against waste, fraud, and abuse, and
     ensuring that funds disbursed through the Pilot Program are used
     for appropriate purposes. In particular, each Pilot Program
     participant shall be subject to audit by the Office of Inspector
     General and, if necessary, investigated by the Office of Inspector
     General, to determine compliance with the Pilot Program, Commission
     rules and orders, as well as section 254 of the Act.[^351] The
     Pilot Program participant will be required to comply fully with the
     Office of Inspector General's audit requirements including, but not
     limited to, providing full access to all accounting systems,
     records, reports, and source documents of itself and its employees,
     contractors, and other agents in addition to all other internal and
     external audit reports that are involved, in whole or in part, in
     the administration of this Pilot Program.[^352] Such audits or
     investigations may provide information showing that a Pilot Program
     participant or vendor failed to comply with the Act or the
     Commission rules, and thus may reveal instances in which Pilot
     Program awards were improperly distributed or used. To the extent
     the Commission finds that funds were distributed and/or used
     improperly, the Commission will require USAC to recover such funds
     though its normal processes, including adjustment of support
     amounts in other universal service programs from which Pilot
     Program participants receive support.[^353] If any participant
     fails to comply with Commission rules or orders, or fails to timely
     submit filings required by such rules or orders, the Commission
     also has the authority to assess forfeitures for violations of such
     Commission rules and orders. In addition, any participant or
     service provider that willfully makes a false statement can be
     punished by fine or forfeiture under sections 502 and 503 of the
     Act,[^354] or by fine or imprisonment under Title 18 of the United
     States Code (U.S.C.) including, but not limited to, criminal
     prosecution pursuant to section 1001 of Title 18 of the
     U.S.C.[^355] We emphasize that we retain the discretion to evaluate
     the uses of monies disbursed through the Pilot Program and to
     determine on a case-by-case basis whether waste, fraud, or abuse of
     program funds occurred and whether recovery is warranted. We remain
     committed to ensuring the integrity of the universal service
     program and will aggressively pursue instances of waste, fraud, and
     abuse under the Commission's procedures and in cooperation with law
     enforcement agencies. In doing so, we intend to use any and all
     enforcement measures, including criminal and civil statutory
     remedies, available under law.[^356] The Commission will also
     monitor the use of awarded monies and develop rules and processes
     as necessary to ensure that funds are used in a manner consistent
     with the goals of this Pilot Program. Finally, we remind
     participants that nothing in this order relieves them of their
     obligations to comply with other applicable federal laws and
     regulations.

# Reform of Universal Service contributions 

150. In this Part, we adopt a telephone numbers-based methodology under
     which contributors will pay a constant, flat-rate assessment based
     on the number of telephone numbers they have assigned to
     residential end users. We set this per-number assessment at the
     fixed rate of \$1.00 per residential number per month. We conclude
     that providers of business services should contribute to the
     universal service fund on a connection basis, and we seek comment
     on implementation of that methodology. In the interim, providers of
     business services will continue to contribute based on interstate
     and international revenues for these services. The separate
     contribution methodologies for residential and business services
     will be implemented beginning on January 1, 2010.

## Background

151. In implementing the universal service requirements of the 1996 Act,
     the Commission established a method for collecting funds to be
     disbursed through the various universal service support mechanisms.
     Specifically, the Commission determined that contributions to the
     universal service fund would be assessed on telecommunications
     providers based on their interstate and international end-user
     telecommunications revenues.[^357] The Commission concluded that
     basing providers' universal service contributions on their revenues
     would be competitively neutral, easy to administer, and
     explicit.[^358]

152. When the Commission adopted the revenue-based contribution system,
     assessable interstate revenues were growing. The total assessable
     revenue base has declined in recent years, however, from about
     \$79.0 billion in 2000 to about \$74.5 billion in 2006,[^359] while
     universal service disbursements grew over that same time period
     from approximately \$4.5 billion in 2000 to over \$6.6 billion in
     2006.[^360] Declines in assessable contribution revenues combined
     with growth in universal service disbursements have increased the
     contribution factor applied to determine universal service
     contribution amounts.[^361] This upward pressure jeopardizes the
     stability and sustainability of the support mechanisms,
     demonstrating the need for long-term fundamental reform of the
     contribution methodology.[^362]

153. In addition, interstate end-user telecommunications service
     revenues are becoming increasingly difficult to identify as
     customers migrate to bundled packages of interstate and intrastate
     telecommunications and non-telecommunications products and
     services.[^363] The integration of local and long-distance wireline
     services into packages that allow customers to purchase buckets of
     long distance minutes and local service for a single price blurs
     the distinction between revenue derived from intrastate
     telecommunications service and interstate telecommunications
     service. Similarly, the availability of mobile wireless calling
     plans that allow customers to purchase buckets of minutes on a
     nationwide network without incurring roaming or long-distance
     charges also makes it difficult for providers and the Commission to
     identify the amount of revenue derived from interstate
     telecommunications service.[^364] Further, migration to
     interconnected VoIP services complicates the distinctions that
     serve as the basis for current contribution obligations.[^365]

154. In 2001 and 2002, the Commission sought comment on modifications to
     the existing revenue-based contribution methodology, and on
     replacing that methodology with one that assesses contributions on
     the basis of a flat-fee charge, such as a per-line charge.[^366]
     The Commission also sought comment on other universal service
     contribution methodologies, including moving to a numbers-based
     methodology.[^367] Finally, in May 2008, the Commission encouraged
     commenters to refresh the record in several pending intercarrier
     compensation and universal service reform proceedings, including
     the contribution methodology proceeding.[^368]

## Discussion

155. The system of contributions to the universal service fund is
     broken. The Commission has repeatedly patched the current system to
     accommodate decreasing interstate revenues, a trend toward
     "all-you-can-eat" services that make distinguishing interstate from
     other revenues difficult if not impossible and changes in
     technology. While the service developments that precipitated these
     changes have enormous consumer benefits, they have also severely
     strained the contributions system.[^369] We therefore adopt today a
     system of contributions that will assess a \$1.00 contribution per
     residential telephone number per month, and we will move to a
     connections-based system for business services. In this part, we
     explain our legal authority to move to these new methodologies, why
     we have decided to move to these methodologies, and how the
     residential numbers-based system will work.

### Legal Authority

156. The Commission has ample authority to require contributions from
     the variety of providers discussed below. The Commission's
     authority derives from several sections of the Act: section 254(d),
     Title I, and section 251(e). These sections of the statute provide
     us authority to require contributions from the kinds of service
     providers we address below in our discussions of the new
     numbers-based approach for residential services and the
     connections-based approach for business services.

157. Section 254 is the cornerstone of the Commission's universal
     service program. Section 254(d) first provides 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."[^370] Under this "mandatory
     contribution" provision, every provider of telecommunications
     services[^371] must contribute, although the Commission has
     authority to exempt a carrier or class of carriers if their
     contributions would be *de minimis*.[^372]

158. Section 254(d) also provides that the Commission may require
     "\[a\]ny other provider of interstate telecommunications . . . to
     contribute to the preservation and advancement of universal service
     if the public interest so requires."[^373] The Commission has
     relied on this "permissive authority" to require various providers
     of telecommunications,[^374] but not necessarily telecommunications
     *services*,[^375] to contribute. For example, the Commission has
     required entities that provide interstate telecommunications to
     others on a private contractual basis to contribute to the
     universal service fund,[^376] as well as payphone
     aggregators.[^377] Most recently, we required interconnected VoIP
     providers to contribute even though the Commission has not
     determined that they are telecommunications carriers. Specifically,
     in the *2006 Interim Contribution Methodology Order*, we used our
     permissive authority under section 254(d) to require interconnected
     VoIP providers to contribute, and we noted that they "provide"
     telecommunications to their end users.[^378] We also noted that in
     some cases, the interconnected VoIP provider may be "providing"
     telecommunications even if it arranges for the end user to have
     PSTN access through a third party.[^379]

159. The Commission also has authority under Title I to require other
     service providers to contribute. In general, the Commission can
     rely on its ancillary jurisdiction under Title I when the
     Commission has subject matter jurisdiction over the service to be
     regulated, and the assertion of jurisdiction is "reasonably
     ancillary to the effective performance of \[its\] various
     responsibilities." [^380] The Commission relied on this authority
     before section 254 was added by the 1996 Act to establish a
     high-cost support fund,[^381] which the U.S. Court of Appeals for
     the D.C. Circuit found to be a permissive exercise of Title I
     authority.[^382] And more recently in the *2006 Interim
     Contribution Methodology Order*, the Commission relied on its
     ancillary jurisdiction under Title I as an additional source of
     authority to require contributions from interconnected VoIP
     providers.[^383] In that order, the Commission noted that the Act
     grants subject matter jurisdiction over interconnected VoIP because
     it involves "transmission" of voice by wire or radio,[^384] and
     that imposing contribution obligations on interconnected VoIP
     providers was "reasonably ancillary" to the effective performance
     of the Commission's responsibilities to establish "specific,
     predictable, and sufficient mechanisms . . . to preserve and
     advance universal service."[^385] In particular, the Commission
     noted that interconnected VoIP providers "benefit from their
     interconnection to the PSTN."[^386]

160. In addition, Congress provided the Commission with "plenary
     authority" over numbering in section 251(e). Specifically, the
     Commission has "exclusive jurisdiction over those portions of the
     North American Numbering Plan that pertain to the United
     States."[^387] The Commission relied on its authority under section
     251(e) to support its action to require interconnected VoIP
     providers to provide E911 services.[^388] The Commission noted that
     it exercised its authority under section 251(e) because, among
     other reasons, "interconnected VoIP providers use NANP numbers to
     provide their services."[^389]

161. These sections of the Act provide the Commission ample authority to
     require contributions from all providers subject to the new
     numbers-based and connections-based approaches described in more
     detail below. These methodologies may require some providers to
     contribute directly to universal service when in the past they may
     have been contributing only indirectly or not at all. For example,
     under the numbers-based approach, any provider who assigns an
     "Assessable Number" to a residential user must contribute \$1.00
     per number per month.[^390] Providers such as VoIP providers who
     are not "interconnected VoIP" providers, electronic facsimile
     service providers, Internet-based TRS providers, one-way and
     two-way paging service providers, and telematics providers may
     assign Assessable Numbers to residential users and maintain the
     retail relationship with the end users.[^391] Not all of these
     providers are "telecommunications carriers" subject to the
     mandatory contribution obligation of section 254(d). Nonetheless,
     we have authority to require them to contribute. First, all of
     these providers provide---directly or indirectly---some amount of
     interconnection to the public switched telephone network (PSTN),
     the network that universal service supports. Interconnection to the
     PSTN benefits the consumers of each of these types of services,
     facilitating communication (even if just one-way communication)
     between the end user and PSTN users. As we noted in the *2006
     Interim Contribution Methodology Order*, interconnected VoIP
     providers often provide access to the PSTN via third parties[^392]
     and this is sufficient to permit the Commission to rely on its
     authority to require contributions from "other provider\[s\] of
     interstate telecommunications."[^393] And as we explain below, it
     is in the public interest (as required by section 254(d)) that
     these providers contribute. Furthermore, the prerequisites for the
     use of our Title I ancillary jurisdiction are unquestionably met
     here. All the services that rely on assignment of an Assessable
     Number to a residential end user come within the Commission's broad
     subject matter jurisdiction because they involve in some manner
     "interstate . . . communication by wire or radio."[^394] And
     similar to our explanation in the *2006 Interim Contribution
     Methodology Order*, requiring contributions from providers who take
     advantage of PSTN connectivity whether directly or indirectly makes
     sense because their end users benefit from the ubiquity of that
     network and from being somehow interconnected with it.[^395]
     Finally, our plenary authority over numbering supports our actions
     here with regard to a numbers-based methodology for residential
     services. The purpose of a uniform system of numbering is to
     facilitate communication on interconnected networks based on a
     standardized system of identifiers---telephone numbers.[^396] Those
     customers who are assigned telephone numbers, whether for plain old
     telephone service (POTS) or for any other service, are using the
     numbers to take advantage of some feature of the PSTN, whether it
     is the capability to be called, to have their locations
     automatically relayed to emergency call handlers, to be faxed from
     anywhere, or for some other reason. Because customers are receiving
     this benefit, it is appropriate that their service providers (and
     ultimately, likely, the customers themselves) contribute to the
     ubiquity and support of the network from which they are benefiting.

162. We reject suggestions that we do not have authority to require
     contributions based on numbers or connections because we lack
     authority over intrastate services.[^397] The same number or
     connection typically is used for both interstate and intrastate
     services. The Commission and courts have rejected the assertion
     that simply because a single facility has the capacity to provide
     both interstate and intrastate services, the Commission lacks
     authority to regulate any aspect of the facility.[^398] In fact,
     the subscriber line charge (SLC) that the Commission established is
     intended to capture the *interstate* cost of the *local*
     loop.[^399] The contribution methodologies we adopt are thus
     limited to assessments on services that can provide interstate
     service. We will only require providers to contribute to universal
     service based on the Assessable Numbers or connections that are
     capable of originating or terminating interstate or international
     communications.[^400]

### The New Numbers-Based Assessment Methodology for Residential Services

163. As discussed above, we adopt a new contribution methodology for
     residential services based on assessing telephone numbers, rather
     than interstate and international services revenue. We find that
     this change will benefit contributors and end users by simplifying
     the contribution process and providing predictability as to the
     amount of universal service contributions and pass-through charges
     for residential services. For residential services, we set the
     contribution amount at a flat \$1.00 per month charge for each
     number associated with residential services.

#### Benefits of a Numbers-Based Contribution Methodology 

164. We find that adoption of a telephone number-based methodology for
     residential services will help preserve and advance universal
     service by ensuring a specific, predictable, and sufficient funding
     source, consistent with the universal service principles of section
     254(b) of the Act.[^401] Changes in technology and services have
     made the revenue-based contribution mechanism difficult to
     administer. As commenters have noted, the distinction between
     intrastate and interstate revenues is blurring as providers move
     from their traditional roles as pure LECs or interexchange carriers
     (IXCs) to businesses that offer consumers the choice of purchasing
     their telecommunications needs from a single source.[^402]
     Additionally, these providers are offering consumers greater
     flexibility, such as bundling of local and long distance service at
     a flat rate.[^403] Moreover, technologies such as wireless and
     interconnected VoIP have emerged that provide voice and data
     services that know no jurisdictional boundaries.[^404] Consumers
     benefit from the opportunity to obtain bundled services, and the
     universal service contribution mechanism should reflect and
     complement those marketplace and technological developments as much
     as possible. Our decision to use numbers as the basis for assessing
     contributions for residential services will enhance the specificity
     and predictability of entities' contributions.

165. Our adoption of a numbers-based contribution methodology will
     benefit both residential consumers and contributors by simplifying
     the basis for assessments and stabilizing assessments at a set
     amount of \$1.00 per month per residential telephone number.[^405]
     Contributors are allowed, and in most cases do, recover their
     universal service contribution costs from fees assessed on their
     end-user customers.[^406] Under the revenue-based contribution
     mechanism, a provider\'s contribution costs fluctuated from quarter
     to quarter, causing consumers' universal service fees to fluctuate
     as well. These fluctuations did not allow customers to anticipate
     changes to their fees. A set \$1.00-per-number contribution
     assessment is simple and predictable for both contributors and for
     consumers. To the extent a contributor elects to recover its
     contribution costs through end-user fees, its residential customers
     will pay the same \$1.00 fee per number each month, making the
     assessment simple and predictable.[^407]

166. A numbers-based contribution methodology also benefits residential
     end users because it is technologically and competitively neutral.
     A consumer will pay the same universal service charge regardless of
     whether the consumer receives residential service from a cable
     provider, an interconnected VoIP provider, a wireless provider, or
     a wireline provider. This will enable residential consumers to
     choose the providers and provider types they want without regard to
     any artificial distortions that would otherwise be caused by
     differing contribution charges.[^408] In a marketplace
     characterized by increased competition within and between different
     technology platforms, residential consumers will receive the same
     universal service charge regardless of the type of service the
     customer chooses.

167. Similarly, by subjecting contributors to the same regulatory
     framework for assessments on residential services regardless of
     technology, the numbers-based methodology will eliminate incentives
     under the current revenue-based system for providers to migrate to
     services and technologies that are either exempt from contribution
     obligations or are subject to safe harbors.[^409] The elimination
     of such incentives will result in a more competitively and
     technologically neutral marketplace and a more predictable source
     of funding for the universal service mechanisms.

168. The adoption of a fixed \$1.00 per residential number per month
     contribution assessment is specific and predictable and will
     simplify the administration of universal service
     contributions.[^410] Interstate end-user telecommunications
     revenues have become increasingly difficult to identify,
     particularly for residential services, due to increased bundling of
     local and long distance service and the growth of consumer
     interconnected VoIP offerings.[^411] In contrast, telephone numbers
     provide an easily identifiable basis for contribution.[^412] The
     amount of North American Numbering Plan (NANP) telephone numbers in
     use has shown steady, stable growth, providing a fairly constant
     basis for estimating universal service support amounts.[^413] The
     new methodology, based on a flat \$1.00 per residential number per
     month, will be easier to administer, facilitating greater
     regulatory compliance. A numbers-based contribution methodology
     will also be readily applicable to emerging service offerings. The
     new methodology minimizes the potential for providers to avoid
     contributions by bundling intrastate revenues with interstate
     revenues or engaging in other bypass activities.[^414]

169. Further, assessing universal service contributions based on
     residential telephone numbers will promote number
     conservation.[^415] Telephone numbers are a finite, public
     resource. If contributors are assessed based on the residential
     telephone numbers assigned to them, they will have an incentive to
     efficiently manage their numbering resources in a manner that
     minimizes their costs. We expect that this will result in the need
     for fewer area code splits or overlays due to number exhaust.[^416]

170. Our adoption of a numbers-based contribution methodology for
     residential services is consistent with the goal of ensuring just,
     reasonable, and affordable rates.[^417] The per-number assessment
     of \$1.00 per number per month will represent a reduction in
     pass-through charges for many residential customers.[^418] Although
     the \$1.00 per number per month assessment may represent an
     increase in universal service charges for residential customers
     that make few or no long distance calls, this increase should be
     slight. Under the current revenue-based contribution mechanism,
     providers may assess a federal universal service fee on the basis
     of the customer's SLC. The residential SLC may be as high as \$6.50
     per month.[^419] Based on the most recent contribution factor of
     11.4 percent, even a customer who made no long distance calls could
     thus be assessed \$0.74 per month in universal service charges
     under the existing revenue-based methodology.[^420] Thus, the
     potential increase for a customer who makes no long distance calls
     could be as little as \$0.26 per month under the \$1.00 per number
     methodology. In addition, we have separate protections to ensure
     that telephone service remains affordable for low-income
     subscribers.[^421]

171. Some commenters assert that assessing a flat universal service
     charge is inherently unfair because it does not take into account
     the fact that some people make many interstate and international
     calls, while others make few if any such calls in a given
     month.[^422] We disagree. We find that imposition of a flat charge
     is warranted because all contributors and their subscribers receive
     a benefit from being connected to the public network, enabling them
     to make and receive interstate calls.[^423] The *ability* to make
     or receive interstate calls over a public network is a significant
     benefit and it is reasonable to assess universal service
     contributions for residential customers based on access to the
     network. Customers who do not make any interstate calls still
     receive the benefit of accessing the network to *receive*
     interstate calls. The \$1.00 per month per number assessment
     reflects our finding that it is equitable for providers to
     contribute a fixed amount based on the ability to access and
     utilize a ubiquitous public network.

172. Some commenters allege that changing from the current revenue-based
     methodology to a new mechanism based on telephone numbers would not
     be equitable because it could reduce contributions from certain
     industry segments and increase them for others.[^424] Although the
     change to a numbers-based contribution methodology for residential
     services will result in changes in the relative contribution
     obligations of industry segments, the new contribution methodology
     is not inequitable or discriminatory. The evolving nature of the
     telecommunications marketplace and of its participants requires the
     Commission to periodically review and revise the contribution
     methodology to ensure that providers continue to be assessed on an
     equitable and non-discriminatory basis. We find that, given the
     difficulties in continuing to assess contributions entirely on a
     revenue-based methodology and the benefit to residential consumers
     of access to the public network, it is equitable to adopt a
     numbers-based contribution methodology that assesses a \$1.00 per
     month per number fee for residential services.

#### Assessable Numbers

173. Below, we describe the telephone numbers for which service
     providers are obligated to contribute to the universal service
     fund. We call these "Assessable Numbers." The Commission has
     addressed certain reporting based on telephone numbers in other
     contexts. In the number utilization context, the Commission
     requires that each telecommunications carrier that receives
     numbering resources from the North American Numbering Plan
     Administrator (NANPA), the Pooling Administrator, or another
     telecommunications carrier report its numbering resources in each
     of six defined categories of numbers set forth in section 52.15(f)
     of our rules.[^425] In the regulatory fee context, the Commission
     used the category of "assigned numbers" as the starting point for
     determining how to assess fees on certain providers, but found it
     necessary to modify that definition to account for the different
     regulatory contexts. Specifically, in assessing regulatory fees for
     commercial mobile radio service (CMRS) providers that report number
     utilization to NANPA based on the reported assigned number count in
     their Numbering Resource Utilization and Forecast (NRUF) data, the
     Commission requires these providers to adjust their assigned number
     count to account for number porting. The Commission found that
     adjusting the NRUF data to account for porting was necessary for
     the data to be sufficiently accurate and reliable for purposes of
     regulatory fee assessment.[^426]

174. We adopt a new term based on the category of assigned numbers to
     represent the numbers being assessed for universal service
     contribution purposes---"Assessable Numbers." The definition of
     Assessable Numbers that we adopt focuses on those numbers that are
     actually in use by end users for services that traverse a public
     interstate network. Specifically, we define an Assessable Number as
     a NANP telephone number or functional equivalent identifier[^427]
     in a public or private network that is in use by a residential end
     user and that enables the residential end user to receive
     communications from or terminate communications to (1) an
     interstate public telecommunications network or (2) a network that
     traverses (in any manner) an interstate public telecommunications
     network.[^428] Assessable Numbers include geographic as well as
     non-geographic telephone numbers (such as toll-free numbers and
     500-NXX numbers) so long as they meet the other criteria described
     in this part for Assessable Numbers.

175. The provider with the retail relationship to the residential end
     user is the entity responsible for contributing.[^429] We impose
     the contribution obligation on the provider with the retail
     relationship to the end user for several reasons. First, this
     provider will have the most accurate and up-to-date information
     about how many Assessable Numbers it currently has assigned to end
     users. Second, this provider is also in the best position to
     distinguish residential users from business users, and thus to
     determine how many of its telephone numbers in use are Assessable
     Numbers. Finally, this provider, and its users, are benefiting from
     a supported PSTN, and thus it is sound policy to require them to
     contribute to its support.[^430] We note that today, providers are
     permitted to pass through their contribution assessments to end
     users, and we understand that they typically do so.[^431] Under the
     new methodologies, they may continue to do so, subject to the same
     requirement that they will not pass through more than their
     contribution amount.[^432]

176. Next, we specify whether certain types of numbers are included in
     the definition of Assessable Numbers. First, numbers used for
     intermittent or cyclical purposes are included in the definition of
     Assessable Numbers. Numbers used for cyclical purposes are numbers
     designated for use that are typically "working" or in use by the
     end user for regular intervals of time. These numbers include, for
     example, an end user's summer home telephone number that is in
     service for six months out of the year.[^433] In the *NRO III
     Order*, the Commission clarified that these types of numbers should
     generally be categorized as "assigned" numbers if they meet certain
     thresholds and that, if they do not meet these thresholds, they
     "must be made available for use by other customers" (i.e., they are
     "available" numbers).[^434] Because these numbers are assigned to
     end users, we find they should be included in the definition of
     Assessable Numbers we adopt today.

177. We exclude from our definition of Assessable Numbers those
     telephone numbers that satisfy the section 52.15 definition of
     "assigned numbers" solely because the "numbers \[are\] not yet
     working but hav\[e\] a customer service order pending" for five
     days or less.[^435] Providers generally do not bill for services
     that have yet to be provisioned and therefore are not compensated
     for services during the pendency of the service order. Moreover,
     such numbers are not yet operational to send or receive calls.
     Thus, under the existing contribution methodology, providers would
     not contribute for services they are about to provide (but have not
     yet provided) under a pending service order. We continue to find it
     appropriate for contributors not to be required to contribute to
     the universal service fund for pending service orders.

178. We exclude from the definition of Assessable Numbers those
     telephone numbers that telecommunications providers have
     transferred or ported to a carrier using resale or the unbundled
     network element platform. Under prior numbering orders, such
     telephone numbers would still be included in the NRUF assigned
     number count of the transferring-out carrier.[^436] Consistent with
     our definition of Assessable Numbers, because the underlying
     provider no longer maintains the retail relationship with the end
     user, the provider should not include these numbers in its
     Assessable Number count. Conversely, the receiving provider of such
     transferred customers would include the associated telephone
     numbers in their count of Assessable Numbers.

179. We exclude from the definition of Assessable Numbers those numbers
     that meet the definition of an Available Number, an Administrative
     Number, an Aging Number, or an Intermediate Number as those terms
     are defined in section 52.15(f) of the Commission's rules.[^437]
     For a particular carrier, the carrier will not have an end user
     associated with a number in any of these categories of numbers. For
     example, an intermediate number is a number that is "made available
     for use by another telecommunications carrier or non-carrier entity
     for the purpose of providing telecommunications service to an end
     user or customer."[^438] The receiving provider will be responsible
     for including the number as an Assessable Number once it provides
     the number to an end user.[^439]

180. We exclude non-working telephone numbers from the definition of
     Assessable Number. Carriers report as assigned numbers for NRUF
     purposes entire codes or blocks of numbers dedicated to specific
     end-user customers if at least fifty percent of the numbers in the
     code or block are working in the PSTN.[^440] Consistent with our
     definition of Assessable Numbers, carriers should not include the
     non-working numbers in these blocks in their Assessable Number
     counts, because the non-working numbers portion of these blocks are
     not providing service to the end user.

181. We exclude from the definition of Assessable Number those numbers
     that are used merely for routing purposes in a network, so long as
     such numbers are always---without exception---provided without
     charge to the end user, are used for routing only to Assessable
     Numbers for which a universal service contribution has been paid,
     and the ratio of such routing numbers to Assessable Numbers is no
     greater than 1:1. For example, a NANP number used solely to route
     or forward calls to a residential number, office number, and/or
     mobile number would be excluded from our definition of Assessable
     Number if such routing number were provided for free, and such
     number routes calls only to Assessable Numbers. If, however, such
     routing or forwarding is provided for a fee, such as with remote
     call forward service or foreign exchange service, both the routing
     number and the end user number to which calls are routed or
     forwarded would be considered Assessable Numbers.

182. In addition, incumbent LECs need not include numbers assigned to
     wireless providers that interconnect at the end office of an
     incumbent LEC and have obtained numbers directly from the incumbent
     LEC.[^441] Because the incumbent LEC does not have the retail
     relationship with the end user, it should not include these numbers
     in its Assessable Number count. The wireless carriers that have the
     retail relationship with the end users must include these telephone
     numbers in their Assessable Number count.

183. Finally, we exclude from the definition of Assessable Numbers those
     numbers associated with Lifeline services for the reasons described
     below.[^442]

184. We do not restrict our definition to numbers that exclusively use
     the PSTN.[^443] As noted above, evolution in communications
     technology away from the PSTN to alternative networks that may only
     partially (if at all) traverse the PSTN is one of the causes in the
     erosion of the contribution base under the current revenue-based
     methodology. As more service providers migrate to alternative
     networks that partially access the PSTN, continuing to assess
     universal service contributions based only on traffic that
     exclusively traverses the PSTN will not account for this migration;
     nor will it allow us to meet our principle of competitive
     neutrality.[^444] Moreover, if a service provider connects a
     private network to a public network, the service provider and its
     customers benefit from the connection to the PSTN. Because
     universal service supports the PSTN and these parties connect to
     the PSTN, they benefit from universal service.[^445] Thus, it is
     increasingly important that we conform our regulatory definitions
     to recognize this reality. Indeed, the Commission has already begun
     to recognize the need to create a level regulatory playing field.
     For example, calls to end users that utilize interconnected VoIP
     service are not wholly within the PSTN. Indeed, calls between two
     interconnected VoIP users may not touch the PSTN at all. Yet we
     found in 2006 that interconnected VoIP providers must contribute to
     the universal service fund.[^446] For these reasons, we conclude
     that our definition must account for public or private interstate
     networks, regardless of the technology of the network (e.g.,
     circuit-switched, packet-switched) or the transmission medium of
     the network (e.g., wireline, wireless).

185. Finally, we recognize that, by declining to adopt for contribution
     purposes verbatim the definition of "assigned numbers" in section
     52.15(f) of our rules, which is used by carriers to file NRUF
     reports,[^447] we may nominally increase some of the administrative
     burden associated with universal service contribution filings. We
     find, however, that any minor administrative cost increases arising
     from not using the pre-existing definition are outweighed by the
     benefits of modifying the definition to achieve sound universal
     service policy. For example, as stated above, the existing
     definition of assigned numbers would not enable us to meet our
     universal service contribution goal of ensuring that the provider
     with the retail relationship to the end user be the one responsible
     for contributing.[^448]

186. Under our numbers-based approach, certain providers will be
     required to contribute to the universal service fund based on
     Assessable Numbers even though they are not today required to
     submit NRUF data. Section 52.15(f) of the Commission's rules
     requires only "reporting carriers" to submit NRUF data to the
     NANPA.[^449] A "reporting carrier" is defined as a
     telecommunications carrier that receives numbering resources from
     the NANPA, the Pooling Administrator, or another telecommunications
     carrier.[^450] In the case of numbers provided by a
     telecommunications carrier to a non-carrier entity, the carrier
     providing the numbers to such entities must report NRUF data to the
     NANPA for those numbers. Thus, non-carrier entities that use
     telephone numbers in a manner that meets our definition of
     Assessable Numbers do not report NRUF data yet must
     contribute.[^451] For example, interconnected VoIP providers may
     use telephone numbers that meet our definition of Assessable
     Numbers even though these providers do not report NRUF data.[^452]
     These non-carrier entities that use numbers in a manner that meets
     our definition of Assessable Number will be required to determine
     their Assessable Number count based on their internal records
     (e.g., billing system records) and will be required to report such
     numbers to USAC.[^453]

187. We are mindful that our move to a numbers-based contribution
     methodology may encourage entities to try to avoid their
     contribution obligations by developing ways to bypass the use of
     NANPA-issued numbers.[^454] To the extent, however, these
     alternative methods are the functional equivalent of numbers and
     otherwise meet our definition of Assessable Numbers, such entities
     must report these functional equivalents as Assessable Numbers to
     the universal service fund administrator.

### Contribution Assessment Methodology for Business Services

188. Although we find that a numbers-based contribution mechanism is
     superior to the existing revenue-based mechanism for residential
     services, applying a numbers-based approach to business services
     would result in inequitable contribution obligations. Specifically,
     certain business services that do not utilize numbers, or that
     utilize them to a lesser extent, would not be contributing to the
     universal service fund on an equitable basis.[^455] Section 254(d)
     of the Act requires "every carrier" that provides interstate
     telecommunications services to contribute to the universal service
     fund.[^456] Thus, providers of business services, including
     non-numbers based services, must continue to contribute. We
     conclude that these services should be assessed based on their
     connection to the public network.

189. A number of commenters supported moving to a methodology that would
     assess telephone numbers for those services that are associated
     with a telephone number and assess based on capacity of the
     connection to the public switched network those services not
     associated with a telephone number.[^457] Other commenters
     supported retaining a revenue-based methodology for these
     services.[^458] As discussed above, a revenue-based contribution
     methodology is no longer sustainable in today's telecommunications
     marketplace.[^459] Additionally, a connections-based contribution
     methodology will provide a basis for assessing services not
     associated with telephone numbers, and will recognize the greater
     utility derived by business end users from these high capacity
     business service offerings.[^460] Further, in contrast to the
     revenues on which contributions are currently based, the number and
     capacity of connections continues to grow over time, providing a
     contribution base that is more stable than the current
     revenue-based methodology. Moreover, a connections-based mechanism
     can be easily applied to all business services. We, therefore,
     conclude that a connections-based contribution mechanism is the
     better option for business services. We seek comment below on the
     implementation of the connections-based contribution mechanism for
     business services.[^461]

190. We find that it is equitable and nondiscriminatory, consistent with
     the requirements of section 254(d) of the Act, to establish
     different contribution methodologies for residential and business
     services.[^462] Although the statute states that "\[a\]ll providers
     of telecommunications services should make an equitable and
     nondiscriminatory contribution to the preservation and advancement
     of universal service," it does not require that all contributors or
     all services be assessed in the same manner.[^463] Under the
     current revenue-based mechanism, the Commission has established
     different contribution methodologies through the use of proxies for
     wireless and interconnected VoIP services.[^464] As noted above,
     continuing to use a revenues-based contribution methodology has
     become increasingly complex, and a numbers-based system would avoid
     many of those complexities.[^465] At the same time, however, if we
     relied exclusively on a numbers-based contribution methodology,
     there are some business services---such as private line and special
     access---that would escape contribution requirements entirely. That
     result would be inconsistent with the obligation that all providers
     of interstate telecommunications services contribute to universal
     service, and would impose an unfair burden on providers that
     contribute on the basis of numbers.[^466] We therefore conclude
     that adopting different contribution assessment methodologies for
     residential and business services will result in equitable and
     nondiscriminatory contribution obligations.

191. On an interim basis, while we conduct a proceeding to implement the
     connections-based contribution methodology, we continue to require
     providers to contribute to the universal service fund using the
     current revenue-based methodology for their business
     services.[^467] We find that providers of business services should
     continue to bear their portion of the universal service
     contribution obligation to ensure the sufficiency of the fund while
     the connections-based contribution mechanism is being
     implemented.[^468]

192. During the interim period in which the revenue-based contribution
     assessment for business services remains in place, the contribution
     factor for providers of business services will be determined based
     on the funding requirements not covered by the \$1.00 assessment on
     Assessable Numbers. We will hold constant the contribution
     assessment on Assessable Numbers and determine the revenue
     contribution factor based on the quarterly projected demand of the
     universal service mechanisms divided by the quarterly
     projected-collected interstate and international end user
     telecommunications revenues from business services in the same
     manner in which the current contribution factor is
     calculated.[^469] This approach will ensure a specific,
     predictable, and sufficient funding source for the Commission's
     universal service mechanisms.

### Wireless Prepaid Plans 

193. We adopt an alternative methodology for telephone numbers assigned
     to handsets under a wireless prepaid plan. Some commenters assess
     prepaid wireless services on a per-minute-of-use basis.[^470] For
     example, prepaid wireless providers argue that their customers are
     typically low-income or low-volume consumers and, as such, should
     be subject to a lesser assessment.[^471] Verizon and TracFone
     further assert that prepaid wireless providers may have difficulty
     administering a per-number assessment.[^472] Verizon, therefore,
     recommends that any new contribution methodology accommodate
     prepaid wireless service providers by adopting a per-number
     assessment that "reflects the unique characteristics of \[the\]
     service," and TracFone similarly agrees.[^473] Finally, CTIA
     essentially argues that the sheer number of prepaid wireless end
     users---over 44 million---combined with the likelihood that most of
     these end users would see a rise in their pass-through assessments
     warrants an exception.[^474]

194. To accommodate the unique situation of prepaid wireless service
     providers, we find it appropriate to create a limited modification
     in contribution assessments for providers of prepaid wireless
     services and their end users.[^475] We agree with commenters that
     it is considerably more difficult for wireless prepaid providers to
     pass-through their contribution assessments in light of their
     "pay-as-you-go" service offerings.[^476] Because of this
     significant practical issue, we will modify the numbers-based
     assessment for prepaid wireless providers with regard to their
     offering of these services. Further, we note that, just as with
     Lifeline customers, many prepaid wireless end users are low income
     consumers. For example, TracFone states that about half of its
     customers have incomes of \$25,000 or less.[^477]

195. We find that TracFone's "USF by the Minute" proposal best addresses
     the concerns of prepaid wireless providers within the context of
     the new numbers-based contribution methodology we adopt
     today.[^478] TracFone's proposed USF by the Minute Plan would
     calculate universal service contribution assessments on prepaid
     wireless services by dividing the residential per-number assessment
     (the \$1.00 flat fee adopted above) by the number of minutes used
     by the average postpaid wireless customer in a month. This
     per-minute number would then be multiplied by the number of monthly
     prepaid minutes generated by the provider. This amount would be the
     provider's monthly universal service contribution obligation. The
     per-minute assessment, however, would be capped at an amount equal
     to the current per month contribution per Assessable Number, the
     per-number assessment amount adopted above.[^479] We illustrate the
     proposal below.

196. According to CTIA data submitted by TracFone, the average wireless
     postpaid customer used 826 minutes per month for the period ending
     December 2007.[^480] The residential per-number assessment of
     \$1.00 would be divided by 826 minutes to calculate a per-minute
     assessment of \$0.001210654. The wireless prepaid provider's
     contribution obligation would be calculated by multiplying the
     per-minute assessment by the number of prepaid minutes generated
     for the month. If the wireless prepaid provider generated a billion
     prepaid minutes in a month, its contribution for that month would
     be \$1,210,654.[^481] If the prepaid provider had 10 million
     prepaid customers that month, the average contribution per customer
     would be \$0.12 and its contribution obligation would remain at
     \$1,210,654. If, on the other hand, it had only 1 million
     customers, the average contribution per-customer would be \$1.20,
     which exceeds the residential per-number assessment of \$1.00. In
     this case, because the per-customer contribution amount under the
     calculation would exceed the residential per-number assessment
     established by the Commission, the prepaid provider's contribution
     obligation would be capped at \$1,000,000, which is the residential
     per-number assessment of \$1.00 multiplied by the 1 million monthly
     prepaid customers. Under this scenario, the average per-customer
     contribution for the prepaid wireless provider would be equal to
     the per-number contribution of \$1.00 for non-prepaid residential
     numbers.

197. We find the TracFone discount approach superior to other forms of a
     discount proposed by parties. For example, CTIA proposed a fifty
     percent discount for prepaid wireless providers.[^482] The TracFone
     approach is based on actual wireless calling data, whereas the CTIA
     approach represents a more arbitrary half-off discount. Moreover,
     the CTIA proposal makes no allowance for the type of end user that
     is using the prepaid wireless service. This contrasts with the
     TracFone proposal, which would not provide any discount to those
     end users that use more than the average monthly post-paid number
     of minutes. As explained above, for those customers whose usage
     would result in more than the \$1.00 pass-through, the assessment
     on the provider and the pass-through would be capped at \$1.00 per
     month per Assessable Number. Thus, high volume users would neither
     benefit from, nor be penalized by, the discount mechanism. Finally,
     we make clear that if the prepaid provider is an ETC and is
     providing service to qualifying Lifeline customers, the provider is
     exempt from contribution assessments on the qualifying Lifeline
     customers and we prohibit the provider from assessing any universal
     service pass-through charges on their Lifeline customers.

### Exceptions to Contribution Obligations

198. A number of parties have asked for exceptions from the contribution
     obligation. We find that, in general, providing an exception or
     exemption to a particular provider or to a particular category of
     end users would complicate the administration of the numbers-based
     methodology we adopt today. The result would unfairly favor certain
     groups by reducing or eliminating their contribution obligations,
     while increasing the contribution obligations on providers that are
     not exempted from contributing. Therefore, we conclude that grant
     of an exemption from the contribution obligations is only warranted
     for those who are truly unable to bear the burden of contributing
     to the universal service fund---low-income consumers. As discussed
     below, we exempt providers from contribution assessments on their
     qualifying Lifeline program customers and prohibit contributors
     from assessing any universal service pass-through charges on their
     Lifeline customers. Similarly, we exempt providers of stand-alone
     voice mail services, which are provided to low-income "phoneless"
     people, from contribution obligations. As explained below, an
     exception for low-income consumers is consistent with the
     Commission's policies underlying the low-income universal service
     program and targets universal service benefits to those consumers
     most in need of those benefits.[^483]

199. We conclude that telephone numbers assigned to Lifeline customers
     should be excluded from the universal service contribution base and
     providers of Lifeline service may not pass-through contribution
     assessments to Lifeline customers.[^484] The Lifeline program
     provides an opportunity for the Commission to ensure that
     low-income families are not denied access to telephone service. We
     find that an exception for Lifeline customers satisfies the high
     threshold necessary to justify an exception to the new
     numbers-based contribution methodology we adopt today. Lifeline
     customers are, by definition, among the poorest individuals in the
     country. As such, they are in the greatest need of relief from
     regulatory assessments. Prohibiting recovery of universal service
     contributions from Lifeline customers helps to increase
     subscribership by reducing qualifying low-income consumers' monthly
     basic local service charges.[^485] The record, moreover,
     overwhelmingly supports the creation of an exception for Lifeline
     customers. Consumer groups, large telecommunications customers,
     LECs, and wireless providers all support creating an exemption for
     Lifeline customers, and no commenter opposes an exemption for
     Lifeline customers.[^486] We therefore adopt an exemption to our
     numbers-based contribution methodology for Lifeline customers.

200. Similarly, we find that stand-alone voice mail service providers
     are exempt from direct contribution obligations of the new
     methodology we adopt today. Community Voice Mail National (CVM)
     argues that stand-alone voice mail services consist of free voice
     mail access to "phoneless" people.[^487] As in the exemption for
     Lifeline customers, we find that stand-alone voice mail service of
     the type provided by CVM benefits low-income consumers who are most
     in need of access to such services. We therefore exempt providers
     of this type of stand-alone voice mail service from universal
     service contribution assessments on numbers associated with
     stand-alone voice mail services, and we prohibit providers of these
     services from assessing any universal service contribution
     pass-through charges on customers of these services.[^488]

201. Although commenters have sought contribution exceptions for other
     groups of consumers or service providers, we decline to adopt any
     further exceptions.[^489] Some parties argue that consumers who
     make few or no calls, i.e., low-volume users, should be exempt from
     the numbers-based residential contribution assessment
     mechanism.[^490] As discussed above, all users of the network, even
     those who make few or no calls, receive a benefit by being able to
     receive calls, and therefore it is appropriate for these consumers
     to contribute to universal service.[^491] Also as discussed above,
     to the extent low-volume consumers may see an increase in the
     amount of their universal service contribution pass-through
     fee,[^492] any such increase should be slight.[^493]

202. We also decline to exempt telematics providers,[^494] one-way
     service providers,[^495] and two-way paging services[^496] from
     contributing based on numbers. We disagree with commenters arguing
     for special treatment for these services.[^497] Granting exceptions
     for these services would provide them with an advantage over other
     services that are required to contribute based on residential
     telephone numbers. These services are receiving the benefit of
     accessing the public network and therefore assessing universal
     service contributions on these entities is appropriate.[^498] These
     service providers have not shown that grant of a contribution
     exception is warranted.[^499] Accordingly, providers of these
     services will be assessed the full per-number charge. Some one-way
     service providers argue that their services are currently offered
     on a free, or nearly-free basis, and if these services are assessed
     on a per telephone number basis, providers will no longer be able
     to offer them.[^500] We disagree that our change in contribution
     policy necessitates this result. Although these services may be
     marketed as "free" to the end user, these services are not truly
     free. Commercial providers of free or nearly-free services generate
     revenue in other ways, such as advertising or through more
     sophisticated paid service offerings or product offerings, and,
     therefore, whether they continue to offer free services would be a
     business decision based upon the circumstances of the particular
     business.[^501] Indeed, we find that assessing a per-number
     contribution obligation on these services is consistent with our
     determination that services that benefit from a ubiquitous public
     network are fairly charged with supporting the network.

203. We also decline to adopt an exception from the residential
     numbers-based contribution mechanism for additional handsets
     provided through a wireless family plan. We do not agree with
     commenters who argue that telephone numbers assigned to the
     additional handsets in family wireless plans should be assessed at
     a reduced rate, either permanently or for a transitional
     period.[^502] These commenters assert that assessing contributions
     at the full per-number rate would cause family plan customers to
     experience "rate shock."[^503] Although family plan customers may
     see an increase in universal service contribution pass-through
     charges on their monthly bills, we are not persuaded that the fear
     of "rate shock" justifies special treatment. We find that each
     number associated with a family plan obtains the full benefits of
     accessing the public network, and thus it is fair to assess each
     number with a separate contribution obligation. We also note that
     wireless service is one of the fastest-growing sectors of the
     industry and the record does not include persuasive data showing
     that a move to a numbers-based contribution methodology would have
     a significant, detrimental impact on wireless subscribership.[^504]
     We agree with Qwest that an exception for additional family plan
     handsets would not be competitively neutral and would advantage
     approximately 70 million wireless family plan consumers over other
     residential service consumers.[^505] Multiple wireline lines in a
     household are not given a discounted contribution assessment rate.
     We therefore decline to adopt a reduced assessment for wireless
     family plan numbers.

204. Some parties seek an exception to the contribution methodology we
     adopt today to exclude Internet-based telecommunications relay
     services (TRS), including video relay services (VRS) and IP Relay
     services.[^506] We decline to adopt an exception for such providers
     at this time. The Commission has an open proceeding on a number of
     issues related to these providers, including whether certain costs
     to these providers related to the acquisition of ten-digit numbers
     by their customers should be reimbursed by the TRS fund.[^507] We
     defer to that proceeding consideration of whether to adopt an
     exception to the contribution methodology we adopt today for
     numbers assigned to Internet-based TRS users.[^508]

### Reporting Requirements and Recordkeeping

205. Under the existing revenue-based contribution methodology,
     contributors report their historical gross-billed, projected
     gross-billed, and projected collected end-user interstate and
     international revenues quarterly on the FCC Form 499-Q and their
     gross-billed and actual collected end-user interstate and
     international revenues annually on the FCC Form 499-A.[^509]
     Contributors are billed for their universal service contribution
     obligations on a monthly basis based on their quarterly projected
     collected revenue.[^510] Actual revenues reported on the FCC Form
     499-A are used to perform true-ups to the quarterly projected
     revenue data.[^511]

206. We will develop a new and unified reporting system to accommodate
     our new universal service contribution methodology.[^512]
     Contributors will report their Assessable Number counts on a
     monthly basis. Contributors must report as an Assessable Number any
     such number that is in use by an end user during any point in the
     relevant month. The Commission will develop an additional version
     of the FCC Form 499 for use in reporting Assessable Numbers. Under
     the interim business revenue-based reporting component,
     contributors will report their revenue information on the modified
     FCC Forms 499-A and 499-Q.

207. Under the new numbers-based system we adopt today, contributors
     will report historical Assessable Numbers monthly. Contributors
     will then be invoiced and required to contribute the following
     month. By reporting actual, historical numbers, the numbers-based
     component of our contribution methodology remains simple and
     straightforward. As explained above, a key reason to move to a
     primarily numbers-based approach is its simplicity. Indeed, several
     commenters propose monthly reporting of historical number
     counts.[^513] We find that reporting Assessable Numbers on a
     projected collected basis would unnecessarily complicate the
     numbers-reporting system. Although we are mindful of the issues
     inherent in historical reporting,[^514] we find that a one month
     lag between the reported Assessable Numbers and the contribution
     based on those numbers is minimal and will not unfairly
     disadvantage any provider, even those with a declining base.

208. We allow contributors to self-certify which telephone numbers are,
     consistent with this order, considered "residential." Contributors
     will be subject to audit, however, and their method for
     distinguishing residential from other numbers must be reasonable
     and supportable. For example, in the Commission's *Broadband Data
     Gathering Order* released earlier this year, the Commission
     directed mobile wireless service providers "to report as
     residential subscriptions those subscriptions that are not billed
     to a corporate account, to a non-corporate business customer
     account, or to a government or institutional account."[^515] We
     added that "\[f\]or purposes of Form 477, subscriptions billed to a
     federal government department or agency, for example, will not be
     'residential' subscriptions, while subscriptions to a service plan
     offered to all federal government employees will be considered to
     be residential subscriptions."[^516] For purposes of identifying
     numbers associated with business services (which are not Assessable
     Numbers), contributors may rely on the fact that the line
     associated with that number is assessed a *multi-line* end user
     common line charge (i.e., SLC); provided, however, that the SLC
     must be a mandatory charge, rather than a discretionary
     charge.[^517] For determining residential numbers (which are
     Assessable Numbers), however, a contributor may not rely on the
     assessment of a residential SLC, because SLC rates are the same for
     residential and single-line business end users. Therefore, the fact
     that a contributor charges the single-line business/residential SLC
     may not accurately indicate whether the service provided is a
     business or residential service.[^518]

209. Each contributor must maintain the necessary internal records to
     justify, in response to an audit or otherwise, its reported
     Assessable Number counts and the data reported on the Commission's
     contribution forms.[^519] Contributors are responsible for
     accurately including all Assessable Numbers associated with
     residential services in their Assessable Number counts and revenues
     from all business services in the interim business services revenue
     component of the methodology. Failure to file the required form by
     the applicable deadline, or failure to file accurate information on
     the form, could subject a contributor to enforcement action.[^520]
     In addition, as with the current FCC Forms 499-A and 499-Q, we will
     require that an officer of the filer certify to the truthfulness
     and accuracy of the forms submitted to the administrator.

210. To ensure that filers report correct information, we continue to
     require all reporting entities to maintain records and
     documentation to justify the information reported in these forms,
     and to provide such records and documentation to the Commission and
     to USAC upon request.[^521] All universal service fund contributors
     are required to retain their records for five years.[^522]
     Specifically, contributors to the universal service fund must
     retain all documents and records that they may require to
     demonstrate to auditors that their contributions were made in
     compliance with the program rules, assuming that the audits are
     conducted within five years of such contribution. Contributors
     further must make available all documents and records that pertain
     to them, including those of contractors and consultants working on
     their behalf, to the Office of Inspector General, to USAC, and to
     their respective auditors. These documents and records should
     include without limitation the following: financial statements and
     supporting documentation; accounting records; historical customer
     records; general ledgers; and any other relevant
     documentation.[^523]

211. Further, we make clear that for purposes of the interim business
     revenue component, we retain all existing reporting requirements
     associated with the filing of the FCC Forms 499-A and 499-Q for
     business service revenue. Finally, we direct the Bureau, and
     delegate to the Bureau the authority, to develop or modify the
     necessary forms to ensure proper contribution reporting occurs,
     consistent with this order.

### Transition to New Methodology

212. The new reporting procedures discussed above will require reporting
     entities to adjust their record-keeping and reporting systems in
     order to provide reports to USAC regarding the number of Assessable
     Numbers and to adjust their revenue information to include only
     business service revenue. Accordingly, we implement a 12-month
     transition period for the new contribution mechanisms.[^524] This
     transition period will give contributors ample time to adjust their
     record-keeping and reporting systems so that they may comply with
     modified reporting procedures. As explained below, a 12-month
     transition period will also allow reporting entities to submit
     several reports for informational purposes before being assessed on
     the basis of projected Assessable Numbers for residential
     services.[^525] We find, therefore, that a 12-month transition
     period balances administrative burdens on contributors with the
     need to implement the new contribution methodologies in a balanced
     and equitable manner.

213. During 2009, filers will continue reporting their interstate
     telecommunications revenue on a quarterly basis and USAC will
     continue assessing contributions to the federal universal service
     mechanisms based on those quarterly reports. This one-year period
     and, in particular, the first six months of that period, should be
     used by contributors to adjust their internal and reporting systems
     to prepare for the reporting of Assessable Numbers and business
     revenues.

214. Beginning in July 2009, contributors will continue to report and
     contribute based on their quarterly reported interstate and
     international revenues for the last two quarters of the year, but
     they will also begin filing with USAC monthly reports of their
     Assessable Numbers and quarterly reports of their business
     revenues. USAC will thus collect data under the old revenue-based
     methodology, while collecting and reviewing data under the new
     Assessable Number and business revenues methodologies for the last
     six months of 2009. We find that this six-month period of
     double-reporting is necessary to help reporting entities,
     Commission staff, and USAC identify implementation issues that may
     arise under this new methodology prior to it taking effect.[^526]
     Although only the December 2009 Assessable Numbers and the fourth
     quarter 2009 business revenue data will be used to compute
     contributors' January 2010 and first quarter 2010 assessments, we
     find it is reasonable to require contributors to begin filing under
     the new methodologies prior to these periods to ensure that there
     is adequate time for all affected parties to address any
     implementation issues that may arise. Moreover, we conclude that
     the short overlap of reporting under both the old and new
     methodologies will not be unduly burdensome for contributors given
     the limited duration of the dual reporting.

# Reform of intercarrier compensation

215. Since Congress first passed the Communications Act in 1934, the
     Commission has sought "to make available, so far as possible, to
     all the people of the United States . . . a rapid, efficient,
     Nation-wide, and world-wide wire and radio communication service
     with adequate facilities at reasonable charges."[^527] To promote
     universal service, regulators have long relied on a complex array
     of intercarrier compensation mechanisms, which generally have
     included implicit subsidies. Through the years, the introduction of
     competition into first long-distance and then local markets, as
     well as the development and deployment of new technologies, have
     eroded the fundamental economic underpinnings of the current
     intercarrier compensation regimes. The reforms we adopt in this
     order are designed to unify and simplify the myriad intercarrier
     compensation systems in existence today. This unification and
     simplification will encourage the efficient use of, and investment
     in, advanced telecommunications and broadband networks, spur
     intermodal competition throughout the United States, and minimize
     the need for future regulatory intervention.

216. Today, we adopt a new approach to intercarrier compensation and
     establish the blueprint for moving to new uniform termination rates
     that are economically efficient and sustainable in our increasingly
     competitive telecommunications markets. At the same time, we
     recognize, as the Commission has in the past, that we need to be
     cognizant of market disruptions and potential adverse effects on
     consumers and carriers of moving too quickly from the existing
     intercarrier compensation regimes to our new uniform approach to
     intercarrier compensation. Accordingly, we adopt here a gradual
     ten**-**year transition plan, with separate stages, designed to
     reduce rates over a sufficient period to minimize market
     disruptions and to cushion the impact of our reform on both
     customers and carriers. At the end of the transition period, all
     telecommunications traffic will be treated as falling within the
     reciprocal compensation provisions of section 251(b)(5), and states
     will set default reciprocal compensation rates pursuant to the new
     methodology we adopt herein.

## A Brief History of Intercarrier Compensation 

217. This section provides an overview of the development of
     intercarrier compensation regulation in the United States. Although
     not comprehensive, it highlights several important goals that have
     emerged in Commission precedent, which are relevant to intercarrier
     compensation reform.

-   *Promoting universal service.* The Commission has sought to promote
    universal service, and, in furtherance of that objective, an
    intricate web of implicit subsidies evolved that were intended to
    keep the price of residential local telephone service affordable,
    even if that price was below cost. With the introduction of
    competition for long-distance telephone service, regulators sought
    to maintain implicit subsidies of local service when they created
    regulated intercarrier compensation charges, known as "access
    charges," that long-distance service providers paid local telephone
    companies to originate and terminate long-distance calls.

-   *Encouraging efficient use of the network.* The Commission has long
    recognized that requiring end-users to bear a greater proportion of
    the cost of the local network encourages them to make rational
    choices in their use of telephone service. The Commission
    nevertheless has declined to shift a significant percentage of the
    cost of the network to those end users in light of universal service
    concerns.

-   *Realigning cost recovery in response to competition.* For much of
    the twentieth century, telephone service was viewed as a natural
    monopoly. The emergence of competition for long-distance services in
    the 1970s and for local services, particularly after the 1996 Act,
    has placed pressure on above-cost intercarrier compensation charges.
    Although the Commission, in response to competitive entry, sought to
    develop intercarrier compensation rules that align more closely with
    the economic principle that costs should be recovered in the way
    they are incurred, marketplace developments confirm that those
    efforts were incomplete. As new competitors entered, a series of
    regulatory arbitrage strategies developed, some of which the
    Commission has attempted to address on a case-by-case basis.

-   *Technological advancements.* As carriers shift from
    circuit-switched telephone-only networks to packet-switched
    broadband networks supporting numerous services and applications, it
    is important that intercarrier compensation rules create the proper
    incentives for carriers to invest in new broadband technology and
    that consumers have the opportunity to take full advantage of the
    new capabilities of this broadband world.

### Intercarrier Compensation Regulation Before the Telecommunications Act of 1996

218. When AT&T began offering telephone service in 1877,[^528] it held
     all the essential patents and effectively operated as a legal
     monopoly. When the original patents expired in 1894, however,
     thousands of independent telephone companies began offering
     competing local telephone service.[^529] This new competition led
     to lower rates,[^530] and reduced AT&T's average return on
     investments by over 80 percent.[^531] AT&T responded by refusing to
     interconnect with any independent telephone company to exchange
     long-distance or local traffic.[^532] Without interconnection,
     independent telephone companies could not offer a viable service
     unless such entities duplicated the AT&T system, which was not
     economically feasible. As a result, independent telephone companies
     began to go out of business or were acquired by AT&T.[^533]

219. AT&T's predatory strategy led the Department of Justice to file an
     antitrust suit against AT&T in 1913. The government alleged that
     AT&T's interconnection and acquisition policies violated Section 2
     of the Sherman Act.[^534] The case was eventually dropped after
     AT&T committed to abide by certain principles in what became known
     as the Kingsbury Commitment of 1913. Under the Kingsbury
     Commitment, AT&T agreed to: (i) allow independent telephone
     companies to interconnect with AT&T's long-distance network; and
     (ii) not acquire any additional independent telephone companies
     absent regulatory approval.[^535] In exchange, the government
     sanctioned AT&T's monopoly control over markets where it already
     offered service.

220. In essence, the Kingsbury Commitment and subsequent regulation
     assumed that both the local and long-distance telephone businesses
     were natural monopolies.[^536] Policymakers embraced the view that,
     because of economies of scale, a natural monopoly could provide
     service more efficiently than would occur in a competitive
     market.[^537] Rates for these natural monopolies were subject to
     rate-of-return regulation.[^538] In setting regulated rates, a
     primary policy objective of regulators was to promote universal
     service to all consumers through affordable local telephone rates
     for residential customers. To accomplish this objective, however,
     regulators created a patchwork of what has become known as implicit
     subsidies. Thus, for example, regulators permitted higher rates to
     business customers so that residential rates could be lower, and
     they frequently required similar rates to urban and rural
     customers, even though the cost of serving rural customers was
     higher.[^539] Similarly, AT&T was permitted to charge artificially
     high long-distance toll rates, and its interstate toll revenues
     were placed into an interstate "settlements" pool.[^540] AT&T then
     shared a portion of these interstate revenues with independent
     telephone companies and AT&T's affiliated Bell Operating Companies
     (BOCs).[^541] These high long-distance rates enabled regulators to
     set lower local rates for the BOCs and independent local telephone
     companies.

221. The use of microwave technology by Microwave Communications, Inc.
     (MCI), to offer a competitive alternative to AT&T's switched
     long-distance service beginning in the 1970s cast into doubt the
     assumption that long-distance telecommunications was a natural
     monopoly.[^542] MCI focused initially on private line service,
     where AT&T's rates were above cost. MCI's service offerings grew
     after a series of Commission and court decisions rejected AT&T's
     objections to MCI's entry.[^543] Despite these victories, MCI was
     not entitled to equal access to local exchange service,[^544] and
     MCI and other IXCs were dependent on the BOCs and independent local
     telephone companies to complete long-distance calls to the end
     users.[^545]

222. For a number of reasons, including AT&T's resistance to the
     introduction of competition in the long-distance market, the
     Department of Justice in 1974 filed an antitrust suit alleging that
     AT&T had engaged in unlawful monopolization in the local,
     long-distance, and equipment manufacturing markets.[^546] After
     eight years of litigation, AT&T and the Department of Justice
     entered into a consent decree, which federal District Court Judge
     Greene approved in 1982.[^547] Under the Modification of Final
     Judgment (MFJ), AT&T agreed to divest its affiliated BOCs from AT&T
     long distance, and the BOCs were required to provide equal access
     and dialing parity.[^548] In addition, the MFJ barred the BOCs from
     entering the long-distance, information services, equipment
     manufacturing, or other competitive markets to prevent predatory
     cross subsidization by their regulated monopoly local telephone
     service.[^549] Although the MFJ applied only to the BOCs, the
     Commission subsequently extended interconnection and
     nondiscriminatory equal access obligations to all incumbent
     LECs.[^550] As a result of the MFJ, MCI, and other competitors were
     able to compete directly with AT&T to provide long-distance or
     interstate service, and all IXCs paid interstate access charges to
     the BOCs and other incumbent LECs to originate and terminate
     service to end users.

223. While the AT&T antitrust suit was pending, the Commission began to
     take the first steps toward reforming intercarrier compensation. In
     1978, the Commission commenced a review of intercarrier
     compensation for originating and terminating access.[^551] In 1983,
     following the MFJ, the Commission eliminated the "existing
     potpourri of \[compensation\] mechanisms,"[^552] and replaced it
     "with a single uniform mechanism . . . through which local carriers
     \[could\] recover the cost of providing access services needed to
     complete interstate and foreign telecommunications."[^553] The
     access charge rules adopted by the Commission provided for the
     recovery of incumbent LECs' costs assigned to the interstate
     jurisdiction and detailed "the precise manner in which \[incumbent
     LECs\] may assess charges on IXCs and end users."[^554] In
     designing the interstate access charge rules, the Commission sought
     to balance a number of competing objectives.[^555] For one, the
     Commission recognized that "\[a\]rtificial pricing structures,
     while perhaps appropriate for use in achieving social objectives
     under the right conditions, cannot withstand the pressures of a
     competitive marketplace."[^556] Consequently, the Commission sought
     to follow more closely the principle that costs should be recovered
     in the way they are incurred, consistent with principles of
     cost-causation.[^557] Under this rate structure principle, the cost
     of facilities that do not vary based on the amount of traffic
     carried over those facilities (i.e., non-traffic-sensitive costs)
     should be recovered through fixed, flat-rated charges, while only
     costs that vary with usage of facilities (i.e., traffic-sensitive
     costs) should be recovered through corresponding per-minute
     rates.[^558]

224. Despite these rate structure principles, the Commission concluded
     that a sudden introduction of large flat-rated charges on end-users
     could have "adverse effects" on subscribership. It therefore
     adopted a "plan \[that\] provides for the gradual introduction of
     these end-user charges."[^559] Thus, the Commission limited the
     amount of the interstate loop costs assessed to residential and
     business customers as a flat-rated monthly charge, and it recovered
     the remaining interstate loop costs through a per-minute charge
     imposed on IXCs.[^560] Moreover, the Commission continued to apply
     traditional rate-of-return regulation based on carriers' embedded,
     fully distributed costs, including common costs and overhead.[^561]

225. In 1991, the Commission took another step toward intercarrier
     compensation reform by replacing rate-of-return regulation with an
     incentive-based system of regulation for the BOCs and GTE.[^562]
     This new regulatory regime, known as price cap regulation, was
     designed to replicate some of the efficiency incentives found in
     competitive markets. In particular, price caps were designed to
     encourage companies to: (1) improve their efficiency by creating
     incentives to reduce costs; (2) invest efficiently in new plant and
     facilities; and (3) develop and deploy innovative service
     offerings.[^563] Although many smaller and rural incumbent LECs
     remain subject to the Part 69 rate-of-return rules, most of the
     larger incumbent LECs are now subject to price cap
     regulation.[^564]

226. The Commission's reforms during the 1980s and early 1990s yielded
     many public interest benefits. For example, economists have
     estimated that above-cost access charges reduced U.S. economic
     welfare by an estimated \$10--17 billion annually during the late
     1980s, but that the annual welfare loss declined substantially to
     between \$2.5 billion and \$7 billion following the Commission's
     access charge reforms in the 1980s and early 1990s.[^565] Despite
     these reforms, however, per-minute access rates remained
     high.[^566] These high switched access rates created an opportunity
     for competitive access providers (CAPs) to begin offering
     facilities-based competition. CAPs could offer carriers a
     competitive alternative to the BOCs, often with lower rates and
     higher quality.[^567] The entry of CAPs and the potential entry of
     cable companies into local residential telephone markets created
     pressure toward opening the local telephone markets to competition,
     which ultimately resulted in the passage of the 1996 Act.

### Intercarrier Compensation Regulation Since the 1996 Act

227. Recognizing these fundamental market changes, Congress's goals in
     passing the 1996 Act were to: (1) open local exchange and exchange
     access markets to competition; (2) promote increased competition in
     telecommunications markets that were already open to competition;
     and (3) reform the existing universal service system to be
     consistent with competitive markets.[^568] With respect to the last
     goal, Congress recognized that implicit subsidies, which were
     implemented when the industry was considered a natural monopoly,
     were neither consistent with, nor sustainable in, a competitive
     market, and that they should be replaced with explicit support
     where necessary.[^569] It also recognized, however, that conversion
     of the existing web of implicit subsidies to a system of explicit
     support would be a difficult task that could not be accomplished
     immediately.[^570] Accordingly, when Congress established the
     statutory scheme to open local markets to competition,[^571] it
     included a transitional mechanism in section 251(g) providing for
     the continued enforcement of certain pre-Act obligations.[^572]
     Notably, section 251(g) provides for the continued enforcement of
     exchange access and interconnection obligations only "until such
     restrictions and obligations are explicitly superseded by
     regulations prescribed by the Commission after the date of such
     enactment," suggesting that such obligations would be re-evaluated
     based on the requirements imposed by the 1996 Act. [^573]

228. Congress also recognized the need to impose new obligations on
     carriers to open local telephone markets to competition, and
     directed the Commission to adopt implementing rules. Specifically,
     section 251(b) imposed certain obligations on all LECs, while
     section 251(c) imposed additional obligations on incumbent LECs,
     including the obligation to provide access to network elements on
     an unbundled basis.[^574] Of relevance here, section 251(b)(5) of
     the 1996 Act imposed on all LECs a "duty to establish reciprocal
     compensation arrangements for the transport and termination of
     telecommunications."[^575]

229. In requiring LECs to enter into reciprocal compensation agreements
     with requesting carriers, Congress introduced another mechanism
     through which carriers compensate each other for the exchange of
     traffic besides the access charge regime preserved under section
     251(g). Although Congress expressed a preference for negotiated
     interconnection agreements to implement the requirements of section
     251, section 252 provided procedures for the resolution of
     interconnection disputes involving incumbent LECs, including
     standards governing arbitration of such disputes by state
     regulatory commissions.[^576] For such state arbitrations, section
     252(d) also established general pricing guidelines for incumbent
     LECs, including guidelines for setting the price of unbundled
     network elements (UNEs)[^577] and reciprocal compensation
     rates.[^578]

230. In the *Local Competition First Report and Order*, the Commission
     adopted pricing rules for states to use in setting the price of
     interconnection and UNEs when arbitrating interconnection
     disputes.[^579] In particular, the Commission directed the states
     to employ a forward-looking, long-run average incremental cost
     methodology, which it called "Total Element Long-Run Incremental
     Cost" or "TELRIC."[^580] The Commission found that TELRIC prices
     should include a reasonable allocation of forward-looking common
     costs, including overheads.[^581] Although the Commission
     recognized that peak-load pricing was the most efficient way to
     recover the cost of traffic-sensitive facilities, it did not
     require states to adopt peak-load pricing because of the
     administrative difficulties associated with such an approach.[^582]
     In interpreting the statutory pricing rules for reciprocal
     compensation contained in section 252(d)(2)(A) of the 1996
     Act,[^583] the Commission found that costs for transport and
     termination should "be recovered in a cost-causative manner and
     that usage based charges should be limited to situations where
     costs are usage sensitive."[^584] In particular, the Commission
     found that the "additional costs" to the LEC of terminating a call
     that originates on another carrier's network "primarily consists of
     the traffic-sensitive component of local switching" and that non
     traffic-sensitive costs, such as the costs of local loops and line
     ports, should not be considered "additional costs."[^585] The
     Commission further found that the "additional costs" standard of
     section 252(d)(2) permits the use of the same TELRIC standard that
     it established for interconnection and unbundled elements.[^586]
     The pricing rules governing reciprocal compensation that the
     Commission adopted in the *Local Competition First Report and
     Order* remain in effect today.[^587]

231. Following passage of the 1996 Act, the Commission also began
     reforming both interstate access charges and federal universal
     service support mechanisms by moving the implicit subsidies
     contained in interstate access charges into explicit universal
     service support, consistent with the 1996 Act's directives. In
     particular, in the 1997 *Access Charge Reform Order*, the
     Commission modified the price cap rules for larger incumbent LECs
     by aligning the price cap LECs' rate structure more closely with
     the manner in which costs are incurred.[^588] Recognizing
     Congress's direction that universal service support should be
     "explicit," the Commission adopted rules to "reduce usage-sensitive
     interstate access charges by phasing out local loop and other
     non-traffic sensitive costs from those charges and directing
     incumbent LECs to recover those NTS \[non-traffic sensitive\] costs
     through more economically efficient, flat-rated charges."[^589]

232. The Commission acknowledged, however, that the measures it adopted
     in the *Access Charge Reform Order* would not "remove all implicit
     support from all access charges immediately."[^590] Rejecting
     suggestions that all implicit subsidies be eliminated from access
     charges immediately, the Commission noted that it did not have the
     tools to identify the existing subsidies precisely, and it
     expressed concern that eliminating all implicit subsidies at once
     might have an "inequitable impact on the incumbent LECs."[^591]
     Moreover, while stating its desire to rely on competition to drive
     access charges toward cost,[^592] the Commission recognized that
     "some services may prove resistant to competition," and it reserved
     the right to "adjust rates in the future to bring them into line
     with forward-looking costs."[^593]

233. To limit possible rate shock to retail customers, the Commission
     also limited the amount of allocated interstate cost of a local
     loop that could be assessed directly on residential and business
     customers as a flat-rated monthly charge.[^594] Although the
     *Access Charge Reform Order* started the process toward
     establishing explicit subsidies, the Commission concluded that "a
     process that eliminates implicit subsidies from access charges over
     time \[was\] warranted."[^595]

234. In the 2000 *CALLS Order*,[^596] the Commission continued its
     effort to remove implicit subsidies and replace them with explicit
     universal service support for price cap LECs by, among other
     things, reducing per-minute intercarrier charges, raising the SLC
     cap, phasing out the Presubscribed Interexchange Carrier Charge
     (PICC),[^597] and permitting price-cap LECs to deaverage the SLC
     once the affected carrier charges were eliminated.[^598] The
     Commission also created a new universal service fund to compensate
     price-cap incumbent LECs, in part, for lost interstate access
     revenues.[^599]

235. In the *MAG Order*, the Commission extended similar reforms to
     incumbent LECs subject to rate-of-return regulation.[^600] As with
     the *CALLS Order*, these reforms were designed to rationalize the
     interstate access rate structure by aligning it more closely with
     the manner in which costs are incurred.[^601] Among other things,
     the *MAG Order* increased the SLC caps for rate-of-return carriers
     and phased out the per-minute CCL charge from the common line rate
     structure.[^602] The Commission also created a universal service
     support mechanism to replace implicit support with explicit
     support, in order to foster competition and more efficient
     pricing.[^603] Many, but not all, states have also addressed
     intercarrier compensation regulation. In addition to setting rates
     for reciprocal compensation, many states have revised their rules
     governing intrastate access charges. Although some states have
     chosen to mirror interstate access charges, [^604] others continue
     to maintain intrastate access charges that far exceed interstate
     charges.[^605]

### Problems Associated With the Existing Intercarrier Compensation Regimes

236. The introduction of competition into local telephone markets
     revealed weaknesses in the existing intercarrier compensation
     regimes that remained notwithstanding the efforts of the Commission
     and certain states to reform interstate and intrastate access
     charges. As the Commission observed in 2001, "\[i\]nterconnection
     arrangements between carriers are currently governed by a complex
     system of intercarrier compensation regulations . . . \[that\]
     treat different types of carriers and different types of services
     disparately, even though there may be no significant differences in
     the costs among carriers or services."[^606] We have seen numerous
     examples of regulatory arbitrage in the marketplace both because of
     the different rates for similar functions under different
     intercarrier compensation regimes and because none of these regimes
     currently set rate levels in an economically efficient
     manner.[^607]

237. One example of regulatory arbitrage involves traffic to dial-up
     ISPs. Following adoption of the *Local Competition First Report and
     Order*, state commissions set reciprocal compensation rates for the
     exchange of local traffic. These reciprocal compensation rates were
     sufficiently high that many competitive LECs found it profitable to
     target and serve ISP customers who were large recipients of local
     traffic, since dial-up Internet customers would call their ISP and
     then stay on the line for hours. This practice led to significant
     traffic imbalances, with competitive LECs seeking billions of
     dollars in reciprocal compensation payments from other LECs.[^608]
     The Commission responded by adopting a separate interim
     intercarrier compensation regime for this traffic.

238. On February 26, 1999, the Commission issued a Declaratory Ruling
     and Notice of Proposed Rulemaking in which it held that ISP-bound
     traffic is jurisdictionally interstate because end users access
     websites across state lines. Because the *Local Competition First
     Report and Order* concluded that the reciprocal compensation
     obligation in section 251(b)(5) applied to only local traffic, the
     Commission found in the *Declaratory Ruling* that ISP-bound traffic
     is not subject to section 251(b)(5).[^609] On March 24, 2000, in
     the *Bell Atlantic* decision, the United States Court of Appeals
     for the District of Columbia Circuit (D.C. Circuit) vacated certain
     provisions of the *Declaratory Ruling*.[^610] The court did not
     question the Commission's finding that ISP-bound traffic is
     interstate. Rather, the court held that the Commission had not
     adequately explained how its end-to-end jurisdictional analysis was
     relevant to determining whether a call to an ISP is subject to
     reciprocal compensation under section 251(b)(5).[^611] In
     particular, the court noted that a LEC serving an ISP appears to
     perform the function of "termination" because the LEC delivers
     traffic from the calling party through its end office switch to the
     called party, the ISP.[^612]

239. On April 27, 2001, the Commission released the *ISP Remand Order*,
     which concluded that section 251(g) excludes ISP-bound traffic from
     the scope of section 251(b)(5).[^613] The Commission explained that
     section 251(g) maintains the pre-1996 Act compensation requirements
     for "exchange access, information access, and exchange services for
     such access," thereby excluding such traffic from the reciprocal
     compensation requirements that the 1996 Act imposed. The Commission
     concluded that ISP-bound traffic is "information access" and,
     therefore, is subject instead to the Commission's section 201
     jurisdiction over interstate communications.[^614] The Commission
     concluded that a bill-and-keep regime might eliminate incentives
     for arbitrage and force carriers to look to their own customers for
     cost recovery.[^615] To avoid a flash cut to bill-and-keep,
     however, the Commission adopted an interim compensation regime
     pending completion of the *Intercarrier Compensation*
     proceeding.[^616]

240. On May 3, 2002, the D.C. Circuit found that the Commission had not
     provided an adequate legal basis for the rules it adopted in the
     *ISP Remand Order*.[^617] Once again, the court did not question
     the Commission's finding that ISP-bound traffic is jurisdictionally
     interstate. Rather, the court held that section 251(g) of the Act
     did not provide a basis for the Commission's decision. The court
     held that section 251(g) is simply a transitional device that
     preserved obligations that predated the 1996 Act until the
     Commission adopts superseding rules, and there was no pre-1996 Act
     obligation with respect to intercarrier compensation for ISP-bound
     traffic.[^618] Although the court rejected the legal rationale for
     the interim compensation rules, the court remanded, but did not
     vacate, the *ISP Remand Order* to the Commission, and it observed
     that "there is plainly a non-trivial likelihood that the Commission
     has authority" to adopt the rules.[^619] Accordingly, the interim
     rules adopted in the *ISP Remand Order* have remained in effect.

241. On November 5, 2007, Core filed a petition for writ of mandamus
     with the D.C. Circuit seeking to compel the Commission to enter an
     order resolving the court's remand in the *WorldCom*
     decision.[^620] On July 8, 2008, the court granted a writ of
     mandamus and directed the Commission to respond to the *WorldCom*
     remand in the form of a final, appealable order that "explains the
     legal authority for the Commission's interim intercarrier
     compensation rules that exclude ISP-bound traffic from the
     reciprocal compensation requirement . . . ."[^621] The court
     directed the Commission to respond to the writ of mandamus by
     November 5, 2008.[^622]

242. Another regulatory arbitrage opportunity arose as a result of the
     Commission's 1997 decision not to regulate the interstate access
     charges of competitive LECs. As a result, many competitive LECs
     filed tariffs with access charges that were well above the rates
     charged by incumbent LECs for similar services.[^623] In response,
     the Commission adopted new rules that effectively capped the
     interstate access charges that competitive LECs could tariff.[^624]

243. Two more recent examples of regulatory arbitrage involve billing
     problems and the "Access Stimulation" problem. Commenters describe
     problems billing for traffic when it arrives for termination with
     insufficient identifying information.[^625] Because the existing
     intercarrier compensation mechanisms have vastly disparate rates
     that apply to different types of traffic, carriers have both the
     opportunity and incentive to disguise the nature, or conceal the
     source, of the traffic being sent in order to avoid or reduce
     payments to other carriers.[^626] "Access Stimulation" refers to
     allegations that certain LECs may have entered into agreements with
     providers of services that generate large volumes of incoming calls
     to substantially increase the number of calls sent to the
     LEC.[^627] It has been alleged that this significantly increased
     "growth in terminating access traffic may be causing carriers'
     rates to become unjust or unreasonable" in violation of section 201
     of the Act.[^628] In the *Access Stimulation NPRM*, the Commission
     has sought information about the extent of this practice, its
     potential impact on the rates of price cap, rate-of-return, and
     competitive LECs, and how this practice should be addressed.[^629]

## Comprehensive Reform

### Introduction

244. Evidence of increasing regulatory arbitrage, as well as increased
     competition and changes in technology, has led the Commission to
     consider comprehensive reform of intercarrier compensation. In
     2001, the Commission adopted a Notice of Proposed Rulemaking to
     examine possible alternatives to existing intercarrier regimes with
     the intent of moving toward a more unified system.[^630] The notice
     generated extensive comments that generally confirmed the need for
     comprehensive intercarrier compensation reform, including a number
     of competing proposals.[^631] In 2005, the Commission adopted a
     Further Notice of Proposed Rulemaking seeking comment on the
     various industry proposals.[^632] In 2006, another industry
     coalition submitted an alternative comprehensive intercarrier
     compensation reform proposal, known as the Missoula Plan.[^633] The
     Commission separately requested and received comments on the
     Missoula Plan proposal.[^634] Finally, in 2008, the Commission
     stabilized the universal service fund by adopting an interim cap on
     payments to competitive ETCs, helping pave the way for
     comprehensive intercarrier compensation and universal service
     reform, and leading to a number of new reform proposals.[^635]

245. As a result of the *Intercarrier Compensation NPRM*, the
     *Intercarrier Compensation FNPRM*, the filing of the Missoula Plan,
     and the more recent proposals that have been filed, the Commission
     has compiled an extensive record over the past seven years. The
     Commission has received comments or proposals from a wide variety
     of interested parties, including, states, incumbent LECs,
     competitive LECs, rural companies, IXCs, new technology companies,
     consumer advocates, business customers, and industry associations.
     As demonstrated throughout this order, the Commission has
     thoroughly reviewed and analyzed the voluminous record, has
     considered the evidence submitted by the parties supporting the
     alternatives, and has carefully evaluated each of the proposals
     that have been presented. Based on this examination of the options,
     we find that the approach we describe below and adopt in this order
     best achieves the goals of promoting universal service, encouraging
     the efficient use of, and investment in, broadband technologies,
     spurring competition, and ultimately, further reducing the need for
     regulation.

### A New Approach to Intercarrier Compensation

246. Since the introduction of competition into long-distance telephone
     service, the Commission has moved toward eliminating implicit
     subsidies from intercarrier charges. At every stage, however, the
     Commission has had to balance the desire to establish more
     efficient intercarrier charges against the potential adverse
     effects on consumers (in the form of higher flat-rated charges) and
     carriers (in the form of reduced intercarrier revenues). The
     introduction of competition into local telephone markets
     accelerated the need for reform. As discussed above, since the
     implementation of the 1996 Act, not only has local competition
     increased, but so has the incidence and severity of regulatory
     arbitrage.

247. We conclude today that, with the universal service fund now
     stabilized, we can wait no longer to begin the process of
     comprehensive intercarrier compensation reform. The differences in
     existing intercarrier compensation regimes impose significant
     inefficiencies on users and distort carriers' investment
     incentives, which can result in losses of billions of dollars in
     consumers and producers surplus. Possibly more important, these
     legacy regulatory regimes pose an obstacle to the transition to an
     all-IP broadband world. Because carriers currently can receive
     significant revenues from charging above-cost rates to terminate
     telecommunications traffic, they have a reduced incentive to
     upgrade their networks to the most efficient technology or to
     negotiate interconnection agreements that are designed to
     accommodate the efficient exchange of IP traffic, as both actions
     would likely lead to reduced intercarrier payments.[^636]

248. In this order, we therefore adopt a new approach to intercarrier
     compensation and establish the blueprint for moving to new uniform
     termination rates that are economically efficient and sustainable
     in our increasingly competitive telecommunications markets. At the
     same time, we recognize, as the Commission has in the past, the
     need to be cognizant of market disruptions and potential adverse
     effects on consumers and carriers of moving too quickly from the
     existing intercarrier compensation regimes to our new uniform
     approach to intercarrier compensation. Accordingly, we adopt here a
     gradual ten-year transition plan with separate stages, designed to
     reduce rates over a sufficient period to minimize market
     disruptions and to cushion the impact of our reform on both
     customers and carriers. At the end of the transition period, all
     telecommunications traffic will be treated as falling within the
     reciprocal compensation provisions of section 251(b)(5), and states
     will set default reciprocal compensation rates pursuant to the new
     methodology we adopt herein.

249. The requirements that we adopt for intercarrier compensation do not
     apply to providers operating in Alaska, Hawaii, or any U.S.
     Territories and possessions. We find that these areas have very
     different attributes and related cost issues than the continental
     states.[^637] For this reason, we are exempting providers in
     Alaska, Hawaii and U.S. Territories and possessions from the
     requirements and rules adopted herein, and we will address them in
     a subsequent proceeding.[^638]

250. *Transition Plan*. As described below, we adopt a ten**-**year
     transition plan.[^639] In the first stage, intrastate access rates
     are reduced to the levels of interstate rates. During stage two,
     carriers will reduce their rates to an interim uniform termination
     rate, set by the state. Carriers whose current rates are below the
     interim uniform rate set by the state, however, may not increase
     their rates. During stage three, the rates carriers charge at the
     end of stage two (either the interim uniform rates or their prior
     rates, whichever are lower) will be gradually reduced to the rates
     that will apply at the end of the transition. This transition will
     be designed by the state so as to minimize market disruptions and
     adverse economic effects. This transition is described in more
     detail below.

251. *Intrastate* *Rate Reductions*. One year from the effective date of
     this order, we require that all LECs reduce their terminating
     *intrastate* switched access rates by 50 percent of the difference
     between their intrastate switched access rates and their
     *interstate* switched access rates.[^640] Two years from the
     effective date of this order, we require that all LECs reduce their
     terminating intrastate switched access rates by the remaining 50
     percent of the difference between their intrastate switched access
     rates and their interstate switched access rates so that their
     intrastate rates equal their interstate rates. Carriers will comply
     with state tariffing requirements or other applicable state law in
     effectuating those changes in intrastate terminating access rates.

252. *State Establishment of Interim, Uniform Reciprocal Compensation
     Rates.* Within two years from the effective date of this order,
     states must adopt a state-wide interim, uniform reciprocal
     compensation rate applicable to all carriers (except carriers whose
     rates are below the interim, uniform rate, in which case, those
     carriers' rates shall be capped at those lower, existing rates).
     Three years from the effective date of this order, we require that
     all LECs reduce their terminating rates by 50 percent of the
     difference between their current terminating rate and the interim,
     uniform reciprocal compensation rate established by the state. Four
     years from the effective date of this order we require that all
     LECs reduce their terminating rates by the remaining 50 percent of
     the difference between their current terminating rate and the
     interim, uniform reciprocal compensation rate established by the
     state so that their terminating rates equal the state-set interim,
     uniform reciprocal compensation rate. This rate will become the
     starting point for stage three---a six-year gradual downward
     transition to the final uniform reciprocal compensation rate, which
     the states will also set, consistent with the methodology we adopt
     in this order. The states will have discretion to determine the
     glide path, which begins four years from the effective date of this
     order and ends ten years from the effective date of this order.
     This glide path will determine the trajectory of the interim
     reciprocal compensation rate as it trends down to the final
     reciprocal compensation rate. All carriers are subject to this
     glide path. However, if a carrier's rate is below the rate
     specified in the glide path, such carrier cannot raise its rates,
     but is subject to the trajectory when the interim rate equals that
     carrier's rate. At the end of ten years (i.e., at the end of stage
     two), all the terminating rates of all carriers in each state will
     be reduced to the new final, uniform reciprocal compensation rate
     established by each state. We believe that, by establishing this
     ten-year, multiple-stage transition to a state-set final uniform
     reciprocal compensation rate, we will provide a sufficiently smooth
     and gradual glide path so that carriers will be able to adjust
     their other rates and revenues in a measured way over time, as
     allowed by the reforms adopted in this order, without creating
     unacceptable rate or revenue effects.

253. Although we permit the states to establish the particular interim,
     uniform reciprocal compensation rate for each step of the final six
     years of the transition, we establish certain conditions on the
     interim, uniform reciprocal compensation rate and on the
     terminating intercarrier rates that carriers may charge. First,
     although we do not set forth a methodology that states must use in
     setting the interim, uniform reciprocal compensation rates, we do
     require that, within each state, there must be a single, state-wide
     interim, uniform reciprocal compensation rate during each year and
     at each stage of the transition.[^641] Therefore, in establishing
     interim, uniform reciprocal compensation rates, a state may wish to
     consider the impact of those rates on all the carriers in the
     state. States are permitted to adopt an interim, uniform reciprocal
     compensation rate that may be higher at the beginning of the
     transition than some existing incumbent LEC rates today. If they do
     so, however, carriers with lower termination rates may not raise
     them to the interim uniform rate. Second, states may determine the
     glide path for moving from the interim, uniform reciprocal
     compensation rate to the final, uniform reciprocal compensation
     rate, subject to the requirement that the interim uniform rate be
     identical for all carriers at each step in the transition. By the
     end of the transition period, the interim, uniform reciprocal
     compensation rates must decrease to a single final, uniform
     reciprocal compensation rate for all carriers established pursuant
     to the Commission's new "additional costs" methodology.

254. *Transition of Rates During Stage Three.* Beginning four years from
     the effective date of this order, and through the remainder of the
     transition, each carrier must set each of its terminating rates at
     the lower of: (i) its current rate; or (ii) the state-set interim,
     uniform reciprocal compensation rate applicable at that stage of
     the transition. Thus, for example, if a carrier has an interstate
     terminating access rate above the interim, uniform reciprocal
     compensation rate applicable at that stage of the transition, but a
     current reciprocal compensation rate below the interim, uniform
     reciprocal compensation rate, the carrier will reduce its
     interstate rate to the interim rate but leave its current
     reciprocal compensation rate unchanged. That carrier will continue
     to have two separate termination rates until such time as the
     applicable interim, uniform reciprocal compensation rate is
     adjusted lower and becomes less than its current reciprocal
     compensation rate. At that time, all the carrier's rates will be
     set at the level of the interim, uniform reciprocal compensation
     rate for that state.

255. We emphasize that under no circumstances shall a carrier be
     permitted to increase its current rates, even if the interim,
     uniform reciprocal compensation rate is higher than one or more of
     its current rates. In this respect, the applicable interim, uniform
     reciprocal compensation rate set by the states will act as a
     ceiling or cap on such rates. We do not permit a carrier to charge
     a rate for terminating interstate or intrastate access, reciprocal
     compensation, or ISP-bound traffic that is higher than the interim,
     uniform reciprocal compensation rate, but we will permit a carrier
     to continue to charge a rate that is lower than the interim,
     uniform reciprocal compensation rate. We note that because CMRS
     providers may not tariff terminating access today,[^642] and we do
     not permit a carrier to increase rates during the transition, CMRS
     providers therefore will not be permitted to charge for terminating
     access until the end of the transition period.[^643]

256. We note that we already have an interim intercarrier compensation
     regime for ISP-bound traffic, and to avoid disruption in the
     marketplace, we will apply on a transitional basis the pricing
     standards we adopted for ISP-bound traffic in the *ISP Remand
     Order*,[^644] as modified by the *Core Forbearance Order.*[^645]
     Currently, two rules remain in effect: (1) ISP-bound traffic is
     currently subject to a reciprocal compensation rate cap of \$.0007
     per minute-of-use; and (2) under the mirroring rule, the \$.0007
     cap applies to traffic exchanged with an incumbent LEC only if it
     offers to exchange all traffic subject to section 251(b)(5) at the
     same rate. As explained below, we conclude that it is appropriate
     to retain these rules, but only on a transitional basis until a
     state commission, applying the "additional costs" standards adopted
     in this order, has established reciprocal compensation rates that
     are at or below \$.0007 per minute-of-use.

257. In the *ISP Remand Order* in 2001, based on "convincing evidence in
     the record" that carriers had "targeted ISPs as customers merely to
     take advantage of . . . intercarrier payments"---offering free
     service to ISPs, paying ISPs to be their customers, and sometimes
     engaging in outright fraud---the Commission adopted an interim ISP
     payment regime to "limit, if not end, the opportunity for
     regulatory arbitrage."[^646] The Commission adopted a gradually
     declining cap on intercarrier compensation for ISP-bound traffic,
     beginning at \$.0015 per minute-of-use and declining to \$.0007 per
     minute-of-use.[^647] These rate caps reflected the downward trend
     in intercarrier compensation rates contained in then-recently
     negotiated interconnection agreements.[^648] We have previously
     recognized that evidence that "carriers have agreed to
     rates"---through voluntary, arms-length negotiations---constitutes
     substantial evidence that rates are just and reasonable.[^649]

258. Most commenters urge the Commission to maintain the interim
     compensation rules governing ISP-bound traffic until the Commission
     is able to transition to comprehensive intercarrier compensation
     reform.[^650] These parties contend that a higher compensation rate
     would create new opportunities for arbitrage[^651] and impose
     substantial financial burdens on wireless companies, incumbent LECs
     and state public utility commissions.[^652] They further claim that
     the existing regime has simplified interconnection
     negotiations.[^653]

259. We share these commenters' concerns. The record also suggests that
     eliminating the \$.0007 cap and instead applying higher reciprocal
     compensation rates that may be set by the states during the
     transition period to the adoption of our new methodology would have
     a significant negative impact on carriers serving rural markets and
     broadband deployment.[^654] The record demonstrates that dial-up
     minutes remain at high levels in rural areas and that the
     application of reciprocal compensation to these minutes would
     generate significant costs to carriers serving these rural
     areas.[^655] Thus, it remains the case that the "rate caps help
     avoid arbitrage and market distortions that otherwise would result
     from the availability of reciprocal compensation for ISP-bound
     traffic."[^656] We further believe that maintaining the cap on a
     transitional basis will minimize the disruptive effects and
     regulatory uncertainty that otherwise would result from the abrupt
     elimination of clear compensation rules for ISP-bound traffic.

260. We expect that state commissions, applying the new "additional
     costs" standard adopted in this order, will set final reciprocal
     compensation rates at or below \$.0007 per minute-of-use. As noted
     below, the evidence in the record suggests that the incremental
     cost of call termination on modern switches is de minimis.[^657] We
     have given state commissions up to ten years to transition to new
     rates based on the "additional costs" standard. Accordingly, the
     rate cap will only have an impact in a particular state on a
     transitional basis until that state sets rates at or below \$.0007.

261. The mirroring rule has also succeeded in promoting the Commission's
     "goal of a more unified intercarrier compensation regime by
     requiring LECs to offer similar rates for like traffic."[^658] Most
     intraMTA traffic is now exchanged pursuant to the rate caps, and a
     substantial portion of wireline intraexchange traffic is being
     exchanged at rates at or below the rate caps as well.[^659]
     Eliminating the mirroring rule and allowing carriers to charge
     higher transitional reciprocal compensation rates for traffic
     currently subject to the mirroring rule would significantly
     increase the cost carriers incur in exchanging that traffic. Those
     increased costs would divert funds from investment in next
     generation wireless networks and likely would be borne by
     consumers, through increases in the costs of wireless
     offerings.[^660]

262. We reject arguments that the Commission unlawfully delegated its
     authority in the *ISP Remand Order* and arguments that the
     Commission addressed previously in the *Core Forbearance
     Order*.[^661] We also disagree with parties who suggest that the
     Commission, in responding to the D.C. Circuit's remand in
     *WorldCom*, must offer detailed new justifications for each of the
     four features of the ISP intercarrier payment regime: the rate
     caps, the mirroring rule, the growth cap, and the new markets
     rule.[^662] The prior policy justifications offered for those rules
     by the Commission have not been overturned by any court, and our
     current policy justification for retaining these rules is simply to
     maintain the status quo in this area on a transitional basis until
     our new "additional costs" methodology has been fully implemented.
     Indeed, pursuant to our new "additional costs" methodology, we
     believe that the rate caps set forth in 2001 may well be higher
     than the final, uniform reciprocal compensation rates set by the
     states. However, discarding these rules during the transition to
     our new methodology would be unwise and unwarranted because the
     "rate caps are necessary to prevent discrimination *between*
     dial-up Internet access customers and basic telephone service
     customers," those caps "protect consumers of basic telephone
     service" from being forced to subsidize dial-up Internet access
     service, and the rate caps minimize the "classic regulatory
     arbitrage" that reciprocal compensation for ISP-bound traffic had
     made possible.[^663]

263. In sum, we maintain the \$.0007 cap and the mirroring rule, on a
     transitional basis, pursuant to our section 201 authority. These
     interim rules shall remain in place in a state until the state
     commission, applying the "additional costs" standard adopted in
     this order, has established reciprocal compensation rates that are
     at or below \$.0007 per minute-of-use.

264. We find that our transition plan is necessary and appropriate to
     prevent undue economic hardships to carriers caused by a too-rapid
     reduction in intercarrier compensation rates. If there is evidence
     that carriers are attempting to abuse the interim, uniform
     reciprocal compensation rate and/or transition process to create
     arbitrage opportunities, we encourage carriers to bring such
     evidence to our attention or that of the state commission so such
     claims can be investigated and, if appropriate, action taken.

### Legal Authority 

#### Legal Authority for Comprehensive Reform---Interpretation of Sections 251(b)(5) and 251(g) 

265. The history of intercarrier compensation reveals many policy
     reasons for comprehensively reforming intercarrier compensation
     rates, including reducing arbitrage, promoting competition,
     facilitating the introduction of new technologies, and benefiting
     consumers. The dual structure of separate federal and state
     jurisdiction over communications has made accomplishing such
     reforms more complex, however. Although our reform does not disturb
     those fundamental jurisdictional distinctions, we find that,
     through the tools made available by the 1996 Act, we have the means
     to accomplish this reform by electing to partner with the states.

266. The Commission unquestionably has authority to reform intercarrier
     compensation with respect to interstate access services, rates
     charged by CMRS providers, and IP/PSTN traffic. Section 2(a) of the
     Act establishes the Commission's jurisdiction over interstate
     services, for which the Commission ensures just, reasonable, and
     not unjustly and unreasonably discriminatory rates under section
     201 and 202.[^664] Likewise, the Commission has authority over the
     rates of CMRS providers pursuant to section 332 of the Act.[^665]
     We also make clear that authority to impose economic regulation
     with respect to IP/PSTN traffic rests exclusively with this
     Commission. The Commission has adopted a number of regulatory
     requirements applicable to interconnected VoIP services and
     providers.[^666] With respect to the statutory classification of
     IP-enabled services, however, the Commission only has addressed two
     situations.[^667]

267. We now classify as "information services" those services that
     originate calls on IP networks and terminate them on
     circuit-switched networks, or conversely that originate calls on
     circuit-switched networks and terminate them on IP networks
     (collectively "IP/PSTN" services).[^668] Such traffic today
     involves a net protocol conversion between end-users, and thus
     constitutes an "enhanced" or "information service."[^669]

268. Although there are certain exceptions to this treatment, we do not
     find them applicable.[^670] In particular, we do not find this to
     be "protocol conversion in connection with the introduction of new
     technology to implement existing services" that would be treated as
     a "basic," rather than "enhanced" service.[^671] That exception was
     designed to address situations "involving no change in an existing
     service, but merely a change in electrical interface
     characteristics to facilitate transitional introduction of new
     technology."[^672] By contrast, we find that IP/PSTN services are
     not mere changes to the underlying technology used for "existing"
     basic services, but are entirely new services with characteristics
     in many ways distinct from pre-existing telephone services.[^673]

269. Consistent with the *Pulver.com Order* and the *Vonage Order*, we
     preempt any state efforts to impose "traditional 'telephone
     company' regulations" as they relate to IP/PSTN information
     services as inconsistent with our generally unregulated treatment
     of information services.[^674] Of course, neither the *Vonage
     Order*, the *Pulver.com Order*, nor our actions here preempt state
     actions that are consistent with federal policy.[^675] Moreover, as
     we describe below, we allow states to establish reciprocal
     compensation rates, pursuant to our methodology, including for
     IP/PSTN traffic.

270. In sections 251 and 252 of the Act, Congress altered the
     traditional regulatory framework based on jurisdiction by expanding
     the applicability of national rules to historically intrastate
     issues and state rules to historically interstate issues.[^676] In
     the *Local Competition First Report and Order*, the Commission
     found that the 1996 Act created parallel jurisdiction for the
     Commission and the states over interstate and intrastate matters
     under sections 251 and 252.[^677] The Commission and the states
     "are to address the same matters through their parallel
     jurisdiction over both interstate and intrastate matters under
     sections 251 and 252."[^678] Moreover, section 251(i) provides that
     "\[n\]othing in this section shall be construed to limit or
     otherwise affect the Commission's authority under section
     201."[^679] The Commission concluded that section 251(i) "affirms
     that the Commission's preexisting authority under section 201
     continues to apply for purely interstate activities."[^680]

271. In implementing sections 251 and 252 in the *Local Competition
     First Report and Order*, the Commission's treatment of LEC-CMRS
     traffic provides an instructive approach. Prior to the 1996 Act,
     the Commission expressly preempted "state and local regulations of
     the kind of interconnection to which CMRS providers are entitled"
     based on its authority under section 201 and 332 of the Act.[^681]
     Nevertheless, in the *Local Competition First Report and Order*,
     the Commission brought LEC-CMRS interconnection within the section
     251 framework as it relates to intraMTA (including interstate
     intraMTA) traffic.[^682] The Commission recognized, however, that
     it continued to retain separate authority over CMRS traffic.[^683]

272. Courts confirmed that, in permitting LEC-CMRS interconnection to be
     addressed through the section 251 framework, the Commission did not
     in any way lose its independent jurisdiction or authority to
     regulate that traffic under other provisions of the Act. Thus,
     although the Eighth Circuit invalidated the Commission's TELRIC
     pricing rules in general,[^684] it recognized that "because section
     332(c)(1)(B) gives the FCC the authority to order LECs to
     interconnect with CMRS carriers, we believe that the Commission has
     the authority to issue the rules of special concern to the CMRS
     providers, \[including the reciprocal compensation rules\] but only
     as these provisions apply to CMRS providers. Thus, \[the pricing\]
     rules . . . remain in full force and effect with respect to the
     CMRS providers, and our order of vacation does not apply to them in
     the CMRS context."[^685] Subsequently, the D.C. Circuit held that
     CMRS providers were entitled to pursue formal complaints under
     section 208 of the Act for violations of the Commission's
     reciprocal compensation rules.[^686]

273. We build upon our actions in the *Local Competition First Report
     and Order*, and now permit states to establish a uniform reciprocal
     compensation rate, in accordance with the new methodology we
     establish in this order, pursuant to the section 251(b)(5) and
     252(d)(2) framework. In particular, section 251(b)(5) imposes on
     all LECs a "duty to establish reciprocal compensation arrangements
     for the transport and termination of telecommunications."[^687]
     Section 252(d)(2)(A) sets forth an "additional costs" standard that
     state commissions, in arbitrating interconnection disputes
     involving incumbent LECs, should apply in setting the "charges for
     transport and termination of traffic."[^688] Although we allow
     states to set new uniform termination rates under this framework,
     pursuant to our methodology, we retain our authority under section
     201 to find that reciprocal compensation charges are unjust and
     unreasonable as they relate to interstate, CMRS, and IP/PSTN
     traffic within our jurisdiction.[^689] We expect that states will
     faithfully implement the pricing standards adopted in this order,
     and thus it will not be necessary for us to exercise that
     authority.[^690]

274. The Commission unquestionably has authority to interpret and adopt
     rules implementing sections 251(b)(5) and 252(d)(2). Congress
     delegated to the Commission the task of administering the
     Communications Act. Section 201(b) authorizes the Commission to
     "prescribe such rules and regulations as may be necessary in the
     public interest to carry out the provisions of this Act."[^691]
     "\[T\]he grant in § 201(b) means what it says: The FCC has
     rulemaking authority to carry out the 'provisions of this
     Act.'"[^692] The Commission's rulemaking authority is not limited
     to interstate matters; it extends to all provisions of the
     Communications Act.[^693]

275. In addition, we find that the section 251(b)(5) and 252(d)(2)
     framework is broad enough to facilitate our intercarrier
     compensation reform. We acknowledge that, in the *Local Competition
     First Report and Order*, the Commission found that section
     251(b)(5) applies only to local traffic,"[^694] and some commenters
     continue to press for such an interpretation.[^695] As other
     commenters recognize, however, the Commission, in the *ISP Remand
     Order*, reconsidered that judgment and concluded that it was a
     mistake to read section 251(b)(5) as limited to local traffic,
     given that "local" is not a term used in section 251(b)(5).[^696]
     We recognize, as the Supreme Court noted in *AT&T Corp. v.* *Iowa
     Utilities Board*, that "\[i\]t would be a gross understatement to
     say that the 1996 Act is not a model of clarity."[^697]
     Nevertheless, we find that the better view is that section
     251(b)(5) is not limited to local traffic.

276. We begin by looking at the text of the statute. Section 251(b)(5)
     imposes on all LECs the "duty to establish reciprocal compensation
     arrangements for the transport and termination of
     telecommunications."[^698] The Act broadly 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 as sent
     and received."[^699] Its scope is not limited geographically
     ("local," "intrastate," or "interstate") or to particular services
     ("telephone exchange service,"[^700] telephone toll service,"[^701]
     or "exchange access"[^702]). We find that the traffic we elect to
     bring within this framework fits squarely within the meaning of
     "telecommunications."[^703] Had Congress intended to preclude the
     Commission from bringing certain types of telecommunications
     traffic within the section 251(b)(5) framework, it could have
     easily done so by incorporating restrictive terms in section
     251(b)(5). Because Congress used the term "telecommunications," the
     broadest of the statute's defined terms, we conclude that section
     251(b)(5) is not limited only to the transport and termination of
     certain types of telecommunications traffic, such as local traffic.

277. In the *Local Competition First Report and Order* the Commission
     concluded that section 251(b)(5) applies only to local traffic, but
     recognized that "\[u\]ltimately . . . the rates that local carriers
     impose for the transport and termination of local traffic and for
     the transport and termination of long distance traffic should
     converge."[^704] In the *ISP Remand Order*, the Commission reversed
     course on the scope of section 251(b)(5), finding that "the phrase
     'local traffic' created unnecessary ambiguities, and we correct
     that mistake here."[^705] The *ISP Remand Order* noted that "the
     term 'local,' not being a statutorily defined category, . . . is
     not a term used in section 251(b)(5)."[^706] The Commission found
     that the scope of section 251(b)(5) is limited only by section
     251(g), which temporarily grandfathered the pre-1996 Act rules
     governing "exchange access, information access, and exchange
     services for such access" provided to IXCs and information service
     providers until "explicitly superseded by regulations prescribed by
     the Commission."[^707] On appeal, the D.C. Circuit left intact the
     Commission's findings concerning the scope of section 251(b)(5),
     although it took issue with other aspects of the *ISP Remand
     Order*.[^708]

278. We agree with the finding in the *ISP Remand Order* that traffic
     encompassed by section 251(g) is excluded from section 251(b)(5)
     except to the extent that the Commission acts to bring that traffic
     within its scope. Section 251(g) preserved the pre-1996 Act
     regulatory regime that applies to access traffic, including rules
     governing "receipt of compensation."[^709] There would have been no
     need for Congress to have preserved these compensation rules
     against the effects of section 251 if the scope of section
     251(b)(5) was not broad enough for the Commission to bring within
     its scope the traffic covered by section 251(g), i.e., access
     traffic. Because Congress is presumed not to have wasted its
     breath, particularly with a provision as lengthy and detailed as
     section 251(g), we find that section 251(g) confirms that section
     251(b)(5) applies to the transport and termination of all
     telecommunications traffic exchanged with LECs, including ISP-bound
     traffic. And because section 251(g) "is worded simply as a
     transitional device, preserving various LEC duties that antedated
     the 1996 Act until such time as the Commission should adopt new
     rules pursuant to the Act,"[^710] we clearly have authority under
     the Act to adopt regulations superseding that regime. We exercise
     that authority today. [^711]

279. By placing all traffic under the umbrella of one compensation
     scheme, we eliminate jurisdictional and regulatory distinctions
     that are not tied to economic or technical differences between
     services. As the Commission observed in the *Intercarrier
     Compensation NPRM*, regulatory arbitrage arises from different
     rates that different types of providers must pay for essentially
     the same functions.[^712] Our current classifications require
     carriers to treat identical uses of the network differently, even
     though such disparate treatment usually has no economic or
     technical basis. These artificial distinctions distort the
     telecommunications markets at the expense of healthy competition.
     Similar types of traffic should be subject to similar rules.
     Similar types of functions should be subject to similar cost
     recovery mechanisms. We achieve that result by moving away from the
     regime preserved by section 251(g) and bringing that traffic within
     the section 251(b)(5) framework.

280. We disagree with commenters who argue that section 251(b)(5) only
     can be applied to traffic exchanged between LECs, and not traffic
     exchanged between a LEC and another carrier.[^713] The Commission
     rejected that argument in the *Local Competition Order*, finding
     that section 251(b)(5) applies to traffic exchanged by a LEC and
     any other telecommunications carrier, and adopted rules
     implementing that finding.[^714] In a specific application of that
     principle, the Commission concluded that "CMRS providers will not
     be classified as LECs,"[^715] but nevertheless found that "LECs are
     obligated, pursuant to section 251(b)(5) (and the corresponding
     pricing standards of section 252(d)(2)), to enter into reciprocal
     compensation agreements with all CMRS providers."[^716] No one
     challenged that finding on appeal, and it has been settled law for
     the past 12 years. We see no reason to revisit that conclusion now.
     Although section 251(b)(5) indisputably imposes the duty to
     establish reciprocal compensation arrangements on LECs alone,
     Congress did not limit the class of potential beneficiaries of that
     obligation to LECs.[^717]

281. We also disagree with commenters who argue that section
     252(d)(2)(A)(i) limits the scope of section 251(b)(5).[^718]
     Section 252(d)(2)(A)(i) provides that a state commission "shall not
     consider the terms and conditions for reciprocal compensation to be
     just and reasonable" unless "such terms and conditions provide for
     the mutual and reciprocal recovery by each carrier of costs
     associated with the transport and termination on each carrier's
     network facilities of calls that originate on the network
     facilities of the other carrier."[^719] Verizon and others argue
     that this provision necessarily excludes interexchange traffic from
     the scope of section 251(b)(5) because at the time the 1996 Act was
     passed, calls neither originated nor terminated on an IXC's
     network.[^720] We reject this reasoning because it erroneously
     assumes that Congress intended the pricing standards in section
     252(d)(2) to limit the otherwise broad scope of section 251(b)(5).
     We do not believe that Congress intended the tail to wag the dog.

282. Section 251(b)(5) defines the scope of traffic that is subject to
     reciprocal compensation. Section 252(d)(2)(A)(i), in turn, deals
     with the mechanics of who owes what to whom, it does not define the
     scope of traffic to which section 251(b)(5) applies. Section
     252(d)(2)(A)(i) provides that, at a minimum, a reciprocal
     compensation arrangement must provide for the recovery by each
     carrier of costs associated with the transport and termination on
     each carrier's network of calls that originate on the network of
     the other carrier.[^721] Section 252(d)(2)(A)(i) does not address
     what happens when carriers exchange traffic that originates or
     terminates on a third carrier's network. This does not mean, as
     Verizon suggests, that section 251(b)(5) must be read as limited to
     traffic involving only two carriers. Rather, it means that there is
     a gap in the pricing rules in section 252(d)(2), and the Commission
     has authority under section 201(b) to adopt rules to fill that gap.

283. We reject Verizon's argument that a telecommunications carrier that
     delivers traffic to an ISP is not eligible for reciprocal
     compensation because the carrier does not "terminate"
     telecommunications traffic at the ISP.[^722] In the *Local
     Competition Order*, the Commission defined "termination" as "the
     switching of traffic that is subject to section 251(b)(5) at the
     terminating carrier's end office switch . . . and delivery of that
     traffic to the called party's premises."[^723] As the D.C. Circuit
     suggested in the *Bell Atlantic* decision, "Calls to ISPs appear to
     fit this definition: the traffic is switched by the LEC whose
     customer is the ISP and then delivered to the ISP, which is clearly
     the 'called party.'"[^724] We agree.[^725] Consequently, ISP-bound
     traffic is subject to our new intercarrier compensation
     framework.[^726]

284. We reject opponents' other arguments that the context and history
     of the 1996 Act compel a finding that section 251(b)(5) could not
     be applied to access traffic. Verizon argues, for example, that
     section 251(g) demonstrates that Congress did not intend to
     displace the existing access pricing regime.[^727] This argument
     ignores that Congress preserved the access regime only "until such
     restrictions and obligations are explicitly superseded by
     regulations prescribed by the Commission."[^728] As noted above, we
     find that section 251(g) actually supports a finding that section
     251(b)(5) is broad enough to cover access traffic. Verizon also
     argues that the reference to reciprocal compensation in the
     competitive checklist in section 271,[^729] which was designed to
     ensure that local markets are open to competition, somehow shows
     that Congress intended to limit the scope of section 251(b)(5) to
     local traffic.[^730] We do not see how this argument sheds any
     light on the scope of section 251(b)(5). Congress no doubt included
     the reference to reciprocal compensation in section 271 because
     section 251(b)(5) applies to local traffic, a point that no one
     disputes. That does not suggest, however, that section 251(b)(5)
     applies *only* to local traffic.

285. We need not respond to every other variation of the argument that
     the history and structure of the Act somehow demonstrate that
     section 251(b)(5) does not apply to access traffic. At best, these
     arguments show that one plausible interpretation of the statute is
     that section 251(b)(5) applies only to local traffic, a view that
     the Commission embraced in the *Local Competition First Report and
     Order*. These arguments do not persuade us, however, that this is
     the only plausible reading of the statute. Moreover, many of the
     same arguments based on the history and context of the adoption of
     section 251 to limit its scope to local traffic were rejected by
     the D.C. Circuit in the context of section 251(c).[^731] We find
     that the better reading of the Act as a whole, in particular the
     broad language of section 251(b)(5) and the grandfather clause in
     section 251(g), supports our view that the transport and
     termination of all telecommunications exchanged with LECs is
     subject to the reciprocal compensation regime in sections 251(b)(5)
     and 252(d)(2).

286. The approach we adopt here provides a sound basis for comprehensive
     reform, and we thus decline to adopt alternative proposals. On one
     hand, we note that some commenters advocate that the Commission
     adopt an intercarrier compensation rate or cap of \$0.0007 per
     minute of use for all traffic.[^732] To implement this reform
     proposal, parties have suggested that it would likely be necessary
     for the Commission to preempt state regulation of intrastate access
     charges.[^733] We believe that such a significant step is not
     currently warranted, and elect instead to allow states to continue
     setting rates for intrastate traffic, as well as permitting them to
     set rates for traffic subject to federal jurisdiction, pursuant to
     our methodology. We fully expect the new pricing methodology to
     achieve the goals of our continuing intercarrier compensation
     reform. On the other hand, some parties contend that the Commission
     should leave matters of intrastate intercarrier compensation reform
     entirely to the states.[^734] These proposals evidence a pre-1996
     Act worldview, however. Given the tools that the 1996 Act put at
     our disposal, we find it possible to move forward with truly
     comprehensive intercarrier compensation reform under an approach
     which still provides for a state role.

287. We note that, in the *Local Competition First Report and Order*,
     the Commission observed that section 251(b)(5) does not address
     charges payable to a carrier that originates traffic and concluded,
     therefore, that such charges were prohibited under that provision
     of the Act.[^735] Because we elect to have the states set rates
     under section 251(b)(5), pursuant to our methodology, we find that
     retention of originating charges would be inconsistent with that
     statutory scheme and our new regulatory approach. Accordingly, we
     find that originating charges for all telecommunications traffic
     subject to our comprehensive intercarrier compensation framework
     must be eliminated at the conclusion of the transition to the new
     regime. We recognize, however, that changes to originating access
     charge rates may raise issues distinct from terminating charges.
     Moreover, several parties urge the Commission to delay any changes
     to originating charges.[^736] For these reasons, we ask parties to
     comment on the appropriate transition for eliminating originating
     access charges in the accompanying Further Notice.[^737] Although
     we ask parties to comment on the appropriate transition for
     eliminating originating access charges, we clarify that, under the
     transitional mechanism we adopt today, carriers are not permitted
     to increase any of their current rates, including their originating
     access rates.[^738] Thus, both interstate and intrastate
     originating switched access rates will remain capped at current
     levels until further action by the Commission addressing the
     appropriate transition for this traffic. This approach is
     consistent with our transition of terminating rates[^739] and with
     our goal of eliminating originating access charges at the
     conclusion of the transition to the new regime.

#### Legal Authority for the Transition

288. Although we comprehensively reform intercarrier compensation, we do
     not flash cut to our new regime, but provide for a measured
     transition.[^740] The goal of this transition is to avoid overly
     rapid rate changes for consumers while providing carriers with
     sufficient means to preserve their financial integrity as we move
     to the new intercarrier compensation regime.[^741] For many of the
     same reasons that we have authority to adopt comprehensive reform,
     we find that the Commission has clear authority to establish such a
     transitional structure to serve as a glide path to the new
     methodology we have developed in this order.

289. We find it reasonable to adopt a transition plan under these
     circumstances. As the D.C. Circuit has recognized, avoiding "market
     disruption pending broader reforms is, of course, a standard and
     accepted justification for a temporary rule,"[^742] and here
     temporary rules setting forth a glide path are needed to mitigate
     potentially adverse rate or revenue effects that may be caused by
     our comprehensive intercarrier compensation reform, including the
     elimination of implicit universal service subsidies in those rates.
     Therefore, the Commission's exercise of its authority to create a
     transition plan is especially appropriate here, where the
     Commission is acting to reconcile the Act's "implicit tension
     between . . . moving toward cost-based rates and protecting
     universal service."[^743] Not surprisingly, most commenters have
     affirmatively recognized the need for a transitional regime.[^744]
     Indeed, every major plan submitted to us in this proceeding,
     whether the Missoula plan,[^745] the ICF plan,[^746] Verizon's
     plan,[^747] AT&T's plan,[^748] or the plan from CBICC,[^749]
     ARIC,[^750] NARUC,[^751] or NASUCA,[^752] has called for the
     Commission to establish an orderly transition period. We take heed
     of these commenters and of our statutory responsibilities to ensure
     a smooth transition to the new regime by setting forth a
     multi-stage transition plan as part of our comprehensive reform of
     intercarrier compensation.

290. Moreover, we have several independent sources of legal authority to
     adopt the transition plan established in this order. For one,
     section 251 explicitly contemplates our authority to adopt a
     transitional scheme with regard to access charges. We agree with
     the United States Court of Appeals for the District of Columbia
     Circuit that section 251(g) created a "transitional enforcement
     mechanism"[^753] preserving the access charge regimes that
     pre-dated the 1996 Act "until . . . explicitly superseded by
     regulations *prescribed by the Commission*."[^754] Thus, section
     251(g), by its terms, anticipates that the Commission may take
     action to end the regimes grandfathered by section 251(g), and
     inherent within the power to supersede the grandfathered access
     regime is the lesser power to prescribe regulations that determine
     *how* to transition to a cost-based pricing mechanism---a power
     that we have twice employed in the past to reduce access charges
     without explicitly superseding that regime.[^755]

291. In addition, as the Supreme Court has further held, the Commission
     has authority to prescribe the requisite pricing methodology that
     the States will apply in setting rates under section
     252(d)(2).[^756] Consistent with our authority, the Commission here
     is providing for a transitional regime in the public interest to
     smooth the transition to the new pricing standard adopted by this
     order. The goal of this transition is to allow gradual changes to
     consumer rates while providing carriers with sufficient means to
     preserve their financial integrity as we move to the new
     intercarrier compensation regime.

292. Significantly, as discussed in greater detail above, although we
     elect to rely on the sections 251(b)(5) and 252(d)(2) framework for
     reform, that does not affect the Commission's jurisdiction over
     traffic or services otherwise subject to federal authority. [^757]
     With respect to interstate services, the Act has long provided us
     with the authority to establish just and reasonable "charges,
     practices, classifications, and regulations."[^758] The Commission
     also has authority over the rates of CMRS providers pursuant to
     section 332 of the Act.[^759] The Commission thus retains full
     authority to adopt transition plans for traffic and services
     subject to federal jurisdiction, even when it is within the
     sections 251(b)(5) and 252(d)(2) framework. Because we re-affirm
     our findings concerning the interstate nature of ISP-bound traffic,
     it follows that such traffic falls under the Commission's section
     201 authority preserved by the Act.[^760] This conclusion is
     reinforced by section 251(i) of the Act. As the Commission
     explained in the *ISP Remand Order,* section 251(i) "expressly
     affirms the Commission's role in an evolving telecommunications
     marketplace, in which Congress anticipates that the Commission will
     continue to develop appropriate pricing and compensation mechanisms
     for traffic that falls within the purview of section 201."[^761] It
     concluded that section 251(i), together with section 201, equips
     the Commission with the tools necessary to keep pace with
     regulatory developments and new technologies.[^762] When read
     together, these statutory sections preserve the Commission's
     authority to address new issues that fall within its section 201
     authority over interstate traffic, including compensation for the
     exchange of ISP-bound traffic. Consequently, in the *ISP Remand
     Order*, the Commission properly exercised its authority under
     section 201(b) to issue interim pricing rules governing the payment
     of compensation between carriers for ISP-bound traffic.[^763]

293. This result is consistent with the D.C. Circuit's opinion in *Bell
     Atlantic*, which concluded that the jurisdictional nature of
     traffic is not dispositive of whether reciprocal compensation is
     owed under section 251(b)(5).[^764] It is also consistent with the
     court's *WorldCom* decision, in which the court rejected the
     Commission's view that section 251(g) excluded ISP-bound traffic
     from the scope of section 251(b)(5), but made no other
     findings.[^765] Finally, this result does not run afoul of the
     Eighth Circuit's decision on remand from the Supreme Court in the
     *Iowa Utilities Board* litigation, which held that "the FCC does
     not have the authority to set the actual prices for the state
     commissions to use" under section 251(b)(5).[^766] At the time of
     that decision, under the *Local Competition First Report and
     Order*, section 251(b)(5) applied only to local traffic. Thus, the
     Eighth Circuit merely held that the Commission could not set
     reciprocal compensation rates for local traffic. The court did not
     address the Commission's authority to set reciprocal compensation
     rates for interstate traffic.[^767] In sum, the Commission plainly
     has authority to establish pricing rules for interstate traffic,
     including ISP-bound traffic, under section 201(b), and that
     authority was preserved by section 251(i).

### Additional Costs Standard 

294. We now turn to reconsideration of our "additional costs" standard
     for implementing section 252(d)(2).  Before describing our new
     standard, we briefly review the relevant statutory language and the
     Commission\'s implementation of the "additional costs" standard in
     the *Local Competition First Report and Order*.  We then explain
     the importance of incremental cost in regulated pricing.  Next we
     examine the incremental cost of call termination on modern
     networks.  Finally we describe in detail the "additional costs"
     standard we adopt in this order.

#### Background

295. Section 252(d)(2)(A) sets forth the standard that state
     commissions, in arbitrating interconnection disputes, should apply
     in setting the "charges for transport and termination of traffic."
     That section states that "\[f\]or the purposes of compliance ...
     with section 251(b)(5), a State commission shall not consider the
     terms and conditions for reciprocal compensation to be just and
     reasonable unless (i) such terms and conditions provide for the
     mutual and reciprocal recovery by each carrier of costs associated
     with the transport and termination on each carrier's network
     facilities of calls that originate on the network facilities of the
     other carrier; and (ii) such terms and conditions determine such
     costs on the basis of a reasonable approximation of the additional
     costs of terminating such calls."[^768] Section 252(d)(2)(B)
     provides that the preceding standard "shall not be construed (i) to
     preclude arrangements that afford the mutual recovery of costs
     through offsetting of reciprocal obligations, including
     arrangements that waive mutual recover (such as bill and keep
     arrangements); or (ii) to authorize the Commission or any State
     commission to engage in any rate regulation proceedings to
     establish with particularity the additional costs of transporting
     or terminating calls, or to require carriers to maintain records
     with respect to the additional costs of such calls."[^769]

296. In the *Local Competition First Report and Order*, the Commission
     adopted implementing rules interpreting section 252's pricing
     standards for interconnection and UNEs (section 252(d)(1)), and for
     reciprocal compensation (section 252(d)(2)). In setting the pricing
     methodology for interconnection and UNEs, the Commission directed
     the states to employ a forward-looking, long-run average
     incremental cost methodology, known as TELRIC.[^770] The TELRIC
     methodology assumes that the relevant increment of output is all
     current and reasonably projected future demand, (i.e., it is
     designed to calculate the total cost of building a new, efficient
     network).[^771] The Commission found that TELRIC rates should also
     include a reasonable allocation of forward-looking common costs,
     including overhead costs. Thus, TELRIC calculates the long-run
     average incremental cost of a network element. In setting the
     pricing methodology for reciprocal compensation, the Commission
     concluded that the statutory pricing standards for interconnection
     and UNEs (section 252(d)(1)), and for transport and termination of
     traffic (section 252(d)(2)), were "sufficiently similar" to permit
     the use of the same TELRIC methodology for establishing rates under
     both statutory provisions.[^772]

297. Market developments since the adoption of the *Local Competition
     First Report and Order* demonstrate that application of the TELRIC
     methodology to reciprocal compensation has led to "excessively high
     reciprocal compensation rates."[^773] More specifically, following
     the Commission's order, certain carriers began designing business
     plans to take advantage of above-cost reciprocal compensation
     payments by becoming a net recipient of local traffic. The most
     prevalent example of regulatory arbitrage for reciprocal
     compensation is ISP-bound traffic where the Commission found
     evidence that "CLECs appear to have targeted customers that
     primarily or solely receive traffic, particularly ISPs, in order to
     become net recipients" of reciprocal compensation payments.[^774]
     As a result, the Commission has found that reciprocal compensation
     rates "do not simply compensate the terminating network, but also
     appear to generate profits for each minute that is terminated, thus
     creating a potential windfall."[^775] In short, the evidence
     indicates that application of the TELRIC methodology to reciprocal
     compensation has not led to rates that accurately reflect a
     carrier's "additional costs" as the Commission initially envisioned
     and Congress intended. Rather, the Commission's existing pricing
     standard has led to rates that not only vary significantly among
     states,[^776] but are generally too high, and which ultimately
     create regulatory arbitrage opportunities. Based on this evidence,
     and as detailed further below, we therefore conclude that we need
     to revise the current reciprocal compensation pricing methodology
     to align our standard more closely with the statutory text and with
     economic theory to eliminate, as far as possible, opportunities for
     regulatory arbitrage.

#### The Importance of Incremental Cost In Regulated Pricing

298. To provide a framework for our reconsideration of the proper
     "additional costs" methodology, we begin with a brief overview of
     long-standing principles for public utility pricing. As explained
     below, we believe the traditional economic definition of
     incremental cost, as applied to multiproduct firms, is most
     appropriate for setting intercarrier compensation rates. The
     Commission's existing TELRIC standard governing reciprocal
     compensation deviates from this more efficient version of
     incremental cost, and is likely to lead to rates that significantly
     exceed efficient levels. We also consider evidence in the record
     concerning costs of switches and fiber.

299. In economic theory generally and in its application to regulation,
     the relationship of price and marginal cost is of fundamental
     importance. Marginal cost can be simply defined as the rate of
     change in total cost when output changes by an infinitesimal unit.
     In economics, the term incremental cost refers to a discrete change
     in total cost when output changes by any non-infinitesimal amount,
     which might range from a single unit to a large increment
     representing a firm's entire output.[^777] The terms additional
     costs and avoidable costs are commonly used to refer to incremental
     costs resulting from an increase or a decrease in output
     respectively.[^778]

300. In a competitive market, it is assumed that both consumers and
     producers independently will choose outputs to purchase or to
     supply on the basis of a market price. In standard economic
     analysis, this price is determined by the intersection of a
     downward sloping demand function, which represents consumer
     valuations for additional units of consumption, and an upward
     sloping supply function, which represents the marginal cost of
     supplying an additional unit. The competitive price is efficient in
     the following sense. At any other price, consumer demands would no
     longer be equal to producer supply, and market transactions would
     be limited to the smaller of the two terms.[^779] At this level of
     output, consumers would value an additional unit of output more
     than the cost of producing it as determined by the marginal cost
     function. Hence both consumers and producers could be made better
     off by increasing output by a small amount.[^780] When price is
     equal to the competitive price, no alternative price can be found
     such that both consumer and producers are better off.

301. *Forward-looking versus Historical Cost:* When prices are
     determined in a regulated market, similar reasoning applies. In
     this context, there is a large amount of literature on practical
     rules and procedures that must be considered to achieve an outcome
     that is as close as possible to a fully efficient one.[^781] The
     cost of any economic resource is equal to its value in the best
     alternative use. The cost which a regulated firm incurs in
     producing a particular output is therefore equal to the value of
     the economic resources that are used to produce it, and which are
     therefore no longer available for the production of alternative
     goods and services. It follows that from the standpoint of economic
     efficiency, the only costs that are relevant in pricing decisions
     of a regulated firm are current or future costs, and that
     historical costs can be ignored.[^782] We acknowledge that
     economists and industry experts have often debated the relative
     merits of forward-looking (or reproduction) cost versus historical
     (or original) capital cost in administering rate-of-return
     regulation,[^783] and that regulators, including state regulators
     and this Commission, have continued to use historical cost in rate
     setting for smaller, primarily rural telephone companies.
     Nevertheless, since the adoption of the *Local Competition First
     Report and Order,* the Commission has consistently concluded that
     it believes that forward-looking costs are the most appropriate
     measure of cost.[^784] In this order, we reaffirm our conclusion
     that forward-looking costs should form the basis for regulation in
     a uniform intercarrier compensation regime.

302. *Short-Run versus Long-Run Incremental Cost:* Economists have also
     debated whether it is appropriate to use short-run or long-run
     incremental cost as a guide for regulatory pricing.[^785] Short-run
     incremental cost refers to the cost of an increment of demand when
     some inputs to production are in fixed supply. Long-run incremental
     cost refers to the cost of an increment when all inputs are
     variable. In order to set prices so as to maximize economic
     efficiency at any particular point in time, it is clear that
     short-run incremental cost is the appropriate concept.[^786] For
     example, if an airline carrier has empty seats for a particular
     scheduled flight, then it would make sense to sell capacity for
     those seats at any price that would recover the small additional
     costs of fuel and amenities for an additional passenger. Pricing
     based on short-run incremental cost, however, necessarily implies
     that prices can be adjusted freely and perhaps continuously during
     the day.[^787] Moreover, in a regulatory context, such flexibility
     is likely infeasible.

303. Short- or intermediate-run costs might also be advocated on
     practical grounds, since some productive inputs (e.g., poles and
     conduits) can have extremely long lives. Nevertheless, regulators
     have traditionally relied on long-run incremental costs rather than
     short-run incremental costs in setting regulated prices. First,
     setting prices on the basis of short-run incremental cost may mean
     that a carrier would not recover its average total cost of
     investment over the life of the asset.[^788] Second, to the extent
     that forward-looking costs are used, long-run incremental costs are
     more naturally and easily accommodated, since a forward looking
     cost study can legitimately assume that all inputs are variable. In
     the *Local Competition First Report and Order*, the Commission, in
     adopting its TELRIC methodology, explained that "\[t\]his 'long
     run' approach ensures that rates recover not only the operating
     costs that vary in the short run, but also the fixed investment
     costs that, while not variable in the short term, are necessary
     inputs directly attributable to providing the element."[^789] We
     reaffirm here the Commission's decision in the *Local Competition
     First Report and Order* that long-run incremental cost rather than
     short-run incremental cost is the appropriate cost concept. [^790]

304. *Peak Load Pricing*: Closely related to the question of short-run
     versus long-run costing is the issue of peak load pricing. When
     demand varies systematically by time of day, day of the week, or
     over longer periods, there may be periods of time when there is
     significant excess capacity, since productive inputs clearly cannot
     vary with such frequency. In such cases, economic efficiency might
     require that prices should vary by time or day or over longer
     periods even in the long run.[^791] For example, many wireless
     telephone carriers offer free minutes of usage during weekends or
     evenings. Although these arguments are indisputable, it has proven
     difficult in practice to incorporate peak load pricing principles
     into regulated rate proceedings.[^792] Accordingly, we conclude, as
     the Commission did in the *Local Competition First Report and
     Order,* that we should not require peak-load pricing as part of an
     intercarrier compensation regime, although we affirm that carriers
     should be free to voluntarily negotiate agreements including peak
     pricing principles.

305. *Common Costs*: Telecommunications carriers are multiproduct firms
     which provide a large array of services to different groups of
     consumers. Within the category of traditional telephony, these
     services include call origination, call termination, local
     transport, and either access to long distance transport or long
     distance service through an affiliated carrier. As networks evolve,
     the number of services that a telecommunications network can
     provide is rapidly expanding to include Internet access and other
     data services and, in some cases, video distribution. Many of these
     services share common facilities.[^793] For example, a copper loop
     can be used to provide analog voice service as well as data service
     using DSL technology. The cost of the loop is therefore common to
     both voice and DSL services. The incremental cost of voice service,
     assuming that DSL is already provided, therefore does not include
     any of the long run incremental cost of the loop itself. Similarly,
     the incremental cost of DSL, assuming voice is already provided,
     includes only that portion of the loop cost that may be required to
     condition the loop to meet the higher quality standards that may be
     required for data transmission.

306. *Methodology for Computing Incremental Cost in Multiproduct Firms:*
     Common cost and its relationship to incremental cost in
     multiproduct firms can be more precisely defined as follows using
     an analysis developed by Faulhaber, Baumol, and others.[^794] Under
     this approach, one imagines a multiproduct firm in which a forward
     looking cost function is known, which allows one to compute the
     "stand alone cost" of any possible subset of products. For example,
     if the set of products is indexed by the set N = {1 , . . . , n},
     then the stand alone cost of the entire firm can be represented by
     the value C(N). The incremental cost of any individual product j
     contained in N can then be represented by the value IC(j) = C(N) --
     C(N -- j), where C(N -- j) represents the stand alone cost of
     producing every product in the set N except product j. Under this
     definition, the incremental cost may be viewed as the *additional
     costs* of adding product j to a firm currently producing products
     (N -- j). Alternatively, it may be viewed as the cost that may be
     *avoided* if the firm, currently producing products 1 through n,
     decides not to produce product j. The common cost for the firm as a
     whole is then equal
     to![](media/image1.wmf){width="1.1388888888888888in"
     height="0.3888888888888889in"}. When there is significant sharing
     of facilities used in providing groups of services to customers,
     common costs are typically positive, and may be a significant
     portion of the firm's total cost.

307. *Multiproduct Incremental Cost versus TELRIC:* In the *Local
     Competition First Report and Order*, the Commission adopted a
     pricing methodology, which it called Total Element Long Run
     Incremental Cost or TELRIC. Under the TELRIC methodology, prices
     for UNEs and interconnection would be determined by estimating the
     forward-looking cost of individual network elements, which the
     Commission defined as "physical facilities of the network, together
     with the features, functions, and capabilities associated with
     those facilities."[^795] In adopting the TELRIC methodology, the
     Commission determined that forward-looking costs should be "based
     on the least cost, most efficient network . . . technology,"
     assuming current wire center locations.[^796] It further determined
     that the relevant increment should "be the entire quantity of the
     network element provided."[^797] The Commission concluded that
     "forward-looking common costs shall be allocated among elements and
     services in a reasonable manner ... . "[^798] In choosing to
     estimate the forward-looking cost of the entire network element,
     the Commission acknowledged that, when a requesting carrier leased
     access to that element, it would have exclusive control over that
     element.[^799]

308. With respect to reciprocal compensation, the Commission determined
     that "the 'additional cost' of terminating a call . . . primarily
     consists of the traffic-sensitive component of local
     switching."[^800] Nevertheless, the only non traffic-sensitive cost
     of the local switch that the Commission required states to exclude
     was the cost of line ports.[^801] Similarly, in the rules that the
     Commission adopted regarding "shared transmission facilities
     between tandem switches and end offices," the Commission allowed
     the full forward-looking cost of those facilities to be recovered
     through usage sensitive charges.[^802] Thus, with the exception of
     requiring recovery of the cost of line ports through flat-rated
     charges, the Commission's TELRIC rules permitted the full
     forward-looking cost of the local switch, tandem switch, and shared
     interoffice transmission facilities, including a reasonable
     allocation of common costs, to be recovered through usage-based
     charges. In effect, the Commission's TELRIC methodology permitted
     average-cost pricing using a forward-looking cost methodology.

309. The TELRIC methodology thus differs significantly from the
     definition of incremental cost for multiproduct firms proposed by
     Faulhaber and others. First, unlike TELRIC, the traditional
     economic approach for determining the incremental cost of a single
     service excludes all common costs. Second, although the TELRIC
     methodology is essentially an average cost methodology, the
     traditional economic approach focuses on identifying the additional
     forward-looking cost that a network would incur if it provided an
     additional service---in this case call termination. Under the
     traditional economic definition, the incremental cost of call
     termination would be determined by estimating the stand alone cost
     of a network which incorporates all existing services except call
     termination (including call origination, switching, etc.) and then
     subtracting this amount from a comparable estimate of the total
     cost of providing all the same existing services, including call
     termination. As should be obvious, the incremental cost of call
     termination under the traditional economic definition should be
     significantly lower than that calculated under a TELRIC
     methodology.

310. *The Relevance of Multi-part Pricing:* One common criticism of
     incremental cost pricing is that it may not permit a firm to
     recover its total costs, particularly if there are significant
     common costs.[^803] Economists have pointed out, however, that
     multi-part pricing regimes can potentially lead to more efficient
     outcomes than uniform prices set equal to either marginal cost or
     average cost. [^804] For example, if the firm is able to charge a
     fixed monthly fee and a variable usage charge, then it is possible
     for the firm to set the usage charge at or close to marginal cost
     and recover any residual costs through the fixed charge. In this
     case, the regulator must take account of both subscription and
     usage elasticities in order to minimize the possibility that higher
     fixed fees will cause some subscribers to drop off the
     network.[^805] We note that, in the access charge regime, the
     Commission recognized the efficiencies associated with multi-part
     pricing, even if it failed to reduce usage-based charges to
     marginal or incremental cost.

#### The Incremental Cost of Call Termination on Modern Networks 

311. We now consider the evidence in the record concerning the
     incremental cost of terminating calls on modern telecommunications
     networks. We note at the outset that there appear to be no cost
     studies or analyses in the record that attempt to estimate the
     termination costs using Faulhaber's definition of incremental cost.
     Thus, we would expect the cost estimates in the record to be
     significantly lower if they had been calculated using Faulhaber's
     definition.

312. We consider first evidence concerning the cost of termination on
     modern circuit switches. We note that, in 1996, when the Commission
     adopted the TELRIC methodology, circuit switches and fiber optic
     transmission facilities were generally considered the "least-cost,
     most efficient" currently available technology. And it appears that
     state commissions in interconnection arbitrations analyzed the
     forward-looking costs of circuit switches and fiber optic
     transmission facilities in developing TELRIC rates. Sprint Nextel
     filed an *ex parte* in which it analyzed state UNE rates for
     unbundled switching and common transport.[^806] Sprint Nextel
     reports that the national weighted average price per minute for
     unbundled local switching was \$0.00058 (with individual rates
     ranging from a low of \$0.00004 to a high of \$0.0061). Similarly
     the national weighted average price per minute for common transport
     was \$0.00057 (with individual rates ranging from a low of
     \$0.00010 to a high of \$0.00727). Sprint Nextel further observes
     that "the rates for companies in the survey with a relatively small
     number of lines were often lower than the rates for companies with
     a large number of lines, indicating scale and scope economies do
     not significantly affect the cost of traffic termination."[^807] As
     Sprint Nextel notes, these rates are all based on the TELRIC
     methodology and thus represent estimates of average,
     traffic-sensitive forwarding-looking costs, plus an allocation of
     common cost and overheads.[^808] These estimates, by definition,
     will significantly exceed incremental cost estimates using the
     Faulhaber definition; therefore they provide an upper bound on the
     rates that may result under a Faulhaber approach to incremental
     cost.

313. Some additional evidence concerning the incremental cost of
     terminating calls on modern circuit switches can be gleaned from a
     declaration filed by three economists in support of the
     Intercarrier Compensation Forum (ICF) plan. [^809] The economists
     contend that modern circuit switches are to a large extent
     non-traffic sensitive.[^810] According to the authors, whereas
     earlier generations of switching technologies had large shared
     resources that could be commandeered by any line needing to place
     or receive a telephone call, most of the resources in a digital
     switch are dedicated to individual lines through line ports and
     trunk ports.[^811] In addition, according to the authors, because
     of the "massive increases in computing power offered by modern
     microchips," modern circuit switches include "call processing
     capacity . . . \[that\] is adequate to serve all reasonably offered
     demand."[^812] In other words, modern switches are designed to be
     non-blocking, which would suggest that the incremental cost of
     termination is zero. The declaration thus concludes that the
     incremental cost of call termination on modern circuit switches
     should be de minimis.

314. The economists' declaration further argues that the incremental
     costs of adding additional fiber optic transmission capacity
     similarly are low. They contend that fiber optic technologies have
     large fixed costs associated with supporting structures (poles,
     trenches and conduits) and relatively low incremental costs of
     increasing the capacity of each fiber cable by installing improved
     laser transmission equipment (which in many cases is based on
     technological advances made subsequent to the initial fiber
     deployment). For these reasons, they conclude that "once a fiber
     cable has been laid on a route, the costs of increasing its
     transmission capacity are relatively small, so extra minutes of
     demand result in very little incremental costs. We note that this
     analysis suggests, at a minimum, that the incremental cost of
     adding capacity is significantly less---and likely orders of
     magnitude less---than the forward looking average cost of capacity,
     as estimated under TELRIC.

315. AT&T submitted evidence that attempts to estimate the incremental
     cost of a modern softswitch.[^813] AT&T maintains that, to estimate
     the incremental cost of a softswitch, it is necessary to estimate
     two parameters: the total investment associated with a softswitch,
     and the percentage of this investment that is
     traffic-sensitive.[^814] Using what it claims are "conservative"
     estimates, AT&T first compares the estimated investment cost per
     line of a Class 5 circuit switch with the estimated investment cost
     per line of a modern softswitch and finds that the investment cost
     per-line of a softswitch is significantly lower.[^815] Although it
     estimates that the investment cost of a Class 5 switch is
     approximately \$100 per line, it finds that the likely investment
     cost of a softswitch is between \$34 and \$80 per line.[^816] AT&T
     then considers the likely percentage of the investment costs per
     line that are traffic-sensitive, and concludes that, depending on
     the particular softswitch, the traffic-sensitive costs are likely
     to be between zero and 20 percent of the total investment cost of
     the switch.[^817] Using the higher estimate of 20 percent
     traffic-sensitive costs, and assuming that each line carries an
     average of 1400 minutes a month, AT&T derives a traffic sensitive
     incremental cost per minute of between \$0.00010 and
     \$0.00024.[^818] For the other softswitch that AT&T considers,
     however, the traffic-sensitive incremental costs of termination
     would be zero. Although we do not necessarily accept the precise
     estimates contained in AT&T's *ex parte* letter, we note that its
     analysis suggests that the incremental traffic-sensitive costs of
     modern softswitches are likely to be significantly lower than those
     of circuit switches and possibly zero, both because the investment
     cost per line is lower and because the percentage of
     traffic-sensitive costs to total costs is lower for modern
     softswitches.

316. Windstream Communications, Inc. and NuVox subsequently filed ex
     parte letters criticizing AT&T's analysis of the traffic sensitive
     costs of a softswitch,[^819] and AT&T filed a response.[^820]
     Essentially, both Windstream and NuVox criticize specific elements
     of AT&T's analysis. In addition, Windstream argues that it would be
     grossly inefficient for a rural carrier to immediately replace
     circuit switching equipment with softswitch technology, while NuVox
     contends that even a forward-looking network design would not
     consist entirely of soft switches. Significantly, NuVox criticizes
     AT&T for failing to apply the TELRIC methodology, and NuVox
     recalculates AT&T's estimates using TELRIC. Because we expressly
     reject use of the TELRIC methodology for purposes of setting
     reciprocal compensation rates, we conclude that many of the NuVox
     challenges are moot. To the extent that NuVox and Windstream are
     challenging cost assumptions that may be applied by states pursuant
     to our new additional costs methodology, such issues may be raised
     for consideration by the state commission during the cost
     proceeding to establish the uniform reciprocal compensation rate.
     We feel compelled, however, to point out a few of the most critical
     mistakes and misconceptions contained in the Windstream and NuVox
     ex parte letters.

317. First, Windstream argues that it is somehow inappropriate to
     consider the additional costs of softswitches in setting
     termination rates because it would be economically infeasible for
     an incumbent LEC to replace all its existing circuit switches with
     softswitches.[^821] This argument fundamentally misconstrues the
     purpose of a forward-looking cost methodology. The adoption of a
     forward-looking cost standard does not imply in any way that
     existing carriers should replace fully functional plant and
     equipment simply because a more recent vintage of replacement
     equipment is available. Forward-looking costs are simply a measure
     of the economic value of future investments, and in a competitive
     marketplace, these values should determine the appropriate
     investment decisions regarding replacement of existing plant. More
     importantly, these values should be used as an appropriate guide in
     setting efficient prices for the utilization of existing plant and
     equipment. Second, although both Windstream and NuVox raise
     objections to AT&T's cost analysis, neither they nor AT&T actually
     attempt to estimate the incremental cost of call termination. For
     example, both Windstream and NuVox argue that AT&T's estimates of
     the cost of investment in forward-looking softswitch technologies
     are flawed because of the assumptions made about the number of
     lines served per switch.[^822] Although this is may be a valid
     issue, as it relates to the extent to which softswitch technologies
     are scalable for deployment in wire centers with different numbers
     of final customers, the dispute does not really address the issue
     of the incremental cost of call termination. Third, NuVox claims
     that the absence of line cards in softswitches is evidence that all
     switch costs are traffic sensitive.[^823] This analysis ignores the
     potentially large fixed costs associated with a softswitch that are
     not related to line ports. Since softswitches resemble small
     computers, the appropriate analogy for estimating incremental cost
     would be the cost of additional memory cards, which could be
     inserted into the CPU. Fourth, NuVox maintains that both common
     costs to the firm as a whole and land and building costs associated
     with switching equipment should be included in any traffic
     sensitive cost computed for purposes of reciprocal
     compensation.[^824] As explained above, we conclude that common
     costs should no longer be included in calculating the incremental
     cost of call termination.

318. Another approach to estimating the incremental cost of call
     termination is to examine the technology of next generation
     networks in which voice calls are carried on the same network
     platform as data and video services delivered to the same customer.
     Telecommunications carriers are currently deploying such networks
     at a rapid pace, although the transition to the new technology is
     far from complete. Nevertheless, most experts believe that IP
     technologies will be used to deliver the predominant share of voice
     and data traffic within a few years. Packet technologies, and the
     resulting commingling of voice and data traffic, make possible a
     dramatic reduction in the cost of originating and terminating voice
     traffic in the network. In addition, although the costs of circuit
     based switching technologies are difficult to quantify using public
     data sources, the Internet itself provides a variety of sources
     which can be used to provide at least a rough estimate of the costs
     associated with a next generation network.

319. Consider the case of a single customer who subscribes to a next
     generation network offering a full range of voice, video and data
     services. Suppose that this customer makes exactly one voice call
     lasting five minutes during each hour of the busy period (which we
     will unrealistically assume to last for 16 hours every day of the
     month). High quality (ISDN level) voice service requires a channel
     capacity of 64 kbps. Ignoring the possibility of signal
     compression, and making a conservative allowance for packet header
     overhead,[^825] we assume that the single call per hour requires a
     network capacity of 100 kbps. This capacity requirement translates
     to 12,800 bytes per second, or 0.0000128 Gigabytes to be available
     for the duration of the call.[^826] Publicly available estimates of
     the cost of serving residential customers on a broadband network
     range from \$0.1 Gigabytes per month to \$0.5 Gigabytes per
     month.[^827] These estimates include the cost of the servers,
     routers and fiber links necessary to provide service to the
     residential customer, but do not include the substantial cost of
     the local broadband loop.[^828] The hypothetical consumer described
     above places a demand of 0.000512 Gigabytes per month, and using
     the upper limit on the estimated cost, we estimate a monthly
     incremental cost to the consumer of delivering this level of voice
     service at 0.0256 *cents* per month.[^829] Under these conservative
     assumptions the cost, on a per-minute basis, would be 0.00001
     *cents* per minute.[^830] Even if the cost estimates used above are
     wrong by several orders of magnitude, it is clear that the cost of
     voice traffic on a broadband network is vanishingly small.[^831]
     Although we are not directing the states to consider the
     incremental cost of terminating voice telecommunications on such
     next generation networks,[^832] we find that, as carriers move to
     an all IP broadband world, the incremental costs of terminating
     voice calls should drop dramatically.

#### Reconsideration of Additional Costs Standard 

320. We adopt a new "additional costs" methodology using the traditional
     economic definition of the incremental cost of a service produced
     by a multiproduct firm, rather than continuing to rely on the
     TELRIC methodology.[^833] The Supreme Court has made clear that an
     "'initial agency interpretation is not instantly carved in stone.
     On the contrary, the agency ... must consider varying
     interpretations and the wisdom of its policy on a continuing
     basis,' for example in response to changed factual circumstance, or
     a change in administrations."[^834] Consistent with this, the
     Commission, in its 2005 *Intercarrier Compensation FNPRM*,
     solicited comment on whether the Commission should reinterpret
     "additional costs" to mean "incremental cost" in light of the need
     to reform intercarrier compensation due to market
     distortions.[^835] In response, several commenters supported such a
     proposal noting that the additional incremental cost of terminating
     traffic is de minimis.[^836] Based on the evidence highlighted
     above and for the reasons set forth below, we revise our
     interpretation of the "additional costs" language in section
     252(d)(2) to mean "incremental costs" as traditionally defined. We
     believe that this conclusion is supported by the economic theory
     discussed above, and represents a more appropriate interpretation
     of the "additional costs" standard than the TELRIC
     methodology.[^837]

321. As an initial matter, the Commission plainly has the authority to
     revise its interpretation of "additional costs."[^838] Indeed, the
     Supreme Court has recognized that the phrase "additional costs" is
     ambiguous.[^839]  Words like additional cost "give ratesetting
     commissions broad methodological leeway,"[^840] and courts owe
     "substantial deference to the interpretation the Commission accords
     them."[^841]  The Commission, consistent with its obligation to
     "consider varying interpretations and the wisdom of its policy on a
     continuing basis" now revises its definition of "additional
     costs."[^842]

322. Revising our interpretation of "additional costs" to follow the
     traditional economic definition of the incremental cost of a
     service is supported by the Commission's interpretation of the term
     "additional costs" in section 224 of the Act. Section 224, which
     addresses the pricing of pole attachments, is the only other place
     in the Act that uses the term "additional costs." The Commission
     consistently has found that the term "additional costs" in section
     224 means incremental cost,[^843] and that the legislative history
     for section 224 makes clear that Congress intended such a
     result.[^844] Interpreting the term "additional costs" as used in
     two parts of the Act in the same manner is consistent with the
     "presumption that identical words used in different parts of the
     same act are intended to have the same meaning."[^845]  

323. In contrast, the statutory pricing standard for reciprocal
     compensation ("additional costs") is not the same as the statutory
     pricing standard for UNEs ("cost" plus "a reasonable
     profit").[^846] Even though the two statutory provisions may, as
     the Commission found previously, be "similar," our subsequent
     experience indicates that TELRIC is not consistent with the
     "additional costs" standard. First, as discussed above, evidence
     indicates that reciprocal compensation rates based on TELRIC
     methodology were "excessive."[^847] If reciprocal compensation
     rates truly reflected the incremental "additional costs,"
     regulatory arbitrage should not occur because a carrier would not
     make a profit by recovering its incremental cost. [^848]

324. Second, TELRIC includes the cost of the "total element" and, as a
     result, measures the long run incremental average cost of the
     switch including common costs and overhead, not just the additional
     costs of using the function to terminate another carrier's traffic.
     In other words, TELRIC measures the *average* cost of providing a
     function, which is not necessarily the same as the *additional*
     costs of providing that function. Because of this, we expect that
     the TELRIC methodology would continue to produce reciprocal
     compensation rates above the true "additional costs" of terminating
     such traffic, in light of evidence that the cost of terminating
     traffic today is low[^849] and is decreasing even further as
     carriers transition to softswitches[^850] and ultimately pure
     packet switches. Consistent with our change in methodology, we also
     disavow our finding in the *Local Competition First Report and
     Order* that "only that portion of the forward-looking, economic
     cost of end-office switching that is recovered on a usage-sensitive
     basis constitutes an "additional costs" to be recovered through
     termination charges."[^851] In particular, as explained above, we
     specifically exclude common costs and overhead allocations from the
     calculation of what constitutes "additional costs" under our new
     pricing methodology.

325. We thus end our reliance on the TELRIC methodology for setting
     reciprocal compensation rates, and instead require that such rates
     be set pursuant to our new incremental cost methodology.[^852] In
     our Implementation section below, we provide specific guidance to
     the states regarding how to apply this new methodology. We note
     that this Commission takes seriously its responsibility to ensure
     that rates for carriers are just, reasonable, and not confiscatory.
     In this order, we have set in motion mechanisms to help ensure that
     the financial viability of carriers will not be undermined. We feel
     confident that these mechanisms, in combination with the other
     avenues available for carriers to offset declines in access
     revenues, will be sufficient to achieve this result.[^853]

326. Moreover our decision to adopt a unified intercarrier compensation
     methodology is in no way arbitrary or adopted with any confiscatory
     purpose. In fact, the determinations made in this order reveal just
     the contrary, our decision to raise the cap on SLCs, our referral
     to the Federal-State Joint Board on Separations (Separations Joint
     Board) of the issue of whether to allow additional increases in SLC
     caps in Part V.C below, and our acknowledgment of the ability of a
     carrier to establish entitlement to supplemental universal service
     to help ensure that carriers can maintain their financial
     integrity.[^854] Although in most cases the rates for intrastate
     and interstate terminating access will drop substantially, that
     alone is not the test for whether a taking has occurred; rather, a
     primary consideration for takings claims is whether the rates
     ultimately adopted will produce a reasonable return sufficient to
     enable a company to maintain its financial integrity.[^855]

## Implementation

327. In this section, we detail certain implementation items. First, we
     provide guidance to states with regard to their implementation
     responsibilities for the intercarrier compensation regime we adopt
     today. Importantly, this includes setting reciprocal compensation
     rates using the new incremental cost pricing methodology. We also
     provide guidelines for the states' application of the modification
     and suspension provisions of section 251(f)(2) of the Act. We
     explain the need to require symmetrical compensation arrangements
     without any exceptions under section 252(d)(2)(A)(ii) of the Act.
     And we discuss the effect of our intercarrier compensation reforms
     on existing interconnection and commercial agreements. Finally, we
     address the extent to which reduced revenue from carrier-to-carrier
     charges may be replaced through end-user charges or new universal
     service support, where needed.

### Direction to the States

328. We set forth the timeline for states to implement our comprehensive
     reform and adopt an interim, uniform reciprocal compensation rate
     along with a transition plan in section \[III.B.2\] above.  In this
     section, we set forth additional parameters for states to follow in
     implementing the reforms adopted in this order.

#### Setting Final Reciprocal Compensation Rates Based on Incremental Cost

329. Under our new methodology for setting final reciprocal compensation
     rates, states will need to set prices according to a
     forward-looking economic cost study or computer cost model using
     the Faulhaber principles to identify the traffic-sensitive
     incremental cost of transport and termination of traffic.[^856]
     First, states will need to evaluate a forward-looking economic cost
     analysis of a stand-alone network that performs all functions of a
     modern telecommunications network, including transport and
     termination of other carriers' traffic. Second, states will need to
     evaluate a forward looking economic cost analysis of a stand-alone
     network that performs all the same functions except for the
     transport and termination of other carriers' traffic. Third, states
     must compare the costs of these two networks. The difference
     between the costs of the two networks is the additional costs of
     termination of traffic subject to the "additional costs" standard
     we adopt in this order.[^857]

330. We offer further guidance regarding specific aspects of these cost
     studies. First, these cost studies must use the least cost, most
     efficient network technology. We find that the least cost, most
     efficient switch today is a softswitch.[^858] We further find that
     the least cost, most efficient technology for transport is fiber
     optic cable.[^859] We observe that, when carriers deploy fiber,
     they typically deploy capacity significantly in excess of current
     needs.[^860]

331. Second, consistent with the traditional economic definition of the
     incremental cost of a service, [^861] the cost studies must exclude
     all common costs, including overhead costs. Third, all
     non-traffic-sensitive costs must be excluded from the cost
     studies.[^862] Cost studies using the TELRIC methodology do not
     meet these requirements, given the differences between TELRIC and
     the traditional economic methodology for determining the
     incremental cost of a service discussed above.[^863] Available
     evidence suggests that the incremental costs of terminating
     traffic, as determined using this methodology, are likely to be
     extremely close to zero.

332. We also require each state to set a single, uniform rate for all
     carriers in that state through their pricing proceedings. We find
     this approach warranted for several reasons. First, softswitches
     are easily scalable, and thus the incremental cost of termination
     does not vary with the number of lines the switch serves. Second,
     because carriers tend to deploy significant excess capacity when
     deploying fiber, the incremental cost of adding traffic is likely
     to approach, or equal, zero. Third, we find that setting a single
     uniform rate for all incumbent LECs and interconnecting carriers in
     a state simplifies the regulatory process, minimizes arbitrage that
     could arise, and reduces the likelihood that unidentifiable traffic
     would remain a problem. Finally, setting rates based on the costs
     of the current, least cost, most efficient technology creates
     incentives for carriers with less efficient networks to migrate
     more quickly to those more efficient technologies.

333. Following the transition, once carriers are charging the final
     uniform reciprocal compensation rate, we establish the following
     default rules regarding the network "edge."[^864] These default
     rules would not require changes to physical points of
     interconnection, but would simply define functions governed by a
     uniform terminating rate.[^865]

-   For every call, the calling party service provider (e.g., the
    calling party's LEC for a local call or the calling party's IXC for
    a long distance call) is responsible for the transmission and
    routing of the call to the network edge of the called party service
    provider.

-   The calling party service provider may fulfill its responsibility
    for the transmission and routing of a call to the called party
    service provider network edge via its own facilitates and services,
    the facilities and service of another entity (including the called
    party's service provider), or any combination.

-   The calling party service provider is also responsible for the
    payment of the uniform terminating rate to the called party service
    provider. The called party service provider is responsible for
    performing all network functions to deliver traffic from the network
    edge to the called party, including dedicated transport, common
    transport, tandem switching, end office switching, and SS7
    messaging.

-   The reciprocal compensation regime of section 251(b)(5) will apply
    to traffic from the called party service provider network edge to
    the called party.

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-   The called party service provider's network edge is the location of
    its end office, MSC, point of presence, or trunking media gateway,
    which PSTN routing conventions (e.g., NPAC or LERG) associate with
    the called party telephone number unless that location subtends a
    tandem switched owned or controlled by the called party service
    provider, in which case that tandem is the network edge for that
    call.  A service provider that utilizes a tandem as its edge may
    require, upon reasonable request consistent with standard industry
    network interconnection principles, that calling party service
    providers groom their traffic onto segregated trunk groups.

-   The called party service provider must either permit interconnection
    at its edge for purposes of exchanging traffic with the calling
    party service provider or provide transport at no charge to that
    edge from a location in the same LATA where it does permit such
    interconnection.

-   The calling party service provider may at its sole discretion choose
    whether to interconnect directly or indirectly with the called party
    service provider.

#### Symmetry

334. We conclude that final uniform reciprocal compensation rates should
     be symmetrical.[^866] In contrast to the approach taken in the
     *Local Competition First Report and Order*, we require, for the
     reasons described below, symmetry in all cases once the final
     uniform reciprocal compensation rates become effective.

335. *Background*. In the *Local Competition First Report and Order*,
     the Commission concluded that charges for reciprocal compensation
     were to be presumptively symmetrical and that it was "reasonable to
     adopt the incumbent LEC's transport and termination prices as a
     presumptive proxy for other telecommunications carriers' additional
     costs of transport and termination."[^867] The Commission observed
     that "\[b\]oth the incumbent LEC and the interconnecting carriers
     usually will be providing service in the same geographic area, so
     the forward-looking economic costs should be similar in most
     cases."[^868] Moreover, by using the incumbent LEC's costs of
     transport and termination, the Commission found that symmetry would
     provide an incentive for interconnected carriers to minimize costs
     because if the interconnected carrier could reduce its costs below
     the costs of the incumbent LEC, then it could realize additional
     termination revenue.[^869] Symmetrical compensation also provided
     the incumbent LECs an incentive to minimize costs. The Commission
     further found that symmetry reduced incumbent LECs' bargaining
     strength because asymmetrical rates could have allowed incumbent
     LECs to negotiate high charges for traffic terminating on their
     networks and low charges for traffic originating on their networks,
     citing as an example incumbent LECs' treatment of CMRS
     providers.[^870] A presumption of symmetric rates was
     administratively efficient and did not require a competing carrier
     to conduct a forward-looking cost study to enter the market,
     lowering the cost of entry and thus increasing competition.[^871]

336. The Commission, however, carved out an exception to the presumption
     of symmetry. In the *Local Competition First Report and Order*, the
     Commission permitted interconnecting carriers to rebut the
     presumption of symmetry by submitting a forward-looking cost study
     to show that their costs of termination were higher than the
     incumbent LEC's.[^872] If the interconnecting carrier established
     that "the costs of efficiently configured and operated systems
     \[were\] not symmetrical," the state commission could adopt a
     "different compensation rate" for the interconnecting
     carrier.[^873]

337. *Discussion*. We now require symmetric rates and conclude that the
     exception that permitted asymmetric rates under certain
     circumstances is no longer warranted.[^874] We note that there is
     scant evidence of any competitive LECs seeking to establish their
     own, higher, costs during the last 12 years, let alone being
     successful in doing so.[^875] We conclude that asymmetric rates
     could undermine the comprehensive reform we adopt by permitting
     different termination rates for traffic in the same geographic
     area, which could open the door for continued regulatory arbitrage
     and thwart the intended public interest benefits associated with
     reforming the patchwork of existing intercarrier compensation
     payments.

338. As noted above, symmetrical rates promote efficiency. Symmetry will
     encourage interconnecting carriers to deploy more efficient
     technology to reduce their costs. Notably, the Commission of the
     European Communities (European Communities) has also found that
     divergent regulatory treatment between different technology
     termination rates, as this rebuttable presumption exception allows,
     creates distortions among markets.[^876] In the context of fixed
     versus mobile telephony, the European Communities recognized that
     some European countries have allowed smaller CMRS carriers to
     charge higher termination rates to compensate for these carriers'
     lack of economies of scale.[^877] The European Communities
     concluded that these higher termination rates for mobile technology
     led to higher retail rates for customers and lower usage of this
     technology.[^878] As the European experience shows, allowing the
     present exception to the symmetry rule could encourage higher
     termination rates, and asymmetric termination rates---particularly
     if such termination rates were high for one carrier---could reduce
     consumer welfare and lead to higher prices.

339. We conclude that requiring symmetrical compensation arrangements
     without any exceptions is proper under section 252(d)(2)(A)(ii) of
     the Act.[^879] We also confirm that this mandatory symmetry
     requirement applies without regard to whether traffic exchanged by
     the interconnected carriers is balanced or not. Given the
     substantial benefits of symmetrical rates as described above, the
     likelihood that allowing asymmetrical rates would give carriers an
     incentive to find ways to arbitrage the higher rates, and the
     minimal costs associated with terminating calls,[^880] we find that
     an exception to symmetrical rates where traffic is out of balance
     is not warranted.

#### Modifications and Suspensions under Section 251(f)(2)

340. In light of the importance of bringing uniformity and symmetry to
     intercarrier compensation, eliminating opportunities for regulatory
     arbitrage, and providing regulatory certainty to carriers in making
     investment plans, we find it appropriate to adopt guidelines
     regarding the application of section 251(f)(2). Section 251(f)(2)
     of the Act gives state commissions the ability to suspend or modify
     our intercarrier compensation rules implementing section 251(b)
     and (c) under certain conditions. Specifically, section 251(f)(2)
     of the Act permits a "local exchange carrier with fewer than 2
     percent of the Nation's subscriber lines installed in the aggregate
     nationwide" to "petition a State commission for a suspension or
     modification of the application of a requirement or requirements of
     \[section 251\] (b) or (c)."[^881] The state commission shall grant
     such petition "to the extent that, and for such duration as, the
     State commission determines that such suspension or
     modification (A) is necessary (i) to avoid a significant adverse
     economic impact on users of telecommunications services
     generally; (ii) to avoid imposing a requirement that is unduly
     economically burdensome; or (iii) to avoid imposing a requirement
     that is technically infeasible; and (B) is consistent with the
     public interest, convenience, and necessity."[^882] In the *Local
     Competition First Report and Order,* the Commission "decline\[d\]
     . . . to adopt national rules or guidelines" regarding the specific
     implementation of section 251(f), but explained that the Commission
     "may offer guidance on these issues at a later date, if we believe
     it is necessary and appropriate." [^883] The Supreme Court
     subsequently confirmed that the Commission has the authority to
     interpret section 251(f).[^884] The only existing Commission
     guideline regarding section 251(f)(2) provides that the burden of
     proof is on the LEC seeking suspension or modification of
     particular requirements.[^885]

341. As an initial matter, we conclude that any suspension or
     modification granted pursuant to section 251(f)(2) must be for a
     limited "duration" and cannot be indefinite. This interpretation
     follows directly from the express language of section 251(f)(2).
     Specifically, section 251(f)(2) provides that the state should
     grant a suspension or modification "to the extent that, *and for
     such duration as*, the State commission determines that such
     suspension or modification"[^886] satisfies the statutory test.
     Congress thus expected that the conditions warranting suspension or
     modification of a requirement would not be permanent, and it
     permitted the states to continue such modifications or suspensions
     only for a particular "duration," rather than remaining in place
     indefinitely. In contrast, Congress adopted the opposite approach
     in section 251(f)(1), where it provided a default exemption for
     "rural telephone companies" from section 251(c) that continues
     indefinitely "until" certain statutory criteria are met.[^887]
     Accordingly, we conclude that the LEC requesting the suspension or
     modification under section 251(f)(2) has the burden of
     demonstrating the appropriate duration of any suspension or
     modification. To the extent that a state grants a suspension or
     modification for a particular duration, the Commission encourages
     the state to impose a timeline or other requirements on the LEC to
     ensure that it is taking concrete steps to enable it to comply with
     the relevant requirements once the suspension or modification
     ends.[^888] If a state finds that a LEC is not taking such steps
     necessary to ensure compliance on a date certain, we find that such
     a determination would be sufficient for the state immediately to
     revoke the suspension or modification as no longer satisfying the
     "public interest" criteria.

342. We also offer guidance regarding the substantive standards that
     state commissions must apply when evaluating requests pursuant to
     section 251(f)(2) for a suspension or modification of section
     251(b) or (c). The first prong of section 251(f)(2)(A) directs
     state commissions to determine whether the LEC establishes that
     absence of the requested suspension or modification would cause a
     "*significant* adverse economic impact on users of
     telecommunications services generally."[^889] The term
     "significant" is ambiguous. According to Webster's Dictionary,
     "significant" means "having or likely to have influence or effect;
     of a noticeably or measurably large amount."[^890] We find this to
     be a reasonable definition, and conclude that for an "adverse
     economic impact" to be "significant" requires that such harm be
     "measurably large." Moreover, the state commission must evaluate
     the net impact "on users of telecommunications services
     *generally*."[^891] We conclude that state commissions must
     consider users of telecommunications services more broadly, rather
     than focusing narrowly on impacts on isolated groups of users, such
     as customers of the LEC requesting the suspension or modification.
     Further, state commissions must weigh the overall impact on such
     users, including not only any adverse impacts on particular users,
     but whether there are other associated benefits of the regulatory
     requirements to telecommunications users. For example, the
     reduction in intercarrier compensation payments might lead some
     carriers to increase some rates, but also should reduce long
     distance rates, stimulate additional competition in local markets,
     consistent with the goals of the 1996 Act, and provide additional
     benefits to end users. We direct states to consider the totality of
     the circumstances in evaluating the impact on telecommunications
     users.

343. The second prong of section 251(f)(2)(A) requires a state
     commission to determine whether the LEC has demonstrated that the
     requested suspension or modification is necessary to "avoid
     imposing a requirement that is unduly economically
     burdensome."[^892] The Eighth Circuit has interpreted the phase
     "unduly economically burdensome" to require a state to examine "the
     full economic burden on the ILEC."[^893] Consistent with this
     interpretation, and our interpretation of section 251(f)(2)(A)(i)
     above, we conclude that states must evaluate the totality of the
     circumstances in evaluating the net burden. For example, in
     evaluating the impact of section 251(b)(5) as we interpret it
     today, states cannot simply look at the LEC's loss of intercarrier
     compensation revenues. Rather, the state must consider the full
     economic impact on the LEC of all the comprehensive reforms we
     adopt, including the ability of carriers to recover revenues by
     raising other rates, including the federal SLC, the potential
     economic savings due to reduced billing costs, fewer disputes and
     litigation regarding the classification of traffic, and the
     possibility that a carrier may receive universal service support if
     its financial integrity is threatened.

344. The third prong under section 251(f)(2)(A) requires a state
     commission to determine whether the LEC has demonstrated that
     compliance with section 251(b) or (c) may be "technically
     infeasible."[^894] We do not believe that any carrier will be able
     to establish that implementation of our intercarrier compensation
     reforms is "technically infeasible," considering that carriers
     generally are exchanging and billing for traffic today, and our
     rules adopted in this order should merely simplify this process.
     Thus, we recommend that state commissions scrutinize rigorously any
     claims of technical infeasibility, particularly if the LEC is
     paying and/or receiving intercarrier compensation today.

345. Even if a state finds that a LEC satisfies the requirements for a
     temporary suspension or modification under section 251(f)(2)(A),
     section 251(f)(2)(B) provides that a state commission cannot grant
     a petition for suspension or modification unless it also finds that
     granting the requested petition is "consistent with the public
     interest, convenience, and necessity."[^895] In light of the
     compelling need to adopt comprehensive reform of existing
     intercarrier compensation regimes as described above,[^896] the
     Commission urges states to use caution and consider carefully the
     ramifications of granting any suspension or modification,
     particularly regarding petitions seeking relief from section
     251(b)(5). Indeed, any suspension or modification that continues to
     treat traffic under different rate structures opens the door for
     continued regulatory arbitrage and disputes. Such action would
     undermine the tremendous public interest benefit associated with
     treating all traffic the same.

346. The Act is silent on what occurs if a state grants a suspension or
     modification of the section 251(b) or (c) obligations. We find that
     this silence creates ambiguities and could lead to inconsistent
     results following a modification or suspension under section
     251(f)(2). We are concerned that a suspension or modification of
     section 251(b)(5) could result in exactly the kind of disparate
     treatment that we intend to correct with our actions today.
     Pursuant to our authority under section 201(b), as well as our
     authority to interpret section 251(f),[^897] we therefore adopt
     rules specifically addressing certain of the implications of a
     suspension or modification of our intercarrier compensation
     rules.[^898]

347. First, to minimize inconsistency and the possibility that the
     reforms we adopt today could be undermined, we extend our symmetry
     requirement for reciprocal compensation rates at the end of the
     transition period described in Part V.B to any suspension or
     modification of our section 251(b)(5) reciprocal compensation rules
     and requirements. If a LEC receives a suspension or modification of
     our reciprocal compensation pricing methodology, for example, all
     other LECs and CMRS providers that exchange traffic with the LEC
     receiving the suspension or modification will likewise be entitled
     to charge that LEC those same rates that the LEC charges them for
     the duration of such suspension or modification. We conclude that
     this symmetry requirement is in the public interest and will reduce
     disputes, arbitrage, and transaction costs. Indeed, a contrary
     result that would permit different terminating rates in the same
     geographic area would not be in the public interest and likely
     would lead to the same disputes we have today. If a state attempts
     to avoid this symmetry requirement by granting a LEC a suspension
     or modification of any section 251(b)(5) reciprocal compensation
     obligation and the state fails to require symmetric rates, we will
     invoke our authority under sections 201 and 332 of the Act to
     ensure that all carriers exchanging traffic with that LEC pay the
     same rate for terminating all traffic.

348. Second, if a state grants any suspension or modification that is
     more than 1 year in duration, we require the state to take a fresh
     look to determine whether such suspension/modification continues to
     satisfy the statutory test in light of possible changes in
     circumstances. To this end, 90 days before the 1-year anniversary
     of the grant of the suspension or modification, the LEC must file a
     petition demonstrating that the suspension or modification
     continues to satisfy the statutory criteria. In the intervening
     time, for example, a state may have rebalanced rates, the LEC may
     have increased its end-user charges, or other relevant changes may
     have occurred. Those actions may have obviated the need for the
     suspension or modification or, at a minimum, could result in the
     need for changes to the terms and duration of the suspension or
     modification. In such a review, the LEC continues to have the
     burden of demonstrating that the section 251(f)(2) criteria remain
     satisfied. We conclude that states should act upon such a fresh
     look within the 180 days for new petitions set forth in section
     251(f)(2).[^899]

#### Existing Agreements

349. Below we discuss the effect of our intercarrier compensation
     reforms on certain types of existing agreements.

350. *Interconnection agreements*. With respect to interconnection
     agreements, we do not disturb the processes established by section
     252 of the Act. As discussed above, the intercarrier compensation
     reforms we adopt will necessitate that states implement our new
     reciprocal compensation methodology. We expect that incumbent LECs
     and competing carriers will implement the reciprocal compensation
     changes as directed by section 252 of the Act.[^900] We make clear
     that our actions today constitute a change in law, and we recognize
     that interconnection agreements may contain change of law
     provisions that allow for renegotiation and/or may contain some
     mechanism to resolve disputes about new agreement language
     implementing new rules.[^901] Verizon raises a concern regarding
     the impact on contracts in "evergreen" status, which Verizon
     describes as "contracts that have reached the end of their terms
     but remain in effect pending entry into new contracts."[^902] Given
     that the comprehensive reforms today are necessary to eliminate
     arbitrage and reduce disputes, we believe it is appropriate for
     carriers to take a "fresh look" at their interconnection agreements
     in "evergreen" status, including agreements that lack a
     change-of-law provision, and follow the section 252 process of
     negotiation and arbitration. We also note that, pursuant to section
     251(a)(1), carriers remain free to negotiate alternative
     arrangements.[^903]

351. *Commercial arrangements*. As discussed above, the intercarrier
     compensation reforms will require carriers to make certain changes
     to their tariffs relating to carrier-to-carrier charges, and
     potentially also SLCs. We do not, however, abrogate existing
     contracts or otherwise allow for a "fresh look" in light of our
     reforms.[^904] As the Commission has recognized, for example, early
     termination provisions can be mutually beneficial by giving
     providers greater assurance of cost recovery, and giving customers
     (whether wholesale or end-users) discounted and stable prices over
     the relevant term.[^905] Indeed, allowing for a fresh look could
     result in a windfall for customers that entered long-term
     arrangements, in exchange for lower prices, as compared to other
     customers that avoided early termination fees by electing shorter
     contract periods at higher prices.[^906] Rather than adopt a rule
     that these commercial arrangements must be reopened, we will leave
     such issues to any change-of-law provisions in these commercial
     arrangements, or to commercial negotiations among the
     parties.[^907]

### Revenue Recovery Opportunities

352. In the preceding sections of this order, we adopt fundamental
     changes to the existing intercarrier compensation regimes. These
     reforms are designed to unify and simplify these mechanisms,
     consistent with the framework Congress adopted in the 1996 Act.
     This new approach will result in overall reductions in interstate
     and intrastate intercarrier compensation rates.[^908] In this
     section, we address the extent to which revenue reductions from
     carrier-to-carrier charges may be replaced through end-user charges
     and new universal service support. In prior intercarrier
     compensation reforms, the Commission largely replaced reductions in
     intercarrier compensation revenues through a combination of
     increased end-user charges and new universal service funding.[^909]
     Our actions here carefully balance the need to ensure reasonable
     revenue recovery by carriers against the potential adverse impact
     on consumers of increased end-user charges, and the pressure placed
     on the universal service program to the extent that new subsidies
     are made available.

353. As an initial matter, we increase the caps on interstate SLCs, and
     we permit incumbent LECs to increase their SLCs up to the new caps
     to recover lost interstate and intrastate intercarrier compensation
     revenues. We also enlist the aid of the Separations Joint Board to
     evaluate the need for further increases in interstate end-user
     charges to recover any net loss in interstate and intrastate
     intercarrier compensation revenues, and to evaluate the conditions
     under which carriers may seek additional universal service funding.
     To limit the increase in the total universal service fund, we
     establish certain preconditions that carriers must satisfy before
     they can receive additional universal service funding to compensate
     for lost intercarrier compensation revenues.

#### End-User Charges

354. In this section, we consider whether revenue reductions from
     reformed carrier-to-carrier charges should be replaced to any
     extent by increases in end-user charges, as the Commission has done
     in some prior intercarrier compensation reform proceedings.[^910]
     The Commission has acknowledged that "\[t\]he concept that users of
     the local telephone network should be responsible for the costs
     they actually cause is sound from a public policy perspective and
     rings of fundamental fairness," and also helps ensure "that
     ratepayers will be able to make rational choices in their use of
     telephone service."[^911] Importantly, however, the Commission also
     has maintained "safeguards that ensure that the rates consumers pay
     . . . remain well within a zone of reasonableness."[^912] To permit
     carriers to recover at least part of their lost intercarrier
     compensation revenues, we raise the caps on interstate SLCs as
     described below, which we find to be within the "zone of
     reasonableness" and which should not have a significant adverse
     effect on telephone penetration. We also enlist the help of the
     Separations Joint Board to consider the need, if any, for further
     increases in end-user charges and certain other revenue recovery
     issues.

355. The record reveals a wide variety of proposals for modifying
     interstate end-user charges in response to reductions in
     intercarrier compensation rates. The majority of these proposals
     advocate increasing the caps on the interstate SLCs. The interstate
     SLC is a flat-rated charge that recovers the interstate portion of
     local loop costs from an end user. Under our current rules
     governing incumbent LECs, SLCs are subject to a cap that varies
     based upon whether the line is: (a) a primary residential or
     single-line business line; (b) a non-primary residential line;
     or (c) a multi-line business or Centrex line.[^913] Some parties
     propose specific increases in SLC caps to offset a portion of the
     revenues lost through mandated reductions in intercarrier
     compensation--including both reductions in interstate and
     intrastate revenues.[^914] Other parties contend that most or all
     of a carrier's replacement of lost intercarrier compensation
     revenues should come from increased SLCs.[^915] On the other hand,
     some consumer groups assert that no increase in SLC caps is
     warranted in response to reductions in intercarrier compensation
     rates.[^916]

##### Current Availability of End-User Charges for Revenue Recovery 

356. As an initial matter, we permit incumbent LECs to increase their
     SLCs up to new caps to recover reductions in interstate
     intercarrier compensation revenues. In particular, we increase the
     SLC cap for residential and single-line business lines from \$6.50
     to \$8.00, the non-primary residential line SLC cap from \$7.00 to
     \$8.50, and the multi-line business SLC cap from \$9.20 to \$11.50.
     We believe that these modest increases in the SLC caps continue to
     "ensure that the rates consumers pay for the SLC remain well within
     a zone of reasonableness."[^917] Moreover, we believe that these
     SLC cap increases also address commenters' concerns about the need
     for some end-user recovery in light of lost intercarrier
     compensation revenues. Although some commenters argue for more
     substantial increases in the SLC caps, we note that there is
     evidence that incumbent LECs charge rates below even the existing
     caps in a number of instances. For example, the primary residential
     and single-line business SLC cap is \$6.50, but the national
     average SLC for those lines is \$5.93 based on recent Commission
     data.[^918] Similarly, the non-primary residential line SLC cap is
     \$7.00, but the national average SLC for those lines is
     \$5.81.[^919] Further, the multi-line business and Centrex line SLC
     cap is \$9.20, but the national average SLC for those lines is
     \$6.30---nearly \$3.00 below the cap.[^920] We therefore find it
     reasonable in the first instance to raise the interstate SLC cap
     and to allow carriers whose current SLCs are below the new caps to
     increase those SLCs to recover revenues lost from interstate and
     intrastate access charge reductions.[^921]

357. To the extent that an incumbent LEC increases its SLCs to recover
     reductions in its interstate intercarrier compensation revenues and
     any of its SLCs are still below the relevant caps, we allow those
     carriers to raise their SLCs further, up to the caps, to recover
     any net loss in intrastate intercarrier compensation revenues, at
     least on an interim basis.[^922] As a prerequisite for incumbent
     LECs to increase their SLCs in this manner, we require that the
     LEC's state retail rates and any intrastate SLC be set at the
     maximum level permitted under state regulations.[^923] This will
     ensure that revenues from interstate end-user charges will not be
     used to recover intrastate revenue requirements until the carrier
     has fully availed itself of all available intrastate revenue
     opportunities under existing law. We also mandate that any increase
     in interstate SLC revenues that are intended to recover lost
     intrastate intercarrier compensation revenues be used by the state
     in ratemaking to reduce costs or revenue requirements to be
     recovered in the intrastate jurisdiction.[^924]

358. We find that we have authority to allow recovery of intrastate
     revenue requirements in this manner. For one, the legacy
     separations regime does not preclude this action. The Commission
     historically has provided federal funds to cover at least a portion
     of costs assigned to the intrastate jurisdiction.[^925] Although
     those decisions relied on the Commission's universal service
     authority pursuant to section 254, we find that we have authority
     under section 251(g) to allow recovery of intrastate revenue
     requirements through interstate SLC rates. Section 251(g) empowers
     the Commission to subject traffic previously encompassed by section
     251(g) to the reciprocal compensation regime of section 251(b)(5),
     including providing for an orderly transition. Allowing incumbent
     LECs the option to recover certain lost intrastate intercarrier
     compensation revenues through increases in the interstate SLC,
     subject to the new caps, furthers such a transition. In particular,
     this option helps mitigate any need incumbent LECs might have to
     seek increases in state rates due to decreases in intrastate
     intercarrier compensation revenues during the initial stages of the
     transition, pending the Separations Joint Board referral and
     subsequent Commission action. We also acknowledge that interstate
     SLC charges are governed by sections 201 and 202 of the Act, and
     that "the just and reasonable rates required by Sections 201 and
     202 . . . must ordinarily be cost-based, absent a clear explanation
     of the Commission's reasons for a departure from cost-based
     ratemaking."[^926] In the past, the Commission has, in fact,
     adopted regulatory approaches that deviated from cost-based
     ratemaking.[^927] We find such an approach warranted here to help
     mitigate regulatory burdens during the transition, as described
     above.

359. In sum, we adopt increased SLC caps to allow incumbent LECs to
     recover some or all of their net loss in intercarrier compensation
     revenues resulting from rate reductions pursuant to this order. In
     particular, to recover those lost revenues, we permit incumbent
     LECs to increase each of their SLCs up to the new caps.

360. With respect to non-incumbent LECs, we note that most interstate
     rates of such providers are not subject to *ex ante* regulation by
     the Commission. Thus, we allow those carriers to recover any net
     loss in intercarrier compensation revenues in any lawful
     manner.[^928]

##### Joint Board Referral of Possible Changes to End-User Charges

361. We enlist the aid of the Separations Joint Board to evaluate the
     need for any additional increases in interstate end-user rates for
     carriers to recover any net loss in interstate and/or intrastate
     intercarrier compensation revenues as a result of the reform
     measures we adopt today. There are a range of widely divergent
     proposals in the record regarding the need for additional changes
     to the SLC caps adopted above as part of comprehensive intercarrier
     compensation reform. We believe that the information and analysis
     developed by the Separations Joint Board will be extremely valuable
     in evaluating these issues.

362. Our decision to seek input from the Separations Joint Board is
     consistent with section 410 of the Act. Section 410(c) of the Act
     requires the Commission to refer to the Separations Joint Board any
     changes to the separations rules being considered through a
     rulemaking proceeding. Although no changes to the separations rules
     are at issue here, section 410(c) also authorizes the Commission to
     refer matters "relating to common carrier communications of joint
     Federal-State concern to a Federal-State Joint Board."[^929] We
     believe that recommendations from a Joint Board regarding these
     issues are important to striking the right balance among the
     various policy goals at stake, relating to traffic that
     historically has been regulated, in part, by both federal and state
     jurisdictions. Moreover, the issue of using revenues from
     interstate end-user charges to recover intrastate revenue
     requirements is sufficiently related to the underlying separations
     requirements themselves that we believe the Separations Joint Board
     possesses highly relevant expertise to provide recommendations on
     these issues.[^930]

363. As described in greater detail below, we refer to the Separations
     Joint Board certain specific issues regarding possible increases in
     interstate end-user charges: (i) whether SLC caps should be
     increased by a fixed amount to recover any net loss in intercarrier
     compensation revenues; (ii) whether a "flexible" SLC cap should be
     used in conjunction with an overall benchmark or threshold;
     or (iii) some combination of those options.

364. *Quantifying Any Increase in End-User Charges*. We refer to the
     Separations Joint Board several possible approaches for
     establishing any additional permissible increases in interstate
     end-user charges, to the extent that any are warranted. First, the
     Separations Joint Board could directly recommend particular further
     increases in the SLC caps. Parties here have proposed various
     levels of SLC cap increases, and different ways to distribute those
     increases across the different SLC caps. For example, the ICF
     proposal would result in all SLC caps being increased to \$10.00 by
     the end of a transition period.[^931] Under the Missoula Plan's
     initial proposal, SLC cap increases vary for the three "tracks" or
     categories of carriers defined in the plan.[^932] ITTA proposes a
     \$2.25 increase in each SLC cap by the end of a transition period,
     subject to a benchmark consisting of SLCs, retail rates, and
     certain other charges.[^933] Other parties, such as CTIA, contend
     that recovery of lost intercarrier compensation revenues by
     incumbent LECs should come solely from end-user charges.[^934] In
     contrast, Free Press, NASUCA, and Ad Hoc propose that SLC caps not
     be increased at all.[^935]

365. Second, the Separations Joint Board could recommend a "flexible"
     SLC cap that would vary depending upon a carrier's other end-user
     rates and an overall benchmark or threshold. For example, under a
     recent Verizon proposal, the 'default' SLC caps all would increase
     to \$10.00 by the end of a transition period.[^936] However, to the
     extent that a carrier's relevant end-user rates still are below a
     proposed benchmark, that carrier's SLC cap would increase as much
     as needed to reach the benchmark.[^937] Thus, the Separations Joint
     Board could determine a particular benchmark or threshold and allow
     the SLC cap to vary for each carrier, depending upon how much
     "headroom" that carrier has under the benchmark, in light of the
     carrier's other rates. To the extent that the Separations Joint
     Board recommends this approach, it should specify which carrier
     rates should be included in the relevant benchmark or threshold.

366. Third, the Separations Joint Board could recommend some combination
     of the first and second options.

367. In making recommendations on these issues, the Separations Joint
     Board will consider the extent to which any recommended increases
     in interstate end-user charges should be used to offset lost
     intrastate intercarrier compensation, to the extent that decreases
     in interstate intercarrier compensation revenues already have been
     recovered. Most comprehensive reform proposals in the record assume
     that SLC cap increases will be used to offset at least some
     intrastate revenues.[^938] Logically, however, another alternative
     is for any increases in the SLC caps to be used only to recover
     reductions in interstate intercarrier compensation revenues, and to
     leave it to each state to address lost intrastate intercarrier
     compensation revenues as appropriate under state law.

368. *Timing*. We direct the Separations Joint Board to issue its
     recommended decision not later than one year from the effective
     date of this order. In light of that timetable, we limit the
     Separations Joint Board to consideration of specific issues we
     refer in this order.

#### Universal Service Support

##### Policy Approach

369. We recognize that the actions we take to reform intercarrier
     compensation will result in reduced revenues for many carriers. As
     discussed above, carriers have the opportunity to replace certain
     of those lost revenues through end-user charges.[^939] We also
     acknowledge that, in the past, the Commission has sometimes
     provided new universal service support to replace reductions in
     intercarrier compensation revenues.[^940] As the Fifth Circuit has
     recognized, however, "\[b\]ecause universal service is funded by a
     general pool subsidized by all telecommunications providers---and
     thus indirectly by customers - excess subsidization in some cases
     may detract from universal service by causing rates unnecessarily
     to rise, thereby pricing some consumers out of the market." [^941]
     Thus, excessive universal service subsidization could, perversely,
     cause undesirable increases in consumers' bills.

370. We note that many companies---in particular price cap
     carriers---consistently are paying dividends and are using the same
     supported network to provide both regulated services and
     non-regulated services. Throughout the course of our comprehensive
     reform proceedings, commenters have identified this as a concern to
     be weighed carefully when evaluating the need for universal service
     support. For example, following the 2005 intercarrier compensation
     Further Notice, CTIA contended that some rural incumbent LECs
     already "are overcompensated by universal service support" based on
     evidence that their "stocks generate returns, measured by
     market-to-book ratios, far in excess of, and exhibit significantly
     lower risk premiums than, the supposedly more secure RBOCs."[^942]
     Commenters continue to express concern that existing universal
     service subsidies too often lead simply to "'high overhead,
     sumptuous earnings, \[and\] rich dividends.'"[^943] For example,
     recent news reports indicate that CenturyTel and Embarq still
     "remain highly profitable -- operating margins for both are 27
     percent" notwithstanding any competition they face.[^944] Parties
     have argued that there continues to be evidence that "\[i\]nvestors
     place a higher value on RLEC earnings than on other ILEC earnings.
     In today's market, the larger ILECs, which do not generate much of
     their revenues from federal subsidies, are valued much less highly
     per dollar of profit."[^945] While there are "various factors in
     play" this suggests that "\[m\]illions of dollars in extra wealth
     end up in the hands of private investors" by "transferring income
     from telephone users to phone company stockholders."[^946] Indeed,
     commenters note that "some carriers owned by co-ops pay their
     members annual dividends that exceed their members' local phone
     charges."[^947] In light of these concerns and the mandates of
     section 254, we agree with commenters that it is not appropriate to
     require all universal service contributors to pay into the fund so
     that these carriers can continue to pay dividends.[^948]

371. Thus, rather than guaranteeing revenue neutrality, as some
     commenters propose,[^949] we take steps here to ensure that any new
     universal service subsidies are targeted carefully to situations
     where they are most crucially needed. In particular, far from the
     regulated monopolies of years past, significant marketplace
     developments have resulted in additional revenue opportunities for
     carriers. As NASUCA observes, "\[i\]ntercarrier compensation, SLCs
     and the USF are but three of the numerous spigots from which
     dollars flow to fill up the telephone companies' revenue
     buckets."[^950] "By way of illustration," NASUCA points out that
     "using their common local loop platform, carriers are now
     generating billions of dollars in digital subscriber line ("DSL")
     revenues that they did not generate five or ten years ago."[^951]
     Indeed, Time Warner Telecom has pointed to evidence that, for some
     carriers, "revenue derived from the ILECs' advanced services more
     than doubles the revenue from switched access services."[^952]
     Thus, Free Press observes that "the unregulated revenue streams of
     rate-of-return and price cap Local Exchange Carriers serving in
     high-cost areas" are the "500 pound gorilla in the room," and it
     contends that "these revenues" should be "considered in the
     discussions of 'need' for the purposes of universal service."[^953]
     We agree that such "new and growing source\[s\] of revenues should
     mitigate the impact of intercarrier compensation reform for rural
     and other carriers."[^954]

372. We are concerned that universal service support be targeted to
     those companies whose reduced intercarrier compensation revenues
     truly are needed to continue providing quality service at
     affordable rates, and that it should not simply enable the company
     to pay bigger dividends to shareholders or pad a company's bottom
     line. Therefore, for price cap carriers, we adopt the proposal of
     various commenters to consider all a company's costs and
     revenues---both regulated and non-regulated---before providing new
     universal service support.[^955] Thus, price cap incumbent LEC
     seeking universal service funding to replace lost intercarrier
     compensation revenues must make such a showing to the Commission
     when petitioning for such support. We recognize that rate-of-return
     carriers present a special situation, because under our rules they
     must be provided an opportunity to earn the rate of return
     established by our orders.[^956] As a result, we do not impose a
     similar condition before rate-of-return carriers can recover
     universal service support.

373. We also agree with proposals that carriers fully avail themselves
     of existing opportunities for end-user recovery before collecting
     new universal service subsidies.[^957] To the extent that
     regulators have determined that rates at a particular level are
     reasonable, we find it appropriate for carriers to charge those
     rates in the first instance, rather than pricing below those levels
     in order to foist recovery of the additional revenues on universal
     service contributors. Consequently, as additional preconditions for
     receiving new universal service support, any carrier---whether
     price cap or rate-of-return---must show that its federal SLC, state
     SLC (if any), and state retail local service rates are at the
     maximum levels permitted under existing applicable law.[^958]

374. In conjunction, we conclude that the conditions we adopt as
     prerequisites for obtaining new universal service support
     adequately target that support to carriers with a genuine need
     without unduly burdening consumers with excessive new universal
     service contribution burdens.[^959]

##### Legal Authority 

375. Consistent with our mandate to "ensure that universal service is
     available at rates that are just, reasonable, and affordable," we
     establish a new supplement to IAS and ICLS universal service
     funding mechanism.[^960] As we did recently in two other Commission
     orders that reformed interstate switched access charges, we include
     here additional universal service funding to keep retail rates
     affordable while ensuring that maintaining affordable rates does
     not unduly threaten the financial viability of rate-regulated
     incumbent LECs.[^961] Our decision to establish a new funding
     mechanism is also consistent with our general authority under
     section 4(i) of the Act because it furthers our universal service
     objectives.[^962] Mindful of our obligation to ensure that these
     new subsidies are made available only where essential, however we
     make new universal service subsidies available subject to specific
     conditions that will target the support to only those carriers
     whose circumstances merit it.

##### Access to Universal Service Support

376. As discussed below, we limit access to universal service support to
     incumbent LECs that meet certain preconditions. As an initial
     matter, we find that limiting such support to incumbent LECs is
     consistent with their position in the marketplace and the resulting
     regulatory constraints on their pricing behavior. In a series of
     orders in the Competitive Carrier proceeding, the Commission
     distinguished two kinds of carriers---those with individual market
     power (dominant carriers) and those without market power
     (non-dominant carriers).[^963] The Commission found it appropriate
     to continue to subject dominant carriers to full regulation under
     Title II of the Communications Act.[^964] Incumbent LECs are
     dominant carriers in their provision of switched access services
     and, as a result, are subject to rate regulation.[^965] This rate
     regulation comes in two forms---regulation of intercarrier charges
     and regulation of end user charges. The Commission regulates
     interstate end-user charges of incumbent LECs, while the states
     generally regulate those carriers' intrastate end-user rates.
     Unlike incumbent LECs, competitive carriers (e.g., such as
     competitive LECs, CMRS providers, and non-dominant IXCs) lack
     market power and are considered non-dominant. As a result, their
     end-user charges are not subject to comparable rate regulation by
     the Commission and the states.[^966]

377. Because incumbent LECs, as a result of their classification as
     dominant carriers, have had their end-user charges regulated (both
     in terms of rate levels and rate structures), they have less
     flexibility than other carriers to recover decreased intercarrier
     revenues through end-user charges. As a result, they are less
     likely to be able to recover reductions in intercarrier
     compensation revenues resulting from the actions we take today.
     Accordingly, we conclude that access to universal service support
     should be limited to incumbent LECs that meet the necessary
     preconditions. For this reason, we disagree with parties that
     advocate making funding available to all carriers, both incumbent
     and competitive[^967] or to all carriers that currently receive
     access charge revenues.[^968] As discussed above, competitive
     carrier end-user charges are not subject to rate regulation, and
     those carriers have the opportunity to recover lost access revenue
     through any legally permissible means.[^969] We also reject an
     approach that would limit funding to rural rate-of-return
     carriers.[^970] Incumbent LECs subject to price cap regulation also
     are subject to regulatory constraints on end-user charges, and we
     therefore decline to categorically deny universal service funding
     to particular types of incumbent LECs.[^971]

378. Consistent with the policy approach discussed above, we further
     find it necessary to establish certain requirements that an
     incumbent LEC must satisfy to receive the new universal service
     subsidies. Before seeking universal service funding, incumbent LECs
     must first demonstrate that their end-user charges are at the
     maximum allowable rate levels. Thus, incumbent LECs must show that
     they are charging the maximum interstate SLCs permitted under
     applicable law, and they must make the same showing with respect to
     any intrastate SLCs. In addition, incumbent LECs must demonstrate
     that their retail local rates are at the maximum allowable amount
     based on applicable state regulation. Incumbent LECs operating in
     states where retail rates are deregulated are not entitled to the
     new universal service funding adopted here. In this case, these
     incumbent LECs will be similarly situated to competitive carriers,
     because without regulation, they have the opportunity to recover
     lost access revenues due to intercarrier compensation reform
     through increased end-user charges.

379. As discussed below, there are additional requirements to qualify
     for universal funding that vary depending on whether a carrier is
     subject to price cap or rate-of-return regulation. In either case,
     the incumbent LEC bears the burden of demonstrating that it is
     entitled to such funding based on the following criteria.

380. *Rate-of-Return Incumbent LECs*. For incumbent LECs subject to
     rate-of-return regulation, a carrier may qualify for universal
     service funding if it can demonstrate that, it will not have a
     reasonable opportunity to earn its authorized rate of return as a
     result of its net loss of revenues caused by the changes in
     intercarrier compensation rates resulting from this order, even
     after having increased its interstate SLC, state SLC (if any), and
     state retail local rates to the maximum permitted by applicable
     law.

381. *Price Cap Incumbent LECs*. For incumbent LECs subject to price cap
     regulation, a carrier may qualify for universal service funding if
     it can demonstrate that, as a result of reduced and reformed
     intercarrier charges, and after accounting for increased end-user
     charges, it is still unable to earn a "normal profit." In the
     *Local Competition First Report and Order*, the Commission
     discussed the concept of normal profit and defined it as the "total
     revenue required to cover all the costs of a firm, including its
     opportunity costs."[^972]

382. As described above, many companies---in particular, price cap
     carriers---consistently are paying dividends and are using the same
     supported network to provide both regulated services and
     non-regulated services.[^973] We do not find it appropriate to
     require all universal service contributors to pay into the fund to
     provide for "'high overhead, sumptuous earnings, \[and\] rich
     dividends'" on the part of these carriers.[^974] Indeed, as
     discussed above,[^975] "\[i\]ntercarrier compensation, SLCs and the
     USF are but three of the numerous spigots from which dollars flow
     to fill up the telephone companies' revenue buckets"[^976] in
     addition to other nonregulated services that use "their common
     local loop platform."[^977] . Therefore, in determining whether
     this criterion is met, the Commission will evaluate the total costs
     and total revenues of the company as a whole, including those from
     both regulated and non-regulated sources.[^978] While this is a
     more stringent showing than that required of rate-of-return
     carriers, we find such differences warranted by the different rate
     regulation frameworks. In light of our reforms, we find it
     appropriate, upon request, to allow price cap carriers to make a
     one-way election of rate-of-return regulation.[^979]

383. We recognize that the conditions by which we would make universal
     service funding available may not ensure that all carriers recover
     all reduced intercarrier compensation revenues that result from the
     reforms we adopt here. We reject the assertion by some carriers
     that any revenue replacement mechanism adopted by the Commission in
     the context of intercarrier compensation reform must ensure
     absolute revenue neutrality.[^980] We agree with commenters who
     maintain that the Commission has no legal obligation to ensure that
     carriers recover every dollar in access revenues lost as a result
     of reform, absent a showing of a taking.[^981] We conclude that
     certain increased end-user charges and narrowly targeted
     supplemental IAS or ICLS universal service support will provide a
     reasonable opportunity to recover revenues lost as a result of our
     intercarrier compensation reform, and to earn a reasonable profit.
     Such recovery, however, is not automatic and whether a particular
     carrier is entitled to any revenue recovery will be considered on a
     case-by-case basis based on the criteria outlined here.

## Measures to Ensure Proper Billing

### Introduction

384. As explained in Part V.A., the current disparity of rates under
     existing intercarrier compensation mechanisms presents service
     providers[^982] with the opportunity and the incentive to
     misidentify or otherwise conceal the source of traffic to avoid or
     reduce payments to other service providers. In this Part, we amend
     our rules to help ensure the ability of service providers to
     receive the appropriate compensation for traffic terminated on
     their networks.[^983] More importantly, we believe that the
     comprehensive compensation reforms we adopt today should
     significantly reduce service providers' incentives to mislabel
     traffic or otherwise to try to avoid their financial
     obligations.[^984] Nonetheless, we balance a desire to facilitate
     resolution of billing disputes with a reluctance to regulate in
     areas where industry resolution has, in many cases, proven
     effective. We find that the requirements we adopt here will
     facilitate the transfer of information to terminating service
     providers, and improve their ability to identify providers from
     whom they receive traffic, without imposing burdensome costs. In
     the event that traffic does not contain the information required by
     our rules, or the provider delivering the traffic does not
     otherwise provide the required call information, for example by
     providing an industry-standard billing record, to the provider
     receiving it, we allow the terminating service provider to charge
     its highest terminating rate to the service provider delivering the
     traffic. To the extent that a provider acting simply as an
     intermediate provider (such as a transit provider) becomes subject
     to a charge under this provision, that intermediate provider can
     charge the rate it was charged to the provider that delivered the
     improperly labeled traffic to it. This will ensure that providers
     are paid for terminating traffic in those instances, and gives
     financial incentives for upstream providers in the call path to
     ensure that the traffic includes proper information in the first
     instance.

### Background

385. Problems related to traffic arriving for termination with
     insufficient identification information arise from the technical
     systems and processes used to create, transfer, and gather
     intercarrier compensation billing information. To bill for
     termination of traffic, a terminating service provider must be able
     to identify the appropriate upstream service provider, and the
     location of the caller (or a proxy for the caller's location) in
     order to determine jurisdiction, which is necessary to determine
     the appropriate charge under existing intercarrier compensation
     rules.[^985] Calls frequently traverse several networks to connect
     the calling and called parties. When the originating and
     terminating networks are not directly connected, as is the case
     when calls are delivered via tandem transit service, complications
     with transmitting and receiving billing information related to a
     call can arise.[^986] Terminating service providers that are not
     directly connected to originating service providers receive
     information about calls sent to their networks for termination from
     two sources: Signaling System 7 (SS7) signaling streams[^987] and
     industry standard billing records,[^988] which typically are
     provided by the intermediate service provider connecting the
     terminating provider to the originating provider.[^989]

386. One significant source of billing problems is traffic routed
     through an intermediate provider that does not include calling
     party number (CPN) or other information identifying the calling
     party.[^990] In addition, commenters describe several examples of
     other situations where traffic arrives for termination with
     insufficient information to identify the originating service
     provider.[^991] Another source of disputes occurs when terminating
     service providers find differences when attempting to reconcile SS7
     data they record and billing records they receive.[^992] Such a
     reconciliation process will likely be inexact, because SS7 streams
     were not designed to provide billing information.[^993] Similarly,
     at least one commenter asserts that "problems arise" when
     terminating service providers "second guess tandem traffic reports
     and generate their own billing statements for carriers with whom
     they are indirectly interconnected."[^994] In addition to
     unidentifiable traffic caused by unintended network routing
     circumstances, as described above, several commenters allege that
     they receive traffic in which the billing information intentionally
     has been altered or stripped before the call reaches the
     terminating service provider.[^995] Indeed, numerous parties have
     described experiencing problems of the sort described above.[^996]
     Several proposals suggesting how the Commission should address this
     problem have been filed in the record in this proceeding in recent
     years.[^997] Recently, the United States Telecom Association
     (USTelecom) filed a proposal that appears to enjoy the broadest
     industry support of any filed to date.[^998] For reasons detailed
     below, we agree that traffic that lacks sufficient information to
     enable proper billing of intercarrier compensation charges is a
     problem. Consequently, we take steps to address the problem and
     help ensure proper functioning of the intercarrier compensation
     system.[^999]

### Discussion

387. We amend our rules as described below to facilitate the transfer of
     necessary information to terminating service providers,
     particularly in cases where traffic is delivered through indirect
     interconnection arrangements. These new requirements will assist in
     determining the appropriate service provider to bill for any call.
     We note that these new requirements generally reflect standard
     industry practice, as recommended by several commenters.[^1000] We
     also amend our rules to establish payment obligations for service
     providers that send traffic that lacks the information required by
     our amended call signaling rules to intermediate or terminating
     service providers or that does not otherwise provide the required
     call information to the recipient. Incorporating these practices
     into our rules will facilitate resolution of billing disputes, will
     provide incentives to help prevent manipulation or deletion of
     information from signaling streams, and will provide incentives for
     service providers to ensure that traffic traversing their networks
     is properly labeled and identifiable, in compliance with the rules
     we adopt in this order.[^1001]

#### Signaling Information

388. We agree with the USTelecom Feb. 12, 2008 Proposal concerning the
     importance of call signaling obligations.[^1002] CPN is a critical
     component of call signaling information. When CPN is populated in
     the SS7 stream by an originating service provider and passed,
     unaltered, along a call path to a terminating service provider, the
     terminating provider can use the CPN information to help determine
     the applicable intercarrier compensation.

389. We agree with commenters[^1003] that assert that the best way to
     ensure that complete and accurate information about a call gets to
     the terminating service provider for that call is to require
     providers to populate, and to prohibit them from stripping or
     altering, CPN information in the SS7 call signaling stream.[^1004]
     In an environment where numerous service providers may be involved
     in the completion of a call, this SS7 signaling information must be
     passed, unaltered, from one to the next in a call path until it
     reaches the terminating service provider. We therefore modify our
     rules to prohibit stripping or altering information in the SS7 call
     signaling stream. We do not, however, make any changes to the
     designation of particular fields as mandatory or optional, nor do
     we otherwise intend to change industry standards that govern the
     population of the SS7 signaling stream.[^1005]

390. The record also makes clear that we must expand the scope of our
     existing rule regarding passing CPN,[^1006] which currently applies
     only to service providers using SS7 and only to interstate traffic.
     We therefore extend these requirements to all traffic originating
     or terminating on the PSTN, including jurisdictionally intrastate
     traffic.[^1007] We also amend our rules to require service
     providers using MF signaling to pass CPN information, or the charge
     number (CN) if it differs from the CPN, in the Multi Frequency
     Automatic Number Identification (MF ANI) field.[^1008] This rule
     change will ensure that information identifying the calling party
     is included in call signaling information for all calls.

391. In addition, we agree with commenters who suggest that our call
     signaling rules should address CN as well as CPN.[^1009] Verizon
     states that, in accordance with industry practice, the CN parameter
     is not populated in the SS7 stream when it is the same as CPN, but
     that when the CN parameter is populated, CN is included in billing
     records in place of CPN.[^1010] We therefore clarify that
     populating a CN field with information other than the charge number
     to be billed for the call, consistent with industry standards,
     falls within this prohibition. This clarification is not intended
     to disrupt standard industry practice with regard to using CN in
     the signaling stream and in billing records. But, we also clarify
     that the prohibition on altering or stripping signaling information
     applies to CN as well as CPN. The prohibition on altering or
     stripping SS7, MF ANI, or CN signaling information obligates
     intermediate service providers to pass, unaltered, whatever
     signaling information they receive.

392. The call signaling rules we adopt in this order will help ensure
     that signaling information is passed completely and accurately to
     terminating service providers. These rules are not intended to
     affect existing agreements between service providers regarding how
     to "jurisdictionalize" traffic when traditional call identifying
     parameters are missing, as long as such agreements are not
     inconsistent with the rules adopted in this order.

393. We find that some very limited exceptions to these new rules are
     needed. We agree with Verizon, for example, that a limited
     exception is needed in situations where industry standards permit,
     or even require, some alteration in signaling information by an
     intermediate service provider.[^1011] As noted above, we do not
     intend to change standard industry practice with respect to the
     content of the signaling stream. Service providers that follow
     standard industry practice in this way will not be considered in
     violation of the prohibition on altering signaling information. We
     also note that the exemptions from our existing call signaling
     requirements described in section 64.1601(d) remain necessary for
     their limited purposes, and will continue to apply.[^1012]

#### Financial Responsibilities

394. We also impose financial responsibilities that will work in step
     with our amended signaling rules to give service providers
     financial incentives to ensure that they, and the providers whose
     traffic they carry, comply with the signaling obligations. We find
     that these requirements will significantly reduce any existing
     incentives to avoid compliance by substantially eliminating any
     financial benefits of noncompliance.

395. We agree with commenters who propose that we permit service
     providers that terminate traffic lacking sufficient information to
     bill the service provider that delivered the traffic to the
     terminating provider.[^1013] In particular, we require that a
     service provider, e.g., transit provider, delivering traffic that
     lacks any of the signaling information required by our rules as
     amended herein, or that does not otherwise provide the required
     call information, for example by providing an industry standard
     billing record, to the recipient, must pay the terminating service
     provider's highest termination rate in effect at the time the
     traffic is delivered to the terminating service provider.[^1014] By
     making intermediate service providers financially responsible in
     these circumstances, we ensure that service providers are
     compensated for terminating traffic.

396. We also permit those intermediate service providers, in turn, to
     pass along the termination charges to the provider that delivered
     the applicable traffic to them, in addition to any
     otherwise-applicable charge for their services. We agree with
     commenters that the providers delivering traffic are in a better
     position than the terminating service provider "to know which
     carriers are routing improperly or incompletely identified
     traffic"[^1015] and to recover the termination charges from them.
     Moreover, by permitting intermediate service providers to pass
     along those charges on top of their otherwise-applicable rates, we
     create disincentives for service providers who might otherwise
     originate, or act as a "pass through" for mislabeled or
     unidentifiable traffic.

397. We are unpersuaded by the objections to imposing such financial
     obligations on intermediate service providers.[^1016] For example,
     one objection is based on the assumption that transit providers
     will be the only intermediate service providers subject to such
     liability, and will be unable to pass along those charges.[^1017]
     The financial responsibility under this order for traffic that
     lacks sufficient billing information is not limited to transit
     service providers, however. Rather, any service provider that
     passes traffic lacking sufficient billing information becomes
     responsible for intercarrier payments to the receiving provider.
     Additionally, we expressly permit service providers subject to this
     charge to pass it along to the service provider that delivered the
     applicable traffic to them.

398. Another commenter objects to any proposal that "gives . . .
     \[ILECs\] the authority to impose new rates based on their own
     interpretation of the sufficiency of data received or
     interpretation of jurisdictional parameters."[^1018] Under our
     amended rules, service providers will not be able to impose rates
     based on their own interpretation of the sufficiency of data
     received. Instead, our amended rules set the standard for what
     information must be included and passed.

399. We also disagree with commenters who suggest that imposing
     liability on intermediate service providers implies that the
     problem is the result of transiting service providers altering call
     detail information.[^1019] The financial obligations we impose on
     intermediate service providers are triggered by passing traffic
     that does not comply with the call signaling rules, regardless of
     whether the traffic was originated or altered by the passing
     service provider. Accordingly, any service provider, not just a
     provider who stripped or altered traffic signaling, who is not
     taking steps to ensure that traffic carried on their network is
     properly labeled and identifiable could be held responsible for
     payment by the provider to whom it delivered traffic.

400. In addition to call signaling, the USTelecom Feb. 12, 2008 proposal
     seeks Commission action related to routing traffic, local number
     portability queries, and providing incumbent LECs with certain
     rights with regard to the section 251 and 252 negotiation and
     arbitration processes.[^1020] Although a broad cross section of the
     industry supports the USTelecom Feb. 12, 2008 proposal in its
     entirety, several commenters objected to the section 251 and 252
     negotiation and arbitration provisions.[^1021] In light of the lack
     of consensus on some of these issues and the changes to the
     intercarrier compensation system adopted in this order we are not
     persuaded that the other specific actions sought in the USTelecom
     Feb 12, 2008 proposal are necessary at this time.[^1022]

# FURTHER NOTICE OF PROPOSED RULEMAKING 

## Universal Service Contributions

401. As we explain above, an assessment methodology based solely on
     telephone numbers would not require certain business services to
     equitably contribute to the universal service fund.[^1023] We,
     therefore, determine that universal service contributions for
     business services will be based on connections as opposed to
     numbers. We seek comment on how best to implement a
     connection-based mechanism for business services, and whether that
     mechanism should be based solely on connections or on a combination
     of Assessable Numbers and connections.

402. We also seek comment on expanding our NRUF data collection to all
     providers who are required to contribute to the universal service
     fund based on Assessable Numbers. At present, our NRUF reporting
     rules require "reporting carriers" to file reports. A "reporting
     carrier" is defined as "a telecommunications carrier that receives
     numbering resources from the NANPA, a Pooling Administrator or
     another telecommunications carrier."[^1024] "Reporting carriers"
     file reports regarding six categories of numbers, the descriptions
     of some of which refer to "telecommunications carriers" or
     "telecommunications services."[^1025] We seek comment on whether we
     should amend our rules to require all providers who assign numbers
     or otherwise make numbers available to end users to file NRUF
     reports. Would such an expansion assist the Commission and the fund
     administrator with monitoring and enforcing universal service
     contribution requirements? What modifications would the Commission
     need to make to its rules to effectuate this kind of policy change?

## Intercarrier Compensation Further Notice

403. In this Further Notice of Proposed Rulemaking (Further Notice) we
     seek comment on certain additional issues not resolved in our
     accompanying order.

404. *Originating Access.* In this order, we conclude that retention of
     originating access charges would be inconsistent with our new
     regulatory approach to intercarrier compensation.[^1026]
     Accordingly, we find that originating charges for all
     telecommunications traffic subject to our comprehensive
     intercarrier compensation framework must be eliminated by the
     conclusion of the transition to the new regime. We seek comment on
     issues relating to the transition for the elimination of
     originating access.

405. *Transit Traffic*. Transiting occurs when two carriers that are not
     directly interconnected exchange traffic by routing the traffic
     through an intermediary carrier's network.[^1027] We request
     comment on whether the reforms we adopt today necessitate the
     adoption of any rules or guidelines governing transit service.

406. *Universal Service Rules Applicable to Rate-of-Return Carriers.* In
     this order, we conclude that under certain circumstances,
     rate-of-return carriers will be able to receive universal service
     support to recover net reduced revenues from intercarrier
     compensation as a result of reforms adopted in this order that they
     do not otherwise recover through SLC increases or other revenue
     increases. We seek comment on what rule changes are necessary to
     allow rate-of-return carriers to receive universal service support
     in this manner.

407. *Parts 51, 54, 61 and 69.* Part 51 of the Commission's rules
     contain requirements applicable to interconnection, including
     reciprocal compensation.[^1028] Part 54 of the Commission's rules
     describe universal service programs and administration.[^1029] Part
     61 of the Commission's rules prescribes the framework for the
     initial establishment of and subsequent revisions to tariff
     publications.[^1030] Part 69 of the rules governs the Commission's
     access charge regulations for interstate or foreign access
     services.[^1031] We solicit comment on the need to revise the rules
     set forth in Parts 51, 54, 61 and/or 69, or any other rules, as a
     result of the reforms we adopt today.

# procedural matters

## *Ex Parte* Presentations

408. The rulemaking this Further Notice initiates shall be treated as a
     "permit-but-disclose" proceeding in accordance with the
     Commission's ex parte rules.[^1032] Persons making oral ex parte
     presentations are reminded that memoranda summarizing the
     presentations must contain summaries of the substance of the
     presentations and not merely a listing of the subjects discussed.
     More than a one or two sentence description of the views and
     arguments presented generally is required.[^1033] Other
     requirements pertaining to oral and written presentations are set
     forth in section 1.1206(b) of the Commission's rules.[^1034]

## Comment Filing Procedures

409. Pursuant to sections 1.415 and 1.419 of the Commission's
     rules,[^1035] interested parties may file comments and reply
     comments regarding the Further Notice on or before the dates
     indicated on the first page of this document. **All filings related
     to the intercarrier compensation Further Notice of Proposed
     Rulemaking should refer to CC Docket No. 01-92**. **All filings
     related to the universal service contributions Further Notice of
     Proposed Rulemaking should refer to WC Docket No. 06-122**. **All
     filings related to numbering reporting issues of the universal
     service contributions Further Notice of Proposed Rulemaking should
     refer to CC Docket No. 99-200.** Comments may be filed using:
     (1) the Commission's Electronic Comment Filing System (ECFS), (2)
     the Federal Government's e-Rulemaking Portal, or (3) by filing
     paper copies. *See* Electronic Filing of Documents in Rulemaking
     Proceedings, 63 FR 24121 (1998).

410. Electronic Filers: Comments may be filed electronically using the
     Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/ or the
     Federal e-Rulemaking Portal: http://www.regulations.gov. Filers
     should follow the instructions provided on the website for
     submitting comments.

411. ECFS filers must transmit one electronic copy of the comments for
     CC Docket Nos. 01‑92, 99-200, or WC Docket No. 06-122,
     respectively. In completing the transmittal screen, filers should
     include their full name, U.S. Postal Service mailing address, and
     the applicable docket number. Parties may also submit an electronic
     comment by Internet e-mail. To get filing instructions, filers
     should send an e-mail to ecfs@fcc.gov, and include the following
     words in the body of the message, "get form." A sample form and
     directions will be sent in response.

412. Paper Filers: Parties who choose to file by paper must file an
     original and four copies of each filing. Filings can be sent by
     hand or messenger delivery, by commercial overnight courier, or by
     first-class or overnight U.S. Postal Service mail (although we
     continue to experience delays in receiving U.S. Postal Service
     mail). All filings must be addressed to the Commission's Secretary,
     Marlene H. Dortch, Office of the Secretary, Federal Communications
     Commission, 445 12th Street, S.W., Washington, D.C. 20554.

413. The Commission's contractor will receive hand-delivered or
     messenger-delivered paper filings for the Commission's Secretary at
     236 Massachusetts Avenue, N.E., Suite 110, Washington, D.C. 20002.
     The filing hours at this location are 8:00 a.m. to 7:00 p.m. All
     hand deliveries must be held together with rubber bands or
     fasteners. Any envelopes must be disposed of [before]{.underline}
     entering the building.

414. Commercial overnight mail (other than U.S. Postal Service Express
     Mail and Priority Mail) must be sent to 9300 East Hampton Drive,
     Capitol Heights, MD 20743.

415. U.S. Postal Service first-class, Express, and Priority mail should
     be addressed to 445 12th Street, S.W., Washington D.C. 20554.

416. Parties should send a copy of their filings in CC Docket No. 01-92
     to Victoria Goldberg, Pricing Policy Division, Wireline Competition
     Bureau, Federal Communications Commission, Room 5-A266, 445 12th
     Street, S.W., Washington, D.C. 20554, or by e-mail to
     cpdcopies@fcc.gov. Parties shall also serve one copy with the
     Commission's copy contractor, Best Copy and Printing, Inc. (BCPI),
     Portals II, 445 12th Street, S.W., Room CY-B402, Washington, D.C.
     20554, (202) 488-5300, or via e-mail to fcc@bcpiweb.com.

417. Parties should send a copy of their filings in WC Docket No. 06-122
     to Jennifer McKee, Telecommunications Access Policy Division,
     Wireline Competition Bureau, Federal Communications Commission,
     Room 5-A423, 445 12th Street, S.W., Washington, D.C. 20554, or by
     e-mail to cpdcopies@fcc.gov. Parties shall also serve one copy with
     the Commission's copy contractor, Best Copy and Printing, Inc.
     (BCPI), Portals II, 445 12th Street, S.W., Room CY-B402,
     Washington, D.C. 20554, (202) 488-5300, or via e-mail to
     fcc@bcpiweb.com.

418. Parties should send a copy of their filings in WC Docket No. 99-200
     to Marilyn Jones, Competition Policy Division, Wireline Competition
     Bureau, Federal Communications Commission, Room 5-A423, 445 12th
     Street, S.W., Washington, D.C. 20554, or by e-mail to
     cpdcopies@fcc.gov. Parties shall also serve one copy with the
     Commission's copy contractor, Best Copy and Printing, Inc. (BCPI),
     Portals II, 445 12th Street, S.W., Room CY-B402, Washington, D.C.
     20554, (202) 488-5300, or via e-mail to fcc@bcpiweb.com.

419. Documents in CC Docket Nos. 01-92, 99-200, and WC Docket No. 06-122
     will be available for public inspection and copying during business
     hours at the FCC Reference Information Center, Portals II, 445 12th
     Street S.W., Room CY-A257, Washington, D.C. 20554. The documents
     may also be purchased from BCPI, telephone (202) 488-5300,
     facsimile (202) 488-5563, TTY (202) 488-5562, e-mail
     fcc@bcpiweb.com.

## Initial Regulatory Flexibility Analysis

420. As required by the Regulatory Flexibility Act of 1980,[^1036] the
     Commission has prepared an Initial Regulatory Flexibility Analysis
     (IRFA) of the possible significant economic impact on small
     entities of the policies and rules addressed in this document. The
     IRFA is set forth in Appendix E. Written public comments are
     requested on this IRFA. Comments must be identified as responses to
     the IRFA and must be filed by the deadlines for comments on the
     Notice provided on or before the dates indicated on the first page
     of this Notice.

## Final Regulatory Flexibility Analysis

421. Pursuant to the Regulatory Flexibility Act (RFA),[^1037] the
     Commission has prepared a Final Regulatory Flexibility Analysis
     (FRFA) for the Report and Order concerning the possible significant
     economic impact on small entities by the policies and actions
     considered in the Report and Order.

## Paperwork Reduction Act

422. This document contains proposed new or modified information
     collection requirements. The Commission, as part of its continuing
     effort to reduce paperwork burdens, invites the general public and
     the Office of Management and Budget (OMB) to comment on the
     information collection requirements contained in this document, as
     required by the Paperwork Reduction Act of 1995, Public Law 104-13.
     In addition, pursuant to the Small Business Paperwork Relief Act of
     2002, Public Law 107-198,[^1038] we seek specific comment on how we
     might "further reduce the information collection burden for small
     business concerns with fewer than 25 employees."

## Accessible Formats

423. To request materials in accessible formats for people with
     disabilities (Braille, large print, electronic files, audio
     format), send an e-mail to fcc504@fcc.gov or call the Consumer &
     Governmental Affairs Bureau at 202-418-0530 (voice) or 202-418-0432
     (TTY). Contact the FCC to request reasonable accommodations for
     filing comments (accessible format documents, sign language
     interpreters, CART, etc.) by e‑mail: FCC504@fcc.gov; phone:
     202-418-0530 or TTY: 202-418-0432.

## Congressional Review Act

424. The Commission will include a copy of this Order on Remand and
     Report and Order and Further Notice of Proposed Rulemaking in a
     report to be sent to Congress and the Government Accountability
     Office pursuant to the Congressional Review Act. *See* 5 U.S.C. §
     801(a)(1)(A).

# ordering clauses

425. Accordingly, IT IS ORDERED that, pursuant to Sections 1--4,
     201--209, 214, 218-220, 224, 251, 252, 254, 303(r), 332, 403, 502,
     and 503 of the Communications Act of 1934, as amended, and Sections
     601 and 706 of the Telecommunications Act of 1996, 47 U.S.C.
     §§ 151--154, 157 nt, 201--209, 214, 218-220, 224, 251, 252, 254,
     303(r), 332, 403, 502, 503, and sections 1.1, 1.411--1.429, and
     1.1200--1.1216 of the Commission's rules, 47 C.F.R. §§ 1.1,
     1.411--1.429, 1.1200--1.1216, the ORDER ON REMAND AND REPORT AND
     ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING ARE ADOPTED.

426. IT IS FURTHER ORDERED that Parts \[\_\_\] of the Commission's
     rules, 47 C.F.R. § \[\_\_\] are AMENDED as set forth in Appendix A
     hereto.

427. IT IS FURTHER ORDERED, in light of the opinion of the United States
     Court of Appeals for the District of Columbia Circuit in
     *WorldCom v. FCC*, 288 F.3d 429 (D.C. Cir. 2002), we consider our
     obligations met from the writ of mandamus issued in *In re Core
     Communications, Inc. on Petition for Writ of Mandamus to the
     Federal Communications Commission*, D.C. Cir. No. 07-1446 (decided
     July 8, 2008).

428. IT IS FURTHER ORDERED that this ORDER ON REMAND AND REPORT AND
     ORDER and Further Notice of Proposed Rulemaking shall become
     effective 30 days after publication of the text of a summary
     thereof in the Federal Register, pursuant to 47 C.F.R. §§ 1.4,
     1.13, except for the information collections, which require
     approval by OMB under the PRA and which shall become effective
     after the Commission publishes a notice in the Federal Register
     announcing such approval and the relevant effective date(s).

429. IT IS FURTHER ORDERED that the Commission's Consumer & Governmental
     Affairs Bureau, Reference Information Center, SHALL SEND a copy of
     this REPORT AND ORDER AND ORDER ON REMAND, including the Final
     Regulatory Flexibility Analyses and Final Regulatory Flexibility
     Certifications, to the Chief Counsel for Advocacy of the Small
     Business Administration.

430. IT IS FURTHER ORDERED that the Commission's Consumer & Governmental
     Affairs Bureau, Reference Information Center, SHALL SEND a copy of
     this FURTHER NOTICE OF PROPOSED RULEMAKING, including the Initial
     Regulatory Flexibility Analyses and Initial Regulatory Flexibility
     Certifications, to the Chief Counsel for Advocacy of the Small
     Business Administration.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Marlene H. Dortch\
> Secretary

**APPENDIX B**

Narrow Universal Service Reform Proposal

+----------------------------------+---+------------------------------+
| In the Matter of                 | ) | WC Docket No. 05-337         |
|                                  |   |                              |
| High-Cost Universal Service      | ) | CC Docket No. 96-45          |
| Support                          |   |                              |
|                                  | ) | WC Docket No. 06-122         |
| Federal-State Joint Board on     |   |                              |
| Universal Service                | ) |                              |
|                                  |   |                              |
| Universal Service Contribution   | ) |                              |
| Methodology                      |   |                              |
|                                  | ) |                              |
|                                  |   |                              |
|                                  | ) |                              |
+----------------------------------+---+------------------------------+

report and order

**Adopted: \[insert date\] Released: \[insert date\]**

By the Commission

Table of Contents

Heading Paragraph \#

I. introduction 1

II\. Reform of high-cost universal service SUPPORT 5

A. Background 5

B. Discussion 12

1\. Controlling the Growth of the High-Cost Fund 14

2\. Reverse Auctions 18

a\. Geographic Area 22

b\. Reserve Price 23

c\. Auctioned Support 25

d\. Selecting a Winning Bid 29

e\. Bidder Qualifications 32

III\. Reform of Universal Service contributions 39

A. Background 40

B. Discussion 44

1\. Legal Authority 45

2\. The New Numbers-Based Assessment Methodology 52

a\. Benefits of a Numbers-Based Contribution Methodology 53

b\. Assessable Numbers 62

3\. Additional Contribution Assessment Methodology for Business Services
78

4\. Wireless Prepaid Plans 83

5\. Exceptions to Contribution Obligations 89

6\. Reporting Requirements and Recordkeeping 95

7\. Transition to New Methodology 102

IV\. procedural matters 105

A. Final Regulatory Flexibility Analysis 105

B. Paperwork Reduction Act 106

C. Accessible Formats 107

D. Congressional Review Act 108

V. Ordering clauses 109

# introduction

1.  In enacting the Telecommunications Act of 1996 (1996 Act),[^1039]
    Congress sought to introduce competition into local telephone
    service, which traditionally was provided through regulated
    monopolies. Recognizing that in introducing such competition, it was
    threatening the implicit subsidy system that had traditionally
    supported universal service, it directed the Commission to reform
    its universal service program to make support explicit and
    sustainable in the face of developing competition.

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431. The resulting development of competition and the rapid development
     of Internet protocol (IP)-based networks have challenged the
     outdated regulatory assumptions underlying our universal service
     programs, forcing us to reassess our existing approaches. We have
     seen unprecedented growth in the universal service fund, driven in
     significant part by increased support for competitive eligible
     telecommunications carriers (ETCs). The growth of competition also
     has eroded the universal service contribution base as the prices
     for interstate and international services have dropped, and, with
     the growth of the Internet, the very definition of interstate and
     international traffic has been called into question.

432. At the same time, universal service distributions have continued to
     grow to support legacy telecommunications networks. In many cases,
     support is used to offset the increasing revenue losses to these
     incumbent carriers as the gap between legacy technology and more
     efficient technologies has widened. Moreover, our method of
     distributing support even to new competitive carriers is not
     designed to bring those competitive choices to all Americans, but,
     rather, it has created incentives for multiple competitive carriers
     to avail themselves of "identical support" in areas where the
     legacy network provider receives the largest subsidies.

433. In short, we are spending more and more of contributors' universal
     service dollars, with less and less to show for it. That stops
     today. Today we adopt a comprehensive approach that stabilizes the
     universal service fund and directs universal service dollars to the
     most efficient provider so that Americans in rural and high-cost
     areas can have access to reasonably comparable services at
     affordable rates. First, we cap the high-cost fund, and move
     expeditiously to adopt a reverse auction approach to better target
     high-cost support to high-cost areas. Then we broaden and stabilize
     our universal service contribution base through equitable and
     non-discriminatory contributions.

# Reform of high-cost universal service SUPPORT

## Background

434. The 1996 Act amended the Communications Act of 1934 (the Act) with
     respect to the provision of universal service.[^1040] Congress
     sought to preserve and advance universal service, while at the same
     time opening all telecommunications markets to competition.[^1041]
     Section 254(b) of the Act directs the Federal-State Joint Board on
     Universal Service (Joint Board) and the Commission to base policies
     for the preservation and advancement of universal service on
     several general principles, plus other principles that the
     Commission may establish.[^1042] Among other things, section 254(b)
     directs that there should be specific, predictable, and sufficient
     federal and state universal service support mechanisms; quality
     services should be available at just, reasonable, and affordable
     rates; and access to advanced telecommunications and information
     services should be provided in all regions of the nation.[^1043]

435. The Commission implemented the universal service provisions of the
     1996 Act in the 1997 *Universal Service First Report and
     Order*.[^1044] In considering methods to determine universal
     service support in rural, insular, and high-cost areas, the
     Commission examined the use of competitive bidding, and identified
     several advantages of competitive bidding as a method for
     allocating high-cost universal service support.[^1045] First, the
     Commission found that "a compelling reason to use competitive
     bidding is its potential as a market-based approach to determining
     universal service support, if any, for any given area."[^1046]
     Second, "by encouraging more efficient carriers to submit bids
     reflecting their lower costs, another advantage of a properly
     structured competitive bidding system would be its ability to
     reduce the amount of support needed for universal service."[^1047]
     Despite these advantages, the Commission determined that the record
     at the time was insufficient to support adoption of a competitive
     bidding mechanism.[^1048] Moreover, the Commission found it
     unlikely that competitive bidding mechanisms would be useful at
     that time because there likely would be no competition in a
     significant number of rural, insular, or high-cost areas in the
     near future.[^1049] The Commission, therefore, declined to adopt a
     competitive bidding mechanism at that time, but found that
     competitive bidding warranted further consideration as a potential
     mechanism for determining levels of high-cost support in the
     future.[^1050]

436. Pursuant to section 254(e) of the Act, an entity must be designated
     as an ETC to receive high-cost universal service support.[^1051]
     ETCs may be incumbent local exchange carriers (LECs), or
     non-incumbent LECs, which are referred to as "competitive
     ETCs."[^1052] Under the existing high-cost support distribution
     mechanism, incumbent LEC ETCs receive high-cost support for their
     intrastate services based on their costs.[^1053] Competitive ETCs,
     on the other hand, receive support for each of their lines based on
     the per-line support the incumbent LEC receives in the service
     area.[^1054] This support to competitive ETCs is known as
     "identical support." The Commission's universal service high-cost
     support rules do not distinguish between primary and secondary
     lines; therefore, high-cost support may go to a single end user for
     multiple connections.[^1055] Further, the Commission's rules may
     result in multiple competitors in the same high-cost area receiving
     identical per-line support.

437. High-cost support for competitive ETCs has grown rapidly over the
     last several years, which has placed extraordinary pressure on the
     federal universal service fund.[^1056] In 2001, high-cost universal
     service support totaled approximately \$2.6 billion.[^1057] By
     2007, the amount of high-cost support had grown to approximately
     \$4.3 billion per year.[^1058] In recent years, this growth has
     been due mostly to increased support provided to competitive ETCs,
     which pursuant to the identical support rule receive high-cost
     support based on the incumbent LEC's per-line support. Competitive
     ETC support, in the six years from 2001 through 2007, has grown
     from under \$17 million to \$1.18 billion---an annual growth rate
     of over 100 percent.[^1059] This "funded competition" has grown
     significantly in a large number of rural, insular, or high-cost
     areas; in some study areas, more than 20 competitive ETCs currently
     receive support.[^1060]

438. To address the growth in competitive ETC support, the Joint Board
     recommended an interim cap on the amount of high-cost support
     available to competitive ETCs, pending comprehensive high-cost
     universal service reform. The Commission adopted this
     recommendation in 2008.[^1061]

439. For the past several years, the Joint Board and the Commission have
     been exploring ways to reform the Commission's high-cost program.
     In the most recent high-cost support comprehensive reform efforts,
     the Joint Board issued a recommended decision on November 20,
     2007.[^1062] The Joint Board recommended that the Commission
     address reforms to the high-cost program and make "fundamental
     revisions in the structure of existing Universal Service
     mechanisms."[^1063] Specifically, the Joint Board recommended that
     the Commission should: (1) deliver high-cost support through a
     provider of last resort fund, a mobility fund, and a broadband
     fund;[^1064] (2) cap the high-cost fund at \$4.5 billion, the
     approximate level of 2007 high-cost support;[^1065] (3) reduce the
     existing funding mechanisms during a transition period;[^1066] (4)
     add broadband and mobility to the list of services eligible for
     support under section 254 of the Act;[^1067] (5) eliminate the
     identical support rule;[^1068] and (6) "explore the most
     appropriate auction mechanisms to determine high-cost universal
     service support."[^1069]

440. On January 29, 2008, the Commission released three notices of
     proposed rulemaking addressing proposals for comprehensive reform
     of high-cost universal service support.[^1070] In the *Identical
     Support NPRM*, the Commission sought comment on the Commission's
     rules governing the amount of high-cost universal service support
     provided to competitive ETCs.[^1071] It tentatively concluded that
     the Commission should eliminate the identical support rule.[^1072]
     The Commission also tentatively concluded that support to a
     competitive ETC should be based on the competitive ETC's own costs
     of providing the supported services, and it sought comment on how
     the support should be calculated, the reporting obligations to be
     applied, and whether the Commission should cap such support at the
     level of the incumbent LEC's support.[^1073] In the *Reverse
     Auctions NPRM*, the Commission tentatively concluded that reverse
     auctions offer several potential advantages over current high-cost
     mechanisms and sought comment on whether they should be used as the
     disbursement mechanism to determine the amount of high-cost
     universal service support for ETCs serving rural, insular, and
     high-cost areas, and it sought comment on how to implement reverse
     auctions for this purpose.[^1074] The Commission also sought
     comment on a number of specific issues regarding auctions and
     auction design.[^1075] The Commission also released the *Joint
     Board Comprehensive Reform NPRM*, seeking comment on the Joint
     Board's Comprehensive Reform Recommended Decision and incorporating
     by reference the *Identical Support NPRM* and the *Reverse Auctions
     NPRM*.[^1076] The discussion that follows represents our response
     to the Joint Board's *Comprehensive Reform Recommended Decision*,
     pursuant to section 254(a)(2).[^1077]

## Discussion

441. Today we comprehensively reform the high-cost universal service
     support mechanism. First, we cap the overall size of the high-cost
     mechanism to protect customers in all areas of the nation from
     increasing universal service contribution assessments. Second, we
     conclude that we will use a reverse auction to distribute both
     incumbent LEC ETC and competitive ETC support, with such auctions
     to conclude within one year of the effective date of the order.

442. The requirements that we adopt for disbursement of high-cost
     universal service support do not apply to providers operating in
     Alaska, Hawaii, or any U.S. Territories and possessions.[^1078] We
     find that these areas have very different attributes and related
     cost issues than do the continental states.[^1079] For this
     reason,[^1080] we are exempting providers in Alaska, Hawaii and
     U.S. Territories and possessions from the requirements and rules
     adopted herein with respect to the disbursement of high-cost
     support, and we will address changes to the high-cost support
     disbursement mechanism in these areas in a subsequent
     proceeding.[^1081]

### Controlling the Growth of the High-Cost Fund

443. Consistent with the recommendation of the Joint Board, we cap the
     total amount of high-cost universal service support at 2007
     levels.[^1082] As the Joint Board recognized, high-cost support
     currently accounts for more than half of total federal universal
     service support.[^1083] Since 1997, when the Commission implemented
     the universal service requirements of section 254 of the Act,
     high-cost support has increased by 240 percent.[^1084] Although,
     earlier this year, we took an initial step to address high-cost
     fund growth by capping support to competitive ETCs, that cap was an
     interim, emergency measure, pending a closer examination of the
     steps necessary to achieve comprehensive reform.[^1085] Many
     commenters have urged the Commission to cap the overall amount of
     high-cost support, rather than limiting the cap only to competitive
     ETCs.[^1086] Although other commenters oppose the adoption of a cap
     on the total amount of high-cost support or on the amount of
     support available to incumbent LEC ETCs,[^1087] we find that, to
     manage the high-cost support mechanism effectively, we must control
     its growth.[^1088]

444. We find it necessary to cap the high-cost mechanism as a first step
     toward fulfilling our statutory obligation to create specific,
     predictable and sufficient universal service support
     mechanisms.[^1089] As the United States Court of Appeals for the
     Fifth Circuit held in *Alenco*: "\[t\]he agency's broad discretion
     to provide sufficient universal service funding includes the
     decision to impose cost controls to avoid excessive expenditures
     that will detract from universal service."[^1090] The *Alenco*
     court also found that "excessive funding may itself violate the
     sufficiency requirements,"[^1091] and the United States Court of
     Appeals for the Tenth Circuit has stated that "excessive
     subsidization arguably may affect the affordability of
     telecommunications services for unsubsidized users, thus violating
     the principle in \[section\] 254(b)(1)."[^1092] Given the excessive
     growth in high-cost support, we find it necessary to cap this
     mechanism to ensure that unsubsidized users who contribute to the
     fund are not harmed by excessive subsidization.

445. In addition to capping the overall high-cost fund at the total
     amount of high-cost support disbursed by the Universal Service
     Administrative Company (USAC) for 2007, consistent with the Joint
     Board's recommendation, we take a number of other steps to limit
     the growth of high-cost support. We also eliminate the identical
     support rule for competitive ETCs.

446. Consistent with section 254(b)(5) of the Act, we find that capping
     high-cost support and using a reverse auction to distribute that
     support to an entity capable of meeting all ETC requirements at or
     below the capped amount will enable ETCs to predict the specific
     level of support that they will receive should they choose to
     participate in the program.[^1093] In fact, through the reverse
     auction process, it will be the bidders, not the Commission, that
     determine how much support they need to offer service. Finally, as
     discussed below, if the reverse auction process does not yield a
     winning bidder, the Commission will reexamine whether it needs to
     take further action with regard to this situation, should it arise.

### Reverse Auctions 

447. We sought comment in our *Reverse Auctions NPRM* on the merits of
     using reverse auctions, a form of competitive bidding, to decide
     how much high-cost support to provide to ETCs serving rural,
     insular, and high-cost areas.[^1094] In a reverse auction, support
     generally would be determined by the lowest bid to serve the
     auctioned area.[^1095] We conclude that using a reverse auction
     method for identifying both the recipient of high-cost support for
     a study area, as well as the amount of support, is appropriate
     because the winning bid should approach the minimum level of
     subsidy required to achieve our universal service goals.[^1096] In
     contrast, a support mechanism based on cost or on a cost model
     provides little incentive for an ETC to provide supported services
     at the minimum possible cost.[^1097] In addition, a reverse auction
     provides a fair and efficient means of eliminating or reducing the
     subsidization of multiple ETCs in a given region.[^1098] For these
     reasons, we find that a reverse auction offers advantages over the
     current high-cost support distribution mechanisms and we adopt a
     reverse auction plan, as discussed below.[^1099]

448. In the *Identical Support NPRM*, the Commission tentatively
     concluded that it should eliminate the current identical support
     rule for competitive ETCs, because the rule bears no relationship
     to the amount of money competitive ETCs have invested in rural and
     other high-cost areas of the country.[^1100] In that notice, the
     Commission tentatively concluded that a competitive ETC should
     receive high-cost support based on its own costs, which better
     reflect real investment in rural and other high-cost areas of the
     country, and which create greater incentives for investment in
     those areas.[^1101]

449. In this order, we adopt the first tentative conclusion, and
     eliminate the identical support rule. However, we reject our
     tentative conclusion that a competitive ETC should receive
     high-cost support based on its own costs, and we conclude, instead,
     that support for competitive ETCs should be awarded in the same
     manner as incumbent LEC ETC support, via reverse auction.[^1102]

450. To implement the reverse auctions, there are several issues that
     must be addressed. We describe in this part: (1) the geographic
     area to be auctioned; (2) the reserve price for the reverse
     auction; (3) what a winning bidder will receive; (4) how the
     winning bidder will be selected; and (5) the qualifications a
     bidder must demonstrate before it may participate in a reverse
     auction.

#### Geographic Area

451. In the *Reverse Auctions NPRM*, we sought comment on whether we
     should use the study area[^1103] as the geographic area for reverse
     auctions.[^1104] We observed that high-cost support today is
     generally based on the wireline incumbent LEC's study area.[^1105]
     We tentatively concluded that the wireline incumbent LEC's study
     area would be the appropriate geographic area on which to base
     reverse auctions.[^1106] We adopt our tentative conclusion that the
     study area is the best geographic area to use for several reasons.
     First, if we allowed bidders to bid to provide service in smaller
     geographic areas, we would encourage bidders to bid on areas that
     are easier or cheaper to serve, leaving our most difficult-to-serve
     populations still without comparable service.[^1107] Conversely, if
     we required bidders to bid on even larger geographic areas, we
     might discourage bidders from entering the auction because of the
     difficulty in committing to serve a larger area. Although some
     commenters oppose using the incumbent LEC's study area as the
     auction area,[^1108] use of the study area is consistent with the
     area on which support is currently based, and it permits a rational
     basis on which to set the reserve price for the auction. Finally,
     selecting smaller geographic areas for auction would increase the
     number of auctions to be held, potentially delaying the conduct of
     the auction and, therefore, the proper targeting of support to
     areas of need.[^1109] For these reasons, we conclude that the study
     area is the best available geographic area to consider for the
     auction. We will conduct a reverse auction for each study area for
     which the incumbent LEC receives high-cost support.

#### Reserve Price

452. In the *Reverse Auctions NPRM*, we noted that we should establish a
     reserve price---a maximum level of high-cost support that
     participants in the auction would be allowed to place as a
     bid.[^1110] We observed that a reserve price that is set too low is
     likely to discourage bidders from participating, while one that is
     set too high raises the possibility of providing too much
     support.[^1111] We conclude that the reserve price should be the
     amount of high-cost support received by the incumbent LEC for 2007.

453. We set the reserve price in each study area at the incumbent LEC's
     2007 level of high-cost support for several reasons. First, we are
     capping the overall high-cost fund at this level. Setting a reserve
     price will help ensure that overall high-cost funding remains
     within the cap. In addition, setting a reserve price at this level
     will ensure that, even in reverse auctions for particular study
     areas that do not garner many bids, those bids will be made by
     providers who are confident that they can assume all the
     obligations of the carrier of last resort (COLR)[^1112] and provide
     service more efficiently than the incumbent LEC.[^1113] Indeed, we
     expect that bidders frequently will offer to provide service using
     newer and more efficient technologies than the incumbent LEC uses
     today. For these reasons, we set the reserve price at the level
     described above.

#### Auctioned Support

454. We will award high-cost support in each study area to a winning
     bidder capable of providing all supported services to the entire
     study area, on a COLR basis, consistent with the requirements of
     this order. The award amount is conditioned on the winning bidder's
     providing all supported services as a COLR, as the incumbent LEC
     does today under state law, and meeting the ETC requirements set
     forth in the *ETC Designation Order*.[^1114]

455. Competitive ETCs are currently required to provide supported
     services throughout their service area, even though they may not
     be, under state law, the COLR.[^1115] In the *ETC Designation
     Order*, the Commission adopted additional requirements for ETC
     designation proceedings in which the Commission acts pursuant to
     section 214(e)(6).[^1116] The Commission requires that applicants
     seeking ETC designation from this Commission demonstrate the
     following: (1) a commitment and ability to provide services,
     including providing service to all customers within its proposed
     service area; (2) that it will remain functional in emergency
     situations; (3) that it will satisfy consumer protection and
     service quality standards; (4) that it offers local usage
     comparable to that offered by the incumbent LEC; and (5) an
     understanding that it may be required to provide equal access if
     all other ETCs in the designated service area relinquish their
     designations pursuant to section 214(e)(4).[^1117] We find that the
     universal service obligations in the *ETC Designation Order* will
     apply to all competitive ETCs winning reverse auctions. Also, we
     find that, as a condition of receiving support, the auction winner
     must accept all of the COLR obligations of the incumbent LEC for
     that study area, whether such obligations are imposed on the LEC
     pursuant to state or federal law.

456. We recognize that a transition mechanism is needed to shift
     high-cost support from the incumbent LEC currently receiving it to
     another ETC that wins an award amount. A flash cut would be harmful
     in at least two ways. First, the incumbent LEC would immediately
     lose support upon which it may rely to maintain supported services
     as a carrier of last resort to consumers today.[^1118] It is
     possible that removing support from the incumbent LEC would, in
     some cases, jeopardize its provision of services to some users. In
     addition, granting a full award amount immediately to a winning ETC
     would provide little incentive for the competitive ETC to build out
     new facilities to difficult-to-serve areas until the last possible
     moment, as in many cases those areas will be the most expensive to
     serve. As a result, we conclude that, prior to the initiation of an
     auction, the incumbent LEC for the study area will be required to
     identify the distribution of support by geographic area for
     purposes of the auction and the transfer of support to the winning
     bidder. As the winning ETC builds out to those geographic areas and
     certifies that it complies with all its obligations under this
     order for that area, it will receive high-cost support for that
     portion of the study area, and the incumbent LEC will no longer
     receive such support for that area.[^1119] As the winning bidder
     takes on COLR obligations and obtains high-cost support for an
     area, the incumbent LEC will no longer receive high-cost support
     for that area and will be relieved of its COLR obligations at both
     the state and federal levels. We require winning auction bidders to
     comply fully with all the requirements of this order by the end of
     a ten-year build-out period.

457. Finally, we address the question of transferability of the award
     amount. We conclude that auction winners may transfer their right
     to the award amount. This transfer could take one of several
     forms---an auction winner could be purchased by another entity, the
     winner could sell assets used to provide the supported services, or
     the auction winner could transfer just the right to the award
     amount itself. The transferee will, in all events, step into the
     shoes of the auction winner and will be responsible for meeting all
     obligations as if it had been the original auction winner. Any such
     transfer, however, must be authorized by the Commission before it
     is consummated.

#### Selecting a Winning Bid

458. In the *Reverse Auctions NPRM*, we sought comment on whether the
     reverse auction should award high-cost support to a single winner
     or to multiple winners.[^1120] We observed that if only one winner
     receives support, this could provide a fair and efficient means of
     eliminating the subsidization of multiple ETCs in a region,
     particularly in areas in which costs are prohibitive.[^1121] We
     tentatively concluded that universal service support auctions
     should award high-cost support to a single winner.[^1122] We now
     conclude that the single winner format will provide the most
     effective mechanism for determining the support amount sufficient
     to meet the universal service goals in any given area.[^1123] We
     therefore adopt our tentative conclusion to select one winner in
     each reverse auction.

459. We will evaluate bids simply, based on the bidder who meets all
     applicable service obligations at the lowest level of support. To
     qualify for consideration, a bid must be equal to or less than the
     reserve price.

460. If a particular reverse auction produces no winner, the Commission
     will reexamine any such study area to determine what further
     actions should be taken to ensure that the study area is served by
     a provider that will meet the applicable ETC and COLR requirements.
     For example, the Commission may consider disaggregating the study
     area on a wire center basis for reverse auction purposes. To ensure
     continued service to customers during the limited period of time in
     which the Commission examines these issues, the existing incumbent
     LEC will continue to have all COLR and ETC obligations, and it will
     continue to receive high-cost support pending transfer of such
     support to the winning bidder of the reverse auction. There shall
     be no interim support in any study area to an existing competitive
     ETC pending the completion of the reverse auction.

#### Bidder Qualifications

461. We adopt a number of conditions that bidders must meet before they
     can participate in any auction. We adopt these requirements to help
     ensure that any bidder who wins an auction will be capable of
     meeting the commitments that flow from being a winning bidder.

462. First, we require that a bidder be an ETC, certified by the
     Commission or by a state. In the *Reverse Auctions NPRM*, we
     tentatively concluded that an auction bidder must be an ETC
     covering the relevant geographic area prior to participating in the
     auction.[^1124] We hereby adopt that tentative conclusion. Winning
     bidders must be designated as ETCs before receiving high-cost
     support pursuant to sections 214 and 254 of the Act; therefore,
     requiring bidders to receive this designation prior to
     participating in an auction entails only a small additional burden.
     This burden is offset by the potential abuse and delay that could
     result if a non-ETC were to bid on and win the auction, but then be
     ineligible for support.[^1125] We note that ETCs are not required
     to provide all supported services with their own facilities.[^1126]
     ETCs may enter into contracts with other entities to provide some
     supported services in part or all of the study area.

463. As a general matter, in our spectrum auctions we require an upfront
     payment to deter frivolous or insincere bidding.[^1127] In the
     reverse auctions we adopt today, we are not requiring an upfront
     payment. Instead, we are requiring participants to demonstrate to
     the Commission financial capability to undertake the construction
     of facilities necessary to meet ETC requirements and to satisfy
     COLR obligations. In addition, in areas where the bidder does not
     currently offer telecommunications services, we will require the
     bidder to submit a plan demonstrating the timetable for building
     the necessary facilities and obtaining any required permits.

464. *Milestones for Auction Winners*. To ensure that auction winners
     make good progress toward meeting their obligation to become fully
     compliant with the requirements of this order, we require every
     auction winner to be capable of serving 10 percent of the potential
     customers in the service area by the end of year two, 25 percent by
     the end of year three, 50 percent by the end of year four, 65
     percent by the end of year five, 75 percent by the end of year six,
     85 percent by the end of year seven, 90 percent by the end of year
     eight, 95 percent by the end of year nine, 100 percent by the end
     of year ten. The absence of a milestone at the end of year one is
     intended to allow new service providers sufficient time to plan
     their network and to start deploying and marketing it within some
     parts of the service area. Similarly, the ascending milestones in
     the remaining years are intended to permit the auction winner a
     reasonable time in which to build its network and services while
     ensuring that it does not delay in reaching customers who need this
     vital service. The ten-year build-out period starts on the date on
     which that carrier wins the auction.

465. *Consequences of Not Meeting Milestones*. For all ETCs receiving
     high-cost support, failure to achieve any milestone will result in
     loss of eligibility for support (and, where this Commission has
     jurisdiction over the designation of ETC status, loss of ETC
     status) for that service area. If the auction winner loses its
     eligibility for support, the study area will be subject to
     re-auction. If at the end of the build-out period, the ETC is not
     fully compliant with all its obligations under this order, the ETC
     will forfeit its eligibility for support and, if its ETC
     designation was made by this Commission, lose its ETC status.

466. *Milestone Audits*. All milestone data will be subject to audit by
     the Commission's Office of Inspector General and, if necessary,
     investigated by the Office of Inspector General, to determine
     compliance with the build-out requirements, the Act, and Commission
     rules and orders.[^1128] Service providers will be required to
     comply fully with the Office of Inspector General's audit
     requirements, including, but not limited to, providing full access
     to all accounting systems, records, reports, and source documents
     of the service providers and their employees, contractors, and
     other agents, in addition to all other internal and external audit
     reports that are involved, in whole or in part, in the
     administration of this program.[^1129] Such audits or
     investigations may provide information showing that a service
     provider failed to comply with the Act or the Commission's rules,
     and thus may reveal instances in which universal service support
     was improperly distributed or used.

467. We emphasize that we retain the discretion to evaluate the uses of
     monies disbursed through the high-cost program and to determine on
     a case-by-case basis whether waste, fraud, or abuse of program
     funds occurred and whether recovery is warranted. We remain
     committed to ensuring the integrity of the universal service
     program and will aggressively pursue instances of waste, fraud, and
     abuse under the Commission's procedures and in cooperation with law
     enforcement agencies. In doing so, we intend to use any and all
     enforcement measures, including criminal and civil statutory
     remedies, available under law.[^1130]

# Reform of Universal Service contributions 

468. In this order, we adopt a telephone numbers-based methodology under
     which contributors will contribute based on the number of telephone
     numbers they have assigned to end users (Assessable Numbers) and
     dedicated access connections for business customers. The new
     contribution methodologies will be implemented beginning on January
     1, 2010.

## Background

469. In implementing the universal service requirements of the 1996 Act,
     the Commission established a method for collecting funds to be
     disbursed through the various universal service support mechanisms.
     Specifically, the Commission determined that contributions to the
     universal service fund would be assessed on telecommunications
     providers based on their interstate and international end-user
     telecommunications revenues.[^1131] The Commission concluded that
     basing providers' universal service contributions on their revenues
     would be competitively neutral, easy to administer, and
     explicit.[^1132]

470. When the Commission adopted the revenue-based contribution system,
     assessable interstate revenues were growing. The total assessable
     revenue base has declined in recent years, however, from about
     \$79.0 billion in 2000 to about \$74.5 billion in 2006,[^1133]
     while universal service disbursements grew over that same time
     period from approximately \$4.5 billion in 2000 to over \$6.6
     billion in 2006.[^1134] Declines in assessable contribution
     revenues combined with growth in universal service disbursements
     have increased the contribution factor applied to determine
     universal service contribution amounts.[^1135] This upward pressure
     jeopardizes the stability and sustainability of the support
     mechanisms, demonstrating the need for long-term fundamental reform
     of the contribution methodology.[^1136]

471. In addition, interstate end-user telecommunications service
     revenues are becoming increasingly difficult to identify as
     customers migrate to bundled packages of interstate and intrastate
     telecommunications and non-telecommunications products and
     services.[^1137] The integration of local and long-distance
     wireline services into packages that allow customers to purchase
     buckets of long distance minutes and local service for a single
     price blurs the distinction between revenue derived from intrastate
     telecommunications service and interstate telecommunications
     service. Similarly, the availability of mobile wireless calling
     plans that allow customers to purchase buckets of minutes on a
     nationwide network without incurring roaming or long-distance
     charges also makes it difficult for providers and the Commission to
     identify the amount of revenue derived from interstate
     telecommunications service.[^1138] Further, migration to
     interconnected voice over Internet protocol (VoIP) services
     complicates the distinctions that serve as the basis for current
     contribution obligations.[^1139]

472. In 2001 and 2002, the Commission sought comment on modifications to
     the existing revenue-based contribution methodology, and on
     replacing that methodology with one that assesses contributions on
     the basis of a flat-fee charge, such as a per-line charge.[^1140]
     The Commission also sought comment on other universal service
     contribution methodologies, including moving to a numbers-based
     methodology.[^1141] Finally, in May 2008, the Commission encouraged
     commenters to refresh the record in several pending proceedings,
     including the contribution methodology proceeding.[^1142]

## Discussion

473. The system of contributions to the universal service fund is
     broken. The Commission has repeatedly patched the current system to
     accommodate decreasing interstate revenues, a trend toward
     "all-you-can-eat" services that make distinguishing interstate from
     other revenues difficult if not impossible, and changes in
     technology. While the service developments that precipitated these
     changes have enormous consumer benefits, they have also severely
     strained the contributions system.[^1143] We therefore adopt today
     a system of contributions that will assess all telephone numbers,
     and dedicated access connections for business services.

### Legal Authority

474. The Commission has ample authority to require contributions from
     the variety of providers discussed below. The Commission's
     authority derives from several sections of the Act: section 254(d),
     Title I, and section 251(e). These sections of the statute provide
     us authority to require contributions from the kinds of service
     providers we address below in our discussions of the new
     numbers-based and business connections-based approach.

475. Section 254 is the cornerstone of the Commission's universal
     service program. Section 254(d) first provides 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."[^1144] Under this "mandatory
     contribution" provision, every provider of telecommunications
     services[^1145] must contribute, although the Commission has
     authority to exempt a carrier or class of carriers if their
     contributions would be *de minimis*.[^1146]

476. Section 254(d) also provides that the Commission may require
     "\[a\]ny other provider of interstate telecommunications . . . to
     contribute to the preservation and advancement of universal service
     if the public interest so requires."[^1147] The Commission has
     relied on this "permissive authority" to require various providers
     of telecommunications,[^1148] but not necessarily
     telecommunications *services*,[^1149] to contribute. For example,
     the Commission has required entities that provide interstate
     telecommunications to others on a private contractual basis to
     contribute to the universal service fund,[^1150] as well as
     payphone aggregators.[^1151] Most recently, we required
     interconnected VoIP providers to contribute even though the
     Commission has not determined that they are telecommunications
     carriers. Specifically, in the *2006 Interim Contribution
     Methodology Order*, we used our permissive authority under section
     254(d) to require interconnected VoIP providers to contribute, and
     we noted that they "provide" telecommunications to their end
     users.[^1152] We also noted that in some cases, the interconnected
     VoIP provider may be "providing" telecommunications even if it
     arranges for the end user to have access to the public switched
     telephone network (PSTN) through a third party.[^1153]

477. The Commission also has authority under Title I to require other
     service providers to contribute. In general, the Commission can
     rely on its ancillary jurisdiction under Title I when the
     Commission has subject matter jurisdiction over the service to be
     regulated, and the assertion of jurisdiction is "reasonably
     ancillary to the effective performance of \[its\] various
     responsibilities." [^1154] The Commission relied on this authority
     before section 254 was added by the 1996 Act to establish a
     high-cost support fund,[^1155] which the U.S. Court of Appeals for
     the D.C. Circuit found to be a permissive exercise of Title I
     authority.[^1156] And more recently in the *2006 Interim
     Contribution Methodology Order*, the Commission relied on its
     ancillary jurisdiction under Title I as an additional source of
     authority to require contributions from interconnected VoIP
     providers.[^1157] In that order, the Commission noted that the Act
     grants subject matter jurisdiction over interconnected VoIP because
     it involves "transmission" of voice by wire or radio,[^1158] and
     that imposing contribution obligations on interconnected VoIP
     providers was "reasonably ancillary" to the effective performance
     of the Commission's responsibilities to establish "specific,
     predictable, and sufficient mechanisms . . . to preserve and
     advance universal service."[^1159] In particular, the Commission
     noted that interconnected VoIP providers "benefit from their
     interconnection to the PSTN."[^1160]

478. In addition, Congress provided the Commission with "plenary
     authority" over numbering in section 251(e). Specifically, the
     Commission has "exclusive jurisdiction over those portions of the
     North American Numbering Plan \[NANP\] that pertain to the United
     States."[^1161] The Commission relied on its authority under
     section 251(e) to support its action to require interconnected VoIP
     providers to provide E911 services.[^1162] The Commission noted
     that it exercised its authority under section 251(e) because, among
     other reasons, "interconnected VoIP providers use NANP numbers to
     provide their services."[^1163]

479. These sections of the Act provide the Commission ample authority to
     require contributions from all providers subject to the new
     numbers-based and connections-based approaches described in more
     detail below. These methodologies may require some providers to
     contribute directly to universal service when in the past they may
     have been contributing only indirectly or not at all. For example,
     under the numbers-based approach, any provider who assigns an
     Assessable Number to an end user must contribute.[^1164] Providers
     such as VoIP providers who are not "interconnected VoIP" providers,
     electronic facsimile service providers, unified messaging service
     providers, Internet-based TRS providers, one-way and two-way paging
     service providers, and telematics providers may assign Assessable
     Numbers to and maintain the retail relationship with the end
     users.[^1165] Not all of these providers are "telecommunications
     carriers" subject to the mandatory contribution obligation of
     section 254(d). Nonetheless, we have authority to require them to
     contribute. First, all of these providers provide---directly or
     indirectly---some amount of interconnection to the PSTN, the
     network that universal service supports. Interconnection to the
     PSTN benefits the consumers of each of these types of services by
     facilitating communication (even if just one-way communication)
     between the end user and PSTN users. As we noted in the *2006
     Interim Contribution Methodology Order*, interconnected VoIP
     providers often provide access to the PSTN via third parties[^1166]
     and this is sufficient to permit the Commission to rely on its
     authority to require contributions from "other provider\[s\] of
     interstate telecommunications."[^1167] And as we explain below, it
     is in the public interest (as required by section 254(d)) that
     these providers contribute. Furthermore, the prerequisites for the
     use of our Title I ancillary jurisdiction unquestionably are met
     here. All the services that rely on assignment of an Assessable
     Number to an end user come within the Commission's broad subject
     matter jurisdiction because they involve in some manner "interstate
     . . . communication by wire or radio."[^1168] And similar to our
     explanation in the *2006 Interim Contribution Methodology Order*,
     requiring contributions from providers who take advantage of PSTN
     connectivity whether directly or indirectly makes sense because
     their end users benefit from the ubiquity of that network and from
     being somehow interconnected with it.[^1169] Finally, our plenary
     authority over numbering supports our actions here with regard to a
     numbers-based methodology. The purpose of a uniform system of
     numbering is to facilitate communication on interconnected networks
     based on a standardized system of identifiers---telephone numbers.
     Those customers who are assigned telephone numbers, whether for
     plain old telephone service (POTS) or for any other service, are
     using the number to take advantage of some feature of the PSTN,
     whether it is the capability to be called, to have their locations
     automatically relayed to emergency call handlers, to be faxed from
     anywhere, or for some other reason. Because customers are receiving
     this benefit, it is appropriate that their service providers (and
     ultimately, likely, the customers themselves) contribute to the
     ubiquity and support of the network from which they are benefiting.

480. We reject suggestions that we do not have authority to require
     contributions based on numbers or connections because we lack
     authority over intrastate services.[^1170] The same number
     typically is used for both interstate and intrastate services. The
     Commission and courts have rejected the assertion that simply
     because a single facility has the capacity to provide both
     interstate and intrastate services, the Commission lacks authority
     to regulate any aspect of the facility.[^1171] In fact, the
     subscriber line charge (SLC) that the Commission established is
     intended to capture the interstate cost of the local loop.[^1172]
     The contribution methodologies we adopt are thus limited to
     assessments on services that can provide interstate service. We
     will only require providers to contribute to universal service
     based on the number of Assessable Numbers that are capable of
     originating or terminating interstate or international
     communications.[^1173]

### The New Numbers-Based Assessment Methodology 

481. As discussed above, we adopt a new contribution methodology based
     on assessing telephone numbers, rather than interstate and
     international services revenue. We find that this change will
     benefit contributors and end users by simplifying the contribution
     process and providing predictability as to the amount of universal
     service contributions and pass-through charges for end users. We
     set the contribution amount per telephone number initially at
     \$0.85 per number per month.

#### Benefits of a Numbers-Based Contribution Methodology 

482. We find that adoption of a telephone number-based methodology, in
     conjunction with the business access connections contributions
     explained below, will help preserve and advance universal service
     by ensuring a specific, predictable, and sufficient funding source,
     consistent with the universal service principles of section 254(b)
     of the Act.[^1174] Changes in technology and services have made the
     revenue-based contribution mechanism difficult to administer. As
     commenters have noted, the distinction between intrastate and
     interstate revenues is blurring as providers move from their
     traditional roles as pure LECs or interexchange carriers (IXCs) to
     businesses that offer consumers the choice of purchasing their
     telecommunications needs from a single source.[^1175] Additionally,
     these providers are offering consumers greater flexibility, such as
     bundling of local and long distance service at a flat rate.[^1176]
     Moreover, technologies such as wireless and interconnected VoIP
     have emerged that provide voice and data services that know no
     jurisdictional boundaries.[^1177] Consumers benefit from the
     opportunity to obtain bundled services, and the universal service
     contribution mechanism should reflect and complement those
     marketplace and technological developments as much as possible. Our
     decision to use numbers as a basis for assessing contributions will
     enhance the specificity and predictability of entities'
     contributions.

483. Our adoption of a numbers-based contribution methodology will
     benefit both consumers and contributors by simplifying the basis
     for assessments at an amount per month per telephone number.[^1178]
     Contributors are allowed, and in most cases do, recover their
     universal service contribution costs from fees assessed on their
     end-user customers.[^1179] Under the revenue-based contribution
     mechanism, providers' revenues fluctuated from quarter to quarter,
     causing consumers' universal service fees to fluctuate not only to
     meet fund demands, but also based on the fluctuation of a
     provider's revenues as well. A simple per-number contribution
     assessment is simple and predictable for both contributors and for
     consumers. To the extent a contributor elects to recover its
     contribution costs through end-user fees, its customers will pay
     one assessment on each telephone number each month, making the
     assessment simple and predictable.[^1180]

484. A numbers-based contribution methodology also benefits end users
     because it is technologically and competitively neutral. A consumer
     will pay the same universal service charge regardless of whether
     the consumer receives residential service from a cable provider, an
     interconnected VoIP provider, a wireless provider, or a wireline
     provider. This will enable residential consumers to choose the
     providers and provider types they want without regard to any
     artificial distortions that would otherwise be caused by differing
     contribution charges.[^1181] In a marketplace characterized by
     increased competition within and between different technology
     platforms, residential consumers will receive the same universal
     service charge regardless of the type of service the customer
     chooses.

485. Similarly, by subjecting contributors to the same regulatory
     framework for assessments regardless of technology, the
     numbers-based methodology will eliminate incentives under the
     current revenue-based system for providers to migrate to services
     and technologies that are either exempt from contribution
     obligations or are subject to safe harbors.[^1182] The elimination
     of such incentives will result in a more competitively and
     technologically neutral marketplace and a more predictable source
     of funding for the universal service mechanisms.

486. The adoption of a per number per month contribution assessment is
     specific and predictable and will simplify the administration of
     universal service contributions. Interstate end-user
     telecommunications revenues have become increasingly difficult to
     identify, particularly for residential services, due to increased
     bundling of local and long distance service and the growth of
     consumer interconnected VoIP offerings.[^1183] In contrast,
     telephone numbers provide an easily identifiable basis for
     contribution.[^1184] The amount of NANP telephone numbers in use
     has shown steady, stable growth, providing a fairly constant basis
     for estimating universal service support amounts.[^1185] The new
     methodology will be easier to administer, facilitating greater
     regulatory compliance. A numbers-based contribution methodology
     will also be readily applicable to emerging service offerings. The
     new methodology minimizes the potential for providers to avoid
     contributions by bundling intrastate revenues with interstate
     revenues or engaging in other bypass activities.[^1186]

487. Further, assessing universal service contributions based on
     telephone numbers will promote number conservation.[^1187]
     Telephone numbers are a finite, public resource. If contributors
     are assessed based on the telephone numbers they have assigned to
     end users, they will have an incentive to efficiently manage their
     numbering resources in a manner that minimizes their costs. We
     expect that this will result in the need for fewer area code splits
     or overlays due to number exhaust.[^1188]

488. Our adoption of a numbers-based contribution methodology is
     consistent with the goal of ensuring just, reasonable, and
     affordable rates.[^1189] The initial per-number assessment of
     \$0.85 per number per month will represent a reduction in
     pass-through charges for many residential customers.[^1190]
     Although an \$0.85 per number per month assessment may represent an
     increase in universal service charges for residential customers
     that make few or no long distance calls, this increase should be
     slight. Under the current revenue-based contribution mechanism,
     providers may assess a federal universal service fee on the basis
     of the customer's SLC. The residential SLC may be as high as \$6.50
     per month.[^1191] Based on the most recent contribution factor of
     11.4 percent, even a customer who made no long distance calls could
     thus be assessed \$0.74 per month in universal service charges
     under the existing revenue-based methodology.[^1192] Thus, the
     potential increase for a customer who makes no long distance calls
     could be as little as \$0.11 per month. In addition, we have
     separate protections to ensure that telephone service remains
     affordable for low-income subscribers.[^1193]

489. Some commenters assert that assessing a per-number universal
     service charge is inherently unfair because it does not take into
     account the fact that some people make many interstate and
     international calls, while others make few if any such calls in a
     given month.[^1194] We disagree. We find that imposition of a flat
     charge per number is warranted because all contributors and their
     subscribers receive a benefit from being connected to the public
     network, enabling them to make and receive interstate calls.[^1195]
     The ability to make or receive interstate calls over a public
     network is a significant benefit and it is reasonable to assess
     universal service contributions for customers based on access to
     the network. Customers who do not make any interstate calls still
     receive the benefit of accessing the network to receive interstate
     calls. The per month per number assessment reflects our finding
     that it is equitable for providers to contribute a fixed amount
     based on the ability to access and utilize a ubiquitous public
     network.

490. Some commenters allege that changing from the current revenue-based
     methodology to a new mechanism based on telephone numbers would not
     be equitable because it could reduce contributions from certain
     industry segments and increase them for others.[^1196] Although the
     change to a numbers-based contribution methodology will result in
     changes in the relative contribution obligations of industry
     segments, the new contribution methodology is not inequitable or
     discriminatory. The evolving nature of the telecommunications
     marketplace and of its participants requires the Commission
     periodically to review and revise the contribution methodology to
     ensure that providers continue to be assessed on an equitable and
     non-discriminatory basis. We find that, given the difficulties in
     continuing to assess contributions entirely on a revenue-based
     methodology and the benefit to consumers of access to the public
     network, it is equitable to adopt a numbers-based contribution
     methodology that assesses \$0.85 per month per number.

#### Assessable Numbers

491. Below, we describe the telephone numbers for which service
     providers are obligated to contribute to the universal service
     fund. We call these Assessable Numbers. The Commission has
     addressed certain reporting based on telephone numbers in other
     contexts. In the number utilization context, the Commission
     requires that each telecommunications carrier that receives
     numbering resources from the North American Numbering Plan
     Administrator (NANPA), the Pooling Administrator, or another
     telecommunications carrier report its numbering resources in each
     of six defined categories of numbers set forth in section 52.15(f)
     of our rules.[^1197] In the regulatory fee context, the Commission
     used the category of "assigned numbers" as the starting point for
     determining how to assess fees on certain providers, but found it
     necessary to modify that definition to account for the different
     regulatory contexts. Specifically, in assessing regulatory fees for
     commercial mobile radio service (CMRS) providers that report number
     utilization to NANPA based on the reported assigned number count in
     their Numbering Resource Utilization and Forecast (NRUF) data, the
     Commission requires these providers to adjust their assigned number
     count to account for number porting. The Commission found that
     adjusting the NRUF data to account for porting was necessary for
     the data to be sufficiently accurate and reliable for purposes of
     regulatory fee assessment.[^1198]

492. We adopt a new term based on the category of assigned numbers to
     represent the numbers being assessed for universal service
     contribution purposes---"Assessable Numbers." The definition of
     Assessable Numbers that we adopt focuses on those numbers that are
     actually in use by end users for services that traverse a public
     interstate network. Specifically, we define an Assessable Number as
     a NANP telephone number or functional equivalent identifier[^1199]
     in a public or private network that is in use by an end user and
     that enables the end user to receive communications from or
     terminate communications to (1) an interstate public
     telecommunications network or (2) a network that traverses (in any
     manner) an interstate public telecommunications network.[^1200]
     Assessable Numbers include geographic as well as non-geographic
     telephone numbers (such as toll-free numbers and 500-NXX numbers)
     so long as they meet the other criteria described in this part for
     Assessable Numbers.

493. The provider with the retail relationship to the end user is the
     entity responsible for contributing.[^1201] We impose the
     contribution obligation on the provider with the retail
     relationship to the end user for several reasons. First, this
     provider will have the most accurate and up-to-date information
     about how many Assessable Numbers it currently has assigned to end
     users. Also, this provider, and its users, are benefiting from a
     supported PSTN, and thus it is sound policy to require them to
     contribute to its support.[^1202] We note that today, providers are
     permitted to pass through their contribution assessments to end
     users, and we understand that they typically do so.[^1203] Under
     the new methodologies, they may continue to do so, subject to the
     same requirement that they will not pass through more than their
     contribution amount.[^1204]

494. We also continue to define an "end user" for universal service
     contribution purposes as any purchaser of interstate services that
     is not itself a direct contributor to universal service.[^1205] For
     example, under this definition, a reseller that offers local
     exchange service to an end user would be assessed for that
     telephone number, not the incumbent LEC whose service is being
     resold.[^1206] We recognize that, in some situations, the entity
     with the direct relationship with the ultimate end user may not be
     an entity over which the Commission has exercised its mandatory or
     permissive authority under section 254(d). In such situations, we
     will treat that entity as the end user and its underlying carrier
     or telecommunications provider as the contributor. This approach
     ensures that each Assessable Number will be assessed its
     appropriate universal service contribution, while also ensuring
     that the Commission does not exceed its authority under section
     254(d).[^1207]

495. Next, we specify whether certain types of numbers are included in
     the definition of Assessable Numbers. First, numbers used for
     intermittent or cyclical purposes are included in the definition of
     Assessable Numbers. Numbers used for cyclical purposes are numbers
     designated for use that are typically "working" or in use by the
     end user for regular intervals of time. These numbers include, for
     example, an end user's summer home telephone number that is in
     service for six months out of the year.[^1208] In the *NRO III
     Order*, the Commission clarified that these types of numbers should
     generally be categorized as "assigned" numbers if they meet certain
     thresholds and that, if they do not meet these thresholds, they
     "must be made available for use by other customers" (i.e., they are
     "available" numbers).[^1209] Because these numbers are assigned to
     end users, we find they should be included in the definition of
     Assessable Numbers we adopt today.

496. We exclude from our definition of Assessable Numbers those
     telephone numbers that satisfy the section 52.15 definition of
     "assigned numbers" solely because the "numbers \[are\] not yet
     working but hav\[e\] a customer service order pending" for five
     days or less.[^1210] Providers generally do not bill for services
     that have yet to be provisioned and therefore are not compensated
     for services during the pendency of the service order. Moreover,
     such numbers are not yet operational to send or receive calls.
     Thus, under the existing contribution methodology, providers would
     not contribute for services they are about to provide (but have not
     yet provided) under a pending service order. We continue to find it
     appropriate for contributors not to be required to contribute to
     the universal service fund for pending service orders.

497. We exclude from the definition of Assessable Numbers those
     telephone numbers that telecommunications providers have
     transferred or ported to a carrier using resale or the unbundled
     network element platform. Under prior numbering orders, such
     telephone numbers would still be included in the NRUF assigned
     number count of the transferring-out carrier.[^1211] Consistent
     with our definition of Assessable Numbers, because the underlying
     provider no longer maintains the retail relationship with the end
     user, the provider should not include these numbers in its
     Assessable Number count. Conversely, the receiving provider of such
     transferred customers would include the associated telephone
     numbers in its count of Assessable Numbers.

498. We exclude from the definition of Assessable Numbers those numbers
     that meet the definition of an Available Number, an Administrative
     Number, an Aging Number, or an Intermediate Number as those terms
     are defined in section 52.15(f) of the Commission's rules.[^1212]
     For a particular carrier, the carrier will not have an end user
     associated with a number in any of these categories of numbers. For
     example, an intermediate number is a number that is "made available
     for use by another telecommunications carrier or non-carrier entity
     for the purpose of providing telecommunications service to an end
     user or customer."[^1213] The receiving provider will be
     responsible for including the number as an Assessable Number once
     it provides the number to an end user.[^1214]

499. We exclude non-working telephone numbers from the definition of
     Assessable Number. Carriers report as assigned numbers for NRUF
     purposes entire codes or blocks of numbers dedicated to specific
     end-user customers if at least fifty percent of the numbers in the
     code or block are working in the PSTN.[^1215] Consistent with our
     definition of Assessable Numbers, carriers should not include the
     non-working numbers in these blocks in their Assessable Number
     counts, because the non-working numbers portion of these blocks are
     not providing service to the end user.

500. We exclude from the definition of Assessable Number those numbers
     that are used merely for routing purposes in a network, so long as
     such numbers are always---without exception---provided without
     charge to the end user, are used for routing only to Assessable
     Numbers for which a universal service contribution has been paid,
     and the ratio of such routing numbers to Assessable Numbers is no
     greater than 1:1. For example, a NANP number used solely to route
     or forward calls to a residential number, office number, and/or
     mobile number would be excluded from our definition of Assessable
     Number if such routing number were provided for free, and such
     number routes calls only to Assessable Numbers. If, however, such
     routing or forwarding is provided for a fee, such as with remote
     call forward service or foreign exchange service, both the routing
     number and the end user number to which calls are routed or
     forwarded would be considered Assessable Numbers.

501. In addition, incumbent LECs need not include numbers assigned to
     wireless providers that interconnect at the end office of an
     incumbent LEC and have obtained numbers directly from the incumbent
     LEC.[^1216] Because the incumbent LEC does not have the retail
     relationship with the end user, it should not include these numbers
     in its Assessable Number count. The wireless carriers that have the
     retail relationship with the end users must include these telephone
     numbers in their Assessable Number count.

502. Finally, we exclude from the definition of Assessable Numbers those
     numbers associated with Lifeline services for the reasons described
     below.[^1217]

503. We do not restrict our definition to numbers that exclusively use
     the PSTN.[^1218] Evolution in communications technology away from
     the PSTN to alternative networks that may only partially (if at
     all) traverse the PSTN is one of the causes in the erosion of the
     contribution base under the current revenue-based methodology. As
     more service providers migrate to alternative networks that
     partially access the PSTN, continuing to assess universal service
     contributions based only on traffic that exclusively traverses the
     PSTN will not account for this migration; nor will it allow us to
     meet our principle of competitive neutrality.[^1219] Moreover, if a
     service provider connects a private network to a public network,
     the service provider and its customers benefit from the connection
     to the PSTN. Because universal service supports the PSTN and these
     parties connect to the PSTN, they benefit from universal
     service.[^1220] Thus, it is increasingly important that we conform
     our regulatory definitions to recognize this reality. Indeed, the
     Commission has already begun to recognize the need to create a
     level regulatory playing field. For example, calls to end users
     that utilize interconnected VoIP service are not wholly within the
     PSTN. Indeed, calls between two interconnected VoIP users may not
     touch the PSTN at all. Yet we found in 2006 that interconnected
     VoIP providers must contribute to the universal service
     fund.[^1221] For these reasons, we conclude that our definition
     must account for public or private interstate networks, regardless
     of the technology of the network (e.g., circuit-switched,
     packet-switched) or the transmission medium of the network (e.g.,
     wireline, wireless).

504. Finally, we recognize that, by declining to adopt for contribution
     purposes verbatim the definition of "assigned numbers" in section
     52.15(f) of our rules, which is used by carriers to file NRUF
     reports,[^1222] we may nominally increase some of the
     administrative burden associated with universal service
     contribution filings. We find, however, that any minor
     administrative cost increases arising from not using the
     pre-existing definition are outweighed by the benefits of modifying
     the definition to achieve sound universal service policy. For
     example, as stated above, the existing definition of assigned
     numbers would not enable us to meet our universal service
     contribution goal of ensuring that the provider with the retail
     relationship to the end user be the one responsible for
     contributing.[^1223]

505. Under our numbers-based approach, certain providers will be
     required to contribute to the universal service fund based on
     Assessable Numbers even though they are not today required to
     submit NRUF data. Section 52.15(f) of the Commission's rules
     requires only "reporting carriers" to submit NRUF data to the
     NANPA.[^1224] A "reporting carrier" is defined as a
     telecommunications carrier that receives numbering resources from
     the NANPA, the Pooling Administrator, or another telecommunications
     carrier.[^1225] In the case of numbers provided by a
     telecommunications carrier to a non-carrier entity, the carrier
     providing the numbers to such entities must report NRUF data to the
     NANPA for those numbers. Thus, non-carrier entities that use
     telephone numbers in a manner that meets our definition of
     Assessable Numbers do not report NRUF data yet must
     contribute.[^1226] For example, interconnected VoIP providers may
     use telephone numbers that meet our definition of Assessable
     Numbers even though these providers do not report NRUF data.[^1227]
     These non-carrier entities that use numbers in a manner that meets
     our definition of Assessable Number will be required to determine
     their Assessable Number count based on their internal records
     (e.g., billing system records) and will be required to report such
     numbers to USAC.[^1228]

506. We are mindful that our move to a numbers-based contribution
     methodology may encourage entities to try to avoid their
     contribution obligations by developing ways to bypass the use of
     NANPA-issued numbers.[^1229] To the extent, however, these
     alternative methods are the functional equivalent of numbers and
     otherwise meet our definition of Assessable Numbers, such entities
     must report these functional equivalents as Assessable Numbers to
     the universal service fund administrator.

### Additional Contribution Assessment Methodology for Business Services

507. Although we find that a numbers-based contribution mechanism is
     superior to the existing revenue-based mechanism for residential
     services, applying a pure numbers-based approach to business
     services would result in inequitable contribution obligations.
     Specifically, certain business services that do not utilize
     numbers, or that utilize them to a lesser extent, would not be
     contributing to the universal service fund on an equitable
     basis.[^1230] Section 254(d) of the Act requires "every carrier"
     that provides interstate telecommunications services to contribute
     to the universal service fund.[^1231] Thus, providers of business
     services, including non-numbers based services, must continue to
     contribute. We conclude that these services should be assessed
     based on their connection to the public network.

508. A number of commenters supported moving to a methodology that would
     assess telephone numbers for those services that are associated
     with a telephone number and assess based on capacity of the
     connection to the public switched network those services not
     associated with a telephone number.[^1232] Other commenters
     supported retaining a revenue-based methodology for these
     services.[^1233] As discussed above, a revenue-based contribution
     methodology is no longer sustainable in today's telecommunications
     marketplace.[^1234] Additionally, a connections-based contribution
     methodology will provide a basis for assessing services not
     associated with telephone numbers, and will recognize the greater
     utility derived by business end users from these high capacity
     business service offerings.[^1235] Further, in contrast to the
     revenues on which contributions are currently based, the number and
     capacity of connections continues to grow over time, providing a
     contribution base that is more stable than the current
     revenue-based methodology. Moreover, a connections-based mechanism
     can be easily applied to all business services. We, therefore,
     conclude that a connections-based contribution mechanism is the
     better option for business services.

509. We find that it is equitable and nondiscriminatory, consistent with
     the requirements of section 254(d) of the Act, to establish
     different contribution methodologies based on numbers and
     connections.[^1236] Although the statute states that "\[a\]ll
     providers of telecommunications services should make an equitable
     and nondiscriminatory contribution to the preservation and
     advancement of universal service," it does not require that all
     contributors or all services be assessed in the same manner.[^1237]
     Under the current revenue-based mechanism, the Commission has
     established different contribution methodologies through the use of
     proxies for wireless and interconnected VoIP services.[^1238] As
     noted above, continuing to use a revenues-based contribution
     methodology has become increasingly complex, and a numbers-based
     system would avoid many of those complexities.[^1239] At the same
     time, however, if we relied exclusively on a numbers-based
     contribution methodology, there are some business services---such
     as private line and special access---that would escape contribution
     requirements entirely. That result would be inconsistent with the
     obligation that all providers of interstate telecommunications
     services contribute to universal service, and would impose an
     unfair burden on providers that contribute on the basis of
     numbers.[^1240] We therefore conclude that adopting different
     contribution assessment methodologies for residential and business
     services will result in equitable and nondiscriminatory
     contribution obligations.

510. We hereby find that business access connections should be assessed
     based on "Assessable Connections." An Assessable Connection is
     defined as an interstate telecommunications service or an
     interstate service with a telecommunications component that
     connects a business end-user's physical location (e.g., premises)
     on a dedicated basis to the contributor's network or the PSTN.
     Assessable Connections up to 64 kbps will be assessed a fixed
     amount, set at \$5.00 per dedicated connection, and Assessable
     Connections over 64 kbps will be assessed a flat amount, set at
     \$35.00 per dedicated connection. This approach will ensure a
     specific, predictable, and sufficient funding source for the
     Commission's universal service mechanisms.

511. We set the initial contribution amounts, as explained above, at
     \$0.85 per Assessable Number, \$5.00 per Assessable Connection up
     to 64 kbps, and \$35.00 per Assessable Connection over 64 kbps. Any
     adjustments to these contribution amounts necessary to meet funding
     requirements of the universal service program shall be applied by
     USAC fairly to Assessable Numbers and Assessable Connections, in a
     manner proportional to the percentage of total contribution paid by
     each at the above-set amounts.

### Wireless Prepaid Plans 

512. We adopt an alternative methodology for telephone numbers assigned
     to handsets under a wireless prepaid plan. Certain commenters that
     offer prepaid wireless services argue that the Commission should
     adopt a discounted numbers-based assessment for these services. For
     example, prepaid wireless providers argue that their customers are
     typically low-income or low-volume consumers and, as such, should
     be subject to a lesser assessment.[^1241] Verizon and TracFone
     further assert that prepaid wireless providers may have difficulty
     administering a per-number assessment.[^1242] They, therefore,
     recommend that any new contribution methodology accommodate prepaid
     wireless service providers by adopting a per-number assessment that
     "reflects the unique characteristics of \[the\] service."[^1243]
     Finally, CTIA argues that the sheer number of prepaid wireless end
     users---over 44 million---combined with the likelihood that most of
     these end users would see a rise in their pass-through assessments
     warrants an exception.[^1244]

513. To accommodate the unique situation of prepaid wireless service
     providers, we find it appropriate to create a limited modification
     in contribution assessments for providers of prepaid wireless
     services and their end users. We agree with commenters that it is
     considerably more difficult for wireless prepaid providers to
     pass-through their contribution assessments in light of their
     "pay-as-you-go" service offerings.[^1245] Because of this
     significant practical issue, we will modify the numbers-based
     assessment for prepaid wireless providers with regard to their
     offering of these services. Further, we note that, just as with
     Lifeline customers, many prepaid wireless end users are low income
     consumers. For example, TracFone states that about half of its
     customers have incomes of \$25,000 or less.[^1246]

514. We find that TracFone's "USF by the Minute" proposal best addresses
     the concerns of prepaid wireless providers within the context of
     the numbers-based contribution methodology we adopt today.[^1247]
     TracFone's proposed USF by the Minute Plan would calculate
     universal service contribution assessments on prepaid wireless
     services by dividing the per-number assessment by the number of
     minutes used by the average postpaid wireless customer in a month.
     This per-minute number would then be multiplied by the number of
     monthly prepaid minutes generated by the provider. This amount
     would be the provider's monthly universal service contribution
     obligation. The per-minute assessment, however, would be capped at
     an amount equal to the current per month contribution per
     Assessable Number, established as set forth above.[^1248] We
     illustrate the proposal below.

515. According to CTIA data submitted by TracFone, the average wireless
     postpaid customer used 826 minutes per month for the period ending
     December 2007.[^1249] A per-number assessment of, for example
     \$0.85 would be divided by 826 minutes to calculate a per-minute
     assessment of \$0.00102905569. The wireless prepaid provider's
     contribution obligation would be calculated by multiplying the
     per-minute assessment by the number of prepaid minutes generated
     for the month. If the wireless prepaid provider generated a billion
     prepaid minutes in a month, its contribution for that month would
     be \$1,029,056.[^1250] If the prepaid provider had 10 million
     prepaid customers that month, the average contribution per customer
     would be \$0.1029 and its contribution obligation would remain at
     \$1,029,056. If, on the other hand, it had only 1 million
     customers, the average contribution per-customer would be \$1.03,
     which exceeds the current per number contribution at \$0.85. In
     this case, because the per-customer contribution amount under the
     calculation would exceed the per-number assessment established by
     the Commission, the prepaid provider's contribution obligation
     would be capped at \$850,000, which is the per-number assessment of
     \$0.85 multiplied by the 1 million monthly prepaid customers. Under
     this scenario, the average per-customer contribution for the
     prepaid wireless provider would be equal to a per-number
     contribution of \$0.85 for non-prepaid wireless residential
     numbers.

516. We find the TracFone discount approach superior to other forms of a
     discount proposed by parties. For example, CTIA proposed a fifty
     percent discount for prepaid wireless providers.[^1251] The
     TracFone approach is based on actual wireless calling data, whereas
     the CTIA approach represents a more arbitrary half-off discount.
     Moreover, the CTIA proposal makes no allowance for the type of end
     user that is using the prepaid wireless service. This contrasts
     with the TracFone proposal, which would not provide any discount to
     those end users that use more than the average monthly post-paid
     number of minutes. As explained above, for those customers whose
     usage would result in more than the allowable per Assessable Number
     pass-through, the assessment on the provider and the pass-through
     would be capped at the contribution amount month per Assessable
     Number. Thus, high volume users would neither benefit from, nor be
     penalized by, the discount mechanism. Finally, we make clear that
     if the prepaid provider is an ETC and is providing service to
     qualifying Lifeline customers, the provider is exempt from
     contribution assessments on the qualifying Lifeline customers and
     we prohibit the provider from assessing any universal service
     pass-through charges on their Lifeline customers.

517. We find that prepaid calling cards, which will be assessed on
     Assessable Numbers and Assessable Connections by their underlying
     access provider, are different from prepaid wireless providers in
     that these providers do not assign a telephone number to their end
     users. Thus, prepaid calling card providers shall be considered end
     users for purposes of determination of Assessable Connections and
     Assessable Numbers.

### Exceptions to Contribution Obligations

518. A number of parties have asked for exceptions from the contribution
     obligation. We find that, in general, providing an exception or
     exemption to a particular provider or to a particular category of
     end users would complicate the administration of the numbers-based
     methodology we adopt today. The result would unfairly favor certain
     groups by reducing or eliminating their contribution obligations,
     while increasing the contribution obligations on providers that are
     not exempted from contributing. Therefore, we conclude that grant
     of an exemption from the contribution obligations is only warranted
     for those who are truly unable to bear the burden of contributing
     to the universal service fund---low-income consumers. As discussed
     below, we exempt providers from contribution assessments on their
     qualifying Lifeline program customers and prohibit contributors
     from assessing any universal service pass-through charges on their
     Lifeline customers. As explained below, an exception for low-income
     consumers is consistent with the Commission's policies underlying
     the low-income universal service program and targets universal
     service benefits to those consumers most in need of those
     benefits.[^1252]

519. We conclude that telephone numbers assigned to Lifeline customers
     should be excluded from the universal service contribution base and
     providers of Lifeline service may not pass-through contribution
     assessments to Lifeline customers.[^1253] The Lifeline program
     provides an opportunity for the Commission to ensure that
     low-income families are not denied access to telephone service. We
     find that an exception for Lifeline customers satisfies the high
     threshold necessary to justify an exception to the new
     numbers-based contribution methodology we adopt today. Lifeline
     customers are, by definition, among the poorest individuals in the
     country. As such, they are in the greatest need of relief from
     regulatory assessments. Prohibiting recovery of universal service
     contributions from Lifeline customers helps to increase
     subscribership by reducing qualifying low-income consumers' monthly
     basic local service charges.[^1254] The record, moreover,
     overwhelmingly supports the creation of an exception for Lifeline
     customers. Consumer groups, large telecommunications customers,
     LECs, and wireless providers all support creating an exemption for
     Lifeline customers, and no commenter opposes an exemption for
     Lifeline customers.[^1255] We therefore adopt an exemption to our
     numbers-based contribution methodology for Lifeline customers.

520. Although commenters have sought contribution exceptions for other
     groups of consumers or service providers, we decline to adopt any
     further exceptions. Some parties argue that consumers who make few
     or no calls, i.e., low-volume users, should be exempt from the
     numbers-based contribution assessment mechanism.[^1256] As
     discussed above, all users of the network, even those who make few
     or no calls, receive a benefit by being able to receive calls, and
     therefore it is appropriate for these consumers to contribute to
     universal service.[^1257] Also as discussed above, to the extent
     low-volume consumers may see an increase in the amount of their
     universal service contribution pass-through fee,[^1258] any such
     increase should be slight.[^1259]

521. We also decline to exempt telematics providers,[^1260] stand-alone
     voice mail providers,[^1261] one-way service providers,[^1262] and
     two-way paging services[^1263] from contributing based on numbers.
     We disagree with commenters arguing for special treatment for these
     services.[^1264] Granting exceptions for these services would
     provide them with an advantage over other services that are
     required to contribute based on telephone numbers. These services
     are receiving the benefit of accessing the public network and
     therefore assessing universal service contributions on these
     entities is appropriate.[^1265] These service providers have not
     shown that grant of a contribution exception is warranted.[^1266]
     Accordingly, providers of these services will be assessed the full
     per-number charge.

522. We also decline to adopt an exception from the numbers-based
     contribution mechanism for additional handsets provided through a
     wireless family plan. We do not agree with commenters who argue
     that telephone numbers assigned to the additional handsets in
     family wireless plans should be assessed at a reduced rate, either
     permanently or for a transitional period.[^1267] These commenters
     assert that assessing contributions at the full per-number rate
     would cause family plan customers to experience "rate
     shock."[^1268] Although family plan customers may see an increase
     in universal service contribution pass-through charges on their
     monthly bills, we are not persuaded that the fear of "rate shock"
     justifies special treatment. We find that each number associated
     with a family plan obtains the full benefits of accessing the
     public network, and thus it is fair to assess each number with a
     separate contribution obligation. We also note that wireless
     service is one of the fastest-growing sectors of the industry and
     the record does not include persuasive data showing that a move to
     a numbers-based contribution methodology would have a significant,
     detrimental impact on wireless subscribership.[^1269] We agree with
     Qwest that an exception for additional family plan handsets would
     not be competitively neutral and would advantage approximately 70
     million wireless family plan consumers over other service
     consumers.[^1270] Multiple wireline lines in a household are not
     given a discounted contribution assessment rate. We therefore
     decline to adopt a reduced assessment for wireless family plan
     numbers.

523. Some parties seek an exception to the contribution methodology we
     adopt today to exclude Internet-based telecommunications relay
     services (TRS), including video relay services (VRS) and IP Relay
     services.[^1271] We decline to adopt an exception for such
     providers at this time. The Commission has an open proceeding on a
     number of issues related to these providers, including whether
     certain costs to these providers related to the acquisition of
     ten-digit numbers by their customers should be reimbursed by the
     TRS fund.[^1272] We defer to that proceeding consideration of
     whether to adopt an exception to the contribution methodology we
     adopt today for numbers assigned to Internet-based TRS
     users.[^1273]

### Reporting Requirements and Recordkeeping

524. Under the existing revenue-based contribution methodology,
     contributors report their historical gross-billed, projected
     gross-billed, and projected collected end-user interstate and
     international revenues quarterly on the FCC Form 499-Q and their
     gross-billed and actual collected end-user interstate and
     international revenues annually on the FCC Form 499-A.[^1274]
     Contributors are billed for their universal service contribution
     obligations on a monthly basis based on their quarterly projected
     collected revenue.[^1275] Actual revenues reported on the FCC Form
     499-A are used to perform true-ups to the quarterly projected
     revenue data.[^1276]

525. We will develop a new and unified reporting system to accommodate
     our new contribution methodology.[^1277] Contributors will report
     their Assessable Number and Assessable Connections counts on a
     monthly basis. Contributors must report as an Assessable Number any
     such number that is in use by an end user during any point in the
     relevant month. The Commission will develop an additional version
     of the FCC Form 499 for use in reporting Assessable Numbers and
     Assessable Connections.

526. Under the new contribution system we adopt today, contributors will
     report historical Assessable Numbers and Assessable Connections
     monthly. Contributors will then be invoiced and required to
     contribute the following month. By reporting actual, historical
     numbers and connections, our contribution methodology remains
     simple and straightforward. As explained above, a key reason to
     move to the modified contribution approach adopted herein is its
     simplicity. Indeed, several commenters propose monthly reporting of
     historical number counts.[^1278] We find that reporting Assessable
     Numbers and Assessable Connections on a projected collected basis
     would unnecessarily complicate the contribution system. Although we
     are mindful of the issues inherent in historical reporting,[^1279]
     we find that a one month lag between the reported Assessable
     Numbers and Assessable Connections and the contribution based on
     those data is minimal and will not unfairly disadvantage any
     provider, even those with a declining base.

527. We allow contributors to self-certify which telephone numbers are,
     consistent with this order, considered Assessable Numbers.
     Contributors will be subject to audit, however, and their method
     for distinguishing Assessable Numbers other numbers must be
     reasonable and supportable.

528. Each contributor must maintain the necessary internal records to
     justify, in response to an audit or otherwise, its reported
     Assessable Number and Assessable Connections counts and the data
     reported on the Commission's contribution forms.[^1280]
     Contributors are responsible for accurately including all
     Assessable Numbers in their Assessable Number counts and all
     Assessable Connections in their Assessable Connections component of
     the methodology. Failure to file the required form by the
     applicable deadline, or failure to file accurate information on the
     form, could subject a contributor to enforcement action.[^1281] In
     addition, as with the current FCC Forms 499-A and 499-Q, we will
     require that an officer of the filer certify to the truthfulness
     and accuracy of the forms submitted to the administrator.

529. To ensure that filers report correct information, we continue to
     require all reporting entities to maintain records and
     documentation to justify the information reported in these forms,
     and to provide such records and documentation to the Commission and
     to USAC upon request.[^1282] All universal service fund
     contributors are required to retain their records for five
     years.[^1283] Specifically, contributors to the universal service
     fund must retain all documents and records that they may require to
     demonstrate to auditors that their contributions were made in
     compliance with the program rules, assuming that the audits are
     conducted within five years of such contribution. Contributors
     further must make available all documents and records that pertain
     to them, including those of contractors and consultants working on
     their behalf, to the Office of Inspector General, to USAC, and to
     their respective auditors. These documents and records should
     include without limitation the following: financial statements and
     supporting documentation; accounting records; historical customer
     records; general ledgers; and any other relevant
     documentation.[^1284]

530. Finally, we direct the Wireline Competition Bureau (Bureau), and
     delegate to the Bureau the authority, to develop or modify the
     necessary forms to ensure proper contribution reporting occurs,
     consistent with this order.

### Transition to New Methodology

531. The new reporting procedures discussed above will require reporting
     entities to adjust their record-keeping and reporting systems in
     order to provide reports to USAC regarding the number of Assessable
     Numbers and Assessable Connections. Accordingly, we implement a
     12-month transition period for the new contribution
     mechanisms.[^1285] This transition period will give contributors
     ample time to adjust their record-keeping and reporting systems so
     that they may comply with modified reporting procedures. As
     explained below, a 12-month transition period will also allow
     reporting entities to submit several reports for informational
     purposes before being assessed on the basis of projected Assessable
     Numbers and Assessable Connections.[^1286] We find, therefore, that
     a 12-month transition period balances administrative burdens on
     contributors with the need to implement the new contribution
     methodologies in a balanced and equitable manner.

532. During 2009, filers will continue reporting their interstate
     telecommunications revenue on a quarterly basis and USAC will
     continue assessing contributions to the federal universal service
     mechanisms based on those quarterly reports. This one-year period
     and, in particular, the first six months of that period, should be
     used by contributors to adjust their internal and reporting systems
     to prepare for the reporting of Assessable Numbers and Assessable
     Connections.

533. Beginning in July 2009, contributors will continue to report and
     contribute based on their quarterly reported interstate and
     international revenues for the last two quarters of the year, but
     they will also begin filing with USAC monthly reports of their
     Assessable Numbers and Assessable Connections. USAC will thus
     collect data under the old revenue-based methodology, while
     collecting and reviewing data under the new Assessable Number and
     Assessable Connections methodologies for the last six months
     of 2009. We find that this six-month period of double-reporting is
     necessary to help reporting entities, Commission staff, and USAC
     identify implementation issues that may arise under this new
     methodology prior to it taking effect.[^1287] Although only the
     December 2009 Assessable Numbers and Assessable Connections will be
     used to compute contributors' January 2010 assessments, we find it
     is reasonable to require contributors to begin filing under the new
     methodologies prior to these periods to ensure that there is
     adequate time for all affected parties to address any
     implementation issues that may arise. Moreover, we conclude that
     the short overlap of reporting under both the old and new
     methodologies will not be unduly burdensome for contributors given
     the limited duration of the dual reporting.

# procedural matters

## Final Regulatory Flexibility Analysis

534. Pursuant to the Regulatory Flexibility Act (RFA),[^1288] the
     Commission has prepared a Final Regulatory Flexibility Analysis
     (FRFA) for the report and order concerning the possible significant
     economic impact on small entities by the policies and actions
     considered in the report and order. The text of the FRFA is
     included in Appendix **\[\_\_\]**.

## Paperwork Reduction Act

535. This document contains proposed new or modified information
     collection requirements. The Commission, as part of its continuing
     effort to reduce paperwork burdens, invites the general public and
     the Office of Management and Budget (OMB) to comment on the
     information collection requirements contained in this document, as
     required by the Paperwork Reduction Act of 1995, Public Law 104-13.
     In addition, pursuant to the Small Business Paperwork Relief Act of
     2002, Public Law 107-198,[^1289] we seek specific comment on how we
     might "further reduce the information collection burden for small
     business concerns with fewer than 25 employees."

## Accessible Formats

536. To request materials in accessible formats for people with
     disabilities (Braille, large print, electronic files, audio
     format), send an e-mail to fcc504@fcc.gov or call the Consumer &
     Governmental Affairs Bureau at 202-418-0530 (voice) or 202-418-0432
     (TTY). Contact the FCC to request reasonable accommodations for
     filing comments (accessible format documents, sign language
     interpreters, CART, etc.) by e‑mail: FCC504@fcc.gov; phone:
     202-418-0530 or TTY: 202-418-0432.

## Congressional Review Act

537. The Commission will include a copy of this report and order in a
     report to be sent to Congress and the Government Accountability
     Office pursuant to the Congressional Review Act. See 5 U.S.C. §
     801(a)(1)(A).

# Ordering clauses

538. Accordingly, IT IS ORDERED that, pursuant to sections 1--4,
     201--209, 214, 218-220, 224, 251, 252, 254, 303(r), 332, 403, 502,
     and 503 of the Communications Act of 1934, as amended, and sections
     601 and 706 of the Telecommunications Act of 1996, 47 U.S.C.
     §§ 151--154, 157 nt, 201--209, 214, 218-220, 224, 251, 252, 254,
     303(r), 332, 403, 502, 503, 601 and 706, and sections 1.1,
     1.411--1.429, and 1.1200--1.1216 of the Commission's rules, 47
     C.F.R. §§ 1.1, 1.411--1.429, 1.1200--1.1216, the REPORT AND ORDER
     IS ADOPTED.

539. IT IS FURTHER ORDERED that Parts **\[\_\_\]** of the Commission's
     rules, 47 C.F.R. § **\[\_\_\]** are AMENDED as set forth in
     Appendix A hereto.

540. IT IS FURTHER ORDERED that this report and order shall become
     effective 30 days after publication of the text of a summary
     thereof in the Federal Register, pursuant to 47 C.F.R. §§ 1.4,
     1.13, except for the information collections, which require
     approval by OMB under the PRA and which shall become effective
     after the Commission publishes a notice in the Federal Register
     announcing such approval and the relevant effective date(s).

541. IT IS FURTHER ORDERED that the Commission's Consumer & Governmental
     Affairs Bureau, Reference Information Center, SHALL SEND a copy of
     this report and order, including the Final Regulatory Flexibility
     Analyses, to the Chief Counsel for Advocacy of the Small Business
     Administration.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Marlene H. Dortch\
> Secretary

**APPENDIX C**

Alternative Proposal

+----------------------------------+---+------------------------------+
| In the Matter of                 | * | WC Docket No. 05-337         |
|                                  | * |                              |
| High-Cost Universal Service      | ) | CC Docket No. 96-45          |
| Support                          | * |                              |
|                                  | * | WC Docket No. 03-109         |
| Federal-State Joint Board on     |   |                              |
| Universal Service                | * | WC Docket No. 06-122         |
|                                  | * |                              |
| Lifeline and Link Up             | ) | CC Docket No. 96-98          |
|                                  | * |                              |
| Universal Service Contribution   | * | CC Docket No. 01-92          |
| Methodology                      |   |                              |
|                                  | * | CC Docket No. 99-68          |
| Implementation of the Local      | * |                              |
| Competition Provisions in the    | ) | WC Docket No. 04-36          |
| Telecommunications Act of 1996   | * |                              |
|                                  | * | CC Docket No. 99-200         |
| Developing a Unified             |   |                              |
| Intercarrier Compensation Regime | * |                              |
|                                  | * |                              |
| Intercarrier Compensation for    | ) |                              |
| ISP-Bound Traffic                | * |                              |
|                                  | * |                              |
| IP-Enabled Services              |   |                              |
|                                  | * |                              |
| Numbering Resource Optimization  | * |                              |
|                                  | ) |                              |
|                                  | * |                              |
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+----------------------------------+---+------------------------------+

Order on Remand AND report and order

and further notice of proposed rulemaking

**Adopted: Insert Adopted Date Released: Insert Release Date**

**Comment Date: \[XX days after date of publication in the Federal
Register\]**

**Reply Comment Date: \[XX days after date of publication in the Federal
Register\]**

By the Commission:

Table of Contents

Heading Paragraph \#

I. introduction 1

II\. Reform of high-cost universal service SUPPORT 4

A. Background 5

B. Discussion 12

1\. Controlling the Growth of the High-Cost Fund 14

2\. Conditioning Support on Offering Broadband Internet Access Service
19

a\. Definition of Broadband Internet Access Service 24

b\. Broadband Internet Access Service Obligations 25

3\. Incumbent LECs' Commitment to Offer Broadband 28

4\. Reverse Auctions for Study Areas Unserved by Broadband 32

a\. Geographic Area 35

b\. Reserve Price 36

c\. Auctioned Support 38

d\. Selecting a Winning Bid 43

e\. Bidder Qualifications 48

5\. Competitive Eligible Telecommunications Carriers 51

6\. Build-Out Milestones and Monitoring, Compliance, and Enforcement 53

III\. Broadband for lifeline/link up customers 60

A. Background 61

B. Discussion 67

1\. Available Funding 73

2\. Eligible Services and Equipment 76

3\. Selection Criteria 81

4\. Implementation and Reporting Requirements 84

5\. Program Oversight 87

IV\. Reform of Universal Service contributions 88

A. Background 89

B. Discussion 93

1\. Legal Authority 94

2\. The New Numbers-Based Assessment Methodology for Residential
Services 101

a\. Benefits of a Numbers-Based Contribution Methodology 102

b\. Assessable Numbers 111

3\. Contribution Assessment Methodology for Business Services 126

4\. Wireless Prepaid Plans 131

5\. Exceptions to Contribution Obligations 136

6\. Reporting Requirements and Recordkeeping 142

7\. Transition to New Methodology 149

V. Reform of intercarrier compensation 152

A. A Brief History of Intercarrier Compensation 154

1\. Intercarrier Compensation Regulation Before the Telecommunications
Act of 1996 155

2\. Intercarrier Compensation Regulation Since the 1996 Act 164

3\. Problems Associated With the Existing Intercarrier Compensation
Regimes 173

B. Comprehensive Reform 181

1\. Introduction 181

2\. A New Approach to Intercarrier Compensation 183

3\. Legal Authority 202

a\. Legal Authority for Comprehensive Reform---Interpretation of
Sections 251(b)(5) and 251(g) 202

b\. Legal Authority for the Transition 225

4\. Additional Costs Standard 231

a\. Background 232

b\. The Importance of Incremental Cost In Regulated Pricing 235

c\. The Incremental Cost of Call Termination on Modern Networks 248

d\. Reconsideration of Additional Costs Standard 257

C. Implementation 264

1\. Direction to the States 265

a\. Setting Final Reciprocal Compensation Rates Based on Incremental
Cost 266

b\. Symmetry 271

c\. Modifications and Suspensions under Section 251(f)(2) 277

d\. Existing Agreements 286

2\. Revenue Recovery Opportunities 289

a\. End-User Charges 291

b\. Universal Service Support 306

D. Measures to Ensure Proper Billing 322

1\. Introduction 322

2\. Background 323

3\. Discussion 325

a\. Signaling Information 326

b\. Financial Responsibilities 332

VI\. FURTHER NOTICE OF PROPOSED RULEMAKING 339

A. Universal Service 339

B. Intercarrier Compensation Further Notice 342

VII\. procedural matters 347

A. *Ex Parte* Presentations 347

B. Comment Filing Procedures 348

C. Initial Regulatory Flexibility Analysis 359

D. Final Regulatory Flexibility Analysis 360

E. Paperwork Reduction Act 361

F. Accessible Formats 362

G. Congressional Review Act 363

VIII\. ordering clauses 364

# introduction

1.  In enacting the Telecommunications Act of 1996 (1996 Act),[^1290]
    Congress sought to introduce competition into local telephone
    service, which traditionally was provided through regulated
    monopolies. Recognizing that in introducing such competition, it was
    threatening the implicit subsidy system that had traditionally
    supported universal service, it directed the Commission to reform
    its universal service program to make support explicit and
    sustainable in the face of developing competition.

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542. For the most part, Congress's vision has been realized. Competition
     in local telephone markets has thrived. At the same time, the
     communications landscape has undergone many fundamental changes
     that were scarcely anticipated when the 1996 Act was adopted. The
     Internet was only briefly mentioned in the 1996 Act,[^1291] but now
     has come into widespread use, with broadband Internet access
     service increasingly viewed as a necessity. Consistent with this
     trend, carriers are converting from circuit-switched networks to
     Internet Protocol (IP)-based networks. These changes have benefited
     consumers and should be encouraged. Competition has resulted in
     dramatically lower prices for telephone service, and the
     introduction of innovative broadband products and services has
     fundamentally changed the way we communicate, work, and obtain our
     education, news, and entertainment. At the same time, however,
     these developments have challenged the outdated regulatory
     assumptions underlying our universal service and intercarrier
     compensation regimes, forcing us to reassess our existing
     approaches. We have seen unprecedented growth in the universal
     service fund, driven in significant part by increased support for
     competitive eligible telecommunications carriers (ETCs). The growth
     of competition also has eroded the universal service contribution
     base as the prices for interstate and international services have
     dropped. Finally, we have seen numerous competitors exploit
     arbitrage opportunities created by a patchwork of above-cost
     intercarrier compensation rates. Although the Commission has
     attempted to address many of these issues on a case-by-case basis,
     it has become increasingly clear that piecemeal efforts to respond
     to these developments are inadequate---only comprehensive reform
     can address the fundamental challenges that they present.[^1292]

543. Today we adopt a comprehensive approach to addressing these
     difficult, but critical issues. First, we spur widespread
     deployment of broadband by ensuring that carriers receiving
     universal service high-cost support offer broadband throughout
     their service areas. Second, we help Lifeline/Link Up customers
     participate in this new broadband world by creating a pilot program
     to provide discounted access to broadband services. Third, we
     broaden and stabilize our universal service contribution base
     through equitable and non-discriminatory contributions. Fourth,
     having placed our universal service fund on solid footing, we now
     take the long-overdue step of moving toward uniform intercarrier
     compensation rates that provide efficient incentives for the
     investment in and use of broadband networks. Finally, our approach
     minimizes disruptions to carriers and safeguards universal service
     for consumers by adopting sensible transition plans and ensuring
     that universal service is used to support service in high-cost
     areas, not carriers' dividends.

# Reform of high-cost universal service SUPPORT

544. Today we take a monumental step toward our goal of ensuring that
     broadband is available to all Americans. We do this by requiring
     that all recipients of high-cost support offer broadband Internet
     access service to all customers within their supported areas as a
     condition of receiving future support. Taking this action will
     promote the deployment of broadband Internet access service to all
     areas of the nation, including high-cost, rural, and insular areas
     where customers may not currently have access to such services. In
     particular, as a condition of receiving continued high-cost
     support, we will require all incumbent local exchange carriers
     (LECs) to commit to offer broadband Internet access service within
     five years to all customers in study areas where the incumbent LECs
     receive high-cost support. Incumbent LECs that do not make this
     commitment will gradually lose their high-cost support, as this
     support will be awarded via reverse auction to an ETC who will meet
     carrier of last resort obligations and will commit to offering
     broadband Internet access to all customers in the entire study area
     within ten years. We also adopt a five year transition plan for
     existing high-cost support received by competitive ETCs. With these
     reforms, we take great strides toward ensuring that all Americans,
     regardless of where they live, will have broadband Internet access
     service available to them, without increasing the size of the
     high-cost fund.

## Background

545. The 1996 Act amended the Communications Act of 1934 (the Act) with
     respect to the provision of universal service.[^1293] Congress
     sought to preserve and advance universal service, while at the same
     time opening all telecommunications markets to competition.[^1294]
     Section 254(b) of the Act directs the Federal-State Joint Board on
     Universal Service (Joint Board) and the Commission to base policies
     for the preservation and advancement of universal service on
     several general principles, plus other principles that the
     Commission may establish.[^1295] Among other things, section 254(b)
     directs that there should be specific, predictable, and sufficient
     federal and state universal service support mechanisms; quality
     services should be available at just, reasonable, and affordable
     rates; and access to advanced telecommunications and information
     services should be provided in all regions of the nation.[^1296]

546. The Commission implemented the universal service provisions of the
     1996 Act in the 1997 *Universal Service First Report and
     Order*.[^1297] In considering methods to determine universal
     service support in rural, insular, and high-cost areas, the
     Commission examined the use of competitive bidding, and identified
     several advantages of competitive bidding as a method for
     allocating high-cost universal service support.[^1298] First, the
     Commission found that "a compelling reason to use competitive
     bidding is its potential as a market-based approach to determining
     universal service support, if any, for any given area."[^1299]
     Second, "by encouraging more efficient carriers to submit bids
     reflecting their lower costs, another advantage of a properly
     structured competitive bidding system would be its ability to
     reduce the amount of support needed for universal service."[^1300]
     Despite these advantages, the Commission determined that the record
     at the time was insufficient to support adoption of a competitive
     bidding mechanism.[^1301] Moreover, the Commission found it
     unlikely that competitive bidding mechanisms would be useful at
     that time because there likely would be no competition in a
     significant number of rural, insular, or high-cost areas in the
     near future.[^1302] The Commission, therefore, declined to adopt a
     competitive bidding mechanism at that time, but found that
     competitive bidding warranted further consideration as a potential
     mechanism for determining levels of high-cost support in the
     future.[^1303]

547. Pursuant to section 254(e) of the Act, an entity must be designated
     as an eligible telecommunications carrier (ETC) to receive
     high-cost universal service support.[^1304] ETCs may be incumbent
     LECs, or non-incumbent LECs, which are referred to as "competitive
     ETCs."[^1305] Under the existing high-cost support distribution
     mechanism, incumbent LEC ETCs receive high-cost support for their
     intrastate services based on their costs.[^1306] Competitive ETCs,
     on the other hand, receive support for each of their lines based on
     the per-line support the incumbent LEC receives in the service
     area.[^1307] This support to competitive ETCs is known as
     "identical support." The Commission's universal service high-cost
     support rules do not distinguish between primary and secondary
     lines; therefore, high-cost support may go to a single end user for
     multiple connections.[^1308] Further, the Commission's rules may
     result in multiple competitors in the same high-cost area receiving
     identical per-line support.

548. High-cost support for competitive ETCs has grown rapidly over the
     last several years, which has placed extraordinary pressure on the
     federal universal service fund.[^1309] In 2001, high-cost universal
     service support totaled approximately \$2.6 billion.[^1310] By
     2007, the amount of high-cost support had grown to approximately
     \$4.3 billion per year.[^1311] In recent years, this growth has
     been due mostly to increased support provided to competitive ETCs,
     which pursuant to the identical support rule receive high-cost
     support based on the incumbent LEC's per-line support. Competitive
     ETC support, in the six years from 2001 through 2007, has grown
     from under \$17 million to \$1.18 billion---an annual growth rate
     of over 100 percent.[^1312] This "funded competition" has grown
     significantly in a large number of rural, insular, or high-cost
     areas; in some study areas, more than 20 competitive ETCs currently
     receive support.[^1313]

549. To address the growth in competitive ETC support, the Joint Board
     recommended an interim cap on the amount of high-cost support
     available to competitive ETCs, pending comprehensive high-cost
     universal service reform. The Commission adopted this
     recommendation in 2008.[^1314]

550. For the past several years, the Joint Board and the Commission have
     been exploring ways to reform the Commission's high-cost program.
     In the most recent high-cost support comprehensive reform efforts,
     the Joint Board issued a recommended decision on November 20,
     2007.[^1315] The Joint Board recommended that the Commission
     address reforms to the high-cost program and make "fundamental
     revisions in the structure of existing Universal Service
     mechanisms."[^1316] Specifically, the Joint Board recommended that
     the Commission should: (1) deliver high-cost support through a
     provider of last resort fund, a mobility fund, and a broadband
     fund[^1317]; (2) cap the high-cost fund at \$4.5 billion, the
     approximate level of 2007 high-cost support[^1318]; (3) reduce the
     existing funding mechanisms during a transition period[^1319]; (4)
     add broadband and mobility to the list of services eligible for
     support under section 254 of the Act[^1320]; (5) eliminate the
     identical support rule[^1321]; and (6) "explore the most
     appropriate auction mechanisms to determine high-cost universal
     service support."[^1322]

551. On January 29, 2008, the Commission released three notices of
     proposed rulemaking addressing proposals for comprehensive reform
     of high-cost universal service support.[^1323] In the *Identical
     Support NPRM*, the Commission sought comment on the Commission's
     rules governing the amount of high-cost universal service support
     provided to competitive ETCs.[^1324] It tentatively concluded that
     the Commission should eliminate the identical support rule.[^1325]
     The Commission also tentatively concluded that support to a
     competitive ETC should be based on the competitive ETC's own costs
     of providing the supported services, and it sought comment on how
     the support should be calculated, the reporting obligations to be
     applied, and whether the Commission should cap such support at the
     level of the incumbent LEC's support.[^1326] In the *Reverse
     Auctions NPRM*, the Commission tentatively concluded that reverse
     auctions offer several potential advantages over current high-cost
     mechanisms and sought comment on whether they should be used as the
     disbursement mechanism to determine the amount of high-cost
     universal service support for ETCs serving rural, insular, and
     high-cost areas, and it sought comment on how to implement reverse
     auctions for this purpose.[^1327] The Commission also sought
     comment on a number of specific issues regarding auctions and
     auction design.[^1328] The Commission also released the *Joint
     Board Comprehensive Reform NPRM*, seeking comment on the Joint
     Board's *Comprehensive Reform* *Recommended Decision* and
     incorporating by reference the *Identical Support NPRM* and the
     *Reverse Auctions NPRM*.[^1329] The discussion that follows
     represents our response to the Joint Board's *Comprehensive Reform
     Recommended Decision*, pursuant to section 254(a)(2).[^1330]

## Discussion

552. Today we comprehensively reform the high-cost universal service
     support mechanism, and take steps to ensure that broadband Internet
     access service is deployed quickly to all areas of the country,
     including rural and insular areas. The steps we take today will
     provide certainty to providers as to the levels of support
     available to them in providing supported services and broadband
     Internet access service to all customers within the supported
     areas. This will assist providers in creating business plans to
     deploy services in currently unserved areas and will ensure
     efficiency in the deployment of services to these areas.
     Specifically, we are defining the level of high-cost support
     available to providers that commit to offer broadband to all
     customers within a service area. For incumbent LECs, other than
     rural rate-of-return incumbent LECs, support in incumbent LEC
     service areas will be set at the total amount of high-cost support
     disbursed to the incumbent LEC ETC in December 2008 on an
     annualized basis. For rural rate-of-return incumbent LECs, all
     high-cost universal service mechanisms will continue to operate as
     they do today through 2010, and then will be frozen at that level.
     Incumbent LEC ETCs will continue to receive this level of support
     if they commit to offer broadband Internet access services to all
     customers within the service area within five years. If an
     incumbent LEC does not make this broadband commitment for a
     particular service area, the support will be transitioned to the
     winning bidder of a reverse auction that will commit to deploy
     broadband throughout the service area within ten years, and to take
     on carrier of last resort obligations. For competitive ETCs, we
     adopt a five-year transition, during which their support will be
     reduced 20 percent each year. While ensuring that broadband
     Internet access service is made available to customers in rural and
     high-cost areas, with the exception of high-cost support for rural
     rate-of-return incumbent LECs, we also cap the overall size of the
     high-cost mechanism to protect customers in all areas of the nation
     from increasing universal service contribution assessments.

553. The requirements that we adopt for disbursement of high-cost
     universal service support do not apply to providers operating in
     Alaska, Hawaii, or any U.S. Territories and possessions.[^1331] We
     find that these areas have very different attributes and related
     cost issues than do the continental states.[^1332] For this reason,
     we are exempting providers in Alaska, Hawaii and U.S. Territories
     or possessions from the high-cost support requirements and rules
     adopted herein, and we will address them in a subsequent
     proceeding.[^1333]

### Controlling the Growth of the High-Cost Fund

554. Consistent with the recommendation of the Joint Board, we cap the
     total amount of high-cost universal service support, with the
     exception of high-cost support for rural rate-of-return incumbent
     LECs.[^1334] As the Joint Board recognized, high-cost support
     currently accounts for more than half of total federal universal
     service support.[^1335] Since 1997, when the Commission implemented
     the universal service requirements of section 254 of the Act,
     high-cost support has increased by 240 percent.[^1336] Although,
     earlier this year, we took an initial step to address high-cost
     fund growth by capping support to competitive ETCs, that cap was an
     interim, emergency measure, pending a closer examination of the
     steps necessary to achieve comprehensive reform.[^1337] Many
     commenters have urged the Commission to cap the overall amount of
     high-cost support, rather than limiting the cap only to competitive
     ETCs.[^1338] Although other commenters oppose the adoption of a cap
     on the total amount of high-cost support or on the amount of
     support available to incumbent LEC ETCs,[^1339] we find that, to
     manage the high-cost support mechanism effectively, we must control
     its growth, and that capping support in the manner discussed below
     will provide specific, predictable, and sufficient support to
     preserve and advance universal service.[^1340]

555. We find it necessary to cap the high-cost mechanism as a first step
     toward fulfilling our statutory obligation to create specific,
     predictable and sufficient universal service support
     mechanisms.[^1341] As the United States Court of Appeals for the
     Fifth Circuit held in *Alenco*: "\[t\]he agency's broad discretion
     to provide sufficient universal service funding includes the
     decision to impose cost controls to avoid excessive expenditures
     that will detract from universal service."[^1342] The *Alenco*
     court also found that "excessive funding may itself violate the
     sufficiency requirements,"[^1343] and the United States Court of
     Appeals for the Tenth Circuit has stated that "excessive
     subsidization arguably may affect the affordability of
     telecommunications services, thus violating the principle in
     \[section\] 254(b)(1)."[^1344] Given the excessive growth in
     high-cost support, we find it necessary to cap this mechanism to
     ensure that unsubsidized users who contribute to the fund are not
     harmed by excessive subsidization.

556. Therefore, we take several steps to limit the growth of high-cost
     support. First, excluding support to rural rate-of-return incumbent
     LECs, we cap the overall high-cost fund at the total amount of
     high-cost support disbursed by the Universal Service Administrative
     Company (USAC) for December 2008 on an annualized basis, net of any
     prior or past period adjustments. Although we agree with the Joint
     Board's recommendation to cap the high-cost mechanism, rather than
     set such a cap at the 2007 level of high-cost support as the Joint
     Board recommended, we find it is more appropriate to set the cap at
     the level of support disbursed by USAC in December 2008 on an
     annualized basis. Furthermore, for incumbent LECs other than rural
     rate-of-return incumbent LECs, we freeze each incumbent LEC ETC's
     individual, annual high-cost support at the amount of support, on a
     lump sum basis, that the ETC received in December 2008 annualized,
     net of any prior or past period adjustments, on a study area or
     service area basis.[^1345] For rural rate-of-return incumbent LECs,
     all high-cost universal service support mechanisms utilized by
     rural rate-of-return incumbent LECs continue to operate as the do
     today through 2010. This includes high-cost loop support (HCLS),
     local switching support (LSS), interstate common line support
     (ICLS), safety net additive support, and safety valve support.
     Support from these mechanisms will be frozen by study area at 2010
     levels.[^1346]

557. As discussed below, for competitive ETCs, we provide a five year
     transition, during which their support is reduced in equal
     steps.[^1347] More specifically, for each competitive ETC, a
     base-line level of support will be determined based on the total
     support received by that competitive ETC for the twelve months
     prior to the effective date of the order. For the twelve months
     following the effective date of the order, each competitive ETC
     will receive support equal to 80 percent of its baseline support
     amount. In year two, each competitive ETC will receive support
     equal to 60 percent of its baseline support amount. In year three,
     each competitive ETC will receive support equal to 40 percent of
     its baseline support amount. In year four, each competitive ETC
     will receive support equal to 20 percent of its baseline support
     amount. Finally, in year five, existing high-cost support for
     competitive ETCs will be eliminated.

558. Consistent with section 254(b)(5) of the Act, we find that capping
     high-cost support in this manner will enable ETCs to predict the
     specific level of support that they will receive should they choose
     to participate in the program.[^1348] To the extent that an
     incumbent LEC ETC determines that it cannot offer broadband
     Internet access service throughout its service area at the
     specified level of support, as discussed below, that particular
     study area will be deemed an "Unserved Study Area," and we will
     conduct a reverse auction to determine the entity capable of
     meeting our service requirements and the amount of support to
     provide for that area. In fact, through the reverse auction
     process, it will be the bidders, not the Commission, that determine
     how much support they would need to offer service. Finally, as
     discussed below, if the reverse auction process does not yield a
     winning bidder, the Commission will reexamine whether it needs to
     take further action with regard to this situation, should it arise.

### Conditioning Support on Offering Broadband Internet Access Service

559. The broadband era is here. Those of us who have broadband Internet
     access service use it to communicate, to work, to get vital
     information, to be educated, and to be entertained. Broadband
     Internet access service---a novelty at the time of the passage of
     the 1996 Act---is now mainstream. Yet some Americans still lack
     access to this vital service, and as Commissioner Copps has said,
     "does America at the beginning of the 21st century become
     technologically stagnant or the leader of the Digital Age? For me,
     the answer to that question depends in some significant measure
     upon whether we succeed in bringing high-speed, high-value
     broadband and an open Internet to all Americans . . . rural as well
     as urban folks . . . ."[^1349]

560. Today, we modify our high-cost support system fundamentally to spur
     deployment and ensure that all Americans have access to broadband.
     Specifically, for incumbent LECs, we make offering broadband
     Internet access service a condition of being eligible to receive
     high-cost support. As we explain below, we will require all
     incumbent LECs to certify whether or not they will commit to
     offering broadband Internet access throughout their supported study
     areas in five years.[^1350] Those who make that commitment will
     continue to receive their current levels of support. Auction
     winners, as well, must commit to offering broadband Internet access
     service throughout their supported areas as a condition of
     receiving even initial support. We also explain the obligations
     related to this condition, including carrier-of-last-resort-type
     obligations.

561. We believe that imposing this condition on the receipt of high-cost
     support for incumbent LECs and auction winners is fully consistent
     with and indeed promotes Congress's overall objectives as stated in
     section 254 of the Communications Act and section 706 of the 1996
     Act.[^1351] Section 254(b)(2) of the Act instructs the Commission
     to base policies for the advancement of universal service on the
     principle that "\[a\]ccess to *advanced* telecommunications *and
     information services* should be provided in all regions of the
     Nation."[^1352] Similarly, section 254(b)(3) states that
     "\[c\]onsumers . . . in rural, insular, and high-cost areas, should
     have access to . . . *advanced* telecommunications and *information
     services*, that are reasonably comparable to those services
     provided in urban areas and that are available at rates charged for
     similar services in urban areas."[^1353] Indeed, Congress even
     established the definition of universal service as "an *evolving*
     level of telecommunications services . . . taking into account
     advances in telecommunications and information technologies and
     services."[^1354] We believe that imposing a broadband condition on
     receipt of high-cost support by incumbent LECs and auction winners
     advances the general purposes of section 254 of the Act as just
     described and also advances Congress's objective stated in section
     706 of the 1996 Act to "encourage the deployment on a reasonable
     and timely basis of advanced telecommunications capability to all
     Americans."[^1355] We also see no reason why conditioning the
     receipt of high-cost support on offering broadband Internet access
     service is not permissible under the Commission's authority to
     promulgate general rules related to universal service.[^1356]

562. *Broadband Internet Access As a Condition to Receiving High-Cost
     Support.* Consistent with the objectives of sections 254 and 706 as
     just described, all incumbent LECs and auction winners must offer
     broadband Internet access service to all customers in their
     supported service areas as a condition of receiving universal
     service high-cost support. Since the Commission adopted universal
     service rules in response to the 1996 Act, broadband Internet
     access service has evolved into a critical service for American
     consumers. The importance of this evolution is reflected in
     Congress's recent finding that "\[t\]he deployment and adoption of
     broadband technology has resulted in enhanced economic development
     and public safety for communities across the Nation, improved heath
     care and education opportunities, and a better quality of life for
     all Americans, \[and\] \[c\]ontinued progress in the deployment and
     adoption of broadband technology is vital to ensuring that our
     Nation remains competitive and continues to create business and job
     growth."[^1357] The majority of consumers who use broadband
     Internet access service today rely on it for telework, access to
     banking services, interaction with government, entertainment,
     shopping, access to news and other information, and so many other
     uses.[^1358] Broadband Internet access plays a special role in
     rural areas, reducing the burdens of distance.[^1359] For example,
     high-speed connections to the Internet allow children in rural
     areas to have access to the same information as school children in
     urban areas. Telemedicine networks made possible by broadband
     Internet access service also save lives and improve the standard of
     healthcare in sparsely populated, rural areas that may lack access
     to the breadth of medical expertise and advanced medical
     technologies available in other areas.[^1360] Broadband service
     also enables the sharing of critical, time-sensitive information
     with first responders, government officials, and health care
     providers, thereby improving the government's ability to provide a
     comprehensive and cohesive response to a public health crisis in
     coordination.[^1361]

563. Despite the advances in broadband technology and the deployment of
     infrastructure to accommodate higher bandwidth speeds, ubiquitous
     broadband availability does not exist throughout the
     nation---especially for those consumers in rural areas.[^1362] In
     March 2008, the Commission's most recent data revealed that more
     than half of the households in the United States now subscribe to a
     high-speed service provider and at least one high-speed service
     provider is providing service in excess of 200 kbps in at least one
     direction in 99.9 percent of zip codes in the country.[^1363] The
     broadband subscription rate is much lower in rural areas, however.
     A 2008 survey finds that the percentage of rural households
     subscribing to broadband service is only 38 percent---well below
     the 57 percent and 60 percent subscription rates found in urban and
     suburban areas, respectively.[^1364] This survey concludes that the
     lack of broadband availability very likely accounts for some of
     this disparity.[^1365] Moreover, this conclusion is consistent with
     the results of residential surveys in several states.[^1366] We
     find that making the offering of broadband Internet access service
     a condition of receiving universal service high-cost support can
     bring this critical service to the remainder of Americans who await
     its deployment.[^1367] In addition, doing so will further the
     objective of section 254(b)(3) that consumers in rural, insular,
     and high-cost areas have access to advanced telecommunications and
     information services that are reasonably comparable to those
     services provided in urban areas and that are available at rates
     charged for similar services in urban areas.[^1368]

#### Definition of Broadband Internet Access Service

564. For purposes of satisfying the condition to receive high-cost
     support, we adopt a definition of broadband Internet access service
     that focuses on the end user's experience, without regard to the
     types of facilities, protocols, or other technologies used to
     deliver that experience. Broadband Internet access service is
     therefore defined as an "always on" service that combines computer
     processing, information provision, and computer interactivity with
     data transport, enabling end users to access the Internet and use a
     variety of applications, at speeds discussed elsewhere in this
     order.[^1369] We refer specifically to broadband Internet access
     service---an information service---and not to broadband
     transmission alone because our goal is to ensure that all Americans
     have access to the Internet.[^1370]

#### Broadband Internet Access Service Obligations

565. Section 254(b)(1) instructs the Commission to base policies for the
     advancement of universal service on the principle that quality
     services should be offered at just, reasonable, and affordable
     rates.[^1371] Below we provide requirements for offering broadband
     Internet access service as a condition of receiving universal
     service high-cost support. In sum, all incumbent LECs and auction
     winners must offer broadband Internet access service, along with
     all supported services, to all customers throughout their service
     areas by the end of a five- or ten-year build-out period consistent
     with the requirements of this order.

566. Except as described just below, an incumbent LEC or auction winner
     may offer broadband Internet access service using any technology,
     or combination of technologies, that meets the requirements for
     speed set forth in this order. An incumbent LEC or auction winner
     may also combine services provided over its own facilities with
     those provided over another provider's facilities pursuant to
     agreement. Indeed, there may be service areas where it is more
     economic to offer broadband Internet access service via one
     technology than another and we explicitly provide for even a single
     provider to take advantage of the inherent benefits of different
     technologies for different areas.[^1372] Furthermore, an incumbent
     LEC or auction winner can combine a common carrier offering of
     broadband transmission[^1373] with the information processing
     capabilities described above,[^1374] so long as what the end user
     receives is in fact broadband Internet access service.

567. In general, an incumbent LEC or auction winner cannot use satellite
     broadband technology to meet its obligations under this order
     absent a waiver from the Commission. We are concerned that
     broadband Internet access service provided via satellite differs
     from broadband Internet access provided over other technologies in
     two important ways. First, satellite-provided broadband Internet
     access service is subject to latency due to the amount of time it
     takes a signal to travel between the satellite and the user.
     [^1375] Latency ranges from a quarter of a second to almost a
     second, making the use of applications that require a very fast
     response difficult or impossible, and substantially degrading the
     quality of other applications like voice over Internet protocol.
     [^1376] Second, satellite-provided broadband Internet access
     service is subject to degradation due to weather events ("rain
     fade") to a greater degree than other wireless technologies.[^1377]
     For these reasons, we find that satellite-provided broadband
     Internet access service cannot be the primary means by which we
     serve rural America. We recognize, however, that for certain
     customers, satellite-provided broadband may be the only economic
     means of reaching them. Therefore, all incumbent LECs and auction
     winners may apply to the Commission for a waiver to be able to meet
     their commitments under this order by offering broadband Internet
     access service via satellite to certain customers, based on a
     specific, detailed showing that there is no other economic option
     for serving those customers.[^1378] If the Commission grants such a
     waiver with regard to particular customers, that waiver may be
     transferred if a different ETC becomes subject to the obligation to
     offer broadband to those customers. In addition, we adopt the
     OPASTCO/WTA proposal that we create a "limited automatic exception
     for high-cost loops" for rural rate-of-return incumbent LECs. More
     specifically, OPASTCO/WTA propose: "The broadband build-out
     requirement has a limited automatic exception for very high-cost
     loops and allows rural RoR ILECs to serve those customers by
     satellite without filing a waiver request. A very high-cost loop is
     defined as a loop in which the additional cost to provide broadband
     is in excess of 150 percent of the carrier's study area average
     loop cost. The automatic exception cannot apply to more than two
     percent of a carrier's total loops within a study area."[^1379]

### Incumbent LECs' Commitment to Offer Broadband

568. As discussed above, as a condition of receiving federal high-cost
     universal service support, all incumbent LECs and auction winners
     must offer broadband Internet access service.[^1380] Therefore,
     incumbent LECs receiving high-cost support must certify to the
     Commission, for each study area[^1381] for which they receive
     high-cost support, whether or not they will offer broadband
     Internet access service to all customers within that study area,
     consistent with the requirements of this order, within five years
     of the due date of their commitment.[^1382] This certification must
     include a commitment to offer broadband Internet access service
     with download speeds equal to or greater than 768 kbps and upload
     speeds greater than 200 kbps.[^1383]

569. Incumbent LECs that file a certification for a particular study
     area indicating that they will offer broadband Internet access
     service under the terms specified in this order will continue to
     receive their current levels of high-cost support for that study
     area, which will be deemed a "Committed Study Area." We specify the
     precise benchmarks that the incumbent LEC must meet over the
     five-year build-out period, and the consequences for failure to do
     so, below.[^1384]

570. As discussed above, except for rural rate-of-return incumbent LECs,
     we freeze each incumbent LEC ETC's individual high-cost support at
     the amount of support, on a lump sum basis, the ETC received in
     December 2008 annualized, net of any prior or past period
     adjustments, on a study area or service area basis.[^1385] For
     rural rate-of-return incumbent LECs, all high-cost universal
     service mechanisms will continue to operate as they do today
     through 2010, and then will be frozen at that level. Incumbent LEC
     ETCs committing to offer broadband Internet access service within a
     study area consistent with the requirements of this order will
     continue to receive the frozen high-cost support amount for that
     study area.[^1386]

571. Study areas for which incumbent LECs either certify that they will
     not offer broadband in five years as described herein, or for which
     the incumbent LECs fail to file any certification at all, will be
     deemed "Unserved Study Areas." For these areas, the Commission will
     conduct a reverse auction as described below, awarding high-cost
     support to a bidder that will commit to take on carrier of last
     resort obligations and to offer broadband Internet access service
     throughout the study area.

### Reverse Auctions for Study Areas Unserved by Broadband

572. The Joint Board recommended that the Commission's universal service
     goals include universal availability of broadband Internet service
     at affordable and comparable rates for all rural and non-rural
     areas.[^1387] While we are not adopting the Joint Board's
     recommendation to create a separate broadband fund, we agree with
     the Joint Board's goal that broadband Internet access service
     should be universally and affordably available. We are therefore
     allowing incumbent LECs receiving high-cost support to continue to
     receive such support if they commit to offer broadband services
     throughout their supported service areas by the end of a five-year
     build-out period. We anticipate, however, that in some study areas,
     the incumbent LEC may decline to make that commitment. For these
     Unserved Study Areas, we will conduct a reverse auction for the
     right to receive high-cost support.[^1388]

573. We sought comment in our *Reverse Auctions NPRM* on the merits of
     using reverse auctions, a form of competitive bidding, to decide
     how much high-cost support to provide to ETCs serving rural,
     insular, and high-cost areas.[^1389] In a reverse auction, support
     generally would be determined by the lowest bid to serve the
     auctioned area.[^1390] We conclude that using a reverse auction
     method for identifying both the recipient of high-cost support for
     an Unserved Study Area, as well as the amount of support, is
     appropriate because the winning bid should approach the minimum
     level of subsidy required to achieve our universal service
     goals.[^1391] In contrast, a support mechanism based on cost or on
     a cost model provides no incentive for an ETC to provide supported
     services at the minimum possible cost.[^1392] In addition, a
     reverse auction provides a fair and efficient means of eliminating
     or reducing the subsidization of multiple ETCs in a given
     region.[^1393] For these reasons, we find that a reverse auction
     offers advantages over the current high-cost support distribution
     mechanisms and we adopt a reverse auction plan, as discussed
     below.[^1394]

574. To implement the reverse auctions, there are several issues that
     must be addressed. We describe in this part: (1) the geographic
     area to be auctioned; (2) the reserve price for the reverse
     auction; (3) what a winning bidder will receive; (4) how the
     winning bidder will be selected; and (5) the qualifications a
     bidder must demonstrate before it may participate in a reverse
     auction.

#### Geographic Area

575. In the *Reverse Auctions NPRM*, we sought comment on whether we
     should use the study area[^1395] as the geographic area for reverse
     auctions.[^1396] We observed that high-cost support today is
     generally based on the wireline incumbent LEC's study area.[^1397]
     We tentatively concluded that the wireline incumbent LEC's study
     area would be the appropriate geographic area on which to base
     reverse auctions.[^1398] We adopt our tentative conclusion that the
     study area is the best geographic area to use for several reasons.
     First, if we allowed bidders to bid to provide service in smaller
     geographic areas, we would encourage bidders to bid on areas that
     are easier or cheaper to serve, leaving our most difficult-to-serve
     populations still without broadband service.[^1399] Conversely, if
     we required bidders to bid on even larger geographic areas, we
     might discourage bidders from entering the auction because of the
     difficulty in committing to serve an even larger area. Although
     some commenters oppose using the incumbent LEC's study area,[^1400]
     use of the study area is consistent with the area we ask incumbent
     LECs to consider in making their commitments. Finally, selecting
     smaller geographic areas for auction would increase the number of
     auctions to be held, potentially delaying the conduct of the
     auction and, therefore, the deployment of broadband to unserved
     areas.[^1401] For these reasons, we conclude that the study area is
     the best available geographic area to consider for the auction. We
     will conduct a reverse auction for each study area for which the
     incumbent LEC receiving high-cost support has not committed to
     offer broadband Internet access service pursuant to the
     requirements explained above (Unserved Study Areas).[^1402]

#### Reserve Price

576. In the *Reverse Auctions NPRM*, we noted that we should establish a
     reserve price---a maximum level of high-cost support that
     participants in the auction would be allowed to place as a
     bid.[^1403] We observed that a reserve price that is set too low is
     likely to discourage bidders from participating, while one that is
     set too high raises the possibility of providing too much
     support.[^1404] We conclude that the reserve price should be the
     amount of high-cost support that the incumbent LEC would have been
     entitled to receive had it committed to offer broadband Internet
     access service within the study area.[^1405]

577. We set the reserve price in each study area at the incumbent LEC's
     current level of high-cost support for several reasons. First, we
     are adopting caps on the overall high-cost fund. Setting a reserve
     price will help ensure that overall high-cost funding remains
     within the caps, because the high-cost funding for each Unserved
     Study Area will merely be transferred to another ETC, not
     increased. In addition, setting a reserve price at this level will
     ensure that, even in reverse auctions for particular Unserved Study
     Areas that do not garner many bids, those bids will be made by
     providers who are confident that they can assume all the
     obligations of the carrier of last resort,[^1406] as well as the
     new broadband service obligations, and provide service more
     efficiently than the incumbent LEC.[^1407] Indeed, we expect that
     bidders frequently will offer to provide service using newer and
     more efficient technologies than the incumbent LEC uses today. For
     these reasons, we set the reserve price at the level described
     above.

#### Auctioned Support

578. For Unserved Study Areas, we will auction the award of high-cost
     support to provide all supported services to the entire Unserved
     Study Area, on a carrier of last resort basis, consistent with the
     requirements of this order. The maximum annual award amount will be
     equal to the amount of the winning bid (Award Amount), paid out as
     described in more detail below as certain geographic areas are
     built out.[^1408]

579. The Award Amount is conditioned on the winning bidder providing all
     supported services as a carrier of last resort, as the incumbent
     LEC does today under state law, and meeting the ETC requirements
     set forth in the *ETC Designation Order*.[^1409] Competitive ETCs
     are currently required to provide supported services throughout
     their service area, even though they may not be, under state law,
     the carrier of last resort.[^1410] In the *ETC Designation Order*,
     the Commission adopted additional requirements for ETC designation
     proceedings in which the Commission acts pursuant to section
     214(e)(6).[^1411] The Commission requires that applicants seeking
     ETC designation from this Commission demonstrate the following: (1)
     a commitment and ability to provide services, including providing
     service to all customers within its proposed service area; (2) that
     it will remain functional in emergency situations; (3) that it will
     satisfy consumer protection and service quality standards; (4) that
     it offers local usage comparable to that offered by the incumbent
     LEC; and (5) an understanding that it may be required to provide
     equal access if all other ETCs in the designated service area
     relinquish their designations pursuant to section 214(e)(4).[^1412]
     We find that the universal service obligations in the *ETC
     Designation Order* will apply to all competitive ETCs winning
     reverse auctions; in addition, the auction winner must accept all
     of the carrier of last resort obligations of the incumbent LEC for
     that study area, whether such obligations are imposed on the LEC
     pursuant to state or federal law.

580. In addition to the *ETC Designation Order* requirements, we add two
     additional requirements to competitive ETCs winning reverse
     auctions. First, they must, as a condition of receiving the Award
     Amount, offer broadband Internet access service to all customers
     within the Unserved Study Area. Second, competitive ETCs winning
     reverse auctions must offer supported services at a retail price
     comparable to the retail price charged by the incumbent LEC in that
     same study area for the same or equivalent service.[^1413] In this
     manner, we ensure that competitive ETCs receiving high-cost support
     will continue to make supported services at least as affordable and
     available as they are today.

581. We recognize that a transition mechanism is needed to shift
     high-cost support from the incumbent LEC currently receiving it to
     another ETC that wins an Award Amount. A flash cut would be harmful
     in at least two ways. First, the incumbent LEC would immediately
     lose support upon which it may rely to maintain supported services
     as a carrier of last resort to consumers today. It is possible that
     removing support from the incumbent LEC would, in some cases,
     jeopardize its provision of services to some users. In addition,
     granting a full Award Amount immediately to a winning ETC would
     provide little incentive for the competitive ETC to build out new
     facilities to difficult-to-serve areas until the last possible
     moment, as in many cases those areas will be the most expensive to
     serve. As a result, we conclude that, prior to the initiation of an
     auction, the incumbent LEC for the Unserved Study Area will be
     required to identify the distribution of support by geographic area
     for purposes of the auction and the transfer of support to the
     winning bidder. As the winning ETC builds out to those geographic
     areas and certifies that it complies with all its obligations under
     this order for that area, it will receive high-cost support for
     that portion of the Unserved Study Area, and the incumbent LEC will
     no longer receive such support for that area.[^1414] As the winning
     bidder takes on carrier of last resort obligations and obtains
     high-cost support for an area, the incumbent LEC will no longer
     receive high-cost support for that area and will be relieved of its
     carrier of last resort obligations at both the state and federal
     levels. We require winning auction bidders to comply fully with all
     the requirements of this order by the end of a ten-year build-out
     period.

582. Finally, we address the question of transferability of the Award
     Amount. We conclude that auction winners may transfer their right
     to the Award Amount. This transfer could take one of several
     forms---an auction winner could be purchased by another entity, the
     winner could sell assets used to provide the supported services, or
     the auction winner could transfer just the right to the Award
     Amount itself. The transferee will, in all events, step into the
     shoes of the auction winner and will be responsible for meeting all
     obligations as if it had been the original auction winner. Any such
     transfer, however, must be authorized by the Commission before it
     is consummated.

#### Selecting a Winning Bid

583. In the *Reverse Auctions NPRM*, we sought comment on whether the
     reverse auction should award high-cost support to a single winner
     or to multiple winners.[^1415] We observed that if only one winner
     receives support, this could provide a fair and efficient means of
     eliminating the subsidization of multiple ETCs in a region,
     particularly in areas in which costs are prohibitive.[^1416] We
     tentatively concluded that universal service support auctions
     should award high-cost support to a single winner.[^1417] We now
     conclude that the single winner format will provide the most
     effective mechanism for determining the support amount sufficient
     to meet the universal service goals in any given area.[^1418] We
     therefore adopt our tentative conclusion to select one winner in
     each reverse auction.

584. As we have explained above, in requiring the offering of broadband
     Internet access service as a condition of receiving high-cost
     support, one of our main goals is to ensure that all Americans have
     access to affordable, quality broadband services.[^1419] Achieving
     this goal will require careful selection of the winning bidder for
     a particular Unserved Study Area. As explained in more detail
     below, the winning bidder will be the one who commits to offer the
     highest speed of broadband service---throughout the entire Unserved
     Study Area---at a bid amount that is equal to or less than the
     reserve price (the incumbent LEC's current high-cost support
     amount). In so doing, we work towards making quality,
     technologically advanced broadband services available to all
     Americans, including those in difficult- or expensive-to-serve
     areas, rather than settling for lesser broadband service for those
     Americans who live in high-cost areas. We acknowledge that, in many
     cases, the winning bid will not be the cheapest one. But we believe
     that encouraging bidders to offer better broadband services at or
     below a set reserve price will help us achieve our broadband goals,
     while keeping an appropriate limit on the amount of high-cost
     support disbursed to achieve that goal.

585. For purposes of our reverse auction, we establish three tiers of
     broadband service. We will use the term "Basic Broadband Tier 1" to
     refer to service with download speeds equal to or greater than 768
     kbps but less than 1.5 mbps, and upload speeds greater than 200
     kbps. We will use the term "Broadband Tier 2" to refer to service
     with download speeds equal to or greater than 1.5 mbps and less
     than 3 mbps, and upload speeds greater than 200 kbps. We will use
     the term "Broadband Tier 3" to refer to service with download
     speeds equal to or greater than 3 mbps, and upload speeds greater
     than 200 kbps.[^1420]

586. We will evaluate bids as follows: for any Unserved Study Area, a
     bidder will submit a bid to commit to offering a service falling
     within Basic Broadband Tier 1, Broadband Tier 2, or Broadband Tier
     3 to all customers in the Unserved Study Area. To qualify for an
     award, the bid must be equal to or less than the reserve
     price---that is, equal to or less than the amount of high-cost
     support received by the incumbent LEC for that Unserved Study
     Area.[^1421] The bidder need not specify a specific speed to which
     it will commit in any of the three tiers, but it must disclose in
     which tier its proposed service will fall. The bid amount will be
     an amount of high-cost support to provide all supported services in
     the Unserved Study Area as carrier of last resort, subject to all
     the requirements of this order, including the condition to offer
     broadband throughout the Unserved Study Area. The winning bid will
     be selected through a two-step process. First, we will identify the
     highest speed tier for which there is a valid bid. If there is only
     one bid for that tier, then that is the winning bid. If there are
     multiple bids within that tier, then the winning bid will be the
     lowest price bid within that tier.[^1422]

587. If a particular reverse auction produces no winner, the study area
     will be identified as a truly high-cost study area. The fact that
     there is no winning bidder may indicate that the reserve price was
     set at too low an amount of support. The Commission will reexamine
     any such study area to determine whether the frozen high-cost
     support amount is sufficient, and, if it is not, the Commission
     will determine what further actions should be taken to ensure that
     the study area is served by a provider that will meet the broadband
     commitment and carrier of last resort requirements. For example,
     the Commission may consider disaggregating the study area on a wire
     center basis for reverse auction purposes, or increasing the amount
     of high-cost support set as the reserve price for the study
     area.[^1423] To ensure continued service to customers during the
     limited period of time in which the Commission examines these
     issues, the existing incumbent LEC will continue to have all
     carrier of last resort and ETC obligations, and will continue to
     receive high-cost support frozen at its current level pending
     transfer of such support to the winning bidder of the reverse
     auction.

#### Bidder Qualifications

588. We adopt a number of conditions that bidders must meet before they
     can participate in any auction. We adopt these requirements to help
     ensure that any bidder who wins an auction will be capable of
     meeting the commitments that flow from being a winning bidder.

589. First, we require that a bidder be an ETC, certified by the
     Commission or by a state. In the *Reverse Auctions NPRM*, we
     tentatively concluded that an auction bidder must be an ETC
     covering the relevant geographic area prior to participating in the
     auction.[^1424] We hereby adopt that tentative conclusion. Winning
     bidders must be designated as ETCs before receiving high-cost
     support pursuant to sections 214 and 254 of the Act; therefore,
     requiring bidders to receive this designation prior to
     participating in an auction entails only a small additional burden.
     This burden is offset by the potential delay in deploying broadband
     Internet access service that would result while a non-ETC winning
     bidder seeks and obtains ETC designation.[^1425] We note that ETCs
     are not required to provide all supported services with their own
     facilities.[^1426] ETCs may enter into contracts with other
     entities to provide some supported services in part or all of the
     study area.

590. As a general matter, in our spectrum auctions we require an upfront
     payment to deter frivolous or insincere bidding.[^1427] In the
     reverse auctions we adopt today, we are not requiring an upfront
     payment. Instead, we are requiring participants to demonstrate to
     the Commission a capability to meet the milestone requirements.
     This showing will include, for example, evidence of financial
     resources with which to undertake the construction or upgrading of
     facilities necessary to offer broadband Internet access service. In
     addition, in areas where the bidder does not currently offer
     telecommunications services, we will require the bidder to submit a
     plan demonstrating the timetable for building the necessary
     facilities and obtaining any required permits.

### Competitive Eligible Telecommunications Carriers

591. In the *Identical Support NPRM*, the Commission tentatively
     concluded that it should eliminate the current identical support
     rule for competitive ETCs, because the rule bears no relationship
     to the amount of money competitive ETCs have invested in rural and
     other high-cost areas of the country.[^1428] In that notice, the
     Commission tentatively concluded that a competitive ETC should
     receive high-cost support based on its own costs, which better
     reflect real investment in rural and other high-cost areas of the
     country, and which create greater incentives for investment in
     those areas.[^1429] Because a competitive ETC's per-line support is
     based solely on the per-line support received by the incumbent LEC,
     rather than its own network investments in an area, the competitive
     ETC has little incentive to invest in, or expand, its own
     facilities in areas with low population densities, thereby
     contravening the Act's universal service goal of improving the
     access to telecommunications services in rural, insular and
     high-cost areas.[^1430] Instead, competitive ETCs have a greater
     incentive to expand the number of subscribers, particularly those
     located in the lower-cost parts of high-cost areas, rather than to
     expand the geographic scope of their networks. As discussed above,
     the Joint Board recommended elimination of the identical support
     rule; we agree with the Joint Board and adopt this recommendation
     and our tentative conclusion.[^1431]

592. For competitive ETCs, we provide a five-year transition, during
     which their existing support is reduced in equal steps.[^1432] More
     specifically, for each competitive ETC, a base-line level of
     support will be determined based on the total support received by
     that competitive ETC for the twelve months prior to the effective
     date of the order. For the twelve months following the effective
     date of the order, each competitive ETC will receive support equal
     to 80 percent of its baseline support amount. In year two, each
     competitive ETC will receive support equal to 60 percent of its
     baseline support amount. In year three, each competitive ETC will
     receive support equal to 40 percent of its baseline support amount.
     In year four, each competitive ETC will receive support equal to 20
     percent of its baseline support amount. Finally, in year five,
     existing high-cost support for competitive ETCs will be eliminated.
     In the Further Notice we seek comment on an appropriate universal
     service mechanism (or mechanisms) focused on the deployment and
     maintenance of advanced mobile wireless services in high-cost and
     rural areas.

### Build-Out Milestones and Monitoring, Compliance, and Enforcement

593. We find that a rigorous monitoring, compliance and enforcement
     program is necessary to ensure that all incumbent LECs and auction
     winners receiving high-cost support adhere to their obligation to
     offer broadband Internet access service throughout their supported
     service areas by the end of their respective build-out periods. We
     therefore establish build-out requirements to monitor providers'
     progress toward their build-out commitment. Specifically, and as
     described in detail below, we require each provider receiving
     high-cost support to meet specific milestones with regard to
     broadband deployment in the years preceding completion.

594. *Applicability of Requirements*. As an initial matter, we find that
     the monitoring, compliance and enforcement requirements we adopt
     today will apply equally to all recipients of high-cost support
     that commit to offer broadband Internet access service as a
     condition of receiving support. Consumers should expect to receive
     the benefits of today's order, irrespective of whether an incumbent
     LEC or winning auction bidder receives high-cost support in their
     area. We find that the milestone obligations we impose today will
     not unduly burden any company; rather, they represent efforts we
     believe carriers would undertake in the normal course of
     constructing a broadband network. We therefore apply the
     monitoring, compliance, and enforcement requirements below to all
     incumbent LECs and auction winners that receive high-cost support.

595. *Milestones for Committed Incumbent LECs.* To ensure that incumbent
     LECs that commit to offering broadband make steady progress towards
     offering broadband Internet access service throughout their entire
     service areas as required in this order, we adopt milestones based
     on customer locations where the incumbent LEC is not yet offering
     broadband Internet access service (Unserved Customers).[^1433]
     Specifically, we require incumbent LECs to be capable of providing
     broadband Internet access service to an additional 20 percent of
     their Unserved Customers by the end of each year of the five-year
     build-out period. This requirement means that, of the total number
     of Unserved Customers in the service area, these carriers must
     offer broadband to 20 percent by the end of year one, 40 percent by
     the end of year two, 60 percent by the end of year three, 80
     percent by the end of year four, and 100 percent by the end of year
     five. This five-year period starts from the due date of the
     incumbent LEC commitment.

596. *Milestones for Auction Winners.* To ensure that auction winners
     make good progress toward meeting their obligation to become fully
     compliant with the requirements of this order*,* we require every
     auction winner to be capable of serving 10 percent of the potential
     customers in the service area by the end of year two, 25 percent by
     the end of year three, 50 percent by the end of year four, 65
     percent by the end of year five, 75 percent by the end of year six,
     85 percent by the end of year seven, 90 percent by the end of year
     eight, 95 percent by the end of year nine, 100 percent by the end
     of year ten. The absence of a milestone at the end of year one is
     intended to allow new service providers sufficient time to plan
     their network and to start deploying and marketing it within some
     parts of the service area. Similarly, the ascending milestones in
     the remaining years are intended to permit the auction winner a
     reasonable time in which to build its network and services while
     ensuring that it does not delay in reaching customers who need this
     vital service. The ten-year build-out period starts on the date on
     which that carrier wins the auction.

597. *Consequences of Not Meeting Milestones.* For all incumbent LECs
     and auction winners receiving high-cost support, failure to achieve
     any milestone will result in loss of eligibility for support (and,
     where this Commission has jurisdiction over the designation of ETC
     status, loss of ETC status) for that service area. If the incumbent
     LEC or auction winner loses its eligibility for support, the study
     area will be subject to re-auction. If at the end of the build-out
     period, the incumbent LEC or auction winner is not fully compliant
     with all its obligations under this order, including its obligation
     to offer broadband Internet service throughout the service area, it
     will forfeit its eligibility for support and, if its ETC
     designation was made by this Commission, lose its ETC status.

598. *Milestone Audits*. All milestone data will be subject to audit by
     the Commission's Office of Inspector General and, if necessary,
     investigated by the Office of Inspector General, to determine
     compliance with the build-out requirements, the Act, and Commission
     rules and orders.[^1434] Service providers will be required to
     comply fully with the Office of Inspector General's audit
     requirements, including, but not limited to, providing full access
     to all accounting systems, records, reports, and source documents
     of the service providers and their employees, contractors, and
     other agents, in addition to all other internal and external audit
     reports that are involved, in whole or in part, in the
     administration of this program.[^1435] Such audits or
     investigations may provide information showing that a service
     provider failed to comply with the Act or the Commission's rules,
     and thus may reveal instances in which universal service support
     was improperly distributed or used.

599. We emphasize that we retain the discretion to evaluate the uses of
     monies disbursed through the high-cost program and to determine on
     a case-by-case basis whether waste, fraud, or abuse of program
     funds occurred and whether recovery is warranted. We remain
     committed to ensuring the integrity of the universal service
     program and will aggressively pursue instances of waste, fraud, and
     abuse under the Commission's procedures and in cooperation with law
     enforcement agencies. In doing so, we intend to use any and all
     enforcement measures, including criminal and civil statutory
     remedies, available under law.[^1436]

# Broadband for lifeline/link up customers

600. In this Part, pursuant to section 254(b) of the Act, we establish a
     Broadband Lifeline/Link Up Pilot Program (Pilot Program) to examine
     how the Lifeline and Link Up universal service support mechanism
     can be used to enhance access to broadband Internet access services
     for low-income Americans.[^1437] Specifically, we conclude that we
     will make available \$300 million each year for the next three
     years to enable ETCs to support broadband Internet access service
     and the necessary access devices. In particular, if an ETC provides
     Lifeline service to an eligible customer, the Pilot Program will
     support 50 percent of the cost of broadband Internet access
     installation, including a broadband Internet access device, up to a
     total amount of \$100. In addition, if an ETC provides Lifeline
     service to an eligible household, the Pilot Program will double, up
     to an additional \$10, the household's current monthly subsidy to
     offset the cost of broadband Internet access service.

## Background

601. Since 1985, the Commission, pursuant to its general authority under
     sections 1, 4(i), 201, and 205 of the Act and in cooperation with
     state regulators and local telephone companies, has administered
     two programs designed to increase subscribership by reducing
     charges to low-income consumers.[^1438] The Commission\'s Lifeline
     program reduces qualifying consumers\' monthly charges, and Link Up
     provides federal support to reduce eligible consumers' initial
     connection charges by up to one half.[^1439]

602. Under the Commission's current rules, states and territories have
     the authority to establish their own Lifeline/Link Up programs that
     provide additional support to low-income consumers that incorporate
     the unique characteristics of each state or territory.[^1440] For
     example, in establishing eligibility criteria, states have the
     flexibility to consider federal and state-specific public
     assistance programs with high rates of participation among
     low-income consumers in the state. State certification procedures
     and outreach efforts can also take into account existing state laws
     and budgetary limits. Some states and territories, however, have
     elected to use the federal criteria as their default standard.
     These "federal default states" include not only states and
     territories with their own Lifeline/Link Up programs that have
     adopted the federal default criteria, but also states and
     territories that have not adopted their own Lifeline/Link Up
     program. In April 2004, the Commission released an order expanding
     the federal default eligibility criteria to include an income-based
     criterion and additional means-tested programs.[^1441]

603. *Eligibility for Lifeline and Link Up.* In states that provide
     state Lifeline and Link Up support, Lifeline and Link Up are
     available to all subscribers who meet state eligibility
     requirements. Although states have some latitude in selecting means
     tests, state commissions must establish narrowly targeted
     qualification criteria that are based solely on income or factors
     directly related to income for low-income residents to be eligible
     for Lifeline and Link Up. In addition, states with eligible
     residents of tribal lands must ensure that their qualification
     criteria are reasonably designed to apply to residents of tribal
     lands, if applicable.[^1442] To receive Lifeline and Link Up in a
     state that does not mandate state Lifeline support, consumers must
     certify that their household income is at or below 135 percent of
     the Federal Poverty Guidelines, or that they participate in one of
     the following seven federal programs: Medicaid, Food Stamps,
     Supplemental Security Income (SSI), Federal Public Housing
     Assistance (Section 8), the Low-Income Home Energy Assistance
     Program (LIHEAP), the National School Lunch Program's free lunch
     program, or Temporary Assistance for Needy Families (TANF).[^1443]
     Subscribers living on tribal lands qualify to receive federal
     Lifeline support if: (1) they qualify under state criteria in a
     state that provides Lifeline support; (2) they certify that their
     household income is at or below 135 percent of the Federal Poverty
     Guidelines; (3) they certify that they receive benefits from one of
     the seven federal programs listed above; or (4) they certify that
     they participate in one of the following additional federal
     assistance programs: Bureau of Indian Affairs General Assistance
     (GA), Tribally administered Temporary Assistance for Needy Families
     (Tribal TANF), or Head Start (meeting the income-qualifying
     standard).[^1444]

604. *TracFone and Computer and Communications Industry Association
     Petitions.* On October 9, 2008, TracFone Wireless, Inc. (TracFone)
     submitted a petition requesting that the Commission establish a
     trial basis program to support broadband Internet access service
     and the devices that support this service.[^1445] Citing data
     demonstrating that a significant amount of low-income families are
     unable to afford broadband Internet access, TracFone proposes that
     the Commission, on a temporary basis, provide affordable access to
     low-income consumers by supporting broadband Internet access
     service and the devices used to access these services.[^1446]
     TracFone proposes limiting the program to 500,000 to 100,000
     low-income households in Florida, Virginia, Tennessee, and the
     District of Columbia.[^1447] Doing so, according to TracFone, will
     enable to the Commission to examine how to better make available
     broadband Internet access service to low-income consumers
     throughout the Nation.[^1448]

605. On October 7, 2008, the Computer and Communications Industry
     Association (CCIA) filed a petition requesting the Commission
     revise the definition of universal service supported services to
     allow low-income consumers receive support for broadband Internet
     access services.[^1449] CCIA states that, despite a critical need
     for broadband Internet access service, low-income consumers still
     have a considerably low broadband Internet access deployment rate.
     Accordingly, CCIA argues the definition of supported services for
     purposes of universal service should be revised to provide support
     for broadband Internet access service to low-income
     consumers.[^1450]

606. In recent proceedings, other parties have also urged the Commission
     to provide low-income consumers with support for broadband
     services. For example, Windstream argues that the Commission should
     direct broadband support to low-income consumers where such support
     is most needed.[^1451] AARP also concludes that the Commission
     should provide Lifeline/Link Up support for broadband services and
     urges the Commission to conduct a proceeding to examine the
     matter.[^1452] AARP proposes that in addition to examining
     supporting broadband services, the Commission should also examine
     how to increase low-income consumers' access to devices that
     support broadband services and education on how to use such
     devices.[^1453] Many consumer groups and service providers have
     also commented in support of TracFone and CCIA's proposals to
     support the provision to low-income consumers of broadband Internet
     access service and the devices used to access these
     services.[^1454]

## Discussion

607. Consistent with the Commission's authority under sections 1, 4(i),
     201, 205, and 254 of the Act, we establish a Lifeline and Link Up
     pilot program to support the provision of broadband Internet access
     service and the devices used to access this service to low-income
     consumers.[^1455] In doing so, we explain the justification for
     establishing this program and provide criteria and obligations
     applicants must satisfy for selection to participate in this
     program. Further, we establish requirements for oversight and
     administration of the Pilot Program.

608. *Broadband Internet Access Service and Devices Eligible for Low
     Income Support.* In the *Universal Service First Report and Order*,
     consistent with its statutory obligations, the Commission
     maintained the authority to adopt changes to the Lifeline program
     to make it more consistent with Congress's mandates in the 1996 Act
     if such changes would serve the public interest.[^1456] We believe
     that a Lifeline and Link Up pilot program comports with the goals
     of universal service, and advances the public interest by providing
     new technologies and services to low-income consumers. Section
     254(b)(2) of the Act instructs the Commission to base policies for
     the advancement of universal service on the principle that
     "\[a\]ccess to *advanced* telecommunications *and information
     services* should be provided in all regions of the Nation."[^1457]
     Similarly, section 254(b)(3) states that "low-income consumers . .
     . should have access to . . . *advanced* telecommunications and
     *information services*, that are reasonably comparable to those
     services provided in urban areas and that are available at rates
     charged for similar services in urban areas."[^1458]

609. Since the Commission first adopted its universal service rules in
     response to the 1996 Act, broadband Internet access service has
     evolved into a critical service for American consumers.[^1459] The
     majority of consumers who use broadband Internet access service
     today rely on it for telework, access to banking services,
     interaction with government, entertainment, shopping, access to
     news and other information, and many other uses. Access to
     broadband Internet access service is especially important to
     low-income consumers for purposes of education, public health and
     public safety.[^1460] High-speed connections to the Internet allow
     children in low-income families access to distance learning and
     research.[^1461] Telemedicine networks made possible by broadband
     Internet access service also save lives and improve the standard of
     healthcare to low-income families living in areas that may lack
     access to the breadth of medical expertise and advanced medical
     technologies available in other areas.[^1462] Broadband Internet
     access service also enables the sharing of critical, time-sensitive
     information with first responders, government officials, and health
     care providers, thereby improving the government's ability to
     provide a comprehensive and cohesive response to a public health
     crisis.

610. Despite the advances in broadband technology, broadband
     availability still lags for low-income consumers.[^1463] The
     Commission's most recent data reveal that where the median income
     is under \$21,000, approximately 99.5 percent of households have
     high-speed service available with speeds in excess of 200 kbps in
     at least one direction.[^1464] Yet, according to the Pew Internet &
     American Life Project, only 25 percent of households with annual
     incomes below \$20,000 have broadband service.[^1465] In contrast,
     among those living in households with annual incomes in excess of
     \$100,000, broadband adoption is approximately 85 percent.[^1466]

611. According to the Commission's data, there are approximately 6.9
     million consumers participating in the Lifeline universal service
     program.[^1467] Providing an additional \$300 million in annual
     support through the low-income universal service support mechanisms
     over a three-year period should increase the broadband
     subscribership for low-income customers to over fifty
     percent.[^1468]

612. We therefore find that this Pilot Program furthers the universal
     service objectives of section 254 of the Act and serves the public
     interest by making this critical service available to the
     low-income Americans who cannot otherwise afford it. In addition,
     the Pilot Program will provide the Commission with a more complete
     and practical understanding of how to ensure the best use of
     Lifeline and Link Up universal service support to deploy advanced
     services to low-income consumers.[^1469]

### Available Funding

613. We establish a maximum annual funding level for this broadband
     Lifeline and Link Up Pilot Program at \$300 million for each of the
     next three years. In its petition, TracFone proposes that a pilot
     program should fund up to either \$180 million or \$360 million per
     year for Lifeline broadband Internet access service support, and up
     to \$125 million or \$250 million for the Link Up portion of the
     program, for a total of either \$305 million or \$610 million,
     depending on whether the program would support 500,000 participants
     or one million participants.[^1470]

614. While we recognize the importance of making sufficient funds
     available for this Pilot Program to enable us to determine whether
     and, if so, how to make broadband Internet access service funding a
     permanent part of the Lifeline and Link Up programs, we find that
     the levels of funding proposed by TracFone are not sufficiently
     tied to a specific improvement in the adoption of broadband by
     Lifeline subscribers, as discussed above. In 2007, the overall size
     of the universal service fund's disbursement mechanisms was
     approximately \$7.0 billion.[^1471] Of that amount, approximately
     \$823 million went to fund the universal service low-income
     program.[^1472] TracFone's proposal represents a potential 74
     percent increase over existing low-income program disbursements,
     and would be limited to targeting low-income consumers in only
     three states and the District of Columbia.[^1473] We are concerned
     that such a large funding commitment for a limited geographic area
     would not provide the Commission with sufficient information to
     assess the benefits of expanding the low-income support mechanisms
     upon the conclusion of the Pilot Program. When extrapolated to all
     states and territories, the low-income pilot program proposed by
     TracFone could potentially double the size of the \$7 billion
     universal service fund.[^1474] We find it more appropriate to fund
     a pilot program that better correlates with providing broadband
     Internet access service to all eligible low-income support
     recipients as this provides better information regarding the
     permanent adoption of such support.

615. Instead, we set the size of the Lifeline and Link Up Pilot Program
     at up to \$300 million per year over the next three years. We find
     that this amount provides benefits to low-income consumers while
     not overly increasing the amount of low-income support disbursed
     from the universal service fund. Specifically, this level of
     funding should enable the program to increase the broadband
     subscribership for these customers to over fifty percent.[^1475]

### Eligible Services and Equipment

616. For the broadband Lifeline/Link Up Pilot Program we adopt today, we
     limit support to one subsidy per household. For purposes of this
     order, we define "household" as one adult and his/her dependants,
     living together in the same residence.[^1476] Participating
     households who remain eligible for the program will be entitled to
     remain in the program beyond the first year, subject to the
     requirement that participating ETCs verify their customers'
     continued eligibility under the applicable income-based or
     program-based criteria, as they are required to do for their
     current voice Lifeline customers. We do not require state or
     carrier matching requirements. The Pilot Program is exempt from
     fees and taxes to the same degree as the current Lifeline programs.

617. Under the Link Up portion of the Pilot Program we adopt today, we
     seek to overcome barriers that low-income households might face in
     subscribing to broadband services, such as lacking the equipment
     necessary to connect to broadband services. Therefore, if an ETC
     currently provides or seeks to provide Lifeline voice service to an
     eligible customer, the Pilot Program will support 50 percent of the
     cost of broadband Internet access service installation, including a
     broadband Internet access device, up to a total amount of \$100.
     The device can be a laptop computer, a desktop computer, or a
     handheld device, so long as the equipment has the capability to
     access the Internet at the speeds established per this order, and
     the equipment carries at least a warranty.[^1477] The device
     subsidy is a one-time subsidy and is limited to one unit per
     qualified household.[^1478] The subsidy amount will be paid by USAC
     to the participating ETC that provides the device and the service
     to the customer, utilizing the same process that USAC uses for the
     current Link Up program.[^1479]

618. Once low-income households have the ability to connect to the
     Internet, we seek to ensure that they can afford to subscribe to
     broadband Internet access service. Under the Lifeline portion of
     the program, if an ETC currently provides or seeks to provide
     Lifeline voice service to an eligible household, and that ETC
     provides broadband Internet access service, the Pilot Program will
     double the current monthly subsidy for the Lifeline subscriber up
     to \$10 per month to offset the cost of broadband Internet access
     service.[^1480] As defined in this order, broadband Internet access
     service is an "always on" service that combines computer
     processing, information provision, and computer interactivity with
     data transport, enabling end users to access the Internet and use a
     variety of applications, at speeds discussed below.[^1481] This
     monthly support provided to participating customers under the Pilot
     Program is separate from and in addition to their monthly Lifeline
     support for voice telephone service.[^1482]

619. All ETCs participating in the existing low-income programs are
     eligible to participate, provided that they notify the Commission
     and USAC of their election to participate at least a month in
     advance and certify that they will comply with all program
     requirements, including those set forth herein. Such certification
     must identify the service area in which the ETC plans to offer such
     Lifeline/Link Up broadband services, the costs of such service and
     broadband device, and all costs, both recurring and nonrecurring,
     to the customer participating in the program. The ETC must offer
     the services supported in the Pilot Program throughout the entire
     service area. The Wireline Competition Bureau will release a public
     notice establishing a deadline by which ETCs must notify the
     Commission of their intention to participate.

620. The program we adopt today is technologically and competitively
     neutral; however, we establish minimum speeds at which
     participating ETCs must be able to provide broadband service. ETCs
     participating in the Pilot Program must offer broadband Internet
     access service with download speeds equal to or greater than 768
     kbps and upload speeds greater than 200 kbps.[^1483]

### Selection Criteria

621. TracFone suggests that all ETCs notifying the Commission of their
     intent to participate in the Pilot Program should be allowed to
     provide the broadband Internet access service and devices under the
     Pilot Program.[^1484] TracFone also argues that the Commission
     should limit the Pilot Program to 500,000 to 100,000 low-income
     households in Florida, Virginia, Tennessee and the District of
     Columbia.[^1485] We agree with TracFone that all ETCs should be
     allowed to provide services under the Pilot Program, but we
     disagree that the consumers who are eligible to participate should
     be limited to three states and the District of Columbia.[^1486]
     Instead, it is consistent with the public interest to allow all
     ETCs and consumers that meet the criteria discussed in this order
     to participate in the Pilot Program, limited only by the
     availability of funds. Support will be disbursed on a "first come,
     first served basis" where priority is established according to
     ETCs' submission of reimbursement requests to USAC and compliance
     with program eligibility.

622. *Consumer Qualifications*. To receive reimbursement under the Pilot
     Program, an ETC must provide support to a consumer eligible for
     support under the current Lifeline and Link Up programs.
     Specifically, the consumer must meet the eligibility criteria
     specified in section 54.409 of the Commission's rules.[^1487] We
     agree with TracFone that only one connection and device per
     household should be funded. Accordingly, we limit Pilot Program
     support to one new connection and device per household. Lifeline
     consumers who currently have a broadband connection and related
     Internet device are excluded from participation in this Pilot
     Program. In addition to their obligations under section 54.409 of
     our rules, consumers must demonstrate that they do not currently
     have a broadband Internet access service subscription or broadband
     Internet access device.[^1488]

623. *ETC Obligation to Offer Pilot Program Services*. Prior to
     participation, ETCs must notify the Commission and USAC of their
     intention to participate. A participating ETC must offer the
     services and supported devices to all qualifying low-income
     consumers throughout its service areas. It must also follow the
     carrier obligations identified in section 54.405, as applicable, of
     the Commission's rules.[^1489] Consumers and ETCs must follow the
     framework and requirements of the existing Lifeline and Link Up
     program.[^1490]

### Implementation and Reporting Requirements

624. To be eligible for support, ETCs must submit a reimbursement
     request to USAC 30 days from the date a customer subscribes to
     service or purchases a device. We require participating each ETC to
     file with USAC on a monthly basis the number of Pilot Program
     consumers it is serving, the types and prices of devices offered,
     the type of technology used (including make and model of equipment
     used) and the speeds at which it is providing service to each of
     those consumers. ETCs in their monthly submission must also report
     the number of subscribers served for the past month and projections
     for the number of subscribers for the next 2 months. Such monthly
     reporting is required to allow USAC to monitor availability of
     funds under the Pilot Program and notify participating ETCs when
     funds may no longer be available for additional customers. In
     determining and/or projecting funds availability, USAC should
     consider the recurring costs of existing customers; we decline to
     specifically allocate the available funding between Lifeline and
     Link Up, relying instead on the certification and reporting
     requirements herein to enable USAC to properly administer the Pilot
     Program.

625. Similar to current recordkeeping requirements, we also require ETCs
     to maintain records to document compliance with all Commission
     requirements governing this Pilot Program for the three full
     preceding calendar years and provide that documentation to the
     Commission or USAC upon request.[^1491] Additionally, ETCs must
     maintain documentation for as long as the consumer is receiving
     broadband Lifeline service from that ETC pursuant to the Pilot
     Program, and for three additional years after the consumer stops
     receiving service pursuant to the Pilot Program.

626. ETCs may receive reimbursement for the revenue they forego in
     reducing the price of any qualified consumers' broadband Internet
     access service and related device. As a condition of participation,
     it is the ETC's responsibility to make available a wide array of
     cost efficient broadband Internet access devices capable of
     providing the speeds described above to qualified consumers under
     this program. ETCs must also comply with the self-certification
     procedures, and submit certifications with their monthly
     submissions, consistent with sections 54.410 and 54.416 of the
     Commission's rules.[^1492] Any services or equipment supported
     under this order are non-transferable and the devices must be
     returned to the ETC if they are not used in compliance with the
     terms of this order or other applicable laws or regulations. We
     delegate to the Wireline Competition Bureau the authority to
     disqualify an ETC or consumer from the Pilot Program and seek
     recovery of support not used in a manner consistent with this
     order.

### Program Oversight

627. We are committed to guarding against waste, fraud, and abuse, and
     ensuring that funds disbursed through the Pilot Program are used
     for appropriate purposes. In particular, each Pilot Program
     participant shall be subject to audit by the Office of Inspector
     General and, if necessary, investigated by the Office of Inspector
     General, to determine compliance with the Pilot Program, Commission
     rules and orders, as well as section 254 of the Act.[^1493] The
     Pilot Program participant will be required to comply fully with the
     Office of Inspector General's audit requirements including, but not
     limited to, providing full access to all accounting systems,
     records, reports, and source documents of itself and its employees,
     contractors, and other agents in addition to all other internal and
     external audit reports that are involved, in whole or in part, in
     the administration of this Pilot Program.[^1494] Such audits or
     investigations may provide information showing that a Pilot Program
     participant or vendor failed to comply with the Act or the
     Commission rules, and thus may reveal instances in which Pilot
     Program awards were improperly distributed or used. To the extent
     the Commission finds that funds were distributed and/or used
     improperly, the Commission will require USAC to recover such funds
     though its normal processes, including adjustment of support
     amounts in other universal service programs from which Pilot
     Program participants receive support.[^1495] If any participant
     fails to comply with Commission rules or orders, or fails to timely
     submit filings required by such rules or orders, the Commission
     also has the authority to assess forfeitures for violations of such
     Commission rules and orders. In addition, any participant or
     service provider that willfully makes a false statement can be
     punished by fine or forfeiture under sections 502 and 503 of the
     Act,[^1496] or by fine or imprisonment under Title 18 of the United
     States Code (U.S.C.) including, but not limited to, criminal
     prosecution pursuant to section 1001 of Title 18 of the
     U.S.C.[^1497] We emphasize that we retain the discretion to
     evaluate the uses of monies disbursed through the Pilot Program and
     to determine on a case-by-case basis whether waste, fraud, or abuse
     of program funds occurred and whether recovery is warranted. We
     remain committed to ensuring the integrity of the universal service
     program and will aggressively pursue instances of waste, fraud, and
     abuse under the Commission's procedures and in cooperation with law
     enforcement agencies. In doing so, we intend to use any and all
     enforcement measures, including criminal and civil statutory
     remedies, available under law.[^1498] The Commission will also
     monitor the use of awarded monies and develop rules and processes
     as necessary to ensure that funds are used in a manner consistent
     with the goals of this Pilot Program. Finally, we remind
     participants that nothing in this order relieves them of their
     obligations to comply with other applicable federal laws and
     regulations.

# Reform of Universal Service contributions 

628. In this Part, we adopt a telephone numbers-based methodology under
     which contributors will pay a constant, flat-rate assessment based
     on the number of telephone numbers they have assigned to
     residential end users. We set this per-number assessment at the
     fixed rate of \$1.00 per residential number per month. We conclude
     that providers of business services should contribute to the
     universal service fund on a connection basis, and we seek comment
     on implementation of that methodology. In the interim, providers of
     business services will continue to contribute based on interstate
     and international revenues for these services. The separate
     contribution methodologies for residential and business services
     will be implemented beginning on January 1, 2010.

## Background

629. In implementing the universal service requirements of the 1996 Act,
     the Commission established a method for collecting funds to be
     disbursed through the various universal service support mechanisms.
     Specifically, the Commission determined that contributions to the
     universal service fund would be assessed on telecommunications
     providers based on their interstate and international end-user
     telecommunications revenues.[^1499] The Commission concluded that
     basing providers' universal service contributions on their revenues
     would be competitively neutral, easy to administer, and
     explicit.[^1500]

630. When the Commission adopted the revenue-based contribution system,
     assessable interstate revenues were growing. The total assessable
     revenue base has declined in recent years, however, from about
     \$79.0 billion in 2000 to about \$74.5 billion in 2006,[^1501]
     while universal service disbursements grew over that same time
     period from approximately \$4.5 billion in 2000 to over \$6.6
     billion in 2006.[^1502] Declines in assessable contribution
     revenues combined with growth in universal service disbursements
     have increased the contribution factor applied to determine
     universal service contribution amounts.[^1503] This upward pressure
     jeopardizes the stability and sustainability of the support
     mechanisms, demonstrating the need for long-term fundamental reform
     of the contribution methodology.[^1504]

631. In addition, interstate end-user telecommunications service
     revenues are becoming increasingly difficult to identify as
     customers migrate to bundled packages of interstate and intrastate
     telecommunications and non-telecommunications products and
     services.[^1505] The integration of local and long-distance
     wireline services into packages that allow customers to purchase
     buckets of long distance minutes and local service for a single
     price blurs the distinction between revenue derived from intrastate
     telecommunications service and interstate telecommunications
     service. Similarly, the availability of mobile wireless calling
     plans that allow customers to purchase buckets of minutes on a
     nationwide network without incurring roaming or long-distance
     charges also makes it difficult for providers and the Commission to
     identify the amount of revenue derived from interstate
     telecommunications service.[^1506] Further, migration to
     interconnected VoIP services complicates the distinctions that
     serve as the basis for current contribution obligations.[^1507]

632. In 2001 and 2002, the Commission sought comment on modifications to
     the existing revenue-based contribution methodology, and on
     replacing that methodology with one that assesses contributions on
     the basis of a flat-fee charge, such as a per-line charge.[^1508]
     The Commission also sought comment on other universal service
     contribution methodologies, including moving to a numbers-based
     methodology.[^1509] Finally, in May 2008, the Commission encouraged
     commenters to refresh the record in several pending intercarrier
     compensation and universal service reform proceedings, including
     the contribution methodology proceeding.[^1510]

## Discussion

633. The system of contributions to the universal service fund is
     broken. The Commission has repeatedly patched the current system to
     accommodate decreasing interstate revenues, a trend toward
     "all-you-can-eat" services that make distinguishing interstate from
     other revenues difficult if not impossible and changes in
     technology. While the service developments that precipitated these
     changes have enormous consumer benefits, they have also severely
     strained the contributions system.[^1511] We therefore adopt today
     a system of contributions that will assess a \$1.00 contribution
     per residential telephone number per month, and we will move to a
     connections-based system for business services. In this part, we
     explain our legal authority to move to these new methodologies, why
     we have decided to move to these methodologies, and how the
     residential numbers-based system will work.

### Legal Authority

634. The Commission has ample authority to require contributions from
     the variety of providers discussed below. The Commission's
     authority derives from several sections of the Act: section 254(d),
     Title I, and section 251(e). These sections of the statute provide
     us authority to require contributions from the kinds of service
     providers we address below in our discussions of the new
     numbers-based approach for residential services and the
     connections-based approach for business services.

635. Section 254 is the cornerstone of the Commission's universal
     service program. Section 254(d) first provides 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."[^1512] Under this "mandatory
     contribution" provision, every provider of telecommunications
     services[^1513] must contribute, although the Commission has
     authority to exempt a carrier or class of carriers if their
     contributions would be *de minimis*.[^1514]

636. Section 254(d) also provides that the Commission may require
     "\[a\]ny other provider of interstate telecommunications . . . to
     contribute to the preservation and advancement of universal service
     if the public interest so requires."[^1515] The Commission has
     relied on this "permissive authority" to require various providers
     of telecommunications,[^1516] but not necessarily
     telecommunications *services*,[^1517] to contribute. For example,
     the Commission has required entities that provide interstate
     telecommunications to others on a private contractual basis to
     contribute to the universal service fund,[^1518] as well as
     payphone aggregators.[^1519] Most recently, we required
     interconnected VoIP providers to contribute even though the
     Commission has not determined that they are telecommunications
     carriers. Specifically, in the *2006 Interim Contribution
     Methodology Order*, we used our permissive authority under section
     254(d) to require interconnected VoIP providers to contribute, and
     we noted that they "provide" telecommunications to their end
     users.[^1520] We also noted that in some cases, the interconnected
     VoIP provider may be "providing" telecommunications even if it
     arranges for the end user to have PSTN access through a third
     party.[^1521]

637. The Commission also has authority under Title I to require other
     service providers to contribute. In general, the Commission can
     rely on its ancillary jurisdiction under Title I when the
     Commission has subject matter jurisdiction over the service to be
     regulated, and the assertion of jurisdiction is "reasonably
     ancillary to the effective performance of \[its\] various
     responsibilities." [^1522] The Commission relied on this authority
     before section 254 was added by the 1996 Act to establish a
     high-cost support fund,[^1523] which the U.S. Court of Appeals for
     the D.C. Circuit found to be a permissive exercise of Title I
     authority.[^1524] And more recently in the *2006 Interim
     Contribution Methodology Order*, the Commission relied on its
     ancillary jurisdiction under Title I as an additional source of
     authority to require contributions from interconnected VoIP
     providers.[^1525] In that order, the Commission noted that the Act
     grants subject matter jurisdiction over interconnected VoIP because
     it involves "transmission" of voice by wire or radio,[^1526] and
     that imposing contribution obligations on interconnected VoIP
     providers was "reasonably ancillary" to the effective performance
     of the Commission's responsibilities to establish "specific,
     predictable, and sufficient mechanisms . . . to preserve and
     advance universal service."[^1527] In particular, the Commission
     noted that interconnected VoIP providers "benefit from their
     interconnection to the PSTN."[^1528]

638. In addition, Congress provided the Commission with "plenary
     authority" over numbering in section 251(e). Specifically, the
     Commission has "exclusive jurisdiction over those portions of the
     North American Numbering Plan that pertain to the United
     States."[^1529] The Commission relied on its authority under
     section 251(e) to support its action to require interconnected VoIP
     providers to provide E911 services.[^1530] The Commission noted
     that it exercised its authority under section 251(e) because, among
     other reasons, "interconnected VoIP providers use NANP numbers to
     provide their services."[^1531]

639. These sections of the Act provide the Commission ample authority to
     require contributions from all providers subject to the new
     numbers-based and connections-based approaches described in more
     detail below. These methodologies may require some providers to
     contribute directly to universal service when in the past they may
     have been contributing only indirectly or not at all. For example,
     under the numbers-based approach, any provider who assigns an
     "Assessable Number" to a residential user must contribute \$1.00
     per number per month.[^1532] Providers such as VoIP providers who
     are not "interconnected VoIP" providers, electronic facsimile
     service providers, Internet-based TRS providers, one-way and
     two-way paging service providers, and telematics providers may
     assign Assessable Numbers to residential users and maintain the
     retail relationship with the end users.[^1533] Not all of these
     providers are "telecommunications carriers" subject to the
     mandatory contribution obligation of section 254(d). Nonetheless,
     we have authority to require them to contribute. First, all of
     these providers provide---directly or indirectly---some amount of
     interconnection to the public switched telephone network (PSTN),
     the network that universal service supports. Interconnection to the
     PSTN benefits the consumers of each of these types of services,
     facilitating communication (even if just one-way communication)
     between the end user and PSTN users. As we noted in the *2006
     Interim Contribution Methodology Order*, interconnected VoIP
     providers often provide access to the PSTN via third parties[^1534]
     and this is sufficient to permit the Commission to rely on its
     authority to require contributions from "other provider\[s\] of
     interstate telecommunications."[^1535] And as we explain below, it
     is in the public interest (as required by section 254(d)) that
     these providers contribute. Furthermore, the prerequisites for the
     use of our Title I ancillary jurisdiction are unquestionably met
     here. All the services that rely on assignment of an Assessable
     Number to a residential end user come within the Commission's broad
     subject matter jurisdiction because they involve in some manner
     "interstate . . . communication by wire or radio."[^1536] And
     similar to our explanation in the *2006 Interim Contribution
     Methodology Order*, requiring contributions from providers who take
     advantage of PSTN connectivity whether directly or indirectly makes
     sense because their end users benefit from the ubiquity of that
     network and from being somehow interconnected with it.[^1537]
     Finally, our plenary authority over numbering supports our actions
     here with regard to a numbers-based methodology for residential
     services. The purpose of a uniform system of numbering is to
     facilitate communication on interconnected networks based on a
     standardized system of identifiers---telephone numbers.[^1538]
     Those customers who are assigned telephone numbers, whether for
     plain old telephone service (POTS) or for any other service, are
     using the numbers to take advantage of some feature of the PSTN,
     whether it is the capability to be called, to have their locations
     automatically relayed to emergency call handlers, to be faxed from
     anywhere, or for some other reason. Because customers are receiving
     this benefit, it is appropriate that their service providers (and
     ultimately, likely, the customers themselves) contribute to the
     ubiquity and support of the network from which they are benefiting.

640. We reject suggestions that we do not have authority to require
     contributions based on numbers or connections because we lack
     authority over intrastate services.[^1539] The same number or
     connection typically is used for both interstate and intrastate
     services. The Commission and courts have rejected the assertion
     that simply because a single facility has the capacity to provide
     both interstate and intrastate services, the Commission lacks
     authority to regulate any aspect of the facility.[^1540] In fact,
     the subscriber line charge (SLC) that the Commission established is
     intended to capture the *interstate* cost of the *local*
     loop.[^1541] The contribution methodologies we adopt are thus
     limited to assessments on services that can provide interstate
     service. We will only require providers to contribute to universal
     service based on the Assessable Numbers or connections that are
     capable of originating or terminating interstate or international
     communications.[^1542]

### The New Numbers-Based Assessment Methodology for Residential Services

641. As discussed above, we adopt a new contribution methodology for
     residential services based on assessing telephone numbers, rather
     than interstate and international services revenue. We find that
     this change will benefit contributors and end users by simplifying
     the contribution process and providing predictability as to the
     amount of universal service contributions and pass-through charges
     for residential services. For residential services, we set the
     contribution amount at a flat \$1.00 per month charge for each
     number associated with residential services.

#### Benefits of a Numbers-Based Contribution Methodology 

642. We find that adoption of a telephone number-based methodology for
     residential services will help preserve and advance universal
     service by ensuring a specific, predictable, and sufficient funding
     source, consistent with the universal service principles of section
     254(b) of the Act.[^1543] Changes in technology and services have
     made the revenue-based contribution mechanism difficult to
     administer. As commenters have noted, the distinction between
     intrastate and interstate revenues is blurring as providers move
     from their traditional roles as pure LECs or interexchange carriers
     (IXCs) to businesses that offer consumers the choice of purchasing
     their telecommunications needs from a single source.[^1544]
     Additionally, these providers are offering consumers greater
     flexibility, such as bundling of local and long distance service at
     a flat rate.[^1545] Moreover, technologies such as wireless and
     interconnected VoIP have emerged that provide voice and data
     services that know no jurisdictional boundaries.[^1546] Consumers
     benefit from the opportunity to obtain bundled services, and the
     universal service contribution mechanism should reflect and
     complement those marketplace and technological developments as much
     as possible. Our decision to use numbers as the basis for assessing
     contributions for residential services will enhance the specificity
     and predictability of entities' contributions.

643. Our adoption of a numbers-based contribution methodology will
     benefit both residential consumers and contributors by simplifying
     the basis for assessments and stabilizing assessments at a set
     amount of \$1.00 per month per residential telephone number.[^1547]
     Contributors are allowed, and in most cases do, recover their
     universal service contribution costs from fees assessed on their
     end-user customers.[^1548] Under the revenue-based contribution
     mechanism, a provider\'s contribution costs fluctuated from quarter
     to quarter, causing consumers' universal service fees to fluctuate
     as well. These fluctuations did not allow customers to anticipate
     changes to their fees. A set \$1.00-per-number contribution
     assessment is simple and predictable for both contributors and for
     consumers. To the extent a contributor elects to recover its
     contribution costs through end-user fees, its residential customers
     will pay the same \$1.00 fee per number each month, making the
     assessment simple and predictable.[^1549]

644. A numbers-based contribution methodology also benefits residential
     end users because it is technologically and competitively neutral.
     A consumer will pay the same universal service charge regardless of
     whether the consumer receives residential service from a cable
     provider, an interconnected VoIP provider, a wireless provider, or
     a wireline provider. This will enable residential consumers to
     choose the providers and provider types they want without regard to
     any artificial distortions that would otherwise be caused by
     differing contribution charges.[^1550] In a marketplace
     characterized by increased competition within and between different
     technology platforms, residential consumers will receive the same
     universal service charge regardless of the type of service the
     customer chooses.

645. Similarly, by subjecting contributors to the same regulatory
     framework for assessments on residential services regardless of
     technology, the numbers-based methodology will eliminate incentives
     under the current revenue-based system for providers to migrate to
     services and technologies that are either exempt from contribution
     obligations or are subject to safe harbors.[^1551] The elimination
     of such incentives will result in a more competitively and
     technologically neutral marketplace and a more predictable source
     of funding for the universal service mechanisms.

646. The adoption of a fixed \$1.00 per residential number per month
     contribution assessment is specific and predictable and will
     simplify the administration of universal service
     contributions.[^1552] Interstate end-user telecommunications
     revenues have become increasingly difficult to identify,
     particularly for residential services, due to increased bundling of
     local and long distance service and the growth of consumer
     interconnected VoIP offerings.[^1553] In contrast, telephone
     numbers provide an easily identifiable basis for
     contribution.[^1554] The amount of North American Numbering Plan
     (NANP) telephone numbers in use has shown steady, stable growth,
     providing a fairly constant basis for estimating universal service
     support amounts.[^1555] The new methodology, based on a flat \$1.00
     per residential number per month, will be easier to administer,
     facilitating greater regulatory compliance. A numbers-based
     contribution methodology will also be readily applicable to
     emerging service offerings. The new methodology minimizes the
     potential for providers to avoid contributions by bundling
     intrastate revenues with interstate revenues or engaging in other
     bypass activities.[^1556]

647. Further, assessing universal service contributions based on
     residential telephone numbers will promote number
     conservation.[^1557] Telephone numbers are a finite, public
     resource. If contributors are assessed based on the residential
     telephone numbers assigned to them, they will have an incentive to
     efficiently manage their numbering resources in a manner that
     minimizes their costs. We expect that this will result in the need
     for fewer area code splits or overlays due to number
     exhaust.[^1558]

648. Our adoption of a numbers-based contribution methodology for
     residential services is consistent with the goal of ensuring just,
     reasonable, and affordable rates.[^1559] The per-number assessment
     of \$1.00 per number per month will represent a reduction in
     pass-through charges for many residential customers.[^1560]
     Although the \$1.00 per number per month assessment may represent
     an increase in universal service charges for residential customers
     that make few or no long distance calls, this increase should be
     slight. Under the current revenue-based contribution mechanism,
     providers may assess a federal universal service fee on the basis
     of the customer's SLC. The residential SLC may be as high as \$6.50
     per month.[^1561] Based on the most recent contribution factor of
     11.4 percent, even a customer who made no long distance calls could
     thus be assessed \$0.74 per month in universal service charges
     under the existing revenue-based methodology.[^1562] Thus, the
     potential increase for a customer who makes no long distance calls
     could be as little as \$0.26 per month under the \$1.00 per number
     methodology. In addition, we have separate protections to ensure
     that telephone service remains affordable for low-income
     subscribers.[^1563]

649. Some commenters assert that assessing a flat universal service
     charge is inherently unfair because it does not take into account
     the fact that some people make many interstate and international
     calls, while others make few if any such calls in a given
     month.[^1564] We disagree. We find that imposition of a flat charge
     is warranted because all contributors and their subscribers receive
     a benefit from being connected to the public network, enabling them
     to make and receive interstate calls.[^1565] The *ability* to make
     or receive interstate calls over a public network is a significant
     benefit and it is reasonable to assess universal service
     contributions for residential customers based on access to the
     network. Customers who do not make any interstate calls still
     receive the benefit of accessing the network to *receive*
     interstate calls. The \$1.00 per month per number assessment
     reflects our finding that it is equitable for providers to
     contribute a fixed amount based on the ability to access and
     utilize a ubiquitous public network.

650. Some commenters allege that changing from the current revenue-based
     methodology to a new mechanism based on telephone numbers would not
     be equitable because it could reduce contributions from certain
     industry segments and increase them for others.[^1566] Although the
     change to a numbers-based contribution methodology for residential
     services will result in changes in the relative contribution
     obligations of industry segments, the new contribution methodology
     is not inequitable or discriminatory. The evolving nature of the
     telecommunications marketplace and of its participants requires the
     Commission to periodically review and revise the contribution
     methodology to ensure that providers continue to be assessed on an
     equitable and non-discriminatory basis. We find that, given the
     difficulties in continuing to assess contributions entirely on a
     revenue-based methodology and the benefit to residential consumers
     of access to the public network, it is equitable to adopt a
     numbers-based contribution methodology that assesses a \$1.00 per
     month per number fee for residential services.

#### Assessable Numbers

651. Below, we describe the telephone numbers for which service
     providers are obligated to contribute to the universal service
     fund. We call these "Assessable Numbers." The Commission has
     addressed certain reporting based on telephone numbers in other
     contexts. In the number utilization context, the Commission
     requires that each telecommunications carrier that receives
     numbering resources from the North American Numbering Plan
     Administrator (NANPA), the Pooling Administrator, or another
     telecommunications carrier report its numbering resources in each
     of six defined categories of numbers set forth in section 52.15(f)
     of our rules.[^1567] In the regulatory fee context, the Commission
     used the category of "assigned numbers" as the starting point for
     determining how to assess fees on certain providers, but found it
     necessary to modify that definition to account for the different
     regulatory contexts. Specifically, in assessing regulatory fees for
     commercial mobile radio service (CMRS) providers that report number
     utilization to NANPA based on the reported assigned number count in
     their Numbering Resource Utilization and Forecast (NRUF) data, the
     Commission requires these providers to adjust their assigned number
     count to account for number porting. The Commission found that
     adjusting the NRUF data to account for porting was necessary for
     the data to be sufficiently accurate and reliable for purposes of
     regulatory fee assessment.[^1568]

652. We adopt a new term based on the category of assigned numbers to
     represent the numbers being assessed for universal service
     contribution purposes---"Assessable Numbers." The definition of
     Assessable Numbers that we adopt focuses on those numbers that are
     actually in use by end users for services that traverse a public
     interstate network. Specifically, we define an Assessable Number as
     a NANP telephone number or functional equivalent identifier[^1569]
     in a public or private network that is in use by a residential end
     user and that enables the residential end user to receive
     communications from or terminate communications to (1) an
     interstate public telecommunications network or (2) a network that
     traverses (in any manner) an interstate public telecommunications
     network.[^1570] Assessable Numbers include geographic as well as
     non-geographic telephone numbers (such as toll-free numbers and
     500-NXX numbers) so long as they meet the other criteria described
     in this part for Assessable Numbers.

653. The provider with the retail relationship to the residential end
     user is the entity responsible for contributing.[^1571] We impose
     the contribution obligation on the provider with the retail
     relationship to the end user for several reasons. First, this
     provider will have the most accurate and up-to-date information
     about how many Assessable Numbers it currently has assigned to end
     users. Second, this provider is also in the best position to
     distinguish residential users from business users, and thus to
     determine how many of its telephone numbers in use are Assessable
     Numbers. Finally, this provider, and its users, are benefiting from
     a supported PSTN, and thus it is sound policy to require them to
     contribute to its support.[^1572] We note that today, providers are
     permitted to pass through their contribution assessments to end
     users, and we understand that they typically do so.[^1573] Under
     the new methodologies, they may continue to do so, subject to the
     same requirement that they will not pass through more than their
     contribution amount.[^1574]

654. Next, we specify whether certain types of numbers are included in
     the definition of Assessable Numbers. First, numbers used for
     intermittent or cyclical purposes are included in the definition of
     Assessable Numbers. Numbers used for cyclical purposes are numbers
     designated for use that are typically "working" or in use by the
     end user for regular intervals of time. These numbers include, for
     example, an end user's summer home telephone number that is in
     service for six months out of the year.[^1575] In the *NRO III
     Order*, the Commission clarified that these types of numbers should
     generally be categorized as "assigned" numbers if they meet certain
     thresholds and that, if they do not meet these thresholds, they
     "must be made available for use by other customers" (i.e., they are
     "available" numbers).[^1576] Because these numbers are assigned to
     end users, we find they should be included in the definition of
     Assessable Numbers we adopt today.

655. We exclude from our definition of Assessable Numbers those
     telephone numbers that satisfy the section 52.15 definition of
     "assigned numbers" solely because the "numbers \[are\] not yet
     working but hav\[e\] a customer service order pending" for five
     days or less.[^1577] Providers generally do not bill for services
     that have yet to be provisioned and therefore are not compensated
     for services during the pendency of the service order. Moreover,
     such numbers are not yet operational to send or receive calls.
     Thus, under the existing contribution methodology, providers would
     not contribute for services they are about to provide (but have not
     yet provided) under a pending service order. We continue to find it
     appropriate for contributors not to be required to contribute to
     the universal service fund for pending service orders.

656. We exclude from the definition of Assessable Numbers those
     telephone numbers that telecommunications providers have
     transferred or ported to a carrier using resale or the unbundled
     network element platform. Under prior numbering orders, such
     telephone numbers would still be included in the NRUF assigned
     number count of the transferring-out carrier.[^1578] Consistent
     with our definition of Assessable Numbers, because the underlying
     provider no longer maintains the retail relationship with the end
     user, the provider should not include these numbers in its
     Assessable Number count. Conversely, the receiving provider of such
     transferred customers would include the associated telephone
     numbers in their count of Assessable Numbers.

657. We exclude from the definition of Assessable Numbers those numbers
     that meet the definition of an Available Number, an Administrative
     Number, an Aging Number, or an Intermediate Number as those terms
     are defined in section 52.15(f) of the Commission's rules.[^1579]
     For a particular carrier, the carrier will not have an end user
     associated with a number in any of these categories of numbers. For
     example, an intermediate number is a number that is "made available
     for use by another telecommunications carrier or non-carrier entity
     for the purpose of providing telecommunications service to an end
     user or customer."[^1580] The receiving provider will be
     responsible for including the number as an Assessable Number once
     it provides the number to an end user.[^1581]

658. We exclude non-working telephone numbers from the definition of
     Assessable Number. Carriers report as assigned numbers for NRUF
     purposes entire codes or blocks of numbers dedicated to specific
     end-user customers if at least fifty percent of the numbers in the
     code or block are working in the PSTN.[^1582] Consistent with our
     definition of Assessable Numbers, carriers should not include the
     non-working numbers in these blocks in their Assessable Number
     counts, because the non-working numbers portion of these blocks are
     not providing service to the end user.

659. We exclude from the definition of Assessable Number those numbers
     that are used merely for routing purposes in a network, so long as
     such numbers are always---without exception---provided without
     charge to the end user, are used for routing only to Assessable
     Numbers for which a universal service contribution has been paid,
     and the ratio of such routing numbers to Assessable Numbers is no
     greater than 1:1. For example, a NANP number used solely to route
     or forward calls to a residential number, office number, and/or
     mobile number would be excluded from our definition of Assessable
     Number if such routing number were provided for free, and such
     number routes calls only to Assessable Numbers. If, however, such
     routing or forwarding is provided for a fee, such as with remote
     call forward service or foreign exchange service, both the routing
     number and the end user number to which calls are routed or
     forwarded would be considered Assessable Numbers.

660. In addition, incumbent LECs need not include numbers assigned to
     wireless providers that interconnect at the end office of an
     incumbent LEC and have obtained numbers directly from the incumbent
     LEC.[^1583] Because the incumbent LEC does not have the retail
     relationship with the end user, it should not include these numbers
     in its Assessable Number count. The wireless carriers that have the
     retail relationship with the end users must include these telephone
     numbers in their Assessable Number count.

661. Finally, we exclude from the definition of Assessable Numbers those
     numbers associated with Lifeline services for the reasons described
     below.[^1584]

662. We do not restrict our definition to numbers that exclusively use
     the PSTN.[^1585] As noted above, evolution in communications
     technology away from the PSTN to alternative networks that may only
     partially (if at all) traverse the PSTN is one of the causes in the
     erosion of the contribution base under the current revenue-based
     methodology. As more service providers migrate to alternative
     networks that partially access the PSTN, continuing to assess
     universal service contributions based only on traffic that
     exclusively traverses the PSTN will not account for this migration;
     nor will it allow us to meet our principle of competitive
     neutrality.[^1586] Moreover, if a service provider connects a
     private network to a public network, the service provider and its
     customers benefit from the connection to the PSTN. Because
     universal service supports the PSTN and these parties connect to
     the PSTN, they benefit from universal service.[^1587] Thus, it is
     increasingly important that we conform our regulatory definitions
     to recognize this reality. Indeed, the Commission has already begun
     to recognize the need to create a level regulatory playing field.
     For example, calls to end users that utilize interconnected VoIP
     service are not wholly within the PSTN. Indeed, calls between two
     interconnected VoIP users may not touch the PSTN at all. Yet we
     found in 2006 that interconnected VoIP providers must contribute to
     the universal service fund.[^1588] For these reasons, we conclude
     that our definition must account for public or private interstate
     networks, regardless of the technology of the network (e.g.,
     circuit-switched, packet-switched) or the transmission medium of
     the network (e.g., wireline, wireless).

663. Finally, we recognize that, by declining to adopt for contribution
     purposes verbatim the definition of "assigned numbers" in section
     52.15(f) of our rules, which is used by carriers to file NRUF
     reports,[^1589] we may nominally increase some of the
     administrative burden associated with universal service
     contribution filings. We find, however, that any minor
     administrative cost increases arising from not using the
     pre-existing definition are outweighed by the benefits of modifying
     the definition to achieve sound universal service policy. For
     example, as stated above, the existing definition of assigned
     numbers would not enable us to meet our universal service
     contribution goal of ensuring that the provider with the retail
     relationship to the end user be the one responsible for
     contributing.[^1590]

664. Under our numbers-based approach, certain providers will be
     required to contribute to the universal service fund based on
     Assessable Numbers even though they are not today required to
     submit NRUF data. Section 52.15(f) of the Commission's rules
     requires only "reporting carriers" to submit NRUF data to the
     NANPA.[^1591] A "reporting carrier" is defined as a
     telecommunications carrier that receives numbering resources from
     the NANPA, the Pooling Administrator, or another telecommunications
     carrier.[^1592] In the case of numbers provided by a
     telecommunications carrier to a non-carrier entity, the carrier
     providing the numbers to such entities must report NRUF data to the
     NANPA for those numbers. Thus, non-carrier entities that use
     telephone numbers in a manner that meets our definition of
     Assessable Numbers do not report NRUF data yet must
     contribute.[^1593] For example, interconnected VoIP providers may
     use telephone numbers that meet our definition of Assessable
     Numbers even though these providers do not report NRUF data.[^1594]
     These non-carrier entities that use numbers in a manner that meets
     our definition of Assessable Number will be required to determine
     their Assessable Number count based on their internal records
     (e.g., billing system records) and will be required to report such
     numbers to USAC.[^1595]

665. We are mindful that our move to a numbers-based contribution
     methodology may encourage entities to try to avoid their
     contribution obligations by developing ways to bypass the use of
     NANPA-issued numbers.[^1596] To the extent, however, these
     alternative methods are the functional equivalent of numbers and
     otherwise meet our definition of Assessable Numbers, such entities
     must report these functional equivalents as Assessable Numbers to
     the universal service fund administrator.

### Contribution Assessment Methodology for Business Services

666. Although we find that a numbers-based contribution mechanism is
     superior to the existing revenue-based mechanism for residential
     services, applying a numbers-based approach to business services
     would result in inequitable contribution obligations. Specifically,
     certain business services that do not utilize numbers, or that
     utilize them to a lesser extent, would not be contributing to the
     universal service fund on an equitable basis.[^1597] Section 254(d)
     of the Act requires "every carrier" that provides interstate
     telecommunications services to contribute to the universal service
     fund.[^1598] Thus, providers of business services, including
     non-numbers based services, must continue to contribute. We
     conclude that these services should be assessed based on their
     connection to the public network.

667. A number of commenters supported moving to a methodology that would
     assess telephone numbers for those services that are associated
     with a telephone number and assess based on capacity of the
     connection to the public switched network those services not
     associated with a telephone number.[^1599] Other commenters
     supported retaining a revenue-based methodology for these
     services.[^1600] As discussed above, a revenue-based contribution
     methodology is no longer sustainable in today's telecommunications
     marketplace.[^1601] Additionally, a connections-based contribution
     methodology will provide a basis for assessing services not
     associated with telephone numbers, and will recognize the greater
     utility derived by business end users from these high capacity
     business service offerings.[^1602] Further, in contrast to the
     revenues on which contributions are currently based, the number and
     capacity of connections continues to grow over time, providing a
     contribution base that is more stable than the current
     revenue-based methodology. Moreover, a connections-based mechanism
     can be easily applied to all business services. We, therefore,
     conclude that a connections-based contribution mechanism is the
     better option for business services. We seek comment below on the
     implementation of the connections-based contribution mechanism for
     business services.[^1603]

668. We find that it is equitable and nondiscriminatory, consistent with
     the requirements of section 254(d) of the Act, to establish
     different contribution methodologies for residential and business
     services.[^1604] Although the statute states that "\[a\]ll
     providers of telecommunications services should make an equitable
     and nondiscriminatory contribution to the preservation and
     advancement of universal service," it does not require that all
     contributors or all services be assessed in the same manner.[^1605]
     Under the current revenue-based mechanism, the Commission has
     established different contribution methodologies through the use of
     proxies for wireless and interconnected VoIP services.[^1606] As
     noted above, continuing to use a revenues-based contribution
     methodology has become increasingly complex, and a numbers-based
     system would avoid many of those complexities.[^1607] At the same
     time, however, if we relied exclusively on a numbers-based
     contribution methodology, there are some business services---such
     as private line and special access---that would escape contribution
     requirements entirely. That result would be inconsistent with the
     obligation that all providers of interstate telecommunications
     services contribute to universal service, and would impose an
     unfair burden on providers that contribute on the basis of
     numbers.[^1608] We therefore conclude that adopting different
     contribution assessment methodologies for residential and business
     services will result in equitable and nondiscriminatory
     contribution obligations.

669. On an interim basis, while we conduct a proceeding to implement the
     connections-based contribution methodology, we continue to require
     providers to contribute to the universal service fund using the
     current revenue-based methodology for their business
     services.[^1609] We find that providers of business services should
     continue to bear their portion of the universal service
     contribution obligation to ensure the sufficiency of the fund while
     the connections-based contribution mechanism is being
     implemented.[^1610]

670. During the interim period in which the revenue-based contribution
     assessment for business services remains in place, the contribution
     factor for providers of business services will be determined based
     on the funding requirements not covered by the \$1.00 assessment on
     Assessable Numbers. We will hold constant the contribution
     assessment on Assessable Numbers and determine the revenue
     contribution factor based on the quarterly projected demand of the
     universal service mechanisms divided by the quarterly
     projected-collected interstate and international end user
     telecommunications revenues from business services in the same
     manner in which the current contribution factor is
     calculated.[^1611] This approach will ensure a specific,
     predictable, and sufficient funding source for the Commission's
     universal service mechanisms.

### Wireless Prepaid Plans 

671. We adopt an alternative methodology for telephone numbers assigned
     to handsets under a wireless prepaid plan. Some commenters assess
     prepaid wireless services on a per-minute-of-use basis.[^1612] For
     example, prepaid wireless providers argue that their customers are
     typically low-income or low-volume consumers and, as such, should
     be subject to a lesser assessment.[^1613] Verizon and TracFone
     further assert that prepaid wireless providers may have difficulty
     administering a per-number assessment.[^1614] Verizon, therefore,
     recommends that any new contribution methodology accommodate
     prepaid wireless service providers by adopting a per-number
     assessment that "reflects the unique characteristics of \[the\]
     service," and TracFone similarly agrees.[^1615] Finally, CTIA
     essentially argues that the sheer number of prepaid wireless end
     users---over 44 million---combined with the likelihood that most of
     these end users would see a rise in their pass-through assessments
     warrants an exception.[^1616]

672. To accommodate the unique situation of prepaid wireless service
     providers, we find it appropriate to create a limited modification
     in contribution assessments for providers of prepaid wireless
     services and their end users.[^1617] We agree with commenters that
     it is considerably more difficult for wireless prepaid providers to
     pass-through their contribution assessments in light of their
     "pay-as-you-go" service offerings.[^1618] Because of this
     significant practical issue, we will modify the numbers-based
     assessment for prepaid wireless providers with regard to their
     offering of these services. Further, we note that, just as with
     Lifeline customers, many prepaid wireless end users are low income
     consumers. For example, TracFone states that about half of its
     customers have incomes of \$25,000 or less.[^1619]

673. We find that TracFone's "USF by the Minute" proposal best addresses
     the concerns of prepaid wireless providers within the context of
     the new numbers-based contribution methodology we adopt
     today.[^1620] TracFone's proposed USF by the Minute Plan would
     calculate universal service contribution assessments on prepaid
     wireless services by dividing the residential per-number assessment
     (the \$1.00 flat fee adopted above) by the number of minutes used
     by the average postpaid wireless customer in a month. This
     per-minute number would then be multiplied by the number of monthly
     prepaid minutes generated by the provider. This amount would be the
     provider's monthly universal service contribution obligation. The
     per-minute assessment, however, would be capped at an amount equal
     to the current per month contribution per Assessable Number, the
     per-number assessment amount adopted above.[^1621] We illustrate
     the proposal below.

674. According to CTIA data submitted by TracFone, the average wireless
     postpaid customer used 826 minutes per month for the period ending
     December 2007.[^1622] The residential per-number assessment of
     \$1.00 would be divided by 826 minutes to calculate a per-minute
     assessment of \$0.001210654. The wireless prepaid provider's
     contribution obligation would be calculated by multiplying the
     per-minute assessment by the number of prepaid minutes generated
     for the month. If the wireless prepaid provider generated a billion
     prepaid minutes in a month, its contribution for that month would
     be \$1,210,654.[^1623] If the prepaid provider had 10 million
     prepaid customers that month, the average contribution per customer
     would be \$0.12 and its contribution obligation would remain at
     \$1,210,654. If, on the other hand, it had only 1 million
     customers, the average contribution per-customer would be \$1.20,
     which exceeds the residential per-number assessment of \$1.00. In
     this case, because the per-customer contribution amount under the
     calculation would exceed the residential per-number assessment
     established by the Commission, the prepaid provider's contribution
     obligation would be capped at \$1,000,000, which is the residential
     per-number assessment of \$1.00 multiplied by the 1 million monthly
     prepaid customers. Under this scenario, the average per-customer
     contribution for the prepaid wireless provider would be equal to
     the per-number contribution of \$1.00 for non-prepaid residential
     numbers.

675. We find the TracFone discount approach superior to other forms of a
     discount proposed by parties. For example, CTIA proposed a fifty
     percent discount for prepaid wireless providers.[^1624] The
     TracFone approach is based on actual wireless calling data, whereas
     the CTIA approach represents a more arbitrary half-off discount.
     Moreover, the CTIA proposal makes no allowance for the type of end
     user that is using the prepaid wireless service. This contrasts
     with the TracFone proposal, which would not provide any discount to
     those end users that use more than the average monthly post-paid
     number of minutes. As explained above, for those customers whose
     usage would result in more than the \$1.00 pass-through, the
     assessment on the provider and the pass-through would be capped at
     \$1.00 per month per Assessable Number. Thus, high volume users
     would neither benefit from, nor be penalized by, the discount
     mechanism. Finally, we make clear that if the prepaid provider is
     an ETC and is providing service to qualifying Lifeline customers,
     the provider is exempt from contribution assessments on the
     qualifying Lifeline customers and we prohibit the provider from
     assessing any universal service pass-through charges on their
     Lifeline customers.

### Exceptions to Contribution Obligations

676. A number of parties have asked for exceptions from the contribution
     obligation. We find that, in general, providing an exception or
     exemption to a particular provider or to a particular category of
     end users would complicate the administration of the numbers-based
     methodology we adopt today. The result would unfairly favor certain
     groups by reducing or eliminating their contribution obligations,
     while increasing the contribution obligations on providers that are
     not exempted from contributing. Therefore, we conclude that grant
     of an exemption from the contribution obligations is only warranted
     for those who are truly unable to bear the burden of contributing
     to the universal service fund---low-income consumers. As discussed
     below, we exempt providers from contribution assessments on their
     qualifying Lifeline program customers and prohibit contributors
     from assessing any universal service pass-through charges on their
     Lifeline customers. As explained below, an exception for low-income
     consumers is consistent with the Commission's policies underlying
     the low-income universal service program and targets universal
     service benefits to those consumers most in need of those
     benefits.[^1625]

677. We conclude that telephone numbers assigned to Lifeline customers
     should be excluded from the universal service contribution base and
     providers of Lifeline service may not pass-through contribution
     assessments to Lifeline customers.[^1626] The Lifeline program
     provides an opportunity for the Commission to ensure that
     low-income families are not denied access to telephone service. We
     find that an exception for Lifeline customers satisfies the high
     threshold necessary to justify an exception to the new
     numbers-based contribution methodology we adopt today. Lifeline
     customers are, by definition, among the poorest individuals in the
     country. As such, they are in the greatest need of relief from
     regulatory assessments. Prohibiting recovery of universal service
     contributions from Lifeline customers helps to increase
     subscribership by reducing qualifying low-income consumers' monthly
     basic local service charges.[^1627] The record, moreover,
     overwhelmingly supports the creation of an exception for Lifeline
     customers. Consumer groups, large telecommunications customers,
     LECs, and wireless providers all support creating an exemption for
     Lifeline customers, and no commenter opposes an exemption for
     Lifeline customers.[^1628] We therefore adopt an exemption to our
     numbers-based contribution methodology for Lifeline customers.

678. Although commenters have sought contribution exceptions for other
     groups of consumers or service providers, we decline to adopt any
     further exceptions.[^1629] Some parties argue that consumers who
     make few or no calls, i.e., low-volume users, should be exempt from
     the numbers-based residential contribution assessment
     mechanism.[^1630] As discussed above, all users of the network,
     even those who make few or no calls, receive a benefit by being
     able to receive calls, and therefore it is appropriate for these
     consumers to contribute to universal service.[^1631] Also as
     discussed above, to the extent low-volume consumers may see an
     increase in the amount of their universal service contribution
     pass-through fee,[^1632] any such increase should be slight.[^1633]

679. We also decline to exempt telematics providers,[^1634] stand-alone
     voice mail providers,[^1635] one-way service providers,[^1636] and
     two-way paging services[^1637] from contributing based on numbers.
     We disagree with commenters arguing for special treatment for these
     services.[^1638] Granting exceptions for these services would
     provide them with an advantage over other services that are
     required to contribute based on residential telephone numbers.
     These services are receiving the benefit of accessing the public
     network and therefore assessing universal service contributions on
     these entities is appropriate.[^1639] These service providers have
     not shown that grant of a contribution exception is
     warranted.[^1640] Accordingly, providers of these services will be
     assessed the full per-number charge. Some one-way service providers
     argue that their services are currently offered on a free, or
     nearly-free basis, and if these services are assessed on a per
     telephone number basis, providers will no longer be able to offer
     them.[^1641] We disagree that our change in contribution policy
     necessitates this result. Although these services may be marketed
     as "free" to the end user, these services are not truly free.
     Commercial providers of free or nearly-free services generate
     revenue in other ways, such as advertising or through more
     sophisticated paid service offerings or product offerings, and,
     therefore, whether they continue to offer free services would be a
     business decision based upon the circumstances of the particular
     business.[^1642] Indeed, we find that assessing a per-number
     contribution obligation on these services is consistent with our
     determination that services that benefit from a ubiquitous public
     network are fairly charged with supporting the network.

680. We also decline to adopt an exception from the residential
     numbers-based contribution mechanism for additional handsets
     provided through a wireless family plan. We do not agree with
     commenters who argue that telephone numbers assigned to the
     additional handsets in family wireless plans should be assessed at
     a reduced rate, either permanently or for a transitional
     period.[^1643] These commenters assert that assessing contributions
     at the full per-number rate would cause family plan customers to
     experience "rate shock."[^1644] Although family plan customers may
     see an increase in universal service contribution pass-through
     charges on their monthly bills, we are not persuaded that the fear
     of "rate shock" justifies special treatment. We find that each
     number associated with a family plan obtains the full benefits of
     accessing the public network, and thus it is fair to assess each
     number with a separate contribution obligation. We also note that
     wireless service is one of the fastest-growing sectors of the
     industry and the record does not include persuasive data showing
     that a move to a numbers-based contribution methodology would have
     a significant, detrimental impact on wireless
     subscribership.[^1645] We agree with Qwest that an exception for
     additional family plan handsets would not be competitively neutral
     and would advantage approximately 70 million wireless family plan
     consumers over other residential service consumers.[^1646] Multiple
     wireline lines in a household are not given a discounted
     contribution assessment rate. We therefore decline to adopt a
     reduced assessment for wireless family plan numbers.

681. Some parties seek an exception to the contribution methodology we
     adopt today to exclude Internet-based telecommunications relay
     services (TRS), including video relay services (VRS) and IP Relay
     services.[^1647] We decline to adopt an exception for such
     providers at this time. The Commission has an open proceeding on a
     number of issues related to these providers, including whether
     certain costs to these providers related to the acquisition of
     ten-digit numbers by their customers should be reimbursed by the
     TRS fund.[^1648] We defer to that proceeding consideration of
     whether to adopt an exception to the contribution methodology we
     adopt today for numbers assigned to Internet-based TRS
     users.[^1649]

### Reporting Requirements and Recordkeeping

682. Under the existing revenue-based contribution methodology,
     contributors report their historical gross-billed, projected
     gross-billed, and projected collected end-user interstate and
     international revenues quarterly on the FCC Form 499-Q and their
     gross-billed and actual collected end-user interstate and
     international revenues annually on the FCC Form 499-A.[^1650]
     Contributors are billed for their universal service contribution
     obligations on a monthly basis based on their quarterly projected
     collected revenue.[^1651] Actual revenues reported on the FCC Form
     499-A are used to perform true-ups to the quarterly projected
     revenue data.[^1652]

683. We will develop a new and unified reporting system to accommodate
     our new universal service contribution methodology.[^1653]
     Contributors will report their Assessable Number counts on a
     monthly basis. Contributors must report as an Assessable Number any
     such number that is in use by an end user during any point in the
     relevant month. The Commission will develop an additional version
     of the FCC Form 499 for use in reporting Assessable Numbers. Under
     the interim business revenue-based reporting component,
     contributors will report their revenue information on the modified
     FCC Forms 499-A and 499-Q.

684. Under the new numbers-based system we adopt today, contributors
     will report historical Assessable Numbers monthly. Contributors
     will then be invoiced and required to contribute the following
     month. By reporting actual, historical numbers, the numbers-based
     component of our contribution methodology remains simple and
     straightforward. As explained above, a key reason to move to a
     primarily numbers-based approach is its simplicity. Indeed, several
     commenters propose monthly reporting of historical number
     counts.[^1654] We find that reporting Assessable Numbers on a
     projected collected basis would unnecessarily complicate the
     numbers-reporting system. Although we are mindful of the issues
     inherent in historical reporting,[^1655] we find that a one month
     lag between the reported Assessable Numbers and the contribution
     based on those numbers is minimal and will not unfairly
     disadvantage any provider, even those with a declining base.

685. We allow contributors to self-certify which telephone numbers are,
     consistent with this order, considered "residential." Contributors
     will be subject to audit, however, and their method for
     distinguishing residential from other numbers must be reasonable
     and supportable. For example, in the Commission's *Broadband Data
     Gathering Order* released earlier this year, the Commission
     directed mobile wireless service providers "to report as
     residential subscriptions those subscriptions that are not billed
     to a corporate account, to a non-corporate business customer
     account, or to a government or institutional account."[^1656] We
     added that "\[f\]or purposes of Form 477, subscriptions billed to a
     federal government department or agency, for example, will not be
     'residential' subscriptions, while subscriptions to a service plan
     offered to all federal government employees will be considered to
     be residential subscriptions."[^1657] For purposes of identifying
     numbers associated with business services (which are not Assessable
     Numbers), contributors may rely on the fact that the line
     associated with that number is assessed a *multi-line* end user
     common line charge (i.e., SLC); provided, however, that the SLC
     must be a mandatory charge, rather than a discretionary
     charge.[^1658] For determining residential numbers (which are
     Assessable Numbers), however, a contributor may not rely on the
     assessment of a residential SLC, because SLC rates are the same for
     residential and single-line business end users. Therefore, the fact
     that a contributor charges the single-line business/residential SLC
     may not accurately indicate whether the service provided is a
     business or residential service.[^1659]

686. Each contributor must maintain the necessary internal records to
     justify, in response to an audit or otherwise, its reported
     Assessable Number counts and the data reported on the Commission's
     contribution forms.[^1660] Contributors are responsible for
     accurately including all Assessable Numbers associated with
     residential services in their Assessable Number counts and revenues
     from all business services in the interim business services revenue
     component of the methodology. Failure to file the required form by
     the applicable deadline, or failure to file accurate information on
     the form, could subject a contributor to enforcement action.[^1661]
     In addition, as with the current FCC Forms 499-A and 499-Q, we will
     require that an officer of the filer certify to the truthfulness
     and accuracy of the forms submitted to the administrator.

687. To ensure that filers report correct information, we continue to
     require all reporting entities to maintain records and
     documentation to justify the information reported in these forms,
     and to provide such records and documentation to the Commission and
     to USAC upon request.[^1662] All universal service fund
     contributors are required to retain their records for five
     years.[^1663] Specifically, contributors to the universal service
     fund must retain all documents and records that they may require to
     demonstrate to auditors that their contributions were made in
     compliance with the program rules, assuming that the audits are
     conducted within five years of such contribution. Contributors
     further must make available all documents and records that pertain
     to them, including those of contractors and consultants working on
     their behalf, to the Office of Inspector General, to USAC, and to
     their respective auditors. These documents and records should
     include without limitation the following: financial statements and
     supporting documentation; accounting records; historical customer
     records; general ledgers; and any other relevant
     documentation.[^1664]

688. Further, we make clear that for purposes of the interim business
     revenue component, we retain all existing reporting requirements
     associated with the filing of the FCC Forms 499-A and 499-Q for
     business service revenue. Finally, we direct the Bureau, and
     delegate to the Bureau the authority, to develop or modify the
     necessary forms to ensure proper contribution reporting occurs,
     consistent with this order.

### Transition to New Methodology

689. The new reporting procedures discussed above will require reporting
     entities to adjust their record-keeping and reporting systems in
     order to provide reports to USAC regarding the number of Assessable
     Numbers and to adjust their revenue information to include only
     business service revenue. Accordingly, we implement a 12-month
     transition period for the new contribution mechanisms.[^1665] This
     transition period will give contributors ample time to adjust their
     record-keeping and reporting systems so that they may comply with
     modified reporting procedures. As explained below, a 12-month
     transition period will also allow reporting entities to submit
     several reports for informational purposes before being assessed on
     the basis of projected Assessable Numbers for residential
     services.[^1666] We find, therefore, that a 12-month transition
     period balances administrative burdens on contributors with the
     need to implement the new contribution methodologies in a balanced
     and equitable manner.

690. During 2009, filers will continue reporting their interstate
     telecommunications revenue on a quarterly basis and USAC will
     continue assessing contributions to the federal universal service
     mechanisms based on those quarterly reports. This one-year period
     and, in particular, the first six months of that period, should be
     used by contributors to adjust their internal and reporting systems
     to prepare for the reporting of Assessable Numbers and business
     revenues.

691. Beginning in July 2009, contributors will continue to report and
     contribute based on their quarterly reported interstate and
     international revenues for the last two quarters of the year, but
     they will also begin filing with USAC monthly reports of their
     Assessable Numbers and quarterly reports of their business
     revenues. USAC will thus collect data under the old revenue-based
     methodology, while collecting and reviewing data under the new
     Assessable Number and business revenues methodologies for the last
     six months of 2009. We find that this six-month period of
     double-reporting is necessary to help reporting entities,
     Commission staff, and USAC identify implementation issues that may
     arise under this new methodology prior to it taking effect.[^1667]
     Although only the December 2009 Assessable Numbers and the fourth
     quarter 2009 business revenue data will be used to compute
     contributors' January 2010 and first quarter 2010 assessments, we
     find it is reasonable to require contributors to begin filing under
     the new methodologies prior to these periods to ensure that there
     is adequate time for all affected parties to address any
     implementation issues that may arise. Moreover, we conclude that
     the short overlap of reporting under both the old and new
     methodologies will not be unduly burdensome for contributors given
     the limited duration of the dual reporting.

# Reform of intercarrier compensation

692. Since Congress first passed the Communications Act in 1934, the
     Commission has sought "to make available, so far as possible, to
     all the people of the United States . . . a rapid, efficient,
     Nation-wide, and world-wide wire and radio communication service
     with adequate facilities at reasonable charges."[^1668] To promote
     universal service, regulators have long relied on a complex array
     of intercarrier compensation mechanisms, which generally have
     included implicit subsidies. Through the years, the introduction of
     competition into first long-distance and then local markets, as
     well as the development and deployment of new technologies, have
     eroded the fundamental economic underpinnings of the current
     intercarrier compensation regimes. The reforms we adopt in this
     order are designed to unify and simplify the myriad intercarrier
     compensation systems in existence today. This unification and
     simplification will encourage the efficient use of, and investment
     in, advanced telecommunications and broadband networks, spur
     intermodal competition throughout the United States, and minimize
     the need for future regulatory intervention.

693. Today, we adopt a new approach to intercarrier compensation and
     establish the blueprint for moving to new uniform termination rates
     that are economically efficient and sustainable in our increasingly
     competitive telecommunications markets. At the same time, we
     recognize, as the Commission has in the past, that we need to be
     cognizant of market disruptions and potential adverse effects on
     consumers and carriers of moving too quickly from the existing
     intercarrier compensation regimes to our new uniform approach to
     intercarrier compensation. Accordingly, we adopt here a gradual
     ten**-**year transition plan, with separate stages, designed to
     reduce rates over a sufficient period to minimize market
     disruptions and to cushion the impact of our reform on both
     customers and carriers. At the end of the transition period, all
     telecommunications traffic will be treated as falling within the
     reciprocal compensation provisions of section 251(b)(5), and states
     will set default reciprocal compensation rates pursuant to the new
     methodology we adopt herein.

## A Brief History of Intercarrier Compensation 

694. This section provides an overview of the development of
     intercarrier compensation regulation in the United States. Although
     not comprehensive, it highlights several important goals that have
     emerged in Commission precedent, which are relevant to intercarrier
     compensation reform.

-   *Promoting universal service.* The Commission has sought to promote
    universal service, and, in furtherance of that objective, an
    intricate web of implicit subsidies evolved that were intended to
    keep the price of residential local telephone service affordable,
    even if that price was below cost. With the introduction of
    competition for long-distance telephone service, regulators sought
    to maintain implicit subsidies of local service when they created
    regulated intercarrier compensation charges, known as "access
    charges," that long-distance service providers paid local telephone
    companies to originate and terminate long-distance calls.

-   *Encouraging efficient use of the network.* The Commission has long
    recognized that requiring end-users to bear a greater proportion of
    the cost of the local network encourages them to make rational
    choices in their use of telephone service. The Commission
    nevertheless has declined to shift a significant percentage of the
    cost of the network to those end users in light of universal service
    concerns.

-   *Realigning cost recovery in response to competition.* For much of
    the twentieth century, telephone service was viewed as a natural
    monopoly. The emergence of competition for long-distance services in
    the 1970s and for local services, particularly after the 1996 Act,
    has placed pressure on above-cost intercarrier compensation charges.
    Although the Commission, in response to competitive entry, sought to
    develop intercarrier compensation rules that align more closely with
    the economic principle that costs should be recovered in the way
    they are incurred, marketplace developments confirm that those
    efforts were incomplete. As new competitors entered, a series of
    regulatory arbitrage strategies developed, some of which the
    Commission has attempted to address on a case-by-case basis.

-   *Technological advancements.* As carriers shift from
    circuit-switched telephone-only networks to packet-switched
    broadband networks supporting numerous services and applications, it
    is important that intercarrier compensation rules create the proper
    incentives for carriers to invest in new broadband technology and
    that consumers have the opportunity to take full advantage of the
    new capabilities of this broadband world.

### Intercarrier Compensation Regulation Before the Telecommunications Act of 1996

695. When AT&T began offering telephone service in 1877,[^1669] it held
     all the essential patents and effectively operated as a legal
     monopoly. When the original patents expired in 1894, however,
     thousands of independent telephone companies began offering
     competing local telephone service.[^1670] This new competition led
     to lower rates,[^1671] and reduced AT&T's average return on
     investments by over 80 percent.[^1672] AT&T responded by refusing
     to interconnect with any independent telephone company to exchange
     long-distance or local traffic.[^1673] Without interconnection,
     independent telephone companies could not offer a viable service
     unless such entities duplicated the AT&T system, which was not
     economically feasible. As a result, independent telephone companies
     began to go out of business or were acquired by AT&T.[^1674]

696. AT&T's predatory strategy led the Department of Justice to file an
     antitrust suit against AT&T in 1913. The government alleged that
     AT&T's interconnection and acquisition policies violated Section 2
     of the Sherman Act.[^1675] The case was eventually dropped after
     AT&T committed to abide by certain principles in what became known
     as the Kingsbury Commitment of 1913. Under the Kingsbury
     Commitment, AT&T agreed to: (i) allow independent telephone
     companies to interconnect with AT&T's long-distance network; and
     (ii) not acquire any additional independent telephone companies
     absent regulatory approval.[^1676] In exchange, the government
     sanctioned AT&T's monopoly control over markets where it already
     offered service.

697. In essence, the Kingsbury Commitment and subsequent regulation
     assumed that both the local and long-distance telephone businesses
     were natural monopolies.[^1677] Policymakers embraced the view
     that, because of economies of scale, a natural monopoly could
     provide service more efficiently than would occur in a competitive
     market.[^1678] Rates for these natural monopolies were subject to
     rate-of-return regulation.[^1679] In setting regulated rates, a
     primary policy objective of regulators was to promote universal
     service to all consumers through affordable local telephone rates
     for residential customers. To accomplish this objective, however,
     regulators created a patchwork of what has become known as implicit
     subsidies. Thus, for example, regulators permitted higher rates to
     business customers so that residential rates could be lower, and
     they frequently required similar rates to urban and rural
     customers, even though the cost of serving rural customers was
     higher.[^1680] Similarly, AT&T was permitted to charge artificially
     high long-distance toll rates, and its interstate toll revenues
     were placed into an interstate "settlements" pool.[^1681] AT&T then
     shared a portion of these interstate revenues with independent
     telephone companies and AT&T's affiliated Bell Operating Companies
     (BOCs).[^1682] These high long-distance rates enabled regulators to
     set lower local rates for the BOCs and independent local telephone
     companies.

698. The use of microwave technology by Microwave Communications, Inc.
     (MCI), to offer a competitive alternative to AT&T's switched
     long-distance service beginning in the 1970s cast into doubt the
     assumption that long-distance telecommunications was a natural
     monopoly.[^1683] MCI focused initially on private line service,
     where AT&T's rates were above cost. MCI's service offerings grew
     after a series of Commission and court decisions rejected AT&T's
     objections to MCI's entry.[^1684] Despite these victories, MCI was
     not entitled to equal access to local exchange service,[^1685] and
     MCI and other IXCs were dependent on the BOCs and independent local
     telephone companies to complete long-distance calls to the end
     users.[^1686]

699. For a number of reasons, including AT&T's resistance to the
     introduction of competition in the long-distance market, the
     Department of Justice in 1974 filed an antitrust suit alleging that
     AT&T had engaged in unlawful monopolization in the local,
     long-distance, and equipment manufacturing markets.[^1687] After
     eight years of litigation, AT&T and the Department of Justice
     entered into a consent decree, which federal District Court Judge
     Greene approved in 1982.[^1688] Under the Modification of Final
     Judgment (MFJ), AT&T agreed to divest its affiliated BOCs from AT&T
     long distance, and the BOCs were required to provide equal access
     and dialing parity.[^1689] In addition, the MFJ barred the BOCs
     from entering the long-distance, information services, equipment
     manufacturing, or other competitive markets to prevent predatory
     cross subsidization by their regulated monopoly local telephone
     service.[^1690] Although the MFJ applied only to the BOCs, the
     Commission subsequently extended interconnection and
     nondiscriminatory equal access obligations to all incumbent
     LECs.[^1691] As a result of the MFJ, MCI, and other competitors
     were able to compete directly with AT&T to provide long-distance or
     interstate service, and all IXCs paid interstate access charges to
     the BOCs and other incumbent LECs to originate and terminate
     service to end users.

700. While the AT&T antitrust suit was pending, the Commission began to
     take the first steps toward reforming intercarrier compensation. In
     1978, the Commission commenced a review of intercarrier
     compensation for originating and terminating access.[^1692] In
     1983, following the MFJ, the Commission eliminated the "existing
     potpourri of \[compensation\] mechanisms,"[^1693] and replaced it
     "with a single uniform mechanism . . . through which local carriers
     \[could\] recover the cost of providing access services needed to
     complete interstate and foreign telecommunications."[^1694] The
     access charge rules adopted by the Commission provided for the
     recovery of incumbent LECs' costs assigned to the interstate
     jurisdiction and detailed "the precise manner in which \[incumbent
     LECs\] may assess charges on IXCs and end users."[^1695] In
     designing the interstate access charge rules, the Commission sought
     to balance a number of competing objectives.[^1696] For one, the
     Commission recognized that "\[a\]rtificial pricing structures,
     while perhaps appropriate for use in achieving social objectives
     under the right conditions, cannot withstand the pressures of a
     competitive marketplace."[^1697] Consequently, the Commission
     sought to follow more closely the principle that costs should be
     recovered in the way they are incurred, consistent with principles
     of cost-causation.[^1698] Under this rate structure principle, the
     cost of facilities that do not vary based on the amount of traffic
     carried over those facilities (i.e., non-traffic-sensitive costs)
     should be recovered through fixed, flat-rated charges, while only
     costs that vary with usage of facilities (i.e., traffic-sensitive
     costs) should be recovered through corresponding per-minute
     rates.[^1699]

701. Despite these rate structure principles, the Commission concluded
     that a sudden introduction of large flat-rated charges on end-users
     could have "adverse effects" on subscribership. It therefore
     adopted a "plan \[that\] provides for the gradual introduction of
     these end-user charges."[^1700] Thus, the Commission limited the
     amount of the interstate loop costs assessed to residential and
     business customers as a flat-rated monthly charge, and it recovered
     the remaining interstate loop costs through a per-minute charge
     imposed on IXCs.[^1701] Moreover, the Commission continued to apply
     traditional rate-of-return regulation based on carriers' embedded,
     fully distributed costs, including common costs and
     overhead.[^1702]

702. In 1991, the Commission took another step toward intercarrier
     compensation reform by replacing rate-of-return regulation with an
     incentive-based system of regulation for the BOCs and GTE.[^1703]
     This new regulatory regime, known as price cap regulation, was
     designed to replicate some of the efficiency incentives found in
     competitive markets. In particular, price caps were designed to
     encourage companies to: (1) improve their efficiency by creating
     incentives to reduce costs; (2) invest efficiently in new plant and
     facilities; and (3) develop and deploy innovative service
     offerings.[^1704] Although many smaller and rural incumbent LECs
     remain subject to the Part 69 rate-of-return rules, most of the
     larger incumbent LECs are now subject to price cap
     regulation.[^1705]

703. The Commission's reforms during the 1980s and early 1990s yielded
     many public interest benefits. For example, economists have
     estimated that above-cost access charges reduced U.S. economic
     welfare by an estimated \$10--17 billion annually during the late
     1980s, but that the annual welfare loss declined substantially to
     between \$2.5 billion and \$7 billion following the Commission's
     access charge reforms in the 1980s and early 1990s.[^1706] Despite
     these reforms, however, per-minute access rates remained
     high.[^1707] These high switched access rates created an
     opportunity for competitive access providers (CAPs) to begin
     offering facilities-based competition. CAPs could offer carriers a
     competitive alternative to the BOCs, often with lower rates and
     higher quality.[^1708] The entry of CAPs and the potential entry of
     cable companies into local residential telephone markets created
     pressure toward opening the local telephone markets to competition,
     which ultimately resulted in the passage of the 1996 Act.

### Intercarrier Compensation Regulation Since the 1996 Act

704. Recognizing these fundamental market changes, Congress's goals in
     passing the 1996 Act were to: (1) open local exchange and exchange
     access markets to competition; (2) promote increased competition in
     telecommunications markets that were already open to competition;
     and (3) reform the existing universal service system to be
     consistent with competitive markets.[^1709] With respect to the
     last goal, Congress recognized that implicit subsidies, which were
     implemented when the industry was considered a natural monopoly,
     were neither consistent with, nor sustainable in, a competitive
     market, and that they should be replaced with explicit support
     where necessary.[^1710] It also recognized, however, that
     conversion of the existing web of implicit subsidies to a system of
     explicit support would be a difficult task that could not be
     accomplished immediately.[^1711] Accordingly, when Congress
     established the statutory scheme to open local markets to
     competition,[^1712] it included a transitional mechanism in section
     251(g) providing for the continued enforcement of certain pre-Act
     obligations.[^1713] Notably, section 251(g) provides for the
     continued enforcement of exchange access and interconnection
     obligations only "until such restrictions and obligations are
     explicitly superseded by regulations prescribed by the Commission
     after the date of such enactment," suggesting that such obligations
     would be re-evaluated based on the requirements imposed by the 1996
     Act. [^1714]

705. Congress also recognized the need to impose new obligations on
     carriers to open local telephone markets to competition, and
     directed the Commission to adopt implementing rules. Specifically,
     section 251(b) imposed certain obligations on all LECs, while
     section 251(c) imposed additional obligations on incumbent LECs,
     including the obligation to provide access to network elements on
     an unbundled basis.[^1715] Of relevance here, section 251(b)(5) of
     the 1996 Act imposed on all LECs a "duty to establish reciprocal
     compensation arrangements for the transport and termination of
     telecommunications."[^1716]

706. In requiring LECs to enter into reciprocal compensation agreements
     with requesting carriers, Congress introduced another mechanism
     through which carriers compensate each other for the exchange of
     traffic besides the access charge regime preserved under section
     251(g). Although Congress expressed a preference for negotiated
     interconnection agreements to implement the requirements of section
     251, section 252 provided procedures for the resolution of
     interconnection disputes involving incumbent LECs, including
     standards governing arbitration of such disputes by state
     regulatory commissions.[^1717] For such state arbitrations, section
     252(d) also established general pricing guidelines for incumbent
     LECs, including guidelines for setting the price of unbundled
     network elements (UNEs)[^1718] and reciprocal compensation
     rates.[^1719]

707. In the *Local Competition First Report and Order*, the Commission
     adopted pricing rules for states to use in setting the price of
     interconnection and UNEs when arbitrating interconnection
     disputes.[^1720] In particular, the Commission directed the states
     to employ a forward-looking, long-run average incremental cost
     methodology, which it called "Total Element Long-Run Incremental
     Cost" or "TELRIC."[^1721] The Commission found that TELRIC prices
     should include a reasonable allocation of forward-looking common
     costs, including overheads.[^1722] Although the Commission
     recognized that peak-load pricing was the most efficient way to
     recover the cost of traffic-sensitive facilities, it did not
     require states to adopt peak-load pricing because of the
     administrative difficulties associated with such an
     approach.[^1723] In interpreting the statutory pricing rules for
     reciprocal compensation contained in section 252(d)(2)(A) of the
     1996 Act,[^1724] the Commission found that costs for transport and
     termination should "be recovered in a cost-causative manner and
     that usage based charges should be limited to situations where
     costs are usage sensitive."[^1725] In particular, the Commission
     found that the "additional costs" to the LEC of terminating a call
     that originates on another carrier's network "primarily consists of
     the traffic-sensitive component of local switching" and that non
     traffic-sensitive costs, such as the costs of local loops and line
     ports, should not be considered "additional costs."[^1726] The
     Commission further found that the "additional costs" standard of
     section 252(d)(2) permits the use of the same TELRIC standard that
     it established for interconnection and unbundled elements.[^1727]
     The pricing rules governing reciprocal compensation that the
     Commission adopted in the *Local Competition First Report and
     Order* remain in effect today.[^1728]

708. Following passage of the 1996 Act, the Commission also began
     reforming both interstate access charges and federal universal
     service support mechanisms by moving the implicit subsidies
     contained in interstate access charges into explicit universal
     service support, consistent with the 1996 Act's directives. In
     particular, in the 1997 *Access Charge Reform Order*, the
     Commission modified the price cap rules for larger incumbent LECs
     by aligning the price cap LECs' rate structure more closely with
     the manner in which costs are incurred.[^1729] Recognizing
     Congress's direction that universal service support should be
     "explicit," the Commission adopted rules to "reduce usage-sensitive
     interstate access charges by phasing out local loop and other
     non-traffic sensitive costs from those charges and directing
     incumbent LECs to recover those NTS \[non-traffic sensitive\] costs
     through more economically efficient, flat-rated charges."[^1730]

709. The Commission acknowledged, however, that the measures it adopted
     in the *Access Charge Reform Order* would not "remove all implicit
     support from all access charges immediately."[^1731] Rejecting
     suggestions that all implicit subsidies be eliminated from access
     charges immediately, the Commission noted that it did not have the
     tools to identify the existing subsidies precisely, and it
     expressed concern that eliminating all implicit subsidies at once
     might have an "inequitable impact on the incumbent LECs."[^1732]
     Moreover, while stating its desire to rely on competition to drive
     access charges toward cost,[^1733] the Commission recognized that
     "some services may prove resistant to competition," and it reserved
     the right to "adjust rates in the future to bring them into line
     with forward-looking costs."[^1734]

710. To limit possible rate shock to retail customers, the Commission
     also limited the amount of allocated interstate cost of a local
     loop that could be assessed directly on residential and business
     customers as a flat-rated monthly charge.[^1735] Although the
     *Access Charge Reform Order* started the process toward
     establishing explicit subsidies, the Commission concluded that "a
     process that eliminates implicit subsidies from access charges over
     time \[was\] warranted."[^1736]

711. In the 2000 *CALLS Order*,[^1737] the Commission continued its
     effort to remove implicit subsidies and replace them with explicit
     universal service support for price cap LECs by, among other
     things, reducing per-minute intercarrier charges, raising the SLC
     cap, phasing out the Presubscribed Interexchange Carrier Charge
     (PICC),[^1738] and permitting price-cap LECs to deaverage the SLC
     once the affected carrier charges were eliminated.[^1739] The
     Commission also created a new universal service fund to compensate
     price-cap incumbent LECs, in part, for lost interstate access
     revenues.[^1740]

712. In the *MAG Order*, the Commission extended similar reforms to
     incumbent LECs subject to rate-of-return regulation.[^1741] As with
     the *CALLS Order*, these reforms were designed to rationalize the
     interstate access rate structure by aligning it more closely with
     the manner in which costs are incurred.[^1742] Among other things,
     the *MAG Order* increased the SLC caps for rate-of-return carriers
     and phased out the per-minute CCL charge from the common line rate
     structure.[^1743] The Commission also created a universal service
     support mechanism to replace implicit support with explicit
     support, in order to foster competition and more efficient
     pricing.[^1744] Many, but not all, states have also addressed
     intercarrier compensation regulation. In addition to setting rates
     for reciprocal compensation, many states have revised their rules
     governing intrastate access charges. Although some states have
     chosen to mirror interstate access charges, [^1745] others continue
     to maintain intrastate access charges that far exceed interstate
     charges.[^1746]

### Problems Associated With the Existing Intercarrier Compensation Regimes

713. The introduction of competition into local telephone markets
     revealed weaknesses in the existing intercarrier compensation
     regimes that remained notwithstanding the efforts of the Commission
     and certain states to reform interstate and intrastate access
     charges. As the Commission observed in 2001, "\[i\]nterconnection
     arrangements between carriers are currently governed by a complex
     system of intercarrier compensation regulations . . . \[that\]
     treat different types of carriers and different types of services
     disparately, even though there may be no significant differences in
     the costs among carriers or services."[^1747] We have seen numerous
     examples of regulatory arbitrage in the marketplace both because of
     the different rates for similar functions under different
     intercarrier compensation regimes and because none of these regimes
     currently set rate levels in an economically efficient
     manner.[^1748]

714. One example of regulatory arbitrage involves traffic to dial-up
     ISPs. Following adoption of the *Local Competition First Report and
     Order*, state commissions set reciprocal compensation rates for the
     exchange of local traffic. These reciprocal compensation rates were
     sufficiently high that many competitive LECs found it profitable to
     target and serve ISP customers who were large recipients of local
     traffic, since dial-up Internet customers would call their ISP and
     then stay on the line for hours. This practice led to significant
     traffic imbalances, with competitive LECs seeking billions of
     dollars in reciprocal compensation payments from other LECs.[^1749]
     The Commission responded by adopting a separate interim
     intercarrier compensation regime for this traffic.

715. On February 26, 1999, the Commission issued a Declaratory Ruling
     and Notice of Proposed Rulemaking in which it held that ISP-bound
     traffic is jurisdictionally interstate because end users access
     websites across state lines. Because the *Local Competition First
     Report and Order* concluded that the reciprocal compensation
     obligation in section 251(b)(5) applied to only local traffic, the
     Commission found in the *Declaratory Ruling* that ISP-bound traffic
     is not subject to section 251(b)(5).[^1750] On March 24, 2000, in
     the *Bell Atlantic* decision, the United States Court of Appeals
     for the District of Columbia Circuit (D.C. Circuit) vacated certain
     provisions of the *Declaratory Ruling*.[^1751] The court did not
     question the Commission's finding that ISP-bound traffic is
     interstate. Rather, the court held that the Commission had not
     adequately explained how its end-to-end jurisdictional analysis was
     relevant to determining whether a call to an ISP is subject to
     reciprocal compensation under section 251(b)(5).[^1752] In
     particular, the court noted that a LEC serving an ISP appears to
     perform the function of "termination" because the LEC delivers
     traffic from the calling party through its end office switch to the
     called party, the ISP.[^1753]

716. On April 27, 2001, the Commission released the *ISP Remand Order*,
     which concluded that section 251(g) excludes ISP-bound traffic from
     the scope of section 251(b)(5).[^1754] The Commission explained
     that section 251(g) maintains the pre-1996 Act compensation
     requirements for "exchange access, information access, and exchange
     services for such access," thereby excluding such traffic from the
     reciprocal compensation requirements that the 1996 Act imposed. The
     Commission concluded that ISP-bound traffic is "information access"
     and, therefore, is subject instead to the Commission's section 201
     jurisdiction over interstate communications.[^1755] The Commission
     concluded that a bill-and-keep regime might eliminate incentives
     for arbitrage and force carriers to look to their own customers for
     cost recovery.[^1756] To avoid a flash cut to bill-and-keep,
     however, the Commission adopted an interim compensation regime
     pending completion of the *Intercarrier Compensation*
     proceeding.[^1757]

717. On May 3, 2002, the D.C. Circuit found that the Commission had not
     provided an adequate legal basis for the rules it adopted in the
     *ISP Remand Order*.[^1758] Once again, the court did not question
     the Commission's finding that ISP-bound traffic is jurisdictionally
     interstate. Rather, the court held that section 251(g) of the Act
     did not provide a basis for the Commission's decision. The court
     held that section 251(g) is simply a transitional device that
     preserved obligations that predated the 1996 Act until the
     Commission adopts superseding rules, and there was no pre-1996 Act
     obligation with respect to intercarrier compensation for ISP-bound
     traffic.[^1759] Although the court rejected the legal rationale for
     the interim compensation rules, the court remanded, but did not
     vacate, the *ISP Remand Order* to the Commission, and it observed
     that "there is plainly a non-trivial likelihood that the Commission
     has authority" to adopt the rules.[^1760] Accordingly, the interim
     rules adopted in the *ISP Remand Order* have remained in effect.

718. On November 5, 2007, Core filed a petition for writ of mandamus
     with the D.C. Circuit seeking to compel the Commission to enter an
     order resolving the court's remand in the *WorldCom*
     decision.[^1761] On July 8, 2008, the court granted a writ of
     mandamus and directed the Commission to respond to the *WorldCom*
     remand in the form of a final, appealable order that "explains the
     legal authority for the Commission's interim intercarrier
     compensation rules that exclude ISP-bound traffic from the
     reciprocal compensation requirement . . . ."[^1762] The court
     directed the Commission to respond to the writ of mandamus by
     November 5, 2008.[^1763]

719. Another regulatory arbitrage opportunity arose as a result of the
     Commission's 1997 decision not to regulate the interstate access
     charges of competitive LECs. As a result, many competitive LECs
     filed tariffs with access charges that were well above the rates
     charged by incumbent LECs for similar services.[^1764] In response,
     the Commission adopted new rules that effectively capped the
     interstate access charges that competitive LECs could
     tariff.[^1765]

720. Two more recent examples of regulatory arbitrage involve billing
     problems and the "Access Stimulation" problem. Commenters describe
     problems billing for traffic when it arrives for termination with
     insufficient identifying information.[^1766] Because the existing
     intercarrier compensation mechanisms have vastly disparate rates
     that apply to different types of traffic, carriers have both the
     opportunity and incentive to disguise the nature, or conceal the
     source, of the traffic being sent in order to avoid or reduce
     payments to other carriers.[^1767] "Access Stimulation" refers to
     allegations that certain LECs may have entered into agreements with
     providers of services that generate large volumes of incoming calls
     to substantially increase the number of calls sent to the
     LEC.[^1768] It has been alleged that this significantly increased
     "growth in terminating access traffic may be causing carriers'
     rates to become unjust or unreasonable" in violation of section 201
     of the Act.[^1769] In the *Access Stimulation NPRM*, the Commission
     has sought information about the extent of this practice, its
     potential impact on the rates of price cap, rate-of-return, and
     competitive LECs, and how this practice should be addressed.[^1770]

## Comprehensive Reform

### Introduction

721. Evidence of increasing regulatory arbitrage, as well as increased
     competition and changes in technology, has led the Commission to
     consider comprehensive reform of intercarrier compensation. In
     2001, the Commission adopted a Notice of Proposed Rulemaking to
     examine possible alternatives to existing intercarrier regimes with
     the intent of moving toward a more unified system.[^1771] The
     notice generated extensive comments that generally confirmed the
     need for comprehensive intercarrier compensation reform, including
     a number of competing proposals.[^1772] In 2005, the Commission
     adopted a Further Notice of Proposed Rulemaking seeking comment on
     the various industry proposals.[^1773] In 2006, another industry
     coalition submitted an alternative comprehensive intercarrier
     compensation reform proposal, known as the Missoula Plan.[^1774]
     The Commission separately requested and received comments on the
     Missoula Plan proposal.[^1775] Finally, in 2008, the Commission
     stabilized the universal service fund by adopting an interim cap on
     payments to competitive ETCs, helping pave the way for
     comprehensive intercarrier compensation and universal service
     reform, and leading to a number of new reform proposals.[^1776]

722. As a result of the *Intercarrier Compensation NPRM*, the
     *Intercarrier Compensation FNPRM*, the filing of the Missoula Plan,
     and the more recent proposals that have been filed, the Commission
     has compiled an extensive record over the past seven years. The
     Commission has received comments or proposals from a wide variety
     of interested parties, including, states, incumbent LECs,
     competitive LECs, rural companies, IXCs, new technology companies,
     consumer advocates, business customers, and industry associations.
     As demonstrated throughout this order, the Commission has
     thoroughly reviewed and analyzed the voluminous record, has
     considered the evidence submitted by the parties supporting the
     alternatives, and has carefully evaluated each of the proposals
     that have been presented. Based on this examination of the options,
     we find that the approach we describe below and adopt in this order
     best achieves the goals of promoting universal service, encouraging
     the efficient use of, and investment in, broadband technologies,
     spurring competition, and ultimately, further reducing the need for
     regulation.

### A New Approach to Intercarrier Compensation

723. Since the introduction of competition into long-distance telephone
     service, the Commission has moved toward eliminating implicit
     subsidies from intercarrier charges. At every stage, however, the
     Commission has had to balance the desire to establish more
     efficient intercarrier charges against the potential adverse
     effects on consumers (in the form of higher flat-rated charges) and
     carriers (in the form of reduced intercarrier revenues). The
     introduction of competition into local telephone markets
     accelerated the need for reform. As discussed above, since the
     implementation of the 1996 Act, not only has local competition
     increased, but so has the incidence and severity of regulatory
     arbitrage.

724. We conclude today that, with the universal service fund now
     stabilized, we can wait no longer to begin the process of
     comprehensive intercarrier compensation reform. The differences in
     existing intercarrier compensation regimes impose significant
     inefficiencies on users and distort carriers' investment
     incentives, which can result in losses of billions of dollars in
     consumers and producers surplus. Possibly more important, these
     legacy regulatory regimes pose an obstacle to the transition to an
     all-IP broadband world. Because carriers currently can receive
     significant revenues from charging above-cost rates to terminate
     telecommunications traffic, they have a reduced incentive to
     upgrade their networks to the most efficient technology or to
     negotiate interconnection agreements that are designed to
     accommodate the efficient exchange of IP traffic, as both actions
     would likely lead to reduced intercarrier payments.[^1777]

725. In this order, we therefore adopt a new approach to intercarrier
     compensation and establish the blueprint for moving to new uniform
     termination rates that are economically efficient and sustainable
     in our increasingly competitive telecommunications markets. At the
     same time, we recognize, as the Commission has in the past, the
     need to be cognizant of market disruptions and potential adverse
     effects on consumers and carriers of moving too quickly from the
     existing intercarrier compensation regimes to our new uniform
     approach to intercarrier compensation. Accordingly, we adopt here a
     gradual ten-year transition plan with separate stages, designed to
     reduce rates over a sufficient period to minimize market
     disruptions and to cushion the impact of our reform on both
     customers and carriers. At the end of the transition period, all
     telecommunications traffic will be treated as falling within the
     reciprocal compensation provisions of section 251(b)(5), and states
     will set default reciprocal compensation rates pursuant to the new
     methodology we adopt herein.

726. The requirements that we adopt for intercarrier compensation do not
     apply to providers operating in Alaska, Hawaii, or any U.S.
     Territories and possessions. We find that these areas have very
     different attributes and related cost issues than the continental
     states.[^1778] For this reason, we are exempting providers in
     Alaska, Hawaii and U.S. Territories and possessions from the
     requirements and rules adopted herein, and we will address them in
     a subsequent proceeding.[^1779]

727. *Transition Plan*. As described below, we adopt a ten**-**year
     transition plan.[^1780] In the first stage, intrastate access rates
     are reduced to the levels of interstate rates. During stage two,
     carriers will reduce their rates to an interim uniform termination
     rate, set by the state. Carriers whose current rates are below the
     interim uniform rate set by the state, however, may not increase
     their rates. During stage three, the rates carriers charge at the
     end of stage two (either the interim uniform rates or their prior
     rates, whichever are lower) will be gradually reduced to the rates
     that will apply at the end of the transition. This transition will
     be designed by the state so as to minimize market disruptions and
     adverse economic effects. This transition is described in more
     detail below.

728. *Intrastate* *Rate Reductions*. One year from the effective date of
     this order, we require that all LECs reduce their terminating
     *intrastate* switched access rates by 50 percent of the difference
     between their intrastate switched access rates and their
     *interstate* switched access rates.[^1781] Two years from the
     effective date of this order, we require that all LECs reduce their
     terminating intrastate switched access rates by the remaining 50
     percent of the difference between their intrastate switched access
     rates and their interstate switched access rates so that their
     intrastate rates equal their interstate rates. Carriers will comply
     with state tariffing requirements or other applicable state law in
     effectuating those changes in intrastate terminating access rates.

729. *State Establishment of Interim, Uniform Reciprocal Compensation
     Rates.* Within two years from the effective date of this order,
     states must adopt a state-wide interim, uniform reciprocal
     compensation rate applicable to all carriers (except carriers whose
     rates are below the interim, uniform rate, in which case, those
     carriers' rates shall be capped at those lower, existing rates).
     Three years from the effective date of this order, we require that
     all LECs reduce their terminating rates by 50 percent of the
     difference between their current terminating rate and the interim,
     uniform reciprocal compensation rate established by the state. Four
     years from the effective date of this order we require that all
     LECs reduce their terminating rates by the remaining 50 percent of
     the difference between their current terminating rate and the
     interim, uniform reciprocal compensation rate established by the
     state so that their terminating rates equal the state-set interim,
     uniform reciprocal compensation rate. This rate will become the
     starting point for stage three---a six-year gradual downward
     transition to the final uniform reciprocal compensation rate, which
     the states will also set, consistent with the methodology we adopt
     in this order. The states will have discretion to determine the
     glide path, which begins four years from the effective date of this
     order and ends ten years from the effective date of this order.
     This glide path will determine the trajectory of the interim
     reciprocal compensation rate as it trends down to the final
     reciprocal compensation rate. All carriers are subject to this
     glide path. However, if a carrier's rate is below the rate
     specified in the glide path, such carrier cannot raise its rates,
     but is subject to the trajectory when the interim rate equals that
     carrier's rate. At the end of ten years (i.e., at the end of stage
     two), all the terminating rates of all carriers in each state will
     be reduced to the new final, uniform reciprocal compensation rate
     established by each state. We believe that, by establishing this
     ten-year, multiple-stage transition to a state-set final uniform
     reciprocal compensation rate, we will provide a sufficiently smooth
     and gradual glide path so that carriers will be able to adjust
     their other rates and revenues in a measured way over time, as
     allowed by the reforms adopted in this order, without creating
     unacceptable rate or revenue effects.

730. Although we permit the states to establish the particular interim,
     uniform reciprocal compensation rate for each step of the final six
     years of the transition, we establish certain conditions on the
     interim, uniform reciprocal compensation rate and on the
     terminating intercarrier rates that carriers may charge. First,
     although we do not set forth a methodology that states must use in
     setting the interim, uniform reciprocal compensation rates, we do
     require that, within each state, there must be a single, state-wide
     interim, uniform reciprocal compensation rate during each year and
     at each stage of the transition.[^1782] Therefore, in establishing
     interim, uniform reciprocal compensation rates, a state may wish to
     consider the impact of those rates on all the carriers in the
     state. States are permitted to adopt an interim, uniform reciprocal
     compensation rate that may be higher at the beginning of the
     transition than some existing incumbent LEC rates today. If they do
     so, however, carriers with lower termination rates may not raise
     them to the interim uniform rate. Second, states may determine the
     glide path for moving from the interim, uniform reciprocal
     compensation rate to the final, uniform reciprocal compensation
     rate, subject to the requirement that the interim uniform rate be
     identical for all carriers at each step in the transition. By the
     end of the transition period, the interim, uniform reciprocal
     compensation rates must decrease to a single final, uniform
     reciprocal compensation rate for all carriers established pursuant
     to the Commission's new "additional costs" methodology.

731. *Transition of Rates During Stage Three.* Beginning four years from
     the effective date of this order, and through the remainder of the
     transition, each carrier must set each of its terminating rates at
     the lower of: (i) its current rate; or (ii) the state-set interim,
     uniform reciprocal compensation rate applicable at that stage of
     the transition. Thus, for example, if a carrier has an interstate
     terminating access rate above the interim, uniform reciprocal
     compensation rate applicable at that stage of the transition, but a
     current reciprocal compensation rate below the interim, uniform
     reciprocal compensation rate, the carrier will reduce its
     interstate rate to the interim rate but leave its current
     reciprocal compensation rate unchanged. That carrier will continue
     to have two separate termination rates until such time as the
     applicable interim, uniform reciprocal compensation rate is
     adjusted lower and becomes less than its current reciprocal
     compensation rate. At that time, all the carrier's rates will be
     set at the level of the interim, uniform reciprocal compensation
     rate for that state.

732. We emphasize that under no circumstances shall a carrier be
     permitted to increase its current rates, even if the interim,
     uniform reciprocal compensation rate is higher than one or more of
     its current rates. In this respect, the applicable interim, uniform
     reciprocal compensation rate set by the states will act as a
     ceiling or cap on such rates. We do not permit a carrier to charge
     a rate for terminating interstate or intrastate access, reciprocal
     compensation, or ISP-bound traffic that is higher than the interim,
     uniform reciprocal compensation rate, but we will permit a carrier
     to continue to charge a rate that is lower than the interim,
     uniform reciprocal compensation rate. We note that because CMRS
     providers may not tariff terminating access today,[^1783] and we do
     not permit a carrier to increase rates during the transition, CMRS
     providers therefore will not be permitted to charge for terminating
     access until the end of the transition period.[^1784]

733. We note that we already have an interim intercarrier compensation
     regime for ISP-bound traffic, and to avoid disruption in the
     marketplace, we will apply on a transitional basis the pricing
     standards we adopted for ISP-bound traffic in the *ISP Remand
     Order*,[^1785] as modified by the *Core Forbearance Order.*[^1786]
     Currently, two rules remain in effect: (1) ISP-bound traffic is
     currently subject to a reciprocal compensation rate cap of \$.0007
     per minute-of-use; and (2) under the mirroring rule, the \$.0007
     cap applies to traffic exchanged with an incumbent LEC only if it
     offers to exchange all traffic subject to section 251(b)(5) at the
     same rate. As explained below, we conclude that it is appropriate
     to retain these rules, but only on a transitional basis until a
     state commission, applying the "additional costs" standards adopted
     in this order, has established reciprocal compensation rates that
     are at or below \$.0007 per minute-of-use.

734. In the *ISP Remand Order* in 2001, based on "convincing evidence in
     the record" that carriers had "targeted ISPs as customers merely to
     take advantage of . . . intercarrier payments"---offering free
     service to ISPs, paying ISPs to be their customers, and sometimes
     engaging in outright fraud---the Commission adopted an interim ISP
     payment regime to "limit, if not end, the opportunity for
     regulatory arbitrage."[^1787] The Commission adopted a gradually
     declining cap on intercarrier compensation for ISP-bound traffic,
     beginning at \$.0015 per minute-of-use and declining to \$.0007 per
     minute-of-use.[^1788] These rate caps reflected the downward trend
     in intercarrier compensation rates contained in then-recently
     negotiated interconnection agreements.[^1789] We have previously
     recognized that evidence that "carriers have agreed to
     rates"---through voluntary, arms-length negotiations---constitutes
     substantial evidence that rates are just and reasonable.[^1790]

735. Most commenters urge the Commission to maintain the interim
     compensation rules governing ISP-bound traffic until the Commission
     is able to transition to comprehensive intercarrier compensation
     reform.[^1791] These parties contend that a higher compensation
     rate would create new opportunities for arbitrage[^1792] and impose
     substantial financial burdens on wireless companies, incumbent LECs
     and state public utility commissions.[^1793] They further claim
     that the existing regime has simplified interconnection
     negotiations.[^1794]

736. We share these commenters' concerns. The record also suggests that
     eliminating the \$.0007 cap and instead applying higher reciprocal
     compensation rates that may be set by the states during the
     transition period to the adoption of our new methodology would have
     a significant negative impact on carriers serving rural markets and
     broadband deployment.[^1795] The record demonstrates that dial-up
     minutes remain at high levels in rural areas and that the
     application of reciprocal compensation to these minutes would
     generate significant costs to carriers serving these rural
     areas.[^1796] Thus, it remains the case that the "rate caps help
     avoid arbitrage and market distortions that otherwise would result
     from the availability of reciprocal compensation for ISP-bound
     traffic."[^1797] We further believe that maintaining the cap on a
     transitional basis will minimize the disruptive effects and
     regulatory uncertainty that otherwise would result from the abrupt
     elimination of clear compensation rules for ISP-bound traffic.

737. We expect that state commissions, applying the new "additional
     costs" standard adopted in this order, will set final reciprocal
     compensation rates at or below \$.0007 per minute-of-use. As noted
     below, the evidence in the record suggests that the incremental
     cost of call termination on modern switches is de minimis.[^1798]
     We have given state commissions up to ten years to transition to
     new rates based on the "additional costs" standard. Accordingly,
     the rate cap will only have an impact in a particular state on a
     transitional basis until that state sets rates at or below \$.0007.

738. The mirroring rule has also succeeded in promoting the Commission's
     "goal of a more unified intercarrier compensation regime by
     requiring LECs to offer similar rates for like traffic."[^1799]
     Most intraMTA traffic is now exchanged pursuant to the rate caps,
     and a substantial portion of wireline intraexchange traffic is
     being exchanged at rates at or below the rate caps as well.[^1800]
     Eliminating the mirroring rule and allowing carriers to charge
     higher transitional reciprocal compensation rates for traffic
     currently subject to the mirroring rule would significantly
     increase the cost carriers incur in exchanging that traffic. Those
     increased costs would divert funds from investment in next
     generation wireless networks and likely would be borne by
     consumers, through increases in the costs of wireless
     offerings.[^1801]

739. We reject arguments that the Commission unlawfully delegated its
     authority in the *ISP Remand Order* and arguments that the
     Commission addressed previously in the *Core Forbearance
     Order*.[^1802] We also disagree with parties who suggest that the
     Commission, in responding to the D.C. Circuit's remand in
     *WorldCom*, must offer detailed new justifications for each of the
     four features of the ISP intercarrier payment regime: the rate
     caps, the mirroring rule, the growth cap, and the new markets
     rule.[^1803] The prior policy justifications offered for those
     rules by the Commission have not been overturned by any court, and
     our current policy justification for retaining these rules is
     simply to maintain the status quo in this area on a transitional
     basis until our new "additional costs" methodology has been fully
     implemented. Indeed, pursuant to our new "additional costs"
     methodology, we believe that the rate caps set forth in 2001 may
     well be higher than the final, uniform reciprocal compensation
     rates set by the states. However, discarding these rules during the
     transition to our new methodology would be unwise and unwarranted
     because the "rate caps are necessary to prevent discrimination
     *between* dial-up Internet access customers and basic telephone
     service customers," those caps "protect consumers of basic
     telephone service" from being forced to subsidize dial-up Internet
     access service, and the rate caps minimize the "classic regulatory
     arbitrage" that reciprocal compensation for ISP-bound traffic had
     made possible.[^1804]

740. In sum, we maintain the \$.0007 cap and the mirroring rule, on a
     transitional basis, pursuant to our section 201 authority. These
     interim rules shall remain in place in a state until the state
     commission, applying the "additional costs" standard adopted in
     this order, has established reciprocal compensation rates that are
     at or below \$.0007 per minute-of-use.

741. We find that our transition plan is necessary and appropriate to
     prevent undue economic hardships to carriers caused by a too-rapid
     reduction in intercarrier compensation rates. If there is evidence
     that carriers are attempting to abuse the interim, uniform
     reciprocal compensation rate and/or transition process to create
     arbitrage opportunities, we encourage carriers to bring such
     evidence to our attention or that of the state commission so such
     claims can be investigated and, if appropriate, action taken.

### Legal Authority 

#### Legal Authority for Comprehensive Reform---Interpretation of Sections 251(b)(5) and 251(g) 

742. The history of intercarrier compensation reveals many policy
     reasons for comprehensively reforming intercarrier compensation
     rates, including reducing arbitrage, promoting competition,
     facilitating the introduction of new technologies, and benefiting
     consumers. The dual structure of separate federal and state
     jurisdiction over communications has made accomplishing such
     reforms more complex, however. Although our reform does not disturb
     those fundamental jurisdictional distinctions, we find that,
     through the tools made available by the 1996 Act, we have the means
     to accomplish this reform by electing to partner with the states.

743. The Commission unquestionably has authority to reform intercarrier
     compensation with respect to interstate access services, rates
     charged by CMRS providers, and IP/PSTN traffic. Section 2(a) of the
     Act establishes the Commission's jurisdiction over interstate
     services, for which the Commission ensures just, reasonable, and
     not unjustly and unreasonably discriminatory rates under section
     201 and 202.[^1805] Likewise, the Commission has authority over the
     rates of CMRS providers pursuant to section 332 of the Act.[^1806]
     We also make clear that authority to impose economic regulation
     with respect to IP/PSTN traffic rests exclusively with this
     Commission. The Commission has adopted a number of regulatory
     requirements applicable to interconnected VoIP services and
     providers.[^1807] With respect to the statutory classification of
     IP-enabled services, however, the Commission only has addressed two
     situations.[^1808]

744. We now classify as "information services" those services that
     originate calls on IP networks and terminate them on
     circuit-switched networks, or conversely that originate calls on
     circuit-switched networks and terminate them on IP networks
     (collectively "IP/PSTN" services).[^1809] Such traffic today
     involves a net protocol conversion between end-users, and thus
     constitutes an "enhanced" or "information service."[^1810]

745. Although there are certain exceptions to this treatment, we do not
     find them applicable.[^1811] In particular, we do not find this to
     be "protocol conversion in connection with the introduction of new
     technology to implement existing services" that would be treated as
     a "basic," rather than "enhanced" service.[^1812] That exception
     was designed to address situations "involving no change in an
     existing service, but merely a change in electrical interface
     characteristics to facilitate transitional introduction of new
     technology."[^1813] By contrast, we find that IP/PSTN services are
     not mere changes to the underlying technology used for "existing"
     basic services, but are entirely new services with characteristics
     in many ways distinct from pre-existing telephone services.[^1814]

746. Consistent with the *Pulver.com Order* and the *Vonage Order*, we
     preempt any state efforts to impose "traditional 'telephone
     company' regulations" as they relate to IP/PSTN information
     services as inconsistent with our generally unregulated treatment
     of information services.[^1815] Of course, neither the *Vonage
     Order*, the *Pulver.com Order*, nor our actions here preempt state
     actions that are consistent with federal policy.[^1816] Moreover,
     as we describe below, we allow states to establish reciprocal
     compensation rates, pursuant to our methodology, including for
     IP/PSTN traffic.

747. In sections 251 and 252 of the Act, Congress altered the
     traditional regulatory framework based on jurisdiction by expanding
     the applicability of national rules to historically intrastate
     issues and state rules to historically interstate issues.[^1817] In
     the *Local Competition First Report and Order*, the Commission
     found that the 1996 Act created parallel jurisdiction for the
     Commission and the states over interstate and intrastate matters
     under sections 251 and 252.[^1818] The Commission and the states
     "are to address the same matters through their parallel
     jurisdiction over both interstate and intrastate matters under
     sections 251 and 252."[^1819] Moreover, section 251(i) provides
     that "\[n\]othing in this section shall be construed to limit or
     otherwise affect the Commission's authority under section
     201."[^1820] The Commission concluded that section 251(i) "affirms
     that the Commission's preexisting authority under section 201
     continues to apply for purely interstate activities."[^1821]

748. In implementing sections 251 and 252 in the *Local Competition
     First Report and Order*, the Commission's treatment of LEC-CMRS
     traffic provides an instructive approach. Prior to the 1996 Act,
     the Commission expressly preempted "state and local regulations of
     the kind of interconnection to which CMRS providers are entitled"
     based on its authority under section 201 and 332 of the Act.[^1822]
     Nevertheless, in the *Local Competition First Report and Order*,
     the Commission brought LEC-CMRS interconnection within the section
     251 framework as it relates to intraMTA (including interstate
     intraMTA) traffic.[^1823] The Commission recognized, however, that
     it continued to retain separate authority over CMRS traffic.[^1824]

749. Courts confirmed that, in permitting LEC-CMRS interconnection to be
     addressed through the section 251 framework, the Commission did not
     in any way lose its independent jurisdiction or authority to
     regulate that traffic under other provisions of the Act. Thus,
     although the Eighth Circuit invalidated the Commission's TELRIC
     pricing rules in general,[^1825] it recognized that "because
     section 332(c)(1)(B) gives the FCC the authority to order LECs to
     interconnect with CMRS carriers, we believe that the Commission has
     the authority to issue the rules of special concern to the CMRS
     providers, \[including the reciprocal compensation rules\] but only
     as these provisions apply to CMRS providers. Thus, \[the pricing\]
     rules . . . remain in full force and effect with respect to the
     CMRS providers, and our order of vacation does not apply to them in
     the CMRS context."[^1826] Subsequently, the D.C. Circuit held that
     CMRS providers were entitled to pursue formal complaints under
     section 208 of the Act for violations of the Commission's
     reciprocal compensation rules.[^1827]

750. We build upon our actions in the *Local Competition First Report
     and Order*, and now permit states to establish a uniform reciprocal
     compensation rate, in accordance with the new methodology we
     establish in this order, pursuant to the section 251(b)(5) and
     252(d)(2) framework. In particular, section 251(b)(5) imposes on
     all LECs a "duty to establish reciprocal compensation arrangements
     for the transport and termination of telecommunications."[^1828]
     Section 252(d)(2)(A) sets forth an "additional costs" standard that
     state commissions, in arbitrating interconnection disputes
     involving incumbent LECs, should apply in setting the "charges for
     transport and termination of traffic."[^1829] Although we allow
     states to set new uniform termination rates under this framework,
     pursuant to our methodology, we retain our authority under section
     201 to find that reciprocal compensation charges are unjust and
     unreasonable as they relate to interstate, CMRS, and IP/PSTN
     traffic within our jurisdiction.[^1830] We expect that states will
     faithfully implement the pricing standards adopted in this order,
     and thus it will not be necessary for us to exercise that
     authority.[^1831]

751. The Commission unquestionably has authority to interpret and adopt
     rules implementing sections 251(b)(5) and 252(d)(2). Congress
     delegated to the Commission the task of administering the
     Communications Act. Section 201(b) authorizes the Commission to
     "prescribe such rules and regulations as may be necessary in the
     public interest to carry out the provisions of this Act."[^1832]
     "\[T\]he grant in § 201(b) means what it says: The FCC has
     rulemaking authority to carry out the 'provisions of this
     Act.'"[^1833] The Commission's rulemaking authority is not limited
     to interstate matters; it extends to all provisions of the
     Communications Act.[^1834]

752. In addition, we find that the section 251(b)(5) and 252(d)(2)
     framework is broad enough to facilitate our intercarrier
     compensation reform. We acknowledge that, in the *Local Competition
     First Report and Order*, the Commission found that section
     251(b)(5) applies only to local traffic,"[^1835] and some
     commenters continue to press for such an interpretation.[^1836] As
     other commenters recognize, however, the Commission, in the *ISP
     Remand Order*, reconsidered that judgment and concluded that it was
     a mistake to read section 251(b)(5) as limited to local traffic,
     given that "local" is not a term used in section 251(b)(5).[^1837]
     We recognize, as the Supreme Court noted in *AT&T Corp. v.* *Iowa
     Utilities Board*, that "\[i\]t would be a gross understatement to
     say that the 1996 Act is not a model of clarity."[^1838]
     Nevertheless, we find that the better view is that section
     251(b)(5) is not limited to local traffic.

753. We begin by looking at the text of the statute. Section 251(b)(5)
     imposes on all LECs the "duty to establish reciprocal compensation
     arrangements for the transport and termination of
     telecommunications."[^1839] The Act broadly 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 as sent
     and received."[^1840] Its scope is not limited geographically
     ("local," "intrastate," or "interstate") or to particular services
     ("telephone exchange service,"[^1841] telephone toll
     service,"[^1842] or "exchange access"[^1843]). We find that the
     traffic we elect to bring within this framework fits squarely
     within the meaning of "telecommunications."[^1844] Had Congress
     intended to preclude the Commission from bringing certain types of
     telecommunications traffic within the section 251(b)(5) framework,
     it could have easily done so by incorporating restrictive terms in
     section 251(b)(5). Because Congress used the term
     "telecommunications," the broadest of the statute's defined terms,
     we conclude that section 251(b)(5) is not limited only to the
     transport and termination of certain types of telecommunications
     traffic, such as local traffic.

754. In the *Local Competition First Report and Order* the Commission
     concluded that section 251(b)(5) applies only to local traffic, but
     recognized that "\[u\]ltimately . . . the rates that local carriers
     impose for the transport and termination of local traffic and for
     the transport and termination of long distance traffic should
     converge."[^1845] In the *ISP Remand Order*, the Commission
     reversed course on the scope of section 251(b)(5), finding that
     "the phrase 'local traffic' created unnecessary ambiguities, and we
     correct that mistake here."[^1846] The *ISP Remand Order* noted
     that "the term 'local,' not being a statutorily defined category,
     . . . is not a term used in section 251(b)(5)."[^1847] The
     Commission found that the scope of section 251(b)(5) is limited
     only by section 251(g), which temporarily grandfathered the
     pre-1996 Act rules governing "exchange access, information access,
     and exchange services for such access" provided to IXCs and
     information service providers until "explicitly superseded by
     regulations prescribed by the Commission."[^1848] On appeal, the
     D.C. Circuit left intact the Commission's findings concerning the
     scope of section 251(b)(5), although it took issue with other
     aspects of the *ISP Remand Order*.[^1849]

755. We agree with the finding in the *ISP Remand Order* that traffic
     encompassed by section 251(g) is excluded from section 251(b)(5)
     except to the extent that the Commission acts to bring that traffic
     within its scope. Section 251(g) preserved the pre-1996 Act
     regulatory regime that applies to access traffic, including rules
     governing "receipt of compensation."[^1850] There would have been
     no need for Congress to have preserved these compensation rules
     against the effects of section 251 if the scope of section
     251(b)(5) was not broad enough for the Commission to bring within
     its scope the traffic covered by section 251(g), i.e., access
     traffic. Because Congress is presumed not to have wasted its
     breath, particularly with a provision as lengthy and detailed as
     section 251(g), we find that section 251(g) confirms that section
     251(b)(5) applies to the transport and termination of all
     telecommunications traffic exchanged with LECs, including ISP-bound
     traffic. And because section 251(g) "is worded simply as a
     transitional device, preserving various LEC duties that antedated
     the 1996 Act until such time as the Commission should adopt new
     rules pursuant to the Act,"[^1851] we clearly have authority under
     the Act to adopt regulations superseding that regime. We exercise
     that authority today. [^1852]

756. By placing all traffic under the umbrella of one compensation
     scheme, we eliminate jurisdictional and regulatory distinctions
     that are not tied to economic or technical differences between
     services. As the Commission observed in the *Intercarrier
     Compensation NPRM*, regulatory arbitrage arises from different
     rates that different types of providers must pay for essentially
     the same functions.[^1853] Our current classifications require
     carriers to treat identical uses of the network differently, even
     though such disparate treatment usually has no economic or
     technical basis. These artificial distinctions distort the
     telecommunications markets at the expense of healthy competition.
     Similar types of traffic should be subject to similar rules.
     Similar types of functions should be subject to similar cost
     recovery mechanisms. We achieve that result by moving away from the
     regime preserved by section 251(g) and bringing that traffic within
     the section 251(b)(5) framework.

757. We disagree with commenters who argue that section 251(b)(5) only
     can be applied to traffic exchanged between LECs, and not traffic
     exchanged between a LEC and another carrier.[^1854] The Commission
     rejected that argument in the *Local Competition Order*, finding
     that section 251(b)(5) applies to traffic exchanged by a LEC and
     any other telecommunications carrier, and adopted rules
     implementing that finding.[^1855] In a specific application of that
     principle, the Commission concluded that "CMRS providers will not
     be classified as LECs,"[^1856] but nevertheless found that "LECs
     are obligated, pursuant to section 251(b)(5) (and the corresponding
     pricing standards of section 252(d)(2)), to enter into reciprocal
     compensation agreements with all CMRS providers."[^1857] No one
     challenged that finding on appeal, and it has been settled law for
     the past 12 years. We see no reason to revisit that conclusion now.
     Although section 251(b)(5) indisputably imposes the duty to
     establish reciprocal compensation arrangements on LECs alone,
     Congress did not limit the class of potential beneficiaries of that
     obligation to LECs.[^1858]

758. We also disagree with commenters who argue that section
     252(d)(2)(A)(i) limits the scope of section 251(b)(5).[^1859]
     Section 252(d)(2)(A)(i) provides that a state commission "shall not
     consider the terms and conditions for reciprocal compensation to be
     just and reasonable" unless "such terms and conditions provide for
     the mutual and reciprocal recovery by each carrier of costs
     associated with the transport and termination on each carrier's
     network facilities of calls that originate on the network
     facilities of the other carrier."[^1860] Verizon and others argue
     that this provision necessarily excludes interexchange traffic from
     the scope of section 251(b)(5) because at the time the 1996 Act was
     passed, calls neither originated nor terminated on an IXC's
     network.[^1861] We reject this reasoning because it erroneously
     assumes that Congress intended the pricing standards in section
     252(d)(2) to limit the otherwise broad scope of section 251(b)(5).
     We do not believe that Congress intended the tail to wag the dog.

759. Section 251(b)(5) defines the scope of traffic that is subject to
     reciprocal compensation. Section 252(d)(2)(A)(i), in turn, deals
     with the mechanics of who owes what to whom, it does not define the
     scope of traffic to which section 251(b)(5) applies. Section
     252(d)(2)(A)(i) provides that, at a minimum, a reciprocal
     compensation arrangement must provide for the recovery by each
     carrier of costs associated with the transport and termination on
     each carrier's network of calls that originate on the network of
     the other carrier.[^1862] Section 252(d)(2)(A)(i) does not address
     what happens when carriers exchange traffic that originates or
     terminates on a third carrier's network. This does not mean, as
     Verizon suggests, that section 251(b)(5) must be read as limited to
     traffic involving only two carriers. Rather, it means that there is
     a gap in the pricing rules in section 252(d)(2), and the Commission
     has authority under section 201(b) to adopt rules to fill that gap.

760. We reject Verizon's argument that a telecommunications carrier that
     delivers traffic to an ISP is not eligible for reciprocal
     compensation because the carrier does not "terminate"
     telecommunications traffic at the ISP.[^1863] In the *Local
     Competition Order*, the Commission defined "termination" as "the
     switching of traffic that is subject to section 251(b)(5) at the
     terminating carrier's end office switch . . . and delivery of that
     traffic to the called party's premises."[^1864] As the D.C. Circuit
     suggested in the *Bell Atlantic* decision, "Calls to ISPs appear to
     fit this definition: the traffic is switched by the LEC whose
     customer is the ISP and then delivered to the ISP, which is clearly
     the 'called party.'"[^1865] We agree.[^1866] Consequently,
     ISP-bound traffic is subject to our new intercarrier compensation
     framework.[^1867]

761. We reject opponents' other arguments that the context and history
     of the 1996 Act compel a finding that section 251(b)(5) could not
     be applied to access traffic. Verizon argues, for example, that
     section 251(g) demonstrates that Congress did not intend to
     displace the existing access pricing regime.[^1868] This argument
     ignores that Congress preserved the access regime only "until such
     restrictions and obligations are explicitly superseded by
     regulations prescribed by the Commission."[^1869] As noted above,
     we find that section 251(g) actually supports a finding that
     section 251(b)(5) is broad enough to cover access traffic. Verizon
     also argues that the reference to reciprocal compensation in the
     competitive checklist in section 271,[^1870] which was designed to
     ensure that local markets are open to competition, somehow shows
     that Congress intended to limit the scope of section 251(b)(5) to
     local traffic.[^1871] We do not see how this argument sheds any
     light on the scope of section 251(b)(5). Congress no doubt included
     the reference to reciprocal compensation in section 271 because
     section 251(b)(5) applies to local traffic, a point that no one
     disputes. That does not suggest, however, that section 251(b)(5)
     applies *only* to local traffic.

762. We need not respond to every other variation of the argument that
     the history and structure of the Act somehow demonstrate that
     section 251(b)(5) does not apply to access traffic. At best, these
     arguments show that one plausible interpretation of the statute is
     that section 251(b)(5) applies only to local traffic, a view that
     the Commission embraced in the *Local Competition First Report and
     Order*. These arguments do not persuade us, however, that this is
     the only plausible reading of the statute. Moreover, many of the
     same arguments based on the history and context of the adoption of
     section 251 to limit its scope to local traffic were rejected by
     the D.C. Circuit in the context of section 251(c).[^1872] We find
     that the better reading of the Act as a whole, in particular the
     broad language of section 251(b)(5) and the grandfather clause in
     section 251(g), supports our view that the transport and
     termination of all telecommunications exchanged with LECs is
     subject to the reciprocal compensation regime in sections 251(b)(5)
     and 252(d)(2).

763. The approach we adopt here provides a sound basis for comprehensive
     reform, and we thus decline to adopt alternative proposals. On one
     hand, we note that some commenters advocate that the Commission
     adopt an intercarrier compensation rate or cap of \$0.0007 per
     minute of use for all traffic.[^1873] To implement this reform
     proposal, parties have suggested that it would likely be necessary
     for the Commission to preempt state regulation of intrastate access
     charges.[^1874] We believe that such a significant step is not
     currently warranted, and elect instead to allow states to continue
     setting rates for intrastate traffic, as well as permitting them to
     set rates for traffic subject to federal jurisdiction, pursuant to
     our methodology. We fully expect the new pricing methodology to
     achieve the goals of our continuing intercarrier compensation
     reform. On the other hand, some parties contend that the Commission
     should leave matters of intrastate intercarrier compensation reform
     entirely to the states.[^1875] These proposals evidence a pre-1996
     Act worldview, however. Given the tools that the 1996 Act put at
     our disposal, we find it possible to move forward with truly
     comprehensive intercarrier compensation reform under an approach
     which still provides for a state role.

764. We note that, in the *Local Competition First Report and Order*,
     the Commission observed that section 251(b)(5) does not address
     charges payable to a carrier that originates traffic and concluded,
     therefore, that such charges were prohibited under that provision
     of the Act.[^1876] Because we elect to have the states set rates
     under section 251(b)(5), pursuant to our methodology, we find that
     retention of originating charges would be inconsistent with that
     statutory scheme and our new regulatory approach. Accordingly, we
     find that originating charges for all telecommunications traffic
     subject to our comprehensive intercarrier compensation framework
     must be eliminated at the conclusion of the transition to the new
     regime. We recognize, however, that changes to originating access
     charge rates may raise issues distinct from terminating charges.
     Moreover, several parties urge the Commission to delay any changes
     to originating charges.[^1877] For these reasons, we ask parties to
     comment on the appropriate transition for eliminating originating
     access charges in the accompanying Further Notice.[^1878] Although
     we ask parties to comment on the appropriate transition for
     eliminating originating access charges, we clarify that, under the
     transitional mechanism we adopt today, carriers are not permitted
     to increase any of their current rates, including their originating
     access rates.[^1879] Thus, both interstate and intrastate
     originating switched access rates will remain capped at current
     levels until further action by the Commission addressing the
     appropriate transition for this traffic. This approach is
     consistent with our transition of terminating rates[^1880] and with
     our goal of eliminating originating access charges at the
     conclusion of the transition to the new regime.

#### Legal Authority for the Transition

765. Although we comprehensively reform intercarrier compensation, we do
     not flash cut to our new regime, but provide for a measured
     transition.[^1881] The goal of this transition is to avoid overly
     rapid rate changes for consumers while providing carriers with
     sufficient means to preserve their financial integrity as we move
     to the new intercarrier compensation regime.[^1882] For many of the
     same reasons that we have authority to adopt comprehensive reform,
     we find that the Commission has clear authority to establish such a
     transitional structure to serve as a glide path to the new
     methodology we have developed in this order.

766. We find it reasonable to adopt a transition plan under these
     circumstances. As the D.C. Circuit has recognized, avoiding "market
     disruption pending broader reforms is, of course, a standard and
     accepted justification for a temporary rule,"[^1883] and here
     temporary rules setting forth a glide path are needed to mitigate
     potentially adverse rate or revenue effects that may be caused by
     our comprehensive intercarrier compensation reform, including the
     elimination of implicit universal service subsidies in those rates.
     Therefore, the Commission's exercise of its authority to create a
     transition plan is especially appropriate here, where the
     Commission is acting to reconcile the Act's "implicit tension
     between . . . moving toward cost-based rates and protecting
     universal service."[^1884] Not surprisingly, most commenters have
     affirmatively recognized the need for a transitional regime.[^1885]
     Indeed, every major plan submitted to us in this proceeding,
     whether the Missoula plan,[^1886] the ICF plan,[^1887] Verizon's
     plan,[^1888] AT&T's plan,[^1889] or the plan from CBICC,[^1890]
     ARIC,[^1891] NARUC,[^1892] or NASUCA,[^1893] has called for the
     Commission to establish an orderly transition period. We take heed
     of these commenters and of our statutory responsibilities to ensure
     a smooth transition to the new regime by setting forth a
     multi-stage transition plan as part of our comprehensive reform of
     intercarrier compensation.

767. Moreover, we have several independent sources of legal authority to
     adopt the transition plan established in this order. For one,
     section 251 explicitly contemplates our authority to adopt a
     transitional scheme with regard to access charges. We agree with
     the United States Court of Appeals for the District of Columbia
     Circuit that section 251(g) created a "transitional enforcement
     mechanism"[^1894] preserving the access charge regimes that
     pre-dated the 1996 Act "until . . . explicitly superseded by
     regulations *prescribed by the Commission*."[^1895] Thus, section
     251(g), by its terms, anticipates that the Commission may take
     action to end the regimes grandfathered by section 251(g), and
     inherent within the power to supersede the grandfathered access
     regime is the lesser power to prescribe regulations that determine
     *how* to transition to a cost-based pricing mechanism---a power
     that we have twice employed in the past to reduce access charges
     without explicitly superseding that regime.[^1896]

768. In addition, as the Supreme Court has further held, the Commission
     has authority to prescribe the requisite pricing methodology that
     the States will apply in setting rates under section
     252(d)(2).[^1897] Consistent with our authority, the Commission
     here is providing for a transitional regime in the public interest
     to smooth the transition to the new pricing standard adopted by
     this order. The goal of this transition is to allow gradual changes
     to consumer rates while providing carriers with sufficient means to
     preserve their financial integrity as we move to the new
     intercarrier compensation regime.

769. Significantly, as discussed in greater detail above, although we
     elect to rely on the sections 251(b)(5) and 252(d)(2) framework for
     reform, that does not affect the Commission's jurisdiction over
     traffic or services otherwise subject to federal authority. [^1898]
     With respect to interstate services, the Act has long provided us
     with the authority to establish just and reasonable "charges,
     practices, classifications, and regulations."[^1899] The Commission
     also has authority over the rates of CMRS providers pursuant to
     section 332 of the Act.[^1900] The Commission thus retains full
     authority to adopt transition plans for traffic and services
     subject to federal jurisdiction, even when it is within the
     sections 251(b)(5) and 252(d)(2) framework. Because we re-affirm
     our findings concerning the interstate nature of ISP-bound traffic,
     it follows that such traffic falls under the Commission's section
     201 authority preserved by the Act.[^1901] This conclusion is
     reinforced by section 251(i) of the Act. As the Commission
     explained in the *ISP Remand Order,* section 251(i) "expressly
     affirms the Commission's role in an evolving telecommunications
     marketplace, in which Congress anticipates that the Commission will
     continue to develop appropriate pricing and compensation mechanisms
     for traffic that falls within the purview of section 201."[^1902]
     It concluded that section 251(i), together with section 201, equips
     the Commission with the tools necessary to keep pace with
     regulatory developments and new technologies.[^1903] When read
     together, these statutory sections preserve the Commission's
     authority to address new issues that fall within its section 201
     authority over interstate traffic, including compensation for the
     exchange of ISP-bound traffic. Consequently, in the *ISP Remand
     Order*, the Commission properly exercised its authority under
     section 201(b) to issue interim pricing rules governing the payment
     of compensation between carriers for ISP-bound traffic.[^1904]

770. This result is consistent with the D.C. Circuit's opinion in *Bell
     Atlantic*, which concluded that the jurisdictional nature of
     traffic is not dispositive of whether reciprocal compensation is
     owed under section 251(b)(5).[^1905] It is also consistent with the
     court's *WorldCom* decision, in which the court rejected the
     Commission's view that section 251(g) excluded ISP-bound traffic
     from the scope of section 251(b)(5), but made no other
     findings.[^1906] Finally, this result does not run afoul of the
     Eighth Circuit's decision on remand from the Supreme Court in the
     *Iowa Utilities Board* litigation, which held that "the FCC does
     not have the authority to set the actual prices for the state
     commissions to use" under section 251(b)(5).[^1907] At the time of
     that decision, under the *Local Competition First Report and
     Order*, section 251(b)(5) applied only to local traffic. Thus, the
     Eighth Circuit merely held that the Commission could not set
     reciprocal compensation rates for local traffic. The court did not
     address the Commission's authority to set reciprocal compensation
     rates for interstate traffic.[^1908] In sum, the Commission plainly
     has authority to establish pricing rules for interstate traffic,
     including ISP-bound traffic, under section 201(b), and that
     authority was preserved by section 251(i).

### Additional Costs Standard 

771. We now turn to reconsideration of our "additional costs" standard
     for implementing section 252(d)(2).  Before describing our new
     standard, we briefly review the relevant statutory language and the
     Commission\'s implementation of the "additional costs" standard in
     the *Local Competition First Report and Order*.  We then explain
     the importance of incremental cost in regulated pricing.  Next we
     examine the incremental cost of call termination on modern
     networks.  Finally we describe in detail the "additional costs"
     standard we adopt in this order.

#### Background

772. Section 252(d)(2)(A) sets forth the standard that state
     commissions, in arbitrating interconnection disputes, should apply
     in setting the "charges for transport and termination of traffic."
     That section states that "\[f\]or the purposes of compliance ...
     with section 251(b)(5), a State commission shall not consider the
     terms and conditions for reciprocal compensation to be just and
     reasonable unless (i) such terms and conditions provide for the
     mutual and reciprocal recovery by each carrier of costs associated
     with the transport and termination on each carrier's network
     facilities of calls that originate on the network facilities of the
     other carrier; and (ii) such terms and conditions determine such
     costs on the basis of a reasonable approximation of the additional
     costs of terminating such calls."[^1909] Section 252(d)(2)(B)
     provides that the preceding standard "shall not be construed (i) to
     preclude arrangements that afford the mutual recovery of costs
     through offsetting of reciprocal obligations, including
     arrangements that waive mutual recover (such as bill and keep
     arrangements); or (ii) to authorize the Commission or any State
     commission to engage in any rate regulation proceedings to
     establish with particularity the additional costs of transporting
     or terminating calls, or to require carriers to maintain records
     with respect to the additional costs of such calls."[^1910]

773. In the *Local Competition First Report and Order*, the Commission
     adopted implementing rules interpreting section 252's pricing
     standards for interconnection and UNEs (section 252(d)(1)), and for
     reciprocal compensation (section 252(d)(2)). In setting the pricing
     methodology for interconnection and UNEs, the Commission directed
     the states to employ a forward-looking, long-run average
     incremental cost methodology, known as TELRIC.[^1911] The TELRIC
     methodology assumes that the relevant increment of output is all
     current and reasonably projected future demand, (i.e., it is
     designed to calculate the total cost of building a new, efficient
     network).[^1912] The Commission found that TELRIC rates should also
     include a reasonable allocation of forward-looking common costs,
     including overhead costs. Thus, TELRIC calculates the long-run
     average incremental cost of a network element. In setting the
     pricing methodology for reciprocal compensation, the Commission
     concluded that the statutory pricing standards for interconnection
     and UNEs (section 252(d)(1)), and for transport and termination of
     traffic (section 252(d)(2)), were "sufficiently similar" to permit
     the use of the same TELRIC methodology for establishing rates under
     both statutory provisions.[^1913]

774. Market developments since the adoption of the *Local Competition
     First Report and Order* demonstrate that application of the TELRIC
     methodology to reciprocal compensation has led to "excessively high
     reciprocal compensation rates."[^1914] More specifically, following
     the Commission's order, certain carriers began designing business
     plans to take advantage of above-cost reciprocal compensation
     payments by becoming a net recipient of local traffic. The most
     prevalent example of regulatory arbitrage for reciprocal
     compensation is ISP-bound traffic where the Commission found
     evidence that "CLECs appear to have targeted customers that
     primarily or solely receive traffic, particularly ISPs, in order to
     become net recipients" of reciprocal compensation payments.[^1915]
     As a result, the Commission has found that reciprocal compensation
     rates "do not simply compensate the terminating network, but also
     appear to generate profits for each minute that is terminated, thus
     creating a potential windfall."[^1916] In short, the evidence
     indicates that application of the TELRIC methodology to reciprocal
     compensation has not led to rates that accurately reflect a
     carrier's "additional costs" as the Commission initially envisioned
     and Congress intended. Rather, the Commission's existing pricing
     standard has led to rates that not only vary significantly among
     states,[^1917] but are generally too high, and which ultimately
     create regulatory arbitrage opportunities. Based on this evidence,
     and as detailed further below, we therefore conclude that we need
     to revise the current reciprocal compensation pricing methodology
     to align our standard more closely with the statutory text and with
     economic theory to eliminate, as far as possible, opportunities for
     regulatory arbitrage.

#### The Importance of Incremental Cost In Regulated Pricing

775. To provide a framework for our reconsideration of the proper
     "additional costs" methodology, we begin with a brief overview of
     long-standing principles for public utility pricing. As explained
     below, we believe the traditional economic definition of
     incremental cost, as applied to multiproduct firms, is most
     appropriate for setting intercarrier compensation rates. The
     Commission's existing TELRIC standard governing reciprocal
     compensation deviates from this more efficient version of
     incremental cost, and is likely to lead to rates that significantly
     exceed efficient levels. We also consider evidence in the record
     concerning costs of switches and fiber.

776. In economic theory generally and in its application to regulation,
     the relationship of price and marginal cost is of fundamental
     importance. Marginal cost can be simply defined as the rate of
     change in total cost when output changes by an infinitesimal unit.
     In economics, the term incremental cost refers to a discrete change
     in total cost when output changes by any non-infinitesimal amount,
     which might range from a single unit to a large increment
     representing a firm's entire output.[^1918] The terms additional
     costs and avoidable costs are commonly used to refer to incremental
     costs resulting from an increase or a decrease in output
     respectively.[^1919]

777. In a competitive market, it is assumed that both consumers and
     producers independently will choose outputs to purchase or to
     supply on the basis of a market price. In standard economic
     analysis, this price is determined by the intersection of a
     downward sloping demand function, which represents consumer
     valuations for additional units of consumption, and an upward
     sloping supply function, which represents the marginal cost of
     supplying an additional unit. The competitive price is efficient in
     the following sense. At any other price, consumer demands would no
     longer be equal to producer supply, and market transactions would
     be limited to the smaller of the two terms.[^1920] At this level of
     output, consumers would value an additional unit of output more
     than the cost of producing it as determined by the marginal cost
     function. Hence both consumers and producers could be made better
     off by increasing output by a small amount.[^1921] When price is
     equal to the competitive price, no alternative price can be found
     such that both consumer and producers are better off.

778. *Forward-looking versus Historical Cost:* When prices are
     determined in a regulated market, similar reasoning applies. In
     this context, there is a large amount of literature on practical
     rules and procedures that must be considered to achieve an outcome
     that is as close as possible to a fully efficient one.[^1922] The
     cost of any economic resource is equal to its value in the best
     alternative use. The cost which a regulated firm incurs in
     producing a particular output is therefore equal to the value of
     the economic resources that are used to produce it, and which are
     therefore no longer available for the production of alternative
     goods and services. It follows that from the standpoint of economic
     efficiency, the only costs that are relevant in pricing decisions
     of a regulated firm are current or future costs, and that
     historical costs can be ignored.[^1923] We acknowledge that
     economists and industry experts have often debated the relative
     merits of forward-looking (or reproduction) cost versus historical
     (or original) capital cost in administering rate-of-return
     regulation,[^1924] and that regulators, including state regulators
     and this Commission, have continued to use historical cost in rate
     setting for smaller, primarily rural telephone companies.
     Nevertheless, since the adoption of the *Local Competition First
     Report and Order,* the Commission has consistently concluded that
     it believes that forward-looking costs are the most appropriate
     measure of cost.[^1925] In this order, we reaffirm our conclusion
     that forward-looking costs should form the basis for regulation in
     a uniform intercarrier compensation regime.

779. *Short-Run versus Long-Run Incremental Cost:* Economists have also
     debated whether it is appropriate to use short-run or long-run
     incremental cost as a guide for regulatory pricing.[^1926]
     Short-run incremental cost refers to the cost of an increment of
     demand when some inputs to production are in fixed supply. Long-run
     incremental cost refers to the cost of an increment when all inputs
     are variable. In order to set prices so as to maximize economic
     efficiency at any particular point in time, it is clear that
     short-run incremental cost is the appropriate concept.[^1927] For
     example, if an airline carrier has empty seats for a particular
     scheduled flight, then it would make sense to sell capacity for
     those seats at any price that would recover the small additional
     costs of fuel and amenities for an additional passenger. Pricing
     based on short-run incremental cost, however, necessarily implies
     that prices can be adjusted freely and perhaps continuously during
     the day.[^1928] Moreover, in a regulatory context, such flexibility
     is likely infeasible.

780. Short- or intermediate-run costs might also be advocated on
     practical grounds, since some productive inputs (e.g., poles and
     conduits) can have extremely long lives. Nevertheless, regulators
     have traditionally relied on long-run incremental costs rather than
     short-run incremental costs in setting regulated prices. First,
     setting prices on the basis of short-run incremental cost may mean
     that a carrier would not recover its average total cost of
     investment over the life of the asset.[^1929] Second, to the extent
     that forward-looking costs are used, long-run incremental costs are
     more naturally and easily accommodated, since a forward looking
     cost study can legitimately assume that all inputs are variable. In
     the *Local Competition First Report and Order*, the Commission, in
     adopting its TELRIC methodology, explained that "\[t\]his 'long
     run' approach ensures that rates recover not only the operating
     costs that vary in the short run, but also the fixed investment
     costs that, while not variable in the short term, are necessary
     inputs directly attributable to providing the element."[^1930] We
     reaffirm here the Commission's decision in the *Local Competition
     First Report and Order* that long-run incremental cost rather than
     short-run incremental cost is the appropriate cost concept. [^1931]

781. *Peak Load Pricing*: Closely related to the question of short-run
     versus long-run costing is the issue of peak load pricing. When
     demand varies systematically by time of day, day of the week, or
     over longer periods, there may be periods of time when there is
     significant excess capacity, since productive inputs clearly cannot
     vary with such frequency. In such cases, economic efficiency might
     require that prices should vary by time or day or over longer
     periods even in the long run.[^1932] For example, many wireless
     telephone carriers offer free minutes of usage during weekends or
     evenings. Although these arguments are indisputable, it has proven
     difficult in practice to incorporate peak load pricing principles
     into regulated rate proceedings.[^1933] Accordingly, we conclude,
     as the Commission did in the *Local Competition First Report and
     Order,* that we should not require peak-load pricing as part of an
     intercarrier compensation regime, although we affirm that carriers
     should be free to voluntarily negotiate agreements including peak
     pricing principles.

782. *Common Costs*: Telecommunications carriers are multiproduct firms
     which provide a large array of services to different groups of
     consumers. Within the category of traditional telephony, these
     services include call origination, call termination, local
     transport, and either access to long distance transport or long
     distance service through an affiliated carrier. As networks evolve,
     the number of services that a telecommunications network can
     provide is rapidly expanding to include Internet access and other
     data services and, in some cases, video distribution. Many of these
     services share common facilities.[^1934] For example, a copper loop
     can be used to provide analog voice service as well as data service
     using DSL technology. The cost of the loop is therefore common to
     both voice and DSL services. The incremental cost of voice service,
     assuming that DSL is already provided, therefore does not include
     any of the long run incremental cost of the loop itself. Similarly,
     the incremental cost of DSL, assuming voice is already provided,
     includes only that portion of the loop cost that may be required to
     condition the loop to meet the higher quality standards that may be
     required for data transmission.

783. *Methodology for Computing Incremental Cost in Multiproduct Firms:*
     Common cost and its relationship to incremental cost in
     multiproduct firms can be more precisely defined as follows using
     an analysis developed by Faulhaber, Baumol, and others.[^1935]
     Under this approach, one imagines a multiproduct firm in which a
     forward looking cost function is known, which allows one to compute
     the "stand alone cost" of any possible subset of products. For
     example, if the set of products is indexed by the set N = {1
     , . . . , n}, then the stand alone cost of the entire firm can be
     represented by the value C(N). The incremental cost of any
     individual product j contained in N can then be represented by the
     value IC(j) = C(N) -- C(N -- j), where C(N -- j) represents the
     stand alone cost of producing every product in the set N except
     product j. Under this definition, the incremental cost may be
     viewed as the *additional costs* of adding product j to a firm
     currently producing products (N -- j). Alternatively, it may be
     viewed as the cost that may be *avoided* if the firm, currently
     producing products 1 through n, decides not to produce product j.
     The common cost for the firm as a whole is then equal
     to![](media/image1.wmf){width="1.1388888888888888in"
     height="0.3888888888888889in"}. When there is significant sharing
     of facilities used in providing groups of services to customers,
     common costs are typically positive, and may be a significant
     portion of the firm's total cost.

784. *Multiproduct Incremental Cost versus TELRIC:* In the *Local
     Competition First Report and Order*, the Commission adopted a
     pricing methodology, which it called Total Element Long Run
     Incremental Cost or TELRIC. Under the TELRIC methodology, prices
     for UNEs and interconnection would be determined by estimating the
     forward-looking cost of individual network elements, which the
     Commission defined as "physical facilities of the network, together
     with the features, functions, and capabilities associated with
     those facilities."[^1936] In adopting the TELRIC methodology, the
     Commission determined that forward-looking costs should be "based
     on the least cost, most efficient network . . . technology,"
     assuming current wire center locations.[^1937] It further
     determined that the relevant increment should "be the entire
     quantity of the network element provided."[^1938] The Commission
     concluded that "forward-looking common costs shall be allocated
     among elements and services in a reasonable manner ... . "[^1939]
     In choosing to estimate the forward-looking cost of the entire
     network element, the Commission acknowledged that, when a
     requesting carrier leased access to that element, it would have
     exclusive control over that element.[^1940]

785. With respect to reciprocal compensation, the Commission determined
     that "the 'additional cost' of terminating a call . . . primarily
     consists of the traffic-sensitive component of local
     switching."[^1941] Nevertheless, the only non traffic-sensitive
     cost of the local switch that the Commission required states to
     exclude was the cost of line ports.[^1942] Similarly, in the rules
     that the Commission adopted regarding "shared transmission
     facilities between tandem switches and end offices," the Commission
     allowed the full forward-looking cost of those facilities to be
     recovered through usage sensitive charges.[^1943] Thus, with the
     exception of requiring recovery of the cost of line ports through
     flat-rated charges, the Commission's TELRIC rules permitted the
     full forward-looking cost of the local switch, tandem switch, and
     shared interoffice transmission facilities, including a reasonable
     allocation of common costs, to be recovered through usage-based
     charges. In effect, the Commission's TELRIC methodology permitted
     average-cost pricing using a forward-looking cost methodology.

786. The TELRIC methodology thus differs significantly from the
     definition of incremental cost for multiproduct firms proposed by
     Faulhaber and others. First, unlike TELRIC, the traditional
     economic approach for determining the incremental cost of a single
     service excludes all common costs. Second, although the TELRIC
     methodology is essentially an average cost methodology, the
     traditional economic approach focuses on identifying the additional
     forward-looking cost that a network would incur if it provided an
     additional service---in this case call termination. Under the
     traditional economic definition, the incremental cost of call
     termination would be determined by estimating the stand alone cost
     of a network which incorporates all existing services except call
     termination (including call origination, switching, etc.) and then
     subtracting this amount from a comparable estimate of the total
     cost of providing all the same existing services, including call
     termination. As should be obvious, the incremental cost of call
     termination under the traditional economic definition should be
     significantly lower than that calculated under a TELRIC
     methodology.

787. *The Relevance of Multi-part Pricing:* One common criticism of
     incremental cost pricing is that it may not permit a firm to
     recover its total costs, particularly if there are significant
     common costs.[^1944] Economists have pointed out, however, that
     multi-part pricing regimes can potentially lead to more efficient
     outcomes than uniform prices set equal to either marginal cost or
     average cost. [^1945] For example, if the firm is able to charge a
     fixed monthly fee and a variable usage charge, then it is possible
     for the firm to set the usage charge at or close to marginal cost
     and recover any residual costs through the fixed charge. In this
     case, the regulator must take account of both subscription and
     usage elasticities in order to minimize the possibility that higher
     fixed fees will cause some subscribers to drop off the
     network.[^1946] We note that, in the access charge regime, the
     Commission recognized the efficiencies associated with multi-part
     pricing, even if it failed to reduce usage-based charges to
     marginal or incremental cost.

#### The Incremental Cost of Call Termination on Modern Networks 

788. We now consider the evidence in the record concerning the
     incremental cost of terminating calls on modern telecommunications
     networks. We note at the outset that there appear to be no cost
     studies or analyses in the record that attempt to estimate the
     termination costs using Faulhaber's definition of incremental cost.
     Thus, we would expect the cost estimates in the record to be
     significantly lower if they had been calculated using Faulhaber's
     definition.

789. We consider first evidence concerning the cost of termination on
     modern circuit switches. We note that, in 1996, when the Commission
     adopted the TELRIC methodology, circuit switches and fiber optic
     transmission facilities were generally considered the "least-cost,
     most efficient" currently available technology. And it appears that
     state commissions in interconnection arbitrations analyzed the
     forward-looking costs of circuit switches and fiber optic
     transmission facilities in developing TELRIC rates. Sprint Nextel
     filed an *ex parte* in which it analyzed state UNE rates for
     unbundled switching and common transport.[^1947] Sprint Nextel
     reports that the national weighted average price per minute for
     unbundled local switching was \$0.00058 (with individual rates
     ranging from a low of \$0.00004 to a high of \$0.0061). Similarly
     the national weighted average price per minute for common transport
     was \$0.00057 (with individual rates ranging from a low of
     \$0.00010 to a high of \$0.00727). Sprint Nextel further observes
     that "the rates for companies in the survey with a relatively small
     number of lines were often lower than the rates for companies with
     a large number of lines, indicating scale and scope economies do
     not significantly affect the cost of traffic termination."[^1948]
     As Sprint Nextel notes, these rates are all based on the TELRIC
     methodology and thus represent estimates of average,
     traffic-sensitive forwarding-looking costs, plus an allocation of
     common cost and overheads.[^1949] These estimates, by definition,
     will significantly exceed incremental cost estimates using the
     Faulhaber definition; therefore they provide an upper bound on the
     rates that may result under a Faulhaber approach to incremental
     cost.

790. Some additional evidence concerning the incremental cost of
     terminating calls on modern circuit switches can be gleaned from a
     declaration filed by three economists in support of the
     Intercarrier Compensation Forum (ICF) plan. [^1950] The economists
     contend that modern circuit switches are to a large extent
     non-traffic sensitive.[^1951] According to the authors, whereas
     earlier generations of switching technologies had large shared
     resources that could be commandeered by any line needing to place
     or receive a telephone call, most of the resources in a digital
     switch are dedicated to individual lines through line ports and
     trunk ports.[^1952] In addition, according to the authors, because
     of the "massive increases in computing power offered by modern
     microchips," modern circuit switches include "call processing
     capacity . . . \[that\] is adequate to serve all reasonably offered
     demand."[^1953] In other words, modern switches are designed to be
     non-blocking, which would suggest that the incremental cost of
     termination is zero. The declaration thus concludes that the
     incremental cost of call termination on modern circuit switches
     should be de minimis.

791. The economists' declaration further argues that the incremental
     costs of adding additional fiber optic transmission capacity
     similarly are low. They contend that fiber optic technologies have
     large fixed costs associated with supporting structures (poles,
     trenches and conduits) and relatively low incremental costs of
     increasing the capacity of each fiber cable by installing improved
     laser transmission equipment (which in many cases is based on
     technological advances made subsequent to the initial fiber
     deployment). For these reasons, they conclude that "once a fiber
     cable has been laid on a route, the costs of increasing its
     transmission capacity are relatively small, so extra minutes of
     demand result in very little incremental costs. We note that this
     analysis suggests, at a minimum, that the incremental cost of
     adding capacity is significantly less---and likely orders of
     magnitude less---than the forward looking average cost of capacity,
     as estimated under TELRIC.

792. AT&T submitted evidence that attempts to estimate the incremental
     cost of a modern softswitch.[^1954] AT&T maintains that, to
     estimate the incremental cost of a softswitch, it is necessary to
     estimate two parameters: the total investment associated with a
     softswitch, and the percentage of this investment that is
     traffic-sensitive.[^1955] Using what it claims are "conservative"
     estimates, AT&T first compares the estimated investment cost per
     line of a Class 5 circuit switch with the estimated investment cost
     per line of a modern softswitch and finds that the investment cost
     per-line of a softswitch is significantly lower.[^1956] Although it
     estimates that the investment cost of a Class 5 switch is
     approximately \$100 per line, it finds that the likely investment
     cost of a softswitch is between \$34 and \$80 per line.[^1957] AT&T
     then considers the likely percentage of the investment costs per
     line that are traffic-sensitive, and concludes that, depending on
     the particular softswitch, the traffic-sensitive costs are likely
     to be between zero and 20 percent of the total investment cost of
     the switch.[^1958] Using the higher estimate of 20 percent
     traffic-sensitive costs, and assuming that each line carries an
     average of 1400 minutes a month, AT&T derives a traffic sensitive
     incremental cost per minute of between \$0.00010 and
     \$0.00024.[^1959] For the other softswitch that AT&T considers,
     however, the traffic-sensitive incremental costs of termination
     would be zero. Although we do not necessarily accept the precise
     estimates contained in AT&T's *ex parte* letter, we note that its
     analysis suggests that the incremental traffic-sensitive costs of
     modern softswitches are likely to be significantly lower than those
     of circuit switches and possibly zero, both because the investment
     cost per line is lower and because the percentage of
     traffic-sensitive costs to total costs is lower for modern
     softswitches.

793. Windstream Communications, Inc. and NuVox subsequently filed ex
     parte letters criticizing AT&T's analysis of the traffic sensitive
     costs of a softswitch,[^1960] and AT&T filed a response.[^1961]
     Essentially, both Windstream and NuVox criticize specific elements
     of AT&T's analysis. In addition, Windstream argues that it would be
     grossly inefficient for a rural carrier to immediately replace
     circuit switching equipment with softswitch technology, while NuVox
     contends that even a forward-looking network design would not
     consist entirely of soft switches. Significantly, NuVox criticizes
     AT&T for failing to apply the TELRIC methodology, and NuVox
     recalculates AT&T's estimates using TELRIC. Because we expressly
     reject use of the TELRIC methodology for purposes of setting
     reciprocal compensation rates, we conclude that many of the NuVox
     challenges are moot. To the extent that NuVox and Windstream are
     challenging cost assumptions that may be applied by states pursuant
     to our new additional costs methodology, such issues may be raised
     for consideration by the state commission during the cost
     proceeding to establish the uniform reciprocal compensation rate.
     We feel compelled, however, to point out a few of the most critical
     mistakes and misconceptions contained in the Windstream and NuVox
     ex parte letters.

794. First, Windstream argues that it is somehow inappropriate to
     consider the additional costs of softswitches in setting
     termination rates because it would be economically infeasible for
     an incumbent LEC to replace all its existing circuit switches with
     softswitches.[^1962] This argument fundamentally misconstrues the
     purpose of a forward-looking cost methodology. The adoption of a
     forward-looking cost standard does not imply in any way that
     existing carriers should replace fully functional plant and
     equipment simply because a more recent vintage of replacement
     equipment is available. Forward-looking costs are simply a measure
     of the economic value of future investments, and in a competitive
     marketplace, these values should determine the appropriate
     investment decisions regarding replacement of existing plant. More
     importantly, these values should be used as an appropriate guide in
     setting efficient prices for the utilization of existing plant and
     equipment. Second, although both Windstream and NuVox raise
     objections to AT&T's cost analysis, neither they nor AT&T actually
     attempt to estimate the incremental cost of call termination. For
     example, both Windstream and NuVox argue that AT&T's estimates of
     the cost of investment in forward-looking softswitch technologies
     are flawed because of the assumptions made about the number of
     lines served per switch.[^1963] Although this is may be a valid
     issue, as it relates to the extent to which softswitch technologies
     are scalable for deployment in wire centers with different numbers
     of final customers, the dispute does not really address the issue
     of the incremental cost of call termination. Third, NuVox claims
     that the absence of line cards in softswitches is evidence that all
     switch costs are traffic sensitive.[^1964] This analysis ignores
     the potentially large fixed costs associated with a softswitch that
     are not related to line ports. Since softswitches resemble small
     computers, the appropriate analogy for estimating incremental cost
     would be the cost of additional memory cards, which could be
     inserted into the CPU. Fourth, NuVox maintains that both common
     costs to the firm as a whole and land and building costs associated
     with switching equipment should be included in any traffic
     sensitive cost computed for purposes of reciprocal
     compensation.[^1965] As explained above, we conclude that common
     costs should no longer be included in calculating the incremental
     cost of call termination.

795. Another approach to estimating the incremental cost of call
     termination is to examine the technology of next generation
     networks in which voice calls are carried on the same network
     platform as data and video services delivered to the same customer.
     Telecommunications carriers are currently deploying such networks
     at a rapid pace, although the transition to the new technology is
     far from complete. Nevertheless, most experts believe that IP
     technologies will be used to deliver the predominant share of voice
     and data traffic within a few years. Packet technologies, and the
     resulting commingling of voice and data traffic, make possible a
     dramatic reduction in the cost of originating and terminating voice
     traffic in the network. In addition, although the costs of circuit
     based switching technologies are difficult to quantify using public
     data sources, the Internet itself provides a variety of sources
     which can be used to provide at least a rough estimate of the costs
     associated with a next generation network.

796. Consider the case of a single customer who subscribes to a next
     generation network offering a full range of voice, video and data
     services. Suppose that this customer makes exactly one voice call
     lasting five minutes during each hour of the busy period (which we
     will unrealistically assume to last for 16 hours every day of the
     month). High quality (ISDN level) voice service requires a channel
     capacity of 64 kbps. Ignoring the possibility of signal
     compression, and making a conservative allowance for packet header
     overhead,[^1966] we assume that the single call per hour requires a
     network capacity of 100 kbps. This capacity requirement translates
     to 12,800 bytes per second, or 0.0000128 Gigabytes to be available
     for the duration of the call.[^1967] Publicly available estimates
     of the cost of serving residential customers on a broadband network
     range from \$0.1 Gigabytes per month to \$0.5 Gigabytes per
     month.[^1968] These estimates include the cost of the servers,
     routers and fiber links necessary to provide service to the
     residential customer, but do not include the substantial cost of
     the local broadband loop.[^1969] The hypothetical consumer
     described above places a demand of 0.000512 Gigabytes per month,
     and using the upper limit on the estimated cost, we estimate a
     monthly incremental cost to the consumer of delivering this level
     of voice service at 0.0256 *cents* per month.[^1970] Under these
     conservative assumptions the cost, on a per-minute basis, would be
     0.00001 *cents* per minute.[^1971] Even if the cost estimates used
     above are wrong by several orders of magnitude, it is clear that
     the cost of voice traffic on a broadband network is vanishingly
     small.[^1972] Although we are not directing the states to consider
     the incremental cost of terminating voice telecommunications on
     such next generation networks,[^1973] we find that, as carriers
     move to an all IP broadband world, the incremental costs of
     terminating voice calls should drop dramatically.

#### Reconsideration of Additional Costs Standard 

797. We adopt a new "additional costs" methodology using the traditional
     economic definition of the incremental cost of a service produced
     by a multiproduct firm, rather than continuing to rely on the
     TELRIC methodology.[^1974] The Supreme Court has made clear that an
     "'initial agency interpretation is not instantly carved in stone.
     On the contrary, the agency ... must consider varying
     interpretations and the wisdom of its policy on a continuing
     basis,' for example in response to changed factual circumstance, or
     a change in administrations."[^1975] Consistent with this, the
     Commission, in its 2005 *Intercarrier Compensation FNPRM*,
     solicited comment on whether the Commission should reinterpret
     "additional costs" to mean "incremental cost" in light of the need
     to reform intercarrier compensation due to market
     distortions.[^1976] In response, several commenters supported such
     a proposal noting that the additional incremental cost of
     terminating traffic is de minimis.[^1977] Based on the evidence
     highlighted above and for the reasons set forth below, we revise
     our interpretation of the "additional costs" language in section
     252(d)(2) to mean "incremental costs" as traditionally defined. We
     believe that this conclusion is supported by the economic theory
     discussed above, and represents a more appropriate interpretation
     of the "additional costs" standard than the TELRIC
     methodology.[^1978]

798. As an initial matter, the Commission plainly has the authority to
     revise its interpretation of "additional costs."[^1979] Indeed, the
     Supreme Court has recognized that the phrase "additional costs" is
     ambiguous.[^1980]  Words like additional cost "give ratesetting
     commissions broad methodological leeway,"[^1981] and courts owe
     "substantial deference to the interpretation the Commission accords
     them."[^1982]  The Commission, consistent with its obligation to
     "consider varying interpretations and the wisdom of its policy on a
     continuing basis" now revises its definition of "additional
     costs."[^1983]

799. Revising our interpretation of "additional costs" to follow the
     traditional economic definition of the incremental cost of a
     service is supported by the Commission's interpretation of the term
     "additional costs" in section 224 of the Act. Section 224, which
     addresses the pricing of pole attachments, is the only other place
     in the Act that uses the term "additional costs." The Commission
     consistently has found that the term "additional costs" in section
     224 means incremental cost,[^1984] and that the legislative history
     for section 224 makes clear that Congress intended such a
     result.[^1985] Interpreting the term "additional costs" as used in
     two parts of the Act in the same manner is consistent with the
     "presumption that identical words used in different parts of the
     same act are intended to have the same meaning."[^1986]  

800. In contrast, the statutory pricing standard for reciprocal
     compensation ("additional costs") is not the same as the statutory
     pricing standard for UNEs ("cost" plus "a reasonable
     profit").[^1987] Even though the two statutory provisions may, as
     the Commission found previously, be "similar," our subsequent
     experience indicates that TELRIC is not consistent with the
     "additional costs" standard. First, as discussed above, evidence
     indicates that reciprocal compensation rates based on TELRIC
     methodology were "excessive."[^1988] If reciprocal compensation
     rates truly reflected the incremental "additional costs,"
     regulatory arbitrage should not occur because a carrier would not
     make a profit by recovering its incremental cost. [^1989]

801. Second, TELRIC includes the cost of the "total element" and, as a
     result, measures the long run incremental average cost of the
     switch including common costs and overhead, not just the additional
     costs of using the function to terminate another carrier's traffic.
     In other words, TELRIC measures the *average* cost of providing a
     function, which is not necessarily the same as the *additional*
     costs of providing that function. Because of this, we expect that
     the TELRIC methodology would continue to produce reciprocal
     compensation rates above the true "additional costs" of terminating
     such traffic, in light of evidence that the cost of terminating
     traffic today is low[^1990] and is decreasing even further as
     carriers transition to softswitches[^1991] and ultimately pure
     packet switches. Consistent with our change in methodology, we also
     disavow our finding in the *Local Competition First Report and
     Order* that "only that portion of the forward-looking, economic
     cost of end-office switching that is recovered on a usage-sensitive
     basis constitutes an "additional costs" to be recovered through
     termination charges."[^1992] In particular, as explained above, we
     specifically exclude common costs and overhead allocations from the
     calculation of what constitutes "additional costs" under our new
     pricing methodology.

802. We thus end our reliance on the TELRIC methodology for setting
     reciprocal compensation rates, and instead require that such rates
     be set pursuant to our new incremental cost methodology.[^1993] In
     our Implementation section below, we provide specific guidance to
     the states regarding how to apply this new methodology. We note
     that this Commission takes seriously its responsibility to ensure
     that rates for carriers are just, reasonable, and not confiscatory.
     In this order, we have set in motion mechanisms to help ensure that
     the financial viability of carriers will not be undermined. We feel
     confident that these mechanisms, in combination with the other
     avenues available for carriers to offset declines in access
     revenues, will be sufficient to achieve this result.[^1994]

803. Moreover our decision to adopt a unified intercarrier compensation
     methodology is in no way arbitrary or adopted with any confiscatory
     purpose. In fact, the determinations made in this order reveal just
     the contrary, our decision to raise the cap on SLCs, our referral
     to the Federal-State Joint Board on Separations (Separations Joint
     Board) of the issue of whether to allow additional increases in SLC
     caps in Part V.C below, and our acknowledgment of the ability of a
     carrier to establish entitlement to supplemental universal service
     to help ensure that carriers can maintain their financial
     integrity.[^1995] Although in most cases the rates for intrastate
     and interstate terminating access will drop substantially, that
     alone is not the test for whether a taking has occurred; rather, a
     primary consideration for takings claims is whether the rates
     ultimately adopted will produce a reasonable return sufficient to
     enable a company to maintain its financial integrity.[^1996]

## Implementation

804. In this section, we detail certain implementation items. First, we
     provide guidance to states with regard to their implementation
     responsibilities for the intercarrier compensation regime we adopt
     today. Importantly, this includes setting reciprocal compensation
     rates using the new incremental cost pricing methodology. We also
     provide guidelines for the states' application of the modification
     and suspension provisions of section 251(f)(2) of the Act. We
     explain the need to require symmetrical compensation arrangements
     without any exceptions under section 252(d)(2)(A)(ii) of the Act.
     And we discuss the effect of our intercarrier compensation reforms
     on existing interconnection and commercial agreements. Finally, we
     address the extent to which reduced revenue from carrier-to-carrier
     charges may be replaced through end-user charges or new universal
     service support, where needed.

### Direction to the States

805. We set forth the timeline for states to implement our comprehensive
     reform and adopt an interim, uniform reciprocal compensation rate
     along with a transition plan in section \[III.B.2\] above.  In this
     section, we set forth additional parameters for states to follow in
     implementing the reforms adopted in this order.

#### Setting Final Reciprocal Compensation Rates Based on Incremental Cost

806. Under our new methodology for setting final reciprocal compensation
     rates, states will need to set prices according to a
     forward-looking economic cost study or computer cost model using
     the Faulhaber principles to identify the traffic-sensitive
     incremental cost of transport and termination of traffic.[^1997]
     First, states will need to evaluate a forward-looking economic cost
     analysis of a stand-alone network that performs all functions of a
     modern telecommunications network, including transport and
     termination of other carriers' traffic. Second, states will need to
     evaluate a forward looking economic cost analysis of a stand-alone
     network that performs all the same functions except for the
     transport and termination of other carriers' traffic. Third, states
     must compare the costs of these two networks. The difference
     between the costs of the two networks is the additional costs of
     termination of traffic subject to the "additional costs" standard
     we adopt in this order.[^1998]

807. We offer further guidance regarding specific aspects of these cost
     studies. First, these cost studies must use the least cost, most
     efficient network technology. We find that the least cost, most
     efficient switch today is a softswitch.[^1999] We further find that
     the least cost, most efficient technology for transport is fiber
     optic cable.[^2000] We observe that, when carriers deploy fiber,
     they typically deploy capacity significantly in excess of current
     needs.[^2001]

808. Second, consistent with the traditional economic definition of the
     incremental cost of a service, [^2002] the cost studies must
     exclude all common costs, including overhead costs. Third, all
     non-traffic-sensitive costs must be excluded from the cost
     studies.[^2003] Cost studies using the TELRIC methodology do not
     meet these requirements, given the differences between TELRIC and
     the traditional economic methodology for determining the
     incremental cost of a service discussed above.[^2004] Available
     evidence suggests that the incremental costs of terminating
     traffic, as determined using this methodology, are likely to be
     extremely close to zero.

809. We also require each state to set a single, uniform rate for all
     carriers in that state through their pricing proceedings. We find
     this approach warranted for several reasons. First, softswitches
     are easily scalable, and thus the incremental cost of termination
     does not vary with the number of lines the switch serves. Second,
     because carriers tend to deploy significant excess capacity when
     deploying fiber, the incremental cost of adding traffic is likely
     to approach, or equal, zero. Third, we find that setting a single
     uniform rate for all incumbent LECs and interconnecting carriers in
     a state simplifies the regulatory process, minimizes arbitrage that
     could arise, and reduces the likelihood that unidentifiable traffic
     would remain a problem. Finally, setting rates based on the costs
     of the current, least cost, most efficient technology creates
     incentives for carriers with less efficient networks to migrate
     more quickly to those more efficient technologies.

810. Following the transition, once carriers are charging the final
     uniform reciprocal compensation rate, we establish the following
     default rules regarding the network "edge."[^2005] These default
     rules would not require changes to physical points of
     interconnection, but would simply define functions governed by a
     uniform terminating rate.[^2006]

-   For every call, the calling party service provider (e.g., the
    calling party's LEC for a local call or the calling party's IXC for
    a long distance call) is responsible for the transmission and
    routing of the call to the network edge of the called party service
    provider.

-   The calling party service provider may fulfill its responsibility
    for the transmission and routing of a call to the called party
    service provider network edge via its own facilitates and services,
    the facilities and service of another entity (including the called
    party's service provider), or any combination.

-   The calling party service provider is also responsible for the
    payment of the uniform terminating rate to the called party service
    provider. The called party service provider is responsible for
    performing all network functions to deliver traffic from the network
    edge to the called party, including dedicated transport, common
    transport, tandem switching, end office switching, and SS7
    messaging.

-   The reciprocal compensation regime of section 251(b)(5) will apply
    to traffic from the called party service provider network edge to
    the called party.

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-   The called party service provider's network edge is the location of
    its end office, MSC, point of presence, or trunking media gateway,
    which PSTN routing conventions (e.g., NPAC or LERG) associate with
    the called party telephone number unless that location subtends a
    tandem switched owned or controlled by the called party service
    provider, in which case that tandem is the network edge for that
    call.  A service provider that utilizes a tandem as its edge may
    require, upon reasonable request consistent with standard industry
    network interconnection principles, that calling party service
    providers groom their traffic onto segregated trunk groups.

-   The called party service provider must either permit interconnection
    at its edge for purposes of exchanging traffic with the calling
    party service provider or provide transport at no charge to that
    edge from a location in the same LATA where it does permit such
    interconnection.

-   The calling party service provider may at its sole discretion choose
    whether to interconnect directly or indirectly with the called party
    service provider.

-   Notwithstanding the forgoing, for local and extended area service
    (EAS) calls made by a rural rate-of-return incumbent LEC's customer
    to a non-rural carrier's customer, the rural rate-of-return
    incumbent LEC will be responsible for transport to a non-rural
    terminating carrier's point of presence (POP) when it is located
    within the rural rate-of-return incumbent LEC's service area. When
    the non-rural terminating carrier's POP is located outside the rural
    rate-of-return incumbent LEC's service area, the rural
    rate-of-return incumbent LEC's transport and provisioning obligation
    stops at its meet point and the non-rural terminating carrier is
    responsible for the remaining transport to its POP.

#### Symmetry

811. We conclude that final uniform reciprocal compensation rates should
     be symmetrical.[^2007] In contrast to the approach taken in the
     *Local Competition First Report and Order*, we require, for the
     reasons described below, symmetry in all cases once the final
     uniform reciprocal compensation rates become effective.

812. *Background*. In the *Local Competition First Report and Order*,
     the Commission concluded that charges for reciprocal compensation
     were to be presumptively symmetrical and that it was "reasonable to
     adopt the incumbent LEC's transport and termination prices as a
     presumptive proxy for other telecommunications carriers' additional
     costs of transport and termination."[^2008] The Commission observed
     that "\[b\]oth the incumbent LEC and the interconnecting carriers
     usually will be providing service in the same geographic area, so
     the forward-looking economic costs should be similar in most
     cases."[^2009] Moreover, by using the incumbent LEC's costs of
     transport and termination, the Commission found that symmetry would
     provide an incentive for interconnected carriers to minimize costs
     because if the interconnected carrier could reduce its costs below
     the costs of the incumbent LEC, then it could realize additional
     termination revenue.[^2010] Symmetrical compensation also provided
     the incumbent LECs an incentive to minimize costs. The Commission
     further found that symmetry reduced incumbent LECs' bargaining
     strength because asymmetrical rates could have allowed incumbent
     LECs to negotiate high charges for traffic terminating on their
     networks and low charges for traffic originating on their networks,
     citing as an example incumbent LECs' treatment of CMRS
     providers.[^2011] A presumption of symmetric rates was
     administratively efficient and did not require a competing carrier
     to conduct a forward-looking cost study to enter the market,
     lowering the cost of entry and thus increasing competition.[^2012]

813. The Commission, however, carved out an exception to the presumption
     of symmetry. In the *Local Competition First Report and Order*, the
     Commission permitted interconnecting carriers to rebut the
     presumption of symmetry by submitting a forward-looking cost study
     to show that their costs of termination were higher than the
     incumbent LEC's.[^2013] If the interconnecting carrier established
     that "the costs of efficiently configured and operated systems
     \[were\] not symmetrical," the state commission could adopt a
     "different compensation rate" for the interconnecting
     carrier.[^2014]

814. *Discussion*. We now require symmetric rates and conclude that the
     exception that permitted asymmetric rates under certain
     circumstances is no longer warranted.[^2015] We note that there is
     scant evidence of any competitive LECs seeking to establish their
     own, higher, costs during the last 12 years, let alone being
     successful in doing so.[^2016] We conclude that asymmetric rates
     could undermine the comprehensive reform we adopt by permitting
     different termination rates for traffic in the same geographic
     area, which could open the door for continued regulatory arbitrage
     and thwart the intended public interest benefits associated with
     reforming the patchwork of existing intercarrier compensation
     payments.

815. As noted above, symmetrical rates promote efficiency. Symmetry will
     encourage interconnecting carriers to deploy more efficient
     technology to reduce their costs. Notably, the Commission of the
     European Communities (European Communities) has also found that
     divergent regulatory treatment between different technology
     termination rates, as this rebuttable presumption exception allows,
     creates distortions among markets.[^2017] In the context of fixed
     versus mobile telephony, the European Communities recognized that
     some European countries have allowed smaller CMRS carriers to
     charge higher termination rates to compensate for these carriers'
     lack of economies of scale.[^2018] The European Communities
     concluded that these higher termination rates for mobile technology
     led to higher retail rates for customers and lower usage of this
     technology.[^2019] As the European experience shows, allowing the
     present exception to the symmetry rule could encourage higher
     termination rates, and asymmetric termination rates---particularly
     if such termination rates were high for one carrier---could reduce
     consumer welfare and lead to higher prices.

816. We conclude that requiring symmetrical compensation arrangements
     without any exceptions is proper under section 252(d)(2)(A)(ii) of
     the Act.[^2020] We also confirm that this mandatory symmetry
     requirement applies without regard to whether traffic exchanged by
     the interconnected carriers is balanced or not. Given the
     substantial benefits of symmetrical rates as described above, the
     likelihood that allowing asymmetrical rates would give carriers an
     incentive to find ways to arbitrage the higher rates, and the
     minimal costs associated with terminating calls,[^2021] we find
     that an exception to symmetrical rates where traffic is out of
     balance is not warranted.

#### Modifications and Suspensions under Section 251(f)(2)

817. In light of the importance of bringing uniformity and symmetry to
     intercarrier compensation, eliminating opportunities for regulatory
     arbitrage, and providing regulatory certainty to carriers in making
     investment plans, we find it appropriate to adopt guidelines
     regarding the application of section 251(f)(2). Section 251(f)(2)
     of the Act gives state commissions the ability to suspend or modify
     our intercarrier compensation rules implementing section 251(b)
     and (c) under certain conditions. Specifically, section 251(f)(2)
     of the Act permits a "local exchange carrier with fewer than 2
     percent of the Nation's subscriber lines installed in the aggregate
     nationwide" to "petition a State commission for a suspension or
     modification of the application of a requirement or requirements of
     \[section 251\] (b) or (c)."[^2022] The state commission shall
     grant such petition "to the extent that, and for such duration as,
     the State commission determines that such suspension or
     modification (A) is necessary (i) to avoid a significant adverse
     economic impact on users of telecommunications services
     generally; (ii) to avoid imposing a requirement that is unduly
     economically burdensome; or (iii) to avoid imposing a requirement
     that is technically infeasible; and (B) is consistent with the
     public interest, convenience, and necessity."[^2023] In the *Local
     Competition First Report and Order,* the Commission "decline\[d\]
     . . . to adopt national rules or guidelines" regarding the specific
     implementation of section 251(f), but explained that the Commission
     "may offer guidance on these issues at a later date, if we believe
     it is necessary and appropriate." [^2024] The Supreme Court
     subsequently confirmed that the Commission has the authority to
     interpret section 251(f).[^2025] The only existing Commission
     guideline regarding section 251(f)(2) provides that the burden of
     proof is on the LEC seeking suspension or modification of
     particular requirements.[^2026]

818. As an initial matter, we conclude that any suspension or
     modification granted pursuant to section 251(f)(2) must be for a
     limited "duration" and cannot be indefinite. This interpretation
     follows directly from the express language of section 251(f)(2).
     Specifically, section 251(f)(2) provides that the state should
     grant a suspension or modification "to the extent that, *and for
     such duration as*, the State commission determines that such
     suspension or modification"[^2027] satisfies the statutory test.
     Congress thus expected that the conditions warranting suspension or
     modification of a requirement would not be permanent, and it
     permitted the states to continue such modifications or suspensions
     only for a particular "duration," rather than remaining in place
     indefinitely. In contrast, Congress adopted the opposite approach
     in section 251(f)(1), where it provided a default exemption for
     "rural telephone companies" from section 251(c) that continues
     indefinitely "until" certain statutory criteria are met.[^2028]
     Accordingly, we conclude that the LEC requesting the suspension or
     modification under section 251(f)(2) has the burden of
     demonstrating the appropriate duration of any suspension or
     modification. To the extent that a state grants a suspension or
     modification for a particular duration, the Commission encourages
     the state to impose a timeline or other requirements on the LEC to
     ensure that it is taking concrete steps to enable it to comply with
     the relevant requirements once the suspension or modification
     ends.[^2029] If a state finds that a LEC is not taking such steps
     necessary to ensure compliance on a date certain, we find that such
     a determination would be sufficient for the state immediately to
     revoke the suspension or modification as no longer satisfying the
     "public interest" criteria.

819. We also offer guidance regarding the substantive standards that
     state commissions must apply when evaluating requests pursuant to
     section 251(f)(2) for a suspension or modification of section
     251(b) or (c). The first prong of section 251(f)(2)(A) directs
     state commissions to determine whether the LEC establishes that
     absence of the requested suspension or modification would cause a
     "*significant* adverse economic impact on users of
     telecommunications services generally."[^2030] The term
     "significant" is ambiguous. According to Webster's Dictionary,
     "significant" means "having or likely to have influence or effect;
     of a noticeably or measurably large amount."[^2031] We find this to
     be a reasonable definition, and conclude that for an "adverse
     economic impact" to be "significant" requires that such harm be
     "measurably large." Moreover, the state commission must evaluate
     the net impact "on users of telecommunications services
     *generally*."[^2032] We conclude that state commissions must
     consider users of telecommunications services more broadly, rather
     than focusing narrowly on impacts on isolated groups of users, such
     as customers of the LEC requesting the suspension or modification.
     Further, state commissions must weigh the overall impact on such
     users, including not only any adverse impacts on particular users,
     but whether there are other associated benefits of the regulatory
     requirements to telecommunications users. For example, the
     reduction in intercarrier compensation payments might lead some
     carriers to increase some rates, but also should reduce long
     distance rates, stimulate additional competition in local markets,
     consistent with the goals of the 1996 Act, and provide additional
     benefits to end users. We direct states to consider the totality of
     the circumstances in evaluating the impact on telecommunications
     users.

820. The second prong of section 251(f)(2)(A) requires a state
     commission to determine whether the LEC has demonstrated that the
     requested suspension or modification is necessary to "avoid
     imposing a requirement that is unduly economically
     burdensome."[^2033] The Eighth Circuit has interpreted the phase
     "unduly economically burdensome" to require a state to examine "the
     full economic burden on the ILEC."[^2034] Consistent with this
     interpretation, and our interpretation of section 251(f)(2)(A)(i)
     above, we conclude that states must evaluate the totality of the
     circumstances in evaluating the net burden. For example, in
     evaluating the impact of section 251(b)(5) as we interpret it
     today, states cannot simply look at the LEC's loss of intercarrier
     compensation revenues. Rather, the state must consider the full
     economic impact on the LEC of all the comprehensive reforms we
     adopt, including the ability of carriers to recover revenues by
     raising other rates, including the federal SLC, the potential
     economic savings due to reduced billing costs, fewer disputes and
     litigation regarding the classification of traffic, and the
     possibility that a carrier may receive universal service support if
     its financial integrity is threatened.

821. The third prong under section 251(f)(2)(A) requires a state
     commission to determine whether the LEC has demonstrated that
     compliance with section 251(b) or (c) may be "technically
     infeasible."[^2035] We do not believe that any carrier will be able
     to establish that implementation of our intercarrier compensation
     reforms is "technically infeasible," considering that carriers
     generally are exchanging and billing for traffic today, and our
     rules adopted in this order should merely simplify this process.
     Thus, we recommend that state commissions scrutinize rigorously any
     claims of technical infeasibility, particularly if the LEC is
     paying and/or receiving intercarrier compensation today.

822. Even if a state finds that a LEC satisfies the requirements for a
     temporary suspension or modification under section 251(f)(2)(A),
     section 251(f)(2)(B) provides that a state commission cannot grant
     a petition for suspension or modification unless it also finds that
     granting the requested petition is "consistent with the public
     interest, convenience, and necessity."[^2036] In light of the
     compelling need to adopt comprehensive reform of existing
     intercarrier compensation regimes as described above,[^2037] the
     Commission urges states to use caution and consider carefully the
     ramifications of granting any suspension or modification,
     particularly regarding petitions seeking relief from section
     251(b)(5). Indeed, any suspension or modification that continues to
     treat traffic under different rate structures opens the door for
     continued regulatory arbitrage and disputes. Such action would
     undermine the tremendous public interest benefit associated with
     treating all traffic the same.

823. The Act is silent on what occurs if a state grants a suspension or
     modification of the section 251(b) or (c) obligations. We find that
     this silence creates ambiguities and could lead to inconsistent
     results following a modification or suspension under section
     251(f)(2). We are concerned that a suspension or modification of
     section 251(b)(5) could result in exactly the kind of disparate
     treatment that we intend to correct with our actions today.
     Pursuant to our authority under section 201(b), as well as our
     authority to interpret section 251(f),[^2038] we therefore adopt
     rules specifically addressing certain of the implications of a
     suspension or modification of our intercarrier compensation
     rules.[^2039]

824. First, to minimize inconsistency and the possibility that the
     reforms we adopt today could be undermined, we extend our symmetry
     requirement for reciprocal compensation rates at the end of the
     transition period described in Part V.B to any suspension or
     modification of our section 251(b)(5) reciprocal compensation rules
     and requirements. If a LEC receives a suspension or modification of
     our reciprocal compensation pricing methodology, for example, all
     other LECs and CMRS providers that exchange traffic with the LEC
     receiving the suspension or modification will likewise be entitled
     to charge that LEC those same rates that the LEC charges them for
     the duration of such suspension or modification. We conclude that
     this symmetry requirement is in the public interest and will reduce
     disputes, arbitrage, and transaction costs. Indeed, a contrary
     result that would permit different terminating rates in the same
     geographic area would not be in the public interest and likely
     would lead to the same disputes we have today. If a state attempts
     to avoid this symmetry requirement by granting a LEC a suspension
     or modification of any section 251(b)(5) reciprocal compensation
     obligation and the state fails to require symmetric rates, we will
     invoke our authority under sections 201 and 332 of the Act to
     ensure that all carriers exchanging traffic with that LEC pay the
     same rate for terminating all traffic.

825. Second, if a state grants any suspension or modification that is
     more than 1 year in duration, we require the state to take a fresh
     look to determine whether such suspension/modification continues to
     satisfy the statutory test in light of possible changes in
     circumstances. To this end, 90 days before the 1-year anniversary
     of the grant of the suspension or modification, the LEC must file a
     petition demonstrating that the suspension or modification
     continues to satisfy the statutory criteria. In the intervening
     time, for example, a state may have rebalanced rates, the LEC may
     have increased its end-user charges, or other relevant changes may
     have occurred. Those actions may have obviated the need for the
     suspension or modification or, at a minimum, could result in the
     need for changes to the terms and duration of the suspension or
     modification. In such a review, the LEC continues to have the
     burden of demonstrating that the section 251(f)(2) criteria remain
     satisfied. We conclude that states should act upon such a fresh
     look within the 180 days for new petitions set forth in section
     251(f)(2).[^2040]

#### Existing Agreements

826. Below we discuss the effect of our intercarrier compensation
     reforms on certain types of existing agreements.

827. *Interconnection agreements*. With respect to interconnection
     agreements, we do not disturb the processes established by section
     252 of the Act. As discussed above, the intercarrier compensation
     reforms we adopt will necessitate that states implement our new
     reciprocal compensation methodology. We expect that incumbent LECs
     and competing carriers will implement the reciprocal compensation
     changes as directed by section 252 of the Act.[^2041] We make clear
     that our actions today constitute a change in law, and we recognize
     that interconnection agreements may contain change of law
     provisions that allow for renegotiation and/or may contain some
     mechanism to resolve disputes about new agreement language
     implementing new rules.[^2042] Verizon raises a concern regarding
     the impact on contracts in "evergreen" status, which Verizon
     describes as "contracts that have reached the end of their terms
     but remain in effect pending entry into new contracts."[^2043]
     Given that the comprehensive reforms today are necessary to
     eliminate arbitrage and reduce disputes, we believe it is
     appropriate for carriers to take a "fresh look" at their
     interconnection agreements in "evergreen" status, including
     agreements that lack a change-of-law provision, and follow the
     section 252 process of negotiation and arbitration. We also note
     that, pursuant to section 251(a)(1), carriers remain free to
     negotiate alternative arrangements.[^2044]

828. *Commercial arrangements*. As discussed above, the intercarrier
     compensation reforms will require carriers to make certain changes
     to their tariffs relating to carrier-to-carrier charges, and
     potentially also SLCs. We do not, however, abrogate existing
     contracts or otherwise allow for a "fresh look" in light of our
     reforms.[^2045] As the Commission has recognized, for example,
     early termination provisions can be mutually beneficial by giving
     providers greater assurance of cost recovery, and giving customers
     (whether wholesale or end-users) discounted and stable prices over
     the relevant term.[^2046] Indeed, allowing for a fresh look could
     result in a windfall for customers that entered long-term
     arrangements, in exchange for lower prices, as compared to other
     customers that avoided early termination fees by electing shorter
     contract periods at higher prices.[^2047] Rather than adopt a rule
     that these commercial arrangements must be reopened, we will leave
     such issues to any change-of-law provisions in these commercial
     arrangements, or to commercial negotiations among the
     parties.[^2048]

### Revenue Recovery Opportunities

829. In the preceding sections of this order, we adopt fundamental
     changes to the existing intercarrier compensation regimes. These
     reforms are designed to unify and simplify these mechanisms,
     consistent with the framework Congress adopted in the 1996 Act.
     This new approach will result in overall reductions in interstate
     and intrastate intercarrier compensation rates.[^2049] In this
     section, we address the extent to which revenue reductions from
     carrier-to-carrier charges may be replaced through end-user charges
     and new universal service support. In prior intercarrier
     compensation reforms, the Commission largely replaced reductions in
     intercarrier compensation revenues through a combination of
     increased end-user charges and new universal service
     funding.[^2050] Our actions here carefully balance the need to
     ensure reasonable revenue recovery by carriers against the
     potential adverse impact on consumers of increased end-user
     charges, and the pressure placed on the universal service program
     to the extent that new subsidies are made available.

830. As an initial matter, we increase the caps on interstate SLCs, and
     we permit incumbent LECs to increase their SLCs up to the new caps
     to recover lost interstate and intrastate intercarrier compensation
     revenues. We also enlist the aid of the Separations Joint Board to
     evaluate the need for further increases in interstate end-user
     charges to recover any net loss in interstate and intrastate
     intercarrier compensation revenues, and to evaluate the conditions
     under which carriers may seek additional universal service funding.
     To limit the increase in the total universal service fund, we
     establish certain preconditions that carriers must satisfy before
     they can receive additional universal service funding to compensate
     for lost intercarrier compensation revenues.

#### End-User Charges

831. In this section, we consider whether revenue reductions from
     reformed carrier-to-carrier charges should be replaced to any
     extent by increases in end-user charges, as the Commission has done
     in some prior intercarrier compensation reform proceedings.[^2051]
     The Commission has acknowledged that "\[t\]he concept that users of
     the local telephone network should be responsible for the costs
     they actually cause is sound from a public policy perspective and
     rings of fundamental fairness," and also helps ensure "that
     ratepayers will be able to make rational choices in their use of
     telephone service."[^2052] Importantly, however, the Commission
     also has maintained "safeguards that ensure that the rates
     consumers pay . . . remain well within a zone of
     reasonableness."[^2053] To permit carriers to recover at least part
     of their lost intercarrier compensation revenues, we raise the caps
     on interstate SLCs as described below, which we find to be within
     the "zone of reasonableness" and which should not have a
     significant adverse effect on telephone penetration. We also enlist
     the help of the Separations Joint Board to consider the need, if
     any, for further increases in end-user charges and certain other
     revenue recovery issues.

832. The record reveals a wide variety of proposals for modifying
     interstate end-user charges in response to reductions in
     intercarrier compensation rates. The majority of these proposals
     advocate increasing the caps on the interstate SLCs. The interstate
     SLC is a flat-rated charge that recovers the interstate portion of
     local loop costs from an end user. Under our current rules
     governing incumbent LECs, SLCs are subject to a cap that varies
     based upon whether the line is: (a) a primary residential or
     single-line business line; (b) a non-primary residential line;
     or (c) a multi-line business or Centrex line.[^2054] Some parties
     propose specific increases in SLC caps to offset a portion of the
     revenues lost through mandated reductions in intercarrier
     compensation--including both reductions in interstate and
     intrastate revenues.[^2055] Other parties contend that most or all
     of a carrier's replacement of lost intercarrier compensation
     revenues should come from increased SLCs.[^2056] On the other hand,
     some consumer groups assert that no increase in SLC caps is
     warranted in response to reductions in intercarrier compensation
     rates.[^2057]

##### Current Availability of End-User Charges for Revenue Recovery 

833. As an initial matter, we permit incumbent LECs to increase their
     SLCs up to new caps to recover reductions in interstate
     intercarrier compensation revenues. In particular, we increase the
     SLC cap for residential and single-line business lines from \$6.50
     to \$8.00, the non-primary residential line SLC cap from \$7.00 to
     \$8.50, and the multi-line business SLC cap from \$9.20 to \$11.50.
     We believe that these modest increases in the SLC caps continue to
     "ensure that the rates consumers pay for the SLC remain well within
     a zone of reasonableness."[^2058] Moreover, we believe that these
     SLC cap increases also address commenters' concerns about the need
     for some end-user recovery in light of lost intercarrier
     compensation revenues. Although some commenters argue for more
     substantial increases in the SLC caps, we note that there is
     evidence that incumbent LECs charge rates below even the existing
     caps in a number of instances. For example, the primary residential
     and single-line business SLC cap is \$6.50, but the national
     average SLC for those lines is \$5.93 based on recent Commission
     data.[^2059] Similarly, the non-primary residential line SLC cap is
     \$7.00, but the national average SLC for those lines is
     \$5.81.[^2060] Further, the multi-line business and Centrex line
     SLC cap is \$9.20, but the national average SLC for those lines is
     \$6.30---nearly \$3.00 below the cap.[^2061] We therefore find it
     reasonable in the first instance to raise the interstate SLC cap
     and to allow carriers whose current SLCs are below the new caps to
     increase those SLCs to recover revenues lost from interstate and
     intrastate access charge reductions.[^2062]

834. To the extent that an incumbent LEC increases its SLCs to recover
     reductions in its interstate intercarrier compensation revenues and
     any of its SLCs are still below the relevant caps, we allow those
     carriers to raise their SLCs further, up to the caps, to recover
     any net loss in intrastate intercarrier compensation revenues, at
     least on an interim basis.[^2063] As a prerequisite for incumbent
     LECs to increase their SLCs in this manner, we require that the
     LEC's state retail rates and any intrastate SLC be set at the
     maximum level permitted under state regulations.[^2064] This will
     ensure that revenues from interstate end-user charges will not be
     used to recover intrastate revenue requirements until the carrier
     has fully availed itself of all available intrastate revenue
     opportunities under existing law. We also mandate that any increase
     in interstate SLC revenues that are intended to recover lost
     intrastate intercarrier compensation revenues be used by the state
     in ratemaking to reduce costs or revenue requirements to be
     recovered in the intrastate jurisdiction.[^2065]

835. We find that we have authority to allow recovery of intrastate
     revenue requirements in this manner. For one, the legacy
     separations regime does not preclude this action. The Commission
     historically has provided federal funds to cover at least a portion
     of costs assigned to the intrastate jurisdiction.[^2066] Although
     those decisions relied on the Commission's universal service
     authority pursuant to section 254, we find that we have authority
     under section 251(g) to allow recovery of intrastate revenue
     requirements through interstate SLC rates. Section 251(g) empowers
     the Commission to subject traffic previously encompassed by section
     251(g) to the reciprocal compensation regime of section 251(b)(5),
     including providing for an orderly transition. Allowing incumbent
     LECs the option to recover certain lost intrastate intercarrier
     compensation revenues through increases in the interstate SLC,
     subject to the new caps, furthers such a transition. In particular,
     this option helps mitigate any need incumbent LECs might have to
     seek increases in state rates due to decreases in intrastate
     intercarrier compensation revenues during the initial stages of the
     transition, pending the Separations Joint Board referral and
     subsequent Commission action. We also acknowledge that interstate
     SLC charges are governed by sections 201 and 202 of the Act, and
     that "the just and reasonable rates required by Sections 201 and
     202 . . . must ordinarily be cost-based, absent a clear explanation
     of the Commission's reasons for a departure from cost-based
     ratemaking."[^2067] In the past, the Commission has, in fact,
     adopted regulatory approaches that deviated from cost-based
     ratemaking.[^2068] We find such an approach warranted here to help
     mitigate regulatory burdens during the transition, as described
     above.

836. In sum, we adopt increased SLC caps to allow incumbent LECs to
     recover some or all of their net loss in intercarrier compensation
     revenues resulting from rate reductions pursuant to this order. In
     particular, to recover those lost revenues, we permit incumbent
     LECs to increase each of their SLCs up to the new caps.

837. With respect to non-incumbent LECs, we note that most interstate
     rates of such providers are not subject to *ex ante* regulation by
     the Commission. Thus, we allow those carriers to recover any net
     loss in intercarrier compensation revenues in any lawful
     manner.[^2069]

##### Joint Board Referral of Possible Changes to End-User Charges

838. We enlist the aid of the Separations Joint Board to evaluate the
     need for any additional increases in interstate end-user rates for
     carriers to recover any net loss in interstate and/or intrastate
     intercarrier compensation revenues as a result of the reform
     measures we adopt today. There are a range of widely divergent
     proposals in the record regarding the need for additional changes
     to the SLC caps adopted above as part of comprehensive intercarrier
     compensation reform. We believe that the information and analysis
     developed by the Separations Joint Board will be extremely valuable
     in evaluating these issues.

839. Our decision to seek input from the Separations Joint Board is
     consistent with section 410 of the Act. Section 410(c) of the Act
     requires the Commission to refer to the Separations Joint Board any
     changes to the separations rules being considered through a
     rulemaking proceeding. Although no changes to the separations rules
     are at issue here, section 410(c) also authorizes the Commission to
     refer matters "relating to common carrier communications of joint
     Federal-State concern to a Federal-State Joint Board."[^2070] We
     believe that recommendations from a Joint Board regarding these
     issues are important to striking the right balance among the
     various policy goals at stake, relating to traffic that
     historically has been regulated, in part, by both federal and state
     jurisdictions. Moreover, the issue of using revenues from
     interstate end-user charges to recover intrastate revenue
     requirements is sufficiently related to the underlying separations
     requirements themselves that we believe the Separations Joint Board
     possesses highly relevant expertise to provide recommendations on
     these issues.[^2071]

840. As described in greater detail below, we refer to the Separations
     Joint Board certain specific issues regarding possible increases in
     interstate end-user charges: (i) whether SLC caps should be
     increased by a fixed amount to recover any net loss in intercarrier
     compensation revenues; (ii) whether a "flexible" SLC cap should be
     used in conjunction with an overall benchmark or threshold;
     or (iii) some combination of those options.

841. *Quantifying Any Increase in End-User Charges*. We refer to the
     Separations Joint Board several possible approaches for
     establishing any additional permissible increases in interstate
     end-user charges, to the extent that any are warranted. First, the
     Separations Joint Board could directly recommend particular further
     increases in the SLC caps. Parties here have proposed various
     levels of SLC cap increases, and different ways to distribute those
     increases across the different SLC caps. For example, the ICF
     proposal would result in all SLC caps being increased to \$10.00 by
     the end of a transition period.[^2072] Under the Missoula Plan's
     initial proposal, SLC cap increases vary for the three "tracks" or
     categories of carriers defined in the plan.[^2073] ITTA proposes a
     \$2.25 increase in each SLC cap by the end of a transition period,
     subject to a benchmark consisting of SLCs, retail rates, and
     certain other charges.[^2074] Other parties, such as CTIA, contend
     that recovery of lost intercarrier compensation revenues by
     incumbent LECs should come solely from end-user charges.[^2075] In
     contrast, Free Press, NASUCA, and Ad Hoc propose that SLC caps not
     be increased at all.[^2076]

842. Second, the Separations Joint Board could recommend a "flexible"
     SLC cap that would vary depending upon a carrier's other end-user
     rates and an overall benchmark or threshold. For example, under a
     recent Verizon proposal, the 'default' SLC caps all would increase
     to \$10.00 by the end of a transition period.[^2077] However, to
     the extent that a carrier's relevant end-user rates still are below
     a proposed benchmark, that carrier's SLC cap would increase as much
     as needed to reach the benchmark.[^2078] Thus, the Separations
     Joint Board could determine a particular benchmark or threshold and
     allow the SLC cap to vary for each carrier, depending upon how much
     "headroom" that carrier has under the benchmark, in light of the
     carrier's other rates. To the extent that the Separations Joint
     Board recommends this approach, it should specify which carrier
     rates should be included in the relevant benchmark or threshold.

843. Third, the Separations Joint Board could recommend some combination
     of the first and second options.

844. In making recommendations on these issues, the Separations Joint
     Board will consider the extent to which any recommended increases
     in interstate end-user charges should be used to offset lost
     intrastate intercarrier compensation, to the extent that decreases
     in interstate intercarrier compensation revenues already have been
     recovered. Most comprehensive reform proposals in the record assume
     that SLC cap increases will be used to offset at least some
     intrastate revenues.[^2079] Logically, however, another alternative
     is for any increases in the SLC caps to be used only to recover
     reductions in interstate intercarrier compensation revenues, and to
     leave it to each state to address lost intrastate intercarrier
     compensation revenues as appropriate under state law.

845. *Timing*. We direct the Separations Joint Board to issue its
     recommended decision not later than one year from the effective
     date of this order. In light of that timetable, we limit the
     Separations Joint Board to consideration of specific issues we
     refer in this order.

#### Universal Service Support

##### Policy Approach

846. We recognize that the actions we take to reform intercarrier
     compensation will result in reduced revenues for many carriers. As
     discussed above, carriers have the opportunity to replace certain
     of those lost revenues through end-user charges.[^2080] We also
     acknowledge that, in the past, the Commission has sometimes
     provided new universal service support to replace reductions in
     intercarrier compensation revenues.[^2081] As the Fifth Circuit has
     recognized, however, "\[b\]ecause universal service is funded by a
     general pool subsidized by all telecommunications providers---and
     thus indirectly by customers - excess subsidization in some cases
     may detract from universal service by causing rates unnecessarily
     to rise, thereby pricing some consumers out of the market." [^2082]
     Thus, excessive universal service subsidization could, perversely,
     cause undesirable increases in consumers' bills.

847. We note that many companies---in particular price cap
     carriers---consistently are paying dividends and are using the same
     supported network to provide both regulated services and
     non-regulated services. Throughout the course of our comprehensive
     reform proceedings, commenters have identified this as a concern to
     be weighed carefully when evaluating the need for universal service
     support. For example, following the 2005 intercarrier compensation
     Further Notice, CTIA contended that some rural incumbent LECs
     already "are overcompensated by universal service support" based on
     evidence that their "stocks generate returns, measured by
     market-to-book ratios, far in excess of, and exhibit significantly
     lower risk premiums than, the supposedly more secure RBOCs."[^2083]
     Commenters continue to express concern that existing universal
     service subsidies too often lead simply to "'high overhead,
     sumptuous earnings, \[and\] rich dividends.'"[^2084] For example,
     recent news reports indicate that CenturyTel and Embarq still
     "remain highly profitable -- operating margins for both are 27
     percent" notwithstanding any competition they face.[^2085] Parties
     have argued that there continues to be evidence that "\[i\]nvestors
     place a higher value on RLEC earnings than on other ILEC earnings.
     In today's market, the larger ILECs, which do not generate much of
     their revenues from federal subsidies, are valued much less highly
     per dollar of profit."[^2086] While there are "various factors in
     play" this suggests that "\[m\]illions of dollars in extra wealth
     end up in the hands of private investors" by "transferring income
     from telephone users to phone company stockholders."[^2087] Indeed,
     commenters note that "some carriers owned by co-ops pay their
     members annual dividends that exceed their members' local phone
     charges."[^2088] In light of these concerns and the mandates of
     section 254, we agree with commenters that it is not appropriate to
     require all universal service contributors to pay into the fund so
     that these carriers can continue to pay dividends.[^2089]

848. Thus, rather than guaranteeing revenue neutrality, as some
     commenters propose,[^2090] we take steps here to ensure that any
     new universal service subsidies are targeted carefully to
     situations where they are most crucially needed. In particular, far
     from the regulated monopolies of years past, significant
     marketplace developments have resulted in additional revenue
     opportunities for carriers. As NASUCA observes, "\[i\]ntercarrier
     compensation, SLCs and the USF are but three of the numerous
     spigots from which dollars flow to fill up the telephone companies'
     revenue buckets."[^2091] "By way of illustration," NASUCA points
     out that "using their common local loop platform, carriers are now
     generating billions of dollars in digital subscriber line ("DSL")
     revenues that they did not generate five or ten years ago."[^2092]
     Indeed, Time Warner Telecom has pointed to evidence that, for some
     carriers, "revenue derived from the ILECs' advanced services more
     than doubles the revenue from switched access services."[^2093]
     Thus, Free Press observes that "the unregulated revenue streams of
     rate-of-return and price cap Local Exchange Carriers serving in
     high-cost areas" are the "500 pound gorilla in the room," and it
     contends that "these revenues" should be "considered in the
     discussions of 'need' for the purposes of universal
     service."[^2094] We agree that such "new and growing source\[s\] of
     revenues should mitigate the impact of intercarrier compensation
     reform for rural and other carriers."[^2095]

849. We are concerned that universal service support be targeted to
     those companies whose reduced intercarrier compensation revenues
     truly are needed to continue providing quality service at
     affordable rates, and that it should not simply enable the company
     to pay bigger dividends to shareholders or pad a company's bottom
     line. We find that, because of their different regulatory
     treatment, price cap incumbent LECs and rate-of-return incumbent
     LECs should be treated differently. For price cap carriers, we
     adopt the proposal of various commenters to consider all a
     company's costs and revenues---both regulated and
     non-regulated---before providing new universal service
     support.[^2096] Thus, price cap incumbent LEC seeking universal
     service funding to replace lost intercarrier compensation revenues
     must make such a showing to the Commission when petitioning for
     such support.

850. We also agree with proposals that carriers fully avail themselves
     of existing opportunities for end-user recovery before collecting
     new universal service subsidies.[^2097] To the extent that
     regulators have determined that rates at a particular level are
     reasonable, we find it appropriate for carriers to charge those
     rates in the first instance, rather than pricing below those levels
     in order to foist recovery of the additional revenues on universal
     service contributors. Consequently, as additional preconditions for
     receiving new universal service support, a price cap carrier must
     show that its federal SLC, state SLC (if any), and state retail
     local service rates are at the maximum levels permitted under
     existing applicable law.[^2098]

851. In conjunction, we conclude that the conditions we adopt as
     prerequisites for obtaining new universal service support
     adequately target that support to carriers with a genuine need
     without unduly burdening consumers with excessive new universal
     service contribution burdens.[^2099]

852. We recognize that interstate rate-of-return carriers present a
     special situation, because under our rules they must be provided an
     opportunity to earn the rate of return established by our
     orders.[^2100] As a result, we find it inappropriate to impose the
     same conditions before interstate rate-of-return carriers can
     recover universal service support.[^2101]

##### Legal Authority 

853. Consistent with our mandate to "ensure that universal service is
     available at rates that are just, reasonable, and affordable," we
     establish a new supplement to IAS and ICLS universal service
     funding mechanism.[^2102] As we did recently in two other
     Commission orders that reformed interstate switched access charges,
     we include here additional universal service funding to keep retail
     rates affordable while ensuring that maintaining affordable rates
     does not unduly threaten the financial viability of rate-regulated
     incumbent LECs.[^2103] Our decision to establish a new funding
     mechanism is also consistent with our general authority under
     section 4(i) of the Act because it furthers our universal service
     objectives.[^2104] Mindful of our obligation to ensure that these
     new subsidies are made available only where essential, however we
     make new universal service subsidies available subject to specific
     conditions that will target the support to only those carriers
     whose circumstances merit it.

##### Access to Universal Service Support

854. As discussed below, we limit access to universal service support to
     incumbent LECs that meet certain preconditions. As an initial
     matter, we find that limiting such support to incumbent LECs is
     consistent with their position in the marketplace and the resulting
     regulatory constraints on their pricing behavior. In a series of
     orders in the Competitive Carrier proceeding, the Commission
     distinguished two kinds of carriers---those with individual market
     power (dominant carriers) and those without market power
     (non-dominant carriers).[^2105] The Commission found it appropriate
     to continue to subject dominant carriers to full regulation under
     Title II of the Communications Act.[^2106] Incumbent LECs are
     dominant carriers in their provision of switched access services
     and, as a result, are subject to rate regulation.[^2107] This rate
     regulation comes in two forms---regulation of intercarrier charges
     and regulation of end user charges. The Commission regulates
     interstate end-user charges of incumbent LECs, while the states
     generally regulate those carriers' intrastate end-user rates.
     Unlike incumbent LECs, competitive carriers (e.g., such as
     competitive LECs, CMRS providers, and non-dominant IXCs) lack
     market power and are considered non-dominant. As a result, their
     end-user charges are not subject to comparable rate regulation by
     the Commission and the states.[^2108]

855. Because incumbent LECs, as a result of their classification as
     dominant carriers, have had their end-user charges regulated (both
     in terms of rate levels and rate structures), they have less
     flexibility than other carriers to recover decreased intercarrier
     revenues through end-user charges. As a result, they are less
     likely to be able to recover reductions in intercarrier
     compensation revenues resulting from the actions we take today.
     Accordingly, we conclude that access to universal service support
     should be limited to incumbent LECs that meet the necessary
     preconditions. For this reason, we disagree with parties that
     advocate making funding available to all carriers, both incumbent
     and competitive[^2109] or to all carriers that currently receive
     access charge revenues.[^2110] As discussed above, competitive
     carrier end-user charges are not subject to rate regulation, and
     those carriers have the opportunity to recover lost access revenue
     through any legally permissible means.[^2111] We also reject an
     approach that would limit funding to rural rate-of-return
     carriers.[^2112] Incumbent LECs subject to price cap regulation
     also are subject to regulatory constraints on end-user charges, and
     we therefore decline to categorically deny universal service
     funding to particular types of incumbent LECs.[^2113]

856. *Supplemental IAS for price cap carriers*. Consistent with the
     policy approach discussed above, we further find it necessary to
     establish certain requirements that an incumbent LEC must satisfy
     to receive the new universal service subsidies. Before seeking
     universal service funding, interstate price cap incumbent LECs must
     first demonstrate that their end-user charges are at the maximum
     allowable rate levels. Thus, price cap incumbent LECs must show
     that they are charging the maximum interstate SLCs permitted under
     applicable law, and they must make the same showing with respect to
     any intrastate SLCs. In addition, price cap incumbent LECs must
     demonstrate that their retail local rates are at the maximum
     allowable amount based on applicable state regulation. Price cap
     incumbent LECs operating in states where retail rates are
     deregulated are not entitled to the new universal service funding
     adopted here. In this case, these price cap incumbent LECs will be
     similarly situated to competitive carriers, because without
     regulation, they have the opportunity to recover lost access
     revenues due to intercarrier compensation reform through increased
     end-user charges.

857. In addition, a price cap incumbent LEC may qualify for universal
     service funding if it can demonstrate that, as a result of reduced
     and reformed intercarrier charges, and after accounting for
     increased end-user charges, it is still unable to earn a "normal
     profit." In the *Local Competition First Report and Order*, the
     Commission discussed the concept of normal profit and defined it as
     the "total revenue required to cover all the costs of a firm,
     including its opportunity costs."[^2114]

858. As described above, many companies---in particular, price cap
     carriers---consistently are paying dividends and are using the same
     supported network to provide both regulated services and
     non-regulated services.[^2115] We do not find it appropriate to
     require all universal service contributors to pay into the fund to
     provide for "'high overhead, sumptuous earnings, \[and\] rich
     dividends'" on the part of these carriers.[^2116] Indeed, as
     discussed above,[^2117] "\[i\]ntercarrier compensation, SLCs and
     the USF are but three of the numerous spigots from which dollars
     flow to fill up the telephone companies' revenue buckets"[^2118] in
     addition to other nonregulated services that use "their common
     local loop platform."[^2119] . Therefore, in determining whether
     this criterion is met, the Commission will evaluate the total costs
     and total revenues of the company as a whole, including those from
     both regulated and non-regulated sources.[^2120] While this is a
     more stringent showing than that required of rate-of-return
     carriers, we find such differences warranted by the different rate
     regulation frameworks. In light of our reforms, we find it
     appropriate, upon request, to allow price cap carriers to make a
     one-way election of rate-of-return regulation.[^2121]

859. We recognize that the conditions by which we would make universal
     service funding available may not ensure that all carriers recover
     all reduced intercarrier compensation revenues that result from the
     reforms we adopt here. We reject the assertion by some carriers
     that any revenue replacement mechanism adopted by the Commission in
     the context of intercarrier compensation reform must ensure
     absolute revenue neutrality.[^2122] We agree with commenters who
     maintain that the Commission has no legal obligation to ensure that
     carriers recover every dollar in access revenues lost as a result
     of reform, absent a showing of a taking.[^2123] We conclude that
     certain increased end-user charges and narrowly targeted
     supplemental IAS universal service support will provide a
     reasonable opportunity to recover revenues lost as a result of our
     intercarrier compensation reform, and to earn a reasonable profit.
     Whether a particular price cap incumbent LEC is entitled to any
     revenue recovery, however, will be considered on a case-by-case
     basis based on the criteria outlined here.

860. *Supplemental ICLS for rate-of-return carriers*. As discussed
     above, we recognize that interstate rate-of-return carriers present
     a special situation, because under our rules they must be provided
     an opportunity to earn their regulated rate of return. In this
     regard, we adopt the proposal of OPASTCO/WTA, which we find strikes
     the proper balance regarding supplemental ICLS support. Thus, the
     only precondition to an incumbent LEC receiving supplemental ICLS
     support is that the incumbent LEC is under rate-of-return
     regulation in the interstate jurisdiction.[^2124]

861. In addition, we adopt the OPASTCO/WTA proposal that supplemental
     ICLS consist of two components. The first component compensates
     rural rate-of-return incumbent LECs for all of the revenues lost as
     a result of the mandated reductions in intercarrier compensation
     rates that are not otherwise recoverable through increases in
     SLCs.[^2125] The second component is available only to those rural
     rate-of-return incumbent LECs that have committed to the five-year
     broadband build-out requirement.[^2126] This component is intended
     to ensure that those rural rate-of-return incumbent LECs continue
     to have an opportunity to earn their authorized interstate rate of
     return, subject to a cap. This component will provide compensation
     for unrecoverable revenue losses attributable to losses in access
     lines and interstate and intrastate minutes of use, using 2008 as a
     base year. The second component remains in effect for the first
     five years of the transition and is capped at \$100 million in year
     one, \$200 million in year two, \$300 million in year three, \$400
     million in year four, and \$500 million in year five. Prior to year
     five, the Commission shall conduct a proceeding to determine if
     modifications are required. Overall, we find that this approach to
     supplemental ICLS properly addresses the needs of rural
     rate-of-return carriers, and their right to an opportunity to
     recover their authorized rate of return.

## Measures to Ensure Proper Billing

### Introduction

862. As explained in Part V.A., the current disparity of rates under
     existing intercarrier compensation mechanisms presents service
     providers[^2127] with the opportunity and the incentive to
     misidentify or otherwise conceal the source of traffic to avoid or
     reduce payments to other service providers. In this Part, we amend
     our rules to help ensure the ability of service providers to
     receive the appropriate compensation for traffic terminated on
     their networks.[^2128] More importantly, we believe that the
     comprehensive compensation reforms we adopt today should
     significantly reduce service providers' incentives to mislabel
     traffic or otherwise to try to avoid their financial
     obligations.[^2129] Nonetheless, we balance a desire to facilitate
     resolution of billing disputes with a reluctance to regulate in
     areas where industry resolution has, in many cases, proven
     effective. We find that the requirements we adopt here will
     facilitate the transfer of information to terminating service
     providers, and improve their ability to identify providers from
     whom they receive traffic, without imposing burdensome costs. In
     the event that traffic does not contain the information required by
     our rules, or the provider delivering the traffic does not
     otherwise provide the required call information, for example by
     providing an industry-standard billing record, to the provider
     receiving it, we allow the terminating service provider to charge
     its highest terminating rate to the service provider delivering the
     traffic. To the extent that a provider acting simply as an
     intermediate provider (such as a transit provider) becomes subject
     to a charge under this provision, that intermediate provider can
     charge the rate it was charged to the provider that delivered the
     improperly labeled traffic to it. This will ensure that providers
     are paid for terminating traffic in those instances, and gives
     financial incentives for upstream providers in the call path to
     ensure that the traffic includes proper information in the first
     instance.

### Background

863. Problems related to traffic arriving for termination with
     insufficient identification information arise from the technical
     systems and processes used to create, transfer, and gather
     intercarrier compensation billing information. To bill for
     termination of traffic, a terminating service provider must be able
     to identify the appropriate upstream service provider, and the
     location of the caller (or a proxy for the caller's location) in
     order to determine jurisdiction, which is necessary to determine
     the appropriate charge under existing intercarrier compensation
     rules.[^2130] Calls frequently traverse several networks to connect
     the calling and called parties. When the originating and
     terminating networks are not directly connected, as is the case
     when calls are delivered via tandem transit service, complications
     with transmitting and receiving billing information related to a
     call can arise.[^2131] Terminating service providers that are not
     directly connected to originating service providers receive
     information about calls sent to their networks for termination from
     two sources: Signaling System 7 (SS7) signaling streams[^2132] and
     industry standard billing records,[^2133] which typically are
     provided by the intermediate service provider connecting the
     terminating provider to the originating provider.[^2134]

864. One significant source of billing problems is traffic routed
     through an intermediate provider that does not include calling
     party number (CPN) or other information identifying the calling
     party.[^2135] In addition, commenters describe several examples of
     other situations where traffic arrives for termination with
     insufficient information to identify the originating service
     provider.[^2136] Another source of disputes occurs when terminating
     service providers find differences when attempting to reconcile SS7
     data they record and billing records they receive.[^2137] Such a
     reconciliation process will likely be inexact, because SS7 streams
     were not designed to provide billing information.[^2138] Similarly,
     at least one commenter asserts that "problems arise" when
     terminating service providers "second guess tandem traffic reports
     and generate their own billing statements for carriers with whom
     they are indirectly interconnected."[^2139] In addition to
     unidentifiable traffic caused by unintended network routing
     circumstances, as described above, several commenters allege that
     they receive traffic in which the billing information intentionally
     has been altered or stripped before the call reaches the
     terminating service provider.[^2140] Indeed, numerous parties have
     described experiencing problems of the sort described above.[^2141]
     Several proposals suggesting how the Commission should address this
     problem have been filed in the record in this proceeding in recent
     years.[^2142] Recently, the United States Telecom Association
     (USTelecom) filed a proposal that appears to enjoy the broadest
     industry support of any filed to date.[^2143] For reasons detailed
     below, we agree that traffic that lacks sufficient information to
     enable proper billing of intercarrier compensation charges is a
     problem. Consequently, we take steps to address the problem and
     help ensure proper functioning of the intercarrier compensation
     system.[^2144]

### Discussion

865. We amend our rules as described below to facilitate the transfer of
     necessary information to terminating service providers,
     particularly in cases where traffic is delivered through indirect
     interconnection arrangements. These new requirements will assist in
     determining the appropriate service provider to bill for any call.
     We note that these new requirements generally reflect standard
     industry practice, as recommended by several commenters.[^2145] We
     also amend our rules to establish payment obligations for service
     providers that send traffic that lacks the information required by
     our amended call signaling rules to intermediate or terminating
     service providers or that does not otherwise provide the required
     call information to the recipient. Incorporating these practices
     into our rules will facilitate resolution of billing disputes, will
     provide incentives to help prevent manipulation or deletion of
     information from signaling streams, and will provide incentives for
     service providers to ensure that traffic traversing their networks
     is properly labeled and identifiable, in compliance with the rules
     we adopt in this order.[^2146]

#### Signaling Information

866. We agree with the USTelecom Feb. 12, 2008 Proposal concerning the
     importance of call signaling obligations.[^2147] CPN is a critical
     component of call signaling information. When CPN is populated in
     the SS7 stream by an originating service provider and passed,
     unaltered, along a call path to a terminating service provider, the
     terminating provider can use the CPN information to help determine
     the applicable intercarrier compensation.

867. We agree with commenters[^2148] that assert that the best way to
     ensure that complete and accurate information about a call gets to
     the terminating service provider for that call is to require
     providers to populate, and to prohibit them from stripping or
     altering, CPN information in the SS7 call signaling stream.[^2149]
     In an environment where numerous service providers may be involved
     in the completion of a call, this SS7 signaling information must be
     passed, unaltered, from one to the next in a call path until it
     reaches the terminating service provider. We therefore modify our
     rules to prohibit stripping or altering information in the SS7 call
     signaling stream. We do not, however, make any changes to the
     designation of particular fields as mandatory or optional, nor do
     we otherwise intend to change industry standards that govern the
     population of the SS7 signaling stream.[^2150]

868. The record also makes clear that we must expand the scope of our
     existing rule regarding passing CPN,[^2151] which currently applies
     only to service providers using SS7 and only to interstate traffic.
     We therefore extend these requirements to all traffic originating
     or terminating on the PSTN, including jurisdictionally intrastate
     traffic.[^2152] We also amend our rules to require service
     providers using MF signaling to pass CPN information, or the charge
     number (CN) if it differs from the CPN, in the Multi Frequency
     Automatic Number Identification (MF ANI) field.[^2153] This rule
     change will ensure that information identifying the calling party
     is included in call signaling information for all calls.

869. In addition, we agree with commenters who suggest that our call
     signaling rules should address CN as well as CPN.[^2154] Verizon
     states that, in accordance with industry practice, the CN parameter
     is not populated in the SS7 stream when it is the same as CPN, but
     that when the CN parameter is populated, CN is included in billing
     records in place of CPN.[^2155] We therefore clarify that
     populating a CN field with information other than the charge number
     to be billed for the call, consistent with industry standards,
     falls within this prohibition. This clarification is not intended
     to disrupt standard industry practice with regard to using CN in
     the signaling stream and in billing records. But, we also clarify
     that the prohibition on altering or stripping signaling information
     applies to CN as well as CPN. The prohibition on altering or
     stripping SS7, MF ANI, or CN signaling information obligates
     intermediate service providers to pass, unaltered, whatever
     signaling information they receive.

870. The call signaling rules we adopt in this order will help ensure
     that signaling information is passed completely and accurately to
     terminating service providers. These rules are not intended to
     affect existing agreements between service providers regarding how
     to "jurisdictionalize" traffic when traditional call identifying
     parameters are missing, as long as such agreements are not
     inconsistent with the rules adopted in this order.

871. We find that some very limited exceptions to these new rules are
     needed. We agree with Verizon, for example, that a limited
     exception is needed in situations where industry standards permit,
     or even require, some alteration in signaling information by an
     intermediate service provider.[^2156] As noted above, we do not
     intend to change standard industry practice with respect to the
     content of the signaling stream. Service providers that follow
     standard industry practice in this way will not be considered in
     violation of the prohibition on altering signaling information. We
     also note that the exemptions from our existing call signaling
     requirements described in section 64.1601(d) remain necessary for
     their limited purposes, and will continue to apply.[^2157]

#### Financial Responsibilities

872. We also impose financial responsibilities that will work in step
     with our amended signaling rules to give service providers
     financial incentives to ensure that they, and the providers whose
     traffic they carry, comply with the signaling obligations. We find
     that these requirements will significantly reduce any existing
     incentives to avoid compliance by substantially eliminating any
     financial benefits of noncompliance.

873. We agree with commenters who propose that we permit service
     providers that terminate traffic lacking sufficient information to
     bill the service provider that delivered the traffic to the
     terminating provider.[^2158] In particular, we require that a
     service provider, e.g., transit provider, delivering traffic that
     lacks any of the signaling information required by our rules as
     amended herein, or that does not otherwise provide the required
     call information, for example by providing an industry standard
     billing record, to the recipient, must pay the terminating service
     provider's highest termination rate in effect at the time the
     traffic is delivered to the terminating service provider.[^2159] By
     making intermediate service providers financially responsible in
     these circumstances, we ensure that service providers are
     compensated for terminating traffic.

874. We also permit those intermediate service providers, in turn, to
     pass along the termination charges to the provider that delivered
     the applicable traffic to them, in addition to any
     otherwise-applicable charge for their services. We agree with
     commenters that the providers delivering traffic are in a better
     position than the terminating service provider "to know which
     carriers are routing improperly or incompletely identified
     traffic"[^2160] and to recover the termination charges from them.
     Moreover, by permitting intermediate service providers to pass
     along those charges on top of their otherwise-applicable rates, we
     create disincentives for service providers who might otherwise
     originate, or act as a "pass through" for mislabeled or
     unidentifiable traffic.

875. We are unpersuaded by the objections to imposing such financial
     obligations on intermediate service providers.[^2161] For example,
     one objection is based on the assumption that transit providers
     will be the only intermediate service providers subject to such
     liability, and will be unable to pass along those charges.[^2162]
     The financial responsibility under this order for traffic that
     lacks sufficient billing information is not limited to transit
     service providers, however. Rather, any service provider that
     passes traffic lacking sufficient billing information becomes
     responsible for intercarrier payments to the receiving provider.
     Additionally, we expressly permit service providers subject to this
     charge to pass it along to the service provider that delivered the
     applicable traffic to them.

876. Another commenter objects to any proposal that "gives . . .
     \[ILECs\] the authority to impose new rates based on their own
     interpretation of the sufficiency of data received or
     interpretation of jurisdictional parameters."[^2163] Under our
     amended rules, service providers will not be able to impose rates
     based on their own interpretation of the sufficiency of data
     received. Instead, our amended rules set the standard for what
     information must be included and passed.

877. We also disagree with commenters who suggest that imposing
     liability on intermediate service providers implies that the
     problem is the result of transiting service providers altering call
     detail information.[^2164] The financial obligations we impose on
     intermediate service providers are triggered by passing traffic
     that does not comply with the call signaling rules, regardless of
     whether the traffic was originated or altered by the passing
     service provider. Accordingly, any service provider, not just a
     provider who stripped or altered traffic signaling, who is not
     taking steps to ensure that traffic carried on their network is
     properly labeled and identifiable could be held responsible for
     payment by the provider to whom it delivered traffic.

878. In addition to call signaling, the USTelecom Feb. 12, 2008 proposal
     seeks Commission action related to routing traffic, local number
     portability queries, and providing incumbent LECs with certain
     rights with regard to the section 251 and 252 negotiation and
     arbitration processes.[^2165] Although a broad cross section of the
     industry supports the USTelecom Feb. 12, 2008 proposal in its
     entirety, several commenters objected to the section 251 and 252
     negotiation and arbitration provisions.[^2166] In light of the lack
     of consensus on some of these issues and the changes to the
     intercarrier compensation system adopted in this order we are not
     persuaded that the other specific actions sought in the USTelecom
     Feb 12, 2008 proposal are necessary at this time.[^2167]

# FURTHER NOTICE OF PROPOSED RULEMAKING 

## Universal Service

879. In the above order, we adopted a five year plan for phasing out
     current competitive ETC support. Here we seek comment on an
     appropriate universal service mechanism (or mechanisms) focused on
     the deployment and maintenance of advanced mobile wireless services
     in high-cost and rural areas.

880. With respect to contribution methodology, as we explain above, an
     assessment methodology based solely on telephone numbers would not
     require certain business services to equitably contribute to the
     universal service fund.[^2168] We, therefore, determine that
     universal service contributions for business services will be based
     on connections as opposed to numbers. We seek comment on how best
     to implement a connection-based mechanism for business services,
     and whether that mechanism should be based solely on connections or
     on a combination of Assessable Numbers and connections.

881. We also seek comment on expanding our NRUF data collection to all
     providers who are required to contribute to the universal service
     fund based on Assessable Numbers. At present, our NRUF reporting
     rules require "reporting carriers" to file reports. A "reporting
     carrier" is defined as "a telecommunications carrier that receives
     numbering resources from the NANPA, a Pooling Administrator or
     another telecommunications carrier."[^2169] "Reporting carriers"
     file reports regarding six categories of numbers, the descriptions
     of some of which refer to "telecommunications carriers" or
     "telecommunications services."[^2170] We seek comment on whether we
     should amend our rules to require all providers who assign numbers
     or otherwise make numbers available to end users to file NRUF
     reports. Would such an expansion assist the Commission and the fund
     administrator with monitoring and enforcing universal service
     contribution requirements? What modifications would the Commission
     need to make to its rules to effectuate this kind of policy change?

## Intercarrier Compensation Further Notice

882. In this Further Notice of Proposed Rulemaking (Further Notice) we
     seek comment on certain additional issues not resolved in our
     accompanying order.

883. *Originating Access.* In this order, we conclude that retention of
     originating access charges would be inconsistent with our new
     regulatory approach to intercarrier compensation.[^2171]
     Accordingly, we find that originating charges for all
     telecommunications traffic subject to our comprehensive
     intercarrier compensation framework must be eliminated by the
     conclusion of the transition to the new regime. We seek comment on
     issues relating to the transition for the elimination of
     originating access.

884. *Transit Traffic*. Transiting occurs when two carriers that are not
     directly interconnected exchange traffic by routing the traffic
     through an intermediary carrier's network.[^2172] We request
     comment on whether the reforms we adopt today necessitate the
     adoption of any rules or guidelines governing transit service.

885. *Universal Service Rules Applicable to Rate-of-Return Carriers.* In
     this order, we conclude that under certain circumstances,
     rate-of-return carriers will be able to receive universal service
     support to recover net reduced revenues from intercarrier
     compensation as a result of reforms adopted in this order that they
     do not otherwise recover through SLC increases or other revenue
     increases. We seek comment on what rule changes are necessary to
     allow rate-of-return carriers to receive universal service support
     in this manner.

886. *Parts 51, 54, 61, and 69.* Part 51 of the Commission's rules
     contain requirements applicable to interconnection, including
     reciprocal compensation.[^2173] Part 54 of the Commission's rules
     describe universal service programs and administration.[^2174] Part
     61 of the Commission's rules prescribes the framework for the
     initial establishment of and subsequent revisions to tariff
     publications.[^2175] Part 69 of the rules governs the Commission's
     access charge regulations for interstate or foreign access
     services.[^2176] We solicit comment on the need to revise the rules
     set forth in Parts 51, 54, 61 and/or 69, or any other rules, as a
     result of the reforms we adopt today.

# procedural matters

## *Ex Parte* Presentations

887. The rulemaking this Further Notice initiates shall be treated as a
     "permit-but-disclose" proceeding in accordance with the
     Commission's ex parte rules.[^2177] Persons making oral ex parte
     presentations are reminded that memoranda summarizing the
     presentations must contain summaries of the substance of the
     presentations and not merely a listing of the subjects discussed.
     More than a one or two sentence description of the views and
     arguments presented generally is required.[^2178] Other
     requirements pertaining to oral and written presentations are set
     forth in section 1.1206(b) of the Commission's rules.[^2179]

## Comment Filing Procedures

888. Pursuant to sections 1.415 and 1.419 of the Commission's
     rules,[^2180] interested parties may file comments and reply
     comments regarding the Further Notice on or before the dates
     indicated on the first page of this document. **All filings related
     to the intercarrier compensation Further Notice of Proposed
     Rulemaking should refer to CC Docket No. 01-92**. **All filings
     related to the universal service contributions Further Notice of
     Proposed Rulemaking should refer to WC Docket No. 06-122**.
     Comments may be filed using: (1) the Commission's Electronic
     Comment Filing System (ECFS), (2) the Federal Government's
     e-Rulemaking Portal, or (3) by filing paper copies. *See*
     Electronic Filing of Documents in Rulemaking Proceedings, 63 FR
     24121 (1998).

889. Electronic Filers: Comments may be filed electronically using the
     Internet by accessing the ECFS: http://www.fcc.gov/cgb/ecfs/ or the
     Federal e-Rulemaking Portal: http://www.regulations.gov. Filers
     should follow the instructions provided on the website for
     submitting comments.

890. ECFS filers must transmit one electronic copy of the comments for
     CC Docket Nos. 01‑92, 99-200, or WC Docket No. 06-122,
     respectively. In completing the transmittal screen, filers should
     include their full name, U.S. Postal Service mailing address, and
     the applicable docket number. Parties may also submit an electronic
     comment by Internet e-mail. To get filing instructions, filers
     should send an e-mail to ecfs@fcc.gov, and include the following
     words in the body of the message, "get form." A sample form and
     directions will be sent in response.

891. Paper Filers: Parties who choose to file by paper must file an
     original and four copies of each filing. Filings can be sent by
     hand or messenger delivery, by commercial overnight courier, or by
     first-class or overnight U.S. Postal Service mail (although we
     continue to experience delays in receiving U.S. Postal Service
     mail). All filings must be addressed to the Commission's Secretary,
     Marlene H. Dortch, Office of the Secretary, Federal Communications
     Commission, 445 12th Street, S.W., Washington, D.C. 20554.

892. The Commission's contractor will receive hand-delivered or
     messenger-delivered paper filings for the Commission's Secretary at
     236 Massachusetts Avenue, N.E., Suite 110, Washington, D.C. 20002.
     The filing hours at this location are 8:00 a.m. to 7:00 p.m. All
     hand deliveries must be held together with rubber bands or
     fasteners. Any envelopes must be disposed of [before]{.underline}
     entering the building.

893. Commercial overnight mail (other than U.S. Postal Service Express
     Mail and Priority Mail) must be sent to 9300 East Hampton Drive,
     Capitol Heights, MD 20743.

894. U.S. Postal Service first-class, Express, and Priority mail should
     be addressed to 445 12th Street, S.W., Washington D.C. 20554.

895. Parties should send a copy of their filings in CC Docket No. 01-92
     to Victoria Goldberg, Pricing Policy Division, Wireline Competition
     Bureau, Federal Communications Commission, Room 5-A266, 445 12th
     Street, S.W., Washington, D.C. 20554, or by e-mail to
     cpdcopies@fcc.gov. Parties shall also serve one copy with the
     Commission's copy contractor, Best Copy and Printing, Inc. (BCPI),
     Portals II, 445 12th Street, S.W., Room CY-B402, Washington, D.C.
     20554, (202) 488-5300, or via e-mail to fcc@bcpiweb.com.

896. Parties should send a copy of their filings in WC Docket No. 06-122
     to Jennifer McKee, Telecommunications Access Policy Division,
     Wireline Competition Bureau, Federal Communications Commission,
     Room 5-A423, 445 12th Street, S.W., Washington, D.C. 20554, or by
     e-mail to cpdcopies@fcc.gov. Parties shall also serve one copy with
     the Commission's copy contractor, Best Copy and Printing, Inc.
     (BCPI), Portals II, 445 12th Street, S.W., Room CY-B402,
     Washington, D.C. 20554, (202) 488-5300, or via e-mail to
     fcc@bcpiweb.com.

897. Parties should send a copy of their filings in WC Docket No. 99-200
     to Marilyn Jones, Competition Policy Division, Wireline Competition
     Bureau, Federal Communications Commission, Room 5-A423, 445 12th
     Street, S.W., Washington, D.C. 20554, or by e-mail to
     cpdcopies@fcc.gov. Parties shall also serve one copy with the
     Commission's copy contractor, Best Copy and Printing, Inc. (BCPI),
     Portals II, 445 12th Street, S.W., Room CY-B402, Washington, D.C.
     20554, (202) 488-5300, or via e-mail to fcc@bcpiweb.com.

898. Documents in CC Docket Nos. 01-92, 99-200, and WC Docket No. 06-122
     will be available for public inspection and copying during business
     hours at the FCC Reference Information Center, Portals II, 445 12th
     Street S.W., Room CY-A257, Washington, D.C. 20554. The documents
     may also be purchased from BCPI, telephone (202) 488-5300,
     facsimile (202) 488-5563, TTY (202) 488-5562, e-mail
     fcc@bcpiweb.com.

## Initial Regulatory Flexibility Analysis

899. As required by the Regulatory Flexibility Act of 1980,[^2181] the
     Commission has prepared an Initial Regulatory Flexibility Analysis
     (IRFA) of the possible significant economic impact on small
     entities of the policies and rules addressed in this document. The
     IRFA is set forth in Appendix \[\[\_\_\]\]. Written public comments
     are requested on this IRFA. Comments must be identified as
     responses to the IRFA and must be filed by the deadlines for
     comments on the Notice provided on or before the dates indicated on
     the first page of this Notice.

## Final Regulatory Flexibility Analysis

900. Pursuant to the Regulatory Flexibility Act (RFA),[^2182] the
     Commission has prepared a Final Regulatory Flexibility Analysis
     (FRFA) for the Report and Order concerning the possible significant
     economic impact on small entities by the policies and actions
     considered in the Report and Order. The text of the FRFA is
     included in Appendix \[\[\_\]\].

## Paperwork Reduction Act

901. This document contains proposed new or modified information
     collection requirements. The Commission, as part of its continuing
     effort to reduce paperwork burdens, invites the general public and
     the Office of Management and Budget (OMB) to comment on the
     information collection requirements contained in this document, as
     required by the Paperwork Reduction Act of 1995, Public Law 104-13.
     In addition, pursuant to the Small Business Paperwork Relief Act of
     2002, Public Law 107-198,[^2183] we seek specific comment on how we
     might "further reduce the information collection burden for small
     business concerns with fewer than 25 employees."

## Accessible Formats

902. To request materials in accessible formats for people with
     disabilities (Braille, large print, electronic files, audio
     format), send an e-mail to fcc504@fcc.gov or call the Consumer &
     Governmental Affairs Bureau at 202-418-0530 (voice) or 202-418-0432
     (TTY). Contact the FCC to request reasonable accommodations for
     filing comments (accessible format documents, sign language
     interpreters, CART, etc.) by e‑mail: FCC504@fcc.gov; phone:
     202-418-0530 or TTY: 202-418-0432.

## Congressional Review Act

903. The Commission will include a copy of this Order on Remand and
     Report and Order and Further Notice of Proposed Rulemaking in a
     report to be sent to Congress and the Government Accountability
     Office pursuant to the Congressional Review Act. *See* 5 U.S.C. §
     801(a)(1)(A).

# ordering clauses

904. Accordingly, IT IS ORDERED that, pursuant to Sections 1--4,
     201--209, 214, 218-220, 224, 251, 252, 254, 303(r), 332, 403, 502,
     and 503 of the Communications Act of 1934, as amended, and Sections
     601 and 706 of the Telecommunications Act of 1996, 47 U.S.C.
     §§ 151--154, 157 nt, 201--209, 214, 218-220, 224, 251, 252, 254,
     303(r), 332, 403, 502, 503, and sections 1.1, 1.411--1.429, and
     1.1200--1.1216 of the Commission's rules, 47 C.F.R. §§ 1.1,
     1.411--1.429, 1.1200--1.1216, the ORDER ON REMAND AND REPORT AND
     ORDER AND FURTHER NOTICE OF PROPOSED RULEMAKING ARE ADOPTED.

905. IT IS FURTHER ORDERED that Parts \[\[\_\_\]\] of the Commission's
     rules, 47 C.F.R. § \[\[\_\_\]\] are AMENDED as set forth in
     Appendix A hereto.

906. IT IS FURTHER ORDERED, in light of the opinion of the United States
     Court of Appeals for the District of Columbia Circuit in
     *WorldCom v. FCC*, 288 F.3d 429 (D.C. Cir. 2002), we consider our
     obligations met from the writ of mandamus issued in *In re Core
     Communications, Inc. on Petition for Writ of Mandamus to the
     Federal Communications Commission*, D.C. Cir. No. 07-1446 (decided
     July 8, 2008).

907. IT IS FURTHER ORDERED that this REPORT AND ORDER, ORDER ON REMAND,
     and Further Notice of Proposed Rulemaking shall become effective 30
     days after publication of the text of a summary thereof in the
     Federal Register, pursuant to 47 C.F.R. §§ 1.4, 1.13, except for
     the information collections, which require approval by OMB under
     the PRA and which shall become effective after the Commission
     publishes a notice in the Federal Register announcing such approval
     and the relevant effective date(s).

908. IT IS FURTHER ORDERED that the Commission's Consumer & Governmental
     Affairs Bureau, Reference Information Center, SHALL SEND a copy of
     this REPORT AND ORDER AND ORDER ON REMAND, including the Final
     Regulatory Flexibility Analyses and Final Regulatory Flexibility
     Certifications, to the Chief Counsel for Advocacy of the Small
     Business Administration.

909. IT IS FURTHER ORDERED that the Commission's Consumer & Governmental
     Affairs Bureau, Reference Information Center, SHALL SEND a copy of
     this FURTHER NOTICE OF PROPOSED RULEMAKING, including the Initial
     Regulatory Flexibility Analyses and Initial Regulatory Flexibility
     Certifications, to the Chief Counsel for Advocacy of the Small
     Business Administration.

> FEDERAL COMMUNICATIONS COMMISSION
>
> Marlene H. Dortch\
> Secretary
>
> APPENDIX D

![](media/image2.jpeg){width="6.0in" height="0.8027777777777778in"}

Ms. Marlene H. Dortch, Secretary\
Federal Communications Commission\
445 Twelfth Street, SW\
Washington, DC 20554

**October 24, 2008**

**Re: Notice of Written *Ex Parte* Presentation (WC Docket 05-337; CC
Docket 96-45; WC**

**Docket 06-122; CC Docket 01-92)**

Dear Ms. Dortch,

Free Press submits this written *ex parte* filing to update the record
on particular issues in the\
Commission's open dockets on Developing a Unified Intercarrier
Compensation Regime (CC\
Docket No. 01-92), and related Universal Service Fund (USF) dockets (WC
Docket No. 05-337 and\
CC Docket No. 96-45).

In this *ex parte* we provide our analysis and recommendations on the
draft ICC-USF reform\
proposal ("Draft Proposal") currently scheduled for a full Commission
vote on November 4th. We\
first outline the Draft Proposal (as we understand it), then offer
recommendations on how to modify\
and implement this plan in a manner that is fair, efficient, reasonable,
and consumer friendly.

Ultimately, with our recommendations incorporated, we feel that the
Commission can and should\
adopt both a Report and Order *and* a Further Notice of Proposed
Rulemaking at the November 4th\
open meeting. We recommend that the Report and Order establish a solid
framework for\
transitioning the ICC system to cost-based rates and establish a solid
framework for incorporating\
broadband into the USF. The Further Notice should then deal with most of
the implementation\
details of these frameworks (and do so in a three to six month comment
cycle with three to six\
additional months to move to a final Order). While there is general
consensus in the record that\
ICC rates should be lowered and that USF must be modernized, the
implementation details that\
achieve these outcomes are what causes much of the dispute. A Report and
Order with a solid\
transition framework and a Further Notice with firm tentative
conclusions will move this debate\
beyond the current impasse while still addressing many of the concerns
of the commenters who\
would rather the Commission delay this entire matter.

Bifurcation of Commission action on November 4^th^ into these two items
recognizes that even if\
every element of the policy were to be contained in a single Order, the
administrative mechanisms\
needed to implement the Order and transition the regulatory regimes
would take time and further\
input to devise and settle. An Order will delimit the start and end
points of reform, establishes the\
first steps, and chart a clear path forward---while an FNPRM opens an
opportunity for further\
deliberation on the means.

Our primary interest in these proceedings is to ensure consumers are
treated fairly and not unduly\
burdened. We want to make certain that consumers, not just particular
private companies, benefit\
from these reforms. With the appropriate changes made to the Draft
Proposal, the Commission can\
usher in long-overdue reforms that are equitable, minimize consumer
burden, increase efficiency,\
and bring affordable high-quality broadband to every region of the
nation.

![](media/image2.jpeg){width="6.0in" height="0.8027777777777778in"}

**The Commission's Draft ICC-USF Reform Proposal**

The draft ICC-USF reform proposal on circulation at the Commission is
designed to achieve two\
important policy objectives: reforming the system of intercarrier
compensation (albeit only on the\
terminating side) and modernizing the Universal Service Fund. Our
understanding of the elements\
of the Draft Proposal is based on our conversations with the Chairman's
office on October 17, 2008,\
and on various media reports and analyst statements.^1^ Trying to glean
the details of such a\
comprehensive proposal in this fashion is far from ideal. However, we
recognize that most of the\
ideas on the table are present in the record in some form. Based on what
we do know, the proposal\
needs further modifications in order to adequately achieve the policy
objectives in a manner that is\
consistent with the public interest principles of the Communications
Act.

*ICC Reform Elements of the Commission's Draft Proposal*

The Commission proposes a 10-year phase down of all terminating access
rates to a unified\
reciprocal compensation rate within each state, set by state regulators.
In the first two years of the\
10-year path, intrastate rates are lowered to interstate levels. In the
fifth year, the states will have\
set a rate that is close to reciprocal compensation levels (RC). By the
end of the 10-year process, all\
rates within each state must be uniform, at a level of forward-looking
reciprocal compensation.

This lowering of terminating access charges will result in a reduction
in revenues for those\
companies who are current net recipients of access fees \-- local
exchange carriers (though we\
should note here that access minutes will likely continue to decline as
the rates are phased down, an\
aspect we comment on in detail below). In order to "offset" this decline
in revenue, the\
Commission proposes to raise the Federal Subscriber Line Charge (SLC)
for primary residential and\
single-line businesses by \$1.50, to a total of \$8.00 per month. The
multi-line business SLC will\
increase to \$11.50 per month. These increases will come as the
Federal-State Joint Board is tasked\
with the determining an appropriate national rate benchmark, and
deciding whether further SLC\
increases will be allowed.

Since there is a widely-held belief that above-cost access charges are
an implicit subsidy for\
universal service, the Commission's Draft Proposal also offers a
recovery mechanism for certain\
carriers operating in high-cost areas. Rate-of-Return (RoR) carriers
operating in these areas will be\
able to access increased universal service support from the interstate
common line support program\
(ICLS). The Commission estimates that this will amount to \$500 million
in total additional funds\
over the entire first 5-year period, and will be approximately \$200
million to \$300 million in each\
year following. We do not know if this additional funding is capped, or
remains uncapped like the\
current ICLS funds. We also do not know the details on how the amount of
support for each carrier\
is calculated (i.e. whether or not it is based on forward-looking costs,
or embedded costs as

---------------------------------------

^1^ *See* Ex Parte communication of Free Press, WC Docket 05-337; CC
Docket 96-45; WC Docket 06 122; CC Docket\
01-92, October 20, 2008; *see also e.g.*, Joelle Tessler, "FCC chair
eyes fallow TV airwaves for broadband", *Associated\
Press*, October 15, 2008. Therefore, we alone are responsible for the
characterization of the Commission's Draft\
Proposal in this *ex parte*, and make no claims as to the accuracy of
our characterization, since we have never actually\
seen the circulated draft.

2

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currently calculated for ICLS). Under the Draft Proposal, price-cap (PC)
regulated carriers will not\
be able to obtain any access recovery funds (ARF) unless they petition
the Commission and show\
their costs. It is unclear to us whether this cost-showing process will
rely solely on the regulated\
cost-structure of a carrier's business, or if it considers all revenue
and costs (e.g. broadband, IPTV,\
directory services, etc\...)

We understand the Draft Proposal will deal with the issue of phantom
traffic by requiring that all\
providers identify their traffic, or face the possibility of being
charged the highest possible access\
rate.

We also understand that voice-over-Internet-protocol (VoIP) traffic will
be classified as an\
information service. This change in policy has substantial implications
for the ability of VoIP\
providers to obtain reasonable interconnection arrangements with other
carriers. This move would\
likely increase the level of uncertainty in the access charge regime
precisely at a time when the\
Commission is seeking to provide certainty. By declaring VoIP an
information service, the\
structure of Section 251 and the entire industrial interconnection
regime is called into question.\
This is a very dangerous move, as there is no parallel regime under
Title I to ensure competitive\
access. This element of the reform package ***must*** be reviewed in a
Further Notice to prevent\
substantial unintended consequences.

*USF Reform Elements of the Commission's Draft Proposal*

The Commission's Draft Proposal aims to reform the Federal Universal
Service Fund (USF) by\
making fundamental changes to the contribution methodology, and
requiring the offering of\
broadband service as a condition for USF support.

First, the Commission proposes to move the contributions system away
from reliance on interstate\
telecommunications revenues to a numbers-based assessment. As we
understand it, there will be a\
flat \$1 per month fee assessed on all assigned telephone numbers,
exempting pre-paid wireless\
numbers and Lifeline program numbers, but no exemption for additional
"family-plan" numbers.\
According to NRUF, this amounts to nearly 617 million numbers.^2^ At a
\$1 per month per number,\
this equates to about \$7.4 billion per year, or approximately \$100
million short of the 2008\
projected total size of the Fund. Because of this and likely future
shortfalls, the Commission's\
Draft Proposal will place some revenue-based assessment on businesses.
The Commission believes\
that under this methodology the consumer's USF burden will decrease from
approximately 48\
percent of the fund to 42 percent of the fund.

On the distributions side, the Commission's Draft Proposal will freeze
High Cost Fund support at\
the current level for each study area. The Commission will eliminate the
Identical Support Rule\
(see below). The Commission's proposal will require that all
USF-supported providers offer\
broadband to 100 percent of customers in their service areas within
5-years, with broadband defined

---------------------------------------

^2^ "Numbering Resource Utilization in the United States, NRUF data as
of December 31, 2007", Industry Analysis and

Technology Division, Wireline Competition Bureau, Federal Communications
Commission, August 2008.

3

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as a service capable of providing a 768 kilobit per second (kbps) or
higher connection in one-\
direction. Carriers are obligated to cover at least 20 percent of their
unserved territory in the first\
year, and an additional 20 percent in each of years 2-5 (leading to 100
percent at the end of year\
five).

If a carrier is unable to meet these obligations at the current level of
study-area level support, then\
the study area is put up for a reverse auction, with the reserve price
being the current level of\
support. Bidders who participate in the reverse auction will be first
ranked by the speed of their\
proposed broadband service, then by the level of their bid (i.e.
broadband speed is given priority\
over the bid price). If a winning bidder is a new entrant, they will not
be under the same buildout\
timeline as the incumbent. We are uncertain as to the length in time
between reverse auctions, or if\
there will be future auctions at all for a given study area.

If no entity bids to offer support, then the study area is declared
unserved. We understand that in\
this situation, the current carrier of last resort (COLR) for an un-bid
study area will maintain their\
current level of High Cost support and will not be under any broadband
obligations for that study\
area.

The Commission's Draft Proposal also creates a \$300 per year Broadband
Low-Income pilot\
project. We are uncertain as to how this program will be administered,
but we believe it is intended\
to lower the cost of residential broadband for qualifying participants
to the same price as lifeline-\
supported telephony service.

Finally, we understand that while the Commission's Draft Proposal
eliminates the current Identical\
Support Rule, it does not envision a one-supported-provider per study
area approach. The proposal\
caps the level of wireless CETC support at \$1.25 billion per year (the
estimated current level), but\
requires all CETCs to file cost studies to determine if they qualify for
support. Support will only be\
provided if a CETCs costs exceeds a national benchmark (we believe in
the Draft Proposal this is\
established as the average cost per line benchmark of approximately 135
percent).^3^ We are\
uncertain as to the details of the process for a CETC to file cost
information.

If in a given study are no wireless CETC agrees to make a cost-showing,
then that study area\
undergoes a mobility reverse auction with the reserve price set at the
lowest total amount of support\
given to a CETC in a particular study area.^4^ CETCs would still have
the same broadband\
obligations as incumbents.

Ultimately, it is assumed that the total amount of money going to
wireless CETCs will be reduced\
substantially, and these funds redirected to meet the increased
obligations on ICLS due to the\
changes in ICC.

---------------------------------------

^3^ We are actually unsure if this was the benchmark (i.e. the *Ninth
Order* benchmark) or if it was the 138 percent

national urban rate benchmark established in the 2003 *Order on Remand*,
or some other benchmark entirely.

^4^ We are uncertain about this particular aspect, since under the
Identical Support Rule, per-line support is identical

across CETCs in a given study area. However, it could be that since each
ETC serves a different amount of customers,

the reserve price to serve the entire area would be set at the least
total amount of support among current CETCs (i.e. the

amount going to the CETC with the fewest amount of customers), with the
winner required to offer service to any

requesting customer within the study area.

4

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**Free Press' Assessment of and Recommendations to Improve\
The Commission's Draft ICC-USF Reform Proposal**

Below we offer our opinions on the Commission's Draft Proposal and
recommendations for\
improving the plan in a manner that is consistent with the public
interest principles of the\
Communications Act. We must stress that the recommendations we offer
here are bound by the\
framework of the current Draft Proposal. That is, were we starting from
scratch and working in a\
world free of path-dependency, we would likely offer a substantially
different-looking package of\
reform policies. However, it is clear that idealism is not a luxury we
can afford at this point. We\
are choosing to participate constructively in this process in an effort
to minimize the burden that this\
reform package will place on consumers, and to ensure that these policy
changes result in\
substantial long-term benefits for all consumers.

*Improving the ICC Reform Elements of\
The Commission's Draft Proposal: Terminating Access Rates*

At its core, the ICC reform elements of the Commission's Draft Proposal
results in a very-low\
terminating access rate that is uniform among all carriers within a
given state. We fully support the\
notion that the price of terminating a call should not differ based
solely on the arbitrary regulatory\
classification of the carriers involved in the transaction, nor should
it differ based on the calls\
geographic origin.

However, this does not mean that we should throw the cost-based
principles of the Act out the\
window. If a proper forward-looking cost study demonstrates a real
difference in call termination\
cost between certain exchanges, then a unified rate across all calls
fails to adhere to the cost-based\
principles of Section 252 and is economically inefficient. However, it
may be the case that the\
transaction costs associated with a varying (but cost-based) rate
structure exceed the efficiency\
gains from having cost-based rates. It is plausible that a unified rate
structure reduces transaction\
costs and discourages arbitrage opportunities at a level that outweighs
the efficiency losses and\
equity concerns of a unified rate. This is a central question that must
be addressed.

Thus, we recommend that the Commission establish a framework that drives
terminating access\
rates lower, but relies on the states to decide the issue of where the
final rates should land. Thus,\
working within the structure of the current Draft Proposal, state
regulators would establish a process\
where rates would decline in years 1 and 2 to the current interstate
level; in years 3, 4 and 5 they\
would decline further to a carrier-specific, cost-based reciprocal
compensation rate. The states\
would then decide whether or not to move to a unified forward-looking
reciprocal compensation\
rate across all carries over the following 5-year period. We envision
that in the November 4th\
Report and Order, the Commission puts a firm rule on the years 1 and 2
process, and seeks input on\
the implementation for years 3-10.

This approach to shaping the path to lower rates should address many of
the concerns of the non-\
RBOC carriers, who don't dispute the need for a lower rate, but are
opposed to a uniform \$0.0007\
rate.

5

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*Improving the ICC Reform Elements of\
The Commission's Draft Proposal: Subscriber Line Charge Increases*

A central feature of the Commission's Draft Proposal is a \$1.50
increase in the Subscriber Line\
Charge (SLC), to a maximum of \$8.00 per primary residential line, and
to \$11.50 for business lines.\
The Commission has the statutory authority to impose Subscriber Line
Charges to recover the\
portion of loop costs placed in the interstate jurisdiction. Thus, in
the Draft Proposal, we have\
increases in the SLC designed to offset reductions in all terminating
access charges \-- both inter-\
and intrastate.^5^

SLCs are appropriate if they do not result in an over-recovery of costs.
However, we are concerned\
that the current SLCs charged by carriers already result in an
over-recovery of costs on a substantial\
portion of lines, and any further increases \-- while offsetting access
charge reductions \-- could result\
in an even greater level of over-recovery. When the Commission adopted
the current \$6.50 SLC\
cap in the *CALLS Order*^6^ it ruled that a further cost review
proceeding would have to be undertaken\
in order to determine if SLCs should rise above \$5.00. Specifically,
the Commission stated that in\
this cost review proceeding it would "examine, forward-looking cost
information associated with\
the provision of retail voice grade access to the public switched
telephone network."^7^ When the\
review proceeding was concluded, it became apparent that very little
verifiable actual forward-\
ooking cost information had been submitted to the Commission.^8^ In the
June 2002 *Order*, the\
Commission ruled that the \$6.50 cap was reasonable, despite the
conclusion that approximately 82\
percent of residential and single-line business price-cap lines had
forward-looking costs below\
\$6.50.^9^

Therefore, we would prefer that the Commission revisit this issue in a
comprehensive manner prior\
to implementing any SLC increases. However, we recognize the high
likelihood of the Commission\
acting as it did in the *CALLS Order*, where it ordered an immediate SLC
increase. If the

---------------------------------------

^5^ Because of this, the Commission must be explicit as to why this
particular SLC increase is allowed under current law.

*See* 47 U.S.C. §§ 4(i), 201-205; see also *National Association of
Regulatory Utility Commissioners v. Federal*

*Communications Commission*, 737 F.2d 1095, 1114 (D.C. Cir. 1984) (NARUC
v. FCC).

^6^ *Access Charge Reform,* 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 (2000) (*CALLS*

*Order*), *aff'd in part, rev'd in part, and remanded in part*, *Texas
Office of Public Util. Counsel v. FCC*, 265 F.3d

313 (5th Cir. 2001), *cert. denied*, *Nat'l Ass'n of State Util.
Consumer Advocates v. FCC*, 70 U.S.L.W. 3444 (U.S.

Apr. 15, 2002).

^7^ *Ibid.* ¶ 83

^8^ In his dissenting statement, Commissioner Michael J. Copps stated,
"\[a\] significant number of carriers, however,

submitted summary data without disclosing the inputs used, cost models
that were not transparent, or in some cases,

models that have been rejected by the state commissions\... The
Commission then failed to conduct its own independent

analysis of the cost data. By failing to undertake the thorough analysis
of cost data that was promised in the access

reform order, we are neglecting our obligation to consumers."

^9^ See footnote 82, *In the Matter of Cost Review Proceeding for
Residential and Single-Line Business Subscriber Line*

*Charge (SLC) Caps; Access Charge Reform; Price Cap Performance Review
for Local Exchange Carriers,* CC Docket

Nos. 96-262, 94-1, Order, FCC 02-161, rel. June 5, 2002.

6

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Commission is determined to act in this fashion, we have several
recommendations that will\
mitigate consumer harm.

First, given that the Draft Proposal calls for a phase in of access rate
reductions, there should be a\
commensurate phase in of SLC increases. There is absolutely no reason
why LECs should be\
permitted on day one to charge a full \$1.50 in additional SLCs when
they have not experienced *any\
*declines in access revenues. If the Commission is adamant that a \$1.50
SLC increase is appropriate\
while the Federal-State Joint Board (FSJB) considers the issue of a
national rate benchmark, then\
the Commission needs to provide some justification of how this \$1.50
increase relates to reduced\
access charges, and phase in the SLC increase commensurate with the
access charge decreases.

For example, in a recent *ex parte,* AT&T provides some estimates of the
potential access shifts\
resulting from a move to a "recip comp proxy" to be \$2.3 billion per
year.^10^ They also estimate that\
there are 81 million primary residential lines. Thus, under this
scenario a SLC increase of \$1.50\
results in an offset of \$1.46 billion annually from primary residential
lines alone (we can also\
assume a substantial additional offset revenues from the increase in the
multi-line business SLC\
from \$9.20 to \$11.50 \-- perhaps as much as \$1.1 billion
annually).^11^ But the full force of the \$2.3\
billion in annual access revenue reductions resulting from a decline to
a "recip comp proxy" won't\
even be felt for many years \-- potentially 10 years.

Why then should SLCs increase now? Plainly, they shouldn't. If they do,
it should be very little\
while the access charges are phased down. Thus for example, if the phase
down of access charges\
in year one results in a \$500 million annual access shift, then the SLC
increase for primary\
residential and single-line businesses should be no more than 25
cents.^12^

Therefore we request that in addition to delegating to the FSJB the
issue of determining a national\
rate benchmark and final SLC cap, that the Commission, in the
forthcoming Report and Order and\
Further Notice, begin a cost-review proceeding to determine the proper
level for SLCs, based on\
forward-looking cost models that are detailed and transparent (and
available for public review under\
cover of confidentiality).

We also strongly recommend that the Commission determine the net access
shift that will result\
from a reduction in access rates to interstate levels by the end of year
two of the ICC transition plan.\
We then recommend the Commission calculate the appropriate temporary SLC
increase (for these

---------------------------------------

^10^ *Ex Parte* communication of AT&T, Re: *Developing a Unified
Intercarrier Compensation Regime*, CC Docket No.

01-92; *High-Cost Universal Service Support*, WC Docket No. 05-337;
*Universal Service Contribution Mechanism*, WC

Docket No. 06-122; *Intercarrier Compensation for ISP-Bound Traffic*, WC
Docket 99-68; *Establishing Just and*

*Reasonable Rates for Local Exchange Carriers*, WC Docket No. 07-135,
October 20, 2008.

^11^ The Commission estimates there were about 40 million multi-line
business lines that companies reported as qualified

to receive Subscriber Line Charges in 2006, and another 9.7 non-primary
residential lines. See Table 1.3 in "Trends in

Telephone Service", Industry Analysis Division, August 2008.

^12^ Here we assume 86 million SLC-qualified primary residential and
single line business lines, 9 million non-primary

residential lines, and 40 million multi-line business access lines.
Based on the current ratios of the residential-to-multiline

SLCs (\$6.50/\$9.20 = 0.7), the increase in the multi-line business SLC
under this scenario would be about 40 cents

per month.

7

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two years) based on this amount of access revenue shift (minus any
imputed to vertically integrated\
LECs; see below) \-- and that this SLC increase be itself phased in over
the two year period. The\
Commission ***must*** approach the initial SLC increases in this
fashion, for if it does not it is harming\
consumers by saddling them with plainly unjustifiable SLC increases.
This method of parallel\
phase-in (access charges declining as SLC charges increase) represents a
fair and reasonable way to\
ensure that the burden of regulatory change is shared and not borne
disproportionately by ratepayers.

Our second recommendation is based upon the principle of fairness. We
feel that the Commission\
must recognize the massive changes that have occurred in the telephony
industry since it last\
undertook access charge reform in 2001. Since then, vertical integration
between RBOCs, IXCs\
and wireless carriers has nearly reconstituted the former Ma Bell
monopoly. Verizon and AT&T\
dominate the local exchange, long-distance and mobility markets. Their
respective long-distance\
and wireless businesses will benefit substantially from the lowering of
access charges. While it is\
true that the LEC side of their businesses will have declines in access
revenues, it is a safe\
assumption (based on their eagerness for the Commission to lower access
rates) that they stand to\
reap substantial net benefits from ICC reform.

Therefore we strongly urge the Commission to only allow a carrier to
increase their SLCs if they\
can show their business experiences a net decline in revenues as a
result of ICC reforms. Thus,\
wireline customers of AT&T and Verizon should not be subjected to SLC
increases unless those\
carriers are able to demonstrate net access revenue declines as well as
rates that are below the\
benchmark set by the FSJB. In the event of such a showing, the increases
should proceed on the\
parallel phase-in method described above.

*Improving the ICC Reform Elements of\
The Commission's Draft Proposal: Access Recovery from USF*

The other major feature of the Commission's Draft Proposal \-- and most
other ICC reform\
proposals \-- is an Access Recovery Fund (ARF) for carriers who do not
recover all of their revenue\
declines in increased SLCs. The reasoning here is that access charges
contain an implicit universal\
service subsidy for high-cost carriers. However, there is no evidence
whatsoever that the amount in\
ARF needed to "make a carrier whole" is in any way related to the amount
of implicit USF support\
contained in access revenues. Therefore we are strongly opposed to any
reform proposal that\
attempts to play a zero-sum-game.

The Commission must be guided by the Act. Universal service support
should be explicit, and\
sufficient enough to ensure reasonably comparable rates. It should not
be excessive. In this light,\
we remind the Commission of the wild range various parties attributed to
the implicit USF\
component of price cap carrier interstate access charges in the CALLS
proceeding. Some claimed\
the amount was as high as \$3.9 billion annually, while others claimed a
low of \$250 million. The\
Commission ultimately settled on a value of \$650 million \-- a number
suggested by industry and not\
calculated by the Commission. This pool of Interstate Access Support
(IAS) was due to be\
reevaluated after 5 years, with acknowledgement that the \$650 million
amount might be excessive

8

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after that time.^13^ This never happened, despite the fact that
interstate access minutes have declined\
some 40 percent since then, and despite the fact that technology costs
have continued to decline.

The Commission's Draft Proposal would establish an ARF for rate of
return carriers that would\
amount to a maximum of \$200 million to \$300 million per year. This
pool of funds would be\
incorporated into the current program to offset reductions in interstate
rates paid to rate-of-return\
carriers \-- the Interstate Common Line Support program (ICLS). It is
not clear to us what this \$300\
million in increased ICLS ARF is based upon. If it is the total amount
that rate-of-return carriers\
will need to be "made whole" after a SLC increase, then it is an
inappropriate deviation from the\
cost-based and sufficiency principles of the Act.

Under the Commission's Draft Proposal, price-cap regulated carriers will
not be able to access this\
pool of money without first making a cost-showing (though we're
uncertain as to how this would\
actually be structured; e.g. would a carrier have to "open the books" on
all revenue and cost\
streams, or merely on the regulated side of the business). We support
this approach, and believe it\
should apply to all carriers, including rate-of-return carriers.
However, we understand the concerns\
the Commission has in regards to triggering potential confiscation
claims by rate-of-return regulated\
carriers (though we still feel a cost-showing is appropriate in all
cases).

Because the increased ICLS ARF will not be made available to price-cap
carriers, the Commission\
must be cognizant of how this will impact these businesses. A quick look
at the bottom line net\
profit margins (NPM) and Return on Equity (RE) of several major mid-size
price cap carriers (i.e.\
non-vertically integrated RBOCs) reveals that most of these companies
are already fairing better\
than the average for this industry sector (which is approximately 9.6
percent NPM over the past 5-\
years and a 11.9 percent RE over that time). Take for example the
carrier Windstream. Their 5-\
year average NPM is above 17 percent, nearly two times the industry
sector average. Windstream's\
5-year average Return on Equity is 50.2 percent, nearly five times the
industry sector average. At\
the other extreme is a company like Fairpoint Communications, whose
5-year average NPM is 2.5\
percent, with a 5-year average RE of 16 percent. Also worth noting is
the fact that many of these\
carriers have long-distance business segments that stand to reap
substantial access charge savings.

Since many of the price cap regulated companies earn returns far higher
than the 11.25 percent for\
rate-of-return carriers, is it fair for USF funds to be awarded to these
companies to offset revenue\
losses from reductions in above-cost access charges \-- revenues that
are in a natural free fall as a\
result of changing market conditions? Is it fair for these USF funds to
be locked in and awarded in\
perpetuity despite the fact that the returns of many of these companies
would still remain well\
above the industry sector average even in the absence of additional USF
support?

These companies chose the path of price cap incentive regulation \-- a
path that has rewards and\
risks. Thus, merely requiring them to show a true need of additional
explicit subsidies for the\
purposes of universal service seems reasonable. After all, price cap
carriers are generally less\
reliant than rate-of-return carriers on access revenues and are also
able to take advantage of

---------------------------------------

^13^ Supra note 6, at ¶203.

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economies of scale, unlike smaller RoR carriers.

However, we must avoid punishing the customers of these companies, and
therefore must provide a\
"safety net" \-- not necessarily in the form of access recovery funds,
but in a one-time path back to\
rate-of-return regulation. Thus we propose the Commission establish a
forbearance mechanism for\
distressed price cap companies to violate the "permanent choice rule"
and return to rate-of-return\
status.^14^ However, to avoid the enriching that the permanent choice
rule was originally established\
to prevent, the rate-of-return allowed for a carrier exercising this
option should be substantially\
lower than 11.25 percent.

Ultimately, we recommend that any new access recovery funds be based on
forward-looking cost\
estimates, even ARFs for rate-of-return carriers. The current ICLS funds
available to rate-of-return\
carriers are based on embedded costs^15^, despite the fact that the
Commission has previously\
concluded that "universal service support for all carriers should be
based on the forward-looking\
economic cost of constructing and operating the network used to provide
the supported services,\
rather than each carrier's embedded costs".^16^ When the Commission
created the ICLS, it concluded\
that it was appropriate to base this support on embedded costs, but that
this issue would be revisited\
in 5-years. Like the promise to revisit IAS, this never happened.

We also recommend that as a part of the Further Notice issued in this
proceeding, the Commission\
seek input on the continued need for locking in "frozen" implicit access
revenue subsidies even as\
access minutes are in rapid decline. We proffer that the current \$650
million in IAS (established in\
2000) and the current \$1.5 billion in ICLS (established in 2001) are
far in excess of actual need.\
The Further Notice should concur with this conclusion, and seek input on
a phase down and\
eventual termination of these programs \-- offset if needed with
explicit broadband infrastructure\
support.

*Improving the USF Reform Elements of\
The Commission's Draft Proposal: Broadband*

The Commission's Draft Proposal requires all USF-supported carriers to
deploy broadband, at a\
minimum level of 768 kbps, to 100 percent of their service areas within
a 5-year period. Carriers\
are required to cover their unserved areas at a rate of 20 percent per
year over the 5-years. If the\
USF-supported carrier fails to meet this obligation, the area is put up
for a reverse auction, with the

---------------------------------------

^14^ 47 CFR 69.3(i)(4).

^15^ Multi-Association Group (MAG) Plan for Regulation of Interstate
Services of Non-Price Cap Incumbent Local

Exchange Carriers and Interexchange Carriers, CC Docket No. 00-256,
Second Report and Order and Further Notice of

Proposed Rulemaking, Federal-State Joint Board on Universal Service, CC
Docket No. 96-45, Fifteenth Report and

Order; Access Charge Reform for Incumbent Local Exchange Carriers
Subject to Rate-of-Return Regulation, CC

Docket No. 98-77, Report and Order, Prescribing the Authorized Rate of
Return From Interstate Services of Local

Exchange Carriers, CC Docket No. 98-166, Report and Order, 16 FCC Rcd
19613, FCC 01-304 (2001) (*MAG Order*);

at ¶125.

^16^ MAG Order at ¶56 referencing Federal-State Joint Board on Universal
Service, CC Docket No. 96-45, Report and

Order, 12 FCC Rcd 8776, 9164-65 (1997).

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reserve bid price set at the current study area per-line support level.

While we support modernizing the fund by incorporating broadband, we
have serious concerns\
about the practical outcomes of this particular proposal.

First, we don't envision any non-rural carrier being able to meet their
100 percent obligation at the\
current level of support (which for most of these carriers consists of
only minimal High-Cost Model\
(HCM) support and IAS support for geographically large study areas). We
also don't envision\
other providers showing up to the reverse auction and meeting the
reserve bid. This is simply\
because many of the non-rural study areas are geographically massive,
such as the old Pac Bell\
study area which consists of 14 million access lines.

In these situations with no bidder, there is no improvement in broadband
deployment from the\
status quo. This is what we call the "dead-end" scenario. Because
carriers in such study areas face\
no penalties from failure to meet the 100 percent broadband deployment
benchmark, they have no\
incentive to deploy based on the current level of support. Furthermore,
even in study areas where a\
non-incumbent bidder wins the reverse auction, there's a high-likelihood
that USF monies will be\
used to build or maintain broadband infrastructure in locations where
other unsubsidized services\
already exist. This outcome would result in an unnecessary use of scarce
resources.

The "dead-end" scenario is a very likely outcome. It is worth noting
that no carrier has publicly\
stated that they will be able to meet the Draft Proposal's 100 percent
benchmark at current support\
levels; and we should assume that this silence means that they cannot or
will not.

If the Commission is determined to adopt a USF reform plan similar to
that in the Draft Proposal,\
then we recommend the following changes.

First, the Commission should not use a specific speed benchmark of
768kbps. Instead, the standard\
should be service speeds and qualities (i.e. latencies) that are
reasonably comparable to those\
available in that particular state.^17^ This standard should also be
flexible for the small portion of\
homes that are defined as "extremely high cost" (see next item). We
recommend this issue be\
addressed in the Further Notice.

Second, the Commission should recognize that a very small percent of
homes might be\
prohibitively expensive to serve. In this instance, the cost of serving
the last one percent of\
unserved homes could dwarf the other 99 percent. Thus we recommend the
Commission establish a\
case-by-case forbearance process where these extremely high-cost homes
can be served using\
alternative technologies such as fixed wireless or satellite. The
Commission should seek input in the\
Further Notice as to what the cost-differential should be in order to
qualify for forbearance. A\
reasonable value may be on the order of 5 to 10 times the current
average per-line cost for a given\
study area.

---------------------------------------

^17^ The issue of latency is perhaps just as important as speeds. While
some satellite broadband offerings may have

speeds that exceed 768kbps, the latency of these services results in a
user experience that is far different from those

using low-latency technologies.

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Third, carriers should be required to offer buildout plans once a year
for the 5-year period leading to\
100 percent service deployment. If a carrier does not meet or does not
plan to meet its obligations\
in any of the 5-years, then the auction process should commence
immediately. Thus, if from day\
zero a carrier declares they cannot meet the buildout requirements, then
the auction process should\
begin.

Fourth, in order to avoid the "dead-end" scenario describe above, if a
study area is put up for\
reverse auction and receives no winning bidders, then the study area
should be disaggregated. We\
recommend disaggregation into Census Block Groups (CBGs). Then, using
the new Form 477\
availability data (that we and others have urged the Commission to
collect in a separate\
proceeding)^18^, the Commission should identify the CBGs within a
particular study area that are not\
served by any broadband provider.

Once the served and unserved areas of a study area are identified, the
Commission or a state\
Commission should then designate a current broadband provider in the
served portions of the study\
area as the Carrier of Last Resort (COLR). If there is one or more
USF-supported broadband\
providers and one or more unsubsidized broadband providers in these
served portions of a study\
area, then the unsubsidized provider should be designated by the
Commission or state Commission\
as the COLR, either based on authority under Section 214(e)(3) of the
Act or by negotiation. This\
newly designated COLR will not be eligible for USF support absent a
showing of need (and need\
will be based on the cost of providing broadband and voice-grade service
at retail rate reasonably\
comparable to the statewide average).

The USF monies that were previously distributed to the COLR in these
served portions of the study\
area will then be redirected to supporting broadband in the unserved
portions of the study area. The\
unserved portions of a study area will be bid out in a request for
proposal (RFP) process, with a\
general cost-guideline used instead of a reserve bid (i.e., support will
not be bound by the current\
POTS per-line support amount, recognizing that these areas will require
increased USF support).

The scheme proposed in the above paragraphs is a carrot-and-stick
approach that we believe will\
provide substantial incentives for current USF-supported carriers to
meet the original 100 percent\
buildout obligations in order to avoid a "dead-end" first round auction
and subsequent potential loss\
of support. This proposal \-- by recognizing that many rural areas
already have unsubsidized cable\
broadband service \-- efficiently targets resources in the areas where
the current USF-supported\
COLR cannot meet the buildout requirements. It also increases the amount
of USF support\
available in the truly unserved areas by redirecting support away from
areas where it is not needed.

We strongly recommend the Commission adopt this disaggregation approach.
While we recognize\
that some carriers may be worried about a net loss in USF support under
this approach, we believe

---------------------------------------

^18^ See for example Comments of Consumers Union, Consumer Federation of
America, Free Press and Public

Knowledge, In the Matter of *Deployment of Nationwide Broadband* Data to
Evaluate Reasonable and Timely

Deployment of Advanced Services to All Americans, Improvement of
Wireless Broadband Subscribership Data, and

Development of Data on Interconnected Voice over Internet Protocol
(VoIP) Subscribership, WC Docket No. 07-38,

July 17, 2008.

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that most rural and non-rural carriers will actually see little net
change as a result of a more precise\
targeting of USF support. If the Commission simply adopts the current
Draft Proposal without\
making these modifications, the end result will be no meaningful
increase in broadband deployment\
and continued misallocation of scarce USF resources.

*Improving the USF Reform Elements of\
The Commission's Draft Proposal: Mobility*

The Commission's Draft Proposal caps support for mobile wireless CETCs
at the current total level\
(\$1.25 billion annually), but eliminates the Identical Support Rule
(ISR). This means that in order\
for a wireless CETC to continue to receive support, they must
participate in a cost proceeding. We\
are uncertain if this requires a CETC to file part 32 accounting and
part 64 allocation\
documentation, or if the Commission will create a new cost-showing
mechanism. However a\
CETC makes a cost showing, support will not be available unless it
substantially exceeds a national\
benchmark. If no CETC in a study area undergoes a cost showing, the
Commission's Draft\
Proposal designates that area for a reverse mobility auction, with the
reserve price set at the lowest\
total CETC support for that study area. CETCs are required to meet the
same 100 percent\
broadband benchmarks as incumbent carriers.

As supporters of universal affordable communications technologies, we
support the idea that rural\
consumers should have access to mobility services at reasonably
comparable qualities and rates.\
However, the framework established in the 1996 Act does not appear to
square with the realities of\
today's communications marketplace, where mobility services are not in
direct competition with\
wireline services; but are instead complementary services. Under the
structure of the Act, if the\
Commission is forced to make choices on how to allocate scarce
resources, we feel that the Act's\
principles lead the Commission down a path of supporting robust advanced
telecommunications\
infrastructure, which may or may not have a mobility component.

This is why we ultimately think Congress must directly address the issue
of a separate mobility\
support structure. However, in the interim, as the Commission makes
changes to the Universal\
Service Fund, it must ensure a basic level of universal mobile voice
service. Thus we recommend\
that the Commission, during the first year interim transition period,
determine the populated areas\
where no mobile voice service would be available absent USF support. The
Commission should\
then target its mobility funds towards those areas. Thus, if an area is
served by one or more\
unsubsidized mobility providers, then no USF support should be provided
in that area (irrespective\
of a CETC cost-showing). In areas with only unsubsidized mobility
providers, support for the\
lowest cost-carrier should be awarded. And in the areas where no
provider currently exists,\
mobility funds should be targeted for voice-grade infrastructure
investments.

While we understand the Commission's desire to fund mobile broadband
services, we don't think\
the case has been made that this is a necessary and efficient use of
scarce USF resources. This is\
ultimately a threshold question that Congress must answer.

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**Conclusion**

If the Commission makes the necessary changes outlined above, we believe
it should move forward\
and adopt a Report and Order and Further Notice of Proposed Rulemaking
at the November 4th\
open meeting. The question of which elements fall into which item
remains open and to be\
determined by the commissioners. However, we favor a model in which the
framework (starting\
points, end points, principles, and time-table) and initial steps appear
in the Order, paired with an\
FNPRM that contains strong tentative conclusions for implementation and
administration.

On the issue of ICC rate reform, the Commission should rule that access
rates will be set on a path\
of reduction, and delegate the decisions about where final rates should
land to the states. States\
should have the flexibility to decide whether the final cost-based
reciprocal compensation rate\
should be uniform across all carriers, or if it is economically
appropriate to have some level of\
variation. A path to an intermediate step of interstate rates over two
years can be firmly established\
in the Order, and the details of the states' implementation process in
the years after that can be\
examined in a Further Notice.

On the issue of SLC increases, we strongly urge the Commission to
undergo a cost-review process\
before implementing any such increases. However, if it does rule that a
SLC increase is appropriate\
while the FSJB decides the issue of a national benchmark, then the SLC
increases must be\
commensurate with the declines in access charges. The Commission **must
not** allow an across the\
board SLC increase of \$1.50 in the initial years of the access
transition, because this (along with the\
proposed increase in the business SLC) would result in an immediate
offset of the full value of the\
access shift \-- a shift that will not occur for many years. Allowing
the full SLC increases in the\
early years of the transition gives LECs additional revenues that have
not yet been lost, and this is\
simply unacceptable.

If the Commission is intent on immediate changes to the SLC, we urge it
to determine the amount\
of access shift that will occur in the first two years of the transition
(as rates go to interstate levels),\
and only allow SLC increases that offset this access decline. We
estimate, based on very crude\
data, that the SLC increase needed during the first two years would be
approximately 20 to 30 cents\
for primary residential lines. Finally, vertically integrated carriers
who will be net beneficiaries of\
the decline in access charges should not be allowed to increase their
SLCs.

On the issue of access recovery funding for the purposes of universal
service, we strongly\
recommend that such funding be based on actual need, not a desire to
make a carrier whole. All\
carriers should be required to quantify the actual amount of implicit
support contained within their\
current access revenues, and then demonstrate this support is actually
needed, and is not already\
offset by off-the-books unregulated revenue streams. If the Commission
establishes an additional\
access recovery mechanism, then the support should be based on a
carriers forward-looking cost,\
and take into account declining access minutes. The Commission should
conclude that these new\
funds, and all access replacement funds will sunset in five years,
absent further Commission action.\
If a price cap carrier cannot or will not make a needs-based cost
showing, then a one-time path back\
to rate of return regulation (at a rate lower than 11.25 percent) should
be permitted.

14

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On the issue of declaring VoIP an information service, we **strongly**
urge the Commission to leave\
this monumental decision to a Further Notice, as this change will
completely upend the structure of\
Section 251 and create massive uncertainty as to the future of the
entire industrial interconnection\
regime. There is simply no interconnection regime under Title I to
ensure competitive access.\
Therefore this move would jeopardize the future of the advanced
telecommunications market,\
something that is in direct conflict with Section 706 of the 1996 Act.

On the issue of universal service reform, we support the Commission's
general goal of modernizing\
the USF to support broadband. But we have substantial concerns that the
current framework in the\
Draft Proposal will not result in much change from the status quo.
Indeed, the fact that no carrier\
has indicated their willingness to meet the 100 percent benchmark
outlined in the Draft Proposal is\
indicative that no such outcome should be expected.

We feel that the reasonable comparability standard of the Act means that
a 768kbps standard is\
arbitrary. A better approach would be to require services that are
reasonably comparable those\
available in other areas within a given state. This, combined with a
flexible approach to serving the\
last few very high-cost customers, will ensure that a substantial
majority of consumers in a given\
study area have access to broadband services that are not of a quality
which is years behind that\
available in urban areas.

We recommend a carrot-and-stick incentive-based approach that leads to
study area disaggregation\
in the instances where there is no winning bidder. Under this approach,
current USF funding will\
be diverted away from areas where broadband services are currently
deployed by unsubsidized\
carriers, to the truly unserved areas.

Ultimately, we feel that the Commission should establish a solid
framework in an Order, and issue a\
Further Notice with strong tentative conclusions that addresses the more
difficult implementation\
issues. This approach is prudent, as many of the implementation details
will need to be sorted out\
over the next year even if the Commission chooses to only issue a Report
and Order. Thus many of\
the details that commenting parties are most concerned about (and are
asking for an additional\
comment cycle on) can be dealt with in the Further Notice. We recommend
a 3 to 6 month\
comment cycle and a 3 to 6 month deliberation cycle, culminating with a
final Order on November\
4th 2009.

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Respectfully submitted,

> FREE PRESS
>
> By: ![](media/image3.jpeg){width="1.5263888888888888in"
> height="0.5333333333333333in"}
>
> Ben Scott\
> Policy Director, Free Press
>
> S. Derek Turner\
> Research Director, Free Press
>
> 501 Third Street NW,\
> Suite 875\
> Washington, DC 20001\
> 202-265-1490\
> dturner@freepress.net

Dated: October 24, 2008

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height="0.9895833333333334in"}

21 Dupont Circle NW\
Suite 700\
Washington, DC 20036

October 29, 2008

Marlene H. Dortch, Secretary\
Federal Communications Commission\
Office of the Secretary\
445 12^th^ Street SW\
Washington, DC 20554

***Ex Parte* Notice**

**Re: Developing a Unified Intercarrier Compensation Regime\
CC Docket No. 01-92**

> **High-Cost Universal Service Support\
> WC Docket No. 05-337**
>
> **Federal-State Joint Board on Universal Service\
> CC Docket No. 96-45**

Dear Ms. Dortch,

Attached is a revised version of an *ex parte* filing made earlier
today, with a modification\
to the second bullet on page two. Specifically, it clarifies that the
second component of the\
supplemental interstate common line support (ICLS) is available only to
those rural rate of\
return-regulated incumbent local exchange carriers (ILECs) that have
committed to the five-year\
broadband build-out requirement.

In accordance with FCC rules, this letter is being filed electronically
in the above-\
captioned dockets.

> Sincerely,
>
> Stuart Polikoff\
> Director of Government Relations\
> OPASTCO

1

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height="0.9895833333333334in"}

21 Dupont Circle NW\
Suite 700\
Washington, DC 20036

October 29, 2008

Marlene H. Dortch, Secretary\
Federal Communications Commission\
Office of the Secretary\
445 12^th^ Street SW\
Washington, DC 20554

***Ex Parte* Notice**

**Re: Developing a Unified Intercarrier Compensation Regime\
CC Docket No. 01-92**

> **High-Cost Universal Service Support\
> WC Docket No. 05-337**
>
> **Federal-State Joint Board on Universal Service\
> CC Docket No. 96-45**

Dear Ms. Dortch,

On October 28, 2008, H. Keith Oliver of Home Telephone Company, Inc.,
Mark Gailey\
of Totah Communications, Inc., Catherine Moyer of Pioneer
Communications, Roger Nishi of\
Waitsfield & Champlain Valley Telecom, Robert DeBroux of TDS Telecom,
John Rose and\
Stuart Polikoff of the Organization for the Promotion and Advancement of
Small\
Telecommunications Companies (OPASTCO), and Derrick Owens and Jason
Williams of the\
Western Telecommunications Alliance (WTA) held a conference call with
Chairman Kevin\
Martin, his Chief of Staff, Daniel Gonzalez, his Legal Advisor, Amy
Bender, and Dana Shaffer\
and Donald Stockdale of the Wireline Competition Bureau. The purpose of
the conference call\
was to discuss Chairman Martin's draft Order addressing the
comprehensive reform of\
intercarrier compensation and universal service and its potential
impacts on rural, rate of return\
(RoR)-regulated incumbent local exchange carriers (ILECs).

1

Based on our understanding of the draft Order from our discussion, and
subject to any\
major undisclosed modifications, OPASTCO and WTA support its adoption,
provided that at a\
minimum, the following items are included to address the service areas
of rural RoR ILECs.

• Supplemental interstate common line support (ICLS) (i.e., "the
restructure mechanism")\
is automatically available for carriers that are currently under RoR
regulation in the\
interstate jurisdiction without any other conditions applying,
particularly those related to\
the way a carrier is regulated in the state jurisdiction.

• Supplemental ICLS for rural RoR ILECs has two components. The first
component\
compensates rural RoR ILECs for all of the revenues lost as a result of
the mandated\
reductions in intercarrier compensation rates that are not otherwise
recoverable through\
increases in subscriber line charges (SLCs). The first component remains
in effect for the\
entire 10-year transition to the final state-established uniform
terminating rates. The\
second component is available only to those rural RoR ILECs that have
committed to the\
five-year broadband build-out requirement and is intended to ensure that
those rural RoR\
ILECs continue to have an opportunity to earn their authorized
interstate rate of return,\
subject to a cap. This component will provide compensation for
unrecoverable revenue\
losses attributable to losses in access lines and interstate and
intrastate minutes of use,\
using 2008 as a base year. The second component remains in effect for
the first five\
years of the transition and is capped at \$100 million in year one,
\$200 million in year\
two, \$300 million in year three, \$400 million in year four, and \$500
million in year five.\
Prior to year five, the FCC shall conduct a proceeding to determine if
modifications are\
required.

• The "Rural Transport Rule" applies to rural RoR ILECs. This means that
for local and\
extended area service (EAS) calls made by a rural RoR ILEC's customer to
a non-rural\
carrier's customer, the rural RoR ILEC will be responsible for transport
to a non-rural\
terminating carrier's point of presence (POP) when it is located within
the rural RoR\
ILEC's service area. When the non-rural terminating carrier's POP is
located outside the\
rural RoR ILEC's service area, the rural RoR ILEC's transport and
provisioning\
obligation stops at its meet point and the non-rural terminating carrier
is responsible for\
the remaining transport to its POP.

• The broadband build-out requirement has a limited automatic exception
for very high-\
cost loops and allows rural RoR ILECs to serve those customers by
satellite without\
filing a waiver request. A very high-cost loop is defined as a loop in
which the additional\
cost to provide broadband is in excess of 150 percent of the carrier's
study area average\
loop cost. The automatic exception cannot apply to more than two percent
of a carrier's\
total loops within a study area.

• All high-cost universal service mechanisms utilized by rural RoR ILECs
continue to\
operate as they do today through 2010. This includes high-cost loop
support (HCLS),\
local switching support (LSS), interstate common line support (ICLS),
safety net additive\
support, and safety valve support. Support from these mechanisms will be
frozen by\
study area at 2010 levels.

2

OPASTCO and WTA appreciate the opportunity to provide input on behalf of
our\
membership. These issues are vital to our companies and rural consumers.
We recognize that\
reform of intercarrier compensation and universal service is critical at
this point in time. Again,\
with the inclusion of the modifications set forth above, and absent any
major undisclosed\
changes, OPASTCO and WTA support the Chairman's proposal.

Sincerely,

![](media/image6.jpeg){width="5.8in" height="1.0in"}

John N. Rose, President Kelly Worthington, Executive Vice President

OPASTCO WTA

21 Dupont Circle NW P.O. Box 5655

Suite 700 Helena, MT 59604

Washington, DC 20036

cc: Chairman Kevin Martin

> Commissioner Jonathan Adelstein
>
> Commissioner Michael Copps
>
> Commissioner Robert McDowell
>
> Commissioner Deborah Tate
>
> Amy Bender
>
> Nicholas Alexander
>
> Scott Deutchman
>
> Scott Bergmann
>
> Greg Orlando
>
> Dana R. Shaffer
>
> Julie Veach
>
> Kirk S. Burgee
>
> Donald Stockdale
>
> Marcus Maher
>
> Jeremy Marcus
>
> Randy Clarke
>
> Alexander Minard

3

> **CTIA**
>
> The Wireless Association^®^ *Expanding the Wireless Frontier*

October 22, 2008

Ms. Marlene H. Dortch, Secretary\
Federal Communications Commission\
445 12th Street, SW\
12th Street Lobby, TW-A325\
Washington, D.C. 20554

> **Re: Notice of *Ex Parte* Communication: WC Docket Nos. 01-92, 04-36,
> 05-337,\
> 06-122**

Dear Ms. Dortch:

CTIA -- The Wireless Association® ("CTIA") takes this opportunity to
underscore\
the need for fundamental reforms to the universal service and
intercarrier compensation\
systems so that they better reflect consumer choice and the competitive
marketplace.\
Specifically, CTIA supports: (1) Unification of the intercarrier
compensation system, with a\
uniform termination rate no higher than \$0.0007 per minute, as a
transition to a bill-and-keep\
system; (2) Dedicated universal service support for the deployment and
maintenance of\
advanced mobile wireless services in high-cost areas; (3) The
establishment of Lifeline and\
Link Up discounts to enable lower-income individuals to purchase
affordable broadband\
services utilizing the technology of their choice; and (4) A
numbers-based universal service\
contribution system that does not unfairly treat over 44 million
wireless prepaid and over 70\
million wireless family-plan customers. As the Commission considers how
best to\
implement these changes, CTIA respectfully requests three changes to the
draft Report and\
Order, Order on Remand, and Further Notice of Proposed Rulemaking
currently under\
consideration. Namely, the Commission should:

> 1\. Reduce the proposed transition to unified cost-based rates for
> traffic termination from\
> ten years, as has been proposed, to five years;
>
> 2\. Provide a five year transition from support currently provided to
> competitive eligible\
> telecommunications carriers ("ETCs") under the identical support rule
> to any\
> successor mechanism(s); and
>
> 3\. Seek comment on an appropriate universal service mechanism (or
> mechanisms)\
> focused on the deployment and maintenance of advanced mobile wireless
> services in\
> high-cost and rural areas.

These changes, while modest, will significantly increase the consumer
benefits of the\
Commission's intercarrier compensation and universal service reform
efforts.

**First**, CTIA supports a five year transition to a unified cost-based
rate for traffic\
termination. There is broad agreement in the record that unification of
the intercarrier\
compensation system is long overdue. Parties agree that the current
disparate intercarrier\
compensation system severely distorts the competitive marketplace and
undermines the\
efficient deployment of next generation voice, data, and video services
delivered over

1400 16th Street, NW Suite 600 Washington, DC 20036 Main 202.785.0081
Fax 202.785.0721 www.ctia.org

broadband capable facilities.^1^ According to the Commission, "a
regulatory scheme based on\
these distinctions is increasingly unworkable in the current environment
and creates\
distortions in the marketplace at the expense of healthy competition.
Additional problems\
with the existing intercarrier compensation regimes result from changes
in the way network\
costs are incurred today and how market developments affect carrier
incentives. These\
developments and others . . . confirm the urgent need to reform the
current intercarrier\
compensation rules.\"^2^ The transition to a unified intercarrier
compensation system,\
therefore, should not take another decade to achieve. Instead, CTIA
supports a more\
reasonable five year transition period, which will provide state
commissions, as well as\
impacted carriers and customers more than sufficient time to transition
to a modified\
compensation structure.

**Second**, CTIA supports the same five year transition period for
changes to the\
high-cost support available to competitive ETCs. The Federal-State Joint
Board on\
Universal service ("Joint Board") suggested such a transition period in
its Recommended\
Decision on high-cost universal service reform.^3^ Over a specified
period of time, the Joint\
Board envisioned that wireless ETCs would transition from existing
funding sources to a\
successor Mobility Fund.^4^ Wireless ETCs have now invested billions of
dollars to deploy\
wireless facilities in rural and high-cost areas with the expectation
that high-cost support will\
be available to help defray both the initial deployment and ongoing
maintenance and\
operations costs of these networks. Indeed, under the FCC's ETC
designation guidelines, the\
FCC and many states require wireless ETCs to submit and comply with five
year build out\
plans. As the FCC has stated, failure to comply with these build out
commitments could\
result in revocation of an ETC's designation. In the wireline context,
the Commission has\
provided reasonable transition periods for any significant changes in
high-cost support\
amounts. Wireless ETCs, too, should be provided a reasonable transition
period. To this\
end, CTIA supports a five-year period during which wireless carriers are
transitioned off of\
the existing support mechanisms and onto any successor mechanisms.^5^

**Third**, the Commission should shelve the interim wireless "actual
cost" mechanism\
under consideration and seek comment on a more appropriate high-cost
mechanism (or

---------------------------------------

^1^ *See* Letter from AT&T, CompTIA, CTIA, Global Crossing, ITIC, NAM,
New Global Telecom, PointOne,

Sprint Nextel Corp., TIA, T-Mobile, Verizon, and the VON Coalition to
Chairman Martin, Commissioner

Copps, Commissioner McDowell, Commissioner Adelstein, and Commissioner
Tate, FCC, CC Docket No. 01-

92 (filed Aug. 6, 2008). *See also, e.g.,* Comments of National Cable &
Telecommunications Association, WC

Docket No. 08-160, CC Docket No. 01-92 (Aug. 26, 2008) at 2 (\"NCTA
consistently has supported rational

reform of the intercarrier compensation regime.\"); Comments of the
National Association of State Utility

Consumer Advocates to Refresh the Record, CC Docket No. 01-92 (July 7,
2008) at 7 (\"NASUCA agrees that

the current regime of widely varying rates for the same functionality
depending on the type of call and the

carriers involved creates opportunities for abuse and arbitrage, and
cannot be sustained in the long run.

NASUCA therefore also agrees that reform is needed.\"); Comments of The
Rural Alliance, CC Docket No. 01-

92 (June 27, 2008) at 7 (\"If the Commission believes that the Missoula
Plan cannot be adopted at this time, then

the Commission should consider simplified, yet still comprehensive
intercarrier compensation reform.\").

^2^ *In re: Developing a Unified Intercarrier Compensation Regime*, CC
Docket No. 01-92, Further Notice of

Proposed Rulemaking, 20 FCC Rcd. 4685 at para. 3 (rel. Mar. 3, 2005).

^3^ *See High-Cost Universal Service Support, Federal-State Joint Board
on Universal Service*, WC Docket No.

05-337, CC Docket No. 96-45, Recommended Decision, FCC 07J-4. paras.
27-28 (rel. Nov. 20, 2007)

("*Recommended Decision"*).

^4^ *Id.* at para. 28.

^5^ *Id.* at para. 27.

2

mechanisms) to permanently replace the identical support rule (if
eliminated). Such a\
mechanism should provide dedicated universal service support for the
deployment and\
maintenance of advanced mobile wireless services in high-cost areas.
Initial comments in\
this proceeding presented extensive data demonstrating that technology
and the marketplace\
have changed in fundamental ways since the current universal service
mechanisms were\
adopted in 1997.^6^ These data show that consumers today primarily value
mobility and\
broadband.^7^ As Verizon recently observed, an increasing percentage of
U.S. households rely\
exclusively or almost exclusively on their mobile wireless services for
their network\
connectivity and growth in wireless-only households is accelerating
(especially in light of a\
challenging economic outlook).^8^ The marketplace developments
demonstrate that any\
universal service policies must, consistent with section 254 of the Act,
ensure that wireless\
carriers have competitively- and technologically-neutral access to
high-cost funding. Section\
254 of Act also demands that such support mechanisms provide "specific,
predictable, and\
sufficient" support that ensures consumers in high-cost rural areas have
access to mobile\
wireless services that are "comparable" to those available in urban
areas.^9^

The initial comments in this proceeding reveal a striking level of
acknowledgement\
that mobility and broadband are the services that consumers are
demanding today. Even\
many rural incumbent local exchange carrier ("rural ILEC") interests
acknowledge the very\
strong consumer demand for broadband and mobility and the need to fund
these services,\
which should be, but are not yet, ubiquitously available.^10^ State
public utility commissions\
and NASUCA also point out their constituent citizens' needs for
broadband and mobility.^11^\
The Commission's reform efforts must be fundamentally driven by the need
to ensure\
ubiquitous availability of mobile and broadband services. In light of
these fundamental\
marketplace and technological realities, it is unsurprising that there
is significant support in\
the record for the Joint Board's proposal to set aside universal service
funding for areas\
where it is not economical to provide mobile wireless and broadband
services absent\
support.^12^

---------------------------------------

^6^ CTIA comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at
2-11.

^7^ *Id.* at 10.

^8^ *See* Letter and Brief from Verizon and Verizon Wireless, in CC
Docket No. 01-92, WC Docket Nos. 04-36,

06-122, at 6-7 (filed Sep. 19, 2008). *See also* Simon Flannery et al.,
*Telecom Services, Cutting the Cord: Voice*

*First Broadband Close Behind*, Morgan Stanley Research (Oct. 1, 2008).

^9^ *See* 47 U.S.C. § 254(b).

^10^ *See, e.g.,* ITTA comments in WC Docket No. 05-337 (filed Apr. 17,
2008), at 8-9; KRITC comments in WC

Docket No. 05-337 (filed Apr. 17, 2008), at 4-7; Montana Independent
comments in WC Docket No. 05-337

(filed Apr. 17, 2008), at 17; OPASTCO comments in WC Docket No. 05-337
(filed Apr. 17, 2008), at 22; WTA

comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at 5-9, 22-23.
*See also* USTelecom comments in

WC Docket No. 05-337 (filed Apr. 17, 2008), at 24, 34; Rural Tel.
Finance Coop. comments in WC Docket No.

05-337 (filed Apr. 15, 2008), at 3.

^11^ *See, e.g.,* Connecticut comments in WC Docket No. 05-337 (filed
Apr. 17, 2008), at 5; Oklahoma comments

in WC Docket No. 05-337 (filed Apr. 17, 2008), at 17; NASUCA comments in
WC Docket No. 05-337 (filed

Apr. 17, 2008), at 21-22.

^12^ *See, e.g.,* OPASTCO comments in WC Docket No. 05-337 (filed Apr.
17, 2008), at 21-22; NASUCA

comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at 11-13; WTA
comments in WC Docket No. 05-

337 (filed Apr. 17, 2008), at 3; TIA comments in WC Docket No. 05-337
(filed Apr. 16, 2008), at 1-2; CoBank

comments in WC Docket No. 05-337 (filed Apr. 17, 2008), at 4-5;
Connecticut DPUC comments in WC Docket

No. 05-337 (filed Apr. 17, 2008), at 4-5.

3

Unfortunately, while the Commission appears ready to set aside between
\$3 and \$4\
billion annually for the extension of ILEC broadband networks, as a
practical matter, no\
funding is being set aside for the extension of mobile wireless
broadband networks. The\
Commission is now considering a mechanism to determine support for
wireless ETCs that is\
not focused on making sure that wireless services are ubiquitously
available, but rather is\
inexplicably intended to eliminate almost all universal service support
for wireless carriers.\
Contrary to the FCC's tentative conclusion in the *Identical Support
Rule NPRM*, the wireless\
ETC "actual cost" formula currently under consideration is neither based
on wireless\
carriers' actual costs nor is it designed to direct appropriate amounts
of high-cost support\
where it is needed. Rejecting another tentative conclusion, the
Commission is considering a\
proposal to exclude spectrum costs from a wireless carriers' actual cost
calculation.^13^\
Spectrum costs should be included in any determination of a wireless
carrier's actual costs.\
Spectrum is a considerable cost of doing business for wireless carriers,
akin to a LEC's loop\
costs.^14^ As evidenced by the recent Advanced Wireless Services and 700
MHz auctions,\
wireless carriers are making considerable investments in spectrum assets
in order to deploy\
the next generation, higher-bandwidth mobile wireless broadband services
increasingly\
demanded by consumers. Just as it would be inappropriate to exclude a
LEC's loop costs\
from determination of its costs, it is inappropriate to excluded
wireless carriers' spectrum\
costs.

It is also our understanding that the draft order inexplicably would
divide a *wireless\
ETC's* costs by the relevant *incumbent LEC's* switched access lines to
arrive at the *wireless\
ETC's* average costs. Such a formula -- which defies common sense --
should instead divide a\
wireless ETC's costs by its number of subscribers residing in the
relevant incumbent LEC's\
service area to arrive at a truer estimation of a wireless ETC's average
costs.

Having determined a wireless ETC's average costs and comparing those
costs to the\
relevant rural or non-rural incumbent LEC cost benchmark (strangely,
instead of a wireless\
cost benchmark), the wireless ETC would still only qualify for the same
support it currently\
receives under the "interim" CETC cap. In other words, the high-cost
wireless ETC would\
receive no more support than it received under the cap, a result that in
no way would reflect\
"actual costs." Further, those high-cost rural areas that do not
currently qualify for support\
under the "interim" cap would remain unsupported.

The proposed "actual cost" formula would continue to penalize those
rural consumers\
without access to mobile wireless services where they live or where they
travel.^15^ As CTIA\
noted in its comments, roughly 23.2 million U.S. residents currently
lack broadband-capable\
wireless service at their primary place of residence, and more than 2.5
million miles of roads\
are not covered by a broadband-capable wireless signal (amounting to 42%
of the road miles\
in the United States). A recently study conducted by CostQuest
Associates estimates the\
total cost of completing the initial effort to construct a dual-mode 3G
(Evolution Data

---------------------------------------

^13^ *See High-Cost Universal Support: Federal-Sate Joint Board on
Universal Service,* WC Docket No. 05-337,

CC Docket No. 96-45, Notice of Proposed Rulemaking, FCC 08-4 (rel. Jan.
29, 2008) ("*Identical Support Rule*

*NPRM*"*)* at para. 17.

^14^ If the Commission excludes spectrum costs, it should in fairness
and consistent with competitive and

technology neutrality principles exclude loop costs in ILEC support
calculations.

^15^ *See* CTIA Comments in WC Docket No. 05-337 and CC Docket No. 96-45
and accompanying study by

CostQuest Associates, filed April 17, 2008.

4

Optimized ("EvDO") and High-Speed Downlink Packet Access ("HSDPA"))\
broadband-capable network in these areas at approximately \$22 billion.
This estimate does\
not include the substantial costs of operating, maintaining, and
upgrading those same\
networks. The mechanism for determining CETC support that is currently
under\
consideration by the Commission would not address these challenges.

Instead of pursuing another "illusory bandaid" mechanism such as is
currently under\
consideration,^16^ at the outset of a five year transition period, the
Commission should seek\
comment on and develop a successor universal service mechanism(s)
specifically designed to\
ensure the deployment and maintenance of advanced mobile wireless
services in high-cost\
areas. As part of that proceeding, CTIA respectfully requests that the
Commission give\
serious consideration to the establishment of two mechanisms: (1) One
grant-based\
mechanism focused on extending advanced mobile wireless networks to
underserved areas;\
and (2) One mechanism focused on ensuring that advanced mobile wireless
services are\
maintained in objectively identified high-cost rural areas. Both
mechanisms could determine\
support amounts, if any, based on objectively verifiable measures of
actual cost. CTIA\
welcomes the opportunity to discuss these proposed changes with the
Commission and any\
other interested parties.

Pursuant to Section 1.1206 of the Commission's rules, a copy of this
letter is being\
filed via ECFS with your office. Should you have any questions, please
do not hesitate to\
contact the undersigned.

> Sincerely,
>
> */s/ Paul W. Garnett*
>
> Paul W. Garnett

Chairman Kevin J. Martin\
Commissioner Michael J. Copps\
Commissioner Jonathan S. Adelstein\
Commissioner Deborah Taylor Tate\
Commissioner Robert M. McDowell\
Daniel Gonzalez\
Amy Bender\
Scott Deutchman\
Scott Bergmann\
Greg Orlando\
Nicholas Alexander\
Dana Shaffer\
Donald Stockdale\
Al Lewis\
Jeremy Marcus

---------------------------------------

^16^ *See* Dissenting Statement of Commissioner Michael J. Copps to the
CETC Cap Order issued April 29, 2008.

5

**APPENDIX E**

**Initial Regulatory Flexibility Act Analysis**

1.  As required by the Regulatory Flexibility Act of 1980, as amended
    (RFA),[^2184] the Commission has prepared this Initial Regulatory
    Flexibility Analysis (IRFA) of the possible significant economic
    impact on a substantial number of small entities by the policies and
    rules proposed in this Further Notice. Written public comments are
    requested on this IRFA. Comments must be identified as responses to
    the IRFA and must be filed by the deadlines for comments on the
    Further Notice. The Commission will send a copy of the Further
    Notice, including this IRFA, to the Chief Counsel for Advocacy of
    the Small Business Administration (SBA).[^2185] In addition, the
    Further Notice and IRFA (or summaries thereof) will be published in
    the Federal Register.[^2186]

    **A. Need for, and Objectives of, the Proposed Rules**

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910. Today, the Commission adopts a Further Notice on possible steps for
     the implementation of universal service and intercarrier
     compensation comprehensive reform. We believe it is best to leave
     the following topics to a Further Notice to help ensure the
     development of a reasoned and complete record on the issues.

911. Specifically, the Commission seeks comment on the appropriate,
     applicable cost standard under section 252(d)(2) of the Act. We
     seek comment on whether comprehensive reform for intercarrier
     compensation should apply to providers operating in Alaska, Hawaii,
     or any U.S. Territory or possession. Additionally, we seek comment
     on how carriers' current rates should be transitioned to a new
     intercarrier compensation regime. Also, we seek comment on whether
     the Commission should set any conditions on the reciprocal
     compensation rates set by states. Should any transitional rates
     apply to VoIP traffic?

912. We also seek comment on the appropriate default rules regarding
     where a carriers' "network edge" should be following any
     transition. The Further Notice also seeks comment on whether the
     reciprocal compensation rates between carriers should be
     symmetrical without exception and regardless of whether traffic
     exchanged between the carriers is balanced or not. In addition, we
     seek comment on the appropriate guidelines regarding the
     application of section 251(f)(2) of the Act.

913. We seek comment on the appropriate treatment of existing agreements
     between parties. We also seek comment on various revenue recovery
     opportunities for carriers and possible supplemental universal
     service recovery support that would be available where necessary.
     Should the Commission also require carriers to file an annual
     report showing how any net access savings are allocated? We also
     seek comment on whether or not the Commission should enlist the aid
     of the Separations Joint Board on possible changes to end-user
     charges.

914. The Further Notice also seeks comment on measures to ensure the
     ability of carriers to receive the appropriate compensation for
     traffic terminated on their networks. We also seek comment on an
     interim solution to the "access stimulation" arbitrage problem.
     Additionally, we seek comment on whether originating access charges
     are inconsistent with comprehensive reform and the appropriate
     transition for the elimination of originating access. We also seek
     comment on whether or not any comprehensive reform warrants the
     adoption of rules or guidelines governing the terms and conditions
     of transit service.

915. We also seek comment on how best to reform the distribution of
     high-cost universal service support. Specifically, we seek comment
     on ways to control the growth of the high-cost fund, including
     whether it is necessary to cap high-cost universal service support
     to fulfill our statutory obligation to create a specific,
     predictable, and sufficient universal service mechanism. We seek
     comment on how any such caps should be implemented. We seek comment
     on whether we should condition receipt of high-cost support on an
     eligible telecommunications carrier's (ETC) commitment to provide
     broadband Internet access service throughout its service area. We
     seek comment on the use of reverse auctions as a method for
     disbursing high-cost support, either to areas where an incumbent
     LEC does not commit to provide broadband Internet access service,
     or for the distribution of high-cost support to all ETCs. We seek
     comment on eliminating the identical support rule for competitive
     ETCs, and on whether competitive ETC support should be based on
     their own costs or disbursed via reverse auctions.

916. We seek comment on whether to adopt a pilot program to provide
     universal service support to low-income consumers for broadband
     Internet access service. Should low-income consumers receive
     support under the pilot program for discounts on broadband Internet
     access service and devices necessary to access such services? What
     implementation and reporting requirements associated with such a
     pilot program should the Commission adopt?

917. We also seek comment on reforming the universal service
     contribution assessment methodology. Specifically, we seek comment
     on whether to adopt a contribution mechanism of \$1.00 per
     residential telephone number, and move to a connections and/or
     numbers-based contribution mechanism for business services; or
     whether to adopt a contribution mechanism of \$0.85 per telephone
     number for all numbers, and a connections-based contribution
     mechanism for business services of \$5.00 per connection up to 64
     kbps and \$35.00 per connection over 64 kbps. We seek comment on
     what numbers should be assessable under a numbers-based
     contribution mechanism. We also seek comment on how to treat
     wireless prepaid plans, on exceptions to the contribution
     obligations, on reporting and recordkeeping requirements, and on a
     transition to the new contribution methodology.

918. Finally, we seek comment on what revisions to our rules are needed
     to implement comprehensive reform. For example, what changes, if
     any, are needed to the rules contained in Parts 51, 54, 61, and 69?

     **B. Legal Basis**

919. The legal basis for any action that may be taken pursuant to the
     Further Notice is contained in sections 1--4, 201--209, 214,
     218--220, 224, 251, 252, 254, 303(r), 332, 403, 502, 503 of the
     Communications Act of 1934, as amended, and Sections 601 and 706 of
     the Telecommunications Act of 1996, 47 U.S.C. §§ 151--154, 157 nt,
     201--209, 214, 218--220, 224, 251, 252, 254, 303(r), 332, 403, 502,
     503 and sections 1.1, 1.411--1.429 and 1.1200--1.1216 of the
     Commission's rules, 47 C.F.R. §§ 1.1, 1.411--1.429 and
     1.1200--1.1216.

     **C. Description and Estimate of the Number of Small Entities to
     Which the Proposed Rules Will Apply**

920. The RFA directs agencies to provide a description of, and where
     feasible, an estimate of the number of small entities that may be
     affected by the proposed rules, if adopted.[^2187] The RFA
     generally defines the term "small entity" as having the same
     meaning as the terms "small business," "small organization," and
     "small governmental jurisdiction."[^2188] In addition, the term
     "small business" has the same meaning as the term "small-business
     concern" under the Small Business Act.[^2189] 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.[^2190]

921. **Wired Telecommunications Carriers**. The SBA has developed a
     small business size standard for Wired Telecommunications Carriers,
     which consists of all such companies having 1,500 or fewer
     employees.[^2191] According to Census Bureau data for 2002, there
     were 2,432 firms in this category, total, that operated for the
     entire year.[^2192] Of this total, 2,395 firms had employment of
     999 or fewer employees, and an additional 37 firms had employment
     of 1,000 employees or more.[^2193] Thus, under this size standard,
     the majority of firms can be considered small.

922. **Local Exchange Carriers (LECs)**. Neither the Commission nor the
     SBA has developed a size standard for small businesses specifically
     applicable to local exchange services. The closest applicable size
     standard under SBA rules is for Wired Telecommunications Carriers.
     Under that size standard, such a business is small if it has 1,500
     or fewer employees.[^2194] According to Commission data, 1,311
     carriers reported that they were incumbent local exchange service
     providers.[^2195] Of these 1,311 carriers, an estimated 1,024 have
     1,500 or fewer employees and 287 have more than 1,500
     employees.[^2196] Consequently, the Commission estimates that most
     providers of local exchange service are small entities that may be
     affected by the rules and policies proposed in the Further Notice.

923. **Incumbent Local Exchange Carriers (incumbent LECs)**. Neither the
     Commission nor the SBA has developed a size standard for small
     businesses specifically applicable to incumbent local exchange
     services. The closest applicable size standard under SBA rules is
     for Wired Telecommunications Carriers. Under that size standard,
     such a business is small if it has 1,500 or fewer employees.[^2197]
     According to Commission data, 1,311 carriers reported that they
     were engaged in the provision of local exchange services.[^2198] Of
     these 1,307 carriers, an estimated 1,024 have 1,500 or fewer
     employees and 287 have more than 1,500 employees.[^2199]
     Consequently, the Commission estimates that most providers of
     incumbent local exchange service are small businesses that may be
     affected by rules adopted pursuant to the Further Notice.

924. We have included small incumbent LECs in this present RFA analysis.
     As noted above, a "small business" under the RFA is one that,
     *inter alia*, meets the pertinent small business size standard
     (e.g*.*, a telephone communications business having 1,500 or fewer
     employees), and "is not dominant in its field of operation."[^2200]
     The SBA's Office of Advocacy contends that, for RFA purposes, small
     incumbent LECs are not dominant in their field of operation because
     any such dominance is not "national" in scope.[^2201] We have
     therefore included small incumbent LECs in this RFA analysis,
     although we emphasize that this RFA action has no effect on
     Commission analyses and determinations in other, non-RFA contexts.

925. **Competitive Local Exchange Carriers (competitive LECs),
     Competitive Access Providers (CAPs), Shared-Tenant Service
     Providers, and Other Local Service Providers.** Neither the
     Commission nor the SBA has developed a small business size standard
     specifically for these service providers. The appropriate size
     standard under SBA rules is for the category Wired
     Telecommunications Carriers. Under that size standard, such a
     business is small if it has 1,500 or fewer employees.[^2202]
     According to Commission data, 1,005 carriers reported that they
     were engaged in the provision of either competitive local exchange
     services or competitive access provider services.[^2203] Of these
     1,005 carriers, an estimated 918 have 1,500 or fewer employees and
     87 have more than 1,500 employees.[^2204] In addition, 16 carriers
     have reported that they are Shared-Tenant Service Providers, and
     all 16 are estimated to have 1,500 or fewer employees.[^2205] In
     addition, 89 carriers have reported that they are Other Local
     Service Providers.[^2206] Of the 89, all 89 have 1,500 or fewer
     employees and none has more than 1,500 employees.[^2207]
     Consequently, the Commission estimates that most providers of
     competitive local exchange service, competitive access providers,
     Shared-Tenant Service Providers, and Other Local Service Providers
     are small entities that may be affected by rules adopted pursuant
     to the Further Notice.

926. **Interexchange Carriers (IXCs)**. Neither the Commission nor the
     SBA has developed a size standard for small businesses specifically
     applicable to interexchange services. The closest applicable size
     standard under SBA rules is for Wired Telecommunications Carriers.
     Under that size standard, such a business is small if it has 1,500
     or fewer employees.[^2208] According to Commission data, 300
     companies reported that their primary telecommunications service
     activity was the provision of interexchange services.[^2209] Of
     these 300 companies, an estimated 268 have 1,500 or fewer employees
     and 32 have more than 1,500 employees.[^2210] Consequently, the
     Commission estimates that the majority of interexchange service
     providers are small entities that may be affected by rules adopted
     pursuant to the Further Notice.

927. **Operator Service Providers (OSPs)**. Neither the Commission nor
     the SBA has developed a small business size standard specifically
     for operator service providers. The appropriate size standard under
     SBA rules is for the category Wired Telecommunications Carriers.
     Under that size standard, such a business is small if it has 1,500
     or fewer employees.[^2211] According to Commission data, 28
     carriers have reported that they are engaged in the provision of
     operator services.[^2212] Of these, an estimated 27 have 1,500 or
     fewer employees and one has more than 1,500 employees.[^2213]
     Consequently, the Commission estimates that the majority of OSPs
     are small entities that may be affected by rules adopted pursuant
     to the Further Notice.

928. **Payphone Service Providers (PSPs)**. Neither the Commission nor
     the SBA has developed a small business size standard specifically
     for payphone services providers. The appropriate size standard
     under SBA rules is for the category Wired Telecommunications
     Carriers. Under that size standard, such a business is small if it
     has 1,500 or fewer employees.[^2214] According to Commission data,
     526 carriers have reported that they are engaged in the provision
     of payphone services.[^2215] Of these, an estimated 524 have 1,500
     or fewer employees and two have more than 1,500 employees.[^2216]
     Consequently, the Commission estimates that the majority of
     payphone service providers are small entities that may be affected
     by rules adopted pursuant to the Further Notice.

929. **Prepaid Calling Card Providers**. Neither the Commission nor the
     SBA has developed a small business size standard specifically for
     prepaid calling card providers. The appropriate size standard under
     SBA rules is for the category Telecommunications Resellers. Under
     that size standard, such a business is small if it has 1,500 or
     fewer employees.[^2217] According to Commission data, 88 carriers
     have reported that they are engaged in the provision of prepaid
     calling cards.[^2218] Of these, an estimated 85 have 1,500 or fewer
     employees and three have more than 1,500 employees.[^2219]
     Consequently, the Commission estimates that the majority of prepaid
     calling card providers are small entities that may be affected by
     rules adopted pursuant to the Further Notice.

930. **Local Resellers***.* The SBA has developed a small business size
     standard for the category of Telecommunications Resellers. Under
     that size standard, such a business is small if it has 1,500 or
     fewer employees.[^2220] According to Commission data, 151 carriers
     have reported that they are engaged in the provision of local
     resale services.[^2221] Of these, an estimated 149 have 1,500 or
     fewer employees and two have more than 1,500 employees.[^2222]
     Consequently, the Commission estimates that the majority of local
     resellers are small entities that may be affected by rules adopted
     pursuant to the Further Notice.

931. **Toll Resellers***.* The SBA has developed a small business size
     standard for the category of Telecommunications Resellers. Under
     that size standard, such a business is small if it has 1,500 or
     fewer employees.[^2223] According to Commission data, 815 carriers
     have reported that they are engaged in the provision of toll resale
     services.[^2224] Of these, an estimated 787 have 1,500 or fewer
     employees and 28 have more than 1,500 employees.[^2225]
     Consequently, the Commission estimates that the majority of toll
     resellers are small entities that may be affected by rules adopted
     pursuant to the Further Notice.

932. **Other Toll Carriers**. Neither the Commission nor the SBA has
     developed a size standard for small businesses specifically
     applicable to Other Toll Carriers. This category includes toll
     carriers that do not fall within the categories of interexchange
     carriers, operator service providers, prepaid calling card
     providers, satellite service carriers, or toll resellers. The
     closest applicable size standard under SBA rules is for Wired
     Telecommunications Carriers. Under that size standard, such a
     business is small if it has 1,500 or fewer employees.[^2226]
     According to Commission data, 91 companies reported that their
     primary telecommunications service activity was the provision of
     other toll carriage.[^2227] Of these 91 companies, an estimated 88
     have 1,500 or fewer employees and three have more than 1,500
     employees.[^2228] Consequently, the Commission estimates that most
     Other Toll Carriers are small entities that may be affected by the
     rules and policies adopted pursuant to the Further Notice.

933. **800 and 800-Like Service Subscribers**.[^2229] Neither the
     Commission nor the SBA has developed a small business size standard
     specifically for 800 and 800-like service (toll free) subscribers.
     The appropriate size standard under SBA rules is for the category
     Telecommunications Resellers. Under that size standard, such a
     business is small if it has 1,500 or fewer employees.[^2230] The
     most reliable source of information regarding the number of these
     service subscribers appears to be data the Commission collects on
     the 800, 888, 877, and 866 numbers in use.[^2231] According to our
     data, at the beginning of December 2007, the number of 800 numbers
     assigned was 7,860,000; the number of 888 numbers assigned was
     5,210,184; the number of 877 numbers assigned was 4,388,682; and
     the number of 866 numbers assigned was 7,029,116.[^2232] We do not
     have data specifying the number of these subscribers that are not
     independently owned and operated or have more than 1,500 employees,
     and thus are unable at this time to estimate with greater precision
     the number of toll free subscribers that would qualify as small
     businesses under the SBA size standard. Consequently, we estimate
     that there are 7,860,000 or fewer small entity 800 subscribers;
     5,210,184 or fewer small entity 888 subscribers; 4,388,682 or fewer
     small entity 877 subscribers; and 7,029,166 or fewer small entity
     866 subscribers.

### Wireless Carriers and Service Providers

934. Below, for those services subject to auctions, we note that, as a
     general matter, the number of winning bidders that qualify as small
     businesses at the close of an auction does not necessarily
     represent the number of small businesses currently in service.
     Also, the Commission does not generally track subsequent business
     size unless, in the context of assignments or transfers, unjust
     enrichment issues are implicated.

935. **Wireless Telecommunications Carriers (except Satellite)**. Since
     2007, the SBA has recognized wireless firms within this new, broad,
     economic census category.[^2233] Prior to that time, the SBA had
     developed a small business size standard for wireless firms within
     the now-superseded census categories of Paging and Cellular and
     Other Wireless Telecommunications.[^2234] Under the present and
     prior categories, the SBA has deemed a wireless business to be
     small if it has 1,500 or fewer employees. Because Census Bureau
     data are not yet available for the new category, we will estimate
     small business prevalence using the prior categories and associated
     data. For the first category of Paging, data for 2002 show that
     there were 807 firms that operated for the entire year.[^2235] Of
     this total, 804 firms had employment of 999 or fewer employees, and
     three firms had employment of 1,000 employees or more.[^2236] For
     the second category of Cellular and Other Wireless
     Telecommunications, data for 2002 show that there were 1,397 firms
     that operated for the entire year.[^2237] Of this total, 1,378
     firms had employment of 999 or fewer employees, and 19 firms had
     employment of 1,000 employees or more.[^2238] Thus, using the prior
     categories and the available data, we estimate that the majority of
     wireless firms can be considered small. According to Commission
     data, 434 carriers reported that they were engaged in the provision
     of cellular service, Personal Communications Service (PCS), or
     Specialized Mobile Radio (SMR) Telephony services, which are placed
     together in the data.[^2239] We have estimated that 222 of these
     are small, under the SBA small business size standard.[^2240] Thus,
     under this category and size standard, approximately half of firms
     can be considered small.

936. **Number range level0Number range level1Number range level2Number
     range level3Number range level4Number range level5Number range
     level6Number range level7Broadband Personal Communications
     Service***.* The broadband personal communications service (PCS)
     spectrum is divided into six frequency blocks designated A through
     F, and the Commission has held auctions for each block. The
     Commission defined "small entity" for Blocks C and F as an entity
     that has average gross revenues of \$40 million or less in the
     three previous calendar years.[^2241] For Block F, an additional
     classification for "very small business" was added and is defined
     as an entity that, together with its affiliates, has average gross
     revenues of not more than \$15 million for the preceding three
     calendar years.[^2242] These standards defining "small entity" in
     the context of broadband PCS auctions have been approved by the
     SBA.[^2243] No small businesses, within the SBA-approved small
     business size standards bid successfully for licenses in Blocks A
     and B. There were 90 winning bidders that qualified as small
     entities in the Block C auctions. A total of 93 small and very
     small business bidders won approximately 40 percent of the 1,479
     licenses for Blocks D, E, and F.[^2244] On March 23, 1999, the
     Commission re-auctioned 347 C, D, E, and F Block licenses. There
     were 48 small business winning bidders. On January 26, 2001, the
     Commission completed the auction of 422 C and F Broadband PCS
     licenses in Auction No. 35. Of the 35 winning bidders in that
     auction, 29 qualified as "small" or "very small" businesses.
     Subsequent events, concerning Auction 35, including judicial and
     agency determinations, resulted in a total of 163 C and F Block
     licenses being available for grant.

937. **Narrowband Personal Communications Services***.* To date, two
     auctions of narrowband PCS licenses have been conducted. For
     purposes of the two auctions that have been held, "small
     businesses" were entities with average gross revenues for the prior
     three calendar years of \$40 million or less. Through these
     auctions, the Commission has awarded a total of 41 licenses, out of
     which 11 were obtained by small businesses. To ensure meaningful
     participation of small business entities in future auctions, the
     Commission has adopted a two-tiered small business size standard in
     the *Narrowband PCS Second Report and Order*.[^2245] A "small
     business" is an entity that, together with affiliates and
     controlling interests, has average gross revenues for the three
     preceding years of not more than \$40 million. A "very small
     business" is an entity that, together with affiliates and
     controlling interests, has average gross revenues for the three
     preceding years of not more than \$15 million. The SBA has approved
     these small business size standards.[^2246] In the future, the
     Commission will auction 459 licenses to serve Metropolitan Trading
     Areas (MTAs) and 408 response channel licenses. There is also one
     megahertz of narrowband PCS spectrum that has been held in reserve
     and that the Commission has not yet decided to release for
     licensing. The Commission cannot predict accurately the number of
     licenses that will be awarded to small entities in future actions.
     However, four of the 16 winning bidders in the two previous
     narrowband PCS auctions were small businesses, as that term was
     defined under the Commission's rules.[^2247] The Commission
     assumes, for purposes of this analysis that a large portion of the
     remaining narrowband PCS licenses will be awarded to small
     entities. The Commission also assumes that at least some small
     businesses will acquire narrowband PCS licenses by means of the
     Commission's partitioning and disaggregation rules.

938. **Paging (Private and Common Carrier)**. The SBA has developed a
     small business size standard for Paging, under which a business is
     small if it has 1,500 or fewer employees.[^2248] In addition, in
     the *Paging* *Third Report and Order*, we developed a small
     business size standard for "small businesses" and "very small
     businesses" for purposes of determining their eligibility for
     special provisions such as bidding credits and installment
     payments.[^2249] A "small business" is an entity that, together
     with its affiliates and controlling principals, has average gross
     revenues not exceeding \$15 million for the preceding three years.
     Additionally, a "very small business" is an entity that, together
     with its affiliates and controlling principals, has average gross
     revenues that are not more than \$3 million for the preceding three
     years.[^2250] The SBA has approved these small business size
     standards.[^2251] According to Commission data, 281 carriers have
     reported that they are engaged in Paging or Messaging
     Service.[^2252] Of these, an estimated 279 have 1,500 or fewer
     employees, and two have more than 1,500 employees.[^2253]
     Consequently, the Commission estimates that the majority of paging
     providers are small entities that may be affected by our action. An
     auction of Metropolitan Economic Area licenses commenced on
     February 24, 2000, and closed on March 2, 2000. Of the 985 licenses
     auctioned, 440 were sold. Fifty-seven companies claiming small
     business status won.

939. **Wireless Telephony**. Wireless telephony includes cellular, PCS,
     and specialized mobile radio (SMR) telephony carriers. As noted
     earlier, the SBA has developed a small business size standard for
     Cellular and Other Wireless Telecommunications services.[^2254]
     Under that SBA small business size standard, a business is small if
     it has 1,500 or fewer employees.[^2255] According to Commission
     data, 434 carriers reported that they were engaged in the provision
     of wireless telephony.[^2256] We have estimated that 222 of these
     are small under the SBA small business size standard.[^2257]

940. **220 MHz Radio Service -- Phase I Licensees***.* The 220 MHz
     service has both Phase I and Phase II licenses. Phase I licensing
     was conducted by lotteries in 1992 and 1993. There are
     approximately 1,515 such non-nationwide licensees and four
     nationwide licensees currently authorized to operate in the 220 MHz
     band. The Commission has not developed a small business size
     standard for small entities specifically applicable to such
     incumbent 220 MHz Phase I licensees. To estimate the number of such
     licensees that are small businesses, we apply the small business
     size standard under the SBA rules applicable to Cellular and Other
     Wireless Telecommunications companies. Under this category, the SBA
     deems a wireless business to be small if it has 1,500 or fewer
     employees. [^2258] The Commission estimates that nearly all such
     licensees are small businesses under the SBA's small business size
     standard that may be affected by rules adopted pursuant to the
     Further Notice.

941. **220 MHz Radio Service -- Phase II Licensees***.* The 220 MHz
     service has both Phase I and Phase II licenses. The Phase II 220
     MHz service is a new service, and is subject to spectrum auctions.
     In the *220 MHz Third Report and Order*, we adopted a small
     business size standard for "small" and "very small" businesses for
     purposes of determining their eligibility for special provisions
     such as bidding credits and installment payments.[^2259] This small
     business size standard indicates that a "small business" is an
     entity that, together with its affiliates and controlling
     principals, has average gross revenues not exceeding \$15 million
     for the preceding three years.[^2260] A "very small business" is an
     entity that, together with its affiliates and controlling
     principals, has average gross revenues that do not exceed \$3
     million for the preceding three years.[^2261] The SBA has approved
     these small business size standards.[^2262] Auctions of Phase II
     licenses commenced on September 15, 1998, and closed on October 22,
     1998.[^2263] In the first auction, 908 licenses were auctioned in
     three different-sized geographic areas: three nationwide licenses,
     30 Regional Economic Area Group (EAG) Licenses, and 875 Economic
     Area (EA) Licenses. Of the 908 licenses auctioned, 693 were sold.
     Thirty-nine small businesses won licenses in the first 220 MHz
     auction. The second auction included 225 licenses: 216 EA licenses
     and 9 EAG licenses. Fourteen companies claiming small business
     status won 158 licenses.[^2264]

942. **800 MHz and 900 MHz Specialized Mobile Radio Licenses***.* The
     Commission awards "small entity" and "very small entity" bidding
     credits in auctions for Specialized Mobile Radio (SMR) geographic
     area licenses in the 800 MHz and 900 MHz bands to firms that had
     revenues of no more than \$15 million in each of the three previous
     calendar years, or that had revenues of no more than \$3 million in
     each of the previous calendar years, respectively.[^2265] These
     bidding credits apply to SMR providers in the 800 MHz and 900 MHz
     bands that either hold geographic area licenses or have obtained
     extended implementation authorizations. The Commission does not
     know how many firms provide 800 MHz or 900 MHz geographic area SMR
     service pursuant to extended implementation authorizations, nor how
     many of these providers have annual revenues of no more than \$15
     million. One firm has over \$15 million in revenues. The Commission
     assumes, for purposes here, that all of the remaining existing
     extended implementation authorizations are held by small entities,
     as that term is defined by the SBA. The Commission has held
     auctions for geographic area licenses in the 800 MHz and 900 MHz
     SMR bands. There were 60 winning bidders that qualified as small or
     very small entities in the 900 MHz SMR auctions. Of the 1,020
     licenses won in the 900 MHz auction, bidders qualifying as small or
     very small entities won 263 licenses. In the 800 MHz auction, 38 of
     the 524 licenses won were won by small and very small entities.

943. **700 MHz Guard Band Licensees***.* In the *700 MHz Guard Band
     Order*, we adopted a small business size standard for "small
     businesses" and "very small businesses" for purposes of determining
     their eligibility for special provisions such as bidding credits
     and installment payments.[^2266] A "small business" is an entity
     that, together with its affiliates and controlling principals, has
     average gross revenues not exceeding \$40 million for the preceding
     three years.[^2267] Additionally, a "very small business" is an
     entity that, together with its affiliates and controlling
     principals, has average gross revenues that are not more than \$15
     million for the preceding three years.[^2268] An auction of 52
     Major Economic Area (MEA) licenses commenced on September 6, 2000,
     and closed on September 21, 2000.[^2269] Of the 104 licenses
     auctioned, 96 licenses were sold to nine bidders. Five of these
     bidders were small businesses that won a total of 26 licenses. A
     second auction of 700 MHz Guard Band licenses commenced on February
     13, 2001 and closed on February 21, 2001. All eight of the licenses
     auctioned were sold to three bidders. One of these bidders was a
     small business that won a total of two licenses.[^2270]

944. **Rural Radiotelephone Service***.* The Commission has not adopted
     a size standard for small businesses specific to the Rural
     Radiotelephone Service.[^2271] A significant subset of the Rural
     Radiotelephone Service is the Basic Exchange Telephone Radio System
     (BETRS).[^2272] The Commission uses the SBA's small business size
     standard applicable to Cellular and Other Wireless
     Telecommunications, *i.e.*, an entity employing no more than 1,500
     persons.[^2273] There are approximately 1,000 licensees in the
     Rural Radiotelephone Service, and the Commission estimates that
     there are 1,000 or fewer small entity licensees in the Rural
     Radiotelephone Service that may be affected by the rules and
     policies adopted herein.

945. **Air-Ground Radiotelephone Service***.* The Commission has not
     adopted a small business size standard specific to the Air-Ground
     Radiotelephone Service.[^2274] We will use SBA's small business
     size standard applicable to Cellular and Other Wireless
     Telecommunications, *i.e.*, an entity employing no more than 1,500
     persons.[^2275] There are approximately 100 licensees in the
     Air-Ground Radiotelephone Service, and we estimate that almost all
     of them qualify as small under the SBA small business size standard
     and may be affected by rules adopted pursuant to the Further
     Notice.

946. **Aviation and Marine Radio Services***.* Small businesses in the
     aviation and marine radio services use a very high frequency (VHF)
     marine or aircraft radio and, as appropriate, an emergency
     position-indicating radio beacon (and/or radar) or an emergency
     locator transmitter. The Commission has not developed a small
     business size standard specifically applicable to these small
     businesses. For purposes of this analysis, the Commission uses the
     SBA small business size standard for the category Cellular and
     Other Telecommunications, which is 1,500 or fewer employees.[^2276]
     Most applicants for recreational licenses are individuals.
     Approximately 581,000 ship station licensees and 131,000 aircraft
     station licensees operate domestically and are not subject to the
     radio carriage requirements of any statute or treaty. For purposes
     of our evaluations in this analysis, we estimate that there are up
     to approximately 712,000 licensees that are small businesses (or
     individuals) under the SBA standard. In addition, between December
     3, 1998 and December 14, 1998, the Commission held an auction of 42
     VHF Public Coast licenses in the 157.1875-157.4500 MHz (ship
     transmit) and 161.775-162.0125 MHz (coast transmit) bands. For
     purposes of the auction, the Commission defined a "small" business
     as an entity that, together with controlling interests and
     affiliates, has average gross revenues for the preceding three
     years not to exceed \$15 million dollars.[^2277] In addition, a
     "very small" business is one that, together with controlling
     interests and affiliates, has average gross revenues for the
     preceding three years not to exceed \$3 million dollars.[^2278]
     There are approximately 10,672 licensees in the Marine Coast
     Service, and the Commission estimates that almost all of them
     qualify as "small" businesses under the above special small
     business size standards and may be affected by rules adopted
     pursuant to the Further Notice.

947. **Fixed Microwave Services***.* Fixed microwave services include
     common carrier,[^2279] private operational-fixed,[^2280] and
     broadcast auxiliary radio services.[^2281] At present, there are
     approximately 22,015 common carrier fixed licensees and 61,670
     private operational-fixed licensees and broadcast auxiliary radio
     licensees in the microwave services. The Commission has not created
     a size standard for a small business specifically with respect to
     fixed microwave services. For purposes of this analysis, the
     Commission uses the SBA small business size standard for the
     category Cellular and Other Telecommunications, which is 1,500 or
     fewer employees.[^2282] The Commission does not have data
     specifying the number of these licensees that have more than 1,500
     employees, and thus is unable at this time to estimate with greater
     precision the number of fixed microwave service licensees that
     would qualify as small business concerns under the SBA's small
     business size standard. Consequently, the Commission estimates that
     there are up to 22,015 common carrier fixed licensees and up to
     61,670 private operational-fixed licensees and broadcast auxiliary
     radio licensees in the microwave services that may be small and may
     be affected by the rules and policies adopted herein. We note,
     however, that the common carrier microwave fixed licensee category
     includes some large entities.

948. **Offshore Radiotelephone Service***.* This service operates on
     several UHF television broadcast channels that are not used for
     television broadcasting in the coastal areas of states bordering
     the Gulf of Mexico.[^2283] There are approximately 55 licensees in
     this service. We are unable to estimate at this time the number of
     licensees that would qualify as small under the SBA's small
     business size standard for Cellular and Other Wireless
     Telecommunications services.[^2284] Under that SBA small business
     size standard, a business is small if it has 1,500 or fewer
     employees.[^2285]

949. **Wireless Communications Services**. This service can be used for
     fixed, mobile, radiolocation, and digital audio broadcasting
     satellite uses. The Commission established small business size
     standards for the wireless communications services (WCS) auction. A
     "small business" is an entity with average gross revenues of \$40
     million for each of the three preceding years, and a "very small
     business" is an entity with average gross revenues of \$15 million
     for each of the three preceding years. The SBA has approved these
     small business size standards.[^2286] The Commission auctioned
     geographic area licenses in the WCS service. In the auction, there
     were seven winning bidders that that qualified as "very small
     business" entities, and one that qualified as a "small business"
     entity. We conclude that the number of geographic area WCS licenses
     affected by this analysis includes these eight entities.

950. **39 GHz Service***.* The Commission created a special small
     business size standard for 39 GHz licenses -- an entity that has
     average gross revenues of \$40 million or less in the three
     previous calendar years.[^2287] An additional size standard for
     "very small business" is: an entity that, together with affiliates,
     has average gross revenues of not more than \$15 million for the
     preceding three calendar years.[^2288] The SBA has approved these
     small business size standards.[^2289] The auction of the 2,173 39
     GHz licenses began on April 12, 2000 and closed on May 8, 2000. The
     18 bidders who claimed small business status won 849 licenses.
     Consequently, the Commission estimates that 18 or fewer 39 GHz
     licensees are small entities that may be affected by rules adopted
     pursuant to the Further Notice.

951. **Wireless Cable Systems***.* Wireless cable systems use 2 GHz band
     frequencies of the Broadband Radio Service (BRS), formerly
     Multipoint Distribution Service (MDS),[^2290] and the Educational
     Broadband Service (EBS), formerly Instructional Television Fixed
     Service (ITFS),[^2291] to transmit video programming and provide
     broadband services to residential subscribers.[^2292] These
     services were originally designed for the delivery of multichannel
     video programming, similar to that of traditional cable systems,
     but over the past several years licensees have focused their
     operations instead on providing two-way high-speed Internet access
     services.[^2293] We estimate that the number of wireless cable
     subscribers is approximately 100,000, as of March 2005. Local
     Multipoint Distribution Service (LMDS) is a fixed broadband
     point-to-multipoint microwave service that provides for two-way
     video telecommunications.[^2294] As described below, the SBA small
     business size standard for the broad census category of Cable and
     Other Program Distribution, which consists of such entities
     generating \$13.5 million or less in annual receipts, appears
     applicable to MDS, ITFS and LMDS.[^2295]

952. The Commission has defined small MDS (now BRS) and LMDS entities in
     the context of Commission license auctions. In the 1996 MDS
     auction,[^2296] the Commission defined a small business as an
     entity that had annual average gross revenues of less than \$40
     million in the previous three calendar years. This definition of a
     small entity in the context of MDS auctions has been approved by
     the SBA.[^2297] In the MDS auction, 67 bidders won 493 licenses. Of
     the 67 auction winners, 61 claimed small business status. At this
     time, the Commission estimates that of the 61 small business MDS
     auction winners, 48 remain small business licensees. In addition to
     the 48 small businesses that hold BTA authorizations, there are
     approximately 392 incumbent MDS licensees that have gross revenues
     that are not more than \$40 million and are thus considered small
     entities.[^2298] MDS licensees and wireless cable operators that
     did not receive their licenses as a result of the MDS auction fall
     under the SBA small business size standard for Cable and Other
     Program Distribution.[^2299] Information available to us indicates
     that there are approximately 850 of these licensees and operators
     that do not generate revenue in excess of \$13.5 million annually.
     Therefore, we estimate that there are approximately 850 small
     entity MDS (or BRS) providers, as defined by the SBA and the
     Commission's auction rules that may be affected by rules adopted
     pursuant to the Further Notice.

953. Educational institutions are included in this analysis as small
     entities; however, the Commission has not created a specific small
     business size standard for ITFS (now EBS).[^2300] We estimate that
     there are currently 2,032 ITFS (or EBS) licensees, and all but 100
     of the licenses are held by educational institutions. Thus, we
     estimate that at least 1,932 ITFS licensees are small entities that
     may be affected by rules adopted pursuant to the Further Notice.

954. In the 1998 and 1999 LMDS auctions,[^2301] the Commission defined a
     small business as an entity that has annual average gross revenues
     of less than \$40 million in the previous three calendar
     years.[^2302] Moreover, the Commission added an additional
     classification for a "very small business," which was defined as an
     entity that had annual average gross revenues of less than \$15
     million in the previous three calendar years.[^2303] These
     definitions of "small business" and "very small business" in the
     context of the LMDS auctions have been approved by the SBA.[^2304]
     In the first LMDS auction, 104 bidders won 864 licenses. Of the 104
     auction winners, 93 claimed status as small or very small
     businesses. In the LMDS re-auction, 40 bidders won 161 licenses.
     Based on this information, we believe that the number of small LMDS
     licenses will include the 93 winning bidders in the first auction
     and the 40 winning bidders in the re-auction, for a total of 133
     small entity LMDS providers as defined by the SBA and the
     Commission's auction rules.

955. **218-219 MHz Service***.* The first auction of 218-219 MHz
     spectrum resulted in 170 entities winning licenses for 594
     Metropolitan Statistical Area (MSA) licenses. Of the 594 licenses,
     557 were won by entities qualifying as a small business. For that
     auction, the small business size standard was an entity that,
     together with its affiliates, has no more than a \$6 million net
     worth and, after federal income taxes (excluding any carry over
     losses), has no more than \$2 million in annual profits each year
     for the previous two years.[^2305] In the *218-219 MHz Report and
     Order and Memorandum Opinion and Order*, we established a small
     business size standard for a "small business" as an entity that,
     together with its affiliates and persons or entities that hold
     interests in such an entity and their affiliates, has average
     annual gross revenues not to exceed \$15 million for the preceding
     three years.[^2306] A "very small business" is defined as an entity
     that, together with its affiliates and persons or entities that
     hold interests in such an entity and its affiliates, has average
     annual gross revenues not to exceed \$3 million for the preceding
     three years.[^2307] These size standards will be used in future
     auctions of 218-219 MHz spectrum.

956. **24 GHz -- Incumbent Licensees***.* This analysis may affect
     incumbent licensees who were relocated to the 24 GHz band from the
     18 GHz band, and applicants who wish to provide services in the 24
     GHz band. The applicable SBA small business size standard is that
     of "Cellular and Other Wireless Telecommunications" companies. This
     category provides that such a company is small if it employs no
     more than 1,500 persons.[^2308] We believe that there are only two
     licensees in the 24 GHz band that were relocated from the 18 GHz
     band, Teligent[^2309] and TRW, Inc. It is our understanding that
     Teligent and its related companies have less than 1,500 employees,
     though this may change in the future. TRW is not a small entity.
     Thus, only one incumbent licensee in the 24 GHz band is a small
     business entity.

957. **24 GHz -- Future Licensees***.* With respect to new applicants in
     the 24 GHz band, the size standard for "small business" is an
     entity that, together with controlling interests and affiliates,
     has average annual gross revenues for the three preceding years not
     in excess of \$15 million.[^2310] "Very small business" in the 24
     GHz band is an entity that, together with controlling interests and
     affiliates, has average gross revenues not exceeding \$3 million
     for the preceding three years.[^2311] The SBA has approved these
     small business size standards.[^2312] These size standards will
     apply to a future 24 GHz license auction, if held.

### Satellite Service Providers

958. **Satellite Telecommunications***.* Since 2007, the SBA has
     recognized satellite firms within this revised category, with a
     small business size standard of \$15 million.[^2313] The most
     current Census Bureau data, however, are from the (last) economic
     census of 2002, and we will use those figures to gauge the
     prevalence of small businesses in this category. Those size
     standards are for the two census categories of "Satellite
     Telecommunications" and "Other Telecommunications." Under both
     prior categories, such a business was considered small if it had,
     as now, \$15 million or less in average annual receipts.[^2314]

959. The first category of Satellite Telecommunications "comprises
     establishments primarily engaged in providing point-to-point
     telecommunications services to other establishments in the
     telecommunications and broadcasting industries by forwarding and
     receiving communications signals via a system of satellites or
     reselling satellite telecommunications."[^2315] For this category,
     Census Bureau data for 2002 show that there were a total of 371
     firms that operated for the entire year.[^2316] Of this total, 307
     firms had annual receipts of under \$10 million, and 26 firms had
     receipts of \$10 million to \$24,999,999.[^2317] Consequently, we
     estimate that the majority of Satellite Telecommunications firms
     are small entities that might be affected by rules adopted pursuant
     to the Further Notice.

960. The second category of Other Telecommunications "comprises
     establishments primarily engaged in (1) providing specialized
     telecommunications applications, such as satellite tracking,
     communications telemetry, and radar station operations; or (2)
     providing satellite terminal stations and associated facilities
     operationally connected with one or more terrestrial communications
     systems and capable of transmitting telecommunications to or
     receiving telecommunications from satellite systems."[^2318] For
     this category, Census Bureau data for 2002 show that there were a
     total of 332 firms that operated for the entire year.[^2319] Of
     this total, 303 firms had annual receipts of under \$10 million and
     15 firms had annual receipts of \$10 million to
     \$24,999,999.[^2320] Consequently, we estimate that the majority of
     Other Telecommunications firms are small entities that might be
     affected by our action.

### Cable and OVS Operators

961. In 2007, the SBA recognized new census categories for small cable
     entities.[^2321] However, there is no census data yet in existence
     that may be used to calculate the number of small entities that fit
     these definitions. Therefore, we will use prior definitions of
     these types of entities in order to estimate numbers of
     potentially-affected small business entities.

962. **Cable and Other Program Distribution***.* The Census Bureau
     defines this category as "third-party distribution systems for
     broadcast programming. . . . \[that\] deliver visual, aural, or
     textual programming received from cable networks, local television
     stations, or radio networks to consumers via cable or
     direct-to-home satellite systems on a subscription or fee basis. .
     . \[and\] do not generally originate programming material."[^2322]
     The SBA has developed a small business size standard for Cable and
     Other Program Distribution, of firms having \$13.5 million or less
     in annual receipts.[^2323] According to Census Bureau data for
     2002, there were a total of 1,191 firms in this category that
     operated for the entire year.[^2324] Of this total, 1,087 firms had
     annual receipts of under \$10 million, and 43 firms had receipts of
     \$10 million or more but less than \$25 million.[^2325] Thus, under
     this size standard, the majority of firms can be considered small
     and may be affected by rules adopted pursuant to the Further
     Notice.

963. **Cable Companies and Systems***.* The Commission has developed its
     own small business size standards, for the purpose of cable rate
     regulation. Under the Commission's rules, a "small cable company"
     is one serving 400,000 or fewer subscribers, nationwide.[^2326]
     Industry data indicate that, of 1,076 cable operators nationwide,
     all but eleven are small under this size standard.[^2327] In
     addition, under the Commission's rules, a "small system" is a cable
     system serving 15,000 or fewer subscribers.[^2328] Industry data
     indicate that, of 7,208 systems nationwide, 6,139 systems have
     under 10,000 subscribers, and an additional 379 systems have
     10,000-19,999 subscribers.[^2329] Thus, under this second size
     standard, most cable systems are small and may be affected by rules
     adopted pursuant to the Further Notice.

964. **Cable System Operators**. The Act also contains a size standard
     for small cable system operators, which is "a cable operator that,
     directly or through an affiliate, serves in the aggregate fewer
     than 1 percent of all subscribers in the United States and is not
     affiliated with any entity or entities whose gross annual revenues
     in the aggregate exceed \$250,000,000."[^2330] The Commission has
     determined that an operator serving fewer than 677,000 subscribers
     shall be deemed a small operator, if its annual revenues, when
     combined with the total annual revenues of all its affiliates, do
     not exceed \$250 million in the aggregate.[^2331] Industry data
     indicate that, of 1,076 cable operators nationwide, all but ten are
     small under this size standard.[^2332] We note that the Commission
     neither requests nor collects information on whether cable system
     operators are affiliated with entities whose gross annual revenues
     exceed \$250 million,[^2333] and therefore we are unable to
     estimate more accurately the number of cable system operators that
     would qualify as small under this size standard.

965. **Open Video Services***.* Open Video Service (OVS) systems provide
     subscription services.[^2334] As noted above, the SBA has created a
     small business size standard for Cable and Other Program
     Distribution.[^2335] This standard provides that a small entity is
     one with \$13.5 million or less in annual receipts. The Commission
     has certified approximately 45 OVS operators to serve 75 areas, and
     some of these are currently providing service.[^2336] Affiliates of
     Residential Communications Network, Inc. (RCN) received approval to
     operate OVS systems in New York City, Boston, Washington, D.C., and
     other areas. RCN has sufficient revenues to assure that they do not
     qualify as a small business entity. Little financial information is
     available for the other entities that are authorized to provide OVS
     and are not yet operational. Given that some entities authorized to
     provide OVS service have not yet begun to generate revenues, the
     Commission concludes that up to 44 OVS operators (those remaining)
     might qualify as small businesses that may be affected by rules
     adopted pursuant to the Further Notice.

### Internet Service Providers, Web Portals and Other Information Services

966. In 2007, the SBA recognized two new small business, economic census
     categories: (1) Internet Publishing and Broadcasting and Web Search
     Portals[^2337] and; (2) All Other Information Services.[^2338]
     However, there is no census data yet in existence that may be used
     to calculate the number of small entities that fit these
     definitions. Therefore, we will use prior definitions of these
     types of entities in order to estimate numbers of
     potentially-affected small business entities.

967. **Internet Service Providers**. The SBA has developed a small
     business size standard for Internet Service Providers (ISPs). ISPs
     "provide clients access to the Internet and generally provide
     related services such as web hosting, web page designing, and
     hardware or software consulting related to Internet
     connectivity."[^2339] Under the SBA size standard, such a business
     is small if it has average annual receipts of \$23 million or
     less.[^2340] According to Census Bureau data for 2002, there were
     2,529 firms in this category that operated for the entire year.
     [^2341] Of these, 2,437 firms had annual receipts of under \$10
     million, and an additional 47 firms had receipts of between \$10
     million and \$24,999,999. Consequently, we estimate that the
     majority of these firms are small entities that may be affected by
     rules adopted pursuant to the Further Notice.

968. **Web Search Portals**. Our action may pertain to interconnected
     VoIP services, which could be provided by entities that provide
     other services such as email, online gaming, web browsing, video
     conferencing, instant messaging, and other, similar IP-enabled
     services. The Commission has not adopted a size standard for
     entities that create or provide these types of services or
     applications. However, the Census Bureau has identified firms that
     "operate web sites that use a search engine to generate and
     maintain extensive databases of Internet addresses and content in
     an easily searchable format."[^2342] The SBA has developed a small
     business size standard for this category of \$6.5 million or less
     in average annual receipts.[^2343] According to Census Bureau data
     for 2002, there were 342 firms in this category that operated for
     the entire year.[^2344] Of these, 303 had annual receipts of under
     \$5 million, and an additional 15 firms had receipts of between \$5
     million and \$9,999,999. Consequently, we estimate that the
     majority of these firms are small entities that may be affected by
     rules adopted pursuant to the Further Notice.

969. **Data Processing, Hosting, and Related Services***.* Entities in
     this category "primarily ... provid\[e\] infrastructure for hosting
     or data processing services."[^2345] The SBA has developed a small
     business size standard for this category; that size standard is
     \$23 million or less in average annual receipts.[^2346] According
     to Census Bureau data for 2002, there were 6,877 firms in this
     category that operated for the entire year.[^2347] Of these, 6,418
     had annual receipts of under \$10 million, and an additional 251
     firms had receipts of between \$10 million and \$24,999,999.
     Consequently, we estimate that the majority of these firms are
     small entities that may be affected by rules adopted pursuant to
     the Further Notice.

970. **All Other Information Services**. The Census Bureau defines this
     industry as including "establishments primarily engaged in
     providing other information services (except new syndicates and
     libraries and archives)."[^2348] Our action pertains to
     interconnected VoIP services, which could be provided by entities
     that provide other services such as email, online gaming, web
     browsing, video conferencing, instant messaging, and other, similar
     IP-enabled services. The SBA has developed a small business size
     standard for this category; that size standard is \$6.5 million or
     less in average annual receipts.[^2349] According to Census Bureau
     data for 2002, there were 155 firms in this category that operated
     for the entire year.[^2350] Of these, 138 had annual receipts of
     under \$5 million, and an additional four firms had receipts of
     between \$5 million and \$9,999,999. Consequently, we estimate that
     the majority of these firms are small entities that may be affected
     by our action.

971. **Internet Publishing and Broadcasting**. The Census Bureau defines
     this industry as "establishments engaged in publishing and/or
     broadcasting content on the Internet exclusively. . . . \[that . .
     .\] do not provide traditional (non-Internet) versions of the
     content that they publish or broadcast."[^2351] The SBA has
     developed a small business size standard for this Census category;
     that size standard is 500 or fewer employees.[^2352] According to
     Census Bureau data for 2002, there were 1,362 firms in this
     category that operated for the entire year.[^2353] Of these, 1,351
     had employment of 499 or fewer employees, and 11 firms had
     employment of between 500 and 999. Consequently, we estimate that
     the majority of these firms are small entities that may be affected
     by our action.

     **D. Description of Projected Reporting, Recordkeeping, and Other
     Compliance Requirements for Small Entities**

972. In the Further Notice, the Commission seeks comment on issues that
     must be addressed to comprehensively reform intercarrier
     compensation. These issues include the Commission's jurisdiction to
     adopt such reform, how relevant statutory provisions should be
     interpreted and applied, and if and how carriers should be allowed
     to recover revenues that might be reduced by any intercarrier
     compensation reforms. In addition, the Commission seeks comment on
     the transition to the elimination of originating access. Compliance
     with a transition away from originating access charges will apply
     to all carriers but may prove financially burdensome to some small
     entities and may include new or reduced administrative processes.

973. The Commission currently does not regulate the provision of transit
     service between carriers and many carriers have entered into
     agreements governing the provision of transit traffic. Rules
     imposing transit service obligations will likely have no
     significant impact on carriers already providing, or carriers
     already using, transit service. For carriers that would be
     affected, the burdens may include determining the price of transit
     service purchased and/or provided, and developing additional
     administrative capabilities to account for providing and/or
     receiving transit service.

974. In this Further Notice the Commission also seeks comment on whether
     carriers will be able to receive universal service support to
     recover net reduced revenues from intercarrier compensation as a
     result of reforms that could be adopted. To allow rate-of-return
     carriers to receive universal service support in this manner, we
     may need to modify existing rules. For carriers that may be
     affected, burdens may include certain reporting and recordkeeping
     requirements to determine and establish their eligibility to
     receive such universal service support. Additionally, these
     carriers may need to modify some administrative processes in order
     to comply with any new or revised rules the Commission adopts as a
     result of the Further Notice.

975. Possible modifications to the rules in Part 51, if adopted, will
     affect all carriers. Possible modifications to the rules in Part 61
     of the Commission's rules, if adopted, will affect all carriers
     that file and/or modify tariff filings. For example, modified rules
     may decrease or increase a carriers' tariff filing requirements.
     Modifications to the rules in Part 69 of the Commission's rules, if
     adopted, will affect all carriers that receive and/or pay access
     charges. Such revisions could require modifications to carrier
     billing systems and associated reporting and recordkeeping systems.
     Additionally, modification of the Commission's Part 69 rules may
     require carriers to modify and/or establish intercarrier
     compensation agreements.

976. As part of the Further Notice, the Commission seeks comment on
     reforming the high-cost disbursement mechanism, including the use
     of reverse auctions, and how best to implement changes to the
     universal service contribution mechanism. Compliance with a new
     universal service contribution mechanism will apply to all
     carriers, which may prove financially burdensome to small entities
     as they make changes from reporting information based on the
     revenue-based mechanism. Changes to the high-cost mechanism, and
     adoption of a broadband pilot program for low-income consumers may
     also necessitate additional reporting and recordkeeping
     requirements. Additionally, these proposed changes necessary to
     implement comprehensive reform also may require changes to Part 54
     of the Commission's rules and will affect carriers subject to those
     rules.

     **E. Steps Taken to Minimize the Significant Economic Impact on
     Small Entities, and Significant Alternatives Considered**

977. The RFA requires an agency to describe any significant,
     specifically small business, alternatives that it has considered in
     reaching its proposed approach, which may include the following
     four alternatives (among others): "(1) the establishment of
     differing compliance or reporting requirements or timetables that
     take into account the resources available to small entities; (2)
     the clarification, consolidation, or simplification of compliance
     and reporting requirements under the rules for such small
     entities; (3) the use of performance rather than design standards;
     and (4) an exemption from coverage of the rule, or any part
     thereof, for such small entities."[^2354]

978. The Further Notice seeks comment from all interested parties. Small
     entities are encouraged to bring to the Commission's attention any
     specific concerns they may have with the proposals outlined in the
     Further Notice.

979. Throughout these proceedings the Commission has received proposals
     to treat small entities differently. We believe that consideration
     of commenters' transition proposals for implementing intercarrier
     compensation reform, as well as alternatives for a carriers'
     recovery of intercarrier revenues reduced as a result of any
     reforms that might be adopted could be consistent with our goals of
     a unified and simplified intercarrier compensation regime that will
     reduce arbitrage opportunities and promote innovation and
     competition and our statutory requirement to secure the viability
     of universal service.

     **F. Federal Rules that May Duplicate, Overlap, or Conflict with
     the Proposed Rules**

980. None.

**STATEMENT OF**

**CHAIRMAN KEVIN J. MARTIN**

Re: *High-Cost Universal Service Support*, WC Docket No. 05-337;
*Federal-State Joint Board on Universal Service*, CC Docket No. 96-45;
*Lifeline and Link Up*, WC Docket No. 03-109; *Universal Service
Contribution Methodology*, WC Docket No. 06-122; *Numbering Resource
Optimization*, CC Docket No. 99-200; *Implementation of the Local
Competition* *Provisions in the Telecommunications Act of 1996*, CC
Docket No. 96-98; *Developing a Unified Intercarrier Compensation
Regime*, CC Docket No. 01-92; *Intercarrier Compensation for ISP-Bound
Traffic*, CC Docket No. 99-68; *IP-Enabled Services*, WC Docket No.
04-36

Today we tell the U.S. Court of Appeals for the D.C. Circuit and the
Federal-State Joint Board on Universal Service that, after years of
deliberation, we are still unready to move forward with comprehensive
reform of intercarrier compensation and universal service. Instead, we
issue another open-ended Further Notice of Proposed Rulemaking on a
variety of approaches for comprehensive reform, and my colleagues
promise to act on it by December 18.

I am disappointed by the Commission's unwillingness to step up and make
tough choices to modernize our intercarrier compensation and universal
service programs. I am also doubtful that the Commission will find
itself any better equipped to act in another six weeks. However, I vote
to approve this item because this is the only path my colleagues could
agree on, and failure to respond to the Court in particular would result
in an even sorrier state of affairs -- immediate vacatur of our rules.

First, I am skeptical of today's response to the Court, which directed
us to justify the Commission's interim intercarrier compensation rules
for ISP-bound traffic. The Order treats ISP-bound traffic differently
than all other traffic, including other IP traffic. The Order retains
the interim rate cap of \$0.0007 for terminating this traffic
indefinitely. I doubt that an Order that retains artificial and
unsupported distinctions between types of IP traffic and maintains an
interim rate without establishing an end game will be seen any more
favorably by the Court than the Commission's two previous attempts.

By singling out ISP-bound traffic for different treatment, we perpetuate
the current patchwork of rates for different traffic. The Order argues
that disparate treatment of ISP-bound traffic is justified to combat
arbitrage. Yet arbitrage exists precisely because traffic is terminated
at a variety of rates.

In addition, the \$0.0007 rate cap for ISP-bound traffic was intended to
be an interim measure pending comprehensive reform of intercarrier
compensation. Indeed, the record does not support a differential rate
for ISP-bound traffic except on an interim basis. And even then,
\$0.0007 can only be justified as an interim rate under a cost standard
that we fail to adopt. A rate of \$0.0007 is inconsistent with the
current TELRIC standard, and the Order does not adequately explain why
we retain this rate in the absence of moving forward with adopting a
cost standard consistent with \$0.0007. However, the Order simply states
that the \$0.0007 cap shall remain in place until we adopt more
comprehensive intercarrier compensation reform. That is, we are
establishing a perpetual interim rate. Although the Order is silent as
to whether the \$0.0007 rate is "interim," let's be clear -- this is an
interim rate to nowhere. I therefore believe that we have failed to
respond to the Court.

In 2005, the Court denied an earlier mandamus petition based on the
Commission's representation that it was committed to comprehensive
reform. The Commission pointed to its Further Notice on comprehensive
reform, including permanent rules to succeed the interim intercarrier
compensation regime for ISP-bound traffic.

Three years later, the Commission once again finds itself asking the
Court not to vacate our rules because the Commission remains committed
to comprehensive reform. And once again, the Commission points to a
Further Notice on comprehensive reform as evidence of its commitment.

I question whether my colleagues will be any more willing to adopt
comprehensive reform in December. As explained below, I believe when
December comes, the other Commissioners will simply pursue another
Further Notice and another round of comment on the most difficult
issues. If the Court wants a response -- and is willing to give the
Commission the benefit of the doubt rather than vacate our rules
immediately -- it should enforce our promise of reform on pain of
automatic vacatur on December 19.

It is unfortunate that the Commission could not agree to adopt the
comprehensive solution. I had proposed a comprehensive approach that
would have transitioned all traffic to a final uniform rate, regardless
of the type of traffic or jurisdiction. This approach would have
answered the Court's direction -- and I think it would have done so in a
legally sustainable way.

Specifically, I would have concluded that all traffic falls within
section 251(b)(5) and called upon each state to set a glide path to a
reciprocal compensation rate applicable to all traffic under section
252(d)(2). Under this proposal, traffic terminated at rates below the
glide path, such as ISP-bound traffic, would continue to be terminated
at those rates, on an interim basis, until such traffic is swept into
the glide path. Ultimately, the glide path would end at a lower, final
uniform rate for all traffic.

Second, I view our failure to implement the Joint Board's
recommendations as a tremendous missed opportunity. In particular, I
supported the Joint Board's determination that broadband should be
included in the universal service program. As I have said before, to
fully appreciate and take advantage of the Internet today, consumers
need broadband connections. Without this underlying infrastructure,
efforts to implement advances in how we communicate, work, and provide
education cannot succeed.

My proposal for implementing this recommendation would have spurred
rapid and widespread deployment of broadband. I would have asked each
carrier receiving high-cost universal service support to commit to
provide broadband to all consumers in its study area within 5 years as a
condition of continuing to receive support. If a carrier did not make
that commitment, we would conduct a reverse auction to find out if any
other carrier could do so. If nobody came forward, then we would have
identified an unserved area, and could then determine what additional
steps might be necessary to bring broadband to those consumers. In
addition, I would have created a broadband Lifeline and Link Up program
to ensure that low income consumers are not left out of our broadband
future.

Finally, I am disappointed with the Further Notice issued today. After a
decade of comment on these issues, we begin again from square one. To be
clear, this is not a targeted Further Notice on a specific reform
proposal. We are putting out for comment several proposals that would
lead to radically different outcomes. In the Further Notice and in my
colleagues' statement, my colleagues invite comment on conflicting
questions, which reveal that they have no fundamental proposal for
reform.

-   Do we include broadband within the universal service program -- or
    not?

-   Do we provide support to competitive carriers based on their own
    costs? A reverse auction? Or do we phase out their support
    altogether?

-   Should terminating rates be uniform by state -- or uniform by
    carrier?

-   Should we use an incremental cost standard for setting termination
    rates -- or the existing TELRIC standard?

These questions have been debated exhaustively in the record for years.
I fail to see how further comment over the next six weeks will help us
resolve these issues.

Indeed, the longer we wait, the more difficult these issues become.
Regulatory arbitrage will increase as long as rates differ by type of
traffic and jurisdiction. Moreover, carriers are booking IP traffic at
vastly different rates that must be reconciled eventually. This type of
traffic will continue to grow as carriers invest in broadband networks.

I would like to be encouraged by my colleagues' commitment that they
will truly be ready to complete this much needed reform on December 18.
The nature of the questions they included in the Further Notice makes me
doubt they will have found their answers within an additional six weeks.
I believe the far more likely outcome is that, in December, the other
Commissioners will merely want another Further Notice and another round
of comment on the most difficult questions. I do not believe they will
be prepared to address the most challenging issues and that the
Commission will be negotiating over what further questions to ask in
December.

I recognize that few other issues before the Commission are as
technically complex and involved, with as many competing interests, as
are reforming the intercarrier compensation and universal service
programs. But neither of those two realities are excuse for inaction.

**JOINT STATEMENT OF**

**COMMISSIONERS MICHAEL J. COPPS, JONATHAN S. ADELSTEIN, DEBORAH TAYLOR
TATE AND ROBERT M. MCDOWELL**

Re: *High-Cost Universal Service Support*, WC Docket No. 05-337;
*Federal-State Joint Board on Universal Service*, CC Docket No. 96-45;
*Lifeline and Link Up*, WC Docket No. 03-109; *Universal Service
Contribution Methodology*, WC Docket No. 06-122; *Numbering Resource
Optimization*, CC Docket No. 99-200; *Implementation of the Local
Competition* *Provisions in the Telecommunications Act of 1996*, CC
Docket No. 96-98; *Developing a Unified Intercarrier Compensation
Regime*, CC Docket No. 01-92; *Intercarrier Compensation for ISP-Bound
Traffic*, CC Docket No. 99-68; *IP-Enabled Services*, WC Docket No.
04-36

Today's decision responds directly to the mandamus from the D.C. Circuit
Court of Appeals regarding Core Communications, Inc. The item sets forth
the Commission's legal justification for the rules it adopted in 2001
governing intercarrier compensation for telecommunications traffic bound
for Internet service providers. It also preserves the ability to move
towards a more unified intercarrier compensation regime.

We also issue a Further Notice seeking comment on specific proposals to
reform the intercarrier compensation and universal service systems.
While we do not pre-judge any of the proposals set forth therein, we do
believe that there is a tentative but growing measure of consensus on a
number of issues, including: moving intrastate access rates to
interstate access levels over a reasonable period of time; not unduly
burdening consumers with increases in their rates untethered to
reductions in access charges; addressing phantom traffic and traffic
stimulation; implementing an alternative cost recovery mechanism in
certain circumstances; eliminating the identical support rule and moving
over time towards support based on a company's own costs; emphasizing
the importance of broadband to the future of universal service; and
clarifying the implementation of the Alaska Native regions and tribal
lands exception to the CETC cap adopted on May 1, 2008, and the need for
special consideration for such areas. We would appreciate stakeholders
attention to these issues of concern and consideration of whether
modifications along these lines to the attached proposals are warranted.
This Further Notice reflects our commitment to comprehensive reform of
the intercarrier compensation and universal service systems in an
expedited fashion.

Finally, the Commission today has completed a proceeding to consider the
recommendations of the Federal-State Joint Board on Universal Service.
We appreciate all of the valuable input that the Board has provided the
Commission. We however choose not to implement the Joint Board's
recommendations at this time. We thank the Board members for their
tireless efforts and look forward to obtaining their valuable input on
an on-going basis.

For the foregoing reasons, we are pleased to approve today's Report &
Order and Further Notice of Proposed Rulemaking

[^1]: *In re Core Communications, Inc*., 531 F.3d 849, 861-62 (D.C. Cir.
    2008) (directing the Commission to respond to the remand in the form
    of a final, appealable order which explains its legal authority to
    issue the pricing rules for ISP-bound traffic adopted in the *ISP
    Remand Order*).

[^2]: *See Intercarrier Compensation for ISP-Bound Traffic*, CC Docket
    No. 99-68, Declaratory Ruling and Notice of Proposed Rulemaking, 14
    FCC Rcd 3689 (1999) (*Declaratory Ruling*), *vacated and remanded*,
    *Bell Atlantic Tel. Cos. v. FCC*, 206 F.3d 1 (D.C. Cir. 2000) (*Bell
    Atlantic*).

[^3]: *See also* *Implementation of the Local Competition Provisions in
    the Telecommunications Act of 1996 and Interconnection between Local
    Exchange Carriers and Commercial Mobile Radio Service Providers*, CC
    Docket Nos. 96-98, 95-185, First Report and Order, 11 FCC Rcd 15499,
    16013, paras. 1033--34 (1996) (subsequent history omitted) (*Local
    Competition First Report and Order*).

[^4]: *Bell Atlantic*, 206 F.3d at 1.

[^5]: *See id.* at 5.

[^6]: *See id.* at 6.

[^7]: *See* *Intercarrier Compensation for ISP-Bound Traffic*, CC Docket
    Nos. 96-98, 99-68, Order on Remand and Report and Order, 16 FCC Rcd
    9151, 9171--72, para. 44 (2001) (*ISP Remand Order*), *remanded but
    not vacated by* *WorldCom, Inc. v. FCC*, 288 F.3d 429, 432 (D.C.
    Cir. 2002) (*WorldCom*) (subsequent history omitted) (holding that
    section 251(g) appears to provide for the continued enforcement "of
    certain pre-Act regulatory 'interconnection restrictions and
    obligations'").

[^8]: The term "1996 Act" refers to the Telecommunications Act of 1996.
    Pub. L. No. 104-104, 110 Stat. 56 (1996). The term "Act" refers to
    the Communications Act of 1934, as amended. 47 U.S.C. § 151 *et
    seq*.

[^9]: *See ISP Remand Order*, 16 FCC Rcd at 9175, para. 52. Thus, the
    Commission affirmed its prior finding in the *Declaratory Ruling*
    that ISP-bound traffic is jurisdictionally interstate. *See id*;
    *see also Declaratory Ruling*, 14 FCC Rcd at 3710-03, paras. 18-20.

[^10]: *See ISP Remand Order*, 16 FCC Rcd at 9187, para. 77.

[^11]: *ISP Remand Order*, 16 FCC Rcd at 9184-85, paras. 74-75. The
    Commission discussed at length the market distortions and regulatory
    arbitrage opportunities created by the application of per-minute
    reciprocal compensation rates to ISP-bound traffic. In particular,
    the Commission found that requiring compensation for this type of
    traffic at existing reciprocal compensation rates undermined the
    operation of competitive markets because competitive LECs were able
    to recover a disproportionate share of their costs from other
    carriers, thereby distorting the price signals sent to their ISP
    customers. *See ISP Remand Order*, 16 FCC Rcd at 9181-86, paras.
    67-76.

[^12]: *See ISP Remand Order*, 16 FCC Rcd at 9153, para. 2 (citing
    *Developing a Unified Intercarrier Compensation Regime*, CC Docket
    No. 01-92, Notice of Proposed Rulemaking, 16 FCC Rcd 9610 (2001)
    (*Intercarrier Compensation NPRM*)).

[^13]: *ISP Remand Order*, 16 FCC Rcd at 9187--89, 9193--94, paras, 78,
    80, 89. In a subsequent order, the Commission granted forbearance to
    all telecommunications carriers with respect to the growth caps and
    the new markets rule. *See Petition of Core Communications, Inc. for
    Forbearance Under 47 U.S.C. § 160(c) from Application of the ISP
    Remand Order*, WC Docket No. 03-171, Order, 19 FCC Rcd 20179 (2004)
    (*Core Forbearance Order*). Thus, only the rate caps and mirroring
    rule remain in effect today.

[^14]: *See ISP Remand Order*, 16 FCC Rcd at 9190--91, para. 85.

[^15]: *See WorldCom*, 288 F.3d at 429.

[^16]: *See id.* at 433.

[^17]: *See id*. at 434.

[^18]: Pet. for Writ of Mandamus to the Federal Communications
    Commission, D.C. Cir. 07-1446 (filed Nov. 5, 2007).

[^19]: *Core Communications, Inc*., 531 F.3d at 861-62.

[^20]: *See id*. If the Commission fails to comply with the writ by the
    November 5th deadline, the rules will be vacated on November 6,
    2008. *See id*. at 862.

[^21]: *See* 288 F.3d at 434.

[^22]: *See* 531 F.3d at 861-62.

[^23]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16012-13, para. 1033.

[^24]: *See, e.g.*, Supplemental Comments of Verizon and Verizon
    Wireless at 24--32; Letter from Daniel Mitchell, Vice President,
    Legal and Industry, National Cable and Telecommunications
    Association (NCTA), to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92 at 9 (filed Sept. 30, 2008) (NCTA Sept. 30, 2008 *Ex
    Parte* Letter); Verizon *Intercarrier Compensation FNPRM* Comments
    at 38--42; NARUC *Intercarrier Compensation FNPRM* Comments at 6--7;
    Rural Alliance *Intercarrier Compensation FNPRM* Comments at
    144--49; Cincinnati Bell *Intercarrier Compensation FNPRM* Comments
    at 5--11; Maine Public Utilities Commission and Vermont Public
    Service Board *Intercarrier Compensation FNPRM* Comments at 7; New
    York State Department of Public Service *Intercarrier Compensation
    FNPRM* Comments at 7; Verizon and BellSouth, Supplemental White
    Paper on ISP Reciprocal Compensation, CC Docket No. 96-98, 99-68 at
    16--20 (filed July 20, 2004) (Verizon/BellSouth Supp. ISP White
    Paper); NARUC's Initial Comments at 7 n.13 (May 23, 2004). *But see,
    e.g*., ICF *Intercarrier Compensation FNPRM* Comments at 39.

[^25]: *ISP Remand Order*, 16 FCC Rcd at 9166--67, para. 35. *See also,
    e.g.*, Qwest, Legal Authority for Comprehensive Intercarrier
    Compensation Reform 2--4 (Qwest White Paper), *attached to* Letter
    from Melissa Newman, Counsel for Qwest, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 06-45, 99-68, WC Docket Nos.
    04-36, 05-337, 05-195, 06-122 (filed Oct. 7, 2008) (Qwest Oct. 7,
    2008 *Ex Parte* Letter); Letter from Kathleen O'Brien Ham et al.,
    Counsel for T-Mobile, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 at 9--10 (filed Oct. 3, 2008) (T-Mobile Oct. 3,
    2008 *Ex Parte* Letter); Level 3 Aug. 18, 2008 *Ex Parte* Letter at
    2, 15--18; AT&T Reply to *Comment Sought on Missoula Plan Phantom
    Traffic Interim Process Call Detail Records Proposal*, CC Docket No.
    01-92, Public Notice, DA 06-2294 (WCB 2006) (*Missoula* *Phantom
    Traffic*) at 35--41; Brief from Gary M. Epstein, Counsel for ICF, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 29--35
    (filed Oct. 5, 2004).

[^26]: *AT&T v. Iowa Utils. Bd.*, 525 U.S. at 397.

[^27]: 47 U.S.C. § 251(b)(5).

[^28]: 47 U.S.C. § 153(43).

[^29]: *Id.* § 153(47).

[^30]: *Id.* § 153(48).

[^31]: *Id.* § 153(16).

[^32]: *Local Competition First Report and Order*, 11 FCC Rcd at 16012,
    para. 1033.

[^33]: *ISP Remand Order*, 16 FCC Rcd at 9173, para. 46.

[^34]: *Id.* at 9167, para. 34.

[^35]: 47 U.S.C. § 251(g).

[^36]: *See WorldCom v. FCC*, 288 F.3d at 429.

[^37]: *See,* *e.g*., Supplemental Comments of Verizon and Verizon
    Wireless("The best interpretation of § 251(b)(5) -- read in light of
    the text, structure, and history of the 1996 Act -- is that the
    reciprocal compensation obligation applies only to intraexchange (or
    'local') voice calls that originate on the network of one LEC (or
    wireless provider) and terminate on the network of another LEC (or
    wireless provider) operating in the same exchange (or, in the case
    of wireless providers, the same MTA."); Letter from Ann D.
    Berkowitz, Associate Director, Federal Regulatory Advocacy, Verizon,
    to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98,
    Attach. at 26 (filed May 17, 2004) (attaching white paper entitled
    "Internet-Bound Traffic is Not Compensable Under Sections 251(b)(5)
    and 252(d)(2)") (Verizon/BellSouth White Paper) ("By its nature,
    'reciprocal compensation' must \[ \] apply to 'telecommunications'
    exchanged *between LECs* (or carriers, like CMRS providers, that the
    Commission is authorized to treat as LECs), not to traffic that is
    exchanged between LECs and non-LECs.") (emphasis in original).

[^38]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16013-16, paras. 1034-41. *See also* 47 C.F.R. 51.703(a) ("Each LEC
    shall establish reciprocal compensation arrangements for transport
    and termination of telecommunications traffic with any requesting
    telecommunications carrier"); *ISP Remand Order*, 16 FCC Rcd at
    9193--94, para. 89 n.177 ("Section 251(b)(5) applies to
    telecommunications traffic between a LEC and a telecommunications
    carrier . . . .").

[^39]: *Local Competition First Report and Order*, 11 FCC Rcd at 15996,
    para. 1005.

[^40]: *Local Competition First Report and Order*, 11 FCC Rcd at 15997,
    para. 1008.

[^41]: If Congress had intended to limit the class of potential
    beneficiaries of LECs' duty to establish reciprocal obligation
    arrangements, it would have said so explicitly. *See* 47 U.S.C. §
    251(b)(3) (describing the "duty to provide dialing parity to
    competing providers of telephone exchange service and telephone toll
    service").

[^42]: *See, e.g.*, Verizon/BellSouth White Paper at 41--43; New York
    State Department of Public Service *Intercarrier Compensation FNPRM*
    Comments at 8--9; TDS *Intercarrier Compensation FNPRM* Comments at
    19 n.27; VeriSign *Intercarrier Compensation FNPRM* Comments, Attach
    B. at 9, 12, 26--28; Qwest *Intercarrier Compensation FNPRM*
    Comments at 39; NASUCA *Intercarrier Compensation FNPRM* Reply at
    17;Leap Wireless International, Inc. *Intercarrier Compensation
    FNPRM* Reply, Ex. 5 at 8.

[^43]: 47 U.S.C. § 252(d)(2)(A)(i).

[^44]: *See, e.g.*, Maine Public Utilities Commission and Vermont Public
    Service Board *Intercarrier Compensation FNPRM* Comments at 7--8;
    New York State Department of Public Service *Intercarrier
    Compensation FNPRM* Comments at 7--10; Verizon/BellSouth Supp. ISP
    White Paper at 16--20; NARUC *Intercarrier Compensation FNPRM*
    Initial Comments at 7 n.13.

[^45]: 47 U.S.C. § 252(d)(2)(A)(i).

[^46]: *See, e.g.*, Supplemental Comments of Verizon and Verizon
    Wireless at 33--34; Verizon/BellSouth White Paper at 31--32.

[^47]: *Local Competition Order*, 11 FCC Rcd at 16015, para. 1040. *See
    also* 47 C.F.R. § 51.701(d).

[^48]: 206 F.3d at 6.

[^49]: We reject Verizon's argument against the application of section
    251(b)(5) to ISP-bound traffic because this traffic is one-way
    traffic and as such is not reciprocal, *see* Supplemental Comments
    of Verizon and Verizon Wireless at 26 (Oct. 2, 2008); Verizon White
    Paper at 41-43 (May 17, 2004). As Level 3 points out, these
    arguments have been rejected by the Commission and the U.S. Court of
    Appeals for the Ninth Circuit. *See* Level 3 Aug. 18, 2008 *Ex
    Parte* Letter at 18; *Pacific Bell v. Cook Telecom, Inc.*, 197 F.3d
    1236, 1242-44 (9th Cir. 1999) (reciprocal compensation applies to
    paging traffic); *TSR Wireless, LLC v. U.S. West Communications,
    Inc.*, 15 FCC Rcd 11166, 11178 para. 21 (2000) (the Commission's
    reciprocal compensation rules "draw \[\] no distinction between
    one-way and two-way carriers"). Because our conclusion in this order
    concerning the scope of section 251(b)(5) is no longer tied to
    whether this traffic is local or long distance, we need not address
    arguments made by the parties as to whether ISP-bound traffic
    constitutes "telephone exchange service" under the Act. *See e.g*.,
    Letter from John T. Nakahata, Counsel for Level 3 Communications,
    LLC, to Marlene H. Dortch, Secretary, Federal Communications
    Commission, CC Docket Nos. 99-68, 96-98, Attach. at 1 (filed Sept.
    24, 2004).

[^50]: *See* 47 U.S.C. § 271(c)(2)(B)(xiii).

[^51]: *See* Supplemental Comments of Verizon and Verizon Wireless at
    26; Verizon/BellSouth White Paper at 9.

[^52]: *United States Telecom Association v. FCC*, 359 F.3d 554, 592
    (D.C. Cir. 2004) (*USTA II*), *cert. denied sub nom., Nat\'l Ass\'n
    of Regulatory Utility Comm\'rs v. United States Telecom Ass\'n*, 543
    U.S. 925, 125 S. Ct. 313, 160 L.Ed.2d 223 (2004) ("Even under the
    deferential *Chevron* standard of review, an agency cannot, absent
    strong structural or contextual evidence, exclude from coverage
    certain items that clearly fall within the plain meaning of a
    statutory term. The argument that long distance services are not
    'telecommunications services' has no support."). In *USTA II*, the
    D.C. Circuit was addressing whether the term "telecommunications
    services" was limited to local telecommunications services under
    section 251(c), while here we consider the analogous question of
    whether "telecommunications" is limited to local telecommunications
    under section 251(b).

[^53]: 47 U.S.C. 251(g). 

[^54]: *WorldCom*, 288 F.3d at 433.

[^55]: 47 U.S.C. §§ 152(a), 201, 202.

[^56]: 47 U.S.C. § 332.

[^57]: *Local Competition First Report and Order*, 11 FCC Rcd at 15544,
    para. 83.

[^58]: *Id*. at 15544--45, para. 85.

[^59]: *Id*.

[^60]: 47 U.S.C. § 251(i).

[^61]: *Local Competition First Report and Order* at 15546--47, para.
    91.

[^62]: *Implementation of Sections 3(n) and 332*, GN Docket No. 93-252,
    Second Report and Order, 9 FCC Rcd 1411, 1498, para. 230 (1994).

[^63]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16005, para. 1023.

[^64]: *Id*. ("By opting to proceed under sections 251 and 252, we are
    not finding that section 332 jurisdiction over interconnection has
    been repealed by implication, or rejecting it as an alternative
    basis for jurisdiction.").

[^65]: We note that the Supreme Court later reversed this decision and
    affirmed the TELRIC methodology. *See Verizon Commc'ns, Inc. v.
    FCC*, 535 U.S. 467 (2002) (*Verizon v. FCC*).

[^66]: *Iowa Utils. Bd. v. FCC*, 120 F.3d 753, 800 n.21 (8th Cir. 1997)
    (*Iowa Utils. I*) (vacated and remanded in part on other grounds,
    *AT&T Corp. v. Iowa Utils. Bd*., 525 U.S. 366 (1999) (*AT&T v. Iowa
    Utils. Bd*.)).

[^67]: *See Qwest Corp. v. FCC*, 252 F.3d 462, 465-66 (D.C. Cir. 2001)
    (describing the Eighth Circuit's analysis of section 332(c)(1)(B) in
    *Iowa Utils. Bd. v. FCC* and concluding that an attempt to
    relitigate the issue was barred by the doctrine of issue
    preclusion).

[^68]: 47 U.S.C. § 201(b).

[^69]: We have consistently found that ISP-bound traffic is
    jurisdictionally interstate. ISP-bound traffic melds a traditional
    circuit-switched local telephone call over the PSTN to packet
    switched IP-based Internet communication to Web sites. *See e.g.*,
    *Declaratory Ruling*, 14 FCC Rcd at 3702, para. 18; *ISP Remand
    Order*, 16 FCC Rcd at 9175, para. 52. This conclusion has not been
    questioned by the D.C. Circuit. *See WorldCom*, 288 F.3d at 431;
    *Bell Atlantic v. FCC*, 206 F.3d at 5 ("There is no dispute that the
    Commission has historically been justified in relying on this method
    when determining whether a particular communication is
    jurisdictionally interstate."). In other contexts, the Commission
    has likewise found that services that offer access to the Internet
    are jurisdictionally interstate services. In 1998, for example, the
    Commission found that ADSL service is jurisdictionally interstate.
    *See GTE Tel. Operating Cos.*, CC Docket No. 98-79, Memorandum
    Opinion and Order, 13 FCC Rcd 22466, 22481, para. 28 (1998)
    ("finding that GTE's ADSL service is subject to federal
    jurisdiction" and is "an interstate service"). More recently, the
    Commission has confirmed this ruling for a variety of broadband
    Internet access services. *See Inquiry Concerning High-Speed Access
    to the Internet Over Cable and Other Facilities*, GN Docket No.
    00-185, CS Docket No. 02-52, Declaratory Ruling and Notice of
    Proposed Rulemaking, 17 FCC Rcd 4798, 4832, para. 59 (2002) (finding
    that, "on an end-to-end analysis," "cable modem service is an
    interstate information service"); *Wireline Broadband Internet
    Access Order*, 20 FCC Rcd 14853 at 14914, para. 110 (2005), *aff'd
    by Brand X*, 545 U.S. 967; *Appropriate Regulatory Treatment for
    Broadband Access to the Internet Over Wireless Networks*, WT 07-53,
    Declaratory Ruling, 22 FCC Rcd 5901, 5911, para. 28 (2007); *United
    Power Line Council's Petition for Declaratory Ruling Regarding the
    Classification of Broadband over Power Line Internet Access Service
    as an Information Service*, WC 06-10, Memorandum Opinion and Order,
    21 FCC Rcd 13281, 13288, para. 11 (2006). In the *Vonage Order*, the
    Commission likewise found that VoIP services are jurisdictionally
    interstate, employing the same end-to-end analysis reflected in
    those other orders. *Vonage Order*, 19 FCC Rcd at 22413--14, paras.
    17--18.

[^70]: *ISP Remand Order*, 16 FCC Rcd at 9174, para. 50.

[^71]: *See ISP Remand Order*, at 9175, para. 51.

[^72]: We thus respond to the D.C. Circuit's remand order in *WorldCom*,
    288 F.3d at 434, and the court's writ of mandamus in *Core
    Communications*, 531 F.3d at 861--62, which directed the Commission
    to explain its legal authority to issue the pricing rules for
    ISP-bound traffic adopted in the *ISP Remand Order*. Specifically,
    we find, for the reasons set forth here that the Commission had the
    authority to adopt the pricing regime pursuant to our broad
    authority under section 201(b) to issue rules governing interstate
    traffic.

[^73]: *See* *Bell Atlantic*, 206 F.3d at 5.

[^74]: *See WorldCom*, 288 F.3d at 434.

[^75]: *Iowa Utils. Bd. v. FCC*, 219 F.3d 744, 757 (8^th^ Cir. 2000)
    (*Iowa Utils. II*), *rev'd in part sub nom. Verizon v. FCC*, 535
    U.S. 467.

[^76]: Indeed, above, the court expressly confirmed the Commission's
    independent authority to set rates for CMRS traffic pursuant to
    section 332 and declined to vacate the Commission's pricing rules as
    they applied in the context of CMRS service. *See* *Iowa Utils. I*,
    120 F.3d at 800 n.21.

[^77]: *See, e.g*., Letter from Gregory J. Vogt, Counsel for CenturyTel,
    Inc. to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337; CC
    Docket Nos. 96-45, 01-92, Attach. at 10 (filed July 8, 2008) (asking
    the Commission to maintain the existing compromises reached with
    respect to ISP-bound traffic); Letter from Gary L. Phillips,
    Associate General Counsel, AT&T, to Marlene H. Dortch, Secretary,
    FCC, CC Docket Nos. 01-92, 96-98, 99-68 at 8 (filed May 9, 2008)
    (asserting that the public interest would be best served by
    maintaining the existing transitional rates pending broader
    intercarrier compensation reform); Letter from L. Charles Keller,
    Counsel for Sage Telecom, to Marlene H. Dortch, Secretary, FCC, WC
    Docket Nos. 99-68, 01-92, Attach. at 6 (Sage Telecom May 9, 2008 *Ex
    Parte* Letter) (stating that retaining the ISP rate serves broad
    policy goals); Letter from John T. Nakahata, Counsel for Level 3
    Communications to Marlene H. Dortch, Secretary, FCC, CC Docket Nos.
    01-92, 99-68 at 1 (filed May 7, 2008) (supporting continuation of
    the compensation rules); Letter from Joshua Seidmann, Vice President
    of Regulatory Affairs, Independent Telephone & Telecommunications
    Alliance, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos.
    99-68, 96-98, Attach. at 2 (filed Apr. 28, 2008) (ITTA Apr. 28, 2008
    *Ex Parte* Letter) (asking the Commission to retain the current
    \$0.0007 rate for ISP-bound traffic); Letter from Donna Epps, Vice
    President of Federal Regulatory Affairs, Verizon, to Marlene H.
    Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-98 (filed Apr. 7,
    2008) (urging the Commission to support its earlier finding that
    \$0.0007 is appropriate compensation for dial-up ISP traffic);
    Letter from L. Charles Keller, Counsel to Verizon Wireless, to
    Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68,
    Attach. (filed May 1, 2008) (Verizon Wireless May 1, 2008 *Ex Parte*
    Letter) (describing how elimination of the existing ISP rate would
    create substantial burdens on a number of carriers and state
    commissions); Letter from Glenn Reynolds, Vice President, Policy,
    USTelecom, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos.
    01-92, 99-68, 96-262, WC Docket No. 07-135 at 2 (filed Apr. 29,
    2008) (USTelecom Apr. 29, 2008 *Ex Parte* Letter) (noting that the
    Commission's existing rules have "largely mitigated the debate
    around compensation for ISP-bound traffic, but there is every reason
    to believe the same problems would arise if the Commission were to
    reverse direction on this issue").

[^78]: *See, e.g*., USTelecom Apr. 29, 2008 *Ex Parte* Letter at 2;
    Letter from Melissa E. Newman, Vice President, Federal Regulatory,
    Qwest Communications International, Inc., to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 99-68, 96-98, WC Docket No. 07-135,
    Attach. at 3--5 (filed Apr. 25, 2008) (Qwest April 25, 2008 *Ex
    Parte* Letter); Verizon and BellSouth, Further Supplemental White
    Paper on ISP Reciprocal Compensation at 20 (Verizon/BellSouth
    Further Supp. ISP White Paper), *attached to* Letter from Donna
    Epps, Vice President, Federal Regulatory Advocacy, Verizon, to
    Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-98, 99-68
    (filed Sept. 27, 2004).

[^79]: *See, e.g.,* Verizon Wireless May 1, 2008 *Ex Parte* Letter,
    Attach.

[^80]: *See, e.g*., *id*. (stating that "the \[m\]irroring \[r\]ule
    simplified wireless-ILEC interconnection negotiations
    tremendously"); Supplemental Comments of Verizon and Verizon
    Wireless on Intercarrier Payments for ISP-Bound Traffic and the
    *WorldCom* Remand, CC Docket Nos. 01-92, 96-98, 99-68 at 38--40
    (filed Oct. 2, 2008) (Supplemental Comments of Verizon and Verizon
    Wireless) (indicating that Verizon entered into multiple agreements
    using the \$.0007 rate cap established in the *ISP Remand Order*).

[^81]: *Id.* at 9182-83, para. 68-71.

[^82]: *Id.* at 9183, para. 70.

[^83]: *Id.*

[^84]: *Id.* at para. 71.

[^85]: *Id.* at 9185, para. 75.

[^86]: *Id.* at 9187, para. 78.

[^87]: *Id.* at 9190-91, para. 85.

[^88]: *Id.*

[^89]: *Id.* at 9190, para. 84.

[^90]: *Id.*

[^91]: *See* 47 U.S.C. § 160(a) ("\[T\]he Commission shall forbear from
    applying any regulation or any provision of \[the Communications\]
    Act to a telecommunications carrier . . . if the Commission
    determines that (1) enforcement of such regulation or provision is
    not necessary to ensure that the charges, practices, classifications
    or regulations by, for, or in connection with that
    telecommunications carrier or telecommunications service are just
    and reasonable, and are not unjustly or unreasonably discriminatory;
    (2) enforcement of such regulation or provision is not necessary for
    the protection of consumers; and (3) forbearance from applying such
    provision or regulation is consistent with the public interest.").

[^92]: *See Petition of Core Communications, Inc. for Forbearance Under
    47 U.S.C. § 160(C) From Application of the ISP Remand Order*, 19 FCC
    Rcd 20179 (2004) ("*Forbearance Order*").

[^93]: The Commission rejected as an initial matter Core's argument that
    the D.C. Circuit's decision in *WorldCom, Inc. v. FCC*, 288 F.3d 429
    (2002), *cert. denied*, 538 U.S. 1012 (2003), compelled the agency
    to grant the petition, observing that the court remanded but did not
    vacate the rules adopted in the *ISP Remand Order* and specifically
    found a "non-trivial likelihood" that the Commission would be able
    to justify the regime it adopted. *See Forbearance Order*, 19 FCC
    Rcd at 20185 para. 17 (quoting *Worldcom*, 288 F.3d at 434).

[^94]: *See* 47 U.S.C. § 251(b)(5) (imposing upon local exchange
    carriers the "duty to establish reciprocal compensation arrangements
    for the transport and termination of telecommunications").

[^95]: *See* *Forbearance Order*, 19 FCC Rcd at 20187 para. 23.

[^96]: *Id*. at 20188 para. 25.

[^97]: *Id*. at 20189 para. 29.

[^98]: *In re Core Communications, Inc.*, 455 F.3d 267 (D.C. Cir. 2006).

[^99]: *Id.* at 278.

[^100]: *Id.* (citing *Forbearance Order*, 19 FCC Rcd at 20187,
    para. 23).

[^101]: *Id.* at 279.

[^102]: *See* Letter from Michael B. Hazzard, Counsel to Core
    Communications, to Marlene H. Dortch, FCC, CC Docket Nos. 99-68,
    01-92, Attach. at 20--26 (May 14, 2008).

[^103]: *See* Core May 14, 2008 Response at 18 & n.8, 19--20. The
    Commission did not delegate its authority in the *ISP Remand Order*,
    but rather provided options that were not mandatory. *See, e.g.*,
    *ISP Remand Order*, 16 FCC Rcd at 9193, para. 89. Additionally, Core
    argues that the Commission provided no reasoned explanation for the
    growth cap and new markets rules adopted in the *ISP Remand Order*
    and never provided notice or an opportunity for comment on those
    specific rules. These rules, as applicable to all carriers, were
    forborne from in the *Core Forbearance Order*. *See* *Core
    Forbearance Order*, 19 FCC Rcd at 20186--87, paras. 20--21. As such,
    this argument is moot.

[^104]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No. 96-45,
    Recommended Decision, 22 FCC Rcd 20477 (JB 2007) (*Comprehensive
    Reform* *Recommended Decision*).

[^105]: 47 U.S.C. § 254 (added by the 1996 Act).

[^106]: 47 U.S.C. § 254.

[^107]: *See* 47 U.S.C. § 254(b).

[^108]: 47 U.S.C. § 254(b)(1), (2), (5).

[^109]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8780--88, paras. 1--20.

[^110]: 47 U.S.C. § 254(e). The statutory requirements for ETC
    designation are set out in section 214(e) of the Act. 47 U.S.C. §
    214(e).

[^111]: *See* 47 C.F.R. § 54.5 ("A 'competitive eligible
    telecommunications carrier' is a carrier that meets the definition
    of 'eligible telecommunications carrier' below and does not meet the
    definition of an 'incumbent local exchange carrier' in § 51.5 of
    this chapter.").

[^112]: Non-rural incumbent LEC ETCs receive support for their
    intrastate supported services based on the forward-looking economic
    cost of providing the services. 47 C.F.R. § 54.309. Rural incumbent
    LEC ETCs receive support based on their loop costs, as compared to a
    national average. 47 C.F.R. Part 36, sbpt. F; 47 C.F.R. § 54.305.
    Incumbent LEC ETCs that serve study areas with 50,000 or fewer lines
    receive support based on their local switching costs. 47 C.F.R. §
    54.301. Additionally, incumbent LEC ETCs that are subject to price
    cap or rate-of-return regulation receive interstate access support
    based on their revenue requirements. 47 C.F.R. Part 54, sbpts. J, K.

[^113]: 47 C.F.R. § 54.307(a).

[^114]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8828--30, paras. 94--96.

[^115]: Support for the fund derives from assessments paid by providers
    of interstate telecommunications services and certain other
    providers of interstate telecommunications. *See* 47 C.F.R. §
    54.706. Fund contributors are permitted to, and almost always do,
    pass those assessments though to their end-user customers. *See* 47
    C.F.R. § 54.712. Fund assessments paid by contributors are
    determined by applying the quarterly contribution factor to the
    contributors' contribution base revenues. In the second quarter of
    2007, the contribution factor reached 11.7 percent, which is the
    highest level since its inception. *See Proposed Second Quarter 2007
    Universal Service Contribution Factor*, CC Docket No. 96-45, Public
    Notice, 22 FCC Rcd 5074, 5077 (OMD 2007). The contribution factor
    has since declined to 11.4 % in the fourth quarter of 2008.
    *Proposed Fourth Quarter 2008 Universal Service Contribution
    Factor*, CC Docket No. 96-45, Public Notice, DA 08-2091 (OMD 2008).

[^116]: *See* [FCC, Universal Service Monitoring Report]{.smallcaps},
    tbl[.]{.smallcaps} 3.2 (2007) (2007 [Universal Service Monitoring
    Report),]{.smallcaps} *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279226A1.pdf[.]{.smallcaps}

[^117]: [Universal Service Administrative Company, 2007 Annual
    Report]{.smallcaps} 43 (2007) ([USAC 2007 Annual
    Report]{.smallcaps}), *available at*
    http://www.usac.org/\_res/documents/about/pdf/usac-annual-report-2007.pdf.

[^118]: 2007 [Universal Service Monitoring Report]{.smallcaps} at tbl.
    3.2; [USAC 2007 Annual Report]{.smallcaps} at 45.

[^119]: *See* USAC Quarterly Administrative Filings for 2008, Fourth
    Quarter (4Q) Appendices, HC03---Rural Study Areas with
    Competition---4Q2008, *available at*
    http://www.usac.org/about/governance/fcc-filings/2008/Q4/HC03%20-%20Rural%20Study%20Areas%20with%20Competition%20-%204Q2008.xls
    (showing 24 competitive ETCs in the study area of incumbent LEC Iowa
    Telecom North (study area code 351167), and 22 competitive ETCs in
    the study area of incumbent LEC Iowa Telecom Systems (study area
    code 351170)).

[^120]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No. 96-45,
    Recommended Decision, 22 FCC Rcd 8998, 8999--9001, paras. 4--7 (JB
    2007) (*Interim Cap* *Recommended Decision*).

[^121]: *Interim Cap* *Recommended Decision*, 22 FCC Rcd at 8999--9001,
    paras. 4--7; *Interim Cap Order*, 23 FCC Rcd at 8834. As recommended
    by the Joint Board, the Commission capped competitive ETC support
    for each state. *Interim Cap Recommended Decision*, 22 FCC Rcd at
    9002, para. 9; *Interim Cap Order*, 23 FCC Rcd at 8846, paras.
    26--28. The Commission set the cap at the level of support
    competitive ETCs were eligible to receive during March 2008.
    *Interim Cap Order*, 23 FCC Rcd at 8850, para. 38.

[^122]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd 20477.

[^123]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, para. 1.

[^124]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20480--81, para. 11.

[^125]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20484, para. 26.

[^126]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20484, para. 27.

[^127]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20481--82, paras. 12--18.

[^128]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20486, para. 35.

[^129]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, paras. 1--6.

[^130]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No. 96-45,
    Notice of Proposed Rulemaking, 23 FCC Rcd 1467 (2008) (*Identical
    Support NPRM*); *High-Cost Universal Service Support; Federal-State
    Joint Board on Universal Service*, WC Docket No. 05-337, CC Docket
    No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1495 (2008)
    (*Reverse Auctions NPRM*); *Joint Board Comprehensive Reform NPRM*,
    23 FCC Rcd 1531 (collectively the *High-Cost Reform NPRMs*).

[^131]: 47 U.S.C. § 254(a)(2).

[^132]: *See* 47 U.S.C. § 230; 47 U.S.C. § 157 nt.

[^133]: *See*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-286532A1.pdf.

[^134]: 47 C.F.R. § 1.200 *et seq*.

[^135]: *See* 47 C.F.R. § 1.1206(b)(2).

[^136]: 47 C.F.R. § 1.1206(b).

[^137]: 47 C.F.R. §§ 1.415, 1.419.

[^138]: *See* 5 U.S.C. § 603.

[^139]: *See* 44 U.S.C. § 3506(c)(4).

[^140]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat.
    56 (1996) (1996 Act).

[^141]: *See* 47 U.S.C. § 230; 47 U.S.C. § 157 nt.

[^142]: We thus conclude that there is a compelling need to proceed with
    comprehensive reform at this time, as we describe below. *See,
    e.g.*, *infra* Parts II.A, III.A, IV.A, and V.B. Given that we have
    notice and an extensive record, going back in some cases seven
    years, we are unpersuaded by commenters proposing that we delay
    reform to seek further comment, or that we issue a Further Notice of
    Proposed Rulemaking on questions beyond those raised in Part VI.
    *See, e.g.*, Letter from Ray Baum, Chairman, NARUC Communications
    Committee, to Chairman Kevin J. Martin, et al., FCC, CC Docket Nos.
    01-92, 80-286, WC Docket Nos. 08-152, 04-32, 06-122, WT Docket No.
    05-194 at 2 (filed Oct. 21, 2008) (NARUC Oct. 21, 2008 *Ex Parte*
    Letter); Letter from Jeffery S. Lanning, Embarq, to Chairman Kevin
    J. Martin, et al., FCC, CC Docket Nos. 01-92, 99-68, WC Docket No.
    04-36 at 2 (filed Oct. 28, 2008) (Embarq Oct. 28, 2008 *Ex Parte*
    Letter); Letter from Eric N. Einhorn, Windstream, to Marlene H.
    Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, 99-68, WC
    Docket Nos. 06-122, 07-135, 08-152 at 1 (filed October 27, 2008)
    (Windstream Oct. 27, 2008 *Ex Parte* Letter).

[^143]: 47 U.S.C. § 254 (added by the 1996 Act).

[^144]: 47 U.S.C. § 254.

[^145]: *See* 47 U.S.C. § 254(b).

[^146]: 47 U.S.C. § 254(b)(1), (2), (5).

[^147]: *See Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Report and Order, 12 FCC Rcd 8776, 8780--88, paras. 1--20
    (1997) (*Universal Service First Report and Order*) (subsequent
    history omitted).

[^148]: *Universal Service First Report and Order*, 12 FCC Rcd at 8948,
    para. 320.

[^149]: *Universal Service First Report and Order*, 12 FCC Rcd at 8948,
    para. 320 (agreeing with the Joint Board). The Commission also
    agreed with the Joint Board that "competitive bidding is consistent
    with section 254, and comports with the intent of the 1996 Act to
    rely on market forces and to minimize regulation." *Id*. at 8951,
    para. 325.

[^150]: *Universal Service First Report and Order*, 12 FCC Rcd at 8948,
    para. 320 ("In that regard, the bidding process should also capture
    the efficiency gains from new technologies or improved productivity,
    converting them into cost savings for universal service.").

[^151]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8949--50, paras. 322--23. Only GTE had proposed a detailed
    competitive bidding plan, which it characterized as an outline
    rather than a final proposal. *See* GTE's Comments in Response to
    Questions, CC Docket No. 96-45, Attach. 1 (filed Aug. 2, 1996).

[^152]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8950, para. 324.

[^153]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8948, para. 320.

[^154]: 47 U.S.C. § 254(e). The statutory requirements for ETC
    designation are set out in section 214(e) of the Communications Act
    of 1934, as amended (Communications Act or Act). 47 U.S.C. § 214(e).

[^155]: *See* 47 C.F.R. § 54.5 ("A 'competitive eligible
    telecommunications carrier' is a carrier that meets the definition
    of 'eligible telecommunications carrier' below and does not meet the
    definition of an 'incumbent local exchange carrier' in § 51.5 of
    this chapter.").

[^156]: Non-rural incumbent LEC ETCs receive support for their
    intrastate supported services based on the forward-looking economic
    cost of providing the services. 47 C.F.R. § 54.309. Rural incumbent
    LEC ETCs receive support based on their loop costs, as compared to a
    national average. 47 C.F.R. Part 36, sbpt. F; 47 C.F.R. § 54.305.
    Incumbent LEC ETCs that serve study areas with 50,000 or fewer lines
    receive support based on their local switching costs. 47 C.F.R. §
    54.301. Additionally, incumbent LEC ETCs that are subject to price
    cap or rate-of-return regulation receive interstate access support
    based on their revenue requirements. 47 C.F.R. Part 54, sbpts. J, K.

[^157]: 47 C.F.R. § 54.307(a).

[^158]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8828--30, paras. 94--96.

[^159]: Support for the fund derives from assessments paid by providers
    of interstate telecommunications services and certain other
    providers of interstate telecommunications. *See* 47 C.F.R. §
    54.706. Fund contributors are permitted to, and almost always do,
    pass those assessments though to their end-user customers. *See* 47
    C.F.R. § 54.712. Fund assessments paid by contributors are
    determined by applying the quarterly contribution factor to the
    contributors' contribution base revenues. In the second quarter of
    2007, the contribution factor reached 11.7%, which is the highest
    level since its inception. *See Proposed Second Quarter 2007
    Universal Service Contribution Factor*, CC Docket No. 96-45, Public
    Notice, 22 FCC Rcd 5074, 5077 (OMD 2007). The contribution factor
    has since declined to 11.4% in the fourth quarter of 2008. *Proposed
    Fourth Quarter 2008 Universal Service Contribution Factor*, CC
    Docket No. 96-45, Public Notice, DA 08-2091 (OMD 2008).

[^160]: *See* FCC, [Universal Service Monitoring Report]{.smallcaps},
    tbl. 3.2 (2007) ([2007 Universal Service Monitoring
    Report]{.smallcaps}), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279226A1.pdf.

[^161]: [Universal Service Administrative Company]{.smallcaps}, [2007
    Annual Report]{.smallcaps} 43 (2007) ([USAC 2007 Annual
    Report]{.smallcaps}), *available at*
    http://www.usac.org/\_res/documents/about/pdf/usac-annual-report-2007.pdf.

[^162]: [2007 Universal Service Monitoring Report]{.smallcaps} at tbl.
    3.2; [USAC 2007 Annual Report]{.smallcaps} at 45.

[^163]: *See* USAC Quarterly Administrative Filings for 2008, Fourth
    Quarter (4Q) Appendices, HC03---Rural Study Areas with
    Competition---4Q2008, *available at*
    http://www.usac.org/about/governance/fcc-filings/2008/Q4/HC03%20-%20Rural%20Study%20Areas%20with%20Competition%20-%204Q2008.xls
    (showing 24 competitive ETCs in the study area of incumbent LEC Iowa
    Telecom North (study area code 351167), and 22 competitive ETCs in
    the study area of incumbent LEC Iowa Telecom Systems (study area
    code 351170)).

[^164]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No.96-45,
    Recommended Decision, 22 FCC Rcd 8998, 8999--9001, paras. 4--7 (JB
    2007) (*Interim Cap* *Recommended Decision*); *High-Cost Universal
    Service Support; Federal-State Joint Board on Universal Service*, WC
    Docket No. 05-337, CC Docket No. 96-45, Order, 23 FCC Rcd 8834
    (2008) (*Interim Cap Order*). As recommended by the Joint Board, the
    Commission capped competitive ETC support for each state. *Interim
    Cap Recommended Decision*, 22 FCC Rcd at 9002, para. 9; *Interim Cap
    Order*, 23 FCC Rcd at 8846, paras. 26--28. The Commission set the
    cap at the level of support competitive ETCs were eligible to
    receive during March 2008. *Interim Cap Order*, 23 FCC Rcd at 8850,
    para. 38.

[^165]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No. 96-45,
    Recommended Decision, 22 FCC Rcd 20477 (JB 2007) (*Comprehensive
    Reform* *Recommended Decision*).

[^166]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, para. 1.

[^167]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20480--81, para. 11.

[^168]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20484, para. 26.

[^169]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20484, para. 27.

[^170]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20481--82, paras. 12--18.

[^171]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20486, para. 35.

[^172]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, paras. 1--6.

[^173]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No. 96-45,
    Notice of Proposed Rulemaking, 23 FCC Rcd 1467 (2008) (*Identical
    Support NPRM*); *High-Cost Universal Service Support; Federal-State
    Joint Board on Universal Service*, WC Docket No. 05-337, CC Docket
    No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1495 (2008)
    (*Reverse Auctions NPRM*); *High-Cost Universal Service Support;
    Federal-State Joint Board on Universal Service*, WC Docket No.
    05-337, CC Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC
    Rcd 1531 (2008) (*Joint Board Comprehensive Reform NPRM*)
    (collectively the *High-Cost Reform NPRMs*).

[^174]: *Identical Support NPRM*, 23 FCC Rcd at 1468, para. 1.

[^175]: *Identical Support NPRM*, 23 FCC Rcd at 1468, para. 1.

[^176]: *Identical Support NPRM*, 23 FCC Rcd at 1473--78, paras. 12--25.

[^177]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1495, para. 1.

[^178]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500--12, paras. 10--50.

[^179]: *Joint Board Comprehensive Reform NPRM*, 23 FCC Rcd at 1531,
    para. 1.

[^180]: 47 U.S.C. § 254(a)(2). Pursuant to that section, the Commission
    shall complete any proceeding to implement a Joint Board
    recommendation within one year after receiving it. The Commission
    has acted on the *Comprehensive Reform Recommended Decision* prior
    to the November 20, 2008 one-year statutory deadline.

[^181]: Providers operating in U.S. Territories and possessions, such as
    Puerto Rico and Guam, are not subject to the high-cost support
    requirements adopted in this order. *See* Letter from Earl Comstock,
    Comstock Consulting LLC, to Marlene Dortch, Secretary, FCC, CC
    Docket No. 96-45, WC Docket No. 05-377 at 1 (dated Oct. 15, 2008)
    (asking the Commission to recognize the higher costs and lower
    income levels in Puerto Rico in any reform efforts it may take);
    Letter from Eric N. Votaw, Vice President-Marketing & Regulatory,
    GTA Telecom, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 99-68, 96-45, WC Docket No. 05-337 at 1--2 (filed Oct. 24,
    2008) (asking the Commission to recognize that Guam's costs are
    higher than the continental United States and that Guam should be
    treated separately, along with Alaska and Hawaii, for reform
    purposes).

[^182]: *E.g.*, *Verizon Commc'ns, Inc., Transferor, and América Móvil,
    S.A. de C.V., Transferee*, WT Docket No. 06-113, Memorandum Opinion
    and Order and Declaratory Ruling, 22 FCC Rcd 6195, 6211, para. 36
    (2007) (*Verizon/América Móvil Transfer Order*) (describing
    "difficult to serve terrain and dramatic urban/rural differences" in
    Puerto Rico); *Integration of Rates and Services for Provision of
    Communications by Authorized Common Carriers between the Contiguous
    States and Alaska, Hawaii, Puerto Rico and the Virgin Islands*, CC
    Docket No. 83-1376, Supplemental Order Inviting Comments, 4 FCC Rcd
    395, 396, paras. 7--8 (1989) (*Rates and Services Integration
    Order*) (describing the unique market conditions and structure in
    Alaska); Letter from Brita D. Strandberg, Counsel for General
    Communication, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 01-92, 96-45, WC Docket No. 05-337 at 2 (Oct. 3, 2008)
    (discussing Alaska's particular service needs and network
    architecture).

[^183]: *Cf.* *The Establishment of Policies and Service Rules for the
    Broadcasting-Satellite Service at the 17.3-17.7 GHz Frequency Band
    and at the 17.7-17.8 GHz Frequency Band Internationally, and at the
    24.75-25.25 GHz Frequency Band for Fixed Satellite Services
    Providing Feeder Links to the Broadcasting-Satellite Service and for
    the Satellite Services Operating Bi-directionally in the 17.3-17.8
    GHz Frequency Band*, IB Docket No. 06-123, Report and Order and
    Further Notice of Proposed Rulemaking, 22 FCC Rcd 8842, 8860, para.
    47 (2007) (*Policies and Service Rules for the
    Broadcasting-Satellite Service Order*) ("The Commission is committed
    to establishing policies and rules that will promote service to all
    regions in the United States, particularly to traditionally
    underserved areas, such as Alaska and Hawaii, and other remote
    areas.").

[^184]: *Comprehensive Reform Recommended Decision*, 22 FCC Rcd at
    20478, 20481, 20484, paras. 2, 11, 26.

[^185]: *Comprehensive Reform Recommended Decision*, 22 FCC Rcd at
    20484, para. 26. In 2007, total federal universal service
    disbursements amounted to approximately \$6.95 billion. Of that
    amount, approximately \$4.29 billion, 62%, was disbursed as
    high-cost support. [USAC 2007 Annual Report]{.smallcaps} at 51.

[^186]: *See* [2007 Universal Service Monitoring Report]{.smallcaps} at
    3-14, tbl. 3.1 (high-cost support in 1997 was approximately \$1.26
    billion, compared with approximately \$4.29 billion in 2007). Even
    taking into account the fact that additional interstate support
    mechanisms, Interstate Access Support (IAS) and Interstate Common
    Line Support (ICLS), were created in 2000 and 2001, respectively,
    high-cost support has still increased by more than 45%, from
    approximately \$2.94 billion in 2002 to its current level of
    approximately \$4.29 billion. *Id.*

[^187]: *See Interim Cap Order*, 23 FCC Rcd at 8834, para. 1.

[^188]: *See* CenturyTel *High-Cost Reform NPRMs* Comments at 18
    (existing high-cost support mechanisms should be frozen at the study
    area level or on a statewide basis to provide funding certainty and
    encourage investment); Chinook *High-Cost Reform NPRMs* Comments,
    Attach. at 5--6 (any cap on universal service support should apply
    to all ETCs, including incumbent LECs); Connecticut Dep't of Pub.
    Util. Control *High-Cost Reform NPRMs* Comments at 5 (supporting a
    cap on high-cost support set at the 2007 level); Florida PSC
    *High-Cost Reform NPRMs* Comments at 2 (supporting the
    recommendation to cap the overall size of the high-cost fund);
    Information Technology Industry Council (ITI) *High-Cost Reform
    NPRMs* Comments at 7 (an overall cap should be applied to control
    the size of the high-cost mechanism); NCTA *High-Cost Reform NPRMs*
    Comments at 19 (the Joint Board's proposal to cap the overall size
    of the high-cost mechanism is "a welcome dose of fiscal
    responsibility"); National Consumer Law Center *Joint Board
    Comprehensive Reform NPRM* Comments at 2--3 (supporting the Joint
    Board's proposal to cap the overall high-cost fund); Verizon/Verizon
    Wireless *High-Cost Reform NPRMs* Comments at 2--3, 6--9 (Commission
    should cap the overall high-cost fund).

[^189]: *See* Frontier *High-Cost Reform NPRMs* Comments at 6--7; JSI
    *High-Cost Reform NPRMs* Comments at 6; Montana Telecommunications
    Ass'n *High-Cost Reform NPRMs* Comments at 21--22; NECA *High-Cost
    Reform NPRMs* Comments at 17--20; TCA *High-Cost Reform NPRMs*
    Comments at 10--11; TDS *High-Cost Reform NPRMs* Comments at 8--9;
    Missouri Small Telephone Company Group (MSTC) *High-Cost Reform
    NPRMs* Reply at 5--7; Utah Rural Telecom Ass'n *High-Cost Reform
    NPRMs* Reply at 5.

[^190]: 47 U.S.C. § 254(b)(5); *see* CenturyTel *High-Cost Reform NPRMs*
    Comments at 18; Comcast *High-Cost Reform NPRMs* Comments at 3, 11;
    Florida PSC *High-Cost Reform NPRMs* Comments at 8--9; National
    Consumer Law Center *Joint Board Comprehensive Reform NPRM* Comments
    at 2; NCTA *High-Cost Reform NPRMs* Comments at 4--6; New Jersey
    Division of Rate Counsel *High-Cost Reform NPRMs* Comments at
    52--54; Oregon PUC *High-Cost Reform NPRMs* Comments at 2--3; Sprint
    Nextel *High-Cost Reform NPRMs* Comments at 3; USTelecom *High-Cost
    Reform NPRMs* Comments at 2; Verizon/Verizon Wireless *High-Cost
    Reform NPRMs* Comments at 7; New Jersey Division of Rate Counsel
    *High-Cost Reform NPRMs* Reply at 64--65; Sprint Nextel *High-Cost
    Reform NPRMs* Reply at 8--9; State Commissioners *High-Cost Reform
    NPRMs* Reply at 2; Texas Office of Public Utility Counsel *Joint
    Board Comprehensive Reform NPRM* Reply at 2; Virgin Mobile
    *High-Cost Reform NPRMs* Reply at 3--4. The Commission has already
    implemented caps on the schools and libraries and rural health care
    universal service mechanisms. *Universal Service First Report and
    Order*, 12 FCC Rcd at 9054, 9140, paras. 529, 704 (establishing a
    \$2.25 billion annual cap for the schools and libraries mechanism
    and a \$400 million annual cap for the rural health care mechanism);
    *see also* 47 C.F.R. §§ 54.507(a), 54.623(a).

[^191]: 47 U.S.C. § 254(b)(5); *see also Universal Service First Report
    and Order*, 12 FCC Rcd at 9054, 9140, paras. 529, 704.

[^192]: *Alenco Commc'ns, Inc. v. FCC*, 201 F.3d 608, 620--21 (5^th^
    Cir. 2000) (*Alenco*).

[^193]: *Alenco*, 201 F.3d at 620.

[^194]: *Qwest Commc'ns Int'l Inc. v. FCC*, 398 F.3d 1222, 1234 (10^th^
    Cir. 2005).

[^195]: Pursuant to section 214(e)(5) of the Act, the term "service
    area" is used to refer to the geographic area established by a state
    commission or this Commission for the purpose of determining
    universal service obligations and support mechanisms. 47 U.S.C. §
    214(e)(5). For a rural telephone company, section 214(e)(5) states
    that "service area" shall mean the rural company's "study area"
    unless and until the Commission and the states establish a different
    definition of service area for such company. *Id.* In this order, we
    use the terms "service area" and "study area" interchangeably.
    Nothing in this order is meant to change any redefinitions of
    service area previously established by the Commission and/or the
    state commissions.

[^196]: *See infra* paras. 53--56.

[^197]: 47 U.S.C. § 254(b)(5).

[^198]: Remarks of Commissioner Michael J. Copps, Pike & Fischer's
    Broadband Policy Summit IV, Washington, DC (June 12, 2008),
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-282890A1.pdf.

[^199]: *See supra* note 56 (explaining use of the terms "study area"
    and "service area" in this order). We understand the concern of
    commenters who point out the need for more granular information on
    broadband availability. *See Comprehensive Reform Recommended
    Decision*, 22 FCC Rcd at 20481, para. 13; *see also* Comcast
    *High-Cost Reform NPRMs* Comments at 13--16; GCI *High-Cost Reform
    NPRMs* Comments at 34--36; NCTA *High-Cost Reform NPRMs* Comments at
    20; New Jersey Rate Counsel *High-Cost Reform NPRMs* Comments at
    21--22; New York State PSC *Joint Board Comprehensive Reform NPRM*
    Comments at 1, 5--6; TCA *High-Cost Reform NPRMs* Comments at
    11--12; USTelecom *High-Cost Reform NPRMs* Comments at 36; Embarq
    *High-Cost Reform NPRMs* Reply at 8--10. The Commission has recently
    undertaken a major effort to gather more specific and granular data
    about broadband subscribership and availability. *See Development of
    Nationwide Broadband Data to Evaluate Reasonable and Timely
    Deployment of Advanced Services to All Americans, Improvement of
    Wireless Broadband Subscribership Data, and Development of Data on
    Interconnected Voice over Internet Protocol (VoIP) Subscribership*,
    WC Docket No. 07-38, Report and Order and Further Notice of Proposed
    Rulemaking, 23 FCC Rcd 9691, 9708--09, paras. 34--35 (2008)
    (*Broadband Data Gathering Order*) (seeking comment on, among other
    things, adopting a national broadband mapping program). We believe
    our refined broadband data gathering program will help all of us
    better assess where our broadband availability needs are greatest.
    For purposes of implementing the broadband deployment program of
    this order, we ask incumbent LECs to identify where they will and
    will not commit to broadband availability, thus identifying where we
    need to proceed to a reverse auction.

[^200]: 47 U.S.C. §§ 157 nt, 254. Some commenters suggest that adding
    broadband Internet access service to the list of "supported
    services" would be inconsistent with section 254(c)(1) of the Act
    because broadband Internet access service is an information service,
    not a telecommunications service.  *See* SouthernLINC *High-Cost
    Reform NPRMs* Comments at 30--31; Verizon/Verizon Wireless
    *High-Cost Reform NPRMs* Comments at 31--32; SouthernLINC *High-Cost
    Reform NPRMs* Reply at 42--43; Sprint Nextel *High-Cost Reform
    NPRMs* Reply at 16--17.  Using the universal service program to
    ensure universal broadband availability, however, is fully
    consistent with the statute as explained above.  In addition,
    section 254(c)(2) provides that "\[t\]he Joint Board may, from time
    to time, recommend to the Commission modifications in the definition
    of the services that are supported by Federal universal service
    support mechanisms."  47 U.S.C. § 254(c)(2).  The Joint Board did
    just that in the *Comprehensive Reform Recommended Decision*, in
    which it recommended that we add broadband Internet access service
    to the list of services eligible for support under section 254. 
    *See Comprehensive Reform Recommended Decision*, 22 FCC Rcd at
    20491, para. 56.  In this order, we achieve the Joint Board's goal
    by conditioning receipt of federal high-cost support on an ETC's
    commitment to offer broadband Internet access service throughout its
    service area, but we do not add broadband Internet access service to
    the list of universal service supported services.

[^201]: 47 U.S.C. § 254(b)(2) (emphasis added).

[^202]: 47 U.S.C. § 254(b)(3) (emphasis added).

[^203]: 47 U.S.C. § 254(c)(1) (emphasis added).

[^204]: 47 U.S.C. §§ 157 nt, 254.

[^205]: The Commission has previously considered imposing conditions on
    the receipt of high-cost support. *See Universal Service First
    Report and Order*, 12 FCC Rcd at 8831, para. 98. And of course,
    today's recipients of high-cost support must comply with many
    obligations that are not explicitly spelled out in the statute. For
    example, to be designated as an ETC, an applicant must demonstrate
    that it has back-up power. *See Federal-State Joint Board on
    Universal Service*, CC Docket No. 96-45, Report and Order, 20 FCC
    Rcd 6371, 6382, para. 25 (2005) (*ETC Designation Order*).

[^206]: Broadband Data Improvement Act, Pub. L. No. 100-385, 122 Stat.
    4096, § 102(1)--(2) (2008).

[^207]: A recent survey finds that, compared to Internet users with
    dial-up service at home, those with broadband service at home are
    far more likely to engage in 14 different types of Internet-related
    activities on a typical day. These activities include using an
    online search engine, checking for weather reports, getting news,
    visiting a state or local government Web site, obtaining job
    information, watching a video, and downloading a podcast. The daily
    use of a search engine, for example, is reported by 57% of the
    broadband users as compared to only 26% of the dial-up users. *See*
    [John B. Horrigan, Pew Internet & American Life Project, Home
    Broadband Adoption 2008]{.smallcaps} at 19 (2008) ([2008 Pew
    Broadband Adoption Study]{.smallcaps}), *available at*
    http://www.pewinternet.org/pdfs/PIP_Broadband_2008.pdf.

[^208]: For example, the California Broadband Task Force Report finds
    broadband service critical to expanding job opportunities for rural
    residents. It observes, for example, that broadband has facilitated
    the use of "homeshoring," or the use of home-based workers for
    providing customer service, instead of requiring employees to adhere
    to a strict work schedule at a centralized location. This report
    also finds that broadband offers farmers better access to market
    information and allows them to expand their potential customer base.
    *See* [Final Report of the California Broadband Task
    Force]{.smallcaps} at 13 (Jan. 2008) ([California 2008 Broadband
    Report]{.smallcaps}), *available at*
    http://www.calink.ca.gov/taskforcereport/.

[^209]: *See Rural Health Care Support Mechanism*, WC Docket No. 02-60,
    Order, 21 FCC Rcd 11111, 11112, para. 5 (2006); *see also* [Susannah
    Fox, Pew Internet & American Life Project, The Engaged E-Patient
    Population]{.smallcaps} at 1 (2008) (finding that home broadband
    users are twice as likely as home dial-up users to do health
    research on a typical day), *available at*
    http://www.pewinternet.org/pdfs/PIP_Health_Aug08.pdf.

[^210]: A recent report to Congress concludes that "\[m\]odern broadband
    communications networks and applications present an enormous
    opportunity to radically improve the manner in which emergency
    information is shared by health officials. Broadband services enable
    bandwidth intensive information such as video, pictures, and
    graphics to be transmitted faster and in a more reliable and secure
    manner." [Joint Advisory Committee on Communications Capabilities of
    Emergency Medical and Public Health Care Facilities, Report to
    Congress]{.smallcaps} 2 (Feb. 4, 2008), *available at*
    http://energycommerce.house.gov/Press_110/JAC.Report_FINAL%20Jan.3.2008.pdf.

[^211]: *See, e.g.*, Cellular South *High-Cost Reform NPRMs* Comments at
    10; *see also generally* [2008 Pew Broadband Adoption
    Study]{.smallcaps} at 11--12.

[^212]: *See* FCC, [High-Speed Services for Internet Access: Status as
    of December 31, 2006,]{.smallcaps} tbl. 15 (2007), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-280906A1.pdf.

[^213]: *See* [2008 Pew Broadband Adoption Study]{.smallcaps} at 3--4.
    The survey was conducted by phone from April 8, 2008 to May 11, 2008
    among 2,251 American adults, 1,153 of whom were broadband users.
    *Id.*

[^214]: Pew acknowledges that the participants in its 2008 survey may
    report incorrectly as to whether broadband service is available
    where they live. [2008 Pew Broadband Adoption Study]{.smallcaps} at
    11. Pew nonetheless concludes that "the fact that rural residents
    are more likely to report that broadband isn't available where they
    live indicates that infrastructure availability comes into play in
    broadband adoption. Some 28% of rural adult Americans without home
    high-speed say broadband isn't available where they live, in
    contrast to 22% of non-rural Americans without broadband who say
    this. Moreover, 24% of dial-up users in rural areas say having the
    service available where they live would prompt a switch to
    broadband; this compares to the 14% figure for all respondents."
    *Id.* at 11--12.

[^215]: In Ohio, a March 2008 survey of 1,200 residents found broadband
    service available in 96% of urban homes but in only 79% of rural
    homes. *See* [Connect Ohio Technology Assessment: Executive
    Summary]{.smallcaps} at 2 (June 27, 2008), *available at*
    http://connectoh.org/\_documents/Res_OHExecutiveSummary06252008_FINAL.pdf.
    In California, a state-commissioned task force recently found that
    approximately 500,000 California households, or almost 1.4 million
    California residents, are unable to subscribe to broadband service
    with a speed of at least 500 kbps. The task force identified 1,975
    communities without broadband service and concluded that many
    California communities do not have access to the higher broadband
    speeds. *See* [California 2008 Broadband Report]{.smallcaps} at 33.
    In Tennessee, a July 2007 survey of 1,787 residents having dial-up
    service at home found that 36% of them did not subscribe to
    broadband service because it was unavailable to their homes. *See*
    [Connected Tennessee, Tennessee Residential Consumers]{.smallcaps}
    at 22 (2007), *available at*
    http://www.connectedtn.org/\_documents/CTResidentialSurvey100107.FINAL.pdf.

[^216]: We disagree with commenters who suggest that it is premature or
    ill-advised to require all ETCs to offer broadband because, as
    discussed below, we do so in a manner that does not increase the
    size of the high-cost fund. *See, e.g.*, SouthernLINC *High-Cost
    Reform NPRMs* Comments at 30; Sprint Nextel *High-Cost Reform NPRMs*
    Comments at 16--17; USTelecom *High-Cost Reform NPRMs* Comments at
    33--34; Western Telecomms. Alliance (WTA) *High-Cost Reform NPRMs*
    Comments at 73; SouthernLINC *High-Cost Reform NPRMs* Reply at 41.
    Similarly, we disagree with commenters who argue that government
    action at the current time would be wasteful as the market is
    already taking steps to reach currently underserved areas. *See,
    e.g.*, NCTA *High-Cost Reform NPRMs* Comments at 19--20;
    SouthernLINC *High-Cost Reform NPRMs* Comments at 30; SouthernLINC
    *High-Cost Reform NPRMs* Reply at 42. We cannot wait indefinitely
    for the benefits of broadband to reach all Americans.

[^217]: See 47 U.S.C. § 254(b)(3).

[^218]: *See infra* paras. 86, 103, 110*; see also Appropriate Framework
    for Broadband Access to the Internet over Wireline Facilities*, CC
    Docket No. 02-33, Report and Order and Notice of Proposed
    Rulemaking, 20 FCC Rcd 14853, 14860--61, para. 9 (2005) (*Wireline
    Broadband Internet Access Order*), *aff'd sub nom. Time Warner
    Telecom, Inc. v. FCC*, 507 F.3d 205 (3d Cir. 2007).

[^219]: As explained below, nothing in this order changes the choice
    that providers have today to offer broadband transmission on a
    common carrier basis. *See infra* para. 26.

[^220]: 47 U.S.C. § 254(b)(1).

[^221]: Thus, we are not favoring wireline technology over another. *But
    see* Virgin Mobile *High-Cost Reform NPRMs* Reply at 5--6.

[^222]: *See Wireline Broadband Internet Access Order*, 20 FCC Rcd at
    14900--01, paras. 89--90 (giving providers of wireline broadband
    Internet access the choice to offer broadband transmission on a
    common carrier basis or a non-common carrier basis).

[^223]: *See supra* para. 24.

[^224]: *See, e.g.*, [Computer Science and Telecommunications Board,
    National Research Council, Broadband: Bringing Home the
    Bits]{.smallcaps} 145 (2002) ([Bringing Home the Bits)]{.smallcaps};
    BroadbandInfo.com, Inside the World of Satellite Broadband,
    BroadbandInfo.com,
    http://www.broadbandinfo.com/satellite/intro-to-satellite.html (last
    visited Nov. 3, 2008) (stating that because the satellites providing
    broadband signals orbit the earth approximately 22,300 miles above
    the surface, there is a lag time between the sending and receiving
    of the satellite broadband signal).

[^225]: *See* [Bringing Home the Bits]{.smallcaps} 145 (explaining that
    for Internet telephony, the delay can cause a real degradation in
    usability); Jon Norwood, Overview of Satellite Internet---Comparing
    the Main Features of Broadband Satellite (Oct. 17, 2006), *available
    at*
    http://www.velocityguide.com/satellite/satellite-internet-comparison.html
    (last visited Oct. 24, 2008) (stating that signal delay to a
    satellite ranges from around 500 to 900 milliseconds, and that this
    latency can render any software that requires real-time user input
    problematic at best); BroadbandInfo.com, Inside the World of
    Satellite Broadband, *available at*
    http://www.broadbandinfo.com/satellite/intro-to-satellite.html (last
    visited Oct. 24, 2008) (stating that for certain broadband Internet
    real-time applications, such as e-gaming, the latency is enough to
    cause severe interference with the application).

[^226]: *See, e.g.*, *Inquiry Concerning the Deployment of Advanced
    Telecommunications Capability to All Americans in a Reasonable and
    Timely Fashion, and Possible Steps To Accelerate Such Deployment
    Pursuant to Section 706 of the Telecommunications Act of 1996*, CC
    Docket No. 98-146, Second Report, 15 FCC Rcd 20913, 20938, para. 59
    (2000) (explaining that areas subject to extreme rain or snow may
    have difficulty receiving satellite signals in those conditions, and
    describing it as a limitation to satellite Internet last-mile
    facilities); *see also* Howstuffworks.com, How Does Satellite
    Internet Operate?,
    http://computer.howstuffworks.com/question606.html (last visited
    Oct. 24, 2008) (explaining that, as for satellite TV, heavy rains
    can affect reception of Internet signals); Skycasters, Broadband
    Satellite Internet: 99.44% System Reliability,
    http://www.skycasters.com/satellite-internet-service-specs/system-reliability.html
    (last visited Oct. 31, 2008) (explaining that rain fade is a short
    duration period during which the loss of satellite service occurs
    when intense storm cells are located directly between the satellite
    and the satellite dish).

[^227]: If the Commission grants a waiver allowing the use of satellite
    service, the ETC may not charge a higher price to customers served
    by satellite than it charges to customers served by another
    broadband technology.

[^228]: *See supra* paras. 77--85.

[^229]: *See supra* note Error: Reference source not found (explaining
    the use of the terms "study area" and "service area" in this order).

[^230]: The Wireline Competition Bureau (Bureau) will release a public
    notice at a future date specifying the manner and due date of the
    certification. Other reporting, monitoring, and milestone
    requirements are set forth below. *See infra* paras. 115--121.

[^231]: This tier of broadband is similar to the tier described as
    "Basic Broadband Tier 1" in our *Broadband Data Gathering Order*.
    *See Broadband Data Gathering Order*, 23 FCC Rcd at 9700--01, para.
    20 & n.66.

[^232]: *See infra* paras. 115--121.

[^233]: *See supra* para. 74.

[^234]: Some incumbent LECs assert that they will not be able to commit
    to provide broadband Internet access service to all customers within
    their study areas at the frozen level of support. *See, e.g.,*
    Letter from Eric N. Einhorn, V.P. Federal Government Affairs,
    Windstream, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos.
    01-92, 96-45, 99-68, WC Docket Nos. 05-337, 06-122, 08-152, 07-135,
    at 3 (filed Oct. 27, 2008); Letter from Gregory J. Vogt, Counsel for
    CenturyTel, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 01-92, 99-68, 96-45, WC Docket No. 05-337, at 2 (filed Oct. 20,
    2008); Letter from Daniel Mitchell, Vice President Legal & Industry,
    NTCA, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92,
    96-45, WC Docket Nos. 05-337, 04-36, at 1-2 (filed Oct. 28, 2008).
    First, to the extent incumbent LECs cannot build out their networks
    to provide broadband to all customers in their study areas, they may
    seek a waiver to provide service via satellite technology, as
    discussed above. Second, universal service support is not meant to
    subsidize high-cost carriers, but rather it is meant to support
    customers in high-cost areas. *See Alenco*, 201 F.3d at 620 ("The
    Act only promises universal service, and that is a goal that
    requires sufficient funding of customers, not providers. 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."). Therefore, if
    an incumbent LEC cannot provide broadband service at the frozen
    support levels, support will go to a reverse auction winning bidder
    who can provide such service at or below that level on a more
    efficient basis. Finally, as discussed below, to the extent that a
    reverse auction does not produce a winning bidder, the Commission
    will reexamine support to that study area.

[^235]: *See Comprehensive Reform Recommended Decision*, 22 FCC Rcd at
    20491--92, paras. 56--62.

[^236]: Many commenters, in particular those representing rural
    telephone companies, opposed the use of reverse auctions to award
    high-cost support to carriers of last resort in rural areas. *See,
    e.g.*, OPASTCO *Reverse Auctions* Comments at 16--21; NTCA *Reverse
    Auctions* Comments at 30--46. Under the measures we adopt today,
    reverse auctions will be conducted only in study areas for which the
    incumbent LEC receiving high-cost support has not committed to offer
    broadband Internet access service.

[^237]: *See Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 10.

[^238]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11.

[^239]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11; *see*
    Connecticut Dep't of Pub. Util. Control *High-Cost Reform NPRMs*
    Comments at 7 (supporting reverse auctions as a means of controlling
    and reducing the size of the universal service fund, while putting
    the burden on providers to estimate bid amounts); Comcast *High-Cost
    Reform NPRMs* Comments at 7 (noting that the use of reverse auctions
    could reduce the size of the high-cost fund significantly).

[^240]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11; *see*
    Letter from Grover Norquist, Americans for Tax Reform, to Marlene
    Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 05-337 at
    1 (filed Apr. 14, 2008) (arguing that reverse auctions will create
    incentives to invest in rural communities and will not finance and
    subsidize wasteful carriers).

[^241]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11.

[^242]: Although several rural LEC commenters oppose the use of reverse
    auctions to distribute high-cost support, as discussed above,
    incumbent LECs will not be required to participate in a reverse
    auction to receive support, so long as they commit to deploy
    broadband throughout their study areas. *See, e.g.*, ATA *High-Cost
    Reform NPRMs* Comments at 13--15 (opposing the use of reverse
    auctions); Alexicon *Reverse Auctions NPRM* Comments at 2--3
    (opposing reverse auctions for rural LECs).

[^243]: A study area is a geographic segment of an incumbent LEC's
    telephone operations. Generally, a study area corresponds to an
    incumbent LEC's entire service territory within a state. *Direct
    Communications Cedar Valley, LLC and Qwest Corporation Joint
    Petition for Waiver of the Definition of "Study Area" of the
    Appendix-Glossary of Part 36 of the Commission's Rules, Petition for
    Waiver of Section 69.2(hh) and 69.605(c) of the Commission's Rules*,
    CC Docket No. 96-45, Order, 20 FCC Rcd 19180, 19181, para. 2 (WCB
    2005). Section 54.207 of the Commission's rules provides that a
    rural telephone company's service area will be its study area
    "unless and until the Commission and the states, after taking into
    account recommendations of a Federal-State Joint Board instituted
    under section 410(c) of this Act, establish a different definition
    of service area for such company." 47 C.F.R. § 54.207(b); 47 U.S.C.
    § 214(e)(5). As discussed above, we use the terms "study area" and
    "service area" interchangeably in this order. *See supra* note
    Error: Reference source not found.

[^244]: *See Reverse Auctions NPRM*, 23 FCC Rcd at 1503, para. 20.

[^245]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1503, para. 20

[^246]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1504, para. 21.

[^247]: Thus, we disagree with commenters' arguments that we should hold
    auctions for small geographic areas, such as counties, census block
    groups, or zip codes. *See, e.g.*, Comcast *High-Cost Reform NPRMs*
    Comments at 9; NCTA *High-Cost Reform NPRMs* Comments at 16;
    SouthernLINC *High-Cost Reform NPRMs* Comments at 24--25; TracFone
    *High-Cost Reform NPRMs* Comments at 6.

[^248]: *See, e.g.*, Comcast *High-Cost Reform NPRMs* Comments at 8--9;
    NCTA *High-Cost Reform NPRMs* Comments at 16; SouthernLINC
    *High-Cost Reform NPRMs* Comments at 25; TracFone *High-Cost Reform
    NPRMs* Comments at 5.

[^249]: *See* Ohio PUC *Reverse Auctions NPRM* Comments at 6--7
    (generally agreeing that the incumbent LEC's study area is the
    appropriate geographic area on which to base reverse auctions
    because further disaggregation could add cost and delays, and
    increase the opportunity for creamskimming).

[^250]: *See supra* paras. 77--89.

[^251]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1509, para. 36.

[^252]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1509, para. 36.

[^253]: *See* SouthernLINC *High-Cost Reform NPRMs* Comments at 22 n.63
    ("The Commission would start bidding at current support levels.").
    As discussed above, each incumbent LEC ETC's individual high-cost
    support is frozen at the amount of support, on a lump sum basis, the
    ETC received in December 2008 annualized, net of any prior or past
    period adjustments, on a study area basis. *See supra* paras. 74,
    88.

[^254]: Carrier of last resort obligations for incumbent LECs are a
    matter of state law. Under section 214(e)(6), when the state lacks
    jurisdiction, the Commission shall make the public interest
    determination on whether to designate a carrier an ETC. 47 U.S.C. §
    214(e)(6). The ETC requirements include a requirement to provide
    supported services throughout the service area. 47 U.S.C. §
    214(e)(1).

[^255]: Some commenters oppose setting the reserve price at current
    incumbent LEC levels, or setting any reserve price. *See* OPASTCO
    *High-Cost Reform NPRMs* Comments at 19--20; MSTC Group *High-Cost
    Reform NPRMs* Comments at 17--18; North Dakota PSC *High-Cost Reform
    NPRMs* Comments at 5. We find that setting the reserve price at the
    incumbent LEC support level will provide certainty to bidders and
    enable bidders with more efficient technologies to provide broadband
    in areas where incumbent LECs do not commit to do so. Furthermore,
    as discussed below, if a reverse auction provides no winner, the
    Commission will examine the need for further action. *See infra*
    para. 105.

[^256]: A competitive ETC that currently serves all or a portion of an
    Unserved Study Area will not receive high-cost support for the same
    service area as both a winning bidder and based upon a showing of
    its own costs. If a competitive ETC that already receives high-cost
    support within this study area wins the auction, it will lose its
    existing high-cost support for particular geographic areas as it
    begins to receive its Award Amount for those areas.

[^257]: *ETC Designation Order*, 20 FCC Rcd 6371. Section 214(e)(6) of
    the Act gives the Commission authority to designate carriers as ETCs
    when those carriers are not subject to the jurisdiction of a state
    commission. 47 U.S.C. § 214(e)(6). The requirements in the *ETC
    Designation Order* currently apply only to Commission-designated
    ETCs, although the Commission, in that order, encouraged state
    commissions to adopt similar requirements. *ETC Designation Order*,
    20 FCC Rcd at 6372, 6379, paras. 1, 19.

[^258]: *See* 47 U.S.C. § 214(e)(1).

[^259]: *ETC Designation Order*, 20 FCC Rcd at 6380, para. 20.

[^260]: *ETC Designation Order*, 20 FCC Rcd at 6380, para. 20; 47 U.S.C.
    § 214(e)(4).

[^261]: In adopting this requirement, we are not setting any specific
    rates, nor does this requirement conflict with the states'
    jurisdiction over intrastate rates. Instead, we are conditioning the
    receipt of federal universal service support on an ETC's provision,
    on a voluntary basis, of rates comparable to the incumbent LEC's for
    equivalent services.

[^262]: The amount of support to be awarded to the winning bidder could
    be less than the amount of support received by the incumbent LEC for
    that same area. The transfer of support will be based on the amount
    of support, relative to support for the entire study area, received
    by the incumbent LEC for the area to be transferred; that same
    relative percentage will be used to calculate the amount of award
    support the auction winner should receive for the same area. In no
    event will an incumbent LEC who is not an auction winner continue to
    receive support for an area once an auction winner begins to receive
    support for that same area.

[^263]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1501, para. 13.

[^264]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1501, para. 14.

[^265]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1501, para. 14

[^266]: *See, e.g.*, Florida PSC *High-Cost Reform NPRMs* Comments at
    4--5; New York PSC *Identical Support and Reverse Auctions NPRMs*
    Comments at 2--3; Verizon/Verizon Wireless *High-Cost Reform NPRMs*
    Comments at 21--22, App. at 12. We disagree with commenters who
    support multiple winner auctions. *See, e.g.*, Alltel *High-Cost
    Reform NPRMs* Comments at 40--41; Atlantic Tele-Network *Identical
    Support and Reverse Auctions NPRMs* Comments at 13. We find that
    supporting a single auction winner is a more efficient means of
    ensuring the provision of broadband Internet access in areas where
    the incumbent LEC has determined that the costs of serving all
    customers in the area is prohibitive.

[^267]: *See supra* paras. 77--81.

[^268]: These terms are similar, but not identical, to terms used in our
    latest *Broadband Data Gathering Order*. *See Broadband Data
    Gathering Order*, 23 FCC Rcd at 9700--01, para. 20 & n.66.

[^269]: *See supra* paras. 74--36.

[^270]: For example, assume the Commission conducted a reverse auction
    for an Unserved Study Area with a reserve price of \$5 and received
    four bids: \$1 to offer Basic Broadband Tier 1, \$2 to offer
    Broadband Tier 2, \$3 to offer Broadband Tier 3, and \$4 to offer
    Broadband Tier 3. In that scenario, the winning bid amount would be
    \$3 to offer Broadband Tier 3.

[^271]: *See* Free Press Oct. 24, 2008 *Ex Parte* Letter at 12 (arguing
    that, if a study area receives no winning bidder in a reverse
    auction, then the study area should be disaggregated).

[^272]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500--01, para. 12; *see
    also, e.g.*, Florida PSC *High-Cost Reform NPRMs* Comments at 5;
    Indiana Util. Reg. Comm'n *High-Cost Reform NPRMs* Comments at 12;
    MSTC Group *High-Cost Reform NPRMs* Comments at 12; Verizon/Verizon
    Wireless *High-Cost Reform NPRMs* Comments, App. at 8.

[^273]: For this reason, we disagree with commenters who argue that we
    should not require bidders to be ETCs. *See* GCI *High-Cost Reform
    NPRMs* Comments at 89; Consumers Union (CU) et al*.* *High-Cost
    Reform NPRMs* Reply at 17.

[^274]: Pursuant to section 214(e)(1)(A) of the Act, a common carrier
    designated as an ETC must offer the services supported by the
    federal universal service mechanisms throughout the designated
    service area either by using its own facilities or by using a
    combination of its own facilities and resale of another carrier's
    services (including the services offered by another ETC). 47 U.S.C.
    § 214(e)(1)(A).

[^275]: *See, e.g.*, *Auction of LPTV and TV Translator Digital
    Companion Channels Scheduled for November 5, 2008*, AU Docket No.
    08-22, Public Notice, DA 08-1944, para. 53 (WTB 2008).

[^276]: *Identical Support NPRM*, 23 FCC Rcd at 1470, para. 5; *see,
    e.g.*, Embarq *High-Cost Reform NPRMs* Comments at 10 ("It is
    logically inconsistent to compensate a carrier for serving
    'high-cost' areas when there is no evidence--in the form of cost
    studies, filings, or model results---that the areas being supported
    are indeed 'high-cost' for that carrier."); Frontier *High-Cost
    Reform NPRMs* Comments at 4 (asserting that identical support is
    merely a subsidy to competitive ETCs, "and there is no basis to tell
    whether consumers are getting any \[u\]niversal \[s\]ervice benefits
    whatsoever" from subsidizing competitive ETCs in this manner).

[^277]: *Identical Support NPRM*, 23 FCC Rcd at 1470, para. 5.

[^278]: *See* 47 U.S.C. § 254(b)(3); Alabama PSC *High-Cost Reform
    NPRMs* Comments at 3 ("The identical support rule provides little
    incentive for ETCs to invest in building their own facilities in
    rural areas with low population densities because their support
    currently is based solely on the per-line support received by the
    incumbent, instead of investment in the network.").

[^279]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, para. 5 (recommending elimination of the identical support
    rule, which "bears little or no relationship to the amount of money
    competitive ETCs have invested in rural and other high-cost areas of
    the country").

[^280]: The calculation of support provisions in this Part apply to
    competitive ETCs that do not receive high-cost support as the result
    of winning a reverse auction. Support for winning auction bidders,
    including competitive ETCs, will be based on the bid amount, as
    discussed above. *See supra* paras 43--47.

[^281]: *See supra* para. 86.

[^282]: The Bureau will release a public notice at a future date
    specifying the manner and due date of the certification. Other
    reporting, monitoring, and benchmark requirements are set forth
    below. *See infra* paras. 57--63.

[^283]: This tier of broadband is similar to the tier described as
    "Basic Broadband Tier 1" in our *Broadband Data Gathering Order*.
    *See Broadband Data Gathering Order*, 23 FCC Rcd at 9700--01, para.
    20 & n.66.

[^284]: *Identical Support NPRM*, 23 FCC Rcd at 1470, para. 5.

[^285]: *See* GCI *High-Cost Reform NPRMs* Comments at 5, 40, 65--67;
    Oregon PUC *High-Cost Reform NPRMs* Comments at 5; Rural Cellular
    Ass'n (Rural Cellular) *Identical Support and Reverse Auctions
    NPRMs* Comments at 2; USCellular *High-Cost Reform NPRMs* Comments
    at 7, 38--40; USTelecom *High-Cost Reform NPRMs* Comments at 16;
    Wyoming Office of Consumer Advocate (Wyoming OCA) *Identical Support
    NPRM* Comments at 2; SouthernLINC *High-Cost Reform NPRMs* Reply at
    13.

[^286]: Many commenters favor basing competitive ETCs' support on their
    own costs. *See* ATA *High-Cost Reform NPRMs* Comments at 3;
    Alexicon *Identical Support NPRM* Comments at 3--4; CenturyTel
    *High-Cost Reform NPRMs* Comments at 21--22; Connecticut Dept. of
    Pub. Util. Control *High-Cost Reform NPRMs* Comments at 2--3; Embarq
    *High-Cost Reform NPRMs* Comments at 10; Iowa Telecomm. Ass'n (ITA)
    *Identical Support NPRM* Comments at 3--4; Independent Tel. and
    Telecomms. Alliance (ITTA) *Identical Support NPRM* Comments at
    23--24; John Staurulakis, Inc. (JSI) *High-Cost Reform NPRMs*
    Comments at 3; Kansas Rural Indep. Tel. Companies *Identical Support
    NPRM* Comments at 4; Missouri PSC *Identical Support NPRM* Comments
    at 5; Montana Telecomms. Ass'n *High-Cost Reform NPRMs* Comments at
    12; NECA *High-Cost Reform NPRMs* Comments at 22--26; NTCA
    *High-Cost Reform NPRMs* Comments at 19--23; OPASTCO *High-Cost
    Reform NPRMs* Comments at 12--13; PetroCom License Corp. *Identical
    Support NPRM* Comments at 2--3; Qwest *High-Cost Reform NPRMs*
    Comments at 7; Rural Indep. Competitive Alliance (RICA) *High-Cost
    Reform NPRMs* Comments at 13--15; Rural Iowa Independent Tel. Ass'n
    (RIITA) *High-Cost Reform NPRMs* Comments at 2--3; Telcom Consulting
    Assoc., Inc. (TCA) *High-Cost Reform NPRMs* Comments at 13--15;
    Texas Statewide Tel. Coop., Inc. (Texas Statewide) *High-Cost Reform
    NPRMs* Comments at 10; Utah Rural Telecom Ass'n (URTA) *High-Cost
    Reform NPRMs* Comments at 8; WTA *High-Cost Reform NPRMs* Comments
    at 22--26.

[^287]: We agree with ITA that such costs do not represent a direct
    investment in facilities and infrastructure for purposes of
    providing supported services in high-cost areas. *See* ITA
    *Identical Support NPRM* Comments at 3 (spectrum costs represent
    investment in an intangible asset with an indefinite life rather
    than a direct investment in facilities with a limited useful life).

[^288]: *See* 47 C.F.R. § 54.309.

[^289]: *See* 47 C.F.R. §§ 36.613, 36.622(c).

[^290]: We also note that, consistent with our capping the high-cost
    fund and the provisions herein freezing both incumbent LEC and
    competitive ETC support at the study area level, we keep in place
    the interim cap on competitive ETC support adopted in the *Interim
    Cap Order*.

[^291]: Customer locations include both residential and business
    locations within the ETC's service area.

[^292]: *See Comprehensive Review of the Universal Service Fund
    Management, Administration, and Oversight, Federal-State Joint Board
    on Universal Service, Schools and Libraries Universal Service
    Support Mechanism, Rural Health Care Support Mechanism, Lifeline and
    Link-Up, Changes to the Board of Directors for the National Exchange
    Carrier Association, Inc.*, WC Docket No. 03-109, Report and Order,
    22 FCC Rcd 16372, 16383--84, para. 24 (*Comprehensive Review Report
    and Order*) (requiring "recipients of universal service support for
    high-cost providers to retain all records that they may require to
    demonstrate to auditors that the support they received was
    consistent with the Act and the Commission's rules, assuming that
    the audits are conducted within five years of disbursement of such
    support."). The term "service provider" includes any participating
    subcontractors.

[^293]: This includes presenting personnel to testify, under oath, at a
    deposition if requested by of the Office of Inspector General.

[^294]: *See, e.g*., 41 U.S.C. §§ 51--58 (Anti-Kickback Act of 1986); 31
    U.S.C. § 3729 (False Claims Act).

[^295]: The Commission has established a similar universal service pilot
    program under the Rural Health Care support mechanism. *See Rural
    Health Care Support Mechanism*, WC Docket No. 02-60, Order, 21 FCC
    Rcd 11111(2006) (*2006* *Rural Health Care Pilot Program Order*)
    (establishing a Rural Health Care pilot program to examine how the
    Rural Health Care funding mechanism can be used to enhance public
    and non-profit health care providers' access to advanced
    telecommunications and information services); *Rural Heath Care
    Support Mechanism*, WC Docket No. 02-60, Order, 22 FCC Rcd 20,360
    (2007) (selecting Rural Health Care pilot program participants
    eligible to receive up to 85% of the costs associated with the
    construction of state or regional broadband health care networks and
    with the advanced telecommunications and information services
    provided over those networks).

[^296]: 47 U.S.C. §§ 151, 154(i), 201, 205.

[^297]: Lifeline currently provides low-income consumers with discounts
    of up to \$10.00 off of the monthly cost of telephone service for a
    single telephone line in their principal residence, though this
    amount adjusts, in part, to reflect the carrier's tariffed federal
    subscriber line charge. *See* 47 C.F.R. § 54.403. Link Up provides
    low-income consumers with discounts of up to \$30.00 off of the
    initial costs of installing telephone service. *See* 47 C.F.R. §
    54.411(a). Under the Commission's rules, there are four tiers of
    federal Lifeline support. All eligible subscribers receive Tier 1
    support which provides a discount equal to the ETC's subscriber line
    charge. Tier 2 support provides an additional \$1.75 per month in
    federal support, available if all relevant state regulatory
    authorities approve such a reduction. (All fifty states have
    approved this reduction.) Tier 3 of federal support provides one
    half of the subscriber's state Lifeline support, up to a maximum of
    \$1.75. Only subscribers residing in a state that has established
    its own Lifeline/Link Up program may receive Tier 3 support,
    assuming that the ETC has all necessary approvals to pass on the
    full amount of this total support in discounts to subscribers. Tier
    4 support provides eligible subscribers living on tribal lands up to
    an additional \$25 per month towards reducing basic local service
    rates, but this discount cannot bring the subscriber's cost for
    basic local service to less than \$1. *See* 47 C.F.R. § 54.403.

[^298]: *See* 47 C.F.R. §§ 54.409(a), 54.415(a).

[^299]: *See Lifeline and Link Up*, WC Docket No. 03-109, Report and
    Order and Further Notice of Proposed Rulemaking, 19 FCC Rcd 8302
    (2004).

[^300]: 47 C.F.R. § 54.409(a).

[^301]: 47 C.F.R. § 54.409(b).

[^302]: 47 C.F.R. § 54.409(a)--(d).

[^303]: *See Lifeline and Link Up, Federal-State Joint Board on
    Universal Service*, WC Docket No. 03-109, CC Docket No. 96-45,
    Petition to Establish A Trial Broadband Lifeline/Link Up Program
    (filed Oct. 9, 2008) (*TracFone Petition*).

[^304]: *See TracFone Petition* at 3--4.

[^305]: *See TracFone Petition* at 3.

[^306]: *See TracFone Petition* at 5.

[^307]: *See* Petition for Rulemaking to Enable Low-Income Consumers to
    Access Broadband Through the Universal Service Lifeline and Link Up
    Programs, WC Docket No. 03-109 (filed Oct. 7, 2008) (*CCIA
    Petition*).

[^308]: *See CCIA Petition* at 7.

[^309]: *See* Letter from Eric Einhorn, Vice President Governmental
    Affairs, Windstream Communications Inc., to Marlene Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket Nos. 99-68,
    08-122, 05-337, 08-152 (Sept. 24, 2008) (Windstream Sept. 24, 2008
    *Ex Parte* Letter).

[^310]: AARP *Joint Board Comprehensive Reform NPRM* Comments at 55.

[^311]: AARP *Joint Board Comprehensive Reform NPRM* Comments at 55.

[^312]: *See, e.g*., Letter from Dale R. Schmick, CEO, YourTel America,
    Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45,
    01-92, WC Docket Nos. 03-109, 05-337, at 2 (filed Oct. 21, 2008)
    (YourTel Oct. 21, 2008 *Ex Parte* Letter); Letter from Thomas J.
    Sugrue, Vice President Government Affairs, T-Mobile, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109,
    WT Docket Nos. 04-356, 07-195 at 3 (filed Oct. 17, 2008) (urging the
    Commission to adopt quickly TracFone's and CCIA's proposals); Letter
    from Karyne Jones, President & CEO, National Caucus and Center on
    Black Aged, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    96-45, WC Docket No. 03-109 at 1 (filed Oct. 29, 2008) (NCBA Oct.
    29, 2008 *Ex Parte* Letter); Letter from Donnie Ruby, Staff
    Associate, Telecommunications Research and Action Center, to Marlene
    H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109
    (filed Oct. 28, 2008); Letter from Bill Newton, Executive Director,
    Florida Consumer Action Network, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 96-45, WC Docket No. 03-109 (filed Oct. 27,
    2008); Letter from Robert D. Atkinson, Chair Public Policy
    Committee, Alliance for Public Technology, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109 (filed
    Oct. 24, 2008) (APT Oct. 24, 2008 *Ex Parte* Letter); Letter from
    John Breyault, Vice President of Public Policy Telecommunications
    and Fraud, National Consumers League, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109 (filed
    Oct. 23, 2008) (NCL Oct. 23, 2008 *Ex Parte* Letter); Letter from
    Mark Richert, Director, Public Policy, American Foundation for the
    Blind, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC
    Docket No. 03-109 (filed Oct. 28, 2008) (AFB Oct. 28, 2008 *Ex
    Parte* Letter).

[^313]: To the extent that our adoption of the Pilot Program adds
    broadband to the list of universal service supported services, we
    clarify that this inclusion is limited only to the Pilot
    Program---broadband is not a supported service for other low-income
    or high-cost support purposes. Pursuant to section 254(c)(1) of the
    Act, the Joint Board has recommended adding broadband as a supported
    service, and we do so for the limited purpose of the Pilot Program.
    *See Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, para. 4 ("The Joint Board now recommends that the nation's
    communications goals include achieving . . . universal availability
    of broadband Internet services"). Furthermore, the Commission's
    authority to provide universal service support to low-income
    consumers pre-dates the adoption in 1996 of section 254 of the Act,
    and arises out of sections 1, 4(i), 201, and 205 of the Act. 47
    U.S.C. §§ 151, 154, 201, 205; *Universal Service First Report and
    Order*, 12 FCC Rcd at 8956--57, paras. 338--40. Pursuant to our
    authority to regulate low-income support under these sections, as
    well as under section 254, we provide universal service support for
    broadband Internet access services through the Pilot Program.

[^314]: *Universal Service First Report and Order*, 12 FCC Rcd at 8956,
    para. 339.

[^315]: 47 U.S.C. § 254(b)(2) (emphasis added).

[^316]: *See* 47 U.S.C. § 254(b)(3) (emphasis added).

[^317]: *See* APT Oct. 24, 2008 *Ex Parte* Letter at 2; NCBA Oct. 29,
    2008 *Ex Parte* Letter at 1; NCL Oct. 23, 2008 *Ex Parte* Letter at
    1.

[^318]: According to the National Caucus and Center on Black Aged, older
    low-income Americans have difficulty affording broadband services
    and many do not have Internet access. NCBA Oct. 29, 2008 *Ex Parte*
    Letter at 1 (citing Older Americans, Broadband and the Future of the
    Net, SeniorNet, 2008). Commenters also assert that broadband
    connections are particularly necessary for consumers who are blind,
    visually impaired, deaf or hard of hearing. *See* APT Oct. 24, 2008
    *Ex Parte* Letter at 1 (citing [Alliance for Public Technology,
    Achieving Universal Broadband: Policies for Stimulating Deployment
    and Demand]{.smallcaps} 27 (2007)); AFB Oct. 28, 2008 *Ex Parte*
    Letter.

[^319]: *See Inquiry Concerning the Deployment of Advanced
    Telecommunications Capability to All Americans in a Reasonable and
    Timely Fashion, and Possible Steps to Accelerate Such Deployment
    Pursuant to Section 706 of the Telecommunications Act of 1996*, GN
    Docket No. 07-45, Notice of Inquiry, 22 FCC Rcd 7816, 7817, para. 3
    (2007) (*706 Fifth NOI*).

[^320]: *See 2006 Rural Health Care Pilot Program Order*, 21 FCC Rcd at
    11112, para. 5; *706 Fifth NOI*, 22 FCC Rcd at 7817, para. 4.

[^321]: *See* Cellular South *High-Cost Reform NPRMs* Comments at 10.

[^322]: *See* FCC, [High-Speed Services for Internet Access: Status as
    of December 31, 2006]{.smallcaps}, tbl. 19 (2007), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-277784A1.pdf.

[^323]: *See* [2008 Pew Broadband Adoption Study]{.smallcaps} ii.

[^324]: *See* [2008 Pew Broadband Adoption Study]{.smallcaps} at 2.

[^325]: *See* [2007 Universal Service Monitoring Report]{.smallcaps}.

[^326]: Desktop computers can be purchased for as low as \$200. *See*
    Walmart Consumer Products,
    http://www.walmart.com/catalog/catalog.gsp?cat=3951&fromPageCatId=14503
    (last visited Oct. 24, 2008). For \$267, a consumer can purchase a
    new ASUS Eee PC 2G Surf laptop. *See* Amazon ASUS Eee PC 2G Surf
    Product Page,
    http://www.amazon.com/gp/product/B00114T9WY/ref=noref?ie=UTF8&s=pc
    (last visited Oct. 24, 2008). Personal computers and wireless
    devices will continue to become available at even lower rates.
    Throughout the world, there are \$100 laptops and wireless devices.
    *See* Michael Trucano, InfoDev.org, Quick guide: Low-cost computing
    devices and initiatives for developing world (Apr. 2008),
    http://www.infodev.org/en/Publication.107.html (last visited Oct.
    25, 2008). For example, Candlebox, being developed for use in India
    by Qualcom, is a low-cost, low-power device that uses mobile
    technology to provide wireless Internet access and supports e-mail,
    social networking, e-commerce and distance learning applications.
    [Richard P. Adler & Mahesh Uppal, Aspen Institute India, m-Powering
    India: Mobile Communications for Inclusive Growth]{.smallcaps} at 21
    (2008), *available at*
    http://www.aspeninstitute.org/atf/cf/%7Bdeb6f227-659b-4ec8-8f84-8df23ca704f5%7D/2008INDIA.pdf.

[^327]: *See* NCBA Oct. 29, 2008 *Ex Parte* Letter at 2 (suggesting that
    the Pilot Program should be modeled after the existing Lifeline
    program and can be studied and evaluated to develop future broadband
    Lifeline/Link Up support programs).

[^328]: *See TracFone Petition* at 5.

[^329]: *See* [USAC 2007 Annual Report]{.smallcaps} at 51. USAC's
    administrative expenses for 2007 were \$104,073,000. *Id.* at 3.

[^330]: [USAC 2007 Annual Report]{.smallcaps} at 3.

[^331]: *See TracFone Petition* at 3.

[^332]: Assuming \$250 is provided to each consumer, the total cost of
    the TracFone proposal could reach almost \$7 billion.

[^333]: *See supra* para. 75.

[^334]: *Federal-State Joint Board on Universal Service, Schools and
    Libraries Universal Service Support Mechanism, Rural Health Care
    Support Mechanism, Lifeline and Link-up*, CC Docket Nos. 96-45, 02-6
    and WC Docket Nos. 02-60, 03-109, Order, 20 FCC Rcd 16883, 16890,
    para. 12 (2005) (*Hurricane Katrina Order*). Also, service
    agreements of longer than the lesser of one year or the remaining
    Pilot Program funding period are prohibited.

[^335]: Where such device costs \$100 or less, the Pilot Program will
    support 90% of the cost of the broadband Internet access device.

[^336]: 47 C.F.R. § 54.411(b).

[^337]: *See* USAC, Low Income: Overview of the Process,
    http://www.universalservice.org/li/about/overview-process.aspx (last
    visited Oct. 11, 2008).

[^338]: Because \$10 is the maximum federal support under Tier 1 to Tier
    3 of the existing Lifeline program, we find this to be the
    appropriate support amount for purposes of the Pilot Program. *See*
    [2007 Universal Service Monitoring Report]{.smallcaps}, tbl. 2.3.
    Ten dollars is also above the average Lifeline support amount of
    \$8.46, which includes both tribal and non-tribal recipients. *See*
    *id.*, tbl. 2.12.

[^339]: *See* *infra* para. 142.

[^340]: Pilot Program participants may not receive support for the same
    services from both the Pilot Program and the existing universal
    service programs---which consist of the rural health care, E-rate,
    high-cost, and low-income programs.

[^341]: *See supra* para. 110.

[^342]: *TracFone Petition* at 4.

[^343]: *TracFone Petition* at 3.

[^344]: *See, e.g*., YourTel Oct. 21, 2008 *Ex Parte* Letter at 2
    (urging the Commission to allow low-income consumers living in
    Missouri to be eligible for Pilot Program support).

[^345]: *See* 47 C.F.R. § 54.409.

[^346]: As discussed above, for purposes of this Pilot Program we define
    "household" as one adult and his/her dependants living together in
    the same residence. *See supra* paras 80--84; *Hurricane Katrina
    Order*, 20 FCC Rcd at 16890, para. 12.

[^347]: *See* 47 C.F.R. § 54.405.

[^348]: 47 C.F.R. § 54.400--.417.

[^349]: *See* 47 C.F.R. § 54.417(a).

[^350]: *See* 47 C.F.R. §§ 54.410, 54.416.

[^351]: *See* 47 C.F.R. § 54.619; *Comprehensive Review Report and
    Order*, 22 FCC Rcd at 16387, para. 26.

[^352]: This includes presenting personnel to testify, under oath, at a
    deposition if requested by the Office of Inspector General.

[^353]: We intend that funds disbursed in violation of a Commission rule
    that implements section 254 or a substantive program goal will be
    recovered. Sanctions, including enforcement action, are appropriate
    in cases of waste, fraud, and abuse, but not in cases of clerical or
    ministerial errors. *See* *Comprehensive Review Report and Order*,
    22 FCC Rcd at 16388--89, para. 30.

[^354]: 47 U.S.C. §§ 502, 503(b).

[^355]: 18 U.S.C. § 1001. Further, the Commission has found that
    "debarment of applicants, service providers, consultants, or others
    who have defrauded the USF is necessary to protect the integrity of
    the universal service programs." *Comprehensive Review Report and
    Order*, 22 FCC at 16390, para. 32. Therefore, the Commission intends
    to suspend and debar parties from the Pilot Program who are
    convicted of or held civilly liable for the commission or attempted
    commission of fraud and similar offenses arising out of their
    participation in the Pilot Program or other universal service
    programs. *See id.* paras. 31--32.

[^356]: *See, e.g*., 41 U.S.C. §§ 51--58 (Anti-Kickback Act of 1986); 31
    U.S.C. § 3729 (False Claims Act).

[^357]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    9206--07, paras. 843--44; *Federal-State Joint Board on Universal
    Service;* *Access Charge Reform*, Sixteenth Order on Reconsideration
    and Eighth Report and Order in CC Docket No. 96-45 and Sixth Report
    and Order in CC Docket No. 96-262, 15 FCC Rcd 1679, 1685, para. 15
    (1999) (*Fifth Circuit Remand Order*) (establishing a single
    contribution for all universal service support mechanisms based on
    interstate and international revenues).

[^358]: *Universal Service First Report and Order*, 12 FCC Rcd at
    9206--08, 9211, paras. 843, 845--48, 854.

[^359]: *Compare* [Jim Lande & Kenneth Lynch, FCC, 2000
    Telecommunications Industry Revenues,]{.smallcaps} tbl. 4
    [(2002),]{.smallcaps} *available at*
    http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/telrev00.pdf
    *with* [Jim Lande & Kenneth Lynch, FCC, 2006 Telecommunications
    Industry Revenues,]{.smallcaps} tbl. 4 [(2008),]{.smallcaps}
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284929A1.pdf.
    *But see* Letter from David C. Bergmann, Chair, NASUCA
    Telecommunications Committee, to Chairman Kevin Martin et al*.*,
    FCC, WC Docket Nos. 08-152, 07-135, 06-122, 05-337, 05-195, 04-36,
    03-109, 02-60, CC Docket Nos. 02-6, 01-92, 00-256, 99-68, 96-262,
    96-45, 80-286, at 7 (filed Sept. 30, 2008) (NASUCA Sept. 30, 2008
    *Ex Parte* Letter) (arguing that the growth in the contribution
    factor is "almost entirely" due to the growth in universal service
    disbursement requirements).

[^360]: *See* [FCC, Universal Service Monitoring Report,]{.smallcaps}
    tbl. 1.2a [(2001)]{.smallcaps} ([2001 Universal Service Monitoring
    Report]{.smallcaps}), *available at*
    http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/Monitor/mrs01-0.pdf;
    [2007 Universal Service Monitoring Report]{.smallcaps} at tbl. 1.11;
    *see also* [USAC 2007 Annual Report]{.smallcaps} at 3, 51 (detailing
    universal service disbursements for 2007 at approximately \$6.9
    billion).

[^361]: The contribution factor grew from 5.9% in the first quarter of
    2000 to 11.3% for the fourth quarter of 2008. *See Proposed First
    Quarter 2000 Universal Service Contribution Factor*, CC Docket No.
    96-45, Public Notice, 15 FCC Rcd 3660 (WCB 1999); *Proposed Fourth
    Quarter 2008 Universal Service Contribution Factor*, CC Docket No.
    96-45, Public Notice, DA 08-2091 (OMD Sept. 12, 2008) (*Fourth
    Quarter 2008 Contribution Factor Public Notice*).

[^362]: *See* 47 U.S.C. §§ 254(b), (d).

[^363]: Although the Commission has established safe harbors for the
    reporting of interstate telecommunications revenues derived from
    interstate telecommunications services bundled with customer
    premises equipment (CPE) or information services, it has not
    established guidelines for reporting interstate telecommunications
    service revenues for flat-rated bundles of wireline interstate and
    intrastate services. *See* *Policy and Rules Concerning the
    Interstate, Interexchange Marketplace; Implementation of Section
    254(g) of the Communications Act of 1934, as amended; 1998 Biennial
    Regulatory Review---Review of Customer Premises Equipment and
    Enhanced Local Exchange Markets*, CC Docket Nos. 96-61, 98-183,
    Report and Order, 16 FCC Rcd 7418, 7446--48, paras. 47--54 (2001)
    (*CPE Bundling Order*).

[^364]: *See Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Memorandum Opinion and Order and Further Notice of
    Proposed Rulemaking, 13 FCC Rcd 21252, 21258--59, paras. 13--15
    (1998) (*First Wireless Safe Harbor Order*); *see* *also
    Federal-State Joint Board on Universal Service*, CC Docket Nos.
    96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, Report and
    Order and Second Further Notice of Proposed Rulemaking, 17 FCC Rcd
    24952, 24965--67, paras. 21--25 (2002) (*Second Wireless Safe Harbor
    Order*).

[^365]: *See Universal Service Contribution Methodology*, WC Docket Nos.
    06-122, 04-36, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200,
    95-116, 98-170, Report and Order and Notice of Proposed Rulemaking,
    21 FCC Rcd 7518 (2006) (*2006 Interim Contribution Methodology
    Order*); *aff'd in part, vacated in part sub nom. Vonage Holdings
    Corp. v. FCC*, 489 F.3d 1232 (D.C. Cir. 2007).

[^366]: *See* *Federal-State Joint Board on Universal Service*, CC
    Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, Notice of
    Proposed Rulemaking, 16 FCC Rcd 9892 (2001) (*2001 Contribution
    NPRM*); *see also Federal-State Joint Board on Universal Service*,
    CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116,
    98-170, Further Notice of Proposed Rulemaking and Report and Order,
    17 FCC Rcd 3752, 3765, para. 31, 3766--89, paras. 34--83 (2002)
    (*Contribution First FNPRM*).

[^367]: *Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24983--97,
    paras. 66--100 (seeking comment on capacity-based proposals that had
    been developed in the record and on telephone-number proposals
    advocated by certain parties); *Commission Seeks Comment on Staff
    Study Regarding Alternative Contribution Methodologies*, CC Docket
    Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, Public
    Notice, 18 FCC Rcd 3006 (2003) (*Contribution Staff Study*) (seeking
    comment on a Commission staff study that estimated potential
    contribution assessment levels under the then-newly modified
    revenue-based method and the three connection-based proposals in the
    further notice portion of the *Second Wireless Safe Harbor Order*).

[^368]: *Interim Cap Clears Path for Comprehensive Reform: Commission
    Poised to Move Forward on Difficult Decisions Necessary to Promote
    and Advance Affordable Telecommunications for All Americans*, News
    Release (May 2, 2008), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-281939A1.pdf.

[^369]: We agree with commenters who argue that the contribution
    methodology requires a comprehensive overhaul. *See, e.g.*, Letter
    from Mary L. Henze, AT&T Services, and Kathleen Grillo, Verizon, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket
    No. 96-45, Attach. 1 at 1 (filed Sept. 11, 2008) (AT&T and Verizon
    Sept. 11, 2008 *Ex Parte* Letter); Letter from Roger C. Sherman,
    Director, Government Affairs---Wireless Regulatory, Sprint Nextel,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket
    No. 04-36 at 1 (filed June 14, 2006) (Sprint Nextel June 14, 2006
    *Ex Parte* Letter); Letter from Susanne A. Guyer, Senior Vice
    President Federal Regulatory Affairs, Verizon, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket Nos. 05-337,
    06-122 at 2 (filed Oct. 28, 2008) (Verizon Oct. 29, 2008 *Ex Parte*
    Letter); Letter from Mary L. Henze, AT&T Services, and Kathleen
    Grillo, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    96-45, WC Docket No. 06-122 at 1 (filed Oct. 20, 2008) (AT&T and
    Verizon Oct. 20, 2008 *Ex Parte* Letter).

[^370]: 47 U.S.C. § 254(d).

[^371]: Section 254(d) refers to "telecommunications carriers," which
    are defined as "any provider of telecommunications services." 47
    U.S.C. § 153(44).

[^372]: 47 U.S.C. § 254(d).

[^373]: 47 U.S.C. § 254(d).

[^374]: "Telecommunications" is defined 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
    as sent and received." 47 U.S.C. § 153(43).

[^375]: "Telecommunications service" is defined as "the offering of
    telecommunications for a fee directly to the public, or to such
    classes of users as to be effectively available directly to the
    public, regardless of the facilities used." 47 U.S.C. § 153(46).

[^376]: *See* 47 C.F.R. § 54.706(a); *Universal Service First Report and
    Order*, 12 FCC Rcd at 9183--84, paras. 794--95. We note that private
    service providers that provide interstate connections solely to meet
    their internal needs (i.e., self-providers) will not be required to
    contribute under the new methodology. This is consistent with our
    current policy. In the *Universal Service First Report and Order*,
    the Commission reasoned that, for self-providers of interstate
    telecommunications, the telecommunications is incidental to their
    primary non-telecommunications business. *See Universal Service
    First Report and Order*, 12 FCC Rcd at 9185, para. 799.

[^377]: *See* 47 C.F.R. § 54.706(a); *Universal Service First Report and
    Order*, 12 FCC Rcd at 9184--85, paras. 796--98. *But see* Letter
    from Robert F. Aldrich, Counsel for the American Public
    Communications Council (APCC), to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 96-45, WC Docket No. 01-92, Attach. (filed Oct. 23,
    2008).

[^378]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7538--40, paras. 39--41; 47 C.F.R. § 54.706(a).

[^379]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7539, para. 41 ("To provide this capability \[telecommunications\],
    interconnected VoIP providers may rely on their own facilities or
    provide access to the PSTN through others.").

[^380]: *See United States v. Southwestern Cable Co.*, 392 U.S. 157,
    177--78 (1968); *United States v. Midwest Video Corp.*, 406 U.S.
    649, 667--68 (1972); *FCC v. Midwest Video Corp.*, 440 U.S. 689, 700
    (1979); *see also American Library Ass'n v. FCC*, 406 F.3d 689 (D.C.
    Cir. 2005).

[^381]: *See Amendment of Part 67 of the Commission\'s Rules and
    Establishment of a Joint Board*, CC Docket No. 80-286, Decision and
    Order, 96 F.C.C.2d 781, (1984), *aff'd sub nom. Rural Tel. Coalition
    v. FCC*, 838 F.2d 1307 (D.C. Cir. 1988).

[^382]: *Rural Tel. Coalition*, 838 F.2d at 1315.

[^383]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7541--43, paras. 46--49.

[^384]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7542, para. 47 & n.160 (citing *IP-Enabled* Services, First Report
    and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 10245 (2005)
    (*VoIP 911 Order*), *aff'd sub nom. Nuvio Corp. v. FCC*, 473 F.3d
    302 (D.C. Cir. 2006); 47 U.S.C. § 152(a)).

[^385]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7542, para. 48 (quoting 47 U.S.C. § 254(d)).

[^386]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7542, para. 48.

[^387]: 47 U.S.C. § 251(e)(1).

[^388]: *See VoIP 911 Order*, 20 FCC Rcd at 10265, para. 33.

[^389]: *See VoIP 911 Order*, 20 FCC Rcd at 10265, para. 33.

[^390]: The term Assessable Number is defined below. *See infra* paras.
    115--129.

[^391]: This list is meant to be illustrative, not exhaustive. Other
    providers may also have to contribute to the universal service fund
    based on the criteria described in this order.

[^392]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7539, para. 41.

[^393]: 47 U.S.C. § 254(d).

[^394]: 47 U.S.C. § 152(a); *see also VoIP 911 Order*, 20 FCC Rcd
    10261--62, para. 28 (providing detailed explanation of why
    interconnected VoIP falls within the Commission's subject matter
    jurisdiction).

[^395]: *Compare 2006 Interim Contribution Methodology Order*, 21 FCC
    Rcd at 7540, para. 43.

[^396]: *Implementation of the Local Competition Provisions of the
    Telecommunications Act of 1996,* CC Docket No. 96-98, Second Report
    and Order and Memorandum Opinion and Order, 11 FCC Rcd 19392, 19404,
    19407, paras. 19, 25 (1996) (noting that numbering
    administration ensures the creation of a nationwide, uniform system
    of numbering essential to the efficient delivery of interstate and
    international telecommunications services and the development of a
    competitive telecommunications services market) (subsequent history
    omitted); *see also Administration of the North American Numbering
    Plan*, CC Docket No. 95-283, Report and Order, 11 FCC Rcd 2588,
    2591, para. 4 (1995) ("Adequate telephone numbers, available through
    a uniform numbering plan, are essential to provide consumers
    efficient access to new telecommunications services and technologies
    and to support continued growth of an economy increasingly dependent
    upon those services and technologies."); *Administration of the
    North American Numbering Plan*, CC Docket No. 92-237, Notice of
    Proposed Rulemaking, 11 FCC Rcd 2068, para. 2 (1994).

[^397]: *See, e.g.*, American Association of Paging Carriers (AAPC)
    *Contribution First FNPRM* Comments at 7; Alaska Communication
    Systems (ACS) *Contribution First FNPRM* Reply at 6--7; Allied
    Personal Communications Industry Association of California (Allied)
    *Contribution First FNPRM* Comments at 6--7; National ALEC
    Association/Prepaid Communications Association (NALA/PCA)
    *Contribution First FNPRM* Reply at 3.

[^398]: *See,* *e*.*g*., *NARUC v. FCC*, 737 F.2d 1095, 1113 (D.C. Cir.
    1984) ("The same loop that connects a telephone subscriber to the
    local exchange necessarily connects that subscriber into the
    interstate network as well.").

[^399]: *NARUC v. FCC*, 737 F.2d at 1113--14.

[^400]: Services that provide only intrastate communications and do not
    traverse a public interstate network will not be required to
    contribute under the new assessment methodology.

[^401]: 47 U.S.C. § 254(b)(5).

[^402]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter, Attach.
    2 at 1.

[^403]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter, Attach.
    2 at 1; *see also* Letter from James S. Blaszak, Counsel for Ad Hoc
    Telecommunications Users Committee, to Marlene H. Dortch, Secretary,
    FCC, WC Docket No. 06-122, at 5 (filed Nov. 19, 2007) (Ad Hoc Nov.
    19, 2007 *Ex Parte* Letter) (discussing the convergence of different
    applications for business and residential customers onto a single
    integrated network with bundled pricing).

[^404]: *See Vonage Holdings Corporation Petition for Declaratory Ruling
    Concerning an Order of the Minnesota Public Utilities Commission*,
    19 FCC Rcd 22404, 22412--14, paras. 16--18 (2004) (*Vonage Order*),
    *aff'd sub nom. Minnesota Pub. Utils. Comm'n v. FCC*, 483 F.3d 570
    (8th Cir. 2007).

[^405]: *See, e.g.*, AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 2.

[^406]: Contributors are prohibited from passing through to subscribers
    more than their contribution cost. 47 C.F.R. § 54.712.

[^407]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter, Attach.
    2 at 2; *see also* Information Technology Industry Council (ITI)
    *2006 Contribution FNPRM* Comments at 6; NCTA *2006 Contribution
    FNPRM* Comments at 5; Small Business Administration Office of
    Advocacy (SBA) *2006 Contribution FNPRM* Comments at 8; Vonage *2006
    Contribution FNPRM* Comments at 7--8; Letter from Gregory V.
    Haledjian, Regulatory and Governmental Relations, Counsel to IDT
    Corporation and USF By the Numbers Coalition, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, Attach. at 3--4 (filed Jan.
    30, 2007).

[^408]: *See, e.g.*, NCTA *2006 Contribution FNPRM* Comments at 5;
    Vonage *2006 Contribution FNPRM* Comments at 6; Letter from Grace E.
    Koh, Policy Counsel, Cox Enterprises, to Marlene H. Dortch,
    Secretary, FCC, WC Docket Nos. 06-122, 05-337, 01-92, CC Docket Nos.
    96-45, 99-68, 96-262 at 2 (filed July 15, 2008).

[^409]: *See* AT&T *2006 Contribution FNPRM* Comments at 4.

[^410]: In addition to being easily administrable, the record supports
    adoption of \$1.00 per month as the residential per-number
    assessment amount. *See, e.g.*, Letter from James S. Blaszak,
    Counsel for Ad Hoc Telecommunications Users Committee, to Marlene H.
    Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171, 90-571,
    92-237, 99-200, 95-116, 98-170, NSD File No. L-00-72, Attach. at 3
    (filed Oct. 25, 2005); *See* Letter from Mary L. Henze, AT&T
    Services, and Kathleen Grillo, Verizon, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 3
    (filed Sept. 23, 2008) (AT&T and Verizon Sept. 23, 2008 *Ex Parte*
    Letter) (estimating a \$1.01 per-number per-month assessment under a
    numbers-based contribution methodology); *see also* Letter from Paul
    Garnett, Assistant Vice President, CTIA--The Wireless Association,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45 at 1
    (filed Oct. 2, 2008) (CTIA Oct. 2, 2008 *Ex Parte* Letter), Attach.
    at 5 (supporting the AT&T and Verizon proposal); Letter from David
    B. Cohen, Vice President, Policy, USTelecom, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, Attach.
    at 1 (filed Sept. 25, 2008).

[^411]: *See* [2007 Universal Service Monitoring Report]{.smallcaps} at
    tbl. 1.1.

[^412]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter, Attach.
    2 at 1; *see also* [Alexander Belinfante, FCC, Telephone
    Subscribership in the United States]{.smallcaps}, tbl. 1 (2008),
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284923A1.pdf.

[^413]: *See* [Craig Stroup and John Vu, FCC, Numbering Resource
    Utilization in the United States]{.smallcaps}, tbl. 12 (2008)
    (showing number utilization from December 2000 to December 2007),
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284926A1.pdf.

[^414]: *See* Ad Hoc *Contribution First FNPRM* Comments at 6--7;
    Coalition for Sustainable Universal Service (CoSUS) *Contribution
    First FNPRM* Comments at 38; Sprint *Contribution First FNPRM*
    Comments at 8--9. Because residential services will no longer be
    assessed based on revenues, contributors may not mark-up or
    otherwise adjust the \$1.00 per Assessable Number per month
    residential contribution assessment in response to uncollectible
    revenues.

[^415]: *See, e.g.*, ITI *2006 Contribution FNPRM* Comments at 6; Vonage
    *2006 Contribution FNPRM* Comments at 7.

[^416]: *See Numbering Resource Optimization*, CC Docket No. 99-200,
    Report and Order and Further Notice of Proposed Rulemaking, 15 FCC
    Rcd 7574, 7625, para. 122 (2000) (*NRO* *I Order*) (determining that
    implementation of thousands-block number pooling is essential to
    extending the life of the NANP by making the assignment and use of
    NXX codes more efficient); *see also Numbering Resource
    Optimization*, CC Docket Nos. 99-200, 96-98, 95-116, Fourth Report
    and Order, 18 FCC Rcd 12472, 12474, para. 5 (2003) (*NRO* *IV
    Order*) (explaining further that thousands-block number pooling is a
    numbering resource optimization measure in which 10,000 numbers in
    an NXX are divided into ten sequential blocks of 1,000 numbers and
    allocated to different service providers (or different switches)
    within a rate center).

[^417]: 47 U.S.C. § 254(b)(1).

[^418]: *See* Letter from Jean L. Kiddoo and Tamar E. Finn, Counsel to
    IDT Telecom, to Marlene H. Dortch, Secretary, FCC, WC Docket No.
    06-122, at 5 (filed Aug. 2, 2007) (IDT Aug. 2, 2007 *Ex Parte*
    Letter) (showing that the average residential household paid about
    \$1.37 in universal service fees in 2006). IDT claims the data show
    that the lowest-income consumers paid an average of \$1.09 in
    universal service fees for wireline telephone bills. *Id*. at 6.

[^419]: 47 C.F.R. §§ 69.104(n)(1), 69.152(d)(1). The SLC is referred to
    as the End User Common Line Charge in the Commission's rules.

[^420]: The revenue from the \$6.50 SLC would be multiplied by the 11.4%
    contribution factor, resulting in a contribution amount and
    corresponding assessment of \$0.74. *See Fourth Quarter 2008
    Contribution Factor Public Notice* at 1; AT&T and Verizon Sept. 11,
    2008 *Ex Parte* Letter, Attach. 2 at 3.

[^421]: *See* 47 C.F.R. § 54.400 *et seq*.; *infra* para. 199
    (describing contribution exemptions for services to low-income
    consumers).

[^422]: *See, e.g.*, Letter from Maureen A. Thompson, Executive
    Director, Keep USF Fair Coalition, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 96-45, Attach. at 5--7 (filed Mar. 27, 2006)
    (Keep USF Fair Mar. 27, 2006 *Ex Parte* Letter); *see also* NASUCA
    Sept. 30, 2008 *Ex Parte* Letter at 9.

[^423]: *Universal Service First Report and Order*, 12 FCC Rcd at 8783,
    para. 8

[^424]: *See, e.g.*, FW&A *Contribution First FNPRM* Comments at 13--15;
    NRTA and OPASTCO *Contribution First FNPRM* Comments at 7--11; SBC
    *Contribution First FNPRM* Comments at 18; Verizon *Contribution
    First FNPRM* Reply at 6; Verizon Wireless *Contribution First FNPRM*
    Comments at 5--6.

[^425]: These six categories of numbers are defined as follows:

    > \(i\) Administrative numbers are numbers used by
    > telecommunications carriers to perform internal administrative or
    > operational functions necessary to maintain reasonable quality of
    > service standards.
    >
    > \(ii\) Aging numbers are disconnected numbers that are not
    > available for assignment to another end user or customer for a
    > specified period of time. Numbers previously assigned to
    > residential customers may be aged for no more than 90 days.
    > Numbers previously assigned to business customers may be aged for
    > no more than 365 days.
    >
    > \(iii\) Assigned numbers are numbers working in the Public
    > Switched Telephone Network under an agreement such as a contract
    > or tariff at the request of specific end users or customers for
    > their use, or numbers not yet working but having a customer
    > service order pending. Numbers that are not yet working and have a
    > service order pending for more than five days shall not be
    > classified as assigned numbers.
    >
    > \(iv\) Available numbers are numbers that are available for
    > assignment to subscriber access lines, or their equivalents,
    > within a switching entity or point of interconnection and are not
    > classified as assigned, intermediate, administrative, aging, or
    > reserved.
    >
    > \(v\) Intermediate numbers are numbers that are made available for
    > use by another telecommunications carrier or non-carrier entity
    > for the purpose of providing telecommunications service to an end
    > user or customer. Numbers ported for the purpose of transferring
    > an established customer's service to another service provider
    > shall not be classified as intermediate numbers.
    >
    > \(vi\) Reserved numbers are numbers that are held by service
    > providers at the request of specific end users or customers for
    > their future use. Numbers held for specific end users or customers
    > for more than 180 days shall not be classified as reserved
    > numbers.

    47 C.F.R. § 52.15(f)

[^426]: *See Assessment and Collection of Regulatory Fees for Fiscal
    Year 2005, Assessment and Collection of Regulatory Fees for Fiscal
    Year 2004*, MD Dockets No. 05-59, 04-73, Report and Order and Order
    on Reconsideration, 20 FCC Rcd 12259, 12271, paras. 39--40 (2005).

[^427]: "Functional equivalent identifier" means an identifier used in
    place of and with the same PSTN access capability as a NANP number;
    it is not intended to capture identifiers used in conjunction with
    NANP numbers, such as internal extensions that cannot be directly
    dialed from the PSTN. Nor is "functional equivalent identifier"
    intended to capture routing identifiers used for routing of Internet
    traffic, unless such identifiers are used in place of a NANP number
    to provide the ability to make or receive calls on the PSTN.

[^428]: For purposes of the definition of Assessable Numbers, we include
    only the NANP telephone numbers used in the United States and its
    Territories and possessions.

[^429]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    9206, para. 844; *see also, e.g*., Letter from Melissa E. Newman,
    Vice President-Federal Regulatory, Qwest, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, at 7 (filed Sept. 24, 2008)
    (Qwest Sept. 24, 2008 *Ex Parte* Letter); AT&T and Verizon Sept. 11,
    2008, *Ex Parte* Letter, Attach. 1 at 1--2; Letter from Brad E.
    Mutschelknaus, Counsel for XO Communications, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 96-45, 01-92, WC Docket No. 04-36,
    Attach. at 9 (filed Oct. 3, 2008); Letter from Donna N. Lampert,
    Counsel for Google, to Marlene H. Dortch, Secretary, FCC (filed Oct.
    3, 2008) (Google Oct. 3, 2008 *Ex Parte* Letter); *see also* 47
    C.F.R. § 54.5 (defining "contributor" as "an entity required to
    contribute to the universal service support mechanism pursuant to §
    54.706 \[of the Commission's rules\]").

[^430]: *See supra* para. 161 (discussing the public interest in
    requiring these entities to support the network).

[^431]: *See, e.g.*, AT&T and Verizon Sept. 23, 2008 *Ex Parte* Letter,
    Attach. 2 at 2; *see also* *Second Wireless Safe Harbor Order*, 17
    FCC Rcd at 24978, para. 50.

[^432]: 47 C.F.R. § 54.712.

[^433]: *See Numbering Resource Optimization*, CC Docket Nos. 99-200,
    96-98, 95-116, Third Report and Order and Second Order on
    Reconsideration in CC Docket No. 96-98 and CC Docket No. 99-200, 17
    FCC Rcd 252, 303, para. 119 (2001) (*NRO III Order*).

[^434]: *NRO III Order*, 17 FCC Rcd at 304, para. 122 ("With this
    requirement, we seek to limit the amount of numbers that are set
    aside for use by a particular customer, but are not being used to
    provide service on a regular basis. Thus, in order to categorize
    such blocks of numbers as assigned numbers, carriers may have to
    decrease the amount \[of\] numbers set aside for a particular
    customer. We also clarify that numbers 'working' periodically for
    regular intervals of time, such as numbers assigned to summer homes
    or student residences, may be categorized as assigned numbers, to
    the extent that they are 'working' for a minimum of 90 days during
    each calendar year in which they are assigned to a particular
    customer. Any numbers used for intermittent or cyclical purposes
    that do not meet these requirements may not be categorized as
    assigned numbers, and must be made available for use by other
    customers.").

[^435]: *See* 47 C.F.R. § 52.15(f)(iii).

[^436]: *NRO I Order*, 15 FCC Rcd at 7586--87, para. 18. Ported-out
    numbers, a subcategory of assigned numbers, are not reported to
    NANPA although NRUF reporting carriers are required to maintain
    internal records associated with these numbers for five years. *Id*.
    at 7592, 7601, paras. 36, 62.

[^437]: *See* 47 C.F.R. § 52.15(f); *see also* Qwest Sept. 24, 2008 *Ex
    Parte* Letter at 7 (arguing, among other things, that numbers used
    for administrative purposes and numbers that are not "actively"
    working, such as aging, unassigned, reserved numbers, and numbers
    donated back to the industry pool should be excluded from the
    contributor's base).

[^438]: *See* 47 C.F.R. § 52.15(f)(v).

[^439]: *See NRO I Order*, 15 FCC Rcd at 7587, para. 21 (2000) ("We
    agree with commenters who opine that \[intermediate\] numbers should
    not be categorized as *assigned* numbers because they have not been
    assigned to an end user. . . . We therefore conclude that numbers
    that are made available for use by another carrier or non-carrier
    entity for the purpose of providing telecommunications service to an
    end user or customer should be categorized as *intermediate*
    \[numbers\].").

[^440]: *NRO III Order*, 17 FCC Rcd at 304, para. 122.

[^441]: When a wireless carrier interconnects at an incumbent LEC end
    office it is known as a Type 1 interconnection. *See Federal
    Communications Commission Seeks Comment on Initial Regulatory
    Flexibility Analysis in Telephone Number Portability Proceeding*, CC
    Docket No. 95-116, Public Notice, 20 FCC Rcd 8616, 8632, App. B at
    para. 19 n.53 (2005) ("Type 1 numbers reside in an end office of a
    LEC and are assigned to a Type 1 interconnection group, which
    connects the wireless carrier\'s switch and the LEC\'s end office
    switch.").

[^442]: *See infra* paras*.* 140--46.

[^443]: The record is split over whether the definition of an assessable
    number should be restricted to the PSTN. AT&T and Verizon, for
    example, do not include such a requirement in their proposed
    definitions. *See* AT&T and Verizon Sept. 23, 2008 *Ex Parte*
    Letter, Attach. 1. Other commenters, however, argue for such a
    requirement. *See* Google Oct. 3, 2008 *Ex Parte* Letter at 1 (the
    definition of an assessable number should be "premised on a
    telephone number acting as a proxy for an underlying two-way PSTN
    connection"). As we explain herein, such a restriction is not
    warranted.

[^444]: *Universal Service First Report and Order*, 12 FCC Rcd at 9207,
    paras. 845--46.

[^445]: *Universal Service First Report and Order*, 12 FCC Rcd at 9184
    para. 796.

[^446]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7536--37, paras. 33-34.

[^447]: *See* 47 C.F.R. § 52.15(f)(iii).

[^448]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    9206, para. 844.

[^449]: 47 C.F.R. § 52.15(f).

[^450]: 47 C.F.R. § 52.15(f)(2).

[^451]: *NRO I Order*, 15 FCC Rcd at 7587, para. 21.

[^452]: S*ee* *Administration of the North American Numbering Plan*,
    Order, 20 FCC Rcd 2957, 2961--62, para. 9 (2005) (*SBCIS Waiver
    Order*) (noting that most VoIP providers' numbering utilization data
    are embedded in the NRUF data of the LEC). In the *SBCIS Waiver
    Order*, the Commission granted SBCIS, an Internet service provider,
    permission to obtain numbering resources directly from the NANPA
    and/or Pooling Administrator, conditioned on, among other things,
    SBCIS reporting NRUF data. *Id*. at 2959, para. 4.

[^453]: *See infra* paras. 147--53.

[^454]: *See* Letter from Jeanine Poltronieri, Vice President, Federal
    Regulatory, BellSouth D.C., Inc, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 96-45, Attach. at 2 (filed July 6, 2005) ("If
    voice service is provided without using telephone numbers, but with
    IP address or other identifier, FCC will need to establish a
    'functional equivalency' test.").

[^455]: Business services such as private line and special access
    services do not typically utilize telephone numbers in the same
    manner as residential services, and would not contribute equitably
    to the universal service fund under a numbers-based approach. *See,
    e.g.*, Letter from James S. Blaszak, Counsel to Ad Hoc
    Telecommunications Users Committee, to Marlene H. Dortch, Secretary,
    FCC, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116,
    98-170, NSD File No. L-00-72, at 3 (filed Oct. 9, 2002); Letter from
    Robert Quinn, Vice President Federal Government Affairs, AT&T, to
    Marlene Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171,
    90-571, 92-237, 99-200, 95-116, 98-170, NSD File No. L-00-72, at 2
    (filed Oct. 22, 2002). Moreover, unlike residential services, which
    usually have one telephone number assigned per access line, business
    services do not usually have a number of telephone numbers assigned
    that aligns with the number of access lines utilized.

[^456]: 47 U.S.C. § 254(d). Therefore, we disagree with those parties
    that continue to support a numbers-only based approach because we
    find such an approach would be inconsistent with the statutory
    requirement that every telecommunications carrier must contribute to
    the universal service fund. *See, e.g.*, Letter from James S.
    Blaszak, Counsel for Ad Hoc, to Marlene H. Dortch, Secretary, FCC,
    CC Docket Nos. 01-92, 96-45, 99-68, WC Docket Nos. 05-337, 07-135,
    Attach. at 5 (filed Oct. 14, 2008).

[^457]: *See Staff Study*; *see also* Ad Hoc Telecommunications Users
    Committee 2003 Staff Study Reply; Letter from John Nakahata, Counsel
    for the Coalition for Sustainable Universal Service, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, at 1 (filed Oct. 31,
    2002).

[^458]: *See* Letter from Melissa E. Newman, Vice President-Federal
    Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 96-45, Attach. at 6 (filed Mar. 21, 2006) (Qwest Mar. 21, 2006
    *Ex Parte* Letter); *see also* Qwest Sept. 24, 2008 *Ex Parte*
    Letter at 2.

[^459]: *See supra* para. 155.

[^460]: Time Warner *2006 Contribution FNPRM* Comments at 2.

[^461]: We decline at this time to adopt AT&T and Verizon's proposal for
    assessing contributions on connections based on flat rate charges
    that would differ based on the speed of the connection. AT&T and
    Verizon Oct. 20, 2008 *Ex Parte* Letter at 2. Instead, we seek
    further comment on implementing assessments based on connections.

[^462]: 47 U.S.C. § 254(d).

[^463]: 47 U.S.C. § 254(b)(4).

[^464]: The proxies offer an alternative to contributions assessed on
    actual interstate revenues; they are intended to approximate the
    portion of revenues derived from the provision of interstate
    telecommunications services. *First Wireless Safe Harbor Order*, 13
    FCC Rcd at 21258--60, paras. 13--15 (establishing safe harbors for
    wireless service providers); *Second Wireless Safe Harbor Order*, 17
    FCC Rcd at 14954, para. 1 (modifying the wireless safe harbors);
    *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at 7532,
    7545, paras. 23, 53 (revising the wireless safe harbor and
    establishing a safe harbor for interconnected VoIP providers).

[^465]: *See supra* para. 153.

[^466]: 47 U.S.C. §§ 254(b)(4), (d).

[^467]: Contributors will base their contributions on business service
    revenues in the same manner as they do currently. We make no change
    to the *de minimis* exemption or to the Limited International
    Revenue Exception (LIRE) for business contributions based on
    revenues. 47 U.S.C. § 254(d); 47 C.F.R. § 54.708; *Fifth Circuit
    Remand Order*, 15 FCC Rcd at 1687--88, para. 19; *Contribution First
    FNPRM*, 17 FCC Rcd at 3806--07, paras. 125--28. These exceptions do
    not apply to residential contributions based on numbers.

[^468]: *See* 47 U.S.C. § 254(d). Prepaid calling card providers, as
    well as any other current contributors who provide services to
    residential consumers but do not assign Assessable Numbers, shall
    continue to contribute based on their revenues during the interim
    period until these business services are assessed on the basis of
    connections and/or numbers. Despite IDT's recent request that its
    prepaid calling card services be treated as residential for purposes
    of universal service contribution assessments, we find that,
    consistent with arguments made over the years by such providers,
    these calling card services are provided to businesses. *See*
    Request for Review of Decision of the Universal Service
    Administrator by IDT Corporation and IDT Telecom, CC Docket No.
    96-45 at 3 (filed June 30, 2008) ("The vast majority of \[prepaid
    calling card sales\] are completed through a network of distributors
    and resellers before being purchased by the ultimate end user
    consumer."). *But see* Letter from Tamar E. Finn, Counsel, IDT
    Corporation, to Marlene Dortch, Secretary, FCC, CC Docket No. 96-45,
    WC Docket No. 06-122 (filed Oct. 28, 2008) (asking the Commission to
    treat prepaid calling cards as residential services if the
    Commission adopts a numbers-based methodology limited to residential
    numbers).

[^469]: The Commission may revise the specific per-number residential
    assessment amount in the future, if market conditions warrant.

[^470]: AT&T and Verizon Oct. 20, 2008 *Ex Parte* Letter, Attach. at 4.

[^471]: Letter from Mitchell F. Brecher, Counsel for TracFone, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 2
    (filed Sept. 17, 2008) (TracFone Sept. 17, 2008 *Ex Parte* Letter);
    CTIA *2006 Contribution FNPRM* Comments at 6; Leap Wireless *2006
    Contribution FNPRM* Comments at 2--3; T-Mobile Apr. 4, 2006 *Ex
    Parte* Letter at 3--4; Letter from John M. Beahn and Malcolm
    Tuesley, Counsel to Virgin Mobile USA, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 96-45, Attach. at 4--7 (filed June 12,
    2006) (Virgin Mobile June 12, 2006 *Ex Parte* Letter).

[^472]: *See, e.g*., Verizon Mar. 28, 2006 *Ex Parte* Letter, Attach. at
    3; TracFone Sept. 17, 2008 *Ex Parte* Letter, Attach. at 2; Virgin
    Mobile June 12, 2006 *Ex Parte* Letter, Attach. at 7.

[^473]: *See* Verizon Mar. 28, 2006 *Ex Parte* Letter, Attach. at 3;
    TracFone Sept. 17, 2008 *Ex Parte* Letter, Attach.; *see also*
    Letter from Antoinette Bush, Counsel for Virgin Mobile, to Marlene
    H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 11 (filed
    Mar. 18, 2005) (Virgin Mobile Mar. 18, 2005 *Ex Parte* Letter); AT&T
    and Verizon Sept. 23, 2008 *Ex Parte* Letter at 6.

[^474]: *See* CTIA Oct. 2, 2008 *Ex Parte* Letter at 1 (raising a
    concern that current proposals could harm the large number of
    prepaid wireless customers).

[^475]: As discussed below, Lifeline customers are exempt from
    contribution assessments. *See infra* para. 199.

[^476]: *See* Letter from Mitchell F. Brecher, Counsel for TracFone, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 3 (filed
    June 15, 2007) (TracFone June 15 *Ex Parte* Letter).

[^477]: TracFone June 15, 2007 *Ex Parte* Letter at 3. TracFone also
    asserts that an exception is warranted because it provides service
    to low volume end users (i.e., end users that do make a small amount
    of calls, measured in minutes). *Id*. However, as explained below,
    we decline to provide a contribution exception for low-volume users.
    *See infra* para. 201.

[^478]: AT&T and Verizon support the TracFone discount approach for
    prepaid wireless providers. AT&T and Verizon Sept. 11, 2008 *Ex
    Parte* Letter, Attach. 1 at 3; *see also* Letter from David L.
    Sieradzki, Counsel to OnStar Corp., to Marlene Dortch, Secretary,
    FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 2 (dated Oct. 28,
    2008) (OnStar "strongly supports" the TracFone per-minute of use
    proposal for prepaid wireless services) (OnStar Oct. 28, 2008 *Ex
    Parte* Letter).

[^479]: TracFone Sept. 17, 2008 *Ex Parte* Letter, Attach. at 4--5.

[^480]: *See* TracFone Sept. 17, 2008 *Ex Parte* Letter at 5. We use
    these data because they are the most recent publicly available data.

[^481]: To the extent that the prepaid wireless subscriber is a Lifeline
    customer for the prepaid service, the prepaid provider should
    exclude prepaid minutes associated with the qualifying Lifeline
    customer. *See infra* para. 199.

[^482]: CTIA Oct. 2, 2008 *Ex Parte* Letter at 5.

[^483]: *Alenco v. FCC*, 201 F.3d at 621.

[^484]: *See, e.g.*, AT&T and Verizon Oct. 20, 2008 *Ex Parte* Letter at
    4 (proposing that numbers assigned to Lifeline customers be excluded
    from the monthly number count for contribution purposes).

[^485]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24982,
    para. 62.

[^486]: *See, e.g*., CTIA *2006 Contribution FNPRM* Comments at 5; CU et
    al. *High-Cost Reform NPRMs* Reply at 58; Ad Hoc Nov. 19, 2007 *Ex
    Parte* Letter at 4; AT&T and Verizon Sept. 11, 2008 *Ex Parte*
    Letter, Attach. 1 at 5.

[^487]: Letter from Jennifer D. Brandon, Executive Director, Community
    Voice Mail National, to Tom Navin, Wireline Competition Bureau, FCC,
    CC Docket No. 96-45 at 1 (filed May 30, 2006) (Community Voice Mail
    May 30, 2006 *Ex Parte* Letter) (CVM provides "free, personalized
    voicemail access to people in crisis and transition (homeless,
    victims of domestic violence, and other 'phoneless' people")).

[^488]: We decline to adopt a reimbursement method, in which
    contributors would pay the full amount of their contribution
    assessments and then seek refunds from USAC for any exempted
    numbers, as recommended by AT&T and Verizon. AT&T and Verizon Oct.
    20, 2008 *Ex Parte* Letter at 4. We find that adopting such a
    reimbursement requirements would create a significant administrative
    burden on contributors that would outweigh any potential benefits.
    Letter from Matthew A. Brill, Counsel for USA Mobility, Inc., to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket
    No. 06-122 at 2 (filed Oct. 24, 2008).

[^489]: We do not prejudge whether additional exceptions should apply if
    the Commission were to assess contributions based on numbers for
    business services. We note that certain businesses, such as
    non-profit health care providers, libraries, and colleges and
    universities, support such exemptions. We do not address those
    exemptions at this time.

[^490]: *See, e.g.*, CU et al*.* *Contribution First FNPRM* Comments at
    12; NASUCA *Contribution First FNPRM* Comments at 14; Keep USF Fair
    Mar. 27, 2006 *Ex Parte* Letter, Attach. at 1.

[^491]: *See supra* para. 171; *see also* Sprint *Contribution First
    FNPRM* Comments at 7.

[^492]: *But see* IDT Aug. 2, 2007 *Ex Parte* Letter at 6--7 (arguing
    that low-volume consumers who make no long distance calls pay about
    \$1.40 in universal service contribution assessments).

[^493]: *See supra* para. 170.

[^494]: Telematics is a service that is provided through a transceiver,
    which is usually built into a vehicle but can also be a handheld
    device, that provides public safety information to public safety
    answering points (PSAPs) using global positioning satellite data to
    provide location information regarding accidents, airbag
    deployments, and other emergencies in real time. *See, e.g*., Letter
    from David L Sieradzki, Counsel for OnStar, to Marlene H. Dortch,
    FCC, CC Docket No. 96-45, Attach. at 1 (filed Mar. 2, 2006);
    *Revision of the Commission's Rules To Ensure Compatibility with
    Enhanced 911 Emergency Systems*, CC Docket No. 94-102, Order, 18 FCC
    Rcd 21531, 21531--33, paras. 2, 8 (2003).

[^495]: One-way services include, but are not limited to, one-way
    paging, electronic facsimile (e-fax), and voicemail services (other
    than stand-alone voicemail services, as discussed above).

[^496]: *See, e.g.*, Letter from Matthew Brill, Counsel for USA
    Mobility, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No.
    06-122, CC Docket No. 96-45, at 2 (filed Oct. 24, 2008) (opposing
    the assessment of a numbers-based fee on paging carriers and their
    customers); Letter from Kenneth Hardman, representing the American
    Association of Paging Carriers, to Marlene H. Dortch, Secretary,
    FCC, WC Docket No. 06-122, CC Docket No. 96-45, at Attach. (filed
    Oct. 22, 2008).

[^497]: *See* Letter from Ari Q. Fitzgerald, Counsel, Mercedes-Benz USA,
    LLC, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 1
    (filed Apr. 12, 2006) (Mercedes-Benz Apr. 12, 2006 *Ex Parte*
    Letter); *see also* Letter from John E. Logan, ATX Group, Inc., to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 2 (filed
    Mar. 16, 2006) (ATX Mar. 16, 2006 *Ex Parte* Letter); Letter from
    David M. Don, Counsel for j2 Global Communications, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, at 1 (filed Nov. 18,
    2005) (j2 Global Nov. 18, 2005 *Ex Parte* Letter); Letter from
    William B. Wilhelm, Jr., Counsel for Bonfire Holdings, to Tom Navin,
    Chief, Wireline Competition Bureau, CC Docket No. 96-45 (filed Feb.
    13, 2006) (Bonfire Feb. 13, 2006 *Ex Parte* Letter); j2 Global
    *Contribution Second FNPRM* Comments at 2; Letter from Kenneth E.
    Hardman, Counsel for American Association of Paging Carriers, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 1
    (filed Oct. 6, 2005) (AAPC Oct. 6, 2005 *Ex Parte* Letter); Letter
    from Frederick M. Joyce, Counsel for USA Mobility, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 1--3 (filed
    Mar. 22, 2006) (USA Mobility Mar. 22, 2006 *Ex Parte* Letter).

[^498]: We similarly decline to adopt an exemption from the
    numbers-based contribution assessment method for services provided
    by alarm companies. *See* Letter from Donald J. Evans, Counsel for
    Corr Wireless Communications, LLC, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92, WC Docket No. 06-122, WT Docket No.
    05-194, at 2 (filed Oct. 23, 2008). These services are receiving the
    benefit of having access to the PSTN and should therefore contribute
    to universal service.

[^499]: Telematics providers argue against imposition of a \$1.00 per
    number per month contribution assessment on telematics numbers due
    to the service's critical role in advancing public safety, and
    because the \$1.00 assessment would be prohibitively expensive.
    *See, e.g.*, Letter from Gary Wallace, Vice President Corporate
    Relations, ATX Group, Inc., to Kevin Martin, Chairman, FCC, CC
    Docket No. 96-45, WC Docket No. 06-122 at 1--2 (filed Oct. 28,
    2008); OnStar Oct. 28, 2008 *Ex Parte* Letter at 3--4; Letter from
    Matthew Brill, Counsel for Toyota Motor Sales USA, Inc., to Marlene
    Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45 at
    1--2 (filed Oct. 24, 2008). We find, however, that treating these
    services differently than other residential services would not be
    equitable, given their use of the PSTN and the ability of telematics
    providers to recover the assessment from their end users. Given the
    public safety benefit to consumers, we find unpersuasive the
    telematics' providers assertions that consumers will discontinue use
    of the service based on an assessment of only \$1.00 per number.
    Furthermore, we disagree with commenters who argue that telematics
    service should be treated as a business service, and conclude that
    telematics service is a residential service that should be assessed
    under the \$1.00 per number per month residential contribution
    methodology. *See* OnStar Oct. 28, 2008 *Ex Parte* Letter at 2;
    Letter from Tamara Preiss, Legal and External Affairs, Verizon
    Wireless, to Marlene Dortch, Secretary, FCC, WC Docket No. 06-122,
    CC Docket No. 96-45 at 1 (filed Oct. 29, 2008).

[^500]: *See, e.g.*, j2 Global *Contribution Second FNPRM* Comments at 7
    (arguing that a connections-based universal service methodology
    would force many heavily used one-way communications services out of
    existence).

[^501]: *See, e.g.*, j2 Global *Contribution Second FNPRM* Comments at 8
    (describing a "free" service supported by advertising revenue).

[^502]: *See, e.g.*, AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter
    at 4; CTIA *2006 Contribution FNPRM* Comments at 5--6; Leap Wireless
    *2006 Contribution FNPRM* Comments at 2--3; T-Mobile Apr. 4, 2006
    *Ex Parte* Letter at 2.

[^503]: *E.g.*, AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 4; CTIA *2006 Contribution FNPRM* Comments at 5--6;
    Leap Wireless *2006 Contribution FNPRM* Comments at 2--3; T-Mobile
    Apr. 4, 2006 *Ex Parte* Letter at 2--3. *But see* AAPC Oct. 9, 2008
    *Ex Parte* Letter at 2.

[^504]: There are, as of December 2007, 249,235,715 mobile wireless
    subscribers, a more than 9% increase from the previous year. *See*
    [FCC, Local Telephone Competition: Status as of December 31,
    2007,]{.smallcaps} tbl. 14 at 18 (2008), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-285509A1.pdf.
    Moreover, where a wireless provider is eligible to receive universal
    service support, it receives the same level of support for each
    handset. *See* WTA/OPASTCO/ITTA Oct. 10, 2008 *Ex Parte* Letter at
    2.

[^505]: Qwest Sept. 24, 2008 *Ex Parte* Letter, Attach. at 7; Qwest May
    4, 2006 *Ex Parte* Letter, Attach. at 9; *see also* CTIA Oct. 2,
    2008 *Ex Parte* Letter at 1.

[^506]: *See* Letter from Deb MacLean, Communication Access Center for
    the Deaf and Hard of Hearing, et al. to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 1--2
    (filed Sept. 29, 2008) (CSDVRS Sept. 29, 2008 *Ex Parte* Letter).

[^507]: *See* *Telecommunications Relay Services and Speech-to-Speech
    Services for Individuals with Hearing and Speech Disabilities*, CG
    Docket No. 03-123, WC Docket No. 05-196, Report and Order and
    Further Notice of Proposed Rulemaking, 23 FCC Rcd 11591, 11646,
    para. 149 (2008) ("We . . . seek comment on whether, and to what
    extent, the costs of acquiring numbers, including porting fees,
    should be passed on to the Internet-based TRS users, and not paid
    for by the \[TRS\] Fund. . . . We also seek comment on whether there
    are other specific costs that result from the requirements adopted
    in the *Order* that, mirroring voice telephone consumers, should be
    passed on to consumers, including, for example, E911 charges.").

[^508]: To the extent that Internet-based TRS users utilize a proxy
    number or identifier other than an assigned ten-digit number
    during/pending the transition to ten-digit numbering for
    Internet-based TRS services, we make clear that those numbers or
    identifiers are NOT subject to universal service contribution at
    this time. This treatment is necessary to ensure the smooth
    transition to ten-digit numbering for these services, and to prevent
    duplicative charges for end users of these services.

[^509]: *See, e.g.*, *Second Wireless Safe Harbor Order*, 17 FCC Rcd at
    24969, para. 29. Filers are required to file revisions to FCC Form
    499-Q within 45 calendar days of the original filing date. *See*
    [FCC, Instructions to the Telecommunications Reporting
    Worksheet]{.smallcaps}, FCC Form 499-Q, at 10 (Feb. 2008),
    *available at* http://www.fcc.gov/Forms/Form499-Q/499q.pdf. Filers
    are required to file revisions to FCC Form 499-A by March 31 of the
    year after the original filing date. *See* [FCC, Instructions to the
    Telecommunications Reporting Worksheet]{.smallcaps}, FCC Form 499-A,
    at 11--12 (Feb. 2008), *available at*
    http://www.fcc.gov/Forms/Form499-A/499a-2008.pdf.

[^510]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24972,
    para. 35.

[^511]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24972,
    para. 36.

[^512]: We decline to adopt the suggestion by AT&T and Verizon to
    transition the Telecommunications Relay Services Fund, local number
    portability cost recovery, and numbering administration to a
    numbers/connections-based assessment methodology. *See* AT&T and
    Verizon Oct. 20, 2008 *Ex Parte* Letter at 6. Although these
    programs rely on the revenue information reported in the current FCC
    Form 499-A, they do not rely on many of the revenue distinctions,
    such as interstate and intrastate, that necessitate the change from
    a revenue-based assessment for the universal service fund.

[^513]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter, Attach.
    1 at 2-3; CTIA Oct. 2, 2008 *Ex Parte* Letter, Attach. at 5; USF by
    the Numbers Oct. 3, 2008 *Ex Parte* Letter.

[^514]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at
    24969--70, paras. 29--32.

[^515]: *Development of Nationwide Broadband Data to Evaluate Reasonable
    and Timely Deployment of Advanced Services to All Americans,
    Improvement of Wireless Broadband Subscribership Data, and
    Development of Data on Interconnected Voice over Internet Protocol
    (VoIP) Subscribership*, WC Docket No. 07-38, 23 FCC Rcd 9691, 9704,
    para. 24 (2008) (*Broadband Data Gathering Order*), Order on
    Reconsideration, 23 FCC Rcd 9800 (2008).

[^516]: *Broadband Data Gathering Order* at para. 24 n.91.

[^517]: In other words, the SLC type and rate must be established
    pursuant to the Commission's rules. 47 C.F.R. §§ 69.104(o)(1),
    69.152(k)(1). To the extent that the contributor is not required to
    charge a SLC (e.g., is not rate-regulated by the Commission), a
    voluntary business choice to include a "subscriber line charge" on a
    customer's bill may not be dispositive of the type of service,
    residential or business, being provided.

[^518]: 47 C.F.R. §§ 69.104(n)(1), 69.152(d)(1).

[^519]: *Comprehensive Review Report and Order*, 22 FCC Rcd at 16387,
    para. 27.

[^520]: Pursuant to section 1.80 of the Commission's rules, failure to
    file required forms or information carries a base forfeiture amount
    of \$3,000 per instance and is subject to adjustment criteria. *See*
    47 C.F.R. § 1.80.

[^521]: *Comprehensive Review Report and Order*, 22 FCC Rcd at 16372,
    para. 27; *see also* 47 C.F.R. §§ 54.706(e), 54.711(a).

[^522]: *See Comprehensive Review Report and Order*, 22 FCC Rcd at
    16372, para. 27; 47 C.F.R. § 54.706(e).

[^523]: *See Comprehensive Review Report and Order*, 22 FCC Rcd at
    16387, paras. 27--28. We note that contributors who also report NRUF
    data to the NANPA are currently required to maintain internal
    records of their numbering resources for audit purposes. *NRO I
    Order*, 15 FCC Rcd at 7601, para. 62.

[^524]: *See* AT&T and Verizon Oct. 20, 2008 *Ex Parte* Letter, Attach.
    at 3 (proposing a 12-month transition to the new mechanism taking
    effect).

[^525]: *See* CTIA *2006 Contribution FNPRM* Comments at 7; *see also*
    Verizon and AT&T Sept. 11, 2008 *Ex Parte* Letter, Attach. at 2
    (advocating a 12-month implementation period followed by a 6-month
    transition period). Some parties advocated for a transition period
    as short as possible. *See, e.g.*, Letter from Gregory J. Vogt,
    Counsel for CenturyTel, to Marlene H. Dortch, Secretary, FCC, WC
    Docket No. 05-337, Attach. at 2 (filed Sept. 19 2008) (CenturyTel
    Sept. 19, 2008 *Ex Parte* Letter); Sprint Nextel June 14, 2006 *Ex
    Parte* Letter. Others advocated for a longer transition period.
    *See, e.g.*, Qwest Mar. 21, 2006 *Ex Parte* Letter, Attach. at 3
    (advocating 18 months); XO Communications Oct. 3, 2008 *Ex Parte*
    Letter, Attach. at 11 (advocating at least 18 months).

[^526]: *See* AT&T and Verizon Oct. 20, 2008 *Ex Parte* Letter, Attach.
    at 3 (recommending a six-month transition period for filers and USAC
    to test and calibrate the new system prior to its taking effect).

[^527]: 47 U.S.C. § 151.

[^528]: The company that became AT&T was originally called the Bell
    Telephone Company. *See* AT&T, A Brief History: Origins,
    http://www.corp.att.com/history/history1.html (last visited Sept.
    11, 2008) (AT&T Brief History). For simplicity, we use the term
    "AT&T" to include all predecessor companies.

[^529]: Between 1894 and 1904, "over six thousand independent telephone
    companies went into business in the United States, and the number of
    telephones boomed from 285,000 to 3,317,000." *See* AT&T Brief
    History. By 1900, independent telephone companies controlled "38
    percent of the phones installed in the United States." [Gerald W.
    Brock, The Telecommunications Industry, The Dynamics of Market
    Structure]{.smallcaps} 148 (1981) ([The Telecommunications
    Industry]{.smallcaps}). And, by 1902, 451 out of 1002 cities with
    telephone service had two or more competing providers. *See*
    [Michael K. Kellogg et al. Federal Telecommunications
    Law]{.smallcaps} 11 (1992) ([Federal Telecommunications
    Law]{.smallcaps}).

[^530]: [The Telecommunications Industry]{.smallcaps} at 116.

[^531]: [Federal Telecommunications Law]{.smallcaps} at 11; *see also*
    Adam D. Thierer, *Unnatural Monopoly: Critical Moments In The
    Development Of The Bell System Monopoly*, [14 Cato J.]{.smallcaps} 2
    (1994), *available at*
    http://www.cato.org/pubs/journal/cjv14n2-6.html (*Unnatural
    Monopoly*). Although independent companies competed with AT&T for
    local service, AT&T had the only long-distance network operating at
    the time and possessed important long-distance technology patents.
    *See* [The Telecommunications Industry]{.smallcaps} at 148.
    According to Brock, there is some evidence that the independent
    companies had planned on starting a separate long-distance network
    until AT&T refused interconnection. [Gerald W. Brock, The Second
    Information Revolution]{.smallcaps} 30--32 (2003) ([Second
    Information Revolution]{.smallcaps}).

[^532]: [Federal Telecommunications Law]{.smallcaps} at 11--12; [The
    Telecommunications Industry]{.smallcaps} at 148; David F. Weiman &
    Richard C. Levin, *Preying for Monopoly? The Case of Southern Bell
    Telephone Company, 1894--1912*, 102 [J. Pol. Econ.]{.smallcaps} 103,
    103--26 (1994).

[^533]: [Federal Telecommunications Law]{.smallcaps} at 11. In 1912
    alone, AT&T purchased 136,000 telephone companies and sold 43,000.
    *See* [The Telecommunications Industry]{.smallcaps} at 156.

[^534]: Original Petition, *United States v. AT&T*, No. 6082 (D. Or.
    1913); *United States v. AT&T*, No. 6082, 1 [Decrees and Judgment in
    Civil Action Cases]{.smallcaps} 483 (D. Or. 1914); *see also* [Peter
    Temin, The Fall of the Bell System: A Study in Prices and
    Politics]{.smallcaps} 9--10 (1987); [Robert W. Garnet, The Telephone
    Enterprise: The Evolution of the Bell System's Horizontal Structure,
    1876--1909]{.smallcaps} 152--53 (1985).

[^535]: The Kingsbury Commitment was a "unilateral letter rather than an
    actual consent decree." *See* [The Telecommunications
    Industry]{.smallcaps} at 155. The Kingsbury Commitment was
    republished in AT&T's 1913 Annual Report at 24--26, *available at*
    http://www.porticus.org/bell/pdf/1913ATTar_Complete.pdf. AT&T also
    agreed to sell off its Western Union stock, a large independent
    telephone company that AT&T had recently acquired. *See id*. at 24.
    *See* [Federal Telecommunications Law]{.smallcaps} at 11--12; *see
    also Unnatural Monopoly*.

[^536]: *See*, *e.g.*, *Unnatural Monopoly* (noting that a Senate
    Commerce Committee hearing in 1921 stating that "telephoning is a
    natural monopoly" and a House of Representative committee report
    stated that "\[t\]here is nothing to be gained by local competition
    in the telephone business.") (quoting G. H. Loeb, *The
    Communications Act Policy Toward Competition: A Failure to
    Communicate*, [1 Duke Law J.]{.smallcaps} 14 (1978)); *see also id.*
    (explaining that many state regulatory agencies began refusing
    requests by telephone companies to construct new lines in areas
    already served by another carrier and continued to encourage
    monopoly swapping and consolidation in the name of "efficient
    service") (citing Warren G. Lavey, *The Public Policies That Changed
    the Telephone Industry Into Regulated Monopolies: Lessons From
    Around 1915*, 39 [Fed. Comm. L.J.]{.smallcaps} 171, 184--85 (1987));
    [Federal Telecommunications Law]{.smallcaps} at 17.

[^537]: A natural monopoly arises "when a single firm can efficiently
    serve the entire market because average costs are lower with one
    firm than with two firms." [R. Preston McAfee, Introduction to
    Economic Analysis]{.smallcaps} 6--241 (2006), *available at*
    http://www.mcafee.cc/Introecon/IEA.pdf; *see also* [Daniel F.
    Spulber, Regulation and Markets]{.smallcaps} 3--4 (1989) ("Natural
    monopoly generally refers to a property of productive technology,
    often in conjunction with market demand, such that a single firm is
    able to serve the market at less cost than two or more firms.
    Natural monopoly is due to economies of scale or economies of
    multiple-output production.").

[^538]: For discussions of rate of return regulation, see*, e.g.*,
    [James C. Bonbright et al., Principles of Public Utility
    Rates]{.smallcaps} 197--376 (1988); [Charles F. Phillips, Jr., The
    Economics of Regulation: Theory and Practice in the Transportation
    and Public Utility Industries]{.smallcaps} 260--302 (1969)
    ([Phillips]{.smallcaps}, [The Economics of Regulation]{.smallcaps});
    1 [Alfred E. Kahn, The Economics of Regulation: Principles and
    Institutions]{.smallcaps} 20--58 (1970) ([The Economics of
    Regulation)]{.smallcaps}.

[^539]: *See, e.g*., [Jonathan E. Nuechterlein & Philip J. Weiser,
    Digital Crossroads: American Telecommunications Policy in the
    Internet Age]{.smallcaps} 10--15 (2007) ([Digital
    Crossroads]{.smallcaps}).

[^540]: *See Economic Implications and Interrelationships Arising from
    Policies and Practices Relating to Customer Information,
    Jurisdictional Separations and Rate Structures*, Docket No. 20003,
    First Report, 61 FCC 2d 766, 796--97, paras. 81--82 (1976).

[^541]: Under the settlements process, the local exchange companies were
    allowed to recover the portion of their costs allocated to the
    interstate jurisdiction from the interstate toll revenues. The
    process for affiliated companies was a process of intracorporate
    accounting known as "division of revenues," while the process for
    unaffiliated companies represented real payments from AT&T to the
    independent companies. *See* [The Second Information
    Revolution]{.smallcaps} at 188. According to Brock, the revenue
    sharing settlements process was a major source of support for small
    rural companies, which often could recover a large share of their
    costs from the interstate toll revenue pool (in some cases as much
    as 85 % of their non-traffic sensitive costs). *See id.*

[^542]: *See* [Digital Crossroads]{.smallcaps} at 60--64.

[^543]: AT&T argued that MCI would cherry pick the most profitable
    customers (those paying above-cost rates) and force AT&T to increase
    local rates thereby undermining the goal of universal service. AT&T
    opposed the entry of MCI before the Commission and the courts. *See*
    [Federal Telecommunications Law]{.smallcaps} at 602--14; *Bell
    System Tariff Offerings of Local Distribution Facilities for Use by
    Other Common Carriers*, Docket No. 19896, Decision, 46 FCC 2d 413
    (1974), *aff'd Bell Tel. Co. of Pa. v. FCC*, 503 F.2d 1250 (3d Cir.
    1974); *see also* [Digital Crossroads]{.smallcaps} at 60--64 (noting
    that AT&T fought "tooth and nail" to deprive MCI of effective access
    and even unplugged certain MCI lines from AT&T's network).

[^544]: Equal access requires that all long-distance carriers be
    accessible by dialing a 1 and not a string of long-distance codes
    before dialing the called party's telephone number. *See, e.g*.,
    [Harry Newton, Newton's Telecom Dictionary]{.smallcaps} 326 (16th
    ed. 2000).

[^545]: During much of the 1970s, AT&T and MCI debated before the
    Commission and courts about the charges that MCI should pay the BOCs
    for originating and terminating interstate calls placed by or to end
    users on the BOCs' local networks. In December 1978, under the
    Commission's supervision, AT&T, MCI, and other IXCs entered into a
    comprehensive interim agreement, known as Exchange Network
    Facilities for Interstate Access (ENFIA), which set the rates that
    AT&T's affiliated BOCs would charge IXCs for originating and
    terminating access to local exchange networks. *See* *Exchange
    Network Facilities for Interstate Access (ENFIA)*, CC Docket No.
    78-371, Memorandum Opinion and Order, 71 FCC 2d 440 (1979)
    (subsequent history omitted).

[^546]: *See United States v. AT&T*, 524 F. Supp. 1336, 1346 (D.D.C.
    1981).

[^547]: *See United States v. AT&T*, 552 F. Supp. 131 (D.D.C. 1982),
    *aff'd* *sub nom. Maryland v.* *United States*, 460 U.S. 1001
    (1983). The 1982 consent decree, as entered by the court, was called
    the Modification of Final Judgment because it modified a 1956 Final
    Judgment against AT&T stemming from a 1949 antitrust lawsuit. *See*
    [The Telecommunications Industry]{.smallcaps} at 116--20.

[^548]: The Act defines "dialing parity" to mean that a "person that is
    not an affiliate of a local exchange carrier is able to provide
    telecommunications services in such a manner that customers have the
    ability to route automatically, without the use of any access code,
    their telecommunications to telecommunications services provider of
    the customer's designation from among 2 or more telecommunications
    services providers (including such local exchange carrier)." 47
    U.S.C. § 153(15).

[^549]: *See United States v. AT&T*, 552 F. Supp. 131 (D.D.C. 1982).

[^550]: *MTS and WATS Market Structure*, CC Docket No. 78-72, Phase I,
    Third Report and Order, 93 FCC 2d 241 (1983) (*1983 Access Charge
    Order*), *modified on recon.*, 97 FCC 2d 682 (1983), *modified on
    further recon.*, 97 FCC 2d 834 (1983), *aff'd in part and remanded
    in part*, *Nat'l Ass'n of Regulatory Util. Commissioners v. FCC*,
    737 F.2d 1095 (D.C. Cir. 1984).

[^551]: *See MTS and WATS Market Structure*, CC Docket No. 78-72, Notice
    of Inquiry and Proposed Rulemaking, 67 FCC 2d 757 (1978);
    Supplemental Notice of Inquiry and Proposed Rulemaking, 73 FCC 2d
    222 (1979); Second Supplemental Notice of Inquiry and Proposed
    Rulemaking, 77 FCC 2d 224 (1980); Report and Third Supplemental
    Notice of Inquiry and Proposed Rulemaking, 81 FCC 2d 177 (1980); and
    Fourth Supplemental Notice of Inquiry and Proposed Rulemaking, 90
    FCC 2d 135 (1982).

[^552]: *See* *MTS and WATS Market Structure*, CC Docket No. 78-72,
    Memorandum Opinion and Order, 97 FCC 2d 682, 683, para. 2 (1983)
    (*First Reconsideration of 1983 Access Charge Order*).

[^553]: *See First Reconsideration of 1983 Access Charge Order*, 97 FCC
    2d 682.

[^554]: *See Access Charge Reform Order*, 12 FCC Rcd at 15991--92, para.
    22.

[^555]: *See*, *e.g.*, *First Reconsideration of 1983 Access Charge
    Order*, 97 FCC 2d at 683, para. 3 (identifying the four primary
    objectives of: (1) elimination of unreasonable discrimination and
    undue preferences among rates for interstate services; (2) efficient
    use of the local network; (3) prevention of uneconomic bypass; and
    (4) preservation of universal service).

[^556]: *See* *First Reconsideration of 1983 Access Charge Order*, 97
    FCC 2d*.* at 686, para. 7.

[^557]: *See* *First Reconsideration of 1983 Access Charge Order*, 97
    FCC 2d*.* at 688--89, para. 10; *see also Access Charge Reform
    Order*, 12 FCC Rcd at 15992, para. 24 ("The Commission has
    recognized in prior rulemaking proceedings that, to the extent
    possible, costs of interstate access should be recovered in the same
    way that they are incurred, consistent with principles of
    cost-causation.").

[^558]: *Access Charge Reform Orde*r, 12 FCC Rcd at 15992, para. 23.

[^559]: *1983 Access Charge Order*, 93 FCC 2d at 253, para. 35; *see
    also id.* at 243, para. 4 (finding that a "transitional plan is
    necessary" in part because "\[i\]mmediate recovery of high fixed
    costs through flat end user charges might cause a significant number
    of local exchange service subscribers to cancel local exchange
    service despite the existence of a Universal Service Fund" and
    "\[s\]uch a result would not be consistent with the goals of the
    Communications Act."). As a result, the Commission initially limited
    the flat rate charge imposed on end users, also known as the
    subscriber line charge or SLC, to \$1.00 (subsequent orders raised
    the cap on the subscriber line charge for residential users to
    \$6.50).

[^560]: This per-minute charge was called the carrier common line
    charge. *See Access Charge Reform Orde*r, 12 FCC Rcd at 15992, para.
    24. Additional charges were imposed on IXCs to recover the
    interstate portion of the costs of other parts of a local exchange
    carrier's network, such as local switches and transport. *See*
    *First Reconsideration of 1983 Access Charge Order*, 97 FCC 2d at
    735--40, paras. 129--34, 137--43.

[^561]: *See* 47 C.F.R. §§ 69.301--.502; *see also Policy and Rules
    Concerning Rates for Dominant Carriers*, CC Docket No. 87-313,
    Second Report and Order, 5 FCC Rcd 6786, 6787, para. 1 (1990) (*LEC
    Price Cap Order*). The rate-of-return regulations are set forth in
    Part 69 of our rules. *See* *generally* 47 C.F.R. §§ 69.1--701.

[^562]: Price cap regulation was mandatory for the BOCs and GTE and
    optional for other incumbent local exchange carriers. *See* *LEC
    Price Cap Order*, 5 FCC Rcd at 6818--20, paras. 257--79; *see also*
    *Access Charge Reform; Price Cap Performance Review for Local
    Exchanges Carriers; Interexchange Carrier Purchases of Switch Access
    Services Offered by Competitive Local Exchange Carriers; Petition of
    U.S. West Commc'ns, Inc. for Forbearance from Regulation as a
    Dominant Carrier in the Phoenix, Arizona MSA*, CC Docket Nos.
    96-262, 94-1, 98-157, Fifth Report and Order and Further Notice of
    Proposed Rulemaking, 14 FCC Rcd 14221, 14224 n.1 (1999) (*Pricing
    Flexibility Order*).

[^563]: *LEC Price Cap Order*, 5 FCC Rcd at 6789--91, paras. 21--37;
    *Special Access Rates for Price Cap Carriers*, WC Docket No. 05-25,
    Order and Notice of Proposed Rulemaking, 20 FCC Rcd 1994, 1998--99,
    para. 11 (2005); *Section 272(b)(1)'s "Operate Independently"
    Requirement for Section 272 Affiliates*, WC Docket No. 03-228, CC
    Docket Nos. 96-149, 98-141, 96-149, 01-337, Report and Order,
    Memorandum Opinion and Order, 19 FCC Rcd 5102, 5115, para. 22
    (2004); *Access Charge Reform; Price Cap Performance Review for
    LECs; Low-Volume Long Distance Users; Federal-State Joint Board on
    Universal Service*, CC Docket Nos. 96-262, 94-1, 99-249, 96-45,
    Order on Remand, 18 FCC Rcd 14976, 14979, para. 4 (2003); *Cost
    Review Proceeding for Residential and Single-Line Business
    Subscriber Line Charge (SLC) Caps; Price Cap Performance Review for
    Local Exchange Carriers*, CC Docket Nos. 96-262, 94-1, Order, 17 FCC
    Rcd 10868, 10873,  para. 9 (2002). *See also* *Windstream Petition
    for Conversion to Price Cap Regulation and for Limited Waiver
    Relief*, WC Docket No. 07-171, Order, 23 FCC Rcd 5294 (2008);
    *Petition of Puerto Rico Telephone Company, Inc, for Election of
    Price Cap Regulation and Limited Waiver of Pricing and Universal
    Service Rules; Consolidated Communications Petition for Conversion
    to Price Cap Regulation and for Limited Waiver Relief; Frontier
    Petition for Limited Waiver Relief upon Conversion of Global Valley
    Networks, Inc., to Price Cap Regulation*, WC Docket Nos. 07-291,
    07-292, 08-18, Order, 23 FCC Rcd 7353 (2008).

[^564]: *See generally* 47 C.F.R. §§ 61.1--.193, 69.1--.701.

[^565]: *See* Letter from Jerry Ellig, Senior Research Fellow, Mercatus
    Center, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92,
    96-45, WC Docket Nos. 08-183, 07-135, 05-337, 99-68 at 2 (filed
    Sept. 22, 2008) (Mercatus Center Sept. 22, 2008 *Ex Parte* Letter)
    (citing [Robert W. Crandall, After The Breakup: U.S.
    Telecommunications In A More Competitive Era]{.smallcaps} 141 (1991)
    and [Robert W. Crandall & Leonard Waverman, Who Pays For Universal
    Service?]{.smallcaps} 120 (2000)).

[^566]: Among the reasons that switched access rates remained high were
    that they were based on fully distributed costs and included a large
    allocation of common and overhead network costs. *See supra* note
    422.

[^567]: *See*, *e.g.*, *Expanded Interconnection with Local Telephone
    Company Facilities*, CC Docket No. 91-141, Memorandum Opinion and
    Order, 9 FCC Rcd 5154, 5158, para. 8 (1994) (recognizing that local
    competition should lead to more efficient operations, the deployment
    of "new technologies facilitating innovative service offerings,
    increase the choices available to access customers, and reduce the
    prices of services subject to competition").

[^568]: *See* *Implementation of the Local Competition Provisions in the
    Telecommunications Act of 1996 and Interconnection between Local
    Exchange Carriers and Commercial Mobile Radio Service Providers*, CC
    Docket Nos. 96-98, 95-185, First Report and Order, 11 FCC Rcd 15499,
    15505, para. 3 (1996) (subsequent history omitted) (*Local
    Competition First Report and Order*).

[^569]: Specifically, Congress directed that universal service support
    "should be explicit and sufficient to achieve the purposes" of
    section 254. 47 U.S.C. § 254(e); *see also* S. [Rep.
    No.]{.smallcaps} 104-230, at 131 (1996) (Conf. Rep) (stating that,
    "\[t\]o the extent possible, . . . any support mechanisms continued
    or created under new section 254 should be explicit, rather than
    implicit as many support mechanisms are today").

[^570]: *Access Charge Reform Order*, 12 FCC Rcd at 15987, para. 9.

[^571]: *See* 47 U.S.C. §§ 251--52; *Local Competition First Report and
    Order*, 11 FCC Rcd at 15505, para. 3.

[^572]: *See* 47 U.S.C. § 251(g); *WorldCom, Inc. v. FCC*, 288 F.3d 429,
    432 (D.C. Cir. 2002) (*WorldCom*) (subsequent history omitted)
    (holding that section 251(g) appears to provide for the continued
    enforcement "of certain pre-Act regulatory 'interconnection
    restrictions and obligations'"); *see also Competitive Telecomms.
    Ass'n v. FCC*, 117 F.3d 1068, 1072 (8th Cir. 1997) (finding that
    section 251(g) preserves certain rate regimes already in place and
    "leaves the door open for the promulgation of new rates at some
    future date").

[^573]: 47 U.S.C. § 251(g).

[^574]: *See* 47 U.S.C. §§ 251(b)--(c). Certain rural carriers were
    exempt from section 251(c) until such time as a requesting carrier
    met the statutory test for removing the so-called "rural exemption."
    *See* 47 U.S.C. § 251(f)(1).

[^575]: 47 U.S.C. § 251(b)(5).

[^576]: 47 U.S.C. § 252.

[^577]: 47 U.S.C. § 252(d)(1).

[^578]: See 47 U.S.C. § 252(d)(2).

[^579]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    15812--929, paras. 618--862 (implementing the pricing principles
    contained in sections 251(c)(2) and (c)(3) and section 252(d)(1) of
    the 1996 Act); *see also* 47 U.S.C. §§ 251(c)(2)--(3), 252(d)(1).
    Among other things, the 1996 Act required incumbent LECs to make
    portions of their networks (the physical facilities and features,
    functions, and capabilities associated with those facilities)
    available to requesting competitive carriers on an unbundled basis.
    *See Local Competition First Report and Order*, 11 FCC Rcd at 15624,
    15631, paras. 241, 258.

[^580]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    15844--56, paras. 672--703.

[^581]: *See* *Local Competition First Report and Order*, 11 FCC Rcd at
    15851--54, paras. 694--98; 47 C.F.R. §§ 51.503, 51.505. The term
    "common costs" refers to "costs that are incurred in connection with
    the production of multiple products or services, and remains
    unchanged as the relative proportion of those products or services
    varies." *Local Competition First Report and Order*, 11 FCC Rcd at
    15845, para. 676. In its rules, the Commission defines
    forward-looking common costs as "economic costs efficiently incurred
    in providing a group of elements or services . . . that cannot be
    attributed directly to individual elements or services." 47 C.F.R. §
    51.505(c)(1). The term "overhead costs" refers to common costs
    incurred by the firm's operations as a whole, such as the salaries
    of executives. *Local Competition First Report and Order*, 11 FCC
    Rcd at 15851, para. 694.

[^582]: The Commission recognized that, "\[b\]ecause the cost of
    capacity is determined by the volume of traffic that the facilities
    are able to handle during peak load periods, we believe, as a matter
    of economic theory, that if usage-sensitive rates are used, then
    somewhat higher rates should apply to peak period traffic, with
    lower rates for non-peak usage." *Local Competition First Report and
    Order*, 11 FCC Rcd at 15878, para. 755. The Commission recognized
    that higher costs are incurred to carry additional traffic at peak
    volumes, because additional capacity is required to carry that
    traffic. *Id.* at 15878, para. 755. In contrast, "off-peak traffic
    imposes relatively little additional cost because it does not
    require any incremental capacity to be added to base plant." *Id.*
    at 15878, para. 755. The Commission found that there would be
    administrative difficulties with establishing peak-load prices,
    however, and did not require or forbid states from adopting that
    approach. *Id.* at 15878--79, paras. 756--57.

[^583]: *See generally Local Competition First Report and Order*, 11 FCC
    Rcd at 16008--58, paras. 1027--118 (implementing the reciprocal
    compensation obligations contained in section 251(b)(5) of the 1996
    Act). The reciprocal compensation rules currently require the
    calling party's LEC to compensate the called party's LEC for the
    additional costs associated with transporting a call subject to
    section 251(b)(5) from the carriers' interconnection point to the
    called party's end office, and for the additional costs of
    terminating the call to the called party. Section 51.701(c) of the
    Commission's rules defines transport as "the transmission and any
    necessary tandem switching of telecommunications traffic subject to
    section 251(b)(5) of the Act from the interconnection point between
    the two carriers to the terminating carrier's end office switch that
    directly serves the called party, or equivalent facility provided by
    a carrier other than an incumbent LEC." 47 C.F.R. § 51.701(c).
    Section 51.701(d) of the Commission's rules defines termination as
    "the switching of telecommunications traffic at the terminating
    carrier's end office switch, or equivalent facility, and delivery of
    such traffic to the called party's premises." 47 C.F.R. § 51.701(d).
    In the *Local Competition First Report and Order*, the Commission
    also concluded that "the new transport and termination rules should
    be applied to LECs and CMRS providers." 11 FCC Rcd at 16016--17,
    para. 1043.

[^584]: *Local Competition First Report and Order*, 11 FCC Rcd at 16028,
    para. 1063. This determination led to per-minute pricing for
    transport and termination, except in the case of dedicated
    facilities, which may be flat-rated. *Id.* at 16028, para. 1063.
    Specifically, the Commission required that all interconnecting
    parties be offered the option of purchasing dedicated facilities on
    a flat-rated basis. *Id.* at 16028, para. 1063.

[^585]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16024--25, para. 1057. Although the Commission concluded that
    "non-traffic sensitive costs should not be considered 'additional
    costs,'" the only non-traffic sensitive costs specifically
    identified and required to be removed were the costs of local loops
    and line ports. *Id.* at 16025, para. 1057.

[^586]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16023--25, paras. 1054--58. As with its pricing rules for UNEs, the
    Commission determined that termination rates established pursuant to
    the TELRIC methodology should include a reasonable allocation of
    forward-looking common costs. *Id.* at 16025, para. 1058. Similarly,
    the Commission again noted that the costs of transporting and
    terminating traffic during peak and off-peak hours may not be the
    same. *Id.* at 16028--29, para. 1064. In light of administrability
    concerns, the Commission once again neither required nor forbid
    states from adopting rates that reflected peak and off-peak costs,
    but expressed hope that some states or negotiating parties would
    consider peak-load pricing. *Id.* at 16028--29, para. 1064.

[^587]: A number of parties appealed the Commission's *Local Competition
    First Report and Order*, including the rules it adopted governing
    the setting of rates for unbundled network elements and reciprocal
    compensation. In *AT&T v. Iowa Utilities Board*, the Supreme Court
    upheld the Commission's jurisdiction to "design a pricing
    methodology" to govern state rate setting under section 252 of the
    Act. *AT&T Corp. v. Iowa Utils. Bd*., 525 U.S. 366, 397 (1999)
    (*AT&T v. Iowa Utils. Bd*.). Subsequently, in *Verizon Commc'ns,
    Inc. v. FCC*, the Supreme Court affirmed the Commission's choice of
    TELRIC as a permissible methodology for states to use in ratemaking
    proceedings. *Verizon Commc'ns, Inc. v. FCC*, 535 U.S. 467, 497--529
    (2002) (*Verizon v. FCC*). The court held that the Commission's
    decision to adopt a forward-looking cost methodology was a
    reasonable interpretation of the statute and that the Commission did
    not err in rejecting alternative methodologies advocated by the
    incumbent LECs. *Verizon v. FCC*, 535 U.S. at 507--08. The Court
    also rejected arguments that various aspects of the TELRIC
    methodology were unlawful. *Verizon v. FCC*, 535 U.S. at 523.

[^588]: *See Access Charge Reform Order*, 12 FCC Rcd at 16004--07,
    paras. 54--66 (summarizing the rate structure changes).

[^589]: *Access Charge Reform Order*, 12 FCC Rcd at 15986, para. 6.

[^590]: *Access Charge Reform Order*, 12 FCC Rcd at 15987, para. 9.

[^591]: *Access Charge Reform Order*, 12 FCC Rcd at 15987, para. 9; *see
    also id.* at 16002--03, paras. 45--47.

[^592]: Explaining its reliance on a "market-based" approach to access
    reform, it stated its belief that emerging competition in the local
    exchange markets would provide a more accurate means of identifying
    implicit subsidies and moving access rates to economically
    sustainable levels. *Access Charge Reform Order*, 12 FCC Rcd at
    16001--02, para. 44.

[^593]: *Access Charge Reform Order*, 12 FCC Rcd at 16003, para. 48. The
    Commission also applied its market-based approach to the terminating
    access rates charged by competitive LECs and declined to adopt any
    regulations governing competitive LEC access charges. *Id.* at
    16141, para. 363. It reasoned that "the possibility of competitive
    responses by IXCs will have a constraining effect on non-incumbent
    LEC pricing." *Id.* at 16141, para. 362. This reliance on a
    market-based approach proved misplaced. In subsequent years,
    competitive LECs, instead of reducing access charges, frequently
    raised them above the regulated rates of incumbent LECs. As a
    result, the Commission was forced to regulate competitive LEC access
    charges. *See* 47 C.F.R. § 61.26; *Access Charge Reform, Reform of
    Access Charges Imposed by Competitive Local Exchange Carriers*, CC
    Docket No. 96-262, Seventh Report and Order, 16 FCC Rcd 9923, 9924,
    paras. 1--3 (2001) (*CLEC Access Charge Order*) (establishing
    benchmark rates for competitive LEC access charges), *recon*.,
    *Access Charge Reform, Reform of Access Charges Imposed by
    Competitive Local Exchange Carriers, Petition of Z-Tel Commc'ns Inc.
    For Temporary Waiver of Commission Rule 61.26(d) to Facilitate
    Deployment of Competitive Service in Certain Metropolitan
    Statistical Areas*, CC Docket No. 96-262, CCB/CPD File No. 01-19,
    Eighth Report and Order and Fifth Order on Reconsideration, 19 FCC
    Rcd 9108 (2004) (*CLEC Access Charge Recon. Order*).

[^594]: *See*, *e.g.*, *Access Charge Reform Order*, 12 FCC Rcd at
    16010--11, para 73. To reduce per-minute carrier common line (CCL)
    charges, the Commission created the presubscribed interexchange
    carrier charge (PICC), a flat-rated, monthly charge imposed on IXCs
    on a per-line basis. *Id.* at 15998--16000, paras. 37--40. The
    Commission also shifted the cost of line ports from per-minute local
    switching charges to the common line category and established a
    mechanism to phase out the per-minute Transport Interconnection
    Charge (TIC). *Id.* at 16035--40, 16073--86, paras. 125--34,
    210--43.

[^595]: *Access Charge Reform Order*, 12 FCC Rcd at 15987, para. 9.

[^596]: *See CALLS* *Order*, 15 FCC Rcd 12962.

[^597]: *See supra* note 455 (discussing the PICC).

[^598]: *See generally CALLS Order*, 15 FCC Rcd at 13025--28, paras.
    151--59 (reducing interstate switched access rates); *id.* at
    12991--13007, paras. 76--112 (raising SLC caps and eliminating
    PICCs); *id.* at 13007--14, paras. 113--28 (deaveraging SLCs).

[^599]: *See* *CALLS Order*, 15 FCC Rcd at 13046--49, paras. 201--05
    (establishing a "\$650 million interstate access universal service
    support mechanism").

[^600]: *Multi-Association Group (MAG) Plan for Regulation of Interstate
    Services of Non-Price Cap Incumbent Local Exchange Carriers and
    Interexchange Carriers*, CC Docket No. 00-256, Second Report and
    Order and Further Notice of Proposed Rulemaking, *Federal-State
    Joint Board on Universal Service*, CC Docket No. 96-45, Fifteenth
    Report and Order, *Access Charge Reform for Incumbent Local Exchange
    Carriers Subject to Rate-of-Return Regulation*, CC Docket No. 98-77,
    Report and Order, *Prescribing the Authorized Rate of Return From
    Interstate Services of Local Exchange Carriers*, CC Docket No.
    98-166, Report and Order, 16 FCC Rcd 19613 (2001) (*MAG Order*),
    *recon. in part,* *Multi-Association Group (MAG) Plan for Regulation
    of Non-Price Cap Incumbent Local Exchange Carriers and Interexchange
    Carriers*, CC Docket No. 00-256, First Order on Reconsideration,
    *Federal-State Joint Board on Universal Service*, CC Docket 96-45,
    Twenty-Fourth Order on Reconsideration, 17 FCC Rcd 5635 (2002),
    *amended on recon., Multi-Association Group (MAG) Plan for
    Regulation of Non-Price Cap Incumbent Local Exchange Carriers and
    Interexchange Carriers*, CC Docket No. 00-256, *Federal-State Joint
    Board on Universal Service*, CC Docket 96-45, Third Order on
    Reconsideration, 18 FCC Rcd 10284 (2003); *see also*
    *Multi-Association Group (MAG) Plan for Regulation of Non-Price Cap
    Incumbent Local Exchange Carriers and Interexchange Carriers;*
    *Federal-State Joint Board on Universal Service*, CC Docket Nos.
    00-256, 96-45, Report and Order and Second Further Notice of
    Proposed Rulemaking, 19 FCC Rcd 4122 (2004).

[^601]: *MAG Order*, 16 FCC Rcd at 19617, para. 3.

[^602]: *MAG Order*, 16 FCC Rcd at 19621, para. 15.

[^603]: *MAG Order*, 16 FCC Rcd at 19617, para. 3. A new universal
    service support mechanism, Interstate Common Line Support (ICLS),
    was implemented to replace the CCL charge beginning July 1, 2002.
    *Id.* at 19621, para. 15. This mechanism recovers any shortfall
    between the allowed common line revenue requirement of
    rate-of-return carriers and their SLC and other end-user revenues,
    thereby ensuring that changes in the rate structure did not affect
    the overall recovery of interstate access costs by rate-of-return
    carriers serving high-cost areas. *Id.* at 19642, 19667--73, paras.
    61, 128--41. To reform the local switching and transport rate
    structure of rate-of-return carriers, the Commission shifted the
    non-traffic sensitive costs of local switch line ports to the common
    line category, and reallocated the remaining costs contained in the
    TIC to other access rate elements, thus reducing per-minute switched
    access charges. *Id.* at 19649--61, paras. 76--111.

[^604]: *See*, *e.g.*, *BA-WV's Intrastate Access Charges*, Case No.
    00-0318-T-GI, Commission Order, 2001 WL 935643 (West Virginia PSC
    June 1, 2001) (ordering that "the traffic-sensitive intrastate
    access charges of Verizon-WV shall be modified to mirror the
    interstate rate structure and rate elements"); *Tariff Filing of
    BellSouth Telecommunications, Inc to Mirror Interstate Rates*, Case
    No. 98-065, Order (Kentucky PSC Mar. 31, 1999) (requiring BellSouth
    "to eliminate the state-specific Non-Traffic Sensitive Revenue
    Requirement . . . , thus moving its aggregate intrastate switched
    access rate to the FCC's 'CALLS' interstate rate"); *Establishment
    of Carrier-to-Carrier Rules*, Case No. 06-1344-TP-ORD, Order, 2007
    WL 3023991 (Ohio PUC Oct. 17, 2007) ("\[T\]his Commission requires
    ILECs to mirror their interstate switched access rate on the
    intrastate side . . . .").

[^605]: *See*, *e.g*., Letter from David C. Bartlett, Vice President of
    Federal Government Affairs, Embarq, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92, Exh. C (filed Aug. 1, 2008) (noting
    intrastate terminating switched access rates five to ten times
    higher than interstate rates in Missouri, Washington, Virginia, and
    several other States).

[^606]: *Developing a Unified Intercarrier Compensation Regime*, CC
    Docket No. 01-92, Notice of Proposed Rulemaking, 16 FCC Rcd 9610
    (2001) (*Intercarrier Compensation NPRM*).

[^607]: The phrase "regulatory arbitrage" refers to profit-seeking
    behavior that can arise when a regulated firm is required to set
    difference prices for products or services with a similar cost
    structure. *See, e.g.*, [Patrick DeGraba, Bill and Keep at the
    Central Office as the Efficient Interconnection Regime]{.smallcaps}
    1, para. 2 n.3 (Federal Communications Commission, OPP Working Paper
    No. 33, 2000), *available at*
    http://www.fcc.gov/Bureaus/OPP/working_papers/oppwp33.pdf.

[^608]: *See* *Intercarrier Compensation for ISP-Bound Traffic*, CC
    Docket Nos. 96-98, 99-68, Order on Remand and Report and Order, 16
    FCC Rcd 9151, 9183, para. 70 (2001) (subsequent history omitted)
    (*ISP Remand Order*).

[^609]: *See Intercarrier Compensation for ISP-Bound Traffic*, CC Docket
    Nos. 96-98, 99-68, Declaratory Ruling and Notice of Proposed
    Rulemaking, 14 FCC Rcd 3689, 3703--06, paras. 21--27 (1999)
    (*Declaratory Ruling*), *vacated and remanded*, *Bell Atlantic Tel.
    Cos. v. FCC*, 206 F.3d 1 (D.C. Cir. 2000) (*Bell Atlantic*).

[^610]: *Bell Atlantic*, 206 F.3d at 1.

[^611]: *See Bell Atlantic*, 206 F.3d at 5.

[^612]: *Bell Atlantic*, 206 F.3d at 6.

[^613]: *See ISP Remand Order*, 16 FCC Rcd at 9171--72, para. 44.

[^614]: *See ISP Remand Order*, 16 FCC Rcd at 9175, para. 52. Thus, the
    Commission affirmed its prior finding in the *Declaratory Ruling*
    that ISP-bound traffic is jurisdictionally interstate. *See id*;
    *see also Declaratory Ruling*, 14 FCC Rcd at 3701--03, paras.
    18--20.

[^615]: *ISP Remand Order*, 16 FCC Rcd at 9184--85, paras. 74--75. The
    Commission discussed at length the market distortions and regulatory
    arbitrage opportunities created by the application of per-minute
    reciprocal compensation rates to ISP-bound traffic. In particular,
    the Commission found that requiring compensation for this type of
    traffic at existing reciprocal compensation rates undermined the
    operation of competitive markets because competitive LECs were able
    to recover a disproportionate share of their costs from other
    carriers, thereby distorting the price signals sent to their ISP
    customers. *See id*. at 9181--86, paras. 67--76.

[^616]: *See ISP Remand Order*, 16 FCC Rcd at 9155--57, paras. 7--8. The
    interim regime adopted by the Commission consisted of: (1) a
    gradually declining cap on intercarrier compensation for ISP-bound
    traffic, beginning at \$.0015 per minute-of-use and declining to
    \$.0007 per minute-of-use; (2) a growth cap on total ISP-bound
    minutes for which a LEC may receive this compensation; (3) a "new
    markets rule" requiring bill-and-keep for the exchange of this
    traffic if two carriers were not exchanging traffic pursuant to an
    interconnection agreement prior to the adoption of the interim
    regime; and (4) a "mirroring rule" that gave incumbent LECs the
    benefit of the rate cap only if they offered to exchange all traffic
    subject to section 251(b)(5) at the same rates. *Id*. at 9187--89,
    9193--94, paras. 78, 80, 89. In a subsequent order, the Commission
    granted forbearance to all telecommunications carriers with respect
    to the growth caps and the new markets rule. *See Petition of Core
    Commc'ns Inc. for Forbearance Under 47 U.S.C. § 160(c) from
    Application of the ISP Remand Order*, WC Docket No. 03-171, Order,
    19 FCC Rcd 20179 (2004) (*Core Forbearance Order*). Thus, only the
    rate caps and mirroring rule remain in effect today.

[^617]: *See WorldCom*, 288 F.3d at 429.

[^618]: *See WorldCom*, 288 F.3d at 433.

[^619]: *See WorldCom*, 288 F.3d at 434.

[^620]: Pet. for Writ of Mandamus, In re Core Communications Inc., No.
    07-1446 (D.C. Cir. Nov. 5, 2007).

[^621]: *In re Core Commc'ns Inc*., 531 F.3d 849, at 861--62 (D.C. Cir.
    2008) (*Core Decision*).

[^622]: *See Core Decision*, 531 F.3d at 861--62. If the Commission
    fails to comply with the writ by the November 5th deadline, the
    interim rules will be vacated on November 6, 2008. *See id*. at 862.

[^623]: *See CLEC Access Charge Order*, 16 FCC Rcd at 9931, para. 22.
    For instance, the Commission found that certain competitive LECs
    charged \$0.09 per minute and that the weighted average of
    competitive LEC access rates was above \$0.04 per minute. *Id.* In
    contrast, the same underlying data showed a composite incumbent LEC
    rate of \$0.0056 for that same traffic.  *See* AT&T Additional
    Comments, CC Docket Nos. 96-262, 97-146, CCB/CPD File No. 98-63,
    App. A. (Jan. 11, 2001). The Commission found that competitive LECs
    could impose excessive charges due to two factors. First, the
    Commission observed that access charges are paid by the IXC rather
    than the end-user customer. Because the IXC has no ability to affect
    the calling or called party's choice of service providers, it cannot
    avoid carriers with high access charges. *CLEC Access Charge Order*,
    16 FCC Rcd at 9935, para. 31. Second, the Commission found that the
    rate averaging requirements in section 254(g) of the Act precluded
    IXCs from passing through particular competitive LECs' excessive
    access charges to the end user customers of those competitive LECs.
    *Id*. As a result, the Commission found the existing regulatory
    regime did not effectively create the incentives for the end users
    to select a lower-priced access provider. *Id*.

[^624]: *See* 47 C.F.R. § 61.26 (containing rules governing the
    tariffing of competitive LEC interstate switched exchange access
    services). As a general matter, the Commission's rules governing
    competitive LEC access charges limit these rates to those charged by
    the competing incumbent LEC. *Id*.

[^625]: *See infra* Part V.D.

[^626]: *See* *infra* para. 326.

[^627]: *See*, *e.g*., *Qwest Commc'ns Corp. v. Farmers and Merchs. Mut.
    Tel. Co.*, File No. EB-07-MD-001, Memorandum Opinion and Order, 22
    FCC Rcd 17973, para. 1 (2007) (addressing Qwest's allegations that
    Farmers deliberately planned to "increase dramatically the amount of
    terminating access traffic delivered to its exchange, via agreements
    with conference calling companies").

[^628]: *See Establishing Just and Reasonable Rates for Local Exchange
    Carriers*, WC Docket No. 07-135, Notice of Proposed Rulemaking, 22
    FCC Rcd 17989, para. 1 (2007) (*Access Stimulation NPRM*).

[^629]: *Access Stimulation NPRM*, 22 FCC Rcd 17989.

[^630]: *See Intercarrier Compensation NPRM*, 16 FCC Rcd 9610. The
    Commission acknowledged a number of problems with the existing
    regimes, including inefficient rates and different rates for the
    same types of calls. *Id.* at 9616--18, paras. 11--18. The
    Commission thus sought comment on alternative approaches to
    reforming intercarrier compensation, including moving to a
    bill-and-keep approach to intercarrier compensation. *Id.* at
    9611--13, paras. 2--4.

[^631]: *See, e.g.*, Regulatory Reform Proposal of the Intercarrier
    Compensation Forum (ICF Proposal), *attached to* Letter from Gary M.
    Epstein and Richard R. Cameron, Counsel for the Intercarrier
    Compensation Forum, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92, App. A (filed Oct. 5, 2004) (ICF Oct. 5, 2004 *Ex Parte*
    Letter); Comprehensive Plan For Intercarrier Compensation Reform of
    Expanded Portland Group (EPG Proposal), *attached to* Letter from
    Glenn H. Brown, EPG Facilitator, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92 (filed Nov. 2, 2004); Intercarrier
    Compensation Reform Plan of Alliance for Rational Intercarrier
    Compensation (ARIC Plan), *attached to* Letter from Wendy Thompson
    Fast, President, Consolidated Companies, and Ken Pfister, Vice
    President---Strategic Policy, Great Plains Communications, to
    Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45,
    99-68, 96-98, WC Docket No. 04-36 (filed Oct. 25, 2004); Cost-Based
    Intercarrier Compensation Coalition (CBICC Proposal), *attached to*
    Letter from Richard M. Rindler, Counsel for the Cost-Based
    Intercarrier Compensation Coalition, to Marlene Dortch, Secretary,
    FCC, CC Docket No. 01-92 (filed Sept. 2, 2004); Updated Ex Parte of
    Home Telephone Company, Inc. and PBT Telecom (Home/PBT Proposal),
    *attached to* Letter from Keith Oliver, Vice President, Finance,
    Home Telephone Company, and Ben Spearman, Vice President, Chief
    Regulatory Officer, PBT Telecom, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92 (filed Nov. 2, 2004); NASUCA Intercarrier
    Compensation Proposal at 1 (NASUCA Proposal), *attached to* Letter
    from Philip F. McClelland, Senior Assistant Consumer Advocate,
    NASUCA, to Marlene Dortch, Secretary, FCC, CC Docket No. 01-92
    (filed Dec. 14, 2004); Western Wireless Intercarrier Compensation
    Reform Plan at 9 (Western Wireless Proposal), *attached to* Letter
    from David L. Sieradzki, Counsel for Western Wireless Corp., to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Dec.
    1, 2004).

[^632]: *See Developing a Unified Intercarrier Compensation Regime*, CC
    Docket No. 01-92, Further Notice of Proposed Rulemaking, 20 FCC Rcd
    4685, 4687, para. 4 (2005) (*Intercarrier Compensation FNPRM*).

[^633]: *See* Missoula Plan for Intercarrier Compensation Reform
    (Missoula Plan), *attached to* Letter from Tony Clark, Commissioner
    and Chair, NARUC Committee on Telecommunications, Ray Baum,
    Commissioner and Chair, NARUC Task Force, and Larry Landis,
    Commissioner and Vice-Chair, NARUC Task Force, to Hon. Kevin Martin,
    Chmn., FCC, CC Docket No. 01-92 (filed July 24, 2006) (NARUC Task
    Force July 24, 2006 *Ex Parte* Letter).

[^634]: *Comment Sought on Missoula Intercarrier Compensation Reform
    Plan*, CC Docket No. 01-92, Public Notice, 21 FCC Rcd 8524 (2006).
    Subsequently, the Missoula Plan supporters filed additional details
    concerning specific aspects of the plan, on which the Commission
    continued to seek comment. *See* *Comment Sought on Missoula Plan
    Phantom Traffic Interim Process and Call Detail Records Proposal*,
    CC Docket No. 01-92, Public Notice, 21 FCC Rcd 13179 (2006);
    *Comment Sought on Amendments to the Missoula Plan Intercarrier
    Compensation Proposal to Incorporate a Federal Benchmark Mechanism*,
    CC Docket No. 01-92, Public Notice, 22 FCC Rcd 3362 (2007).

[^635]: The Commission invited parties to refresh the record in these
    and other relevant dockets. *Interim Cap Clears Path for
    Comprehensive Reform: Commission Poised to Move Forward on Difficult
    Decisions Necessary to Promote and Advance Affordable
    Telecommunications for All Americans*, News Release (May 2, 2008),
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-281939A1.pdf.

[^636]: *See, e.g.*, [T. Randolph Beard & George S. Ford, Do High Call
    Termination Rates Deter Broadband Deployment?]{.smallcaps} (Phoenix
    Center Policy Bulletin No. 22, Oct. 2008), *available at*
    http://www.phoenix-center.org/PolicyBulletin/PCPB22Final.pdf.

[^637]: *See, e.g.*, *Verizon/América Móvil Transfer* Order, 22 FCC Rcd
    at 6211, para. 36 (describing "difficult to serve terrain and
    dramatic urban/rural differences" in Puerto Rico); *Rates and
    Services Integration Order*, 4 FCC Rcd at 396, paras. 7--8
    (describing the unique market conditions and structure in Alaska);
    GCI Oct. 3, 2008 *Ex Parte* Letter (citing cost distinctions between
    Alaska and the continental United States).

[^638]: *Cf.* *Policies and Service Rules for the Broadcasting-Satellite
    Service Order*, 22 FCC Rcd at 8860, para. 47 ("The Commission is
    committed to establishing policies and rules that will promote
    service to all regions in the United States, particularly to
    traditionally underserved areas, such as Alaska and Hawaii, and
    other remote areas.").

[^639]: A number of parties argue for a shorter transition period than
    that provided here. *See, e.g.*, Letter from Robert W. Quinn, Senior
    Vice President, Federal Regulatory, AT&T, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 01-92 (filed Oct. 23, 2008) (AT&T Oct.
    23, 2008 *Ex Parte* Letter); Letter from Kyle McSlarrow, President
    and CEO, NCTA, to Kevin J. Martin, Chairman, FCC, CC Docket No.
    01-92 (filed Oct. 28, 2008) (NCTA Oct. 28, 2008 *Ex Parte* Letter);
    Letter from Paul W. Garnett, Assistant Vice-President, CTIA---The
    Wireless Association, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 (filed October 27, 2008) (CTIA October 27, 2008 *Ex
    Parte* Letter); Small Business Administration Office of Advocacy
    (SBA) *ICC FNPRM* Comments at 5--7. We note that the reforms adopted
    today do not preclude carriers from entering into agreements that
    would reduce intercarrier charges more quickly, (*See, e.g*., Letter
    from Susanne A. Guyer, Senior Vice-President, Verizon, to Kevin J.
    Martin, Chairman, FCC, CC Docket No. 01-92 (filed October 28, 2008)
    at 6.) nor do they prevent state commissions from accelerating the
    glide path toward the final reciprocal compensation rate if they
    deem it appropriate.

[^640]: To the extent that a carrier's intrastate terminating access
    rate already is below its interstate terminating access rate, it
    will not change that rate.

[^641]: We recognize that the state-wide interim, uniform reciprocal
    compensation rates may vary state-by-state as state commissions
    consider the best means of transitioning to a final, uniform
    reciprocal compensation rate.

[^642]: Although CMRS providers may not tariff access charges, they are
    not prohibited from entering into contracts with interexchange
    carriers that provide for the payment of such charges. *Petitions of
    Sprint PCS and AT&T Corp. For Declaratory Ruling Regarding CMRS
    Access Charges,* WT Docket No. 01-316, Declaratory Ruling, 17 FCC
    Rcd 13192 (2002) (*CMRS Access Charges Declaratory Ruling*).

[^643]: Consistent with our conclusion that CMRS providers are unable to
    assess access charges during the transition, we make clear that our
    symmetry rule, set forth in Part V.C.1.b, will not apply until the
    transition is over.  Even so, we clarify that, to the extent that
    any carrier has a terminating rate above the permissible rate, such
    carrier must reduce the rate to the permissible
    level.  Specifically, in the first year of the transition, all
    carriers with intrastate access charges higher than their interstate
    access charges must reduce such charges by 50 percent of the
    difference between its interstate switched access rate and its
    intrastate switched access rate.  Similarly, once the state-set
    interim, uniform rate is in effect, all carriers must reduce
    terminating rates, whether interstate access, reciprocal
    compensation, or ISP-bound traffic, by 50 percent of the difference
    between the current terminating switched access rate and the
    interim, uniform rate (as it is reduced over time). Even though
    rates during the transition will not reflect true symmetry, rates
    for most carriers should be symmetric before the transition is over
    as all carriers reduce charges to the final, uniform rate.

[^644]: *See ISP Remand Order*, 16 FCC Rcd at 9153, 9186--93, paras. 21,
    77--88.

[^645]: *See* *Core Forbearance Order*, 19 FCC Rcd at 20184--89, paras.
    16--26.

[^646]: *ISP Remand Order*, 16 FCC Rcd at 9187, para. 77.

[^647]: *ISP Remand Order*, 16 FCC Rcd at 9187, para. 78.

[^648]: *ISP Remand Order*, 16 FCC Rcd at 9190--91, para. 85.

[^649]: *ISP Remand Order*, 16 FCC Rcd at 9190--91, para. 85; *see also
    Petition of ACS of Anchorage, Inc. Pursuant to Section 10 of the
    Communications Act of 1934, as Amended, for Forbearance from
    Sections 251(c)(3) and 252(d)(1) in the Anchorage Study Area*, WC
    Docket No. 05-281, 22 FCC Rcd 1958, 1984--85, paras. 39, 40 n.136
    (2007) (finding that "commercially negotiated rates" provide "just
    and reasonable prices"); *Review of the Section 251 Unbundling
    Obligations of Incumbent Local Exchange Carriers;* *Implementation
    of the Local Competition Provisions of the Telecommunications Act of
    1996; Deployment of Wireline Services Offering Advanced
    Telecommunications Capability*, CC Docket Nos. 01-338, 98-147,
    96-98, Report and Order and Order on Remand and Further Notice of
    Proposed Rulemaking, 18 FCC Rcd 16978, 17389, para. 664 (2003)
    (subsequent history omitted) (*Triennial Review Order*) (finding
    that "arms-length agreements . . . to provide \[an\] element at
    \[a\] rate" "demonstrate\[s\]" that the rate is "just and
    reasonable").

[^650]: *See*, *e.g*., Letter from Gregory J. Vogt, Counsel for
    CenturyTel, Inc. to Marlene H. Dortch, Secretary, FCC, WC Docket No.
    05-337, CC Docket Nos. 96-45, 01-92, Attach. at 10 (filed July 8,
    2008) (asking the Commission to maintain the existing compromises
    reached with respect to ISP-bound traffic); Letter from Gary L.
    Phillips, Associate General Counsel, AT&T, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-98, 99-68 at 8 (filed May
    9, 2008) (asserting that the public interest would be best served by
    maintaining the existing transitional rates pending broader
    intercarrier compensation reform); Letter from L. Charles Keller,
    Counsel for Sage Telecom, to Marlene H. Dortch, Secretary, FCC, WC
    Docket Nos. 99-68, 01-92, Attach. at 6 (Sage Telecom May 9, 2008 *Ex
    Parte* Letter) (stating that retaining the ISP rate serves broad
    policy goals); Letter from John T. Nakahata, Counsel for Level 3
    Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos.
    01-92, 99-68 at 1 (filed May 7, 2008) (supporting continuation of
    the interim compensation rules); Letter from Joshua Seidmann, Vice
    President of Regulatory Affairs, ITTA, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 99-68, 96-98, Attach. at 2 (filed
    Apr. 28, 2008) (ITTA Apr. 28, 2008 *Ex Parte* Letter) (asking the
    Commission to retain the current \$0.0007 rate for ISP-bound
    traffic); Letter from Donna Epps, Vice President of Federal
    Regulatory Affairs, Verizon, to Marlene H. Dortch, Secretary, FCC,
    CC Docket Nos. 99-68, 96-98 at 1 (filed Apr. 7, 2008) (urging the
    Commission to support its earlier finding that \$0.0007 is
    appropriate compensation for dial-up ISP traffic); Letter from L.
    Charles Keller, Counsel for Verizon Wireless, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 99-68, Attach. (filed May 1,
    2008) (describing how elimination of the existing ISP rate would
    create substantial burdens on a number of carriers and state
    commissions) (Verizon Wireless May 1, 2008 *Ex Parte* Letter);
    Letter from Glenn Reynolds, Vice President, Policy, USTelecom, to
    Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68,
    96-262, WC Docket No. 07-135 at 2 (filed Apr. 29, 2008) (noting that
    the Commission's existing rules have "largely mitigated the debate
    around compensation for ISP-bound traffic, but there is every reason
    to believe the same problems would arise if the Commission were to
    reverse direction on this issue") (USTelecom Apr. 29, 2008 *Ex
    Parte* Letter).

[^651]: *See, e.g*., USTelecom Apr. 29, 2008 *Ex Parte* Letter at 2;
    Letter from Melissa E. Newman, Vice President, Federal Regulatory,
    Qwest, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68,
    96-98, WC Docket No. 07-135, Attach. at 3--5 (filed Apr. 25, 2008)
    (Qwest April 25, 2008 *Ex Parte* Letter); Verizon and BellSouth,
    Further Supplemental White Paper on ISP Reciprocal Compensation at
    20 (Verizon/BellSouth Further Supp. ISP White Paper), *attached to*
    Letter from Donna Epps, Vice President, Federal Regulatory Advocacy,
    Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-98,
    99-68 (filed Sept. 27, 2004).

[^652]: *See*, *e.g.*, Verizon Wireless May 1, 2008 *Ex Parte* Letter,
    Attach.

[^653]: *See, e.g*., Verizon Wireless May 1, 2008 *Ex Parte* Letter
    (stating that "the \[m\]irroring \[r\]ule simplified wireless-ILEC
    interconnection negotiations tremendously."); Supplemental Comments
    of Verizon and Verizon Wireless on Intercarrier Payments for
    ISP-Bound Traffic and the *WorldCom* Remand, CC Docket Nos. 01-92,
    96-98, 99-68 at 38--40 (filed Oct. 2, 2008) (Verizon/Verizon
    Wireless Oct. 2, 2008 Supp. Comments) (indicating that Verizon
    entered into multiple agreements using the \$.0007 rate cap
    established in the *ISP Remand Order*).

[^654]: *See, e.g*., ITTA April 28, 2008 *Ex Parte* Letter, Attach. at
    3, 5; Embarq May 1, 2008 *Ex Parte* Letter, Attach. at 2, 5--7.

[^655]: *See, e.g*., Letter from Tamar E. Finn, Counsel for Earthlink,
    to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 01-92,
    Attach. at iii, 11--12 (filed Aug. 14, 2008) (estimating that 24% of
    dial-up users in rural America say that broadband service is not
    available where they live); Sage Telecom May 9, 2008 *Ex Parte*
    Letter at 3--4; Embarq May 1, 2008 *Ex Parte* Letter, Attach. at 6
    (calculating its cost to be \$100 million if all ISP-bound minutes
    were subject to TELRIC-based rates under section 251(b)(5)); ITTA
    Apr. 28, 2008 *Ex Parte* Letter (noting that dial-up usage remains
    strong in rural areas); USTelecom Apr. 29, 2008 *Ex Parte* Letter
    (noting a "recent study from the Pew Internet & American Life
    Project that indicated that while the number of dial-up subscribers
    had dropped 63% since 2001, the number of minutes spent online by
    each dial-up subscriber had increased approximately 70%. As a
    result, some USTelecom member companies are actually seeing an
    *increase* in dial-up minutes.") (emphasis in original); Letter from
    Bennett L. Ross, General Counsel---D.C., BellSouth D.C., to Marlene
    H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68, WC Docket
    No. 03-171 (filed Aug. 29, 2005) (attaching a chart showing that
    "dial-up subscribers would continue to generate substantial minutes
    of dial-up ISP calls, notwithstanding projections of a continued
    decline in the number of dial-up subscribers.").

[^656]: *Core Forbearance Order*, 19 FCC Rcd at 20815--16, para. 18.

[^657]: *See supra* para. 255.

[^658]: *Core Forbearance Order*, 19 FCC Rcd at 20816, para. 19.

[^659]: *See, e.g.*, Verizon/Verizon Wireless Oct. 2, 2008 Supp.
    Comments at 40.

[^660]: Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments*.* at 40.

[^661]: *See* Letter from Michael B. Hazzard, Counsel for Core
    Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos.
    99-68, 01-92, Attach. at 18 & n.8 (filed May 14, 2008) (Core May 14,
    2008 *Ex Parte* Letter). We also reject Core's argument that the
    *ISP Remand Order* unlawfully delegates to incumbent LECs the
    decision of whether the *ISP Remand Order* applies. *See* *id*. at
    19--20. The Commission did not delegate its authority in the *ISP
    Remand Order* but rather provided options that were not mandatory.
    *See, e.g.*, *ISP Remand Order*, 16 FCC Rcd at 9193, para. 89.
    Additionally, Core argues that the Commission provided no reasoned
    explanation for the growth cap and new market rules adopted in the
    *ISP Remand Order* and never provided notice or an opportunity for
    comment on those specific rules. These rules, as applicable to all
    carriers, were forborne from in the *Core Forbearance Order*. *See*
    *Core Forbearance Order*, 19 FCC Rcd at 20186--87, paras. 20--21. As
    such, this argument is moot.

[^662]: *See* Core May 14, 2008 *Ex Parte* Letter, Attach. at 20--26.

[^663]: *In re Core Commc'ns* 455 F.3d at 277--80 (internal quotation
    marks omitted).

[^664]: 47 U.S.C. §§ 152(a), 201, 202.

[^665]: 47 U.S.C. § 332.

[^666]: *See, e.g.*, *Telephone Number Requirements for IP-Enabled
    Services Providers; Local Number Portability Porting Interval and
    Validation Requirements; IP-Enabled Services; CTIA Petitions for
    Declaratory Ruling on Wireline-Wireless Porting Issues*, CC Docket
    Nos. 99-200, 95-116, WC Docket Nos. 07-243, 07-244, 04-36, Report
    and Order, Declaratory Ruling, Order on Remand, and Notice of
    Proposed Rulemaking, 22 FCC Rcd 19531, 19538--40, paras. 14, 16
    (2008) (*LNP Order*) (imposing LNP requirements, and noting that the
    Commission previously imposed the requirement to provide 911
    service, to contribute to universal service, to protect the privacy
    of customers, to comply with disability access and
    telecommunications relay service requirements, and to satisfy
    certain CALEA obligations).

[^667]: On one hand, the Commission classified as an "information
    service" Pulver.com's free service that did not provide transmission
    and offers a number of computing capabilities. *Petition for
    Declaratory Ruling that Pulver.com\'s Free World Dialup is Neither
    Telecommunications nor a Telecommunications Service*, WC Docket No.
    03-45, Memorandum Order and Opinion, 19 FCC Rcd 3307 (2004)
    (*Pulver.com Order*). On the other hand, the Commission found that
    certain "IP-in-the-middle" services were "telecommunications
    services" where they: : (1) use ordinary customer premises equipment
    (CPE) with no enhanced functionality; (2) originate and terminate on
    the public switched telephone network (PSTN); and (3) undergo no net
    protocol conversion and provide no enhanced functionality to end
    users due to the provider\'s use of IP technology. *See, e.g.*,
    *Petition for Declaratory Ruling that AT&T\'s Phone-to-Phone IP
    Telephony Services are Exempt from Access Charges*, WC Docket No.
    02-361, Order, 19 FCC Rcd 7457 (2004) (*IP-in-the-Middle Order*).
    *See also, e.g.*, *Regulation of Prepaid Calling Card Services*, WC
    Docket No. 05-68, Declaratory Ruling and Report and Order, 21 FCC
    Rcd 7290 (2006) (*Prepaid Calling Card Order*).

[^668]: We use the term "IP/PSTN" as a shorthand, without reaching any
    universal conclusions regarding the technology underlying the PSTN.
    Today the PSTN continues to rely primarily on circuit-switched
    technology to connect to end-user customers, although we recognize
    that carriers increasingly are converting portions of their networks
    to IP technology. *See, e.g.*, *IP-Enabled Services; E911
    Requirements for IP-Enabled Service Providers*, WC Docket Nos.
    04-36, 05-196, First Report and Order and Notice of Proposed
    Rulemaking, 20 FCC Rcd 10245, 10258, para. 24 & n.77 (2005)
    (distinguishing the "specialized" CPE required for interconnected
    VoIP services from the standard CPE used for typical telephone
    calls); *Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Report to Congress, 13 FCC Rcd 11501, 11532, para. 84
    (1998) ("'IP telephony' services enable real-time voice transmission
    using Internet protocols. The services can be provided in two basic
    ways: through software and hardware at customer premises, or through
    'gateways' that enable applications originating and/or terminating
    on the PSTN. Gateways are computers that transform the
    circuit-switched voice signal into IP packets, and vice versa, and
    perform associated signaling, control, and address translation
    functions."). Insofar as a service allows a customer to originate a
    communication on an IP network and terminate it on a
    circuit-switched network, or vice versa, it involves a net protocol
    conversion, and we classify it as an "information service" today.
    Insofar as that service allows communications with no net protocol
    conversion, it is not subject to our "information service"
    classification here. We note that the presence of a net protocol
    conversion is not the only basis for classifying a service as an
    "enhanced" or "information service." *See, e.g.*, 47 C.F.R. §
    64.702(a); *Computer II Final Decision*, 77 FCC 2d at 420--21, para.
    97. We do not reach those issues at this time, however.

[^669]: *See, e.g.*, *Implementation of the Non-Accounting Safeguards of
    Sections 271 and 272 of the Communications Act of 1934, as Amended*,
    CC Docket No. 96-149, First Report and Order and Further Notice of
    Proposed Rulemaking, 11 FCC Rcd 21905, 21957--58, para. 106 (1996)
    (*Non-Accounting Safeguards Order*). Interpreting the 1996 Act's
    definition of "information services," the Commission held that "all
    of the services that the Commission has previously considered to be
    'enhanced services' are 'information services.'" *Non-Accounting
    Safeguards Order*, 11 FCC Rcd at 21956, para. 103. For the all
    reasons discussed in Part V.B.2, we decline to defer the
    classification of IP/PSTN services, as requested by some parties,
    instead finding it appropriate to address this issue as part of our
    comprehensive reforms. *See*, *e.g.*, Letter from Ben Scott, Policy
    Director, Free Press, to Marlene H. Dortch, Secretary, FCC, WC
    Docket Nos. 05-337, 06-122, CC Docket Nos. 96-45, 01-92 at 15 (filed
    Oct. 24, 2008) (Free Press Oct. 24, 2008 *Ex Parte* Letter); Letter
    from Brad E. Mutschelknaus and Genevieve Morelli, Counsel for
    Broadview Networks, et al., to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 at 2 (filed Oct. 28, 2008).

[^670]: Two of the exceptions are: (1) protocol processing involving
    communications between an end user and the network itself (e.g., for
    initiation, routing, and termination of calls) rather than between
    or among users; and (2) protocol conversion to facilitate the
    interconnection of networks. *Non-Accounting Safeguards Order*, 11
    FCC Rcd at 21957--58, para. 106. These categories of protocol
    processing services may involve protocol conversions, but they
    result in no net protocol conversion between the end users.
    *Implementation of the Non-Accounting Safeguards of Sections 271 and
    272 of the Communications Act of 1934, as Amended*, CC Docket No.
    96-149, Order on Reconsideration, 12 FCC Rcd 2297, 2297--99, para. 2
    (1997). Thus, they are not relevant here.

[^671]: *Amendment to Sections 64.702 of the Commission's Rules and
    Regulations (Third Computer Inquiry); and Policy and Rules
    Concerning Rates for Competitive Common Phase II Carrier Service and
    Facilities Authorization Thereof; Communications Protocols Under
    Section 64.702 of the Commission's Rules and Regulations*, CC Docket
    No. 85-229, Report and Order, 2 FCC Rcd 3072, 3081, para. 65 (1987)
    (*Computer III Phase II Order*). *See also Non-Accounting Safeguards
    Order*, 11 FCC Rcd at 21957--58, para. 106.

[^672]: *Communications Protocols under Section 64.702 of the
    Commission's Rules and Regulations*, GN Docket No. 80-756,
    Memorandum Opinion, Order, and Statement Of Principles, 95 FCC 2d
    584, para. 16 (1983) (*Protocols Order*).

[^673]: *See, e.g.*, Letter from Donna Epps, Vice President, Federal
    Regulatory, Verizon, to Marlene H. Dortch, Secretary, FCC, WC Docket
    Nos. 04-36, 06-122, CC Docket No. 01-92, Attach. at 9--11 (filed
    Sept. 19, 2008); Letter from Susanne A. Guyer, Senior Vice
    President, Federal Regulatory Affairs, Verizon, to Chairman Kevin J.
    Martin, FCC, WC Docket No. 04-36, at 10--11 (filed Aug. 6, 2007);
    Letter from AT&T et al., to Chairman Kevin J. Martin, FCC, et al.,
    WC Docket No. 04-36, CC Docket No. 01-92 at 2--3 (filed Aug. 6,
    2008); VON Coalition *IP-Enabled Services NPRM* Comments at 3--16;
    AT&T *IP-Enabled Services NPRM* Comments at 13--17. We thus disagree
    with parties who suggest, in essence, that IP/PSTN services are no
    different than "basic" services. *See, e.g.*, Letter from Thomas
    Jones and Jonathan Lechter, Counsel for tw telecom et al., to
    Marlene H Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC
    Docket Nos. 05-337, 99-68, 04-36, Attach. at 2 (filed Oct. 28, 2008)
    (tw telecom *et. al* Oct. 28, 2008 *Ex Parte* Letter). We note that
    whether a service is viewed by consumers as a possible substitute
    for a "basic" service is a distinct question from whether, as a
    matter of technology and the nature of the service offering, the
    service simply replaces the technology underlying a pre-existing
    basic service. Thus, our conclusion here is not inconsistent with
    the Commission's recognition that interconnected VoIP services
    increasingly are viewed by consumers as a substitute for traditional
    telephone services. *See, e.g.*, *LNP Order*, 22 FCC Rcd at 19547,
    para. 28.

[^674]: *Vonage Order*, 19 FCC Rcd at 22404; *see also* *Pulver.com
    Order*, 19 FCC Rcd at 3316, para. 15 ("We determine, consistent with
    our precedent regarding information services, that FWD is an
    unregulated information service and any state regulations that seek
    to treat FWD as a telecommunications service or otherwise subject it
    to public-utility type regulation would almost certainly pose a
    conflict with our policy of nonregulation.").

[^675]: For example, states are free to require contributions to state
    universal service or telecommunications relay service funds through
    methodologies that are consistent with federal policy. *See, e.g.*,
    Letter from Robert W. Quinn, Jr. Senior Vice President, Federal
    Regulatory, AT&T, to Chairman Kevin J. Martin, FCC, WC Docket Nos.
    04-36, 06-122, CC Docket No. 96-45 at 11--16 (filed July 23, 2008)
    (describing ways that states could require contributions to state
    universal service or telecommunications relay service funds in a
    manner that is consistent with federal policy).

[^676]: *See* *Local Competition First Report and Order*, 11 FCC Rcd at
    15544, para. 83.

[^677]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15544--45, para. 85.

[^678]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15546--47, para. 91.

[^679]: 47 U.S.C. § 251(i).

[^680]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15546--47, para. 91.

[^681]: *Implementation of Sections 3(n) and 332*, Second Report and
    Order, 9 FCC Rcd 1411, 1498, para. 230 (1994).

[^682]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16005, para. 1023.

[^683]: *Local Competition First Report and Order*, 11 FCC Rcd at 16005,
    para. 1023 ("By opting to proceed under sections 251 and 252, we are
    not finding that section 332 jurisdiction over interconnection has
    been repealed by implication, or rejecting it as an alternative
    basis for jurisdiction.").

[^684]: We note that the Supreme Court later reversed this decision and
    affirmed the TELRIC methodology. *See Verizon v. FCC*, 535 U.S. at
    467.

[^685]: *Iowa Utils. Bd. v. FCC*, 120 F.3d 753, 800 n.21 (8th Cir. 1997)
    (*Iowa Utils. I*), *rev'd in part and* *remanded on other grounds*,
    *AT&T v. Iowa Utils. Bd*., 525 U.S. 366.

[^686]: *Qwest Corp. v. FCC*, 252 F.3d 462, 465--66 (D.C. Cir. 2001)
    (describing the Eighth Circuit's analysis of section 332(c)(1)(B) in
    *Iowa Utils. I* and concluding that an attempt to relitigate the
    issue was barred by the doctrine of issue preclusion).

[^687]: 47 U.S.C. § 251(b)(5).

[^688]: 47 U.S.C. § 252(d)(2)(A).

[^689]: *See* *supra* paras. 208--14. *See also, e.g.*, Letter from John
    T. Nakahata, Counsel for Level 3 Communications, to Marlene H.
    Dortch, Secretary, FCC, WC Docket No. 01-92 at 9--11 (filed on Aug.
    18, 2008) (Level 3 Aug. 18, 2008 *Ex Parte* Letter). Contrary to
    Verizon's claims, we thus find no tension between permitting states
    to set reciprocal compensation rates for interstate traffic under
    the section 251 and 252 framework and the Commission's continuing
    authority over traffic subject to its jurisdiction, including
    section 201 authority expressly preserved under section 251(i).

[^690]: We recognize that "the just and reasonable rates required by
    Sections 201 and 202 . . . must ordinarily be cost-based, absent a
    clear explanation of the Commission's reasons for a departure from
    cost-based ratemaking." *Access Charge Reform*, CC Docket Nos.
    96-262, 94-1, 91-213, Second Order on Reconsideration and Memorandum
    Opinion and *Order*, 12 FCC Rcd 16606, 16619--20, para. 44 (*Access
    Charge Reform Second Order*) (citing *Competitive Telecomms. Ass\'n
    v. FCC*, 87 F.3d 522, 529 (D.C. Cir. 1996)). In this order, we adopt
    an incremental cost methodology for setting termination rates. We
    find that the proper application of that methodology produces rates
    that are "just and reasonable" under section 201. As discussed
    below, we find it appropriate to adopt a transition before carriers
    begin charging rates set pursuant to our incremental cost
    methodology.

[^691]: 47 U.S.C. § 201(b) ("The Commission may prescribe such rules and
    regulations as may be necessary in the public interest to carry out
    the provisions of this Act.").

[^692]: *AT&T v. Iowa Utils. Bd.*, 525 U.S. at 378.

[^693]: *AT&T v. Iowa Utils. Bd.*, 525 U.S. at 378 n.6 ("\[T\]he
    question in these cases is not whether the Federal Government has
    taken the regulation of local telecommunications competition away
    from the States. With regard to the matters addressed by the 1996
    Act, it unquestionably has.").

[^694]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16012--13, para. 1033.

[^695]: *See, e.g.*, Verizon/Verizon Wireless Oct. 2, 2008 Supp.
    Comments at 24--32; Letter from Daniel Mitchell, Vice President,
    Legal and Industry, NTCA, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 at 9 (filed Sept. 30, 2008) (NCTA Sept. 30, 2008
    *Ex Parte* Letter); Verizon *ICC FNPRM* Comments at 38--42; NARUC
    *ICC FNPRM* Comments at 6--7; Rural Alliance *ICC FNPRM* Comments at
    144--49; Cincinnati Bell *ICC FNPRM* Comments at 5--11; Maine PUC
    and Vermont Pub. Serv. Bd. *ICC FNPRM* Comments at 7; New York State
    PSC *ICC FNPRM* Comments at 7; Verizon and BellSouth, Supplemental
    White Paper on ISP Reciprocal Compensation, CC Docket No. 96-98,
    99-68 at 16--20 (filed July 20, 2004) (Verizon/BellSouth Supp. ISP
    White Paper); NARUC's Initial Comments at 7 n.13 (May 23, 2004).
    *But see, e.g*., ICF *ICC FNPRM* Comments at 39.

[^696]: *ISP Remand Order*, 16 FCC Rcd at 9166--67, para. 35. *See also,
    e.g.*, Qwest, Legal Authority for Comprehensive Intercarrier
    Compensation Reform at 2--4, *attached to* Letter from Melissa
    Newman, Counsel for Qwest, to Marlene H. Dortch, Secretary, FCC, CC
    Docket Nos. 01-92, 06-45, 99-68, WC Docket Nos. 04-36, 05-337,
    05-195, 06-122 (filed Oct. 7, 2008); Letter from Kathleen O'Brien
    Ham et al., Counsel for T-Mobile, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92 at 9--10 (filed Oct. 3, 2008); Level 3 Aug.
    18, 2008 *Ex Parte* Letter at 2, 15--18; AT&T *Missoula* *Phantom
    Traffic* Reply at 35--41; Brief from Gary M. Epstein, Counsel for
    ICF, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at
    29--35 (filed Oct. 5, 2004)

[^697]: *AT&T v. Iowa Utils. Bd.*, 525 U.S. at 397.

[^698]: 47 U.S.C. § 251(b)(5).

[^699]: 47 U.S.C. § 153(43).

[^700]: *Id.* at § 153(47).

[^701]: *Id.* at § 153(48).

[^702]: *Id.* at § 153(16).

[^703]: As discussed above, we classify IP/PSTN services as "information
    services." We note, however, that information services, by
    definition, are provided "via telecommunications," enabling us to
    bring IP/PSTN traffic within the section 251(b)(5) framework. 47
    U.S.C. § 153(20). Moreover, given that we retain independent
    authority under section 201, we find it reasonably ancillary to that
    authority to regulate IP/PSTN services in this regard, consistent
    with our efforts to ensure uniform treatment of all traffic on the
    PSTN for intercarrier compensation purposes. Thus, IP/PSTN traffic
    ultimately will be subject to the final uniform reciprocal
    compensation rates established pursuant to the methodology adopted
    in this order. We maintain the status quo for this traffic during
    the transition, however.

[^704]: *Local Competition First Report and Order*, 11 FCC Rcd at 16012,
    para. 1033.

[^705]: *ISP Remand Order*, 16 FCC Rcd at 9173, para. 46.

[^706]: *ISP Remand Order*, 16 FCC Rcd at 9167, para. 34.

[^707]: 47 U.S.C. § 251(g).

[^708]: *See WorldCom,* 288 F.3d at 429.

[^709]: 47 U.S.C. 251(g). 

[^710]: *WorldCom*, 288 F.3d at 430.

[^711]: Verizon notes that although the Commission in the *ISP Remand*
    Order deleted the word "local" from its regulations governing
    reciprocal compensation, the regulations continued to exclude access
    services from the scope of section 251(b)(5). *See* Verizon/Verizon
    Wireless Oct. 2, 2008 Supp. Comments at 24--32; 47 C.F.R. §
    51.701(b)(1). At that time, it made sense to retain the access
    exemption because the Commission had not issued rules superseding
    the access regime preserved by section 251(g). We supersede the
    grandfathered access regime in this order, at least in part.

[^712]: *Intercarrier Compensation NPRM*, 16 FCC Rcd at 9616, para. 12.

[^713]: *See,* *e.g*., Verizon/Verizon Wireless Oct. 2, 2008 Supp.
    Comments ("The best interpretation of § 251(b)(5) -- read in light
    of the text, structure, and history of the 1996 Act -- is that the
    reciprocal compensation obligation applies only to intraexchange (or
    'local') voice calls that originate on the network of one LEC (or
    wireless provider) and terminate on the network of another LEC (or
    wireless provider) operating in the same exchange (or, in the case
    of wireless providers, the same MTA."); Verizon and BellSouth,
    Internet-Bound Traffic is Not Compensable Under Sections 251(b)(5)
    and 252(d)(2) at 26 (Verizon/BellSouth ISP White Paper) ("By its
    nature, 'reciprocal compensation' must . . . apply to
    'telecommunications' exchanged *between LECs* (or carriers, like
    CMRS providers, that the Commission is authorized to treat as LECs),
    not to traffic that is exchanged between LECs and non-LECs."),
    *attached to* Letter from Ann D. Berkowitz, Associate Director,
    Federal Regulatory Advocacy, Verizon, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 99-68, 96-98 (filed May 17, 2004).

[^714]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16013--16, paras. 1034--41. *See also* 47 C.F.R. 51.703(a) ("Each
    LEC shall establish reciprocal compensation arrangements for
    transport and termination of telecommunications traffic with any
    requesting telecommunications carrier."); *ISP Remand Order*, 16 FCC
    Rcd at 9193--94, para. 89 n.177 ("Section 251(b)(5) applies to
    telecommunications traffic between a LEC and a telecommunications
    carrier . . . .").

[^715]: *Local Competition First Report and Order*, 11 FCC Rcd at 15996,
    para. 1005. In this regard, we note that, absent a determination
    that CMRS providers are LECs, IXC-CMRS traffic would not be
    encompassed by section 251(b)(5), since neither are LECs.
    Nevertheless, it is our intention that, at the end of the
    transition, CMRS providers be entitled to reciprocal compensation
    for all the traffic they terminate. As the Commission has observed,
    "\[t\]here are three ways in which a carrier seeking to impose
    charges on another carrier can establish a duty to pay such charges:
    pursuant to (1) Commission rule; (2) tariff; or (3) contract."
    *Petitions of Sprint PCS and AT&T Corp. For Declaratory Ruling
    Regarding CMRS Access Charges, Declaratory Ruling*, 17 FCC Rcd
    13192, 13196, para. 8 (2002).

[^716]: *Local Competition First Report and Order*, 11 FCC Rcd at 15997,
    para. 1008.

[^717]: If Congress had intended to limit the class of potential
    beneficiaries of LECs' duty to establish reciprocal obligation
    arrangements, it would have said so explicitly. *See* 47 U.S.C. §
    251(b)(3) (describing the "duty to provide dialing parity to
    competing providers of telephone exchange service and telephone toll
    service").

[^718]: *See, e.g.,* Verizon/BellSouth ISP White Paper at 41--43; New
    York State PSC *ICC FNPRM* Comments at 8--9; TDS *ICC FNPRM*
    Comments at 19 n.27; Qwest *ICC FNPRM* Comments at 39; NASUCA *ICC
    FNPRM* Reply at 17--18.

[^719]: 47 U.S.C. § 252(d)(2)(A)(i).

[^720]: *See, e.g.*, Maine PUC and Vermont Pub. Serv. Bd. *ICC FNPRM*
    Comments at 7--8; New York State PSC *ICC FNPRM* Comments at 7--10;
    Verizon/BellSouth Supp. ISP White Paper at 16--20; NARUC *ICC FNPRM*
    Comments at 7 n.13.

[^721]: 47 U.S.C. § 252(d)(2)(A)(i).

[^722]: *See, e.g.*, Verizon/Verizon Wireless Oct. 2, 2008 Supp.
    Comments at 33--34; Verizon/BellSouth ISP White Paper at 31--32.

[^723]: *Local Competition First Report and Order*, 11 FCC Rcd at 16015,
    para. 1040. *See also* 47 C.F.R. § 51.701(d).

[^724]: 206 F.3d at 6.

[^725]: Because ISP-bound traffic did not fall within the section 251(g)
    carve out from section 251(b)(5) as "there had been *no* pre-Act
    obligation relating to intercarrier compensation for ISP-bound
    traffic," *WorldCom*, 288 F.3d at 433, ISP-bound traffic is, and
    always has been, subject to section 251(b)(5), although clearly
    interstate in nature and subject to our section 201 authority.

[^726]: We reject Verizon's argument against the application of section
    251(b)(5) to ISP-bound traffic because this traffic is one-way
    traffic and as such is not reciprocal. *See* Verizon/Verizon
    Wireless Oct. 2, 2008 Supp. Comments at 26; Verizon/BellSouth ISP
    White Paper at 41--43. As Level 3 points out, these arguments have
    been rejected by the Commission and the U.S. Court of Appeals for
    the Ninth Circuit. *See* Level 3 Aug. 18, 2008 *Ex Parte* Letter at
    18; *Pacific Bell v. Cook Telecom, Inc.*, 197 F.3d 1236, 1242--44
    (9th Cir. 1999) (reciprocal compensation applies to paging traffic);
    *TSR Wireless, LLC v. U.S. West Commc'ns, Inc.*, 15 FCC Rcd 11166,
    11178, para. 21 (2000) (the Commission's reciprocal compensation
    rules draw "no distinction between one-way and two-way carriers").
    Because our conclusion in this order concerning the scope of section
    251(b)(5) is no longer tied to whether this traffic is local or long
    distance, we need not address arguments made by the parties as to
    whether ISP-bound traffic constitutes "telephone exchange service"
    under the Act. *See, e.g*., Letter from John T. Nakahata, Counsel
    for Level 3 Communications, LLC, to Marlene H. Dortch, Secretary,
    FCC, CC Docket Nos. 99-68, 96-98, Attach. at 1 (filed Sept. 24,
    2004). We note, however, that we retain our interim ISP-bound
    traffic rules. *See supra* paras. 198--205.

[^727]: *See* Verizon *ICC FNPRM* Comments at 41.

[^728]: 47 U.S.C. § 251(g).

[^729]: *See* 47 U.S.C. § 271(c)(2)(B)(xiii).

[^730]: *See* Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at
    26; Verizon/BellSouth ISP White Paper at 9.

[^731]: *United States Telecom Ass'n v. FCC*, 359 F.3d 554, 592 (D.C.
    Cir. 2004) (*USTA II*) ("Even under the deferential *Chevron*
    standard of review, an agency cannot, absent strong structural or
    contextual evidence, exclude from coverage certain items that
    clearly fall within the plain meaning of a statutory term. The
    argument that long distance services are not 'telecommunications
    services' has no support."). In *USTA II*, the D.C. Circuit was
    addressing whether the term "telecommunications services" was
    limited to local telecommunications services under section 251(c),
    while here we consider the analogous question of whether
    "telecommunications" is limited to local telecommunications under
    section 251(b).

[^732]: *See*, *e.g.*, Letter from Grace E. Koh, Policy Counsel, Cox
    Enterprises, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92, Attach. A at 1 (filed Oct. 6, 2008); Letter from Teresa D.
    Bauer and Richard R. Cameron, Counsel for Global Crossing North
    America, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92
    at 1 (filed Sept. 18, 2008); Letter from Susanne A. Guyer, Senior
    Vice President of Federal Regulatory Affairs, Verizon, to Kevin
    Martin et al., Commissioners, FCC, CC Docket. 01-92 at 4 (filed
    Sept. 12, 2008) (Verizon Sept. 12, 2008 *Ex Parte* Letter). *But
    see, e.g.*, Letter from Richard A. Askoff, Executive
    Director---Regulatory, NECA, to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 at 3 (filed Oct. 7, 2008) ("Prescription of a
    nationwide uniform default rate of \$0.0007 is unnecessary to solve
    the rate arbitrage problems identified by Verizon. It would also
    represent bad policy."); Letter from Lawrence Zawalick, Senior Vice
    President, Rural Telephone Finance Cooperative, to Kevin Martin et
    al., Commissioners, FCC, CC Docket 01-92 at 1 (filed Sept. 30, 2008)
    ("The Rural Telephone Finance Cooperative (RTFC) strongly opposes
    \[the \$0.0007\] proposal.").

[^733]: *See, e.g*., Letter from Donna Epps, Vice President, Federal
    Regulatory, Verizon, to Marlene H. Dortch, Secretary, FCC, WC Docket
    Nos. 04-36, 06-122, CC Docket No. 01-92, Attach. at 14--25 (filed
    Sept. 19, 2008) (Verizon Sept. 19, 2008 *Ex Parte* Letter).

[^734]: In some cases, parties propose that the Commission make
    available universal service support as an "enticement" for states to
    reform intrastate rates, but ultimately the decisions would be left
    to the individual states. *See* Letter from Tom Karalis, Counsel for
    Rural Alliance, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92, Attach. at 7 (filed Sept. 26, 2008).

[^735]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16016, para. 1042*. See also* 47 C.F.R. § 51.703(b) (stating that a
    "LEC may not assess charges on any other telecommunications carrier
    for telecommunications traffic that originates on the LEC's
    network").

[^736]: *See, e.g.*, Verizon Sept. 12, 2008 *Ex Parte* Letter at 5
    (asking the Commission to defer reform of originating access);
    Letter from Grace E. Kohl, Policy Counsel, Cox, to Marlene H.
    Dortch, Secretary, FCC, WC Docket Nos. 06-122, 05-337, CC Docket
    Nos. 96-45, 01-92, 99-68, 96-262 at 2 (filed Oct. 6, 2008)
    (supporting proposals to delay reform of originating access) (Cox
    Oct. 6, 2008 *Ex Parte* Letter); Letter from Brian Benison,
    Director---Federal Regulatory, AT&T, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 99-68, 96-45, WC Docket Nos.
    05-337, 07-135, Attach. at 3 (filed Oct. 7, 2008) (describing model
    with "No Change to Current Structure and Rates" for originating
    access); Letter from Kathleen O'Brien Ham, Federal Regulatory
    Affairs, T-Mobile, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92 at 5 (filed Oct. 3, 2008); *cf.* Letter from Mary C.
    Albert, Assistant General Counsel, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92, WC Docket Nos. 04-36, 05-337, Attach. at 1
    (filed Oct. 2, 2008) (urging the Commission to delay any changes to
    intercarrier compensation).  *But see* Letter from Anna M. Gomez,
    Vice President, Government Affairs, COMPTEL, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at
    7 (filed Oct. 1, 2008) (urging the Commission to reform originating
    access immediately) (Sprint Oct. 1, 2008 *Ex Parte* Letter).

[^737]: *See infra* para 346.

[^738]: This prohibition on increasing access rates also applies to the
    Primary Interexchange Carrier Charge in section 69.153 of the
    Commission's rules, the per-minute Carrier Common Line charge in
    section 69.154 of the Commission's rules, and the per-minute
    Residual Interconnection Charge in section 69.155 of the
    Commission's rules. 47 C.F.R. §§ 69.153, 69.154, 69.155.

[^739]: *See supra* paras. 194--95 (prohibiting carriers from increasing
    their current rates, even if the interim, uniform reciprocal
    compensation rate is higher than one or more of its current rates).

[^740]: *See supra* section V.B.2.

[^741]: This approach is consistent with Commission precedent set forth
    in Part V.A, which started reforming intercarrier compensation in
    the 1980s. There the Commission found that a "transitional plan is
    necessary" in part because "\[i\]mmediate recovery of high fixed
    costs through flat end-user charges might cause a significant number
    of local exchange service subscribers to cancel local exchange
    service despite the existence of a Universal Service Fund" and
    "\[s\]uch a result would not be consistent with the goals of the
    Communications Act." *1983 Access Charge Order,* 93 FCC 2d at 243,
    para. 4. As a result, the Commission initially limited the flat rate
    charge imposed on end users, also known as the subscriber line
    charge or SLC, to \$1.00 (subsequent orders raised the cap on the
    subscriber line charge for residential users to \$6.50).

[^742]: *Competitive Telecomms. Ass'n v. FCC*, 309 F.3d 8, 14 (D.C. Cir.
    2002).

[^743]: *Southwestern Bell Tel. Co. v. FCC*, 153 F.3d 523, 538 (8th Cir.
    1998).

[^744]: *See, e.g.*, BellSouth *ICC FNPRM* Comments at 17 ("In order to
    avoid the market disruption and dislocation that would be associated
    with instantaneous implementation of a unified plan, BellSouth
    proposes a two-phase transition plan."); CCG *ICC FNPRM* Comments at
    2 ("Any plan that reduces access rates should be phased-in over as
    long a period as possible, at least for rural carriers, so these
    companies have time to prepare for and adjust to the economic
    impact."); Cincinnati Bell *ICC FNPRM* Comments at 12 ("The
    Commission must allow carriers the opportunity to earn this lost
    access revenue in the transition to a new compensation regime in
    order to make any regime change revenue neutral to the affected
    carriers."); CCAP *ICC FNPRM* Comments at 23 ("The CCAP believes
    that any reform of the existing intercarrier compensation regimes
    should take place over a three-to-five-year period . . . .").

[^745]: Missoula Plan, Executive Summary at 3 ("Recognizing the vast
    differences among carriers, the Plan creates three different
    transition schedules for intercarrier compensation rates.").

[^746]: Letter from Gary M. Epstein and Richard R. Cameron, Counsel for
    ICF, to Marlene H. Dortch, Secretary, FCC, CC Docket 01-92, Attach.
    2 at 3 (filed Aug. 16, 2004).

[^747]: Verizon Sept. 12, 2008 *Ex Parte* Letter at 9--10.

[^748]: Letter from Henry Hultquist, Federal Regulatory Vice-President,
    AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket 01-92, Attach
    1 at 4 (filed July 17, 2008).

[^749]: Letter from Richard M. Rindler, Counsel for CBICC, to Marlene H.
    Dortch, Secretary, FCC, CC Docket 01-92, Attach. 1 at 2.

[^750]: ARIC *ICC FNPRM* Comments, Attach. 1 at 33.

[^751]: NARUC *ICC FNPRM* Comments, Attach. C at 6.

[^752]: Letter from Philip F. McClelland, Senior Assistant Consumer
    Advocate, NASUCA, to Marlene H. Dortch, Secretary, FCC, CC Docket
    01-92, Attach. 1 at 1 (filed Dec. 14, 2004).

[^753]: *WorldCom*, 288 F.3d at 433.

[^754]: 47 U.S.C. § 251(g) (emphasis added). At the least, section
    251(g) preserved the interstate access regime the Commission had
    prescribed for all carriers (*see* *id.* (preserving "obligations
    (including receipt of compensation) . . . under any . . .
    regulation, order, or policy of the Commission . . . .")) and the
    intrastate access regime the Bell Operating Companies had agreed to
    in the Modified Final Judgment. *See* *United States v. AT&T*, 552
    F. Supp. at 169. Recognizing, however, that it would be
    "'incongruous to conclude that Congress was concerned about the
    effects of potential disruption to the interstate access charge
    system, but had no such concerns about the effects on analogous
    intrastate mechanisms,'" the Commission has consistently interpreted
    section 251(g) to preserve the intrastate access regime pre-dating
    the Act for all carriers. *ISP Remand Order*, 16 FCC Rcd at 9168
    n.66 (quoting *Local Competition First Report and Order*, 11 FCC Rcd
    at 15869, para. 732); *see also* *Competitive Telecomms. Ass'n v.
    FCC*, 117 F.3d 1068, 1072 (8th Cir. 1997) ("\[I\]t is clear from the
    Act that Congress did not intend all access charges to move to
    cost-based pricing, at least not immediately. The Act plainly
    preserves certain rate regimes already in place.").

[^755]: *See* *MAG Order*, 16 FCC Rcd 19613 (reducing interstate access
    charges for rate-of-return carriers); *CALLS Order*, 15 FCC Rcd
    12962 (reducing interstate access charges for price-cap carriers),
    *aff'd in relevant part by* *Texas Office of Pub. Util. Counsel v.
    FCC*, 265 F.3d at 324 (reasoning that because the Commission had not
    yet superseded the pre-Act interstate access regime, it retained
    authority under section 201(b) to set just and reasonable rates for
    interstate access); *see also* *WorldCom*, 288 F.3d at 433 ("We will
    assume without deciding that under § 251(g) the Commission might
    modify LECs' pre-Act 'restrictions' or 'obligations,' pending full
    implementation of relevant sections of the Act. The Fifth Circuit
    appeared to make that assumption . . . .").

[^756]: *AT&T v.* *Iowa Utils. Bd*., 525 U.S. at 384; *see also id*. at
    378 ("The FCC has rulemaking authority to carry out the 'provisions
    of this Act,' which include §§ 251 and 252, added by the
    Telecommunications Act of 1996.")

[^757]: *See supra* section V.B.3.

[^758]: 47 U.S.C. § 201(b).

[^759]: 47 U.S.C. § 332.

[^760]: We have consistently found that ISP-bound traffic is
    jurisdictionally interstate. ISP-bound traffic melds a traditional
    circuit-switched local telephone call over the PSTN to packet
    switched IP-based Internet communication to Web sites. *Declaratory
    Ruling*, 14 FCC Rcd at 3702, para. 18; *ISP Remand Order*, 16 FCC
    Rcd at 9175, para. 52. This conclusion has not been questioned by
    the D.C. Circuit. *See WorldCom*, 288 F.3d at 431; *Bell Atlantic v.
    FCC*, 206 F.3d at 5 ("There is no dispute that the Commission has
    historically been justified in relying on this method when
    determining whether a particular communication is jurisdictionally
    interstate"). In other contexts, the Commission has likewise found
    that services that offer access to the Internet are jurisdictionally
    interstate services. In 1998, for example, the Commission found that
    ADSL service is jurisdictionally interstate. *See GTE Tel. Operating
    Cos.*, CC Docket No. 98-79, Memorandum Opinion and Order, 13 FCC Rcd
    22466, 22481, para. 28 (1998) ("finding that GTE's ADSL service is
    subject to federal jurisdiction" and is "an interstate service").
    More recently, the Commission has confirmed this ruling for a
    variety of broadband Internet access services. *See Inquiry
    Concerning High-Speed Access to the Internet Over Cable and Other
    Facilities*, GN Docket No. 00-185, CS Docket No. 02-52, Declaratory
    Ruling and Notice of Proposed Rulemaking, 17 FCC Rcd 4798, 4832,
    para. 59 (2002) (finding that, "on an end-to-end analysis," "cable
    modem service is an interstate information service"); *Wireline
    Broadband Internet Access Order*, 20 FCC Rcd at 14914, para. 110,
    *aff'd by Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs.*
    (*Brand X*), 545 U.S. 967 (2005); *Appropriate Regulatory Treatment
    for Broadband Access to the Internet Over Wireless Networks*, WT
    07-53, Declaratory Ruling, 22 FCC Rcd 5901, 5911, para. 28 (2007);
    *United Power Line Council's Petition for Declaratory Ruling
    Regarding the Classification of Broadband over Power Line Internet
    Access Service as an Information Service*, WC 06-10, Memorandum
    Opinion and Order, 21 FCC Rcd 13281, 13288, para. 11 (2006). In the
    *Vonage Order*, the Commission likewise found that VoIP services are
    jurisdictionally interstate, employing the same end-to-end analysis
    reflected in those other orders. *Vonage Order*, 19 FCC Rcd at
    22413--14, paras. 17--18.

[^761]: *ISP Remand Order*, 16 FCC Rcd at 9174, para. 50.

[^762]: *See ISP Remand Order*, at 9175, para. 51.

[^763]: We thus respond to the D.C. Circuit's remand order in
    *WorldCom*, 288 F.3d at 434, and the court's writ of mandamus in
    *Core Communications*, 531 F.3d at 861--62, which directed the
    Commission to explain its legal authority to issue the interim
    pricing rules for ISP-bound traffic adopted in the *ISP Remand
    Order*. Specifically, we find, for the reasons set forth above and
    in Part V.B.3, that the Commission had the authority to adopt the
    interim pricing regime pursuant to our broad authority under section
    201(b) to issue rules governing interstate traffic.

[^764]: *See* *Bell Atlantic*, 206 F.3d at 5.

[^765]: *See WorldCom*, 288 F.3d at 434.

[^766]: *Iowa Utils. Bd. v. FCC*, 219 F.3d 744, 757 (8^th^ Cir. 2000)
    (*Iowa Utils. II*), *rev'd in part sub nom. Verizon v. FCC*, 535
    U.S. 467.

[^767]: Indeed, as discussed above, the court expressly confirmed the
    Commission's independent authority to set rates for CMRS traffic
    pursuant to section 332 and declined to vacate the Commission's
    pricing rules as they applied in the context of CMRS service. *See
    supra* para. 214; *Iowa Utils. I*, 120 F.3d at 800 n.21.

[^768]: 47 U.S.C. § 252(d)(2)(A).

[^769]: 47 U.S.C. § 252(d)(2)(B).

[^770]: *Local Competition First Report and Order*, 11 FCC Rcd at 15515,
    15844--96, paras. 29, 672--732.

[^771]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15850--57, paras. 690--703, *see also* 47 C.F.R. § 51.505.

[^772]: *Local Competition First Report and Order*, 11 FCC Rcd at 16023,
    para. 1054. In applying the TELRIC methodology to reciprocal
    compensation, the Commission found that the "additional costs" to
    the LEC of terminating a call that originates on another carrier's
    network "primarily consists of the traffic-sensitive component of
    local switching." For purposes of setting rates, the Commission
    concluded that "only that portion of the forward-looking, economic
    cost of end-office switching that is recovered on a usage-sensitive
    basis constitutes an 'additional cost' to be recovered through
    termination charges." *Id.* at 16024--25, para. 1057. The Commission
    excluded non-traffic sensitive costs, such as the costs of local
    loops and line ports. *Id.* Further, the Commission concluded that
    termination rates established pursuant to the TELRIC methodology
    should include a reasonable allocation of forward-looking common
    costs because, the Commission reasoned, a rate equal to incremental
    costs may not compensate carriers fully when common costs are
    present. *Id.* at 16025, para. 1058. For transport, the Commission
    required the calling party's LEC to compensate the called party's
    LEC for the "additional costs" associated with transporting a call
    subject to section 251(b)(5) from the carriers' interconnection
    point to the called party's end office and for the additional costs
    of terminating the call to the called party. *Id.* at 16008--58,
    paras. 1027--118; see also 47 C.F.R. §§ 51.701(c), (d).

[^773]: *ISP* Remand Order, 16 FCC Rcd at 9185, para. 75); see also
    Letter from Norina Moy, Director, Government Affairs, Sprint Nextel,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket
    No. 04-36 (filed Sept. 26, 2008) (Sprint Nextel Sept. 26, 2008 Ex
    Parte Letter).

[^774]: *Intercarrier Compensation NPRM*, 16 FCC Rcd at 9616, para. 11.

[^775]: *See, e.g., Intercarrier Compensation NPRM*, 16 FCC Rcd at 9616,
    para. 11; *see also* *Intercarrier Compensation FNPRM*, 20 FCC Rcd
    at 4698 n.67 ("\[R\]eciprocal compensation rates often substantially
    exceed the per-minute incremental cost of terminating a call and
    therefore create a potential windfall for carriers that serve
    customers that primarily or exclusively receive traffic."); *ISP
    Remand Order*, 16 FCC Rcd at 9192, para. 87 ("\[T\]here may be a
    considerable margin between current reciprocal compensation rates
    and the actual costs of transport and termination."); BellSouth
    *ICC* NPRM Comments at 9 ("\[R\]eciprocal compensation payments
    enabled carriers to offer services to their customers at rates that
    bore little relationship to actual costs and provided the recipients
    of reciprocal compensation an advantage over their competitors.");
    Verizon *2000 Remand of ISP Declaratory Ruling Public Notice*
    Comments at 11--12 (noting that competitive LECs with ISP customers
    reap a "windfall profit" because of high reciprocal compensation
    rates).

[^776]: *See*, *e.g.,* Eastern Rural Telecom Ass'n *ICC FNPRM* Comments
    at 2--3 ("Depending on the assumptions used to develop a company's
    TELRIC study, the results can vary significantly and be open to
    challenge.").

[^777]: If *C*(*q*) represents the cost of producing an output *q* and
    ∆*q* represents an increment of output, then incremental cost is
    equal to *C*(*q*+∆*q*) -- *C*(*q*). If incremental cost is used as a
    guide to pricing, then price should be set equal to the average
    incremental cost ![](media/image7.wmf){width="1.19375in"
    height="0.4583333333333333in"}. If there are no fixed costs and
    initial output *q* = 0, then incremental cost pricing is equivalent
    to average cost pricing. If ∆*q* is small, then incremental cost
    pricing approximates marginal cost pricing. *Cf. Local Competition
    First Report and Order,* 11 FCC Rcd at 15844, para. 675.

[^778]: 1 [Kahn, The Economics of Regulation]{.smallcaps} at 65--66.
    *See also* [Principles of Public Utility Rates]{.smallcaps} at
    [393.]{.smallcaps}

[^779]: If price is greater than the competitive level, consumer demand
    is less than supply, and demand would determine market volume. If
    price is less than the competitive level, then producers voluntarily
    would supply no more than the amount at which marginal cost is equal
    to price.

[^780]: Where the market price exceeds marginal cost, there will be an
    associated deadweight loss in social welfare. The deadweight loss
    represents the loss in consumer plus producer surplus caused by a
    deviation from the competitive equilibrium. *See, e.g.,* [Dennis W.
    Carlton & Jeffrey M. Perloff, Modern Industrial
    Organization]{.smallcaps} 84 (1990); [Kenneth E. Train, Optimal
    Regulation 185 (1992) (Optimal Regulation).]{.smallcaps}

[^781]: *See, e.g*., Ronald. H. Coase, *The Theory of Public Utility
    Pricing and Its Applications*, 1 [Bell J. Econ.]{.smallcaps} 113,
    113--128 (1970) (*Theory of Public Utility Pricing*); 1 [Kahn, The
    Economics of Regulation]{.smallcaps} at 63--86.

[^782]: *Theory of Public Utility Pricing*, 1 [Bell J.
    Econ.]{.smallcaps} at 122; Alexander C. Larson, *An Economic Guide
    to Competitive Standards in Telecommunications Regulation*, 1
    [CommLaw Conspectus]{.smallcaps} 31, 47 n.100 (1993) (quoting
    *Theory of Public Utility Pricing*, 1 [Bell J. Econ.]{.smallcaps} at
    121--22).

[^783]: *See, e.g.,* 1 [Kahn, The Economics of Regulation]{.smallcaps}
    at 109--16.

[^784]: *Local Competition First Report and Order*, 11 FCC Rcd at 15813,
    15846, paras. 620, 679.

[^785]: *See* 1 [Kahn, The Economics of Regulation]{.smallcaps} at
    70--75, 83--103; *see also* [Phillips, The Economics of
    Regulation]{.smallcaps} at [390--91 (]{.smallcaps}rev. ed. 1969);
    [Principles of Public Utility Rates]{.smallcaps} at 417--25.

[^786]: 1 [Kahn, The Economics of Regulation]{.smallcaps} at [71; Daniel
    F. Spulber, Regulation and Markets]{.smallcaps} 234 (1989)
    ([Regulation and Markets)]{.smallcaps}.

[^787]: 1 [Kahn, The Economics of Regulation]{.smallcaps} at
    [84.]{.smallcaps}

[^788]: 1 [Kahn, The Economics of Regulation]{.smallcaps} at 88.

[^789]: *Local Competition First Report and Order*, 11 FCC Rcd at 15851,
    para. 692.

[^790]: *Local Competition First Report and Order*, 11 FCC Rcd at 16023,
    para. 1054.

[^791]: 1 [Kahn, The Economics of Regulation]{.smallcaps} at
    [89.]{.smallcaps}

[^792]: *See Local Competition First Report and Order* at 15878, paras.
    755--57. *See also* 1 [Kahn, The Economics of
    Regulation]{.smallcaps} at [91--93.]{.smallcaps}

[^793]: *Cf. Local Competition First Report and Order,* 11 FCC Rcd at
    15845, para. 676 ("The term 'common costs' refers to costs that are
    incurred in connection with the production of multiple products or
    services, and remains unchanged as the relative proportion of those
    products or services varies (e.g., the salaries of corporate
    managers).").

[^794]: *See, e.g*., Gerald R. Faulhaber, *Cross-Subsidization: Pricing
    in Public Enterprises*, 65 [Am. Econ. Rev.]{.smallcaps} 966, 966--77
    (1975). Faulhaber's objective in the paper was to define a test for
    cross subsidy, which could precisely define the maximum and minimum
    prices that a regulated firm should be allowed to charge to any
    subset of customers; [William J. Baumol et al., Contestable Markets
    and the Theory of Industry Structure]{.smallcaps} 351--56 (1982);
    William J. Baumol, *Minimum and Maximum Pricing Principles for
    Residual Regulation, in Current Issues in* [Public Utility
    Economics]{.smallcaps} (A. Danielson & D. Kamerschen eds., 1983).

[^795]: *Local Competition First Report and Order*, 11 FCC Rcd at 15631,
    para. 258.

[^796]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15848--49, paras. 683--85.

[^797]: *Local Competition First Report and Order*, 11 FCC Rcd at 15850,
    para. 690.

[^798]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15852--53, para. 696.

[^799]: *Local Competition First Report and Order*, 11 FCC Rcd at 15693,
    para. 385.

[^800]: *Local Competition First Report and Order*, 11 FCC Rcd at 16025,
    para. 1057.

[^801]: *Local Competition First Report and Order*, 11 FCC Rcd at 16025,
    para. 1057. *Cf.* 47 U.S.C. § 51.509(b) (requiring only that line
    port costs of the unbundled local switching element be recovered
    through a flat-rated charge).

[^802]: 47 U.S.C. § 51.509(d).

[^803]: *See, e.g.,* [Regulation and Markets]{.smallcaps} at
    [122--23.]{.smallcaps}

[^804]: *See, e.g.*, *Theory of Public Utility Pricing*, 1 [Bell J.
    Econ.]{.smallcaps} at 117--20; [Optimal Regulation]{.smallcaps} at
    [191--213]{.smallcaps}.

[^805]: Demand for subscription is generally estimated to be
    significantly less elastic than demand for usage. *See* Mercatus
    Center Sept. 22, 2008 *Ex Parte* Letter at 3 n.15; Jerry Hausman &
    Howard Shelanski, *Economic Welfare and Telecommunications
    Regulation: The E-Rate Policy for Universal-Service Subsidies*, 16
    [Yale J. on Reg.]{.smallcaps} 19, 39 (1999) (estimating elasticity
    of demand for subscription to be -.005, whereas elasticity of demand
    for long-distance service is closer to -0.7); *Effects of Breakup of
    AT&T*, 83 [Am. Econ. Rev.]{.smallcaps} at 182 (estimating elasticity
    of demand for basic access at -0.005 and elasticity of demand for
    long-distances service between -0.25 and -1.2).

[^806]: *See* Sprint Nextel Sept. 26, 2008 *Ex Parte* Letter. The data
    used in the analysis were obtained from the March 2006 "Survey of
    Unbundled Network Element Prices in the United States."

[^807]: Sprint Nextel Sept. 26, 2008 *Ex Parte* Letter, Attach. at 3--4.

[^808]: We note that NuVox disputes some of Sprint Nextel's assumptions.
    *See, e.g.*, Letter from Brad Mutschelknaus & John J. Heitmann,
    Counsel to NuVox, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92 and WC Docket No. 04-36 (filed Oct. 27, 2008) (NuVox Oct.
    27 *Ex Parte* Letter). There is insufficient information in the two
    *ex parte* submissions for us to resolve this dispute. Carriers
    remain free to raise issues for consideration in the course of state
    proceedings.

[^809]: Richard N. Clarke et al., *Economic Benefits from Reform of
    Intercarrier Compensation (ICF Economists)*, *attached to* ICF *ICC
    FNPRM* Reply, Errata, App. A.

[^810]: *ICF Economists* at 22.

[^811]: *ICF Economists* at 20--21.

[^812]: *ICF Economists* at 21.

[^813]: Letter from Henry Hultquist, Vice President-Regulatory Affairs,
    AT&T Services, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 01-92, 05-337, 96-45, 99-68, 07-135 (filed Oct. 4, 2008) (AT&T
    Oct. 4, 2008 *Ex Parte* Letter).

[^814]: AT&T Oct. 4, 2008 *Ex Parte* Letter at 2.

[^815]: AT&T Oct. 4, 2008 *Ex Parte* Letter at 3.

[^816]: AT&T Oct. 4, 2008 *Ex Parte* Letter at 2--3.

[^817]: AT&T Oct. 4, 2008 *Ex Parte* Letter at 3--4.

[^818]: AT&T Oct. 4, 2008 *Ex Parte* Letter at 4.

[^819]: Letter from Eric N. Einhorn, Vice President, Federal Government
    Affairs, Windstream Communications, to Marlene H. Dortch, Secretary,
    FCC, CC Docket Nos. 96-45, 99-68, 01-92 and WC Docket Nos. 05-337,
    06-122, 07-135, 08-152 (filed Oct. 27, 2008) (Windstream Oct. 27,
    2008 *Ex Parte* Letter); Letter from John J. Heitmann, Counsel for
    NuVox, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92
    (filed Oct. 24, 2008) (NuVox Oct. 24, 2008 *Ex Parte* Letter).

[^820]: *See* Letter from Henry Hultquist, Vice President Federal
    Regulatory, AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 96-45, 99-68, 01-92 and WC Docket Nos. 05-337, 07-135 (Oct. 28,
    2008) (AT&T's response appears specific to the NuVox Oct. 24, 2008
    *Ex Parte* Letter).

[^821]: *See* Windstream Oct. 27, 2008 *Ex Parte* Letter at 2.

[^822]: *See* Windstream Oct. 27, 2008 *Ex Parte* Letter at 2--3; NuVox
    Oct. 24, 2008 *Ex Parte* Letter, Attach. at 8--9.

[^823]: *See* NuVox Oct. 24, 2008 *Ex Parte* Letter, Attach. at 14--15.

[^824]: *See* NuVox Oct. 24, 2008 *Ex Parte* Letter, Attach. at 18 &
    n.40.

[^825]: *See, e.g*., VoIP-Info.org, Bandwidth Consumption,
    http://www.voip-info.org/wiki-Bandwidth+consumption (last visited
    Oct. 25, 2008); Westbay, Voice over IP Bandwidth,
    [http://www.erlang.com/bandwidth.html]{.underline} (last visited
    Oct. 24, 2008) (investigating bandwidth requirements for the
    transmission of voice over an IP based network).

[^826]: In this analysis, we ignore the additional economies that can
    result because multiple packet streams for voice traffic can be
    transmitted simultaneously over the same channel capacity.

[^827]: The lower estimate is contained in the Wikipedia entry
    "Broadband Internet Access,"
    http://en.wikipedia.org/wiki/Broadband_Internet_access (last visited
    Oct. 11, 2008). The higher estimate is contained the trade
    publication Telephony Online, "OFC: BellSouth Chief Architect warns
    of HD VOD costs," March 7, 2006,
    http://telephonyonline.com/iptv/news/BellSouth_VOD_costs_030706
    (last visited Oct. 11, 2008). Both estimates are also reported in
    David Clark, A Simple Cost Model for Broadband Access: What Will
    Video Cost?, Presentation at the Telecommunications Policy Research
    Conference (Sept. 28, 2008), *available at*
    http://tprcweb.com/files/Cost%20analysis%20TPRC.pdf.

[^828]: The cost of the local loop is clearly a common cost that is
    shared by all of the voice, video, and data services consumed by the
    subscriber and should not be included under any reasonable
    definition of incremental cost.

[^829]: Broadband Internet service is typically priced on the basis of
    capacity---either the maximum instantaneous upload and download
    speed or, as in this example, total monthly traffic. A rigorous
    application of true incremental cost pricing would require measuring
    each customer's contribution to system costs, which primarily
    consists of the delays or packet losses imposed on other users. For
    this purpose, minutes of use are largely irrelevant.

[^830]: These estimated costs do not include the costs of billing,
    advertising, or other customer care expenses. As with the case of
    the local loop, we believe that such costs should not be included in
    any measure of long run incremental cost of call termination.

[^831]: It is very unlikely that the cost estimates are significantly
    low. Telecommunications carriers continue to upgrade their networks
    to provide precisely the range of video and data services that the
    articles in a previous footnote were concerned with. Indeed, the
    BellSouth estimate was given with concern that such services would
    not be viable unless that estimate of cost could be reduced in the
    near future. Very similar arguments were made exactly 20 years ago
    in [Robert M. Pepper, Through the Looking Glass: Integrated
    Broadband Networks, Regulatory Policy, and Institutional
    Change]{.smallcaps} (FCC, OPP Working Paper No. 24, Nov. 1988),
    *available at*
    http://www.fcc.gov/Bureaus/OPP/working_papers/oppwp24.pdf.

[^832]: *See infra* section V.C.1*.*

[^833]: We find it preferable to shift entirely to an approach based on
    the traditional economic definition of incremental cost, rather than
    trying to achieve the same result through extensive revisions to the
    TELRIC methodology as some commenters suggest. *See, e.g*., Rural
    Alliance *ICC FNPRM* Comments at 50--54 (calling for a more precise
    definition of TELRIC for purposes of reciprocal compensation).

[^834]: *Brand X*, 545 U.S. at 981 (quoting *Chevron U.S.A. Inc. v.
    Nat'l Res. Def. Counci*l (*Chevron*), 467 U.S. 837, 863--64 (1984)
    and citing *Motor Vehicle Mfrs. Ass'n of United States, Inc. v.
    State Farm Mut. Automobile Ins. Co*. (*State Farm*), 463 U.S. 29, 59
    (1983) (Rehnquist, J., concurring in part and dissenting in part)).

[^835]: *Intercarrier Compensation FNPRM*, 20 FCC Rcd at 4719, para. 71.

[^836]: *See, e.g.,* CTIA *ICC FNPRM* Comments at 16 ("Because a call
    does not impose significant incremental costs on either the calling
    party's or called party's network, there is no justification for
    allowing the terminating network to impose any charge on the
    non-terminating network."); Frontier *ICC FNPRM* Comments at 7
    ("However, there is virtually NO additional incremental cost of
    sending a minute-of-use across \[dedicated hardware interfaces\].");
    Western Wireless *ICC FNPRM* Comments at 16 ("Independent Wireless
    Carriers urge the Commission to confine its analysis of 'additional
    cost' only to the incremental traffic-sensitive switching and
    transport costs actually incurred by the parties exchanging traffic
    for purposes of intercarrier compensation.").

[^837]: We reaffirm that the TELRIC methodology is appropriate for
    setting interconnection and network element rates pursuant to
    section 252(d)(1), where Congress directed the Commission to
    consider a "reasonable profit."

[^838]: The Supreme Court affirmed the Commission's authority to apply a
    cost methodology for the states to implement. *AT&T v.* *Iowa Utils.
    Bd.*, 525 U.S. at 378.  *See also id.* at 378 n.6 ("\[T\]he question
    in these cases is not whether the Federal Government has taken the
    regulation of local telecommunications competition away from the
    States.  With regard to the matters addressed by the 1996 Act, it
    unquestionably has."); 47 U.S.C. § 201(b); *United Telegraph
    Workers, AFL-CIO v. FCC*, 436 F.2d 920, 923 (D.C. Cir. 1970)
    (citations and quotations omitted) (finding that section 201(b)
    authorizes the Commission to "prescribe such rules and regulations
    as may be necessary in the public interest to carry out the
    provisions of this Act").

[^839]: *See* *Verizon v. FCC*, 535 U.S. at 499--501 ("\[W\]ithout any
    better indication of meaning than the unadorned term, the word
    'cost' in section 252(d)(1), as in accounting generally, is 'a
    chameleon,' a 'virtually meaningless' term . . . .") (citations
    omitted).

[^840]: *See* *Verizon v. FCC*, 535 U.S. at 499--501 (quoting *AT&T
    Corp. v. Iowa Utils. Bd.*, 525 U.S. at 423 (Breyer, J., concurring
    in part and dissenting in part)).

[^841]: *Capital Network System, Inc. v. FCC,* 28 F.3d 201, 204 (D.C.
    Cir. 1994). 

[^842]: *Brand X*, 545 U.S. at 981 (quoting *Chevron*, 467 U.S. at
    863--64 and citing *State Farm*, 463 U.S. at 59 (Rehnquist, J.,
    concurring in part and dissenting in part)).

[^843]: *See, e.g.,* *Adoption Of Rules For The Regulation Of Cable
    Television Pole Attachments,* CC Docket No. 78-144, Memorandum and
    Opinion and Second Report and Order, 72 FCC 2d 59, 62, para. 8
    (1979); *Adoption Of Rules For The Regulation Of Cable Television
    Pole Attachments,* CC Docket No. 78-144, Notice of Proposed
    Rulemaking, 68 FCC 2d 3, 15, App. (1978) (*Cable Television Pole
    Attachment NPRM*).

[^844]: *Cable Television Pole Attachment NPRM,* CC Docket No. 78-144,
    Notice of Proposed Rulemaking, 68 FCC 2d at 15, App.
    ("'Additional costs' are generally equivalent to what is referred to
    as incremental cost, and the proportional part of 'Operating
    expenses and actual capital costs' are generally equivalent to fully
    allocated costs." (quoting S. Rep. No. 95-580 at 19--21 (1977)).

[^845]: *See, e.g.,* *Atlantic Cleaners & Dyers, Inc. v. United States*,
    286 U.S. 427, 433 (1932).

[^846]: *Compare* 47 U.S.C. § 252(d)(1) *with* 47 U.S.C. § 252(d)(2).

[^847]: *See, e.g.*, *Intercarrier Compensation FNPRM*, 20 FCC Rcd at
    4694, 4697--98, 4717, 4719, paras. 16, 23--24, 66, 71--72;
    *Intercarrier Compensation NPRM*, 16 FCC Rcd at 9616-18, paras.
    11--18; *ISP Remand Order*, 16 FCC Rcd at 9161--62, paras. 18--20.

[^848]: For the same reasons, we reject suggestions that TELRIC should
    be used to set a unified rate for intercarrier compensation. *See,
    e.g*., Ohio PUC *ICC FNPRM* Comments at 20 ("\[T\]he Ohio Commission
    recommends the use of the TELRIC standard for setting intercarrier
    compensation rates."); Pac West et al*.* *ICC FNPRM* Comments at 9
    ("The 'additional cost' standard should continue to be tied to
    TELRIC"); Time Warner Telecom et al*.* *ICC FNPRM* Comments at 1--2
    ("\[A\] central component of reform must be the requirement that, to
    the extent possible, each carrier charge a single, cost-based rate
    for the exchange of all types of traffic. . . . \[T\]he Commission
    arguably has the authority to mandate that states use a cost-based
    methodology, in particular TELRIC, as the basis for setting all
    intercarrier termination rates."); Integra *ICC FNPRM* Comments at 3
    ("Integra urges the Commission to . . . \[u\]nify access and
    reciprocal compensation rates at TELRIC based levels on a
    company-by-company basis."); KMC and Xspedius *ICC FNPRM* Reply at 3
    ("\[T\]he Commission should support tariffed-based intercarrier
    compensation arrangements that: (i) set rates no higher than the
    comparable TELRIC (or similar cost-based) rates."); XO *ICC FNPRM*
    Reply at 11 ("\[T\]he only appropriate intercarrier compensation
    regime must include TELRIC-based rates.").

[^849]: The national average of TELRIC rates for transport and
    termination of calls was \$0.00212 in 2004, which likely overstates
    the actual incremental costs because, as noted above, TELRIC
    includes common and overhead costs and examines the average cost of
    the function, not the additional cost of terminating traffic. Letter
    from Richard M. Rindler, Counsel for the Cost-Based Intercarrier
    Compensation Coalition, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 at 3 (filed Sept. 2, 2004) (CBICC Sept. 9 *Ex
    Parte* Letter); *see also* Sprint Nextel Sept. 26, 2008 *Ex Parte*
    Letter.

[^850]: *See* T-Mobile *ICC FNPRM* Comments at 29--30.

[^851]: *Local Competition First Report and Order*, 11 FCC Rcd at 16025,
    para. 1057.

[^852]: A number of parties advocate for or against Commission adoption
    of bill-and-keep for intercarrier compensation. *See*, *e.g.*,
    Letter from Jonathan Askin, Counsel for FeatureGroup IP, to Marlene
    H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 3--4 (filed Oct.
    7, 2008); Letter from Paul W. Garnett, Assistant Vice President of
    Regulatory Affairs, CTIA, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 at 1 (filed Oct. 7, 2008); Corr *ICC FNPRM*
    Comments at 8; Cox *ICC FNPRM* Comments at 8--9; ICF *ICC FNPRM*
    Comments at 26, 30; Western Wireless et al. *ICC FNPRM* Comments at
    6--8. *But see, e.g.*, Letter from Tamar E. Finn, Counsel for
    PAETEC, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92,
    Attach. at 10 (filed Oct. 7, 2008) ("Mandatory Bill-and-Keep Is Not
    A Viable or Fair Solution"); Letter from Brad E. Mutschelknaus and
    Genevieve Morelli, Counsel for Cavalier Telephone et al*.,* to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed
    Oct. 3, 2008) ("\[T\]he adoption of mandatory bill-and-keep
    arrangements is extremely ill advised as a policy matter.");
    BellSouth *ICC FNPRM* Comments at 9 ("\[A\] plan to transition rates
    ultimately to bill-and-keep would not promote economic efficiency or
    preserve universal service, nor is bill-and-keep competitively
    neutral."); CCG Consulting Inc. (CCG) *ICC FNPRM* Comments at 7
    ("\[A\]ccess rates should not be reduced to zero through
    implementation of a Bill and Keep mechanism."); CenturyTel *ICC
    FNPRM* Comments at 4 (". . . CenturyTel unequivocally opposes
    replacing intercarrier compensation with a "bill and keep"
    regime."); CCAP *ICC FNPRM* Comments at 11 ("The CCAP urges the
    Commission to avoid implementation of a bill and keep regime
    . . . ."); Frontier *ICC FNPRM* Comments at 6 (arguing that bill and
    keep is inappropriate because it does not account for asymmetric
    traffic patterns); SBA *ICC FNPRM* Comments at 7 (arguing that
    bill-and-keep is inappropriate between rural and larger LECs due to
    various asymmetries). We believe the reforms we adopt here are
    preferable to a pure bill-and-keep requirement and more
    appropriately balance the interests of consumers and carriers at
    this time. The approach we adopt in this order avoids the need to
    resolve disputes in the record regarding bill-and-keep in various
    circumstances because it allows parties to advocate for such an
    approach before state commissions and parties may negotiate such
    arrangements.

[^853]: Some carriers have suggested that our changes in ratemaking
    methodology will necessarily produce confiscatory rates and
    constitute a taking. *See, e.g.*, NTCA, Interim Universal Service &
    Intercarrier Compensation Reform Proposal (NTCA Interim Proposal) at
    19--22, *attached to* Letter from Daniel Mitchell, Vice President,
    Legal & Industry, NTCA, to Marlene H. Dortch, Secretary, FCC, WC
    Docket No. 05-337, CC Docket Nos. 96-45, 01-92 (filed Oct. 6, 2008)
    (NTCA Oct. 6, 2008 *Ex Parte* Letter) (contending that the
    Commission's current access regime, not to mention any reductions in
    access rates, threatens rate-of-return carriers with
    unconstitutional takings). *See also* Cincinnati Bell *ICC FNPRM*
    11--12 ("The elimination of interstate switched access charges
    without an opportunity to earn the revenue in another fashion could
    be confiscatory . . . ."); GVNW Consulting *ICC FNPRM* Comments at 9
    ("The existing system of cost recovery consisting of three equally
    important components of access charges, universal service support,
    and local rates is the only approach available to the Commission
    that will enable it to avoid valid claims of confiscation."). This
    argument lacks merit. Faced with a similar challenge to the TELRIC
    methodology previously adopted by the Commission, the Supreme Court
    stated unequivocally that "this Court has never considered a taking
    challenge on a ratesetting methodology without being presented with
    specific rate orders alleged to be confiscatory . . . ." *Verizon v.
    FCC*, 535 U.S. at 524 (citations omitted).

[^854]: *See FPC v. Hope Natural Gas Co*., 320 U.S. 591, 605 (1944)
    ("Rates which enable the company to operate successfully, to
    maintain its financial integrity, to attract capital, and to
    compensate its investors for the risks assumed certainly cannot be
    condemned as invalid, even though they might produce only a meager
    return . . . .").

[^855]: *FPC v. Hope Natural Gas Co*., 320 U.S. at 605*.*

[^856]: We recognize that the incremental cost of terminating traffic
    may include certain non-traffic-sensitive costs, such as the cost of
    a trunk port. Consistent with cost-causation principles, however,
    such non-traffic-sensitive costs may not be recovered through
    per-minute charges, but must rather be recovered through flat-rated
    monthly charges associated with interconnection trunks.

[^857]: *See supra* section V.B.4.c.

[^858]: *See supra* section V.B.4.c.

[^859]: *See supra* section V.B.4.c.

[^860]: *See, e.g.*, *Federal-State Joint Board on Universal Service;
    Forward-Looking Mechanism for High Cost Support for Non-Rural LECs*,
    CC Docket Nos. 96-45, 97-160, Tenth Report and Order, 14 FCC Rcd
    20156, 20237, para. 186 (1999) (subsequent history and citation
    omitted) ("As we explained in the *Inputs Further Notice*, in
    determining appropriate cable sizes, network engineers include a
    certain amount of spare capacity to accommodate administrative
    functions, such as testing and repair, and some expected amount of
    growth."); *Triennial* *Review Order*, 18 FCC Rcd at 17166, para.
    312 n.919 (citing evidence that "the first carrier to lay fiber to a
    particular location will lay significantly more than it will need
    because the incremental cost of burying additional fibers is
    negligible").

[^861]: *See supra* section V.B.4.c.

[^862]: We thus go beyond the requirement in the *Local Competition
    First Report and Order* that only required states to exclude the
    cost of line ports, *see* 11 FCC Rcd at 16025, para. 1057, and
    mandate that *all* non-traffic sensitive costs be excluded.

[^863]: *See, e.g.*, *supra* section V.B.4.c.

[^864]: *See* Letter from Hank Hultquist, AT&T Services, Inc., and Donna
    Epps, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92 at 1--2 (filed Oct. 14, 2008) (AT&T and Verizon Oct. 14, 2008
    *Ex Parte* Letter) (providing seven default rules). We reject
    PAETEC's assertion that the Commission lacked notice to adopt such
    rules. *See* Letter from Jonathan S. Frankel and Michael A. Romano,
    Counsel for PAETEC, CC Docket Nos. 99-68, 01-92 at 2-3 (Oct. 28,
    2008) (PAETEC Oct. 28, 2008 *Ex Parte* Letter). The Commission
    expressly sought comment on this issue in the *Intercarrier
    Compensation FNPRM*. *Intercarrier Compensation FNPRM*, 20 FCC Rcd
    at 4687, 4702-03, 4712-13, 4727-30, paras. 4, 34, 40-44, 54, 91-97.

[^865]: Thus, the default "edge" rule we adopt today does not alter any
    obligations of incumbent LECs' to interconnect at any technically
    feasible point, nor does the rule alter carriers' ability to request
    interconnection. *See, e.g.*, Letter from Susanne A. Guyer, Verizon,
    to Chairman Kevin J. Martin, FCC, CC Docket Nos. 96-45, 01-92, WC
    Docket Nos. 05-337, 06-112 at 5 (filed Oct. 5, 2008). *See also,
    e.g.*, PAETEC Oct. 28, 2008 *Ex Parte* Letter at 5-6 (expressing
    concern that the adoption of rules regarding a network "edge" not
    alter existing rules and obligations regarding physical
    interconnection). Moreover, the "edge" rules we adopt, which will
    apply at the end of the transition period, are merely a default, and
    carriers are free to negotiate alternative arrangements.

[^866]: "Symmetrical compensation arrangements are those in which the
    rate paid by an incumbent LEC to another telecommunications carrier
    for transport and termination of traffic originated by the incumbent
    LEC is the same as the rate the incumbent LEC charges to transport
    and terminate traffic originated by the other telecommunications
    carrier." *Local Competition First Report and Order*, 11 FCC Rcd at
    16031--32, para. 1069.

[^867]: *Local Competition First Report and Order*, 11 FCC Rcd at 16040,
    para. 1085. The Commission provided the following findings
    supporting its conclusion: (1) "using the incumbent LEC's
    forward-looking costs for transport and termination of traffic as a
    proxy for the costs incurred by interconnected carriers satisfies
    the requirements of section 252(d)(2)" and "is consistent with
    section 252(d)(2)(B)(ii)"; (2) "\[i\]f both parties are incumbent
    LECs, . . . the larger LEC's forward-looking costs should be used to
    establish the symmetrical rate for transport and termination";
    (3) "larger LECs are generally in a better position to conduct a
    forward-looking economic cost study"; (4) "imposing symmetrical
    rates based on the incumbent LEC's additional forward-looking costs
    will not substantially reduce carriers' incentives to minimize those
    costs"; and (5) "states may establish transport and termination
    rates in the arbitration process that vary according to whether the
    traffic is routed through a tandem switch or directly to the
    end-office switch." *Id.* at 16040--42, paras. 1085--86, 1090.

[^868]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16040, para. 1085.

[^869]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16040, para. 1086 ("A symmetric compensation rule gives the
    competing carriers correct incentives to minimize its own costs of
    termination because its termination revenues do not vary directly
    with changes in its own costs.").

[^870]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16041, para. 1087 (noting that incumbent LECs have used their
    greater bargaining power to negotiate asymmetrical rates with CMRS
    providers and to charge CMRS providers origination, as well as
    termination, charges).

[^871]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16041--42, para. 1088.

[^872]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16042, para. 1089.

[^873]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16042, para. 1089.

[^874]: We note that the rates that will apply under our transition
    plan, discussed *supra* Part V.B.2, will not necessarily be
    symmetric. For example, we do not permit CMRS providers to assess
    access charges during the transition. *See supra* para. 197; 47
    U.S.C. § 251(f)(2). Our symmetry rules thus apply outside the
    transition framework, i.e., for carriers exchanging traffic at the
    final, uniform reciprocal compensation rate, or for carriers that
    have received a suspension or modification of our intercarrier
    compensation requirements pursuant to 251(f)(2).

[^875]: Indeed, we are only aware of one case where a competitive LEC
    attempted to rebut the presumption and, in that case, the state
    commission found that the competitive LEC had failed to do so. *See*
    Petition of Sprint Spectrum L.P. d/b/a Sprint PCS, Pursuant to
    Section 252(b) of the Telecommunications Act of 1996, for
    Arbitration to Establish an Intercarrier Agreement with Verizon New
    York Inc., Case 01-C-0767, Arbitration Order, 2002 WL 31505732 (N.Y.
    P.S.C. 2002) (holding that Sprint did not rebut the presumption that
    its costs were higher than the incumbent LEC's).

[^876]: *See* [The Commission of the European Communities, Draft
    Commission Recommendation on the Regulatory Treatment of Fixed and
    Mobile Termination Rates in the EU]{.smallcaps} 3, para. 3 (2008),
    *available at*
    http://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/termination_rates/termination.pdf
    (last visited Oct. 24, 2008) ([European Communities]{.smallcaps}).

[^877]: *See* [European Communities]{.smallcaps} at [2,]{.smallcaps}
    para[. 2]{.smallcaps}.

[^878]: *See* [European Communities]{.smallcaps} at [3,]{.smallcaps}
    para[. 3]{.smallcaps}.

[^879]: This section requires that, in setting rates under
    interconnection agreements, states must ensure that reciprocal
    compensation charges are a "reasonable approximation of the
    additional costs of terminating such calls." *See* 47 U.S.C.
    § 252(d)(2)(A)(ii). In the *Local Competition First Report and
    Order*, the Commission found that the incumbent LEC's costs were a
    reasonable proxy for other carriers' costs. 11 FCC Rcd at 16040,
    para. 1085*.* We reaffirm that finding, especially given that our
    pricing methodology focuses on the costs of the least cost, most
    efficient network technology. Moreover, per the express terms of the
    Act, the "additional costs" standard applies only to the costs of
    the incumbent LEC, not the competitive LEC. This interpretation of
    the Act promotes efficiency and therefore bolsters competition,
    consistent with the goals of the Act. *See* 1996 Act, Preamble
    (declaring the purpose of the Act to be "to promote competition and
    reduce regulation in order to secure lower prices and higher quality
    services for American telecommunications consumers and encourage the
    rapid deployment of new telecommunications technologies").

[^880]: *See supra* section V.B.4.c.

[^881]: 47 U.S.C. § 251(f)(2).

[^882]: 47 U.S.C. § 251(f)(2).

[^883]: *Local Competition First Report and Order*, 11 FCC Rcd at 16118,
    para. 1263; 47 U.S.C. § 251(f)(2).

[^884]: *AT&T v. Iowa Utils. Bd*., 525 U.S. at 385.

[^885]: *See* 47 C.F.R. § 51.405(b). In the *Local Competition First
    Report and Order*, the Commission held that, in petitions under
    section 251(f)(2), "a LEC must offer evidence that application of
    those requirements would be likely to cause undue economic burdens
    beyond the economic burdens typically associated with efficient
    competitive entry." 11 FCC Rcd at 16118, para. 1262. The Commission
    also placed the burden of proof on the carrier seeking the relief
    under section 251(f)(2). *Id*. at 16118, para. 1263. Although the
    Supreme Court ultimately upheld the Commission's authority to
    interpret section 251(f), *see* *AT&T v. Iowa Utils. Bd*., 525 U.S.
    at 385, the Eighth Circuit subsequently vacated the Commission's
    interpretation of "undue economic burden," finding that the Act
    requires a state to look at the entire economic burden not just the
    additional burden of complying with sections 251(b) or 251(c). *See
    Iowa Utils. II*, 219 F.3d at 759--62. The Eighth Circuit also found
    that the Commission erred in placing the burden of proof on the
    rural LEC when a requesting carrier seeks to remove the section
    251(f)(1) exemption from section 251(c). The Eighth Circuit
    therefore vacated sections 51.405(a), (c), and (d) of our rules,
    *id*. at 762, but did not disturb the allocation of burden of proof
    under section 251(f)(2) as set forth in 47 C.F.R. § 51.405(b).

[^886]: 47 U.S.C. § 251(f)(2) (emphasis added).

[^887]: 47 U.S.C. § 251(f)(1).

[^888]: Moreover, if, in the future, we have evidence that states are
    granting arbitrarily long suspensions/modifications to requesting
    LECs, the Commission will consider imposing a limit on the number of
    years that a suspension/modification is appropriate.

[^889]: 47 U.S.C. § 251(f)(2)(A)(i) (emphasis added).

[^890]: [Webster's Ninth New Collegiate Dictionary]{.smallcaps} 1096
    (1991).

[^891]: 47 U.S.C. § 251(f)(2)(A)(i) (emphasis added).

[^892]: *See* 47 U.S.C. § 251(f)(2)(A)(ii).

[^893]: *Iowa Utils. II*, 219 F.3d at 761. The Commission initially
    interpreted undue economic burden to mean the "undue economic burden
    beyond the economic burden that is typically associated with
    efficient competitive entry." 47 C.F.R. § 51.405(d). The Eighth
    Circuit vacated this reading of the statute. *See Iowa Utils. II*,
    219 F.3d at 760--61.

[^894]: 47 U.S.C. § 251(f)(2)(A)(iii).

[^895]: 47 U.S.C. § 251(f)(2)(B).

[^896]: *See* *supra* section V.A.3.

[^897]: *AT&T v. Iowa Utils. Bd*., 525 U.S. at 385.

[^898]: Section 201(b) authorizes the Commission to "prescribe such
    rules and regulations as may be necessary in the public interest to
    carry out the provisions of this Act." 47 U.S.C. § 201(b); *see
    also* 47 U.S.C. § 154(i) ("The Commission may perform any and all
    acts, make such rules and regulations, and issue such orders, not
    inconsistent with this Act, as may be necessary in the execution of
    its functions."). "\[T\]he grant in § 201(b) means what it says: The
    FCC has rulemaking authority to carry out the 'provisions of this
    Act.'" *AT&T v. Iowa Utils. Bd*., 525 U.S. at 378. As the Supreme
    Court has confirmed, this grant of authority necessarily includes
    section 251(f). *AT&T v. Iowa Utils. Bd*., 525 U.S. at 385 (holding
    that the Commission has "jurisdiction to promulgate rules . . .
    regarding rural exemptions"); *see also id.* at 378 n.6 ("\[T\]he
    question in theses cases is not whether the Federal Government has
    taken the regulation of local telecommunications competition away
    from the States.  With regard to the matters addressed by the 1996
    Act, it unquestionably has."). 

[^899]: 47 U.S.C. § 251(f)(2) ("The State commission shall act upon any
    petition filed under this paragraph within 180 days after receiving
    such petition.").

[^900]: *See* 47 U.S.C. § 252.

[^901]: *See* *Triennial Review Order*, 18 FCC Rcd at 17404, para. 700.
    Although section 252(a)(1) and section 252(b)(1) refer to requests
    that are made *to* incumbent LECs, we have interpreted that in the
    interconnection agreement context to mean that either the incumbent
    or the competitive LEC may make such a request, consistent with the
    parties' duty to negotiate in good faith pursuant to section
    251(c)(1). *See Triennial Review Order*, 18 FCC Rcd at 17405, para.
    703 n.2087; *see also* 47 U.S.C. §§ 251(c)(1), 252(a)(1), (b)(1). We
    believe that this adequately addresses concerns about existing
    interconnection agreements that do not include express change of law
    provisions.

[^902]: *See, e.g.,* Verizon Sept. 12, 2008 *Ex Parte* Letter, Attach.
    at 5--6 (urging that any new intercarrier compensation regime
    displace such contracts). By the same token, we decline to insulate
    existing interconnection agreements from the section 252 processes
    to the extent that some commenters propose that they remain in
    effect. *See, e.g.*, Letter from Melissa E. Newman, Vice
    President---Federal Regulatory, Qwest, to Marlene H. Dortch,
    Secretary, FCC, WC Docket Nos. 05-337, 04-36, 06-122, 05-195, CC
    Docket Nos. 01-92, 96-45, 99-68, Attach. at 13 (filed Oct. 7, 2008)
    (proposing that the Commission "order that those prior arrangements
    should at least presumptively remain in force after the
    implementation of a new, unified . . . rate regime").

[^903]: 47 U.S.C. § 251(a)(1).

[^904]: Several commenters request that the Commission give them a fresh
    look at existing contracts. *See, e.g.*, Letter from Richard R.
    Cameron and Teresa D. Baer, Counsel for Global Crossing, to Marlene
    H. Dortch, Secretary, FCC, WC Docket No. 08-152; CC Docket Nos.
    01-92, 99-68, 96-45 at 2 (filed Sept. 18, 2008) (asking that the
    Commission "provide an 18-month window within which carriers can
    reconfigure their interconnection facilities without incurring
    reconfiguration charges or early termination liabilities under
    existing transport contracts"); Ad Hoc *ICC FNPRM* Comments at
    22--24 (arguing that customers should be allowed to opt out of
    existing contracts); Earthlink *ICC FNPRM* Reply at 7 (arguing that
    end users should have the opportunity to negotiate different terms
    and, if renegotiation is not possible, be permitted to terminate
    existing contracts without liability).

[^905]: *See, e.g.*, *Triennial Review Order*, 18 FCC Rcd at 17400,
    17402--03, paras. 692, 697--99; *see also,* *e.g.*, AT&T *ICC FNPRM*
    Reply at 17--19 (arguing against giving end users a fresh look at
    existing contracts). To the extent that there is evidence that
    particular termination penalties are inappropriate, the Commission
    can resolve such a matter through an enforcement proceeding. *See
    Triennial Review Order*, 18 FCC Rcd at 17403, para. 698.

[^906]: *See Triennial Review Order*, 18 FCC Rcd at 17403, para. 699.

[^907]: This situation is thus different than cases where the Commission
    found that certain contract provisions might adversely affect
    competition or where end-user customers would be denied the benefits
    of new Commission policy absent a fresh look opportunity. *See,
    e.g.*, *Local Competition First Report and Order*, 11 FCC Rcd at
    16044, para. 1094; *Expanded Interconnection with Local Telephone
    Company Facilities*, CC Docket No. 91-141, Second Memorandum Opinion
    and Order on Reconsideration, 8 FCC Rcd 7341, 7350, para. 21 (1993)
    (allowing a fresh look at agreements in "situations where excessive
    termination liabilities would affect competition for a significant
    period of time"); *Competition in the Interstate Interexchange
    Marketplace*, CC Docket No. 90-132, Report and Order, 6 FCC Rcd
    5880, 5907, para. 151 (1991) (giving customers of AT&T 90 days to
    terminate their contracts without penalty to let them "tak\[e\]
    advantage of 800 number portability when it arrives").

[^908]: *See supra* paras. 186--268.

[^909]: *See supra* paras. 159--185.

[^910]: *See, e.g.*, *First Reconsideration of 1983 Access Charge
    Order*, 97 FCC 2d 682; *Access Charge Reform Order*, 12 FCC Rcd
    15982; *CALLS Order*, 15 FCC Rcd 12962; *MAG Order*, 16 FCC Rcd
    19613.

[^911]: *First Reconsideration of 1983 Access Charge Order*, 97 FCC 2d
    at 686, para. 7.

[^912]: *CALLS Order*, 15 FCC Rcd at 12976, para. 33; *see also, e.g.*,
    *1983 Access Charge Order*, 93 FCC 2d at 243, para. 4 (finding that
    a "transitional plan is necessary" in part because "\[i\]mmediate
    recovery of high fixed costs through flat end user charges might
    cause a significant number of local exchange service subscribers to
    cancel local exchange service despite the existence of a Universal
    Service Fund" and "\[s\]uch a result would not be consistent with
    the goals of the Communications Act").

[^913]: For price cap and rate-of-return carriers, the current SLC cap
    for residential and single-line business lines is \$6.50, 47 C.F.R.
    §§ 69.104(n)(1)(ii)(C), 69.152(d)(1)(ii)(D), and the current SLC cap
    for multi-line business and Centrex lines is \$9.20, 47 C.F.R.
    §§ 69.104(o)(1)(i); 69.152(k)(1)(i). Price cap carriers currently
    also have a SLC cap of \$7.00 for non-primary residential lines. 47
    C.F.R. § 69.152(e)(1)(i).

[^914]: *See, e.g*., ICF *ICC FNPRM* Comments, App. C at C-7; NARUC Task
    Force July 24, 2006 *Ex Parte* Letter, Attach. 2 at 7; Letter from
    Curt Stamp, President, ITTA, to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92, Attach at 2--3 (filed Sept. 19, 2008); Verizon
    Sept. 12, 2008 *Ex Parte* Letter, Attach. at 6--7; Letter from Mary
    L. Henze, Executive Director---Federal Regulatory, AT&T, to Marlene
    H. Dortch, Secretary, FCC, CC Docket No. 01-92; WC Docket Nos.
    05-337, 06-112, 99-68, 07-135, Attach. at 2 (filed Oct. 9, 2008).

[^915]: *See, e.g.*, Letter from Anna M. Gomez, Vice President of
    Government Affairs, Sprint, to Marlene H. Dortch, Secretary, FCC, CC
    Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at 5 (filed Oct. 7,
    2008); Letter from Kathleen O'Brien Ham et al*.*, Federal Regulatory
    Affairs, T-Mobile USA, Inc., to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 at 8 (filed Oct. 3, 2008); Cox *ICC FNPRM*
    Comments at 5--6; Eschelon *ICC FNPRM* Comments at 12.

[^916]: *See* Letter from Ben Scott, Policy Director, Free Press, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC Docket
    Nos. 96-45, 01-92, Attach. 2 at 22 (filed Sept. 19, 2008); Letter
    from David C. Bergmann, Assistant Consumer's Counsel Chair, NASUCA
    Telecommunications Committee, to Marlene H. Dortch, Secretary, FCC,
    WC Dockets Nos. 08-152, 07-135, 06-122, 05-337, 05-195, 04-36,
    03-109, 02-60, CC Dockets Nos. 02-6, 01-92, 00-256, 99-68, 96-262,
    96-45, 80-286 at 10 (filed Sept. 30, 2008); Letter from James S.
    Blaszak, Counsel for Ad Hoc Telecommunications Users Committee, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC Docket
    Nos. 96-45, 01-92, Attach. at 4 (filed Oct. 14, 2008).

[^917]: *CALLS Order*, 15 FCC Rcd at 12976, para. 33. We note that
    section 54.403 of the Commission's rules provides for Tier 1
    lifeline support to cover the tariffed SLCs established by
    rate-of-return and price cap carriers pursuant to sections 69.104
    and 69.152 of the Commission's rules. 47 C.F.R. § 54.403.

[^918]: 2008 [Trends in Telephone Service]{.smallcaps}, tbl. 1.1
    (providing national weighted average SLCs for price cap carriers and
    all LECs in the NECA pool as of June 30, 2008).

[^919]: 2008 [Trends in Telephone Service,]{.smallcaps} tbl. 1.1.

[^920]: 2008 [Trends in Telephone Service,]{.smallcaps} tbl. 1.1

[^921]: Should a carrier agree to (or tariff) intercarrier charges below
    those that would be required by the reforms adopted in this order,
    the difference between the charges it sets and the maximum charges
    it is allowed to set may not be recovered through increased SLCs,
    nor may such carriers seek to obtain supplemental universal service
    support, as described in Part V.C.2, based on that difference.

[^922]: As discussed below, we are referring to the Joint Board, among
    other things, the question of whether, and to what extent, net
    reductions in intrastate intercarrier compensation revenues should
    be offset by revenues from interstate end-user charges. *See infra*
    paras. 303--310.

[^923]: To the extent that a carrier's state retail rates have been
    deregulated, that carrier may not increase its SLCs to recover any
    net loss in intrastate intercarrier compensation revenues.

[^924]: *Cf. Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Ninth Report and Order and Eighteenth Order on
    Reconsideration, 14 FCC Rcd 20432, 20486--87, para. 106 (1999)
    (*Universal Service Ninth Report and Order*) (specifying that
    "hold-harmless" universal service support "should continue to
    operate through the jurisdictional separations process to reduce
    book costs to be recovered in the intrastate jurisdiction.").

[^925]: *See, e.g.*, *Universal Service Ninth Report and Order*, 14 FCC
    Rcd 20432 (providing high-cost universal service support for
    intrastate costs).

[^926]: *Access Charge Reform Second Order*, 12 FCC Rcd at 16619--20,
    para. 44 (citing *Competitive Telecomms. Ass\'n v. FCC*, 87 F.3d
    522, 529 (D.C. Cir. 1996)).

[^927]: *See, e.g.*, *LEC Price Cap Order*, 5 FCC Rcd 6786 (adopting
    price cap regulation, under which rates are not tied directly to
    cost); *Pricing Flexibility Order*, 14 FCC Rcd 14221, 14307, para.
    168 (once price cap carriers are granted pricing flexibility, they
    lose the option of a low end adjustment, which would permit
    incumbent LECs earning rates of return less than 10.25% in a given
    year to increase their price cap indices to a level that would
    enable them to earn 10.25%.); *MCI Telecomms. Corp. v. U S WEST
    Commc'ns, Inc*., File Nos. E-97-08, E-97-20 through 24, Memorandum
    Opinion and Order, 15 FCC Rcd 9328, 9334, para. 14 (2000) (finding
    that incumbent LECs' non-cost-based PICC did not violate section
    201(b) given the Commission's prior establishment of a safe harbor).

[^928]: *Cf.* *Telephone Number Portability*, CC Docket No. 95-116,
    Third Report and Order, 13 FCC Rcd 11701, 11725--26, 11773--80,
    paras. 39, 135--49 (1998) (carriers other than incumbent LECs
    permitted to recover such costs in any lawful manner).

[^929]: 47 U.S.C. § 410(c).

[^930]: The Commission has referred non-separations issues to the
    Separations Joint Board previously. *See, e.g.*, *MTS and WATS
    Market Structure and Amendment of Part 67 of the Commission\'s
    Rules*, CC Docket Nos. 78-72, 80-286, Further Notice of Proposed
    Rulemaking, 49 Fed. Reg. 18318, 18318, para. 1 (1984) (referring to
    a Separations Joint Board issues including: (1) the subscriber line
    charge for residential and single-line business customers; (2) the
    transition mechanism for implementing subscriber line charges for
    these customers; (3) an exemption from the subscriber line charge or
    other assistance for low income households; and (4) additional
    assistance for small telephone companies.); *MTS and WATS Market
    Structure and Amendment of Part 67 of the Commission\'s Rules*, CC
    Docket Nos. 78-72, 80-286, Recommended Decision, 49 Fed. Reg. 48325,
    48327, para. 9 n.20 (1984) (noting that "\[s\]ince these issues do
    not involve the allocation of costs between the jurisdictions,
    preparation of a Joint Board recommendation is not mandatory.").

[^931]: ICF *ICC FNPRM* Comments, App. C at C-7.

[^932]: NARUC Task Force July 24, 2006 *Ex Parte* Letter, Attach. 2 at
    7.

[^933]: ITTA Sept. 19, 2008 *Ex Parte* Letter, Attach. at 2--3.

[^934]: CTIA Oct. 2, 2008 *Ex Parte* Letter, Attach. at 10. *See also,
    e.g.*, Letter from Norina Moy, Director, Government Affairs, Sprint,
    to Marlene H. Dortch, Secretary, FCC, WC Docket No. 04-36, CC Docket
    No. 01-92 at 2 (filed Aug. 7, 2008).

[^935]: Letter from Ben Scott, Policy Director, Free Press, Washington
    Office, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337,
    CC Docket Nos. 96-45, 01-92, Attach. 2 at 22 (filed Sept. 19, 2008);
    NASUCA Sept. 30, 2008 *Ex Parte* Letter at 10; Letter from James S.
    Blaszak, Counsel for Ad Hoc Telecommunications Users Committee, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC Docket
    Nos. 96-45, 01-92, Attach. at 4 (filed Oct. 14, 2008).

[^936]: Verizon Sept. 12, 2008 *Ex Parte* Letter at 6--7.

[^937]: Verizon Sept. 12, 2008 *Ex Parte* Letter.

[^938]: To the extent that interstate end-user charges are used to
    offset any lost intrastate intercarrier compensation revenues, we
    mandate that the states take account of those revenues in their
    state ratemaking by reducing the intrastate costs or revenue
    requirement to be recovered through intrastate rates.

[^939]: In this order, we do not decide the maximum amount that
    incumbent LECs ultimately may charge customers in the form of
    interstate end-user charges. As discussed above, that will depend
    upon further Commission action based on recommendations from the
    Joint Board.

[^940]: *See, e.g.*, *CALLS Order*, 15 FCC Rcd 12962; *MAG Order*, 16
    FCC Rcd 19613; *see also* *MAG* Second *FNPRM*, 19 FCC Rcd 4122.

[^941]: *Alenco*, 201 F.3d at 620.

[^942]: CTIA *ICC* *FNPRM* Comments at 37 citing Western Wireless Reply,
    CC Docket No. 96-45, Attach. at 2--5 (filed Dec. 14, 2004)
    (attaching Economics and Technology, Inc., *Reforming Universal
    Service Funding for Rural ILECs: An Idea Whose Time Has Come*).

[^943]: Thomas W. Hazlett, *"Universal Service Telephone Subsidies: What
    Does \$7 Billion Buy?* (*Universal Service Telephone Subsidies*) at
    33*, attached to* Core *Missoula Phantom Traffic* Comments, Tab B
    (quotation omitted).

[^944]: *A Fair Copper*, [Financial Times]{.smallcaps}, Oct. 28, 2008,
    at 16.

[^945]: *Universal Service Telephone Subsidies* at 34.

[^946]: *Universal Service Telephone Subsidies* at 34, 70. *See also*
    Julie Tanner, General Counsel, Chinook Wireless, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket Nos. 05-337,
    08-10, Attach. 1 at 7 (filed Feb. 22, 2008) (arguing that incumbent
    LECs receiving universal service support "send a comfortable return
    on investment to investors (and rural cooperative members) with no
    accountability"); NTCH, CC Docket No. 96-45, WC Docket Nos. 05-337,
    08-10 at 8 (filed Feb. 22, 2008) ("The object of the \[universal
    service\] subsidy is not to prop up high cost legacy companies and
    technologies or assure their profitability, nor to add to the
    profits of wireless carriers.").

[^947]: *Universal Service Telephone Subsidies* at 70.

[^948]: *See, e.g.*, GCI *Missoula* *Phantom Traffic* Comments at 68
    ("Even if excessive support does not lead to unaffordable increases
    in rates for non-subsidized subscribers, requiring those customers
    to pay more than is necessary in order to excessively subsidize
    rates for other \[services\] (or worse yet, to finance high dividend
    payments to owners of rural ILECs) is not consistent with
    maintaining just and reasonable rates."); Time Warner Telecom
    *Missoula* *Phantom Traffic* Comments at 10 (noting that "RBOCs are
    already realizing substantial profits from \[network\] investments,
    easily compensating for any loss in access payments that they may
    face" and that "a high \[universal service\] contribution level may
    approach the point at which the USF charges imposed upon end-users
    actually threaten the goal of universal service").

[^949]: *See, e.g*., CenturyTel Sept. 19, 2008 *Ex Parte* Letter,
    Attach. at 5 (arguing that revenue neutrality should be a
    fundamental goal of comprehensive intercarrier compensation reform);
    Letter from Stuart Polikoff, Director of Government Relations,
    OPASTCO, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45,
    01-92, WC Docket Nos. 04-36, 05-337, 06-122, Attach. at 3 (filed
    Sept. 16, 2008) (arguing that, if the Commission does not adopt the
    Missoula Plan, it should establish a mechanism for "rural RoR ILECs
    that allows for full recovery of the revenues lost as a result of
    the change in intrastate access rates and structure, on a revenue
    neutral basis."). *See also* Rural Alliance *ICC FNPRM* Comments at
    21 (arguing that decreases in intercarrier compensation rate levels
    should be offset from the USF or another revenue replacement
    mechanism).

[^950]: NASUCA Sept. 30, 2008 *Ex Parte* Letter at 6.

[^951]: Comments of the National Association of State Utility Consumer
    Advocates to Refresh the Record, CC Docket Nos. 96-45, 02-6, 01-92,
    00-256, 96-262, 99-68, 80-256, WC Docket Nos. 05-337, 07-135,
    06-122, 05-195, 03-109, 02-60 at 6 (filed July 7, 2008) (NASUCA July
    7, 2008 Supp. Comments). *See also id*. at 10 ("Adding insult to
    injury, there is no consideration in the Missoula Plan of the
    additional revenues that ILECs gain from serving new broadband lines
    which are outside of the current ICC system. In other words, ILECs
    are losing lines and MOU as consumers drop traditional landlines and
    add broadband lines to access the Internet. However, the revenue
    gains from broadband line additions are totally out of the picture
    as far as the Missoula Plan is concerned.").

[^952]: Time Warner Telecom *Missoula* *Phantom Traffic* Comments at 10
    ("According to AT&T, the revenue derived from the ILECs' advanced
    services more than doubles the revenue from switched access
    services. As AT&T stated in its Annual Report, '\[w\]e have found
    that when customers add broadband to a basic package, they are 40
    percent less likely to switch to another provider, and average
    revenue per customer jumps nearly 120 percent.' It would make little
    sense for the ratepayers to subsidize the ILECs' already profitable
    business decisions.").

[^953]: Free Press Oct. 13, 2008 *Ex Parte* Letter at 6. *See also id*.
    at 6--7 ("While we'd like the Commission to consider a carrier's
    entire revenue stream before allowing increased USF support to
    offset lost access revenues" to the extent that there is such
    support it "should be confined to rate-of-return carriers only.").

[^954]: NASUCA July 7, 2008 Supp. Comments at 6. Indeed, there is some
    indication that carriers may be earning excessive returns even with
    respect to their regulated services. *See, e.g.*, GCI *Missoula*
    *Phantom Traffic* Comments at 66--67 (asserting that ACS of
    Anchorage has regularly earned returns in excess of an 11.25% rate
    of return on its regulated interstate switched access services,
    including 32.12% for 1997--98, 30.26% for 1999--2000; 35.29% for
    2001--02; and 15.01% for 2003--04).

[^955]: *See*, *e.g.*, Letter from Mary C. Albert, Assistant General
    Counsel, COMPTEL, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92, WC Docket Nos. 05-337, 04-36 at 1 (filed Oct. 2, 2008);
    NASUCA July 7, 2008 Supp. Comments at 32--34; Letter from Anna M.
    Gomez, Vice President of Government Affairs, Sprint Nextel, to
    Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC
    Docket No. 04-36 at 1--2 (filed Oct. 7, 2008).

[^956]: *See, e.g.*, Free Press Oct. 13, 2008 *Ex Parte* Letter at 6--7
    (noting that, to the extent that there is universal service support
    to address any net loss in intercarrier compensation revenues, it
    "should be confined to rate-of-return carriers only."). *But see,
    e.g.*, GCI *Missoula Phantom Traffic* Comments at 66--67 (asserting
    that ACS of Anchorage has regularly earned returns in excess of an
    11.25% rate of return on its regulated interstate switched access
    services).

[^957]: *See, e.g.*, Letter from Donna Epps, Vice President---Federal
    Regulatory, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 01-92, 96-45, WC Docket No. 04-36 at 1--2 (filed Oct. 2, 2008);
    Letter from Robert W. Quinn, Jr., Senior Vice President---Federal
    Regulatory, AT&T, to Kevin Martin, Chairman, FCC, CC Docket Nos.
    01-92, 99-68, 96-45, WC Docket Nos. 07-135, 05-337 at 5--7 (filed
    July 17, 2008); Letter from Anthony M. Alessi, Senior Counsel,
    Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    96-45, WC Docket No. 05-337 at 3--5 (filed May 23, 2008); Cox *ICC
    FNPRM* Comments at 12--13.

[^958]: Although we do not adopt a particular revenue benchmark here, as
    some commenters propose, the Joint Board may well recommend such an
    approach. Thus, depending upon the Joint Board's proposal, and the
    Commission's subsequent action, maximum federal SLCs and/or state
    retail local rates might be determined, in part, by such a
    benchmark.

[^959]: For these same reasons, should a carrier agree to (or tariff)
    intercarrier charges below those that would be required by the
    reforms adopted in this order, that carrier may not seek to obtain
    supplemental universal service support based on the difference
    between the charges it sets and the maximum charges it is allowed to
    set.

[^960]: 47 U.S.C. § 254(i) (requiring that "\[t\]he Commission and the
    States should ensure that universal service is available at rates
    that are just, reasonable, and affordable."); *see also* 47 U.S.C.
    §254(b)(1) (stating that "\[q\]uality services should be available
    at just, reasonable, and affordable rates").

[^961]: *See, e.g.,* *CALLS Order*, 15 FCC Rcd at 12971, para. 24; *MAG
    Order*, 16 FCC Rcd at 19669--70, para. 132.

[^962]: Section 4(i) provides that the Commission may "perform any and
    all acts, make such rules and regulations, and issue such orders,
    not inconsistent with this chapter, as may be necessary in the
    execution of its functions." 47 U.S.C. § 154(i). Prior to the
    enactment of section 254 (as part of the 1996 Act), sections 1 and
    4(i) provided authority for the Commission's adoption of a universal
    service fund. *See Rural Telephone Coalition v. FCC*, 838 F.2d 1307
    (D.C. Cir. 1988). *See also New England Telephone and Telegraph Co.
    v. FCC*, 826 F.2d 1101, 1107 (D.C. Cir. 1987) (describing section
    4(i) as a "wide-ranging source of authority"), *cert. denied*, 490
    U.S. 1039 (1989).

[^963]: *Policy and Rules Concerning Rates for Competitive Common
    Carrier Services and Facilities Authorizations Therefor*, CC Docket
    No. 79-252, Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 308
    (1979); First Report and Order, 85 FCC 2d 1 (1980) (*Competitive
    Carrier First Report and Order*); Further Notice of Proposed
    Rulemaking, 84 FCC 2d 445 (1981); Second Further Notice of Proposed
    Rulemaking, FCC 82-187, 47 Fed. Reg. 17308 (1982); Second Report and
    Order, 91 FCC 2d 59 (1982) (*Competitive Carrier Second Report and
    Order*); Order on Reconsideration, 93 FCC 2d 54 (1983); Third
    Further Notice of Proposed Rulemaking, 48 Fed. Reg. 28292 (1983);
    Third Report and Order, 48 Fed. Reg. 46791 (1983); Fourth Report and
    Order, 95 FCC 2d 554 (1983) (*Competitive Carrier Fourth Report and
    Order*), *vacated, AT&T v. FCC*, 978 F.2d 727 (D.C. Cir. 1992),
    Fifth Report and Order, 98 FCC 2d 1191 (1984) (*Competitive Carrier
    Fifth Report and Order*); Sixth Report and Order, 99 FCC 2d 1020
    (1985), *vacated, MCI Telecomms. Corp. v. FCC*, 765 F.2d 1186 (D.C.
    Cir. 1985) (*Competitive Carrier Sixth Report and Order*), *aff\'d,
    MCI v. AT&T*, 512 U.S. 218 (1994) (collectively, the *Competitive
    Carrier* proceeding); *see* 47 C.F.R. § 61.3(q), (y).

[^964]: *Competitive Carrier First Report and Order*, 85 FCC 2d at
    10--11, para. 26.

[^965]: *See* *Section 272(f)(1) Sunset of the BOC Separate Affiliate
    and Related Requirements;* *2000 Biennial Regulatory Review Separate
    Affiliate Requirements of Section 64.1903 of the Commission's
    Rules*, WC Docket No. 02-112; CC Docket No. 00-175, Report and Order
    and Memorandum Opinion and Order, 22 FCC Rcd 16440, 16484, para. 90
    (2007).

[^966]: For instance, the Commission has declined to regulate the SLCs
    of competitive LECs. *See Cost Review Proceeding for Residential and
    Single-Line Business Subscriber Line Charge (SLC) Caps;* *Price Cap
    Performance Review for Local Exchange Carriers*, CC Docket Nos.
    96-262, 94-1, Order, 17 FCC Rcd 10868, 10870 n.8 (2002) (subsequent
    history omitted); *see also CLEC Access Charge Order*, 16 FCC Rcd at
    9955, para. 81 (stating that competitive LECs competing with CALLS
    incumbent LECs are free to build into their end-user rates a
    component equivalent to the incumbent LEC's SLC).

[^967]: *See, e.g*., T-Mobile Oct. 3, 2008 *Ex Parte* Letter at 9 & n.14
    (arguing that "any ICC replacement mechanism be fully portable to
    competitive carriers in order to fulfill the principles of
    competitive and technological neutrality."). Sprint argues that a
    fund that compensates only incumbent LECs (and not competitive LECs,
    wireless carriers, and IXCs) for lost access revenues is "blatantly
    anti-competitive." Letter from Anna M. Gomez, Vice President of
    Government Affairs, Sprint Nextel Corp., to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-45; WC Docket No. 04-36 at
    4 (filed Oct. 1, 2008). Many CMRS carriers maintain that any
    replacement mechanism must be fully portable to competitive carriers
    in order to fulfill the principles of competitive and technological
    neutrality. *See, e.g.*, Leap *ICC FNPRM* Reply at 18; Allied
    National *ICC FNPRM* Comments at 10; CTIA *ICC FNPRM* Comments at
    37; SouthernLINC *ICC FNPRM* Reply at 9; RCA *ICC FNPRM* Comments at
    4; US Cellular *ICC FNPRM* Comments at 4; T-Mobile *ICC FNPRM*
    Comments at 26; Dobson and American *ICC FNPRM* Comments at 10.

[^968]: *See, e.g*., ICF *ICC FNPRM* Comments at 32--33 (stating that
    any funding should be temporary and limited to those that lose
    access revenue because of intercarrier compensation reform); USTA
    *ICC FNPRM* Comments at 40 (arguing that funding should not
    compensate wireless carriers and that it should not be portable);
    CCAP *ICC FNPRM* Reply at 14 (stating that funding "should not be
    portable to competitive eligible telecommunications carriers.");
    Letter from Susanne A. Guyer, Senior Vice President of Federal
    Regulatory Affairs, Verizon, to Marlene H. Dortch, Secretary, FCC,
    CC Docket Nos. 01-92, 96-45, Attach. at 7 (filed Oct. 12, 2008)
    (asserting that funding should compensate only LECs that have lost
    revenues because of intercarrier compensation reform); Letter from
    Curt Stamp, President, ITTA, to Marlene H. Dortch, Secretary, FCC,
    Docket Nos. 01-92, 04-36, 96-45, 05-337, Attach. at 9 (filed Oct. 3,
    2008) (arguing that the Commission should "limit duplicative
    networks" by prohibiting wireless carriers and other carriers that
    do not receive access compensation from benefiting from the fund);
    Letter from Alex J. Harris, Vice President---Regulatory, Frontier,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, Attach.
    at 16, 18 (filed May 11, 2005) (proposing that the funding be
    confined to incumbent LECs in rural study areas but available to all
    carriers that lost access revenues in non-rural study areas); *see
    also* Letter from Brad E. Mutschelknaus, Counsel to XO
    Communications, Kelley Drye & Warren LLP, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 06-122,
    Attach. at 4 (filed Oct. 3, 2008) (contending that revenue
    replacement funding should either be "competitively neutral" or
    limited to only rate-of-return carriers).

[^969]: Some competitive LECs claim that, in practice, they have little
    opportunity to recover their costs because the incumbent LEC, whose
    prices are regulated, effectively sets a ceiling on the prices they
    charge. *See, e.g.*, COMPTEL *Missoula Phantom Traffic* Comments at
    7. Although we acknowledge that, in a homogeneous goods market with
    a single price, such an argument might be plausible, we do not find
    such assumptions apply in modern telecommunications markets. In
    particular, with modern telecommunications technology, carriers are
    offering an expanding number of new services and marketing them
    through a variety of bundled service offerings. As a result,
    telecommunications services are becoming much more of a
    differentiated product, and competitors have greater opportunity to
    offer niche services. In light of these developments, we find
    unpersuasive arguments that competitors are effectively price
    regulated and thus do not have an opportunity to recover lost access
    revenues.

[^970]: *See, e.g*., NCTA *ICC FNPRM* Comments at 11 (arguing that
    funding should be limited to "non-Tier 1 rural carrier\[s\]"); NTCA
    *ICC FNPRM* Comments at 56 (asserting that funding "should be
    targeted at rural ILECs exclusively"); Comments of the Rural
    Alliance, CC Docket No. 01-92 at 4 (filed Jun. 27, 2008) (stating
    that the fund should only compensate rural rate-of-return carriers
    that lose access revenues).

[^971]: For these same reasons, should a carrier agree to (or tariff)
    intercarrier charges below those that would be required by the
    reforms adopted in this order, that carrier may not seek to obtain
    supplemental universal service support based on the difference
    between the charges it sets and the maximum charges it is allowed to
    set.

[^972]: *Local Competition First Report and Order*, 11 FCC Rcd at 15854,
    para. 699.

[^973]: *See supra* para. 312.

[^974]: *Universal Service Telephone Subsidies* at 33.

[^975]: *See supra* para. 313.

[^976]: NASUCA Sept. 30, 2008 *Ex Parte* Letter at 6.

[^977]: NASUCA July 7, 2008 *Ex Parte* Letter at 6.

[^978]: The non-regulated costs and revenues to be included in this
    calculation are those associated with non-regulated activities
    involving the common or joint use of assets or resources in the
    provision of both regulated and non-regulated products and services.

[^979]: Pursuant to section 61.41(d) of the Commission's rules, once a
    carrier is subject to price cap regulation, it may not "withdraw
    from such regulation." 47 C.F.R. § 61.41(d); *see also* 47 C.F.R. §
    61.41(b), (c) (requiring conversion from rate-of-return to price cap
    regulation under certain circumstances). Under section 1.3 of the
    Commission's rules, however, "any provision of the Commission's
    rules may be waived by the Commission . . . if good cause therefore
    is shown." 47 C.F.R. § 1.3. As interpreted by the courts, this
    requires that a petitioner demonstrate that "special circumstances
    warrant a deviation from the general rule and that such a deviation
    will serve the public interest." *Northeast Cellular Telephone Co.
    v. FCC*, 897 F.2d 1164 (D.C. Cir. 1990) (citing *WAIT Radio v. FCC*,
    418 F.2d 1153, 1158 (D.C. Cir. 1969)). In other circumstances in the
    past, the Commission has found good cause to waiver section 61.41(d)
    and other related provisions of the Commission's rules to enable
    operations subject to price cap regulation to convert to
    rate-of-return regulation. *See, e.g.*, *ALLTEL Corp. Petition for
    Waiver of Section 61.41 of the Commission\'s Rules and Application
    for Transfer of Control*, CCB/CPD No. 99-1, Memorandum Opinion and
    Order, 14 FCC Rcd. 14191 (1999); *CenturyTel of Northwest Arkansas,
    LLC et al., Joint Petition for Waiver of Definition of "Study Area"
    Contained in the Part 36 Appendix-Glossary of the Commission\'s
    Rules, Petition for Waiver of Sections 61.41(c) and 69.3(g)(2) of
    the Commission's Rules*, CC Docket No. 96-45, Memorandum Opinion and
    Order, 15 FCC Rcd 25437 (Acc. Pol. Div. 2000); *ALLTEL Service
    Corporation, Petition for Waiver of Section 61.41 of the
    Commission\'s Rules*, Order, 8 FCC Rcd 7054 (Com. Car. Bur. 1993)
    (granting waiver of sections 61.41(c), (d) of the Commission's
    rules). Likewise, as noted above, we find it appropriate, upon
    request, to allow price cap carriers to make a one-way election of
    rate-of-return regulation.

[^980]: *See supra* para. 313.

[^981]: *See*, *e*.*g*., Ad Hoc *ICC FNPRM* Reply at 10--11 (arguing
    that the Commission has no legal obligation to allow revenue
    neutrality); CTIA *ICC FNPRM* Comments at 46; Nextel *ICC FNPRM*
    Comments at 20; T-Mobile *ICC FNPRM* Comments at 13 (intercarrier
    compensation was not intended to guarantee an ILEC revenue stream or
    preserve low local rates for a given industry segment, doing so
    would perpetuate inefficiencies); NASUCA *ICC FNPRM* Reply at 34--38
    (arguing that the Commission is not required to provide for revenue
    neutrality and that revenue neutrality deviates from the
    Commission's past policy).

[^982]: We use the term "service providers" in this section to refer
    both to carriers that provide telecommunications services and to
    providers of services that originate calls on IP networks and
    terminate them on circuit switched networks.

[^983]: Parties frequently use the term "phantom traffic" in describing
    this problem. We will not use that term in the regulations we adopt
    here because there is no consensus as to how it should be defined,
    nor is such a definition necessary for us to address the underlying
    issues faced by service providers in billing for traffic they
    receive.

[^984]: Similarly, we believe that the transition to a uniform
    intercarrier compensation rate based on the additional costs
    methodology described above also will address the access stimulation
    concerns that have recently been raised. *See supra* para. 185. In
    the unlikely event that service providers persist in these
    activities, however, we note that the Commission has an open
    proceeding in which appropriate responses to such actions may be
    considered. *See generally* *Access Stimulation NPRM*, 22 FCC Rcd
    17989.

[^985]: This order initiates a process of unifying terminating
    intercarrier compensation rates, thereby eliminating the rate
    distinctions between local and long distance calls. Although knowing
    the origination point of a call remains important, especially during
    the period of transition to a unified terminating rate, the
    origination point is less significant for the purpose of determining
    intercarrier compensation due.

[^986]: *See,* *e.g*., Letter from Patrick J. Donovan, Counsel for
    PacWest Telecomm, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92 at 3--4 (filed Oct. 14, 2005).

[^987]: SS7 is an out-of-band signaling system that is separate from,
    but runs parallel to, the public switched telephone network (PSTN)
    and is used to set up call paths between calling and called parties.
    The following steps typically occur when SS7 sets up a call path for
    a wireline LEC to wireline LEC call originating and terminating on
    the PSTN. When a wireline LEC customer dials a call destined for an
    end user served by a different wireline LEC, the calling party's LEC
    determines, based on the dialed digits, that it cannot terminate the
    call. The SS7 call signaling system then begins the process of
    identifying a path that the call will take to reach the called
    party's network. SS7 identifies each service provider in the call
    path and provides each with the called party's telephone number and
    other information related to the call, including message type and
    nature of connection indicators, forward call indicators, calling
    party's category, and user service information if that information
    was correctly populated and not altered during the signaling
    process. *See* Letter from L. Charles Keller, Counsel for Verizon
    Wireless, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92
    at 2 (filed Sept. 13, 2005) (Verizon Wireless Sept. 13, 2005 *Ex
    Parte* Letter). SS7 was designed to facilitate call routing and was
    not designed to provide billing information to terminating carriers.
    *See* Verizon, *Verizon's Proposed Regulatory Action to Address
    Phantom Traffic* at 5--7 (Verizon Phantom Traffic White Paper),
    attached to Letter from Donna Epps, Vice President, Federal
    Regulatory Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 (filed Dec. 20, 2005). Technical content and
    format of SS7 signaling is governed by industry standards rather
    than by Commission rules, although Commission rules require carriers
    using SS7 to transmit calling party number (CPN) to subsequent
    carriers on interstate calls where it is technically feasibly to do
    so. 47 C.F.R. § 64.1601.

[^988]: Industry standard billing records are the other common source of
    information that terminating service providers not directly
    connected to originating service providers receive about calls sent
    to their networks for termination. Billing records are typically
    created by a tandem switch that receives a call for delivery to a
    terminating network via tandem transit service. Tandem switches
    create billing records by combining CPN or Charge Number (CN)
    information from the SS7 signaling stream with information
    identifying the originating service provider to provide terminating
    service providers with information necessary for billing. *See*
    Verizon Phantom Traffic White Paper at 5--7. The tandem switch
    creating the billing record identifies service providers from whom
    it receives traffic using the trunk group number (TGN) of the trunk
    on which a call arrives. *See* Verizon Phantom Traffic White Paper
    at 4; *see also* Letter from Glenn T. Reynolds, Vice
    President---Federal Regulatory, BellSouth, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 01-92, Attach. at 5 (filed Jan. 12,
    2006) (BellSouth Jan. 12, 2006 *Ex Parte* Letter). The tandem switch
    translates the TGN into one of two codes identifying the originating
    the service provider: Carrier Identification Code (CIC) if the
    originating service provider is an IXC, or Operating Company Number
    (OCN) for non-IXC calls. The appropriate CIC or OCN is then added,
    by the tandem switch, if it is equipped to record such information,
    to the billing record for the call, which is then forwarded to the
    terminating service provider. *See* Verizon Phantom Traffic White
    Paper at 5--7; *see* *also* Verizon *ICC FNPRM* Reply at 16. Service
    providers delivering billing records typically use the Exchange
    Message Interface (EMI) format created and maintained by the
    Alliance for Telecommunications Industry Solutions Ordering and
    Billing Forum (ATIS/OBF), an industry standards setting group. *See*
    ATIS Exchange Message Interface 22 Revision 2, ATIS Document number
    0406000-02200 (July 2005).

[^989]: *See* Verizon Phantom Traffic White Paper at 5--7.

[^990]: The Commission recognized that the ability of service providers
    to identify the provider to bill appropriate intercarrier
    compensation payments depends, in part, on billing records generated
    by intermediate service providers. Thus, the Commission sought
    comment on whether current rules and industry standards create
    billing records that are sufficiently detailed to permit
    determinations of the appropriate compensation due. *See
    Intercarrier Compensation FNPRM*, 20 FCC Rcd at 4743, para. 133.

[^991]: For example, when a call bound for a number that has been ported
    to a different service provider is delivered without the responsible
    service provider performing a local number portability (LNP) query,
    the call may be delivered to the wrong end office and then may be
    re-routed to a tandem switch for delivery to the correct end office.
    *See* Verizon Phantom Traffic White Paper at 18--19. According to
    Verizon, neither the end office that re-routes the call nor the
    tandem switch receiving the rerouted call are able to route the call
    over an access trunk; the call must be sent over a local
    interconnection trunk. *See id*. In this scenario, the terminating
    carrier may have difficulty billing the appropriate charges to the
    IXC that sent the call.

[^992]: *See* Letter from Stephen T. Perkins, General Counsel, Cavalier
    Telephone, LLC, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92 at 1 (filed Sept. 29, 2005). *See also* Letter from Donna
    Epps, Vice President, Federal Regulatory Advocacy, Verizon, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 10 (filed
    Oct. 21, 2005).

[^993]: *See* Letter from Donna Epps, Vice President---Federal
    Regulatory Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92, Attach. at 5 (filed Aug. 1, 2005); Verizon
    Wireless Sept. 13, 2005 *Ex Parte* Letter at 2.

[^994]: Verizon Wireless Sept. 13, 2005 *Ex Parte* Letter at 3.

[^995]: *See, e.g.*, Balhoff and Rowe *ICC FNPRM* Reply at 10;
    California Small LECs *ICC FNPRM* Comments at 9; ITCI *ICC FNPRM*
    Reply at 7; Montana Independent Telecommunications Systems (MITS) et
    al. *ICC FNPRM* Comments at 14, 20; MITS et al. *ICC FNPRM* Reply at
    23--24, 33; NECA *ICC FNPRM* Comments at 16; Rural Alliance *ICC
    FNPRM* Comments at 108; SureWest *ICC FNPRM* Comments at 7; TDS *ICC
    FNPRM* Comments at 10; BellSouth Jan. 11, 2006 *Ex Parte* Letter at
    6.

[^996]: *See, e.g.*, Letter from Glenn T. Reynolds, Vice President,
    Policy, USTA, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92 (filed Feb. 12, 2008) (USTA Feb. 12, 2008 Proposal). *See
    Developing a Unified Intercarrier Compensation Regime,* CC Docket
    No. 01-92, NECA Petition for Interim Order (filed Jan. 22, 2008)
    (NECA Petition).

[^997]: *See, e.g.*, NARUC Task Force July 24, 2006 *Ex Parte* Letter,
    Attach. 2; Letter from Supporters of the Missoula Plan to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Nov. 6, 2006)
    (Missoula Plan Supporters Nov. 6 *Ex Parte* Letter or Missoula Plan
    Call Signaling Proposal); Letter from Donna Epps, Vice President,
    Federal Regulatory Advocacy, Verizon, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 01-92 (filed Apr. 4, 2006); Letter
    from Jeffrey S. Lanning, Associate General Counsel, USTA, to Marlene
    H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Mar. 30, 2006)
    (MCC/USTA Proposal); Letter from Karen Brinkmann, Attorney for the
    MidSize Carrier Coalition, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 (filed Mar. 31, 2006) (supporting MCC/USTA
    Proposal).

[^998]: *See* USTA Feb. 12, 2008 Proposal; *see also* Letter from
    Melissa E. Newman, Vice President---Federal Regulatory, Qwest, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Sept.
    24, 2008); Letter from Curt Stamp, President, ITTA, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92 at 2, filed Sept. 19,
    2008); Letter from Eric Einhorn, Vice president, Federal Government
    Affairs, Windstream, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92 et al. (filed Sept. 24, 2008); Comments of Windstream, CC
    Docket Nos. 99-68, 01-92, 96-45, WC Docket Nos. 08-152, 07-135,
    04-36, 06-122, 05-337 at 16 (filed Aug. 21, 2008); Letter from
    Gregory J. Vogt, Counsel for CenturyTel, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 01-92 (filed Aug. 6, 2008); Letter
    from Henry Hultquist, Vice President, Federal Regulatory, AT&T, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed July
    17, 2008).

[^999]: The rules we adopt herein reflect the Commission's
    determinations regarding how to address call signaling problems as
    they relate to unidentified and unbillable traffic. Therefore, we
    disagree with commenters requesting that we adopt alternative
    proposals such as the NECA petition or the Missoula Plan Call
    Signaling Proposal. *See,* *e.g.*, Letter from Robert F. Aldrich,
    Counsel to the American Public Communications Council, to Marlene H.
    Dortch, Secretary, FCC, CC Docket Nos. 96-45, 01-92 (filed Oct. 21,
    2008).

[^1000]: *See, e.g.*, Letter from Paul Garnett, Director, Regulatory
    Policy, CTIA, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92 at 3 (filed Jan. 3, 2006); Letter from Donna Epps, Vice
    President, Federal Regulatory Advocacy, Verizon, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Mar. 30, 2006).

[^1001]: The rules we amend in this order were adopted in a 1995 order
    addressing Caller ID services. *See Rules and Policies Regarding
    Calling Number Identification Service -- Caller ID*, CC Docket No.
    91-281, Memorandum Opinion and Order on Reconsideration, Second
    Report and Order and Third Further Notice of Proposed Rulemaking, 10
    FCC Rcd 11700, 11728, para. 79 (1995) (*Caller ID Order*). In the
    *Caller ID Order*, the Commission found, inter alia, that the CPN
    based services to which the rules adopted apply are
    "jurisdictionally mixed" and the Commission therefore preempted an
    inconsistent state statute. *Id.* at 11722--23, paras. 62, 85. For
    these same reasons, to the extent the amendments we make to our call
    signaling rules in this order conflict with any current or future
    state statutes, those statutes are preempted. *See id.* at
    11728--34, paras*.* 78--95*.*

[^1002]: *See* USTA Feb. 12, 2008 Proposal.

[^1003]: *See, e.g.*, USTA Feb. 12, 2008 Proposal; NECA Petition.

[^1004]: Because we agree that requiring population of CPN is the best
    way to ensure that complete and accurate information about a call
    gets to the terminating service provider for that call, we disagree
    with proposals to exclude certain types of traffic from this
    requirement. *See, e.g.*, Letter from Jim Kohlenberger, Executive
    Director, The VON Coalition, to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92, WC Docket 04-36 at 6 (filed Oct. 28, 2008). We
    note that parties are free to contract with third parties to ensure
    that these requirements are met. *Cf., e.g.*, *LNP Order*, 22 FCC
    Rcd 19531 (holding that, where interconnected VoIP providers rely on
    other carriers for access to numbers, both parties must take the
    steps needed to comply with the number porting obligations
    established in that order); *Interconnected VoIP 911 Order*, 20 FCC
    Rcd 10245 (finding that interconnected VoIP providers might elect to
    comply with their 911 obligations in party by relying on services
    provided by third parties).

[^1005]: We take a cautious approach in considering any new or revised
    signaling requirements. SS7 was designed to facilitate call setup
    and routing, and action we take here is not intended to interfere
    with the ability of calls to reach their intended recipient. As
    Verizon Wireless explains, certain SS7 fields are considered
    mandatory, while others (including CPN, CN, and JIP) are considered
    optional. *See* Verizon Wireless Sept. 13, 2005 *Ex Parte* Letter at
    2. The distinction is significant, because a call will not be
    completed if a mandatory field has not been populated. *See* Letter
    from Thomas Goode, Associate General Counsel, ATIS, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92, Attach. (filed Feb. 10,
    2006). Although CPN is considered optional in the industry standard,
    our rules, before and after amendment pursuant to this order,
    require service providers to pass CPN in specified circumstances.
    *See* 47 C.F.R § 64.1601.

[^1006]: *See* 47 C.F.R. § 64.1601.

[^1007]: *See* *supra* note 862.

[^1008]: *See* Missoula Plan at 56; Letter from Brad E. Mutschelknaus,
    Counsel for XO, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92 at 11--12 (filed Feb. 14, 2006).

[^1009]: *See,* *e.g.*, NECA Petition; Letter from Cheryl A. Tritt,
    Counsel for T-Mobile USA, Inc. to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 at 6 (filed Feb. 2, 2006); Verizon Phantom
    Traffic White Paper at 8--10.

[^1010]: *See* Verizon Phantom Traffic White Paper at 8.

[^1011]: *See* Verizon Phantom Traffic White Paper at 9--10. For
    example, Verizon states that on a call to a party that has forwarded
    its number, the called party's service provider will replace the
    caller's CN with the called party's CN before sending the call to
    the forward location.

[^1012]: 47 C.F.R. § 64.1601(d).

[^1013]: *See, e.g.*, EPG Proposal at 2 ("All messages that are not
    properly labeled would be billed at the highest prevailing
    intercarrier compensation rate to the interconnecting carrier
    delivering the traffic."); ARIC Plan at 55; CenturyTel *ICC FNRPM*
    Comments at 6; Hickory *ICC FNPRM* Comments at 2 ; JSI *ICC FNPRM*
    Comments at 4--6; Colorado Telecom Ass'n et al. *ICC FNPRM* Reply at
    13, TDS Telecom *ICC FNPRM* Reply 14, JSI *Missoula Phantom Traffic*
    Comments at 4--6; RICA *Missoula Phantom Traffic* Comments at 2--3;
    TexalTel *Missoula Phantom Traffic* Comments at 7--8; Cavalier
    *Missoula Phantom Traffic* Comments at 2--3; PAPUC *Missoula Phantom
    Traffic* Reply at 8.

[^1014]: We agree with commenters who note that intermediate service
    providers that provide, to subsequent service providers in a call
    path, information sufficient to identify the provider that delivered
    the traffic to the intermediate provider should not be responsible
    for terminating intercarrier payments for that traffic. *See, e.g.*,
    Letter from Susanne A. Guyer, Senior Vice President -- Federal
    Regulatory Affairs, Verizon, to Chairman Kevin Martin et al., FCC,
    CC Docket Nos. 96-45, 01-92 at 2 (filed Oct. 28, 2008); Letter from
    Mark D. Schneider, Counsel, Neutral Tandem, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 01-92 at 2 (filed Oct. 28, 2008);
    Letter from Tamar E. Finn, Counsel, Zayo Group, LLC, to Marlene H.
    Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68 at 2 (filed Oct.
    28, 2008).

[^1015]: ARIC Plan at 55.

[^1016]: *See, e.g.*, Letter from Donna Epps, Vice President, Federal
    Regulatory, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92 (filed July 7, 2007); Letter from Charles W. McKee,
    Director---Government Affairs, Federal Regulatory, Sprint Nextel, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed
    Apr. 20, 2007) (Sprint Nextel April 20, 2007 *Ex Parte* Letter);
    Letter from Charon Phillips, Director---Government Affairs, Federal
    Regulatory, Verizon Wireless, to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 at 2 (filed Mar. 13, 2007).

[^1017]: *See, e.g*., Verizon *Missoula Phantom Traffic* Reply at 5--6.

[^1018]: *See* Sprint Nextel April 20, 2007 *Ex Parte* Letter at 2.

[^1019]: *See* Missoula Plan Supporters *Missoula Phantom Traffic* Reply
    at 11--12.

[^1020]: *See* USTA Feb. 12, 2008 Proposal.

[^1021]: *See, e.g.*, Letter from Brad Mutschelknaus, Counsel to
    Broadview Networks et al. to Kevin J. Martin et al., FCC, CC Docket
    No. 01-92 (filed Oct. 22, 2008); Letter from Henry T. Kelly, Counsel
    to Peerless Networks to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 01-92 et al. (filed Sept. 16, 2008); Letter from Charles W.
    McKee, Director---Government Affairs, Sprint Nextel, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Apr. 16, 2008);
    Letter from Thomas Cohen, Edward A. Yorkgitis, Jr., Counsel for
    NuVox Communications et al., to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 at 2 (filed Mar. 11, 2008); Letter from Daniel
    L. Brenner, Senior Vice President, Law and Regulatory Policy, NCTA,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2
    (filed Feb. 29, 2008); Letter from Paul Garnett, CTIA, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Feb. 25,
    2008).

[^1022]: The USTA Feb 12, 2008 Proposal also sought certain enforcement
    commitments related to our call signaling rules. In this regard,
    USTA's proposal did not seek anything beyond the ordinary course of
    business. As with any of our rules, the Commission is committed to
    resolving complaints expeditiously and will not hesitate to initiate
    enforcement proceedings against rule violators.

[^1023]: *See supra* para. 188.

[^1024]: 47 C.F.R. § 52.12(f)(2).

[^1025]: *E.g.*, 47 C.F.R. § 52.12(e)(i) ("*Administrative numbers* are
    numbers used by telecommunications carriers . . . ."); *id.* §
    52.12(e)(v) ("*Intermediate numbers* are numbers that are made
    available . . . for the purpose of providing telecommunications
    service . . . .").

[^1026]: *See supra* para. 229.

[^1027]: *Intercarrier Compensation FNPRM*, 20 FCC Rcd at 4737--38,
    para. 120. Typically, the intermediary carrier is an incumbent LEC
    and the transited traffic is routed from the originating carrier
    through the incumbent LEC's tandem switch to the terminating
    carrier. The intermediary (transiting) carrier then charges a fee
    for use of its facilities. *See id.* We note that carriers have
    various agreements governing the provision of transit traffic. *See
    id.*

[^1028]: *See* 47 C.F.R. Part 51.

[^1029]: *See* 47 C.F.R. Part 54.

[^1030]: *See* 47 C.F.R. Part 61.

[^1031]: *See* 47 C.F.R. Part 69.

[^1032]: 47 C.F.R. § 1.200 *et seq*.

[^1033]: *See* 47 C.F.R. § 1.1206(b)(2).

[^1034]: 47 C.F.R. § 1.1206(b).

[^1035]: 47 C.F.R. §§ 1.415, 1.419.

[^1036]: *See* 5 U.S.C. § 603.

[^1037]: *See* 5 U.S.C. § 603. The RFA, *see* U.S.C. § 601 *et seq*.,
    has been amended by the Contract with America Advancement Act of
    1996, Pub. L. No. 104-121, 110 Stat. 847 (1996) ("CWAAA"). Title II
    of the CWAAA is the Small Business Regulatory Enforcement Fairness
    Act of 1996 ("Small Business Act").

[^1038]: *See* 44 U.S.C. § 3506(c)(4).

[^1039]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat.
    56 (1996) (1996 Act).

[^1040]: 47 U.S.C. § 254 (added by the 1996 Act).

[^1041]: 47 U.S.C. § 254.

[^1042]: *See* 47 U.S.C. § 254(b).

[^1043]: 47 U.S.C. § 254(b)(1), (2), (5).

[^1044]: *See Federal-State Joint Board on Universal Service,* CC Docket
    No. 96-45, Report and Order, 12 FCC Rcd 8776, 8780--88, paras. 1--20
    (1997) (*Universal Service First Report and Order*) (subsequent
    history omitted).

[^1045]: *Universal Service First Report and Order*, 12 FCC Rcd at 8948,
    para. 320.

[^1046]: *Universal Service First Report and Order*, 12 FCC Rcd at 8948,
    para. 320 (agreeing with the Joint Board). The Commission also
    agreed with the Joint Board that "competitive bidding is consistent
    with section 254, and comports with the intent of the 1996 Act to
    rely on market forces and to minimize regulation." *Id*. at 8951,
    para. 325.

[^1047]: *Universal Service First Report and Order*, 12 FCC Rcd at 8948,
    para. 320 ("In that regard, the bidding process should also capture
    the efficiency gains from new technologies or improved productivity,
    converting them into cost savings for universal service.").

[^1048]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8949--50, paras. 322--23. Only GTE had proposed a detailed
    competitive bidding plan, which it characterized as an outline
    rather than a final proposal. *See* GTE's Comments in Response to
    Questions, CC Docket No. 96-45, Attach. 1 (filed Aug. 2, 1996).

[^1049]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8950, para. 324.

[^1050]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8948, para. 320.

[^1051]: 47 U.S.C. § 254(e). The statutory requirements for ETC
    designation are set out in section 214(e) of the Act. 47 U.S.C. §
    214(e).

[^1052]: *See* 47 C.F.R. § 54.5 ("A 'competitive eligible
    telecommunications carrier' is a carrier that meets the definition
    of 'eligible telecommunications carrier' below and does not meet the
    definition of an 'incumbent local exchange carrier' in § 51.5 of
    this chapter.").

[^1053]: Non-rural incumbent LEC ETCs receive support for their
    intrastate supported services based on the forward-looking economic
    cost of providing the services. 47 C.F.R. § 54.309. Rural incumbent
    LEC ETCs receive support based on their loop costs, as compared to a
    national average. 47 C.F.R. Part 36, sbpt. F; 47 C.F.R. § 54.305.
    Incumbent LEC ETCs that serve study areas with 50,000 or fewer lines
    receive support based on their local switching costs. 47 C.F.R. §
    54.301. Additionally, incumbent LEC ETCs that are subject to price
    cap or rate-of-return regulation receive interstate access support
    based on their revenue requirements. 47 C.F.R. Part 54, sbpts. J, K.

[^1054]: 47 C.F.R. § 54.307(a).

[^1055]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8828--30, paras. 94--96.

[^1056]: Support for the fund derives from assessments paid by providers
    of interstate telecommunications services and certain other
    providers of interstate telecommunications. *See* 47 C.F.R. §
    54.706. Fund contributors are permitted to, and almost always do,
    pass those assessments though to their end-user customers. *See* 47
    C.F.R. § 54.712. Fund assessments paid by contributors are
    determined by applying the quarterly contribution factor to the
    contributors' contribution base revenues. In the second quarter of
    2007, the contribution factor reached 11.7%, which is the highest
    level since its inception. *See Proposed Second Quarter 2007
    Universal Service Contribution Factor*, CC Docket No. 96-45, Public
    Notice, 22 FCC Rcd 5074, 5077 (OMD 2007). The contribution factor
    has since declined to 11.4% in the fourth quarter of 2008. *Proposed
    Fourth Quarter 2008 Universal Service Contribution Factor*, CC
    Docket No. 96-45, Public Notice, DA 08-2091 (OMD 2008).

[^1057]: *See* FCC, [Universal Service Monitoring Report]{.smallcaps},
    tbl. 3.2 (2007) ([2007 Universal Service Monitoring
    Report]{.smallcaps}), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279226A1.pdf.

[^1058]: [Universal Service Administrative Company]{.smallcaps}, [2007
    Annual Report]{.smallcaps} 43 (2007) ([USAC 2007 Annual
    Report]{.smallcaps}), *available at*
    http://www.usac.org/\_res/documents/about/pdf/usac-annual-report-2007.pdf.

[^1059]: [2007 Universal Service Monitoring Report]{.smallcaps} at tbl.
    3.2; [USAC 2007 Annual Report]{.smallcaps} at 45.

[^1060]: *See* USAC Quarterly Administrative Filings for 2008, Fourth
    Quarter (4Q) Appendices, HC03---Rural Study Areas with
    Competition---4Q2008, *available at*
    http://www.usac.org/about/governance/fcc-filings/2008/Q4/HC03%20-%20Rural%20Study%20Areas%20with%20Competition%20-%204Q2008.xls
    (showing 24 competitive ETCs in the study area of incumbent LEC Iowa
    Telecom North (study area code 351167), and 22 competitive ETCs in
    the study area of incumbent LEC Iowa Telecom Systems (study area
    code 351170)).

[^1061]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No.96-45,
    Recommended Decision, 22 FCC Rcd 8998, 8999--9001, paras. 4--7 (JB
    2007) (*Interim Cap* *Recommended Decision*); *High-Cost Universal
    Service Support; Federal-State Joint Board on Universal Service*, WC
    Docket No. 05-337, CC Docket No. 96-45, Order, 23 FCC Rcd 8834
    (2008) (*Interim Cap Order*). As recommended by the Joint Board, the
    Commission capped competitive ETC support for each state. *Interim
    Cap Recommended Decision*, 22 FCC Rcd at 9002, para. 9; *Interim Cap
    Order*, 23 FCC Rcd at 8846, paras. 26--28. The Commission set the
    cap at the level of support competitive ETCs were eligible to
    receive during March 2008. *Interim Cap Order*, 23 FCC Rcd at 8850,
    para. 38.

[^1062]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No. 96-45,
    Recommended Decision, 22 FCC Rcd 20477 (JB 2007) (*Comprehensive
    Reform* *Recommended Decision*).

[^1063]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, para. 1.

[^1064]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20480--81, para. 11.

[^1065]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20484, para. 26.

[^1066]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20484, para. 27.

[^1067]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20481--82, paras. 12--18.

[^1068]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20486, para. 35.

[^1069]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, paras. 1--6.

[^1070]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No. 96-45,
    Notice of Proposed Rulemaking, 23 FCC Rcd 1467 (2008) (*Identical
    Support NPRM*); *High-Cost Universal Service Support; Federal-State
    Joint Board on Universal Service*, WC Docket No. 05-337, CC Docket
    No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1495 (2008)
    (*Reverse Auctions NPRM*); *High-Cost Universal Service Support;
    Federal-State Joint Board on Universal Service*, WC Docket No.
    05-337, CC Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC
    Rcd 1531 (2008) (*Joint Board Comprehensive Reform NPRM*)
    (collectively the *High-Cost Reform NPRMs*).

[^1071]: *Identical Support NPRM*, 23 FCC Rcd at 1468, para. 1.

[^1072]: *Identical Support NPRM*, 23 FCC Rcd at 1468, para. 1.

[^1073]: *Identical Support NPRM*, 23 FCC Rcd at 1473--78, paras.
    12--25.

[^1074]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1495, para. 1.

[^1075]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500--12, paras. 10--50.

[^1076]: *Joint Board Comprehensive Reform NPRM*, 23 FCC Rcd at 1531,
    para. 1.

[^1077]: 47 U.S.C. § 254(a)(2). Pursuant to that section, the Commission
    shall complete any proceeding to implement a Joint Board
    recommendation within one year after receiving it. The Commission
    has acted on the *Comprehensive Reform Recommended Decision* prior
    to the November 20, 2008 one-year statutory deadline.

[^1078]: Providers operating in U.S. Territories and possessions, such
    as Puerto Rico and Guam, are not subject to the requirements adopted
    in this order. *See* Letter from Earl Comstock, Comstock Consulting
    LLC, to Marlene Dortch, Secretary, FCC, CC Docket No. 96-45, WC
    Docket No. 05-377 at 1 (dated Oct. 15, 2008) (asking the Commission
    to recognize the higher costs and lower income levels in Puerto Rico
    in any reform efforts it may take); Letter from Eric N. Votaw, Vice
    President-Marketing & Regulatory, GTA Telecom, Inc., to Marlene H.
    Dortch, Secretary, FCC, CC Docket Nos. 99-68, 96-45, WC Docket No.
    05-337 at 1--2 (filed Oct. 24, 2008) (asking the Commission to
    recognize that Guam's costs are higher than the continental United
    States and that Guam should be treated separately, along with Alaska
    and Hawaii, for reform purposes).

[^1079]: *E.g.*, *Verizon Commc'ns, Inc., Transferor, and América Móvil,
    S.A. de C.V., Transferee*, WT Docket No. 06-113, Memorandum Opinion
    and Order and Declaratory Ruling, 22 FCC Rcd 6195, 6211, para. 36
    (2007) (*Verizon/América Móvil Transfer Order*) (describing
    "difficult to serve terrain and dramatic urban/rural differences" in
    Puerto Rico); *Integration of Rates and Services for Provision of
    Communications by Authorized Common Carriers between the Contiguous
    States and Alaska, Hawaii, Puerto Rico and the Virgin Islands*, CC
    Docket No. 83-1376, Supplemental Order Inviting Comments, 4 FCC Rcd
    395, 396, paras. 7--8 (1989) (*Rates and Services Integration
    Order*) (describing the unique market conditions and structure in
    Alaska); Letter from Brita D. Strandberg, Counsel for General
    Communication, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 01-92, 96-45, WC Docket No. 05-337 at 2 (Oct. 3, 2008)
    (discussing Alaska's particular service needs and network
    architecture).

[^1080]: *Cf.* *The Establishment of Policies and Service Rules for the
    Broadcasting-Satellite Service at the 17.3-17.7 GHz Frequency Band
    and at the 17.7-17.8 GHz Frequency Band Internationally, and at the
    24.75-25.25 GHz Frequency Band for Fixed Satellite Services
    Providing Feeder Links to the Broadcasting-Satellite Service and for
    the Satellite Services Operating Bi-directionally in the 17.3-17.8
    GHz Frequency Band*, IB Docket No. 06-123, Report and Order and
    Further Notice of Proposed Rulemaking, 22 FCC Rcd 8842, 8860, para.
    47 (2007) (*Policies and Service Rules for the
    Broadcasting-Satellite Service Order*) ("The Commission is committed
    to establishing policies and rules that will promote service to all
    regions in the United States, particularly to traditionally
    underserved areas, such as Alaska and Hawaii, and other remote
    areas.").

[^1081]: The rules and requirements adopted in this order for universal
    service contributions will apply to these areas.

[^1082]: *Comprehensive Reform Recommended Decision*, 22 FCC Rcd at
    20478, 20481, 20484, paras. 2, 11, 26.

[^1083]: *Comprehensive Reform Recommended Decision*, 22 FCC Rcd at
    20484, para. 26. In 2007, total federal universal service
    disbursements amounted to approximately \$6.95 billion. Of that
    amount, approximately \$4.29 billion, 62%, was disbursed as
    high-cost support. [USAC 2007 Annual Report]{.smallcaps} at 51.

[^1084]: *See* [2007 Universal Service Monitoring Report]{.smallcaps} at
    3-14, tbl. 3.1 (high-cost support in 1997 was approximately \$1.26
    billion, compared with approximately \$4.29 billion in 2007). Even
    taking into account the fact that additional interstate support
    mechanisms, Interstate Access Support (IAS) and Interstate Common
    Line Support (ICLS), were created in 2000 and 2001, respectively,
    high-cost support has still increased by more than 45%, from
    approximately \$2.94 billion in 2002 to its current level of
    approximately \$4.29 billion. *Id.*

[^1085]: *See Interim Cap Order*, 23 FCC Rcd at 8834, para. 1.

[^1086]: *See* CenturyTel *High-Cost Reform NPRMs* Comments at 18
    (existing high-cost support mechanisms should be frozen at the study
    area level or on a statewide basis to provide funding certainty and
    encourage investment); Chinook *High-Cost Reform NPRMs* Comments,
    Attach. at 5--6 (any cap on universal service support should apply
    to all ETCs, including incumbent LECs); Connecticut Dep't of Pub.
    Util. Control *High-Cost Reform NPRMs* Comments at 5 (supporting a
    cap on high-cost support set at the 2007 level); Florida PSC
    *High-Cost Reform NPRMs* Comments at 2 (supporting the
    recommendation to cap the overall size of the high-cost fund);
    Information Technology Industry Council (ITI) *High-Cost Reform
    NPRMs* Comments at 7 (an overall cap should be applied to control
    the size of the high-cost mechanism); NCTA *High-Cost Reform NPRMs*
    Comments at 19 (the Joint Board's proposal to cap the overall size
    of the high-cost mechanism is "a welcome dose of fiscal
    responsibility"); National Consumer Law Center *Joint Board
    Comprehensive Reform NPRM* Comments at 2--3 (supporting the Joint
    Board's proposal to cap the overall high-cost fund); Verizon/Verizon
    Wireless *High-Cost Reform NPRMs* Comments at 2--3, 6--9 (Commission
    should cap the overall high-cost fund).

[^1087]: *See* Frontier *High-Cost Reform NPRMs* Comments at 6--7; JSI
    *High-Cost Reform NPRMs* Comments at 6; Montana Telecommunications
    Ass'n *High-Cost Reform NPRMs* Comments at 21--22; NECA *High-Cost
    Reform NPRMs* Comments at 17--20; TCA *High-Cost Reform NPRMs*
    Comments at 10--11; TDS *High-Cost Reform NPRMs* Comments at 8--9;
    Missouri Small Telephone Company Group (MSTC) *High-Cost Reform
    NPRMs* Reply at 5--7; Utah Rural Telecom Ass'n *High-Cost Reform
    NPRMs* Reply at 5.

[^1088]: 47 U.S.C. § 254(b)(5); *see* CenturyTel *High-Cost Reform
    NPRMs* Comments at 18; Comcast *High-Cost Reform NPRMs* Comments at
    3, 11; Florida PSC *High-Cost Reform NPRMs* Comments at 8--9;
    National Consumer Law Center *Joint Board Comprehensive Reform NPRM*
    Comments at 2; NCTA *High-Cost Reform NPRMs* Comments at 4--6; New
    Jersey Division of Rate Counsel *High-Cost Reform NPRMs* Comments at
    52--54; Oregon PUC *High-Cost Reform NPRMs* Comments at 2--3; Sprint
    Nextel *High-Cost Reform NPRMs* Comments at 3; USTelecom *High-Cost
    Reform NPRMs* Comments at 2; Verizon/Verizon Wireless *High-Cost
    Reform NPRMs* Comments at 7; New Jersey Division of Rate Counsel
    *High-Cost Reform NPRMs* Reply at 64--65; Sprint Nextel *High-Cost
    Reform NPRMs* Reply at 8--9; State Commissioners *High-Cost Reform
    NPRMs* Reply at 2; Texas Office of Public Utility Counsel *Joint
    Board Comprehensive Reform NPRM* Reply at 2; Virgin Mobile
    *High-Cost Reform NPRMs* Reply at 3--4. The Commission has already
    implemented caps on the schools and libraries and rural health care
    universal service mechanisms. *Universal Service First Report and
    Order*, 12 FCC Rcd at 9054, 9140, paras. 529, 704 (establishing a
    \$2.25 billion annual cap for the schools and libraries mechanism
    and a \$400 million annual cap for the rural health care mechanism);
    *see also* 47 C.F.R. §§ 54.507(a), 54.623(a).

[^1089]: 47 U.S.C. § 254(b)(5); *see also Universal Service First Report
    and Order*, 12 FCC Rcd at 9054, 9140, paras. 529, 704.

[^1090]: *Alenco Commc'ns, Inc. v. FCC*, 201 F.3d 608, 620--21 (5^th^
    Cir. 2000) (*Alenco*).

[^1091]: *Alenco*, 201 F.3d at 620.

[^1092]: *Qwest Commc'ns Int'l Inc. v. FCC*, 398 F.3d 1222, 1234 (10^th^
    Cir. 2005).

[^1093]: 47 U.S.C. § 254(b)(5).

[^1094]: *See Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 10.

[^1095]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11.

[^1096]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11; *see*
    Connecticut Commission *High-Cost Reform NPRMs* Comments at 7
    (supports reverse auctions as a means of controlling and reducing
    the size of the universal service fund, while putting the burden on
    providers to estimate bid amounts); Comcast *High-Cost Reform NPRMs*
    Comments at 7 (noting that the use of reverse auctions could reduce
    the size of the high-cost fund significantly).

[^1097]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11; *see*
    Letter from Grover Norquist, Americans for Tax Reform, to Marlene
    Dortch, Secretary, FCC, CC Docket No. 96-45 and WC Docket No. 05-337
    at 1 (filed Apr. 14, 2008) (reverse auctions will create incentives
    to invest in rural communities and will not finance and subsidize
    wasteful carriers).

[^1098]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11.

[^1099]: Several commenters, in particular those representing rural
    telephone companies, oppose the use of reverse auctions to award
    high-cost support to carriers of last resort in rural areas. *See,
    e.g.*, ATA *High-Cost Reform NPRMs* Comments at 13--15; Alexicon
    *Reverse Auctions NPRM* Comments at 2--3; NTCA *High-Cost Reform
    NPRMs* Comments at 30-46; OPASTCO *High-Cost Reform NPRMs* Comments
    at 16-21. None of these commenters, however, present a compelling
    reason justifying why we should not ensure that universal service
    funds are properly spent where needed to further the goals of
    universal service. If these companies are making efficient use of
    these funds today, there is no reason that they cannot effectively
    compete in a reverse auction to remain the provider of last resort.

[^1100]: *Identical Support NPRM*, 23 FCC Rcd at 1470, para. 5*.*

[^1101]: *Identical Support NPRM*, 23 FCC Rcd at 1470, para. 5*.*

[^1102]: As of the effective date of this order, a competitive ETC will
    no longer receive high-cost support based on the identical support
    rule, and will receive high-cost support only to the extent it is a
    winning bidder in a reverse auction.

[^1103]: A study area is a geographic segment of an incumbent LEC's
    telephone operations. Generally, a study area corresponds to an
    incumbent LEC's entire service territory within a state. *Direct
    Communications Cedar Valley, LLC and Qwest Corporation Joint
    Petition for Waiver of the Definition of "Study Area" of the
    Appendix-Glossary of Part 36 of the Commission's Rules, Petition for
    Waiver of Section 69.2(hh) and 69.605(c) of the Commission's Rules*,
    CC Docket No. 96-45, Order, 20 FCC Rcd 19180, 19181, para. 2 (WCB
    2005). Section 54.207 of the Commission's rules provides that a
    rural telephone company's service area will be its study area
    "unless and until the Commission and the states, after taking into
    account recommendations of a Federal-State Joint Board instituted
    under section 410(c) of this Act, establish a different definition
    of service area for such company." 47 C.F.R. § 54.207(b); 47 U.S.C.
    § 214(e)(5).

[^1104]: *See Reverse Auctions NPRM*, 23 FCC Rcd at 1503, para. 20.

[^1105]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1503, para. 20.

[^1106]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1504, para. 21.

[^1107]: Thus, we disagree with commenters' arguments that we should
    hold auctions for small geographic areas, such as counties, census
    block groups, or zip codes. *See, e.g.*, Comcast *High-Cost Reform
    NPRMs* Comments at 9; NCTA *High-Cost Reform NPRMs* Comments at 16;
    SouthernLINC *High-Cost Reform NPRMs* Comments at 24--25; TracFone
    *High-Cost Reform NPRMs* Comments at 6.

[^1108]: *See, e.g.*, Comcast *High-Cost Reform NPRMs* Comments at 8--9;
    NCTA *High-Cost Reform NPRMs* Comments at 16; SouthernLINC
    *High-Cost Reform NPRMs* Comments at 25; TracFone *High-Cost Reform
    NPRMs* Comments at 5.

[^1109]: *See* Ohio PUC *Reverse Auctions NPRM* Comments at 6--7
    (generally agreeing that the incumbent LEC's study area is the
    appropriate geographic area on which to base reverse auctions
    because further disaggregation could add cost and delays, and
    increase the opportunity for creamskimming).

[^1110]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1509, para. 36.

[^1111]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1509, para. 36.

[^1112]: Carrier of last resort obligations for incumbent LECs are a
    matter of state law. Under section 214(e)(6) of the Act, when the
    state lacks jurisdiction, the Commission shall make the public
    interest determination on whether to designate a carrier an ETC. 47
    U.S.C. § 214(e)(6). The ETC requirements include a requirement to
    provide supported services throughout the service area. 47 U.S.C. §
    214(e)(1).

[^1113]: Some commenters oppose setting the reserve price at incumbent
    LEC support levels, or setting any reserve price. *See* OPASTCO
    *High-Cost Reform NPRMs* Comments at 19--20; MSTC Group *High-Cost
    Reform NPRMs* Comments at 17--18; North Dakota PSC *High-Cost Reform
    NPRMs* Comments at 5. We find that setting the reserve price at the
    incumbent LEC support level will provide certainty to bidders and
    enable bidders with more efficient technologies to provide service
    at lower levels of support.

[^1114]: *Federal-State Joint Board on Universal Service*, CC Docket No.
    96-45, 20 FCC Rcd 6371 (2005) (*ETC Designation Order)*. Section
    214(e)(6) of the Act gives the Commission authority to designate
    carriers as ETCs when those carriers are not subject to the
    jurisdiction of a state commission. 47 U.S.C. § 214(e)(6). The
    requirements in the *ETC Designation Order* currently apply only to
    Commission-designated ETCs, although the Commission, in that order,
    encouraged state commissions to adopt similar requirements. *ETC
    Designation Order*, 20 FCC Rcd at 6372, 6379, paras. 1, 19.

[^1115]: *See* 47 U.S.C. § 214(e)(1).

[^1116]: *ETC Designation Order*, 20 FCC Rcd at 6380, para. 20.

[^1117]: *ETC Designation Order*, 20 FCC Rcd at 6380, para. 20; 47
    U.S.C. § 214(e)(4).

[^1118]: Competitive ETCs are not carriers of last resort, and loss of
    support would not jeopardize the provision of basic phone service to
    consumers in the study area. In fact, maintaining current levels of
    support to competitive ETCs pending a reverse auction is not
    necessary. Therefore, and consistent with our elimination of
    identical support to competitive ETCs, as of the effective date of
    this order, competitive ETCs are only entitled to support awarded
    via reverse auction.

[^1119]: The amount of support to be awarded to the winning bidder most
    likely will be less than the amount of support received by the
    incumbent LEC for that same area. The transfer of support will be
    based on the amount of support, relative to support for the entire
    study area, received by the incumbent LEC for the area to be
    transferred; that same relative percentage will be used to calculate
    the amount of award support the auction winner should receive for
    the same area. In no event will an incumbent LEC who is not an
    auction winner continue to receive support for an area once an
    auction winner begins to receive support for that same area.

[^1120]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1501, para. 13.

[^1121]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1501, para. 14.

[^1122]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1501, para. 14.

[^1123]: *See, e.g.*, Florida PSC *High-Cost Reform NPRMs* Comments at
    4--5; New York PSC *Identical Support and Reverse Auctions NPRMs*
    Comments at 2--3; Verizon/Verizon Wireless *High-Cost Reform NPRMs*
    Comments at 21--22, App. at 12. We disagree with commenters who
    support multiple winner auctions. *See, e.g.*, Alltel *High-Cost
    Reform NPRMs* Comments at 40--41; Atlantic Tele-Network *Identical
    Support and Reverse Auctions NPRMs* Comments at 13. We find that
    supporting a single auction winner is a more efficient use of
    universal service support.

[^1124]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500--01, para. 12; *see
    also, e.g.*, Florida PSC *High-Cost Reform NPRMs* Comments at 5;
    Indiana Util. Reg. Comm'n *High-Cost Reform NPRMs* Comments at 12;
    MSTC Group *High-Cost Reform NPRMs* Comments at 12; Verizon/Verizon
    Wireless *High-Cost Reform NPRMs* Comments, App. at 8.

[^1125]: For this reason, we disagree with commenters who argue that we
    should not require bidders to be ETCs. *See* GCI *High-Cost Reform
    NPRMs* Comments at 89; Consumers Union (CU), *et al.* *High-Cost
    Reform NPRMs* Reply at 17.

[^1126]: Pursuant to section 214(e)(1)(A) of the Act, a common carrier
    designated as an ETC must offer the services supported by the
    federal universal service mechanisms throughout the designated
    service area either by using its own facilities or by using a
    combination of its own facilities and resale of another carrier's
    services (including the services offered by another ETC). 47 U.S.C.
    § 214(e)(1)(A).

[^1127]: *See, e.g.*, *Auction of LPTV and TV Translator Digital
    Companion Channels Scheduled for November 5, 2008*, AU Docket No.
    08-22, Public Notice, DA 08-1944, para. 53 (WTB 2008).

[^1128]: *See Comprehensive Review of the Universal Service Fund
    Management, Administration, and Oversight, Federal-State Joint Board
    on Universal Service, Schools and Libraries Universal Service
    Support Mechanism, Rural Health Care Support Mechanism, Lifeline and
    Link-Up, Changes to the Board of Directors for the National Exchange
    Carrier Association, Inc.*, WC Docket No. 03-109, Report and Order,
    22 FCC Rcd 16372, 16383--84, para. 24 (*Comprehensive Review Report
    and Order*) (requiring "recipients of universal service support for
    high-cost providers to retain all records that they may require to
    demonstrate to auditors that the support they received was
    consistent with the Act and the Commission's rules, assuming that
    the audits are conducted within five years of disbursement of such
    support."). The term "service provider" includes any participating
    subcontractors.

[^1129]: This includes presenting personnel to testify, under oath, at a
    deposition if requested by of the Office of Inspector General.

[^1130]: *See, e.g*., 41 U.S.C. §§ 51--58 (Anti-Kickback Act of 1986);
    31 U.S.C. § 3729 (False Claims Act).

[^1131]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    9206--07, paras. 843--44; *Federal-State Joint Board on Universal
    Service;* *Access Charge Reform*, Sixteenth Order on Reconsideration
    and Eighth Report and Order in CC Docket No. 96-45 and Sixth Report
    and Order in CC Docket No. 96-262, 15 FCC Rcd 1679, 1685, para. 15
    (1999) (*Fifth Circuit Remand Order*) (establishing a single
    contribution for all universal service support mechanisms based on
    interstate and international revenues).

[^1132]: *Universal Service First Report and Order*, 12 FCC Rcd at
    9206--08, 9211, paras. 843, 845--48, 854.

[^1133]: *Compare* [Jim Lande & Kenneth Lynch, FCC, 2000
    Telecommunications Industry Revenues,]{.smallcaps} tbl. 4
    [(2002),]{.smallcaps} *available at*
    http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/telrev00.pdf
    *with* [Jim Lande & Kenneth Lynch, FCC, 2006 Telecommunications
    Industry Revenues,]{.smallcaps} tbl. 4 [(2008),]{.smallcaps}
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284929A1.pdf.
    *But see* Letter from David C. Bergmann, Chair, NASUCA
    Telecommunications Committee, to Chairman Kevin Martin *et al.*,
    FCC, WC Docket Nos. 08-152, 07-135, 06-122, 05-337, 05-195, 04-36,
    03-109, 02-60, CC Docket Nos. 02-6, 01-92, 00-256, 99-68, 96-262,
    96-45, 80-286, at 7 (filed Sept. 30, 2008) (NASUCA Sept. 30, 2008
    *Ex Parte* Letter) (arguing that the growth in the contribution
    factor is "almost entirely" due to the growth in universal service
    disbursement requirements).

[^1134]: *See* [FCC, Universal Service Monitoring Report,]{.smallcaps}
    tbl. 1.2a [(2001)]{.smallcaps} ([2001 Universal Service Monitoring
    Report]{.smallcaps}), *available at*
    http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/Monitor/mrs01-0.pdf;
    [2007 Universal Service Monitoring Report]{.smallcaps} at tbl. 1.11;
    *see also* [USAC 2007 Annual Report]{.smallcaps} at 3, 51 (detailing
    universal service disbursements for 2007 at approximately \$6.9
    billion).

[^1135]: The contribution factor grew from 5.9% in the first quarter of
    2000 to 11.3% for the fourth quarter of 2008. *See Proposed First
    Quarter 2000 Universal Service Contribution Factor*, CC Docket No.
    96-45, Public Notice, 15 FCC Rcd 3660 (WCB 1999); *Proposed Fourth
    Quarter 2008 Universal Service Contribution Factor*, CC Docket No.
    96-45, Public Notice, DA 08-2091 (OMD Sept. 12, 2008) (*Fourth
    Quarter 2008 Contribution Factor Public Notice*).

[^1136]: *See* 47 U.S.C. §§ 254(b), (d).

[^1137]: Although the Commission has established safe harbors for the
    reporting of interstate telecommunications revenues derived from
    interstate telecommunications services bundled with customer
    premises equipment (CPE) or information services, it has not
    established guidelines for reporting interstate telecommunications
    service revenues for flat-rated bundles of wireline interstate and
    intrastate services. *See* *Policy and Rules Concerning the
    Interstate, Interexchange Marketplace; Implementation of Section
    254(g) of the Communications Act of 1934, as amended; 1998 Biennial
    Regulatory Review---Review of Customer Premises Equipment and
    Enhanced Local Exchange Markets*, CC Docket Nos. 96-61, 98-183,
    Report and Order, 16 FCC Rcd 7418, 7446--48, paras. 47--54 (2001)
    (*CPE Bundling Order*).

[^1138]: *See Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Memorandum Opinion and Order and Further Notice of
    Proposed Rulemaking, 13 FCC Rcd 21252, 21258--59, paras. 13--15
    (1998) (*First Wireless Safe Harbor Order*); *see* *also
    Federal-State Joint Board on Universal Service*, CC Docket Nos.
    96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, Report and
    Order and Second Further Notice of Proposed Rulemaking, 17 FCC Rcd
    24952, 24965--67, paras. 21--25 (2002) (*Second Wireless Safe Harbor
    Order*).

[^1139]: *See Universal Service Contribution Methodology*, WC Docket
    Nos. 06-122, 04-36, CC Docket Nos. 96-45, 98-171, 90-571, 92-237,
    99-200, 95-116, 98-170, Report and Order and Notice of Proposed
    Rulemaking, 21 FCC Rcd 7518 (2006) (*2006 Interim Contribution
    Methodology Order*); *aff'd in part, vacated in part sub nom. Vonage
    Holdings Corp. v. FCC*, 489 F.3d 1232 (D.C. Cir. 2007).

[^1140]: *See* *Federal-State Joint Board on Universal Service*, CC
    Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, Notice of
    Proposed Rulemaking, 16 FCC Rcd 9892 (2001) (*2001 Contribution
    NPRM*); *see also Federal-State Joint Board on Universal Service*,
    CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116,
    98-170, Further Notice of Proposed Rulemaking and Report and Order,
    17 FCC Rcd 3752, 3765, para. 31, 3766--89, paras. 34--83 (2002)
    (*Contribution First FNPRM*).

[^1141]: *Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24983--97,
    paras. 66--100 (seeking comment on capacity-based proposals that had
    been developed in the record and on telephone-number proposals
    advocated by certain parties); *Commission Seeks Comment on Staff
    Study Regarding Alternative Contribution Methodologies*, CC Docket
    Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, Public
    Notice, 18 FCC Rcd 3006 (2003) (*Contribution Staff Study*) (seeking
    comment on a Commission staff study that estimated potential
    contribution assessment levels under the then-newly modified
    revenue-based method and the three connection-based proposals in the
    further notice portion of the *Second Wireless Safe Harbor Order*).

[^1142]: *Interim Cap Clears Path for Comprehensive Reform: Commission
    Poised to Move Forward on Difficult Decisions Necessary to Promote
    and Advance Affordable Telecommunications for All Americans*, News
    Release (May 2, 2008), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-281939A1.pdf.

[^1143]: We agree with commenters who argue that the contribution
    methodology requires a comprehensive overhaul. *See e.g.*, Letter
    from Mary L. Henze, AT&T Services, and Kathleen Grillo, Verizon, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket
    No. 96-45, Attach. 1 at 1 (filed Sept. 11, 2008) (AT&T and Verizon
    Sept. 11, 2008 *Ex Parte* Letter); Letter from Roger C. Sherman,
    Director, Government Affairs---Wireless Regulatory, Sprint Nextel,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket
    No. 04-36 at 1 (filed June 14, 2006) (Sprint Nextel June 14, 2006
    *Ex Parte* Letter); Letter from Susanne A. Guyer, Senior Vice
    President Federal Regulatory Affairs, Verizon, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket Nos. 05-337,
    06-122 at 2 (filed Oct. 28, 2008) (Verizon Oct. 29, 2008 *Ex Parte*
    Letter); Letter from Mary L. Henze, AT&T Services, and Kathleen
    Grillo, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    96-45, WC Docket No. 06-122 at 1 (filed Oct. 20, 2008) (AT&T and
    Verizon Oct. 20, 2008 *Ex Parte* Letter).

[^1144]: 47 U.S.C. § 254(d).

[^1145]: Section 254(d) refers to "telecommunications carriers," which
    are defined as "any provider of telecommunications services." 47
    U.S.C. § 153(44).

[^1146]: 47 U.S.C. § 254(d).

[^1147]: 47 U.S.C. § 254(d).

[^1148]: "Telecommunications" is defined 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
    as sent and received." 47 U.S.C. § 153(43).

[^1149]: "Telecommunications service" is defined as "the offering of
    telecommunications for a fee directly to the public, or to such
    classes of users as to be effectively available directly to the
    public, regardless of the facilities used." 47 U.S.C. § 153(46).

[^1150]: *See* 47 C.F.R. § 54.706(a); *Universal Service First Report
    and Order*, 12 FCC Rcd at 9183--84, paras. 794--95. We note that
    private service providers that provide interstate connections solely
    to meet their internal needs (i.e., self-providers) will not be
    required to contribute under the new methodology. This is consistent
    with our current policy. In the *Universal Service First Report and
    Order*, the Commission reasoned that, for self-providers of
    interstate telecommunications, the telecommunications is incidental
    to their primary non-telecommunications business. *See Universal
    Service First Report and Order*, 12 FCC Rcd at 9185, para. 799.

[^1151]: *See* 47 C.F.R. § 54.706(a); *Universal Service First Report
    and Order*, 12 FCC Rcd at 9184--85, paras. 796--98. *But see* Letter
    from Robert F. Aldrich, Counsel for the American Public
    Communications Council (APCC), to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 96-45, WC Docket No. 01-92, Attach. (filed Oct. 23,
    2008).

[^1152]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7538--40, paras. 39--41; 47 C.F.R. § 54.706(a).

[^1153]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7539, para. 41 ("To provide this capability \[telecommunications\],
    interconnected VoIP providers may rely on their own facilities or
    provide access to the PSTN through others.").

[^1154]: *See United States v. Southwestern Cable Co.*, 392 U.S. 157,
    177--78 (1968); *United States v. Midwest Video Corp.*, 406 U.S.
    649, 667--68 (1972); *FCC v. Midwest Video Corp.*, 440 U.S. 689, 700
    (1979); *see also American Library Ass'n v. FCC*, 406 F.3d 689 (D.C.
    Cir. 2005).

[^1155]: *See Amendment of Part 67 of the Commission\'s Rules and
    Establishment of a Joint Board*, CC Docket No. 80-286, Decision and
    Order, 96 F.C.C.2d 781, (1984), *aff'd sub nom. Rural Tel. Coalition
    v. FCC*, 838 F.2d 1307 (D.C. Cir. 1988).

[^1156]: *Rural Tel. Coalition*, 838 F.2d at 1315.

[^1157]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd
    at 7541--43, paras. 46--49.

[^1158]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd
    at 7542, para. 47 & n.160 (citing *IP-Enabled* Services, First
    Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 10245
    (2005) (*VoIP 911 Order*), *aff'd sub nom. Nuvio Corp. v. FCC*, 473
    F.3d 302 (D.C. Cir. 2006); 47 U.S.C. § 152(a)).

[^1159]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7542, para. 48 (quoting 47 U.S.C. § 254(d)).

[^1160]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7542, para. 48.

[^1161]: 47 U.S.C. § 251(e)(1).

[^1162]: *See VoIP 911 Order*, 20 FCC Rcd at 10265, para. 33.

[^1163]: *See VoIP 911 Order*, 20 FCC Rcd at 10265, para. 33.

[^1164]: The term Assessable Number is defined below. *See infra* paras.
    62-77.

[^1165]: This list is meant to be illustrative, not exhaustive. Other
    providers may also have to contribute to the universal service fund
    based on the criteria described in this order.

[^1166]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd
    at 7539, para. 41.

[^1167]: 47 U.S.C. § 254(d).

[^1168]: 47 U.S.C. § 152(a); *see also VoIP 911 Order*, 20 FCC Rcd
    10261--62, para. 28 (providing detailed explanation of why
    interconnected VoIP falls within the Commission's subject matter
    jurisdiction).

[^1169]: *Compare 2006 Interim Contribution Methodology Order*, 21 FCC
    Rcd at 7540, para. 43.

[^1170]: *See, e.g.*, American Association of Paging Carriers (AAPC)
    *Contribution First FNPRM* Comments at 7; Alaska Communication
    Systems (ACS) *Contribution First FNPRM* Reply at 6--7; Allied
    Personal Communications Industry Association of California (Allied)
    *Contribution First FNPRM* Comments at 6--7; National ALEC
    Association/Prepaid Communications Association (NALA/PCA)
    *Contribution First FNPRM* Reply at 3.

[^1171]: *See,* *e*.*g*., *NARUC v. FCC*, 737 F.2d 1095, 1113 (D.C. Cir.
    1984) ("The same loop that connects a telephone subscriber to the
    local exchange necessarily connects that subscriber into the
    interstate network as well.").

[^1172]: *NARUC v. FCC*, 737 F.2d at 1113--14.

[^1173]: Services that provide only intrastate communications and do not
    traverse a public interstate network will not be required to
    contribute under the new assessment methodology. *See supra* para.
    63.

[^1174]: 47 U.S.C. § 254(b)(5).

[^1175]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 1.

[^1176]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 1; *see also* Letter from James S. Blaszak, Counsel for
    Ad Hoc Telecommunications Users Committee, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, at 5 (filed Nov. 19, 2007) (Ad
    Hoc Nov. 19, 2007 *Ex Parte* Letter) (discussing the convergence of
    different applications for business and residential customers onto a
    single integrated network with bundled pricing).

[^1177]: *See Vonage Holdings Corporation Petition for Declaratory
    Ruling Concerning an Order of the Minnesota Public Utilities
    Commission*, 19 FCC Rcd 22404, 22412--14, paras. 16--18 (2004)
    (*Vonage Order*), *aff'd sub nom. Minnesota Pub. Utils. Comm'n v.
    FCC*, 483 F.3d 570 (8th Cir. 2007).

[^1178]: *See, e.g.*, AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 2.

[^1179]: Contributors are prohibited from passing through to subscribers
    more than their contribution cost. 47 C.F.R. § 54.712.

[^1180]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 2; *see also* Information Technology Industry Council
    (ITI) *2006 Contribution FNPRM* Comments at 6; NCTA *2006
    Contribution FNPRM* Comments at 5; Small Business Administration
    Office of Advocacy (SBA) *2006 Contribution FNPRM* Comments at 8;
    Vonage *2006 Contribution FNPRM* Comments at 7--8; Letter from
    Gregory V. Haledjian, Regulatory and Governmental Relations, Counsel
    to IDT Corporation and USF By the Numbers Coalition, to Marlene H.
    Dortch, Secretary, FCC, WC Docket No. 06-122, Attach. at 3--4 (filed
    Jan. 30, 2007).

[^1181]: *See, e.g.*, NCTA *2006 Contribution FNPRM* Comments at 5;
    Vonage *2006 Contribution FNPRM* Comments at 6; Letter from Grace E.
    Koh, Policy Counsel, Cox Enterprises, to Marlene H. Dortch,
    Secretary, FCC, WC Docket Nos. 06-122, 05-337, 01-92, CC Docket Nos.
    96-45, 99-68, 96-262 at 2 (filed July 15, 2008).

[^1182]: *See* AT&T *2006 Contribution FNPRM* Comments at 4.

[^1183]: *See* [2007 Universal Service Monitoring Report]{.smallcaps} at
    tbl. 1.1.

[^1184]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 1; *see also* [Alexander Belinfante, FCC, Telephone
    Subscribership in the United States]{.smallcaps}, tbl. 1 (2008),
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284923A1.pdf.

[^1185]: *See* [Craig Stroup and John Vu, FCC, Numbering Resource
    Utilization in the United States]{.smallcaps}, tbl. 12 (2008)
    (showing number utilization from December 2000 to December 2007),
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284926A1.pdf.

[^1186]: *See* Ad Hoc *Contribution First FNPRM* Comments at 6--7;
    Coalition for Sustainable Universal Service (CoSUS) *Contribution
    First FNPRM* Comments at 38; Sprint *Contribution First FNPRM*
    Comments at 8--9. Because numbers-based contribution assessments
    will no longer be assessed based on revenues, contributors may not
    mark-up or otherwise adjust the Assessable Number per month
    residential contribution assessment in response to uncollectible
    revenues.

[^1187]: *See, e.g.*, ITI *2006 Contribution FNPRM* Comments at 6;
    Vonage *2006 Contribution FNPRM* Comments at 7.

[^1188]: *See Numbering Resource Optimization*, CC Docket No. 99-200,
    Report and Order and Further Notice of Proposed Rulemaking, 15 FCC
    Rcd 7574, 7625, para. 122 (2000) (*NRO* *I Order*) (determining that
    implementation of thousands-block number pooling is essential to
    extending the life of the NANP by making the assignment and use of
    NXX codes more efficient); *see also Numbering Resource
    Optimization*, CC Docket Nos. 99-200, 96-98, 95-116, Fourth Report
    and Order, 18 FCC Rcd 12472, 12474, para. 5 (2003) (*NRO* *IV
    Order*) (explaining further that thousands-block number pooling is a
    numbering resource optimization measure in which 10,000 numbers in
    an NXX are divided into ten sequential blocks of 1,000 numbers and
    allocated to different service providers (or different switches)
    within a rate center).

[^1189]: 47 U.S.C. § 254(b)(1).

[^1190]: *See* Letter from Jean L. Kiddoo and Tamar E. Finn, Counsel to
    IDT Telecom, to Marlene H. Dortch, Secretary, FCC, WC Docket No.
    06-122, at 5 (filed Aug. 2, 2007) (IDT Aug. 2, 2007 *Ex Parte*
    Letter) (showing that the average residential household paid about
    \$1.37 in universal service fees in 2006). IDT claims the data show
    that the lowest-income consumers paid an average of \$1.09 in
    universal service fees for wireline telephone bills. *Id*. at 6.

[^1191]: 47 C.F.R. §§ 69.104(n)(1), 69.152(d)(1). The SLC is referred to
    as the End User Common Line Charge in the Commission's rules.

[^1192]: The revenue from the \$6.50 SLC would be multiplied by the
    11.4% contribution factor, resulting in a contribution amount and
    corresponding assessment of \$0.74. *See Fourth Quarter 2008
    Contribution Factor Public Notice* at 1; AT&T and Verizon Sept. 11,
    2008 *Ex Parte* Letter, Attach. 2 at 3.

[^1193]: *See* 47 C.F.R. § 54.400 *et seq*.; *infra* para. 90
    (describing contribution exemptions for services to low-income
    consumers).

[^1194]: *See, e.g.*, Letter from Maureen A. Thompson, Executive
    Director, Keep USF Fair Coalition, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 96-45, Attach. at 5--7 (filed Mar. 27, 2006)
    (Keep USF Fair Mar. 27, 2006 *Ex Parte* Letter); *see also* NASUCA
    Sept. 30, 2008 *Ex Parte* Letter at 9.

[^1195]: *Universal Service First Report and Order*, 12 FCC Rcd at 8783,
    para. 8.

[^1196]: *See, e.g.*, FW&A *Contribution First FNPRM* Comments at
    13--15; NRTA and OPASTCO *Contribution First FNPRM* Comments at
    7--11; SBC *Contribution First FNPRM* Comments at 18; Verizon
    *Contribution First FNPRM* Reply at 6; Verizon Wireless
    *Contribution First FNPRM* Comments at 5--6.

[^1197]: These six categories of numbers are defined as follows:

    > \(i\) Administrative numbers are numbers used by
    > telecommunications carriers to perform internal administrative or
    > operational functions necessary to maintain reasonable quality of
    > service standards.
    >
    > \(ii\) Aging numbers are disconnected numbers that are not
    > available for assignment to another end user or customer for a
    > specified period of time. Numbers previously assigned to
    > residential customers may be aged for no more than 90 days.
    > Numbers previously assigned to business customers may be aged for
    > no more than 365 days.
    >
    > \(iii\) Assigned numbers are numbers working in the Public
    > Switched Telephone Network under an agreement such as a contract
    > or tariff at the request of specific end users or customers for
    > their use, or numbers not yet working but having a customer
    > service order pending. Numbers that are not yet working and have a
    > service order pending for more than five days shall not be
    > classified as assigned numbers.
    >
    > \(iv\) Available numbers are numbers that are available for
    > assignment to subscriber access lines, or their equivalents,
    > within a switching entity or point of interconnection and are not
    > classified as assigned, intermediate, administrative, aging, or
    > reserved.
    >
    > \(v\) Intermediate numbers are numbers that are made available for
    > use by another telecommunications carrier or non-carrier entity
    > for the purpose of providing telecommunications service to an end
    > user or customer. Numbers ported for the purpose of transferring
    > an established customer's service to another service provider
    > shall not be classified as intermediate numbers.
    >
    > \(vi\) Reserved numbers are numbers that are held by service
    > providers at the request of specific end users or customers for
    > their future use. Numbers held for specific end users or customers
    > for more than 180 days shall not be classified as reserved
    > numbers.

    47 C.F.R. § 52.15(f)

[^1198]: *See Assessment and Collection of Regulatory Fees for Fiscal
    Year 2005, Assessment and Collection of Regulatory Fees for Fiscal
    Year 2004*, MD Dockets No. 05-59, 04-73, Report and Order and Order
    on Reconsideration, 20 FCC Rcd 12259, 12271, paras. 39--40 (2005).

[^1199]: "Functional equivalent identifier" means an identifier used in
    place of and with the same PSTN access capability as a NANP number;
    it is not intended to capture identifiers used in conjunction with
    NANP numbers, such as internal extensions that cannot be directly
    dialed from the PSTN. Nor is "functional equivalent identifier"
    intended to capture routing identifiers used for routing of Internet
    traffic, unless such identifiers are used in place of a NANP number
    to provide the ability to make or receive calls on the PSTN.

[^1200]: For purposes of the definition of Assessable Numbers, we
    include only the NANP telephone numbers used in the United States
    and its Territories and possessions.

[^1201]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    9206, para. 844; *see also, e.g*., Letter from Melissa E. Newman,
    Vice President-Federal Regulatory, Qwest, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, at 7 (filed Sept. 24, 2008)
    (Qwest Sept. 24, 2008 *Ex Parte* Letter); AT&T and Verizon Sept. 11,
    2008, *Ex Parte* Letter, Attach. 1 at 1--2; Letter from Brad E.
    Mutschelknaus, Counsel for XO Communications, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 96-45, 01-92, WC Docket No. 04-36,
    Attach. at 9 (filed Oct. 3, 2008); Letter from Donna N. Lampert,
    Counsel for Google, to Marlene H. Dortch, Secretary, FCC (filed Oct.
    3, 2008) (Google Oct. 3, 2008 *Ex Parte* Letter); *see also* 47
    C.F.R. § 54.5 (defining "contributor" as "an entity required to
    contribute to the universal service support mechanism pursuant to §
    54.706 \[of the Commission's rules\]").

[^1202]: *See supra* para. 50 (discussing the public interest in
    requiring these entities to support the network).

[^1203]: *See e.g.*, AT&T and Verizon Sept. 23, 2008 *Ex Parte* Letter,
    Attach. 2 at 2; *see also* *Second Wireless Safe Harbor Order*, 17
    FCC Rcd at 24978, para. 50.

[^1204]: 47 C.F.R. § 54.712.

[^1205]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    9206-07, para. 843-44; 9179-80, para. 788; *see also* Google Oct. 3,
    2008 *Ex Parte* Letter at 1.

[^1206]: *Universal Service First Report and Order*, 12 FCC Rcd at
    9206-07, paras. 843-45. For universal service contribution purposes,
    a "reseller" is a telecommunications carrier or telecommunications
    provider that incorporates purchased telecommunications services
    into its own telecommunications offerings. *See* [FCC, Instructions
    to the Telecommunications Reporting Worksheet]{.smallcaps}, FCC Form
    499-A, at 11, 15 (Feb. 2008) (FCC Form 499-A Instructions),
    *available at* http://www.fcc.gov/Forms/Form499-A/499a-2008.pdf.

[^1207]: *See* 47 U.S.C. § 254(d).

[^1208]: *See Numbering Resource Optimization*, CC Docket Nos. 99-200,
    96-98, 95-116, Third Report and Order and Second Order on
    Reconsideration in CC Docket No. 96-98 and CC Docket No. 99-200, 17
    FCC Rcd 252, 303, para. 119 (2001) (*NRO III Order*).

[^1209]: *NRO III Order*, 17 FCC Rcd at 304, para. 122 ("With this
    requirement, we seek to limit the amount of numbers that are set
    aside for use by a particular customer, but are not being used to
    provide service on a regular basis. Thus, in order to categorize
    such blocks of numbers as assigned numbers, carriers may have to
    decrease the amount \[of\] numbers set aside for a particular
    customer. We also clarify that numbers 'working' periodically for
    regular intervals of time, such as numbers assigned to summer homes
    or student residences, may be categorized as assigned numbers, to
    the extent that they are 'working' for a minimum of 90 days during
    each calendar year in which they are assigned to a particular
    customer. Any numbers used for intermittent or cyclical purposes
    that do not meet these requirements may not be categorized as
    assigned numbers, and must be made available for use by other
    customers.").

[^1210]: *See* 47 C.F.R. § 52.15(f)(iii).

[^1211]: *NRO I Order*, 15 FCC Rcd at 7586--87, para. 18. Ported-out
    numbers, a subcategory of assigned numbers, are not reported to
    NANPA although NRUF reporting carriers are required to maintain
    internal records associated with these numbers for five years. *Id*.
    at 7592, 7601, paras. 36, 62.

[^1212]: *See* 47 C.F.R. § 52.15(f); *see also* Qwest Sept. 24, 2008 *Ex
    Parte* Letter at 7 (arguing, among other things, that numbers used
    for administrative purposes and numbers that are not "actively"
    working, such as aging, unassigned, reserved numbers, and numbers
    donated back to the industry pool should be excluded from the
    contributor's base).

[^1213]: *See* 47 C.F.R. § 52.15(f)(v).

[^1214]: *See NRO I Order*, 15 FCC Rcd at 7587, para. 21 (2000) ("We
    agree with commenters who opine that \[intermediate\] numbers should
    not be categorized as *assigned* numbers because they have not been
    assigned to an end user. . . . We therefore conclude that numbers
    that are made available for use by another carrier or non-carrier
    entity for the purpose of providing telecommunications service to an
    end user or customer should be categorized as *intermediate*
    \[numbers\].").

[^1215]: *NRO III Order*, 17 FCC Rcd at 304, para. 122.

[^1216]: When a wireless carrier interconnects at an incumbent LEC end
    office it is known as a Type 1 interconnection. *See Federal
    Communications Commission Seeks Comment on Initial Regulatory
    Flexibility Analysis in Telephone Number Portability Proceeding*, CC
    Docket No. 95-116, Public Notice, 20 FCC Rcd 8616, 8632, App. B at
    para. 19 n.53 (2005) ("Type 1 numbers reside in an end office of a
    LEC and are assigned to a Type 1 interconnection group, which
    connects the wireless carrier\'s switch and the LEC\'s end office
    switch.").

[^1217]: *See infra* para. 90.

[^1218]: The record is split over whether the definition of an
    assessable number should be restricted to the PSTN. AT&T and
    Verizon, for example, do not include such a requirement in their
    proposed definitions. *See* AT&T and Verizon Sept. 23, 2008 *Ex
    Parte* Letter, Attach. 1. Other commenters, however, argue for such
    a requirement. *See* Google Oct. 3, 2008 *Ex Parte* Letter at 1 (the
    definition of an assessable number should be "premised on a
    telephone number acting as a proxy for an underlying two-way PSTN
    connection"). As we explain herein, such a restriction is not
    warranted.

[^1219]: *Universal Service First Report and Order*, 12 FCC Rcd at 9207,
    paras. 845--46.

[^1220]: *Universal Service First Report and Order*, 12 FCC Rcd at 9184,
    para. 796.

[^1221]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd
    at 7536--37, paras. 33-34.

[^1222]: *See* 47 C.F.R. § 52.15(f)(iii).

[^1223]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    9206, para. 844.

[^1224]: 47 C.F.R. § 52.15(f).

[^1225]: 47 C.F.R. § 52.15(f)(2).

[^1226]: *NRO I Order*, 15 FCC Rcd at 7587, para. 21.

[^1227]: S*ee* *Administration of the North American Numbering Plan*, CC
    Docket No. 99-200, Order, 20 FCC Rcd 2957, 2961--62, para. 9 (2005)
    (*SBCIS Waiver Order*) (noting that most VoIP providers' numbering
    utilization data are embedded in the NRUF data of the LEC). In the
    *SBCIS Waiver Order*, the Commission granted SBCIS, an Internet
    service provider, permission to obtain numbering resources directly
    from the NANPA and/or Pooling Administrator, conditioned on, among
    other things, SBCIS reporting NRUF data. *Id*. at 2959, para. 4.

[^1228]: *See infra* paras. 95-101.

[^1229]: *See* Letter from Jeanine Poltronieri, Vice President, Federal
    Regulatory, BellSouth D.C., Inc, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 96-45, Attach. at 2 (filed July 6, 2005) ("If
    voice service is provided without using telephone numbers, but with
    IP address or other identifier, FCC will need to establish a
    'functional equivalency' test.").

[^1230]: Business services such as private line and special access
    services do not typically utilize telephone numbers in the same
    manner as residential services, and would not contribute equitably
    to the universal service fund under a numbers-based approach. *See,
    e.g.*, Letter from James S. Blaszak, Counsel to Ad Hoc
    Telecommunications Users Committee, to Marlene H. Dortch, Secretary,
    FCC, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116,
    98-170, NSD File No. L-00-72, at 3 (filed Oct. 9, 2002); Letter from
    Robert Quinn, Vice President Federal Government Affairs, AT&T, to
    Marlene Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171,
    90-571, 92-237, 99-200, 95-116, 98-170, NSD File No. L-00-72, at 2
    (filed Oct. 22, 2002). Moreover, unlike residential services, which
    usually have one telephone number assigned per access line, business
    services do not usually have a number of telephone numbers assigned
    that aligns with the number of access lines utilized.

[^1231]: 47 U.S.C. § 254(d). Therefore, we disagree with those parties
    that continue to support a numbers-only based approach because we
    find such an approach would be inconsistent with the statutory
    requirement that every telecommunications carrier must contribute to
    the universal service fund. *See, e.g.*, Letter from James S.
    Blaszak, Counsel for Ad Hoc, to Marlene H. Dortch, Secretary, FCC,
    CC Docket Nos. 01-92, 96-45, 99-68, WC Docket Nos. 05-337, 07-135,
    Attach. at 5 (filed Oct. 14, 2008).

[^1232]: *See Contribution Staff Study*; *see also* Ad Hoc
    Telecommunications Users Committee 2003 Staff Study Reply; Letter
    from John Nakahata, Counsel for the Coalition for Sustainable
    Universal Service, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 96-45, at 1 (filed Oct. 31, 2002).

[^1233]: *See* Letter from Melissa E. Newman, Vice President--Federal
    Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 96-45, Attach. at 6 (filed Mar. 21, 2006) (Qwest Mar. 21, 2006
    *Ex Parte* Letter); *see also* Qwest Sept. 24, 2008 *Ex Parte*
    Letter at 2.

[^1234]: *See supra* para. 44.

[^1235]: Time Warner *2006 Contribution FNPRM* Comments at 2.

[^1236]: 47 U.S.C. § 254(d).

[^1237]: 47 U.S.C. § 254(b)(4).

[^1238]: The proxies offer an alternative to contributions assessed on
    actual interstate revenues; they are intended to approximate the
    portion of revenues derived from the provision of interstate
    telecommunications services. *First Wireless Safe Harbor Order*, 13
    FCC Rcd at 21258--60, paras. 13--15 (establishing safe harbors for
    wireless service providers); *Second Wireless Safe Harbor Order*, 17
    FCC Rcd at 14954, para. 1 (modifying the wireless safe harbors);
    *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at 7532,
    7545, paras. 23, 53 (revising the wireless safe harbor and
    establishing a safe harbor for interconnected VoIP providers).

[^1239]: *See supra* para. 42.

[^1240]: 47 U.S.C. §§ 254(b)(4), (d).

[^1241]: Letter from Mitchell F. Brecher, Counsel for TracFone, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 2
    (filed Sept. 17, 2008) (TracFone Sept. 17, 2008 *Ex Parte* Letter);
    CTIA *2006 Contribution FNPRM* Comments at 6; Leap Wireless *2006
    Contribution FNPRM* Comments at 2--3; T-Mobile Apr. 4, 2006 *Ex
    Parte* Letter at 3--4; Letter from John M. Beahn and Malcolm
    Tuesley, Counsel to Virgin Mobile USA, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 96-45, Attach. at 4--7 (filed June 12,
    2006) (Virgin Mobile June 12, 2006 *Ex Parte* Letter).

[^1242]: *See, e.g*., Verizon Mar. 28, 2006 *Ex Parte* Letter, Attach.
    at 3; TracFone Sept. 17, 2008 *Ex Parte* Letter, Attach. at 2;
    Virgin Mobile June 12, 2006 *Ex Parte* Letter, Attach. at 7.

[^1243]: *See* TracFone Sept. 17, 2008 *Ex Parte* Lette*r*, Attach;
    Letter from Antoinette Bush, Counsel for Virgin Mobile, to Marlene
    H. Dortch, Secretary, FCC, Docket No. 96-45*,* Attach. at 11 (filed
    Mar. 18, 2005) (Virgin Mobile Mar. 18, 2005 *Ex Parte* Letter); *see
    also* AT&T and Verizon Sept. 23, 2008 *Ex Parte* Letter, at 6.

[^1244]: *See* CTIA Oct. 2, 2008 *Ex Parte* Letter at 1 (raising a
    concern that current proposals could harm the large number of
    prepaid wireless customers).

[^1245]: *See* Letter from Mitchell F. Brecher, Counsel for TracFone, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 3 (filed
    June 15, 2007) (TracFone June 15 *Ex Parte* Letter).

[^1246]: TracFone June 15, 2007 *Ex Parte* Letter at 3. TracFone also
    asserts that an exception is warranted because it provides service
    to low volume end users (i.e., end users that do make a small amount
    of calls, measured in minutes). *Id*. However, as explained below,
    we decline to provide a contribution exception for low-volume users.
    *See infra* para. 91.

[^1247]: AT&T and Verizon support the TracFone discount approach for
    prepaid wireless providers. AT&T and Verizon Sept. 11, 2008 *Ex
    Parte* Letter, Attach. 1 at 3; *see also* Letter from David L.
    Sieradzki, Counsel to OnStar Corp., to Marlene Dortch, Secretary,
    FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 2 (dated Oct. 28,
    2008) (OnStar "strongly supports" the TracFone per-minute of use
    proposal for prepaid wireless services) (OnStar Oct. 28, 2008 *Ex
    Parte* Letter).

[^1248]: TracFone Sept. 17, 2008 *Ex Parte* Letter, Attach. at 4--5.

[^1249]: *See* TracFone Sept. 17, 2008 *Ex Parte* Letter at 5. We use
    these data because they are the most recent publicly available data.

[^1250]: To the extent that the prepaid wireless subscriber is a
    Lifeline customer for the prepaid service, the prepaid provider
    should exclude prepaid minutes associated with the qualifying
    Lifeline customer. *See infra* para. 90.

[^1251]: CTIA Oct. 2, 2008 *Ex Parte* Letter at 5.

[^1252]: *Alenco*, 201 F.3d at 621.

[^1253]: *See, e.g.*, AT&T and Verizon Oct. 20, 2008 *Ex Parte* Letter
    at 4 (proposing that numbers assigned to Lifeline customers be
    excluded from the monthly number count for contribution purposes).

[^1254]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24982,
    para. 62.

[^1255]: *See, e.g*., CTIA *2006 Contribution FNPRM* Comments at 5;
    Consumers Union *et al*. *High-Cost Reform NPRMs* Reply at 58; Ad
    Hoc Nov. 19, 2007 *Ex Parte* Letter at 4; AT&T and Verizon Sept. 11,
    2008 *Ex Parte* Letter, Attach. 1 at 5.

[^1256]: *See, e.g.*, Consumers Union *et al.* *Contribution First
    FNPRM* Comments at 12; NASUCA *Contribution First FNPRM* Comments at
    14; Keep USF Fair Mar. 27, 2006 *Ex Parte* Letter, Attach. at 1.

[^1257]: *See supra* para. 60; *see also* Sprint *Contribution First
    FNPRM* Comments at 7.

[^1258]: *But see* IDT Aug. 2, 2007 *Ex Parte* Letter at 6--7 (arguing
    that low-volume consumers who make no long distance calls pay about
    \$1.40 in universal service contribution assessments).

[^1259]: *See supra* para. 59.

[^1260]: Telematics is a service that is provided through a transceiver,
    which is usually built into a vehicle but can also be a handheld
    device, that provides public safety information to public safety
    answering points (PSAPs) using global positioning satellite data to
    provide location information regarding accidents, airbag
    deployments, and other emergencies in real time. *See, e.g*., Letter
    from David L Sieradzki, Counsel for OnStar, to Marlene H. Dortch,
    FCC, CC Docket No. 96-45, Attach. at 1 (filed Mar. 2, 2006);
    *Revision of the Commission's Rules To Ensure Compatibility with
    Enhanced 911 Emergency Systems*, CC Docket No. 94-102, Order, 18 FCC
    Rcd 21531, 21531--33, paras. 2, 8 (2003).

[^1261]: *See* Letter from Jennifer D. Brandon, Executive Director,
    Community Voice Mail National, to Tom Navin, Wireline Competition
    Bureau, FCC, CC Docket No. 96-45 at 1 (filed May 30, 2006)
    (Community Voice Mail May 30, 2006 *Ex Parte* Letter) (arguing for
    an exemption for these services).

[^1262]: One-way services include, but are not limited to, one-way
    paging, electronic facsimile (e-fax), and voice mail services. *See*
    j2 Global 2003 Comments at 9 (describing its offering as a free
    unified messaging service that uses telephone numbers to allow
    subscribers to receive faxes and voice mail into their personal
    e-mail accounts).

[^1263]: *See, e.g.*, Letter from Matthew Brill, Counsel for USA
    Mobility, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No.
    06-122, CC Docket No. 96-45, at 2 (filed Oct. 24, 2008) (opposing
    the assessment of a numbers-based fee on paging carriers and their
    customers); Letter from Kenneth Hardman, representing the American
    Association of Paging Carriers, to Marlene H. Dortch, Secretary,
    FCC, WC Docket No. 06-122, CC Docket No. 96-45, at Attach. (filed
    Oct. 22, 2008).

[^1264]: *See* Letter from Ari Q. Fitzgerald, Counsel, Mercedes-Benz
    USA, LLC, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45,
    at 1 (filed Apr. 12, 2006) (Mercedes-Benz Apr. 12, 2006 *Ex Parte*
    Letter); *see also* Letter from John E. Logan, ATX Group, Inc., to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 2 (filed
    Mar. 16, 2006) (ATX Mar. 16, 2006 *Ex Parte* Letter); Letter from
    David M. Don, Counsel for j2 Global Communications, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, at 1 (filed Nov. 18,
    2005) (j2 Global Nov. 18, 2005 *Ex Parte* Letter); Letter from
    William B. Wilhelm, Jr., Counsel for Bonfire Holdings, to Tom Navin,
    Chief, Wireline Competition Bureau, CC Docket No. 96-45 (filed Feb.
    13, 2006) (Bonfire Feb. 13, 2006 *Ex Parte* Letter); j2 Global
    *Contribution Second FNPRM* Comments at 2; Letter from Kenneth E.
    Hardman, Counsel for American Association of Paging Carriers, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 1
    (filed Oct. 6, 2005) (AAPC Oct. 6, 2005 *Ex Parte* Letter); Letter
    from Frederick M. Joyce, Counsel for USA Mobility, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 1--3 (filed
    Mar. 22, 2006) (USA Mobility Mar. 22, 2006 *Ex Parte* Letter).

[^1265]: We similarly decline to adopt an exemption from the
    numbers-based contribution assessment method for services provided
    by alarm companies. *See* Letter from Donald J. Evans, Counsel for
    Corr Wireless Communications, LLC, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92, WC Docket No. 06-122, WT Docket No.
    05-194, at 2 (filed Oct. 23, 2008). These services are receiving the
    benefit of having access to the PSTN and should therefore contribute
    to universal service.

[^1266]: Telematics providers argue against imposition of a \$1.00 per
    number per month contribution assessment on telematics numbers due
    to the service's critical role in advancing public safety, and
    because the \$1.00 assessment would be prohibitively expensive.
    *See, e.g.*, Letter from Gary Wallace, Vice President Corporate
    Relations, ATX Group, Inc., to Kevin Martin, Chairman, FCC, CC
    Docket No. 96-45, WC Docket No. 06-122 at 1--2 (filed Oct. 28,
    2008); OnStar Oct. 28, 2008 *Ex Parte* Letter at 3--4; Letter from
    Matthew Brill, Counsel for Toyota Motor Sales USA, Inc., to Marlene
    Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45 at
    1--2 (filed Oct. 24, 2008). We find, however, that treating these
    services differently than other residential services would not be
    equitable, given their use of the PSTN and the ability of telematics
    providers to recover the assessment from their end users. Given the
    public safety benefit to consumers, we find unpersuasive the
    telematics' providers assertions that consumers will discontinue use
    of the service based on an assessment of only \$1.00 per number.
    Furthermore, we disagree with commenters who argue that telematics
    service should be treated as a business service, and conclude that
    telematics service is a residential service that should be assessed
    under the \$1.00 per number per month residential contribution
    methodology. *See* OnStar Oct. 28, 2008 *Ex Parte* Letter at 2;
    Letter from Tamara Preiss, Legal and External Affairs, Verizon
    Wireless, to Marlene Dortch, Secretary, FCC, WC Docket No. 06-122,
    CC Docket No. 96-45 at 1 (filed Oct. 29, 2008).

[^1267]: *See e.g.*, AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter
    at 4; CTIA *2006 Contribution FNPRM* Comments at 5--6; Leap Wireless
    *2006 Contribution FNPRM* Comments at 2--3; T-Mobile Apr. 4, 2006
    *Ex Parte* Letter at 2.

[^1268]: *E.g.*, AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 4; CTIA *2006 Contribution FNPRM* Comments at 5--6;
    Leap Wireless *2006 Contribution FNPRM* Comments at 2--3; T-Mobile
    Apr. 4, 2006 *Ex Parte* Letter at 2--3. *But see* AAPC Oct. 9, 2008
    *Ex Parte* Letter at 2.

[^1269]: There are, as of December 2007, 249,235,715 mobile wireless
    subscribers, a more than 9% increase from the previous year. *See*
    [FCC, Local Telephone Competition: Status as of December 31,
    2007,]{.smallcaps} tbl. 14 at 18 (2008), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-285509A1.pdf.
    Moreover, where a wireless provider is eligible to receive universal
    service support, it receives the same level of support for each
    handset. *See* WTA/OPASTCO/ITTA Oct. 10, 2008 *Ex Parte* Letter at
    2.

[^1270]: Qwest Sept. 24, 2008 *Ex Parte* Letter, Attach. at 7; Qwest May
    4, 2006 *Ex Parte* Letter, Attach. at 9; *see also* CTIA Oct. 2,
    2008 *Ex Parte* Letter at 1.

[^1271]: *See* Letter from Deb MacLean, Communication Access Center for
    the Deaf and Hard of Hearing, *et al.* to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 1--2
    (filed Sept. 29, 2008) (CSDVRS Sept. 29, 2008 *Ex Parte* Letter).

[^1272]: *See* *Telecommunications Relay Services and Speech-to-Speech
    Services for Individuals with Hearing and Speech Disabilities*, CG
    Docket No. 03-123, WC Docket No. 05-196, Report and Order and
    Further Notice of Proposed Rulemaking, 23 FCC Rcd 11591, 11646,
    para. 149 (2008) ("We . . . seek comment on whether, and to what
    extent, the costs of acquiring numbers, including porting fees,
    should be passed on to the Internet-based TRS users, and not paid
    for by the \[TRS\] Fund. . . . We also seek comment on whether there
    are other specific costs that result from the requirements adopted
    in the *Order* that, mirroring voice telephone consumers, should be
    passed on to consumers, including, for example, E911 charges.").

[^1273]: To the extent that Internet-based TRS users utilize a proxy
    number or identifier other than an assigned ten-digit number
    during/pending the transition to ten-digit numbering for
    Internet-based TRS services, we make clear that those numbers or
    identifiers are NOT subject to universal service contribution at
    this time. This treatment is necessary to ensure the smooth
    transition to ten-digit numbering for these services, and to prevent
    duplicative charges for end users of these services.

[^1274]: *See, e.g.*, *Second Wireless Safe Harbor Order*, 17 FCC Rcd at
    24969, para. 29. Filers are required to file revisions to FCC Form
    499-Q within 45 calendar days of the original filing date. *See*
    [FCC, Instructions to the Telecommunications Reporting
    Worksheet]{.smallcaps}, FCC Form 499-Q, at 10 (Feb. 2008) (FCC Form
    499-Q Instructions), *available at*
    http://www.fcc.gov/Forms/Form499-Q/499q.pdf. Filers are required to
    file revisions to FCC Form 499-A by March 31 of the year after the
    original filing date. *See* FCC Form 499-A Instructions at 11--12.

[^1275]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24972,
    para. 35.

[^1276]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24972,
    para. 36.

[^1277]: We decline to adopt the suggestion by AT&T and Verizon to
    transition the Telecommunications Relay Services Fund, local number
    portability cost recovery, and numbering administration to a
    numbers/connections-based assessment methodology. *See* AT&T and
    Verizon Oct. 20, 2008 *Ex Parte* Letter at 6. Although these
    programs rely on the revenue information reported in the current FCC
    Form 499-A, they do not rely on many of the revenue distinctions,
    such as interstate and intrastate, that necessitate the change from
    a revenue-based assessment for the universal service fund.

[^1278]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 1 at 2-3; CTIA Oct. 2, 2008 *Ex Parte* Letter, Attach. at 5;
    USF by the Numbers Oct. 3, 2008 *Ex Parte* Letter.

[^1279]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at
    24969--70, paras. 29--32.

[^1280]: *Comprehensive Review Report and Order*, 22 FCC Rcd at 16387,
    para. 27.

[^1281]: Pursuant to section 1.80 of the Commission's rules, failure to
    file required forms or information carries a base forfeiture amount
    of \$3,000 per instance and is subject to adjustment criteria. *See*
    47 C.F.R. § 1.80.

[^1282]: *Comprehensive Review Report and Order*, 22 FCC Rcd at 16372,
    para. 27; *see also* 47 C.F.R. §§ 54.706(e), 54.711(a).

[^1283]: *See Comprehensive Review Report and Order*, 22 FCC Rcd at
    16372, para. 27; 47 C.F.R. § 54.706(e).

[^1284]: *See Comprehensive Review Report and Order*, 22 FCC Rcd at
    16387, paras. 27--28. We note that contributors who also report NRUF
    data to the NANPA are currently required to maintain internal
    records of their numbering resources for audit purposes. *NRO I
    Order*, 15 FCC Rcd at 7601, para. 62.

[^1285]: *See* AT&T and Verizon Oct. 20, 2008 *Ex Parte* Letter, Attach.
    at 3 (proposing a 12-month transition to the new mechanism taking
    effect).

[^1286]: *See* CTIA *2006 Contribution FNPRM* Comments at 7; *see also*
    Verizon and AT&T Sept. 11, 2008 *Ex Parte* Letter, Attach. at 2
    (advocating a 12-month implementation period followed by a 6-month
    transition period). Some parties advocated for a transition period
    as short as possible. *See, e.g.*, Letter from Gregory J. Vogt,
    Counsel for CenturyTel, to Marlene H. Dortch, Secretary, FCC, WC
    Docket No. 05-337, Attach. at 2 (filed Sept. 19 2008) (CenturyTel
    Sept. 19, 2008 *Ex Parte* Letter); Sprint Nextel June 14, 2006 *Ex
    Parte* Letter. Others advocated for a longer transition period.
    *See, e.g.*, Qwest Mar. 21, 2006 *Ex Parte* Letter, Attach. at 3
    (advocating 18 months); XO Communications Oct. 3, 2008 *Ex Parte*
    Letter, Attach. at 11 (advocating at least 18 months).

[^1287]: *See* AT&T and Verizon Oct. 20, 2008 *Ex Parte* Letter, Attach.
    at 3 (recommending a six-month transition period for filers and USAC
    to test and calibrate the new system prior to its taking effect).

[^1288]: *See* 5 U.S.C. § 603. The RFA, *see* U.S.C. §601 *et seq*., has
    been amended by the Contract with America Advancement Act of 1996,
    Pub. L. No. 104-121, 110 Stat. 847 (1996) (CWAAA). Title II of the
    CWAAA is the Small Business Regulatory Enforcement Fairness Act of
    1996 (Small Business Act).

[^1289]: *See* 44 U.S.C. § 3506(c)(4).

[^1290]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat.
    56 (1996) (1996 Act).

[^1291]: *See* 47 U.S.C. § 230; 47 U.S.C. § 157 nt.

[^1292]: We thus conclude that there is a compelling need to proceed
    with comprehensive reform at this time, as we describe below. *See,
    e.g.*, *infra* Parts II.A, III.A, IV.A, and V.B. Given that we have
    notice and an extensive record, going back in some cases seven
    years, we are unpersuaded by commenters proposing that we delay
    reform to seek further comment, or that we issue a Further Notice of
    Proposed Rulemaking on questions beyond those raised in Part VI.
    *See, e.g.*, Letter from Ray Baum, Chairman, NARUC Communications
    Committee, to Chairman Kevin J. Martin, et al., FCC, CC Docket Nos.
    01-92, 80-286, WC Docket Nos. 08-152, 04-32, 06-122, WT Docket No.
    05-194 at 2 (filed Oct. 21, 2008) (NARUC Oct. 21, 2008 *Ex Parte*
    Letter); Letter from Jeffery S. Lanning, Embarq, to Chairman Kevin
    J. Martin, et al., FCC, CC Docket Nos. 01-92, 99-68, WC Docket No.
    04-36 at 2 (filed Oct. 28, 2008) (Embarq Oct. 28, 2008 *Ex Parte*
    Letter); Letter from Eric N. Einhorn, Windstream, to Marlene H.
    Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, 99-68, WC
    Docket Nos. 06-122, 07-135, 08-152 at 1 (filed October 27, 2008)
    (Windstream Oct. 27, 2008 *Ex Parte* Letter).

[^1293]: 47 U.S.C. § 254 (added by the 1996 Act).

[^1294]: 47 U.S.C. § 254.

[^1295]: *See* 47 U.S.C. § 254(b).

[^1296]: 47 U.S.C. § 254(b)(1), (2), (5).

[^1297]: *See Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Report and Order, 12 FCC Rcd 8776, 8780--88, paras. 1--20
    (1997) (*Universal Service First Report and Order*) (subsequent
    history omitted).

[^1298]: *Universal Service First Report and Order*, 12 FCC Rcd at 8948,
    para. 320.

[^1299]: *Universal Service First Report and Order*, 12 FCC Rcd at 8948,
    para. 320 (agreeing with the Joint Board). The Commission also
    agreed with the Joint Board that "competitive bidding is consistent
    with section 254, and comports with the intent of the 1996 Act to
    rely on market forces and to minimize regulation." *Id*. at 8951,
    para. 325.

[^1300]: *Universal Service First Report and Order*, 12 FCC Rcd at 8948,
    para. 320 ("In that regard, the bidding process should also capture
    the efficiency gains from new technologies or improved productivity,
    converting them into cost savings for universal service.").

[^1301]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8949--50, paras. 322--23. Only GTE had proposed a detailed
    competitive bidding plan, which it characterized as an outline
    rather than a final proposal. *See* GTE's Comments in Response to
    Questions, CC Docket No. 96-45, Attach. 1 (filed Aug. 2, 1996).

[^1302]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8950, para. 324.

[^1303]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8948, para. 320.

[^1304]: 47 U.S.C. § 254(e). The statutory requirements for ETC
    designation are set out in section 214(e) of the Communications Act
    of 1934, as amended (Communications Act or Act). 47 U.S.C. § 214(e).

[^1305]: *See* 47 C.F.R. § 54.5 ("A 'competitive eligible
    telecommunications carrier' is a carrier that meets the definition
    of 'eligible telecommunications carrier' below and does not meet the
    definition of an 'incumbent local exchange carrier' in § 51.5 of
    this chapter.").

[^1306]: Non-rural incumbent LEC ETCs receive support for their
    intrastate supported services based on the forward-looking economic
    cost of providing the services. 47 C.F.R. § 54.309. Rural incumbent
    LEC ETCs receive support based on their loop costs, as compared to a
    national average. 47 C.F.R. Part 36, sbpt. F; 47 C.F.R. § 54.305.
    Incumbent LEC ETCs that serve study areas with 50,000 or fewer lines
    receive support based on their local switching costs. 47 C.F.R. §
    54.301. Additionally, incumbent LEC ETCs that are subject to price
    cap or rate-of-return regulation receive interstate access support
    based on their revenue requirements. 47 C.F.R. Part 54, sbpts. J, K.

[^1307]: 47 C.F.R. § 54.307(a).

[^1308]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    8828--30, paras. 94--96.

[^1309]: Support for the fund derives from assessments paid by providers
    of interstate telecommunications services and certain other
    providers of interstate telecommunications. *See* 47 C.F.R. §
    54.706. Fund contributors are permitted to, and almost always do,
    pass those assessments though to their end-user customers. *See* 47
    C.F.R. § 54.712. Fund assessments paid by contributors are
    determined by applying the quarterly contribution factor to the
    contributors' contribution base revenues. In the second quarter of
    2007, the contribution factor reached 11.7%, which is the highest
    level since its inception. *See Proposed Second Quarter 2007
    Universal Service Contribution Factor*, CC Docket No. 96-45, Public
    Notice, 22 FCC Rcd 5074, 5077 (OMD 2007). The contribution factor
    has since declined to 11.4% in the fourth quarter of 2008. *Proposed
    Fourth Quarter 2008 Universal Service Contribution Factor*, CC
    Docket No. 96-45, Public Notice, DA 08-2091 (OMD 2008).

[^1310]: *See* FCC, [Universal Service Monitoring Report]{.smallcaps},
    tbl. 3.2 (2007) ([2007 Universal Service Monitoring
    Report]{.smallcaps}), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-279226A1.pdf.

[^1311]: [Universal Service Administrative Company]{.smallcaps}, [2007
    Annual Report]{.smallcaps} 43 (2007) ([USAC 2007 Annual
    Report]{.smallcaps}), *available at*
    http://www.usac.org/\_res/documents/about/pdf/usac-annual-report-2007.pdf.

[^1312]: [2007 Universal Service Monitoring Report]{.smallcaps} at tbl.
    3.2; [USAC 2007 Annual Report]{.smallcaps} at 45.

[^1313]: *See* USAC Quarterly Administrative Filings for 2008, Fourth
    Quarter (4Q) Appendices, HC03---Rural Study Areas with
    Competition---4Q2008, *available at*
    http://www.usac.org/about/governance/fcc-filings/2008/Q4/HC03%20-%20Rural%20Study%20Areas%20with%20Competition%20-%204Q2008.xls
    (showing 24 competitive ETCs in the study area of incumbent LEC Iowa
    Telecom North (study area code 351167), and 22 competitive ETCs in
    the study area of incumbent LEC Iowa Telecom Systems (study area
    code 351170)).

[^1314]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No.96-45,
    Recommended Decision, 22 FCC Rcd 8998, 8999--9001, paras. 4--7 (JB
    2007) (*Interim Cap* *Recommended Decision*); *High-Cost Universal
    Service Support; Federal-State Joint Board on Universal Service*, WC
    Docket No. 05-337, CC Docket No. 96-45, Order, 23 FCC Rcd 8834
    (2008) (*Interim Cap Order*). As recommended by the Joint Board, the
    Commission capped competitive ETC support for each state. *Interim
    Cap Recommended Decision*, 22 FCC Rcd at 9002, para. 9; *Interim Cap
    Order*, 23 FCC Rcd at 8846, paras. 26--28. The Commission set the
    cap at the level of support competitive ETCs were eligible to
    receive during March 2008. *Interim Cap Order*, 23 FCC Rcd at 8850,
    para. 38.

[^1315]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No. 96-45,
    Recommended Decision, 22 FCC Rcd 20477 (JB 2007) (*Comprehensive
    Reform* *Recommended Decision*).

[^1316]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, para. 1.

[^1317]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20480--81, para. 11.

[^1318]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20484, para. 26.

[^1319]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20484, para. 27.

[^1320]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20481--82, paras. 12--18.

[^1321]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20486, para. 35.

[^1322]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, paras. 1--6.

[^1323]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No. 96-45,
    Notice of Proposed Rulemaking, 23 FCC Rcd 1467 (2008) (*Identical
    Support NPRM*); *High-Cost Universal Service Support; Federal-State
    Joint Board on Universal Service*, WC Docket No. 05-337, CC Docket
    No. 96-45, Notice of Proposed Rulemaking, 23 FCC Rcd 1495 (2008)
    (*Reverse Auctions NPRM*); *High-Cost Universal Service Support;
    Federal-State Joint Board on Universal Service*, WC Docket No.
    05-337, CC Docket No. 96-45, Notice of Proposed Rulemaking, 23 FCC
    Rcd 1531 (2008) (*Joint Board Comprehensive Reform NPRM*)
    (collectively the *High-Cost Reform NPRMs*).

[^1324]: *Identical Support NPRM*, 23 FCC Rcd at 1468, para. 1.

[^1325]: *Identical Support NPRM*, 23 FCC Rcd at 1468, para. 1.

[^1326]: *Identical Support NPRM*, 23 FCC Rcd at 1473--78, paras.
    12--25.

[^1327]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1495, para. 1.

[^1328]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500--12, paras. 10--50.

[^1329]: *Joint Board Comprehensive Reform NPRM*, 23 FCC Rcd at 1531,
    para. 1.

[^1330]: 47 U.S.C. § 254(a)(2). Pursuant to that section, the Commission
    shall complete any proceeding to implement a Joint Board
    recommendation within one year after receiving it. The Commission
    has acted on the *Comprehensive Reform Recommended Decision* prior
    to the November 20, 2008 one-year statutory deadline.

[^1331]: Providers operating in U.S. Territories and possessions, such
    as Puerto Rico and Guam, are not subject to the high-cost support
    requirements adopted in this order. *See* Letter from Earl Comstock,
    Comstock Consulting LLC, to Marlene Dortch, Secretary, FCC, CC
    Docket No. 96-45, WC Docket No. 05-377 at 1 (dated Oct. 15, 2008)
    (asking the Commission to recognize the higher costs and lower
    income levels in Puerto Rico in any reform efforts it may take);
    Letter from Eric N. Votaw, Vice President-Marketing & Regulatory,
    GTA Telecom, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 99-68, 96-45, WC Docket No. 05-337 at 1--2 (filed Oct. 24,
    2008) (asking the Commission to recognize that Guam's costs are
    higher than the continental United States and that Guam should be
    treated separately, along with Alaska and Hawaii, for reform
    purposes).

[^1332]: *E.g.*, *Verizon Commc'ns, Inc., Transferor, and América Móvil,
    S.A. de C.V., Transferee*, WT Docket No. 06-113, Memorandum Opinion
    and Order and Declaratory Ruling, 22 FCC Rcd 6195, 6211, para. 36
    (2007) (*Verizon/América Móvil Transfer Order*) (describing
    "difficult to serve terrain and dramatic urban/rural differences" in
    Puerto Rico); *Integration of Rates and Services for Provision of
    Communications by Authorized Common Carriers between the Contiguous
    States and Alaska, Hawaii, Puerto Rico and the Virgin Islands*, CC
    Docket No. 83-1376, Supplemental Order Inviting Comments, 4 FCC Rcd
    395, 396, paras. 7--8 (1989) (*Rates and Services Integration
    Order*) (describing the unique market conditions and structure in
    Alaska); Letter from Brita D. Strandberg, Counsel for General
    Communication, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 01-92, 96-45, WC Docket No. 05-337 at 2 (Oct. 3, 2008)
    (discussing Alaska's particular service needs and network
    architecture).

[^1333]: *Cf.* *The Establishment of Policies and Service Rules for the
    Broadcasting-Satellite Service at the 17.3-17.7 GHz Frequency Band
    and at the 17.7-17.8 GHz Frequency Band Internationally, and at the
    24.75-25.25 GHz Frequency Band for Fixed Satellite Services
    Providing Feeder Links to the Broadcasting-Satellite Service and for
    the Satellite Services Operating Bi-directionally in the 17.3-17.8
    GHz Frequency Band*, IB Docket No. 06-123, Report and Order and
    Further Notice of Proposed Rulemaking, 22 FCC Rcd 8842, 8860, para.
    47 (2007) (*Policies and Service Rules for the
    Broadcasting-Satellite Service Order*) ("The Commission is committed
    to establishing policies and rules that will promote service to all
    regions in the United States, particularly to traditionally
    underserved areas, such as Alaska and Hawaii, and other remote
    areas.").

[^1334]: *Comprehensive Reform Recommended Decision*, 22 FCC Rcd at
    20478, 20481, 20484, paras. 2, 11, 26.

[^1335]: *Comprehensive Reform Recommended Decision*, 22 FCC Rcd at
    20484, para. 26. In 2007, total federal universal service
    disbursements amounted to approximately \$6.95 billion. Of that
    amount, approximately \$4.29 billion, 62%, was disbursed as
    high-cost support. [USAC 2007 Annual Report]{.smallcaps} at 51.

[^1336]: *See* [2007 Universal Service Monitoring Report]{.smallcaps} at
    3-14, tbl. 3.1 (high-cost support in 1997 was approximately \$1.26
    billion, compared with approximately \$4.29 billion in 2007). Even
    taking into account the fact that additional interstate support
    mechanisms, Interstate Access Support (IAS) and Interstate Common
    Line Support (ICLS), were created in 2000 and 2001, respectively,
    high-cost support has still increased by more than 45%, from
    approximately \$2.94 billion in 2002 to its current level of
    approximately \$4.29 billion. *Id.*

[^1337]: *See Interim Cap Order*, 23 FCC Rcd at 8834, para. 1.

[^1338]: *See* CenturyTel *High-Cost Reform NPRMs* Comments at 18
    (existing high-cost support mechanisms should be frozen at the study
    area level or on a statewide basis to provide funding certainty and
    encourage investment); Chinook *High-Cost Reform NPRMs* Comments,
    Attach. at 5--6 (any cap on universal service support should apply
    to all ETCs, including incumbent LECs); Connecticut Dep't of Pub.
    Util. Control *High-Cost Reform NPRMs* Comments at 5 (supporting a
    cap on high-cost support set at the 2007 level); Florida PSC
    *High-Cost Reform NPRMs* Comments at 2 (supporting the
    recommendation to cap the overall size of the high-cost fund);
    Information Technology Industry Council (ITI) *High-Cost Reform
    NPRMs* Comments at 7 (an overall cap should be applied to control
    the size of the high-cost mechanism); NCTA *High-Cost Reform NPRMs*
    Comments at 19 (the Joint Board's proposal to cap the overall size
    of the high-cost mechanism is "a welcome dose of fiscal
    responsibility"); National Consumer Law Center *Joint Board
    Comprehensive Reform NPRM* Comments at 2--3 (supporting the Joint
    Board's proposal to cap the overall high-cost fund); Verizon/Verizon
    Wireless *High-Cost Reform NPRMs* Comments at 2--3, 6--9 (Commission
    should cap the overall high-cost fund).

[^1339]: *See* Frontier *High-Cost Reform NPRMs* Comments at 6--7; JSI
    *High-Cost Reform NPRMs* Comments at 6; Montana Telecommunications
    Ass'n *High-Cost Reform NPRMs* Comments at 21--22; NECA *High-Cost
    Reform NPRMs* Comments at 17--20; TCA *High-Cost Reform NPRMs*
    Comments at 10--11; TDS *High-Cost Reform NPRMs* Comments at 8--9;
    Missouri Small Telephone Company Group (MSTC) *High-Cost Reform
    NPRMs* Reply at 5--7; Utah Rural Telecom Ass'n *High-Cost Reform
    NPRMs* Reply at 5.

[^1340]: 47 U.S.C. § 254(b)(5); *see* CenturyTel *High-Cost Reform
    NPRMs* Comments at 18; Comcast *High-Cost Reform NPRMs* Comments at
    3, 11; Florida PSC *High-Cost Reform NPRMs* Comments at 8--9;
    National Consumer Law Center *Joint Board Comprehensive Reform NPRM*
    Comments at 2; NCTA *High-Cost Reform NPRMs* Comments at 4--6; New
    Jersey Division of Rate Counsel *High-Cost Reform NPRMs* Comments at
    52--54; Oregon PUC *High-Cost Reform NPRMs* Comments at 2--3; Sprint
    Nextel *High-Cost Reform NPRMs* Comments at 3; USTelecom *High-Cost
    Reform NPRMs* Comments at 2; Verizon/Verizon Wireless *High-Cost
    Reform NPRMs* Comments at 7; New Jersey Division of Rate Counsel
    *High-Cost Reform NPRMs* Reply at 64--65; Sprint Nextel *High-Cost
    Reform NPRMs* Reply at 8--9; State Commissioners *High-Cost Reform
    NPRMs* Reply at 2; Texas Office of Public Utility Counsel *Joint
    Board Comprehensive Reform NPRM* Reply at 2; Virgin Mobile
    *High-Cost Reform NPRMs* Reply at 3--4. The Commission has already
    implemented caps on the schools and libraries and rural health care
    universal service mechanisms. *Universal Service First Report and
    Order*, 12 FCC Rcd at 9054, 9140, paras. 529, 704 (establishing a
    \$2.25 billion annual cap for the schools and libraries mechanism
    and a \$400 million annual cap for the rural health care mechanism);
    *see also* 47 C.F.R. §§ 54.507(a), 54.623(a).

[^1341]: 47 U.S.C. § 254(b)(5); *see also Universal Service First Report
    and Order*, 12 FCC Rcd at 9054, 9140, paras. 529, 704.

[^1342]: *Alenco Commc'ns, Inc. v. FCC*, 201 F.3d 608, 620--21 (5^th^
    Cir. 2000) (*Alenco*).

[^1343]: *Alenco*, 201 F.3d at 620.

[^1344]: *Qwest Commc'ns Int'l Inc. v. FCC*, 398 F.3d 1222, 1234 (10^th^
    Cir. 2005).

[^1345]: Pursuant to section 214(e)(5) of the Act, the term "service
    area" is used to refer to the geographic area established by a state
    commission or this Commission for the purpose of determining
    universal service obligations and support mechanisms. 47 U.S.C. §
    214(e)(5). For a rural telephone company, section 214(e)(5) states
    that "service area" shall mean the rural company's "study area"
    unless and until the Commission and the states establish a different
    definition of service area for such company. *Id.* In this order, we
    use the terms "service area" and "study area" interchangeably.
    Nothing in this order is meant to change any redefinitions of
    service area previously established by the Commission and/or the
    state commissions.

[^1346]: Letter from John N. Rose, President, OPASTCO, and Kelly
    Worthingon, Executive Vice President, WTA, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 96-45, 01-92, WC Docket No. 05-337,
    Attach. at 2 (filed Oct. 29, 2008) (Corrected OPASTCO/WTA Oct. 29,
    2008 *Ex Parte* Letter).

[^1347]: Letter from Paul W. Garnett, CTIA, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 01-92, WC Docket Nos. 04-36, 05-337,
    06-122 at 1 (filed Oct. 22, 2008) (CTIA Oct. 22, 2008 *Ex Parte*
    Letter).

[^1348]: 47 U.S.C. § 254(b)(5).

[^1349]: Remarks of Commissioner Michael J. Copps, Pike & Fischer's
    Broadband Policy Summit IV, Washington, DC (June 12, 2008),
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-282890A1.pdf.

[^1350]: *See supra* note 56 (explaining use of the terms "study area"
    and "service area" in this order). We understand the concern of
    commenters who point out the need for more granular information on
    broadband availability. *See Comprehensive Reform Recommended
    Decision*, 22 FCC Rcd at 20481, para. 13; *see also* Comcast
    *High-Cost Reform NPRMs* Comments at 13--16; GCI *High-Cost Reform
    NPRMs* Comments at 34--36; NCTA *High-Cost Reform NPRMs* Comments at
    20; New Jersey Rate Counsel *High-Cost Reform NPRMs* Comments at
    21--22; New York State PSC *Joint Board Comprehensive Reform NPRM*
    Comments at 1, 5--6; TCA *High-Cost Reform NPRMs* Comments at
    11--12; USTelecom *High-Cost Reform NPRMs* Comments at 36; Embarq
    *High-Cost Reform NPRMs* Reply at 8--10. The Commission has recently
    undertaken a major effort to gather more specific and granular data
    about broadband subscribership and availability. *See Development of
    Nationwide Broadband Data to Evaluate Reasonable and Timely
    Deployment of Advanced Services to All Americans, Improvement of
    Wireless Broadband Subscribership Data, and Development of Data on
    Interconnected Voice over Internet Protocol (VoIP) Subscribership*,
    WC Docket No. 07-38, Report and Order and Further Notice of Proposed
    Rulemaking, 23 FCC Rcd 9691, 9708--09, paras. 34--35 (2008)
    (*Broadband Data Gathering Order*) (seeking comment on, among other
    things, adopting a national broadband mapping program). We believe
    our refined broadband data gathering program will help all of us
    better assess where our broadband availability needs are greatest.
    For purposes of implementing the broadband deployment program of
    this order, we ask incumbent LECs to identify where they will and
    will not commit to broadband availability, thus identifying where we
    need to proceed to a reverse auction.

[^1351]: 47 U.S.C. §§ 157 nt, 254. Some commenters suggest that adding
    broadband Internet access service to the list of "supported
    services" would be inconsistent with section 254(c)(1) of the Act
    because broadband Internet access service is an information service,
    not a telecommunications service.  *See* SouthernLINC *High-Cost
    Reform NPRMs* Comments at 30--31; Verizon/Verizon Wireless
    *High-Cost Reform NPRMs* Comments at 31--32; SouthernLINC *High-Cost
    Reform NPRMs* Reply at 42--43; Sprint Nextel *High-Cost Reform
    NPRMs* Reply at 16--17.  Using the universal service program to
    ensure universal broadband availability, however, is fully
    consistent with the statute as explained above.  In addition,
    section 254(c)(2) provides that "\[t\]he Joint Board may, from time
    to time, recommend to the Commission modifications in the definition
    of the services that are supported by Federal universal service
    support mechanisms."  47 U.S.C. § 254(c)(2).  The Joint Board did
    just that in the *Comprehensive Reform Recommended Decision*, in
    which it recommended that we add broadband Internet access service
    to the list of services eligible for support under section 254. 
    *See Comprehensive Reform Recommended Decision*, 22 FCC Rcd at
    20491, para. 56.  In this order, we achieve the Joint Board's goal
    by conditioning receipt of federal high-cost support on an ETC's
    commitment to offer broadband Internet access service throughout its
    service area, but we do not add broadband Internet access service to
    the list of universal service supported services.

[^1352]: 47 U.S.C. § 254(b)(2) (emphasis added).

[^1353]: 47 U.S.C. § 254(b)(3) (emphasis added).

[^1354]: 47 U.S.C. § 254(c)(1) (emphasis added).

[^1355]: 47 U.S.C. §§ 157 nt, 254.

[^1356]: The Commission has previously considered imposing conditions on
    the receipt of high-cost support. *See Universal Service First
    Report and Order*, 12 FCC Rcd at 8831, para. 98. And of course,
    today's recipients of high-cost support must comply with many
    obligations that are not explicitly spelled out in the statute. For
    example, to be designated as an ETC, an applicant must demonstrate
    that it has back-up power. *See Federal-State Joint Board on
    Universal Service*, CC Docket No. 96-45, Report and Order, 20 FCC
    Rcd 6371, 6382, para. 25 (2005) (*ETC Designation Order*).

[^1357]: Broadband Data Improvement Act, Pub. L. No. 100-385, 122 Stat.
    4096, § 102(1)--(2) (2008).

[^1358]: A recent survey finds that, compared to Internet users with
    dial-up service at home, those with broadband service at home are
    far more likely to engage in 14 different types of Internet-related
    activities on a typical day. These activities include using an
    online search engine, checking for weather reports, getting news,
    visiting a state or local government Web site, obtaining job
    information, watching a video, and downloading a podcast. The daily
    use of a search engine, for example, is reported by 57% of the
    broadband users as compared to only 26% of the dial-up users. *See*
    [John B. Horrigan, Pew Internet & American Life Project, Home
    Broadband Adoption 2008]{.smallcaps} at 19 (2008) ([2008 Pew
    Broadband Adoption Study]{.smallcaps}), *available at*
    http://www.pewinternet.org/pdfs/PIP_Broadband_2008.pdf.

[^1359]: For example, the California Broadband Task Force Report finds
    broadband service critical to expanding job opportunities for rural
    residents. It observes, for example, that broadband has facilitated
    the use of "homeshoring," or the use of home-based workers for
    providing customer service, instead of requiring employees to adhere
    to a strict work schedule at a centralized location. This report
    also finds that broadband offers farmers better access to market
    information and allows them to expand their potential customer base.
    *See* [Final Report of the California Broadband Task
    Force]{.smallcaps} at 13 (Jan. 2008) ([California 2008 Broadband
    Report]{.smallcaps}), *available at*
    http://www.calink.ca.gov/taskforcereport/.

[^1360]: *See Rural Health Care Support Mechanism*, WC Docket No. 02-60,
    Order, 21 FCC Rcd 11111, 11112, para. 5 (2006); *see also* [Susannah
    Fox, Pew Internet & American Life Project, The Engaged E-Patient
    Population]{.smallcaps} at 1 (2008) (finding that home broadband
    users are twice as likely as home dial-up users to do health
    research on a typical day), *available at*
    http://www.pewinternet.org/pdfs/PIP_Health_Aug08.pdf.

[^1361]: A recent report to Congress concludes that "\[m\]odern
    broadband communications networks and applications present an
    enormous opportunity to radically improve the manner in which
    emergency information is shared by health officials. Broadband
    services enable bandwidth intensive information such as video,
    pictures, and graphics to be transmitted faster and in a more
    reliable and secure manner." [Joint Advisory Committee on
    Communications Capabilities of Emergency Medical and Public Health
    Care Facilities, Report to Congress]{.smallcaps} 2 (Feb. 4, 2008),
    *available at*
    http://energycommerce.house.gov/Press_110/JAC.Report_FINAL%20Jan.3.2008.pdf.

[^1362]: *See, e.g.*, Cellular South *High-Cost Reform NPRMs* Comments
    at 10; *see also generally* [2008 Pew Broadband Adoption
    Study]{.smallcaps} at 11--12.

[^1363]: *See* FCC, [High-Speed Services for Internet Access: Status as
    of December 31, 2006,]{.smallcaps} tbl. 15 (2007), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-280906A1.pdf.

[^1364]: *See* [2008 Pew Broadband Adoption Study]{.smallcaps} at 3--4.
    The survey was conducted by phone from April 8, 2008 to May 11, 2008
    among 2,251 American adults, 1,153 of whom were broadband users.
    *Id.*

[^1365]: Pew acknowledges that the participants in its 2008 survey may
    report incorrectly as to whether broadband service is available
    where they live. [2008 Pew Broadband Adoption Study]{.smallcaps} at
    11. Pew nonetheless concludes that "the fact that rural residents
    are more likely to report that broadband isn't available where they
    live indicates that infrastructure availability comes into play in
    broadband adoption. Some 28% of rural adult Americans without home
    high-speed say broadband isn't available where they live, in
    contrast to 22% of non-rural Americans without broadband who say
    this. Moreover, 24% of dial-up users in rural areas say having the
    service available where they live would prompt a switch to
    broadband; this compares to the 14% figure for all respondents."
    *Id.* at 11--12.

[^1366]: In Ohio, a March 2008 survey of 1,200 residents found broadband
    service available in 96% of urban homes but in only 79% of rural
    homes. *See* [Connect Ohio Technology Assessment: Executive
    Summary]{.smallcaps} at 2 (June 27, 2008), *available at*
    http://connectoh.org/\_documents/Res_OHExecutiveSummary06252008_FINAL.pdf.
    In California, a state-commissioned task force recently found that
    approximately 500,000 California households, or almost 1.4 million
    California residents, are unable to subscribe to broadband service
    with a speed of at least 500 kbps. The task force identified 1,975
    communities without broadband service and concluded that many
    California communities do not have access to the higher broadband
    speeds. *See* [California 2008 Broadband Report]{.smallcaps} at 33.
    In Tennessee, a July 2007 survey of 1,787 residents having dial-up
    service at home found that 36% of them did not subscribe to
    broadband service because it was unavailable to their homes. *See*
    [Connected Tennessee, Tennessee Residential Consumers]{.smallcaps}
    at 22 (2007), *available at*
    http://www.connectedtn.org/\_documents/CTResidentialSurvey100107.FINAL.pdf.

[^1367]: We disagree with commenters who suggest that it is premature or
    ill-advised to require all ETCs to offer broadband because, as
    discussed below, we do so in a manner that does not increase the
    size of the high-cost fund. *See, e.g.*, SouthernLINC *High-Cost
    Reform NPRMs* Comments at 30; Sprint Nextel *High-Cost Reform NPRMs*
    Comments at 16--17; USTelecom *High-Cost Reform NPRMs* Comments at
    33--34; Western Telecomms. Alliance (WTA) *High-Cost Reform NPRMs*
    Comments at 73; SouthernLINC *High-Cost Reform NPRMs* Reply at 41.
    Similarly, we disagree with commenters who argue that government
    action at the current time would be wasteful as the market is
    already taking steps to reach currently underserved areas. *See,
    e.g.*, NCTA *High-Cost Reform NPRMs* Comments at 19--20;
    SouthernLINC *High-Cost Reform NPRMs* Comments at 30; SouthernLINC
    *High-Cost Reform NPRMs* Reply at 42. We cannot wait indefinitely
    for the benefits of broadband to reach all Americans.

[^1368]: See 47 U.S.C. § 254(b)(3).

[^1369]: *See infra* paras. 86, 103*; see also Appropriate Framework for
    Broadband Access to the Internet over Wireline Facilities*, CC
    Docket No. 02-33, Report and Order and Notice of Proposed
    Rulemaking, 20 FCC Rcd 14853, 14860--61, para. 9 (2005) (*Wireline
    Broadband Internet Access Order*), *aff'd sub nom. Time Warner
    Telecom, Inc. v. FCC*, 507 F.3d 205 (3d Cir. 2007).

[^1370]: As explained below, nothing in this order changes the choice
    that providers have today to offer broadband transmission on a
    common carrier basis. *See infra* para. 26.

[^1371]: 47 U.S.C. § 254(b)(1).

[^1372]: Thus, we are not favoring wireline technology over another.
    *But see* Virgin Mobile *High-Cost Reform NPRMs* Reply at 5--6.

[^1373]: *See Wireline Broadband Internet Access Order*, 20 FCC Rcd at
    14900--01, paras. 89--90 (giving providers of wireline broadband
    Internet access the choice to offer broadband transmission on a
    common carrier basis or a non-common carrier basis).

[^1374]: *See supra* para. 24.

[^1375]: *See, e.g.*, [Computer Science and Telecommunications Board,
    National Research Council, Broadband: Bringing Home the
    Bits]{.smallcaps} 145 (2002) ([Bringing Home the Bits)]{.smallcaps};
    BroadbandInfo.com, Inside the World of Satellite Broadband,
    BroadbandInfo.com,
    http://www.broadbandinfo.com/satellite/intro-to-satellite.html (last
    visited Nov. 3, 2008) (stating that because the satellites providing
    broadband signals orbit the earth approximately 22,300 miles above
    the surface, there is a lag time between the sending and receiving
    of the satellite broadband signal).

[^1376]: *See* [Bringing Home the Bits]{.smallcaps} 145 (explaining that
    for Internet telephony, the delay can cause a real degradation in
    usability); Jon Norwood, Overview of Satellite Internet---Comparing
    the Main Features of Broadband Satellite (Oct. 17, 2006), *available
    at*
    http://www.velocityguide.com/satellite/satellite-internet-comparison.html
    (last visited Oct. 24, 2008) (stating that signal delay to a
    satellite ranges from around 500 to 900 milliseconds, and that this
    latency can render any software that requires real-time user input
    problematic at best); BroadbandInfo.com, Inside the World of
    Satellite Broadband, *available at*
    http://www.broadbandinfo.com/satellite/intro-to-satellite.html (last
    visited Oct. 24, 2008) (stating that for certain broadband Internet
    real-time applications, such as e-gaming, the latency is enough to
    cause severe interference with the application).

[^1377]: *See, e.g.*, *Inquiry Concerning the Deployment of Advanced
    Telecommunications Capability to All Americans in a Reasonable and
    Timely Fashion, and Possible Steps To Accelerate Such Deployment
    Pursuant to Section 706 of the Telecommunications Act of 1996*, CC
    Docket No. 98-146, Second Report, 15 FCC Rcd 20913, 20938, para. 59
    (2000) (explaining that areas subject to extreme rain or snow may
    have difficulty receiving satellite signals in those conditions, and
    describing it as a limitation to satellite Internet last-mile
    facilities); *see also* Howstuffworks.com, How Does Satellite
    Internet Operate?,
    http://computer.howstuffworks.com/question606.html (last visited
    Oct. 24, 2008) (explaining that, as for satellite TV, heavy rains
    can affect reception of Internet signals); Skycasters, Broadband
    Satellite Internet: 99.44% System Reliability,
    http://www.skycasters.com/satellite-internet-service-specs/system-reliability.html
    (last visited Oct. 31, 2008) (explaining that rain fade is a short
    duration period during which the loss of satellite service occurs
    when intense storm cells are located directly between the satellite
    and the satellite dish).

[^1378]: If an incumbent LEC or auction winner is permitted to use
    satellite service, the ETC may not charge a higher price to
    customers served by satellite than it charges to customers served by
    another broadband technology.

[^1379]: Corrected OPASTCO/WTA Oct. 29 *Ex Parte* Letter, Attach. at 2.

[^1380]: *See supra* paras. 77--85.

[^1381]: *See supra* note Error: Reference source not found (explaining
    the use of the terms "study area" and "service area" in this order).

[^1382]: The Wireline Competition Bureau (Bureau) will release a public
    notice at a future date specifying the manner and due date of the
    certification. Other reporting, monitoring, and milestone
    requirements are set forth below. *See infra* paras. 115--121.

[^1383]: This tier of broadband is similar to the tier described as
    "Basic Broadband Tier 1" in our *Broadband Data Gathering Order*.
    *See Broadband Data Gathering Order*, 23 FCC Rcd at 9700--01, para.
    20 & n.66.

[^1384]: *See infra* paras. 115--121.

[^1385]: *See supra* para. 74.

[^1386]: Some incumbent LECs assert that they will not be able to commit
    to provide broadband Internet access service to all customers within
    their study areas at the frozen level of support. *See, e.g.,*
    Letter from Eric N. Einhorn, V.P. Federal Government Affairs,
    Windstream, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos.
    01-92, 96-45, 99-68, WC Docket Nos. 05-337, 06-122, 08-152, 07-135,
    at 3 (filed Oct. 27, 2008); Letter from Gregory J. Vogt, Counsel for
    CenturyTel, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 01-92, 99-68, 96-45, WC Docket No. 05-337, at 2 (filed Oct. 20,
    2008); Letter from Daniel Mitchell, Vice President Legal & Industry,
    NTCA, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92,
    96-45, WC Docket Nos. 05-337, 04-36, at 1-2 (filed Oct. 28, 2008).
    First, to the extent incumbent LECs cannot build out their networks
    to provide broadband to all customers in their study areas, they may
    seek a waiver to provide service via satellite technology, as
    discussed above. Second, universal service support is not meant to
    subsidize high-cost carriers, but rather it is meant to support
    customers in high-cost areas. *See Alenco*, 201 F.3d at 620 ("The
    Act only promises universal service, and that is a goal that
    requires sufficient funding of customers, not providers. 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."). Therefore, if
    an incumbent LEC cannot provide broadband service at the frozen
    support levels, support will go to a reverse auction winning bidder
    who can provide such service at or below that level on a more
    efficient basis. Third, as discussed below, to the extent that a
    reverse auction does not produce a winning bidder, the Commission
    will reexamine support to that study area. Finally, for rural
    rate-of-return incumbent LECs, all high-cost universal service
    mechanisms will continue to operate as they do today through 2010,
    and then will be frozen at that level.

[^1387]: *See Comprehensive Reform Recommended Decision*, 22 FCC Rcd at
    20491--92, paras. 56--62.

[^1388]: Many commenters, in particular those representing rural
    telephone companies, opposed the use of reverse auctions to award
    high-cost support to carriers of last resort in rural areas. *See,
    e.g.*, OPASTCO *Reverse Auctions* Comments at 16--21; NTCA *Reverse
    Auctions* Comments at 30--46. Under the measures we adopt today,
    reverse auctions will be conducted only in study areas for which the
    incumbent LEC receiving high-cost support has not committed to offer
    broadband Internet access service.

[^1389]: *See Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 10.

[^1390]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11.

[^1391]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11; *see*
    Connecticut Dep't of Pub. Util. Control *High-Cost Reform NPRMs*
    Comments at 7 (supporting reverse auctions as a means of controlling
    and reducing the size of the universal service fund, while putting
    the burden on providers to estimate bid amounts); Comcast *High-Cost
    Reform NPRMs* Comments at 7 (noting that the use of reverse auctions
    could reduce the size of the high-cost fund significantly).

[^1392]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11; *see*
    Letter from Grover Norquist, Americans for Tax Reform, to Marlene
    Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 05-337 at
    1 (filed Apr. 14, 2008) (arguing that reverse auctions will create
    incentives to invest in rural communities and will not finance and
    subsidize wasteful carriers).

[^1393]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500, para. 11.

[^1394]: Although several rural LEC commenters oppose the use of reverse
    auctions to distribute high-cost support, as discussed above,
    incumbent LECs will not be required to participate in a reverse
    auction to receive support, so long as they commit to deploy
    broadband throughout their study areas. *See, e.g.*, ATA *High-Cost
    Reform NPRMs* Comments at 13--15 (opposing the use of reverse
    auctions); Alexicon *Reverse Auctions NPRM* Comments at 2--3
    (opposing reverse auctions for rural LECs).

[^1395]: A study area is a geographic segment of an incumbent LEC's
    telephone operations. Generally, a study area corresponds to an
    incumbent LEC's entire service territory within a state. *Direct
    Communications Cedar Valley, LLC and Qwest Corporation Joint
    Petition for Waiver of the Definition of "Study Area" of the
    Appendix-Glossary of Part 36 of the Commission's Rules, Petition for
    Waiver of Section 69.2(hh) and 69.605(c) of the Commission's Rules*,
    CC Docket No. 96-45, Order, 20 FCC Rcd 19180, 19181, para. 2 (WCB
    2005). Section 54.207 of the Commission's rules provides that a
    rural telephone company's service area will be its study area
    "unless and until the Commission and the states, after taking into
    account recommendations of a Federal-State Joint Board instituted
    under section 410(c) of this Act, establish a different definition
    of service area for such company." 47 C.F.R. § 54.207(b); 47 U.S.C.
    § 214(e)(5). As discussed above, we use the terms "study area" and
    "service area" interchangeably in this order. *See supra* note
    Error: Reference source not found.

[^1396]: *See Reverse Auctions NPRM*, 23 FCC Rcd at 1503, para. 20.

[^1397]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1503, para. 20

[^1398]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1504, para. 21.

[^1399]: Thus, we disagree with commenters' arguments that we should
    hold auctions for small geographic areas, such as counties, census
    block groups, or zip codes. *See, e.g.*, Comcast *High-Cost Reform
    NPRMs* Comments at 9; NCTA *High-Cost Reform NPRMs* Comments at 16;
    SouthernLINC *High-Cost Reform NPRMs* Comments at 24--25; TracFone
    *High-Cost Reform NPRMs* Comments at 6.

[^1400]: *See, e.g.*, Comcast *High-Cost Reform NPRMs* Comments at 8--9;
    NCTA *High-Cost Reform NPRMs* Comments at 16; SouthernLINC
    *High-Cost Reform NPRMs* Comments at 25; TracFone *High-Cost Reform
    NPRMs* Comments at 5.

[^1401]: *See* Ohio PUC *Reverse Auctions NPRM* Comments at 6--7
    (generally agreeing that the incumbent LEC's study area is the
    appropriate geographic area on which to base reverse auctions
    because further disaggregation could add cost and delays, and
    increase the opportunity for creamskimming).

[^1402]: *See supra* paras. 77--89.

[^1403]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1509, para. 36.

[^1404]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1509, para. 36.

[^1405]: *See* SouthernLINC *High-Cost Reform NPRMs* Comments at 22 n.63
    ("The Commission would start bidding at current support levels.").
    As discussed above, each incumbent LEC ETC's individual high-cost
    support is frozen at the amount of support, on a lump sum basis, the
    ETC received in December 2008 annualized, net of any prior or past
    period adjustments, on a study area basis. *See supra* paras. 74,
    88.

[^1406]: Carrier of last resort obligations for incumbent LECs are a
    matter of state law. Under section 214(e)(6), when the state lacks
    jurisdiction, the Commission shall make the public interest
    determination on whether to designate a carrier an ETC. 47 U.S.C. §
    214(e)(6). The ETC requirements include a requirement to provide
    supported services throughout the service area. 47 U.S.C. §
    214(e)(1).

[^1407]: Some commenters oppose setting the reserve price at current
    incumbent LEC levels, or setting any reserve price. *See* OPASTCO
    *High-Cost Reform NPRMs* Comments at 19--20; MSTC Group *High-Cost
    Reform NPRMs* Comments at 17--18; North Dakota PSC *High-Cost Reform
    NPRMs* Comments at 5. We find that setting the reserve price at the
    incumbent LEC support level will provide certainty to bidders and
    enable bidders with more efficient technologies to provide broadband
    in areas where incumbent LECs do not commit to do so. Furthermore,
    as discussed below, if a reverse auction provides no winner, the
    Commission will examine the need for further action. *See infra*
    para. 105.

[^1408]: A competitive ETC that currently serves all or a portion of an
    Unserved Study Area will not receive high-cost support for the same
    service area as both a winning bidder and based upon a showing of
    its own costs. If a competitive ETC that already receives high-cost
    support within this study area wins the auction, it will lose its
    existing high-cost support for particular geographic areas as it
    begins to receive its Award Amount for those areas.

[^1409]: *ETC Designation Order*, 20 FCC Rcd 6371. Section 214(e)(6) of
    the Act gives the Commission authority to designate carriers as ETCs
    when those carriers are not subject to the jurisdiction of a state
    commission. 47 U.S.C. § 214(e)(6). The requirements in the *ETC
    Designation Order* currently apply only to Commission-designated
    ETCs, although the Commission, in that order, encouraged state
    commissions to adopt similar requirements. *ETC Designation Order*,
    20 FCC Rcd at 6372, 6379, paras. 1, 19.

[^1410]: *See* 47 U.S.C. § 214(e)(1).

[^1411]: *ETC Designation Order*, 20 FCC Rcd at 6380, para. 20.

[^1412]: *ETC Designation Order*, 20 FCC Rcd at 6380, para. 20; 47
    U.S.C. § 214(e)(4).

[^1413]: In adopting this requirement, we are not setting any specific
    rates, nor does this requirement conflict with the states'
    jurisdiction over intrastate rates. Instead, we are conditioning the
    receipt of federal universal service support on an ETC's provision,
    on a voluntary basis, of rates comparable to the incumbent LEC's for
    equivalent services.

[^1414]: The amount of support to be awarded to the winning bidder could
    be less than the amount of support received by the incumbent LEC for
    that same area. The transfer of support will be based on the amount
    of support, relative to support for the entire study area, received
    by the incumbent LEC for the area to be transferred; that same
    relative percentage will be used to calculate the amount of award
    support the auction winner should receive for the same area. In no
    event will an incumbent LEC who is not an auction winner continue to
    receive support for an area once an auction winner begins to receive
    support for that same area.

[^1415]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1501, para. 13.

[^1416]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1501, para. 14.

[^1417]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1501, para. 14

[^1418]: *See, e.g.*, Florida PSC *High-Cost Reform NPRMs* Comments at
    4--5; New York PSC *Identical Support and Reverse Auctions NPRMs*
    Comments at 2--3; Verizon/Verizon Wireless *High-Cost Reform NPRMs*
    Comments at 21--22, App. at 12. We disagree with commenters who
    support multiple winner auctions. *See, e.g.*, Alltel *High-Cost
    Reform NPRMs* Comments at 40--41; Atlantic Tele-Network *Identical
    Support and Reverse Auctions NPRMs* Comments at 13. We find that
    supporting a single auction winner is a more efficient means of
    ensuring the provision of broadband Internet access in areas where
    the incumbent LEC has determined that the costs of serving all
    customers in the area is prohibitive.

[^1419]: *See supra* paras. 77--81.

[^1420]: These terms are similar, but not identical, to terms used in
    our latest *Broadband Data Gathering Order*. *See Broadband Data
    Gathering Order*, 23 FCC Rcd at 9700--01, para. 20 & n.66.

[^1421]: *See supra* paras. 74, 36.

[^1422]: For example, assume the Commission conducted a reverse auction
    for an Unserved Study Area with a reserve price of \$5 and received
    four bids: \$1 to offer Basic Broadband Tier 1, \$2 to offer
    Broadband Tier 2, \$3 to offer Broadband Tier 3, and \$4 to offer
    Broadband Tier 3. In that scenario, the winning bid amount would be
    \$3 to offer Broadband Tier 3.

[^1423]: *See* Free Press Oct. 24, 2008 *Ex Parte* Letter at 12 (arguing
    that, if a study area receives no winning bidder in a reverse
    auction, then the study area should be disaggregated).

[^1424]: *Reverse Auctions NPRM*, 23 FCC Rcd at 1500--01, para. 12; *see
    also, e.g.*, Florida PSC *High-Cost Reform NPRMs* Comments at 5;
    Indiana Util. Reg. Comm'n *High-Cost Reform NPRMs* Comments at 12;
    MSTC Group *High-Cost Reform NPRMs* Comments at 12; Verizon/Verizon
    Wireless *High-Cost Reform NPRMs* Comments, App. at 8.

[^1425]: For this reason, we disagree with commenters who argue that we
    should not require bidders to be ETCs. *See* GCI *High-Cost Reform
    NPRMs* Comments at 89; Consumers Union (CU) et al*.* *High-Cost
    Reform NPRMs* Reply at 17.

[^1426]: Pursuant to section 214(e)(1)(A) of the Act, a common carrier
    designated as an ETC must offer the services supported by the
    federal universal service mechanisms throughout the designated
    service area either by using its own facilities or by using a
    combination of its own facilities and resale of another carrier's
    services (including the services offered by another ETC). 47 U.S.C.
    § 214(e)(1)(A).

[^1427]: *See, e.g.*, *Auction of LPTV and TV Translator Digital
    Companion Channels Scheduled for November 5, 2008*, AU Docket No.
    08-22, Public Notice, DA 08-1944, para. 53 (WTB 2008).

[^1428]: *Identical Support NPRM*, 23 FCC Rcd at 1470, para. 5; *see,
    e.g.*, Embarq *High-Cost Reform NPRMs* Comments at 10 ("It is
    logically inconsistent to compensate a carrier for serving
    'high-cost' areas when there is no evidence--in the form of cost
    studies, filings, or model results---that the areas being supported
    are indeed 'high-cost' for that carrier."); Frontier *High-Cost
    Reform NPRMs* Comments at 4 (asserting that identical support is
    merely a subsidy to competitive ETCs, "and there is no basis to tell
    whether consumers are getting any \[u\]niversal \[s\]ervice benefits
    whatsoever" from subsidizing competitive ETCs in this manner).

[^1429]: *Identical Support NPRM*, 23 FCC Rcd at 1470, para. 5.

[^1430]: *See* 47 U.S.C. § 254(b)(3); Alabama PSC *High-Cost Reform
    NPRMs* Comments at 3 ("The identical support rule provides little
    incentive for ETCs to invest in building their own facilities in
    rural areas with low population densities because their support
    currently is based solely on the per-line support received by the
    incumbent, instead of investment in the network.").

[^1431]: *Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, para. 5 (recommending elimination of the identical support
    rule, which "bears little or no relationship to the amount of money
    competitive ETCs have invested in rural and other high-cost areas of
    the country").

[^1432]: CTIA Oct. 22, 2008 *Ex Parte* Letter at 1. The calculation of
    support provisions in this Part apply to competitive ETCs that do
    not receive high-cost support as the result of winning a reverse
    auction. Support for winning auction bidders, including competitive
    ETCs, will be based on the bid amount, as discussed above. *See
    supra* paras 43--47.

[^1433]: Customer locations include both residential and business
    locations within the ETC's service area.

[^1434]: *See Comprehensive Review of the Universal Service Fund
    Management, Administration, and Oversight, Federal-State Joint Board
    on Universal Service, Schools and Libraries Universal Service
    Support Mechanism, Rural Health Care Support Mechanism, Lifeline and
    Link-Up, Changes to the Board of Directors for the National Exchange
    Carrier Association, Inc.*, WC Docket No. 03-109, Report and Order,
    22 FCC Rcd 16372, 16383--84, para. 24 (*Comprehensive Review Report
    and Order*) (requiring "recipients of universal service support for
    high-cost providers to retain all records that they may require to
    demonstrate to auditors that the support they received was
    consistent with the Act and the Commission's rules, assuming that
    the audits are conducted within five years of disbursement of such
    support."). The term "service provider" includes any participating
    subcontractors.

[^1435]: This includes presenting personnel to testify, under oath, at a
    deposition if requested by of the Office of Inspector General.

[^1436]: *See, e.g*., 41 U.S.C. §§ 51--58 (Anti-Kickback Act of 1986);
    31 U.S.C. § 3729 (False Claims Act).

[^1437]: The Commission has established a similar universal service
    pilot program under the Rural Health Care support mechanism. *See
    Rural Health Care Support Mechanism*, WC Docket No. 02-60, Order, 21
    FCC Rcd 11111(2006) (*2006* *Rural Health Care Pilot Program Order*)
    (establishing a Rural Health Care pilot program to examine how the
    Rural Health Care funding mechanism can be used to enhance public
    and non-profit health care providers' access to advanced
    telecommunications and information services); *Rural Heath Care
    Support Mechanism*, WC Docket No. 02-60, Order, 22 FCC Rcd 20,360
    (2007) (selecting Rural Health Care pilot program participants
    eligible to receive up to 85% of the costs associated with the
    construction of state or regional broadband health care networks and
    with the advanced telecommunications and information services
    provided over those networks).

[^1438]: 47 U.S.C. §§ 151, 154(i), 201, 205.

[^1439]: Lifeline currently provides low-income consumers with discounts
    of up to \$10.00 off of the monthly cost of telephone service for a
    single telephone line in their principal residence, though this
    amount adjusts, in part, to reflect the carrier's tariffed federal
    subscriber line charge. *See* 47 C.F.R. § 54.403. Link Up provides
    low-income consumers with discounts of up to \$30.00 off of the
    initial costs of installing telephone service. *See* 47 C.F.R. §
    54.411(a). Under the Commission's rules, there are four tiers of
    federal Lifeline support. All eligible subscribers receive Tier 1
    support which provides a discount equal to the ETC's subscriber line
    charge. Tier 2 support provides an additional \$1.75 per month in
    federal support, available if all relevant state regulatory
    authorities approve such a reduction. (All fifty states have
    approved this reduction.) Tier 3 of federal support provides one
    half of the subscriber's state Lifeline support, up to a maximum of
    \$1.75. Only subscribers residing in a state that has established
    its own Lifeline/Link Up program may receive Tier 3 support,
    assuming that the ETC has all necessary approvals to pass on the
    full amount of this total support in discounts to subscribers. Tier
    4 support provides eligible subscribers living on tribal lands up to
    an additional \$25 per month towards reducing basic local service
    rates, but this discount cannot bring the subscriber's cost for
    basic local service to less than \$1. *See* 47 C.F.R. § 54.403.

[^1440]: *See* 47 C.F.R. §§ 54.409(a), 54.415(a).

[^1441]: *See Lifeline and Link Up*, WC Docket No. 03-109, Report and
    Order and Further Notice of Proposed Rulemaking, 19 FCC Rcd 8302
    (2004).

[^1442]: 47 C.F.R. § 54.409(a).

[^1443]: 47 C.F.R. § 54.409(b).

[^1444]: 47 C.F.R. § 54.409(a)--(d).

[^1445]: *See Lifeline and Link Up, Federal-State Joint Board on
    Universal Service*, WC Docket No. 03-109, CC Docket No. 96-45,
    Petition to Establish A Trial Broadband Lifeline/Link Up Program
    (filed Oct. 9, 2008) (*TracFone Petition*).

[^1446]: *See TracFone Petition* at 3--4.

[^1447]: *See TracFone Petition* at 3.

[^1448]: *See TracFone Petition* at 5.

[^1449]: *See* Petition for Rulemaking to Enable Low-Income Consumers to
    Access Broadband Through the Universal Service Lifeline and Link Up
    Programs, WC Docket No. 03-109 (filed Oct. 7, 2008) (*CCIA
    Petition*).

[^1450]: *See CCIA Petition* at 7.

[^1451]: *See* Letter from Eric Einhorn, Vice President Governmental
    Affairs, Windstream Communications Inc., to Marlene Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket Nos. 99-68,
    08-122, 05-337, 08-152 (Sept. 24, 2008) (Windstream Sept. 24, 2008
    *Ex Parte* Letter).

[^1452]: AARP *Joint Board Comprehensive Reform NPRM* Comments at 55.

[^1453]: AARP *Joint Board Comprehensive Reform NPRM* Comments at 55.

[^1454]: *See, e.g*., Letter from Dale R. Schmick, CEO, YourTel America,
    Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45,
    01-92, WC Docket Nos. 03-109, 05-337, at 2 (filed Oct. 21, 2008)
    (YourTel Oct. 21, 2008 *Ex Parte* Letter); Letter from Thomas J.
    Sugrue, Vice President Government Affairs, T-Mobile, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109,
    WT Docket Nos. 04-356, 07-195 at 3 (filed Oct. 17, 2008) (urging the
    Commission to adopt quickly TracFone's and CCIA's proposals); Letter
    from Karyne Jones, President & CEO, National Caucus and Center on
    Black Aged, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    96-45, WC Docket No. 03-109 at 1 (filed Oct. 29, 2008) (NCBA Oct.
    29, 2008 *Ex Parte* Letter); Letter from Donnie Ruby, Staff
    Associate, Telecommunications Research and Action Center, to Marlene
    H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109
    (filed Oct. 28, 2008); Letter from Bill Newton, Executive Director,
    Florida Consumer Action Network, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 96-45, WC Docket No. 03-109 (filed Oct. 27,
    2008); Letter from Robert D. Atkinson, Chair Public Policy
    Committee, Alliance for Public Technology, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109 (filed
    Oct. 24, 2008) (APT Oct. 24, 2008 *Ex Parte* Letter); Letter from
    John Breyault, Vice President of Public Policy Telecommunications
    and Fraud, National Consumers League, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 96-45, WC Docket No. 03-109 (filed
    Oct. 23, 2008) (NCL Oct. 23, 2008 *Ex Parte* Letter); Letter from
    Mark Richert, Director, Public Policy, American Foundation for the
    Blind, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC
    Docket No. 03-109 (filed Oct. 28, 2008) (AFB Oct. 28, 2008 *Ex
    Parte* Letter).

[^1455]: To the extent that our adoption of the Pilot Program adds
    broadband to the list of universal service supported services, we
    clarify that this inclusion is limited only to the Pilot
    Program---broadband is not a supported service for other low-income
    or high-cost support purposes. Pursuant to section 254(c)(1) of the
    Act, the Joint Board has recommended adding broadband as a supported
    service, and we do so for the limited purpose of the Pilot Program.
    *See Comprehensive Reform* *Recommended Decision*, 22 FCC Rcd at
    20478, para. 4 ("The Joint Board now recommends that the nation's
    communications goals include achieving . . . universal availability
    of broadband Internet services"). Furthermore, the Commission's
    authority to provide universal service support to low-income
    consumers pre-dates the adoption in 1996 of section 254 of the Act,
    and arises out of sections 1, 4(i), 201, and 205 of the Act. 47
    U.S.C. §§ 151, 154, 201, 205; *Universal Service First Report and
    Order*, 12 FCC Rcd at 8956--57, paras. 338--40. Pursuant to our
    authority to regulate low-income support under these sections, as
    well as under section 254, we provide universal service support for
    broadband Internet access services through the Pilot Program.

[^1456]: *Universal Service First Report and Order*, 12 FCC Rcd at 8956,
    para. 339.

[^1457]: 47 U.S.C. § 254(b)(2) (emphasis added).

[^1458]: *See* 47 U.S.C. § 254(b)(3) (emphasis added).

[^1459]: *See* APT Oct. 24, 2008 *Ex Parte* Letter at 2; NCBA Oct. 29,
    2008 *Ex Parte* Letter at 1; NCL Oct. 23, 2008 *Ex Parte* Letter at
    1.

[^1460]: According to the National Caucus and Center on Black Aged,
    older low-income Americans have difficulty affording broadband
    services and many do not have Internet access. NCBA Oct. 29, 2008
    *Ex Parte* Letter at 1 (citing Older Americans, Broadband and the
    Future of the Net, SeniorNet, 2008). Commenters also assert that
    broadband connections are particularly necessary for consumers who
    are blind, visually impaired, deaf or hard of hearing. *See* APT
    Oct. 24, 2008 *Ex Parte* Letter at 1 (citing [Alliance for Public
    Technology, Achieving Universal Broadband: Policies for Stimulating
    Deployment and Demand]{.smallcaps} 27 (2007)); AFB Oct. 28, 2008 *Ex
    Parte* Letter.

[^1461]: *See Inquiry Concerning the Deployment of Advanced
    Telecommunications Capability to All Americans in a Reasonable and
    Timely Fashion, and Possible Steps to Accelerate Such Deployment
    Pursuant to Section 706 of the Telecommunications Act of 1996*, GN
    Docket No. 07-45, Notice of Inquiry, 22 FCC Rcd 7816, 7817, para. 3
    (2007) (*706 Fifth NOI*).

[^1462]: *See 2006 Rural Health Care Pilot Program Order*, 21 FCC Rcd at
    11112, para. 5; *706 Fifth NOI*, 22 FCC Rcd at 7817, para. 4.

[^1463]: *See* Cellular South *High-Cost Reform NPRMs* Comments at 10.

[^1464]: *See* FCC, [High-Speed Services for Internet Access: Status as
    of December 31, 2006]{.smallcaps}, tbl. 19 (2007), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-277784A1.pdf.

[^1465]: *See* [2008 Pew Broadband Adoption Study]{.smallcaps} ii.

[^1466]: *See* [2008 Pew Broadband Adoption Study]{.smallcaps} at 2.

[^1467]: *See* [2007 Universal Service Monitoring Report]{.smallcaps}.

[^1468]: Desktop computers can be purchased for as low as \$200. *See*
    Walmart Consumer Products,
    http://www.walmart.com/catalog/catalog.gsp?cat=3951&fromPageCatId=14503
    (last visited Oct. 24, 2008). For \$267, a consumer can purchase a
    new ASUS Eee PC 2G Surf laptop. *See* Amazon ASUS Eee PC 2G Surf
    Product Page,
    http://www.amazon.com/gp/product/B00114T9WY/ref=noref?ie=UTF8&s=pc
    (last visited Oct. 24, 2008). Personal computers and wireless
    devices will continue to become available at even lower rates.
    Throughout the world, there are \$100 laptops and wireless devices.
    *See* Michael Trucano, InfoDev.org, Quick guide: Low-cost computing
    devices and initiatives for developing world (Apr. 2008),
    http://www.infodev.org/en/Publication.107.html (last visited Oct.
    25, 2008). For example, Candlebox, being developed for use in India
    by Qualcom, is a low-cost, low-power device that uses mobile
    technology to provide wireless Internet access and supports e-mail,
    social networking, e-commerce and distance learning applications.
    [Richard P. Adler & Mahesh Uppal, Aspen Institute India, m-Powering
    India: Mobile Communications for Inclusive Growth]{.smallcaps} at 21
    (2008), *available at*
    http://www.aspeninstitute.org/atf/cf/%7Bdeb6f227-659b-4ec8-8f84-8df23ca704f5%7D/2008INDIA.pdf.

[^1469]: *See* NCBA Oct. 29, 2008 *Ex Parte* Letter at 2 (suggesting
    that the Pilot Program should be modeled after the existing Lifeline
    program and can be studied and evaluated to develop future broadband
    Lifeline/Link Up support programs).

[^1470]: *See TracFone Petition* at 5.

[^1471]: *See* [USAC 2007 Annual Report]{.smallcaps} at 51. USAC's
    administrative expenses for 2007 were \$104,073,000. *Id.* at 3.

[^1472]: [USAC 2007 Annual Report]{.smallcaps} at 3.

[^1473]: *See TracFone Petition* at 3.

[^1474]: Assuming \$250 is provided to each consumer, the total cost of
    the TracFone proposal could reach almost \$7 billion.

[^1475]: *See supra* para. 71.

[^1476]: *Federal-State Joint Board on Universal Service, Schools and
    Libraries Universal Service Support Mechanism, Rural Health Care
    Support Mechanism, Lifeline and Link-up*, CC Docket Nos. 96-45, 02-6
    and WC Docket Nos. 02-60, 03-109, Order, 20 FCC Rcd 16883, 16890,
    para. 12 (2005) (*Hurricane Katrina Order*). Also, service
    agreements of longer than the lesser of one year or the remaining
    Pilot Program funding period are prohibited.

[^1477]: Where such device costs \$100 or less, the Pilot Program will
    support 90% of the cost of the broadband Internet access device.

[^1478]: 47 C.F.R. § 54.411(b).

[^1479]: *See* USAC, Low Income: Overview of the Process,
    http://www.universalservice.org/li/about/overview-process.aspx (last
    visited Oct. 11, 2008).

[^1480]: Because \$10 is the maximum federal support under Tier 1 to
    Tier 3 of the existing Lifeline program, we find this to be the
    appropriate support amount for purposes of the Pilot Program. *See*
    [2007 Universal Service Monitoring Report]{.smallcaps}, tbl. 2.3.
    Ten dollars is also above the average Lifeline support amount of
    \$8.46, which includes both tribal and non-tribal recipients. *See*
    *id.*, tbl. 2.12.

[^1481]: *See* *infra* para. 142.

[^1482]: Pilot Program participants may not receive support for the same
    services from both the Pilot Program and the existing universal
    service programs---which consist of the rural health care, E-rate,
    high-cost, and low-income programs.

[^1483]: *See supra* para. 28.

[^1484]: *TracFone Petition* at 4.

[^1485]: *TracFone Petition* at 3.

[^1486]: *See, e.g*., YourTel Oct. 21, 2008 *Ex Parte* Letter at 2
    (urging the Commission to allow low-income consumers living in
    Missouri to be eligible for Pilot Program support).

[^1487]: *See* 47 C.F.R. § 54.409.

[^1488]: As discussed above, for purposes of this Pilot Program we
    define "household" as one adult and his/her dependants living
    together in the same residence. *See supra* para 76; *Hurricane
    Katrina Order*, 20 FCC Rcd at 16890, para. 12.

[^1489]: *See* 47 C.F.R. § 54.405.

[^1490]: 47 C.F.R. § 54.400--.417.

[^1491]: *See* 47 C.F.R. § 54.417(a).

[^1492]: *See* 47 C.F.R. §§ 54.410, 54.416.

[^1493]: *See* 47 C.F.R. § 54.619; *Comprehensive Review Report and
    Order*, 22 FCC Rcd at 16387, para. 26.

[^1494]: This includes presenting personnel to testify, under oath, at a
    deposition if requested by the Office of Inspector General.

[^1495]: We intend that funds disbursed in violation of a Commission
    rule that implements section 254 or a substantive program goal will
    be recovered. Sanctions, including enforcement action, are
    appropriate in cases of waste, fraud, and abuse, but not in cases of
    clerical or ministerial errors. *See* *Comprehensive Review Report
    and Order*, 22 FCC Rcd at 16388--89, para. 30.

[^1496]: 47 U.S.C. §§ 502, 503(b).

[^1497]: 18 U.S.C. § 1001. Further, the Commission has found that
    "debarment of applicants, service providers, consultants, or others
    who have defrauded the USF is necessary to protect the integrity of
    the universal service programs." *Comprehensive Review Report and
    Order*, 22 FCC at 16390, para. 32. Therefore, the Commission intends
    to suspend and debar parties from the Pilot Program who are
    convicted of or held civilly liable for the commission or attempted
    commission of fraud and similar offenses arising out of their
    participation in the Pilot Program or other universal service
    programs. *See id.* paras. 31--32.

[^1498]: *See, e.g*., 41 U.S.C. §§ 51--58 (Anti-Kickback Act of 1986);
    31 U.S.C. § 3729 (False Claims Act).

[^1499]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    9206--07, paras. 843--44; *Federal-State Joint Board on Universal
    Service;* *Access Charge Reform*, Sixteenth Order on Reconsideration
    and Eighth Report and Order in CC Docket No. 96-45 and Sixth Report
    and Order in CC Docket No. 96-262, 15 FCC Rcd 1679, 1685, para. 15
    (1999) (*Fifth Circuit Remand Order*) (establishing a single
    contribution for all universal service support mechanisms based on
    interstate and international revenues).

[^1500]: *Universal Service First Report and Order*, 12 FCC Rcd at
    9206--08, 9211, paras. 843, 845--48, 854.

[^1501]: *Compare* [Jim Lande & Kenneth Lynch, FCC, 2000
    Telecommunications Industry Revenues,]{.smallcaps} tbl. 4
    [(2002),]{.smallcaps} *available at*
    http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/IAD/telrev00.pdf
    *with* [Jim Lande & Kenneth Lynch, FCC, 2006 Telecommunications
    Industry Revenues,]{.smallcaps} tbl. 4 [(2008),]{.smallcaps}
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284929A1.pdf.
    *But see* Letter from David C. Bergmann, Chair, NASUCA
    Telecommunications Committee, to Chairman Kevin Martin et al*.*,
    FCC, WC Docket Nos. 08-152, 07-135, 06-122, 05-337, 05-195, 04-36,
    03-109, 02-60, CC Docket Nos. 02-6, 01-92, 00-256, 99-68, 96-262,
    96-45, 80-286, at 7 (filed Sept. 30, 2008) (NASUCA Sept. 30, 2008
    *Ex Parte* Letter) (arguing that the growth in the contribution
    factor is "almost entirely" due to the growth in universal service
    disbursement requirements).

[^1502]: *See* [FCC, Universal Service Monitoring Report,]{.smallcaps}
    tbl. 1.2a [(2001)]{.smallcaps} ([2001 Universal Service Monitoring
    Report]{.smallcaps}), *available at*
    http://www.fcc.gov/Bureaus/Common_Carrier/Reports/FCC-State_Link/Monitor/mrs01-0.pdf;
    [2007 Universal Service Monitoring Report]{.smallcaps} at tbl. 1.11;
    *see also* [USAC 2007 Annual Report]{.smallcaps} at 3, 51 (detailing
    universal service disbursements for 2007 at approximately \$6.9
    billion).

[^1503]: The contribution factor grew from 5.9% in the first quarter of
    2000 to 11.3% for the fourth quarter of 2008. *See Proposed First
    Quarter 2000 Universal Service Contribution Factor*, CC Docket No.
    96-45, Public Notice, 15 FCC Rcd 3660 (WCB 1999); *Proposed Fourth
    Quarter 2008 Universal Service Contribution Factor*, CC Docket No.
    96-45, Public Notice, DA 08-2091 (OMD Sept. 12, 2008) (*Fourth
    Quarter 2008 Contribution Factor Public Notice*).

[^1504]: *See* 47 U.S.C. §§ 254(b), (d).

[^1505]: Although the Commission has established safe harbors for the
    reporting of interstate telecommunications revenues derived from
    interstate telecommunications services bundled with customer
    premises equipment (CPE) or information services, it has not
    established guidelines for reporting interstate telecommunications
    service revenues for flat-rated bundles of wireline interstate and
    intrastate services. *See* *Policy and Rules Concerning the
    Interstate, Interexchange Marketplace; Implementation of Section
    254(g) of the Communications Act of 1934, as amended; 1998 Biennial
    Regulatory Review---Review of Customer Premises Equipment and
    Enhanced Local Exchange Markets*, CC Docket Nos. 96-61, 98-183,
    Report and Order, 16 FCC Rcd 7418, 7446--48, paras. 47--54 (2001)
    (*CPE Bundling Order*).

[^1506]: *See Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Memorandum Opinion and Order and Further Notice of
    Proposed Rulemaking, 13 FCC Rcd 21252, 21258--59, paras. 13--15
    (1998) (*First Wireless Safe Harbor Order*); *see* *also
    Federal-State Joint Board on Universal Service*, CC Docket Nos.
    96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, Report and
    Order and Second Further Notice of Proposed Rulemaking, 17 FCC Rcd
    24952, 24965--67, paras. 21--25 (2002) (*Second Wireless Safe Harbor
    Order*).

[^1507]: *See Universal Service Contribution Methodology*, WC Docket
    Nos. 06-122, 04-36, CC Docket Nos. 96-45, 98-171, 90-571, 92-237,
    99-200, 95-116, 98-170, Report and Order and Notice of Proposed
    Rulemaking, 21 FCC Rcd 7518 (2006) (*2006 Interim Contribution
    Methodology Order*); *aff'd in part, vacated in part sub nom. Vonage
    Holdings Corp. v. FCC*, 489 F.3d 1232 (D.C. Cir. 2007).

[^1508]: *See* *Federal-State Joint Board on Universal Service*, CC
    Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, Notice of
    Proposed Rulemaking, 16 FCC Rcd 9892 (2001) (*2001 Contribution
    NPRM*); *see also Federal-State Joint Board on Universal Service*,
    CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116,
    98-170, Further Notice of Proposed Rulemaking and Report and Order,
    17 FCC Rcd 3752, 3765, para. 31, 3766--89, paras. 34--83 (2002)
    (*Contribution First FNPRM*).

[^1509]: *Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24983--97,
    paras. 66--100 (seeking comment on capacity-based proposals that had
    been developed in the record and on telephone-number proposals
    advocated by certain parties); *Commission Seeks Comment on Staff
    Study Regarding Alternative Contribution Methodologies*, CC Docket
    Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116, 98-170, Public
    Notice, 18 FCC Rcd 3006 (2003) (*Contribution Staff Study*) (seeking
    comment on a Commission staff study that estimated potential
    contribution assessment levels under the then-newly modified
    revenue-based method and the three connection-based proposals in the
    further notice portion of the *Second Wireless Safe Harbor Order*).

[^1510]: *Interim Cap Clears Path for Comprehensive Reform: Commission
    Poised to Move Forward on Difficult Decisions Necessary to Promote
    and Advance Affordable Telecommunications for All Americans*, News
    Release (May 2, 2008), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-281939A1.pdf.

[^1511]: We agree with commenters who argue that the contribution
    methodology requires a comprehensive overhaul. *See, e.g.*, Letter
    from Mary L. Henze, AT&T Services, and Kathleen Grillo, Verizon, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket
    No. 96-45, Attach. 1 at 1 (filed Sept. 11, 2008) (AT&T and Verizon
    Sept. 11, 2008 *Ex Parte* Letter); Letter from Roger C. Sherman,
    Director, Government Affairs---Wireless Regulatory, Sprint Nextel,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket
    No. 04-36 at 1 (filed June 14, 2006) (Sprint Nextel June 14, 2006
    *Ex Parte* Letter); Letter from Susanne A. Guyer, Senior Vice
    President Federal Regulatory Affairs, Verizon, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket Nos. 05-337,
    06-122 at 2 (filed Oct. 28, 2008) (Verizon Oct. 29, 2008 *Ex Parte*
    Letter); Letter from Mary L. Henze, AT&T Services, and Kathleen
    Grillo, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    96-45, WC Docket No. 06-122 at 1 (filed Oct. 20, 2008) (AT&T and
    Verizon Oct. 20, 2008 *Ex Parte* Letter).

[^1512]: 47 U.S.C. § 254(d).

[^1513]: Section 254(d) refers to "telecommunications carriers," which
    are defined as "any provider of telecommunications services." 47
    U.S.C. § 153(44).

[^1514]: 47 U.S.C. § 254(d).

[^1515]: 47 U.S.C. § 254(d).

[^1516]: "Telecommunications" is defined 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
    as sent and received." 47 U.S.C. § 153(43).

[^1517]: "Telecommunications service" is defined as "the offering of
    telecommunications for a fee directly to the public, or to such
    classes of users as to be effectively available directly to the
    public, regardless of the facilities used." 47 U.S.C. § 153(46).

[^1518]: *See* 47 C.F.R. § 54.706(a); *Universal Service First Report
    and Order*, 12 FCC Rcd at 9183--84, paras. 794--95. We note that
    private service providers that provide interstate connections solely
    to meet their internal needs (i.e., self-providers) will not be
    required to contribute under the new methodology. This is consistent
    with our current policy. In the *Universal Service First Report and
    Order*, the Commission reasoned that, for self-providers of
    interstate telecommunications, the telecommunications is incidental
    to their primary non-telecommunications business. *See Universal
    Service First Report and Order*, 12 FCC Rcd at 9185, para. 799.

[^1519]: *See* 47 C.F.R. § 54.706(a); *Universal Service First Report
    and Order*, 12 FCC Rcd at 9184--85, paras. 796--98. *But see* Letter
    from Robert F. Aldrich, Counsel for the American Public
    Communications Council (APCC), to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 96-45, WC Docket No. 01-92, Attach. (filed Oct. 23,
    2008).

[^1520]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7538--40, paras. 39--41; 47 C.F.R. § 54.706(a).

[^1521]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7539, para. 41 ("To provide this capability \[telecommunications\],
    interconnected VoIP providers may rely on their own facilities or
    provide access to the PSTN through others.").

[^1522]: *See United States v. Southwestern Cable Co.*, 392 U.S. 157,
    177--78 (1968); *United States v. Midwest Video Corp.*, 406 U.S.
    649, 667--68 (1972); *FCC v. Midwest Video Corp.*, 440 U.S. 689, 700
    (1979); *see also American Library Ass'n v. FCC*, 406 F.3d 689 (D.C.
    Cir. 2005).

[^1523]: *See Amendment of Part 67 of the Commission\'s Rules and
    Establishment of a Joint Board*, CC Docket No. 80-286, Decision and
    Order, 96 F.C.C.2d 781, (1984), *aff'd sub nom. Rural Tel. Coalition
    v. FCC*, 838 F.2d 1307 (D.C. Cir. 1988).

[^1524]: *Rural Tel. Coalition*, 838 F.2d at 1315.

[^1525]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd
    at 7541--43, paras. 46--49.

[^1526]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd
    at 7542, para. 47 & n.160 (citing *IP-Enabled* Services, First
    Report and Order and Notice of Proposed Rulemaking, 20 FCC Rcd 10245
    (2005) (*VoIP 911 Order*), *aff'd sub nom. Nuvio Corp. v. FCC*, 473
    F.3d 302 (D.C. Cir. 2006); 47 U.S.C. § 152(a)).

[^1527]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7542, para. 48 (quoting 47 U.S.C. § 254(d)).

[^1528]: *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at
    7542, para. 48.

[^1529]: 47 U.S.C. § 251(e)(1).

[^1530]: *See VoIP 911 Order*, 20 FCC Rcd at 10265, para. 33.

[^1531]: *See VoIP 911 Order*, 20 FCC Rcd at 10265, para. 33.

[^1532]: The term Assessable Number is defined below. *See infra* paras.
    115--129.

[^1533]: This list is meant to be illustrative, not exhaustive. Other
    providers may also have to contribute to the universal service fund
    based on the criteria described in this order.

[^1534]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd
    at 7539, para. 41.

[^1535]: 47 U.S.C. § 254(d).

[^1536]: 47 U.S.C. § 152(a); *see also VoIP 911 Order*, 20 FCC Rcd
    10261--62, para. 28 (providing detailed explanation of why
    interconnected VoIP falls within the Commission's subject matter
    jurisdiction).

[^1537]: *Compare 2006 Interim Contribution Methodology Order*, 21 FCC
    Rcd at 7540, para. 43.

[^1538]: *Implementation of the Local Competition Provisions of the
    Telecommunications Act of 1996,* CC Docket No. 96-98, Second Report
    and Order and Memorandum Opinion and Order, 11 FCC Rcd 19392, 19404,
    19407, paras. 19, 25 (1996) (noting that numbering
    administration ensures the creation of a nationwide, uniform system
    of numbering essential to the efficient delivery of interstate and
    international telecommunications services and the development of a
    competitive telecommunications services market) (subsequent history
    omitted); *see also Administration of the North American Numbering
    Plan*, CC Docket No. 95-283, Report and Order, 11 FCC Rcd 2588,
    2591, para. 4 (1995) ("Adequate telephone numbers, available through
    a uniform numbering plan, are essential to provide consumers
    efficient access to new telecommunications services and technologies
    and to support continued growth of an economy increasingly dependent
    upon those services and technologies."); *Administration of the
    North American Numbering Plan*, CC Docket No. 92-237, Notice of
    Proposed Rulemaking, 11 FCC Rcd 2068, para. 2 (1994).

[^1539]: *See, e.g.*, American Association of Paging Carriers (AAPC)
    *Contribution First FNPRM* Comments at 7; Alaska Communication
    Systems (ACS) *Contribution First FNPRM* Reply at 6--7; Allied
    Personal Communications Industry Association of California (Allied)
    *Contribution First FNPRM* Comments at 6--7; National ALEC
    Association/Prepaid Communications Association (NALA/PCA)
    *Contribution First FNPRM* Reply at 3.

[^1540]: *See,* *e*.*g*., *NARUC v. FCC*, 737 F.2d 1095, 1113 (D.C. Cir.
    1984) ("The same loop that connects a telephone subscriber to the
    local exchange necessarily connects that subscriber into the
    interstate network as well.").

[^1541]: *NARUC v. FCC*, 737 F.2d at 1113--14.

[^1542]: Services that provide only intrastate communications and do not
    traverse a public interstate network will not be required to
    contribute under the new assessment methodology.

[^1543]: 47 U.S.C. § 254(b)(5).

[^1544]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 1.

[^1545]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 1; *see also* Letter from James S. Blaszak, Counsel for
    Ad Hoc Telecommunications Users Committee, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, at 5 (filed Nov. 19, 2007) (Ad
    Hoc Nov. 19, 2007 *Ex Parte* Letter) (discussing the convergence of
    different applications for business and residential customers onto a
    single integrated network with bundled pricing).

[^1546]: *See Vonage Holdings Corporation Petition for Declaratory
    Ruling Concerning an Order of the Minnesota Public Utilities
    Commission*, 19 FCC Rcd 22404, 22412--14, paras. 16--18 (2004)
    (*Vonage Order*), *aff'd sub nom. Minnesota Pub. Utils. Comm'n v.
    FCC*, 483 F.3d 570 (8th Cir. 2007).

[^1547]: *See, e.g.*, AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 2.

[^1548]: Contributors are prohibited from passing through to subscribers
    more than their contribution cost. 47 C.F.R. § 54.712.

[^1549]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 2; *see also* Information Technology Industry Council
    (ITI) *2006 Contribution FNPRM* Comments at 6; NCTA *2006
    Contribution FNPRM* Comments at 5; Small Business Administration
    Office of Advocacy (SBA) *2006 Contribution FNPRM* Comments at 8;
    Vonage *2006 Contribution FNPRM* Comments at 7--8; Letter from
    Gregory V. Haledjian, Regulatory and Governmental Relations, Counsel
    to IDT Corporation and USF By the Numbers Coalition, to Marlene H.
    Dortch, Secretary, FCC, WC Docket No. 06-122, Attach. at 3--4 (filed
    Jan. 30, 2007).

[^1550]: *See, e.g.*, NCTA *2006 Contribution FNPRM* Comments at 5;
    Vonage *2006 Contribution FNPRM* Comments at 6; Letter from Grace E.
    Koh, Policy Counsel, Cox Enterprises, to Marlene H. Dortch,
    Secretary, FCC, WC Docket Nos. 06-122, 05-337, 01-92, CC Docket Nos.
    96-45, 99-68, 96-262 at 2 (filed July 15, 2008).

[^1551]: *See* AT&T *2006 Contribution FNPRM* Comments at 4.

[^1552]: In addition to being easily administrable, the record supports
    adoption of \$1.00 per month as the residential per-number
    assessment amount. *See, e.g.*, Letter from James S. Blaszak,
    Counsel for Ad Hoc Telecommunications Users Committee, to Marlene H.
    Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171, 90-571,
    92-237, 99-200, 95-116, 98-170, NSD File No. L-00-72, Attach. at 3
    (filed Oct. 25, 2005); *See* Letter from Mary L. Henze, AT&T
    Services, and Kathleen Grillo, Verizon, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 3
    (filed Sept. 23, 2008) (AT&T and Verizon Sept. 23, 2008 *Ex Parte*
    Letter) (estimating a \$1.01 per-number per-month assessment under a
    numbers-based contribution methodology); *see also* Letter from Paul
    Garnett, Assistant Vice President, CTIA--The Wireless Association,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45 at 1
    (filed Oct. 2, 2008) (CTIA Oct. 2, 2008 *Ex Parte* Letter), Attach.
    at 5 (supporting the AT&T and Verizon proposal); Letter from David
    B. Cohen, Vice President, Policy, USTelecom, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, Attach.
    at 1 (filed Sept. 25, 2008).

[^1553]: *See* [2007 Universal Service Monitoring Report]{.smallcaps} at
    tbl. 1.1.

[^1554]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 1; *see also* [Alexander Belinfante, FCC, Telephone
    Subscribership in the United States]{.smallcaps}, tbl. 1 (2008),
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284923A1.pdf.

[^1555]: *See* [Craig Stroup and John Vu, FCC, Numbering Resource
    Utilization in the United States]{.smallcaps}, tbl. 12 (2008)
    (showing number utilization from December 2000 to December 2007),
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-284926A1.pdf.

[^1556]: *See* Ad Hoc *Contribution First FNPRM* Comments at 6--7;
    Coalition for Sustainable Universal Service (CoSUS) *Contribution
    First FNPRM* Comments at 38; Sprint *Contribution First FNPRM*
    Comments at 8--9. Because residential services will no longer be
    assessed based on revenues, contributors may not mark-up or
    otherwise adjust the \$1.00 per Assessable Number per month
    residential contribution assessment in response to uncollectible
    revenues.

[^1557]: *See, e.g.*, ITI *2006 Contribution FNPRM* Comments at 6;
    Vonage *2006 Contribution FNPRM* Comments at 7.

[^1558]: *See Numbering Resource Optimization*, CC Docket No. 99-200,
    Report and Order and Further Notice of Proposed Rulemaking, 15 FCC
    Rcd 7574, 7625, para. 122 (2000) (*NRO* *I Order*) (determining that
    implementation of thousands-block number pooling is essential to
    extending the life of the NANP by making the assignment and use of
    NXX codes more efficient); *see also Numbering Resource
    Optimization*, CC Docket Nos. 99-200, 96-98, 95-116, Fourth Report
    and Order, 18 FCC Rcd 12472, 12474, para. 5 (2003) (*NRO* *IV
    Order*) (explaining further that thousands-block number pooling is a
    numbering resource optimization measure in which 10,000 numbers in
    an NXX are divided into ten sequential blocks of 1,000 numbers and
    allocated to different service providers (or different switches)
    within a rate center).

[^1559]: 47 U.S.C. § 254(b)(1).

[^1560]: *See* Letter from Jean L. Kiddoo and Tamar E. Finn, Counsel to
    IDT Telecom, to Marlene H. Dortch, Secretary, FCC, WC Docket No.
    06-122, at 5 (filed Aug. 2, 2007) (IDT Aug. 2, 2007 *Ex Parte*
    Letter) (showing that the average residential household paid about
    \$1.37 in universal service fees in 2006). IDT claims the data show
    that the lowest-income consumers paid an average of \$1.09 in
    universal service fees for wireline telephone bills. *Id*. at 6.

[^1561]: 47 C.F.R. §§ 69.104(n)(1), 69.152(d)(1). The SLC is referred to
    as the End User Common Line Charge in the Commission's rules.

[^1562]: The revenue from the \$6.50 SLC would be multiplied by the
    11.4% contribution factor, resulting in a contribution amount and
    corresponding assessment of \$0.74. *See Fourth Quarter 2008
    Contribution Factor Public Notice* at 1; AT&T and Verizon Sept. 11,
    2008 *Ex Parte* Letter, Attach. 2 at 3.

[^1563]: *See* 47 C.F.R. § 54.400 *et seq*.; *infra* para. 199
    (describing contribution exemptions for services to low-income
    consumers).

[^1564]: *See, e.g.*, Letter from Maureen A. Thompson, Executive
    Director, Keep USF Fair Coalition, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 96-45, Attach. at 5--7 (filed Mar. 27, 2006)
    (Keep USF Fair Mar. 27, 2006 *Ex Parte* Letter); *see also* NASUCA
    Sept. 30, 2008 *Ex Parte* Letter at 9.

[^1565]: *Universal Service First Report and Order*, 12 FCC Rcd at 8783,
    para. 8

[^1566]: *See, e.g.*, FW&A *Contribution First FNPRM* Comments at
    13--15; NRTA and OPASTCO *Contribution First FNPRM* Comments at
    7--11; SBC *Contribution First FNPRM* Comments at 18; Verizon
    *Contribution First FNPRM* Reply at 6; Verizon Wireless
    *Contribution First FNPRM* Comments at 5--6.

[^1567]: These six categories of numbers are defined as follows:

    > \(i\) Administrative numbers are numbers used by
    > telecommunications carriers to perform internal administrative or
    > operational functions necessary to maintain reasonable quality of
    > service standards.
    >
    > \(ii\) Aging numbers are disconnected numbers that are not
    > available for assignment to another end user or customer for a
    > specified period of time. Numbers previously assigned to
    > residential customers may be aged for no more than 90 days.
    > Numbers previously assigned to business customers may be aged for
    > no more than 365 days.
    >
    > \(iii\) Assigned numbers are numbers working in the Public
    > Switched Telephone Network under an agreement such as a contract
    > or tariff at the request of specific end users or customers for
    > their use, or numbers not yet working but having a customer
    > service order pending. Numbers that are not yet working and have a
    > service order pending for more than five days shall not be
    > classified as assigned numbers.
    >
    > \(iv\) Available numbers are numbers that are available for
    > assignment to subscriber access lines, or their equivalents,
    > within a switching entity or point of interconnection and are not
    > classified as assigned, intermediate, administrative, aging, or
    > reserved.
    >
    > \(v\) Intermediate numbers are numbers that are made available for
    > use by another telecommunications carrier or non-carrier entity
    > for the purpose of providing telecommunications service to an end
    > user or customer. Numbers ported for the purpose of transferring
    > an established customer's service to another service provider
    > shall not be classified as intermediate numbers.
    >
    > \(vi\) Reserved numbers are numbers that are held by service
    > providers at the request of specific end users or customers for
    > their future use. Numbers held for specific end users or customers
    > for more than 180 days shall not be classified as reserved
    > numbers.

    47 C.F.R. § 52.15(f)

[^1568]: *See Assessment and Collection of Regulatory Fees for Fiscal
    Year 2005, Assessment and Collection of Regulatory Fees for Fiscal
    Year 2004*, MD Dockets No. 05-59, 04-73, Report and Order and Order
    on Reconsideration, 20 FCC Rcd 12259, 12271, paras. 39--40 (2005).

[^1569]: "Functional equivalent identifier" means an identifier used in
    place of and with the same PSTN access capability as a NANP number;
    it is not intended to capture identifiers used in conjunction with
    NANP numbers, such as internal extensions that cannot be directly
    dialed from the PSTN. Nor is "functional equivalent identifier"
    intended to capture routing identifiers used for routing of Internet
    traffic, unless such identifiers are used in place of a NANP number
    to provide the ability to make or receive calls on the PSTN.

[^1570]: For purposes of the definition of Assessable Numbers, we
    include only the NANP telephone numbers used in the United States
    and its Territories and possessions.

[^1571]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    9206, para. 844; *see also, e.g*., Letter from Melissa E. Newman,
    Vice President-Federal Regulatory, Qwest, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, at 7 (filed Sept. 24, 2008)
    (Qwest Sept. 24, 2008 *Ex Parte* Letter); AT&T and Verizon Sept. 11,
    2008, *Ex Parte* Letter, Attach. 1 at 1--2; Letter from Brad E.
    Mutschelknaus, Counsel for XO Communications, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 96-45, 01-92, WC Docket No. 04-36,
    Attach. at 9 (filed Oct. 3, 2008); Letter from Donna N. Lampert,
    Counsel for Google, to Marlene H. Dortch, Secretary, FCC (filed Oct.
    3, 2008) (Google Oct. 3, 2008 *Ex Parte* Letter); *see also* 47
    C.F.R. § 54.5 (defining "contributor" as "an entity required to
    contribute to the universal service support mechanism pursuant to §
    54.706 \[of the Commission's rules\]").

[^1572]: *See supra* para. 161 (discussing the public interest in
    requiring these entities to support the network).

[^1573]: *See, e.g.*, AT&T and Verizon Sept. 23, 2008 *Ex Parte* Letter,
    Attach. 2 at 2; *see also* *Second Wireless Safe Harbor Order*, 17
    FCC Rcd at 24978, para. 50.

[^1574]: 47 C.F.R. § 54.712.

[^1575]: *See Numbering Resource Optimization*, CC Docket Nos. 99-200,
    96-98, 95-116, Third Report and Order and Second Order on
    Reconsideration in CC Docket No. 96-98 and CC Docket No. 99-200, 17
    FCC Rcd 252, 303, para. 119 (2001) (*NRO III Order*).

[^1576]: *NRO III Order*, 17 FCC Rcd at 304, para. 122 ("With this
    requirement, we seek to limit the amount of numbers that are set
    aside for use by a particular customer, but are not being used to
    provide service on a regular basis. Thus, in order to categorize
    such blocks of numbers as assigned numbers, carriers may have to
    decrease the amount \[of\] numbers set aside for a particular
    customer. We also clarify that numbers 'working' periodically for
    regular intervals of time, such as numbers assigned to summer homes
    or student residences, may be categorized as assigned numbers, to
    the extent that they are 'working' for a minimum of 90 days during
    each calendar year in which they are assigned to a particular
    customer. Any numbers used for intermittent or cyclical purposes
    that do not meet these requirements may not be categorized as
    assigned numbers, and must be made available for use by other
    customers.").

[^1577]: *See* 47 C.F.R. § 52.15(f)(iii).

[^1578]: *NRO I Order*, 15 FCC Rcd at 7586--87, para. 18. Ported-out
    numbers, a subcategory of assigned numbers, are not reported to
    NANPA although NRUF reporting carriers are required to maintain
    internal records associated with these numbers for five years. *Id*.
    at 7592, 7601, paras. 36, 62.

[^1579]: *See* 47 C.F.R. § 52.15(f); *see also* Qwest Sept. 24, 2008 *Ex
    Parte* Letter at 7 (arguing, among other things, that numbers used
    for administrative purposes and numbers that are not "actively"
    working, such as aging, unassigned, reserved numbers, and numbers
    donated back to the industry pool should be excluded from the
    contributor's base).

[^1580]: *See* 47 C.F.R. § 52.15(f)(v).

[^1581]: *See NRO I Order*, 15 FCC Rcd at 7587, para. 21 (2000) ("We
    agree with commenters who opine that \[intermediate\] numbers should
    not be categorized as *assigned* numbers because they have not been
    assigned to an end user. . . . We therefore conclude that numbers
    that are made available for use by another carrier or non-carrier
    entity for the purpose of providing telecommunications service to an
    end user or customer should be categorized as *intermediate*
    \[numbers\].").

[^1582]: *NRO III Order*, 17 FCC Rcd at 304, para. 122.

[^1583]: When a wireless carrier interconnects at an incumbent LEC end
    office it is known as a Type 1 interconnection. *See Federal
    Communications Commission Seeks Comment on Initial Regulatory
    Flexibility Analysis in Telephone Number Portability Proceeding*, CC
    Docket No. 95-116, Public Notice, 20 FCC Rcd 8616, 8632, App. B at
    para. 19 n.53 (2005) ("Type 1 numbers reside in an end office of a
    LEC and are assigned to a Type 1 interconnection group, which
    connects the wireless carrier\'s switch and the LEC\'s end office
    switch.").

[^1584]: *See infra* paras. 140--46.

[^1585]: The record is split over whether the definition of an
    assessable number should be restricted to the PSTN. AT&T and
    Verizon, for example, do not include such a requirement in their
    proposed definitions. *See* AT&T and Verizon Sept. 23, 2008 *Ex
    Parte* Letter, Attach. 1. Other commenters, however, argue for such
    a requirement. *See* Google Oct. 3, 2008 *Ex Parte* Letter at 1 (the
    definition of an assessable number should be "premised on a
    telephone number acting as a proxy for an underlying two-way PSTN
    connection"). As we explain herein, such a restriction is not
    warranted.

[^1586]: *Universal Service First Report and Order*, 12 FCC Rcd at 9207,
    paras. 845--46.

[^1587]: *Universal Service First Report and Order*, 12 FCC Rcd at 9184,
    para. 796.

[^1588]: *See 2006 Interim Contribution Methodology Order*, 21 FCC Rcd
    at 7536--37, paras. 33-34.

[^1589]: *See* 47 C.F.R. § 52.15(f)(iii).

[^1590]: *See Universal Service First Report and Order*, 12 FCC Rcd at
    9206, para. 844.

[^1591]: 47 C.F.R. § 52.15(f).

[^1592]: 47 C.F.R. § 52.15(f)(2).

[^1593]: *NRO I Order*, 15 FCC Rcd at 7587, para. 21.

[^1594]: S*ee* *Administration of the North American Numbering Plan*,
    Order, 20 FCC Rcd 2957, 2961--62, para. 9 (2005) (*SBCIS Waiver
    Order*) (noting that most VoIP providers' numbering utilization data
    are embedded in the NRUF data of the LEC). In the *SBCIS Waiver
    Order*, the Commission granted SBCIS, an Internet service provider,
    permission to obtain numbering resources directly from the NANPA
    and/or Pooling Administrator, conditioned on, among other things,
    SBCIS reporting NRUF data. *Id*. at 2959, para. 4.

[^1595]: *See infra* paras. 147--53.

[^1596]: *See* Letter from Jeanine Poltronieri, Vice President, Federal
    Regulatory, BellSouth D.C., Inc, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 96-45, Attach. at 2 (filed July 6, 2005) ("If
    voice service is provided without using telephone numbers, but with
    IP address or other identifier, FCC will need to establish a
    'functional equivalency' test.").

[^1597]: Business services such as private line and special access
    services do not typically utilize telephone numbers in the same
    manner as residential services, and would not contribute equitably
    to the universal service fund under a numbers-based approach. *See,
    e.g.*, Letter from James S. Blaszak, Counsel to Ad Hoc
    Telecommunications Users Committee, to Marlene H. Dortch, Secretary,
    FCC, CC Docket Nos. 96-45, 98-171, 90-571, 92-237, 99-200, 95-116,
    98-170, NSD File No. L-00-72, at 3 (filed Oct. 9, 2002); Letter from
    Robert Quinn, Vice President Federal Government Affairs, AT&T, to
    Marlene Dortch, Secretary, FCC, CC Docket Nos. 96-45, 98-171,
    90-571, 92-237, 99-200, 95-116, 98-170, NSD File No. L-00-72, at 2
    (filed Oct. 22, 2002). Moreover, unlike residential services, which
    usually have one telephone number assigned per access line, business
    services do not usually have a number of telephone numbers assigned
    that aligns with the number of access lines utilized.

[^1598]: 47 U.S.C. § 254(d). Therefore, we disagree with those parties
    that continue to support a numbers-only based approach because we
    find such an approach would be inconsistent with the statutory
    requirement that every telecommunications carrier must contribute to
    the universal service fund. *See, e.g.*, Letter from James S.
    Blaszak, Counsel for Ad Hoc, to Marlene H. Dortch, Secretary, FCC,
    CC Docket Nos. 01-92, 96-45, 99-68, WC Docket Nos. 05-337, 07-135,
    Attach. at 5 (filed Oct. 14, 2008).

[^1599]: *See Staff Study*; *see also* Ad Hoc Telecommunications Users
    Committee 2003 Staff Study Reply; Letter from John Nakahata, Counsel
    for the Coalition for Sustainable Universal Service, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, at 1 (filed Oct. 31,
    2002).

[^1600]: *See* Letter from Melissa E. Newman, Vice President-Federal
    Regulatory, Qwest, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 96-45, Attach. at 6 (filed Mar. 21, 2006) (Qwest Mar. 21, 2006
    *Ex Parte* Letter); *see also* Qwest Sept. 24, 2008 *Ex Parte*
    Letter at 2.

[^1601]: *See supra* para. 155.

[^1602]: Time Warner *2006 Contribution FNPRM* Comments at 2.

[^1603]: We decline at this time to adopt AT&T and Verizon's proposal
    for assessing contributions on connections based on flat rate
    charges that would differ based on the speed of the connection. AT&T
    and Verizon Oct. 20, 2008 *Ex Parte* Letter at 2. Instead, we seek
    further comment on implementing assessments based on connections.

[^1604]: 47 U.S.C. § 254(d).

[^1605]: 47 U.S.C. § 254(b)(4).

[^1606]: The proxies offer an alternative to contributions assessed on
    actual interstate revenues; they are intended to approximate the
    portion of revenues derived from the provision of interstate
    telecommunications services. *First Wireless Safe Harbor Order*, 13
    FCC Rcd at 21258--60, paras. 13--15 (establishing safe harbors for
    wireless service providers); *Second Wireless Safe Harbor Order*, 17
    FCC Rcd at 14954, para. 1 (modifying the wireless safe harbors);
    *2006 Interim Contribution Methodology Order*, 21 FCC Rcd at 7532,
    7545, paras. 23, 53 (revising the wireless safe harbor and
    establishing a safe harbor for interconnected VoIP providers).

[^1607]: *See supra* para. 153.

[^1608]: 47 U.S.C. §§ 254(b)(4), (d).

[^1609]: Contributors will base their contributions on business service
    revenues in the same manner as they do currently. We make no change
    to the *de minimis* exemption or to the Limited International
    Revenue Exception (LIRE) for business contributions based on
    revenues. 47 U.S.C. § 254(d); 47 C.F.R. § 54.708; *Fifth Circuit
    Remand Order*, 15 FCC Rcd at 1687--88, para. 19; *Contribution First
    FNPRM*, 17 FCC Rcd at 3806--07, paras. 125--28. These exceptions do
    not apply to residential contributions based on numbers.

[^1610]: *See* 47 U.S.C. § 254(d). Prepaid calling card providers, as
    well as any other current contributors who provide services to
    residential consumers but do not assign Assessable Numbers, shall
    continue to contribute based on their revenues during the interim
    period until these business services are assessed on the basis of
    connections and/or numbers. Despite IDT's recent request that its
    prepaid calling card services be treated as residential for purposes
    of universal service contribution assessments, we find that,
    consistent with arguments made over the years by such providers,
    these calling card services are provided to businesses. *See*
    Request for Review of Decision of the Universal Service
    Administrator by IDT Corporation and IDT Telecom, CC Docket No.
    96-45 at 3 (filed June 30, 2008) ("The vast majority of \[prepaid
    calling card sales\] are completed through a network of distributors
    and resellers before being purchased by the ultimate end user
    consumer."). *But see* Letter from Tamar E. Finn, Counsel, IDT
    Corporation, to Marlene Dortch, Secretary, FCC, CC Docket No. 96-45,
    WC Docket No. 06-122 (filed Oct. 28, 2008) (asking the Commission to
    treat prepaid calling cards as residential services if the
    Commission adopts a numbers-based methodology limited to residential
    numbers).

[^1611]: The Commission may revise the specific per-number residential
    assessment amount in the future, if market conditions warrant.

[^1612]: AT&T and Verizon Oct. 20, 2008 *Ex Parte* Letter, Attach. at 4.

[^1613]: Letter from Mitchell F. Brecher, Counsel for TracFone, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 2
    (filed Sept. 17, 2008) (TracFone Sept. 17, 2008 *Ex Parte* Letter);
    CTIA *2006 Contribution FNPRM* Comments at 6; Leap Wireless *2006
    Contribution FNPRM* Comments at 2--3; T-Mobile Apr. 4, 2006 *Ex
    Parte* Letter at 3--4; Letter from John M. Beahn and Malcolm
    Tuesley, Counsel to Virgin Mobile USA, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 96-45, Attach. at 4--7 (filed June 12,
    2006) (Virgin Mobile June 12, 2006 *Ex Parte* Letter).

[^1614]: *See, e.g*., Verizon Mar. 28, 2006 *Ex Parte* Letter, Attach.
    at 3; TracFone Sept. 17, 2008 *Ex Parte* Letter, Attach. at 2;
    Virgin Mobile June 12, 2006 *Ex Parte* Letter, Attach. at 7.

[^1615]: *See* Verizon Mar. 28, 2006 *Ex Parte* Letter, Attach. at 3;
    TracFone Sept. 17, 2008 *Ex Parte* Letter, Attach.; *see also*
    Letter from Antoinette Bush, Counsel for Virgin Mobile, to Marlene
    H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 11 (filed
    Mar. 18, 2005) (Virgin Mobile Mar. 18, 2005 *Ex Parte* Letter); AT&T
    and Verizon Sept. 23, 2008 *Ex Parte* Letter at 6.

[^1616]: *See* CTIA Oct. 2, 2008 *Ex Parte* Letter at 1 (raising a
    concern that current proposals could harm the large number of
    prepaid wireless customers).

[^1617]: *See supra* para. 199.

[^1618]: *See* Letter from Mitchell F. Brecher, Counsel for TracFone, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 3 (filed
    June 15, 2007) (TracFone June 15 *Ex Parte* Letter).

[^1619]: TracFone June 15, 2007 *Ex Parte* Letter at 3. TracFone also
    asserts that an exception is warranted because it provides service
    to low volume end users (i.e., end users that do make a small amount
    of calls, measured in minutes). *Id*. However, as explained below,
    we decline to provide a contribution exception for low-volume users.
    *See infra* para. 201.

[^1620]: AT&T and Verizon support the TracFone discount approach for
    prepaid wireless providers. AT&T and Verizon Sept. 11, 2008 *Ex
    Parte* Letter, Attach. 1 at 3; *see also* Letter from David L.
    Sieradzki, Counsel to OnStar Corp., to Marlene Dortch, Secretary,
    FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 2 (dated Oct. 28,
    2008) (OnStar "strongly supports" the TracFone per-minute of use
    proposal for prepaid wireless services) (OnStar Oct. 28, 2008 *Ex
    Parte* Letter).

[^1621]: TracFone Sept. 17, 2008 *Ex Parte* Letter, Attach. at 4--5.

[^1622]: *See* TracFone Sept. 17, 2008 *Ex Parte* Letter at 5. We use
    these data because they are the most recent publicly available data.

[^1623]: To the extent that the prepaid wireless subscriber is a
    Lifeline customer for the prepaid service, the prepaid provider
    should exclude prepaid minutes associated with the qualifying
    Lifeline customer. *See infra* para. 199.

[^1624]: CTIA Oct. 2, 2008 *Ex Parte* Letter at 5.

[^1625]: *Alenco v. FCC*, 201 F.3d at 621.

[^1626]: *See, e.g.*, AT&T and Verizon Oct. 20, 2008 *Ex Parte* Letter
    at 4 (proposing that numbers assigned to Lifeline customers be
    excluded from the monthly number count for contribution purposes).

[^1627]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24982,
    para. 62.

[^1628]: *See, e.g*., CTIA *2006 Contribution FNPRM* Comments at 5; CU
    et al. *High-Cost Reform NPRMs* Reply at 58; Ad Hoc Nov. 19, 2007
    *Ex Parte* Letter at 4; AT&T and Verizon Sept. 11, 2008 *Ex Parte*
    Letter, Attach. 1 at 5.

[^1629]: We do not prejudge whether additional exceptions should apply
    if the Commission were to assess contributions based on numbers for
    business services. We note that certain businesses, such as
    non-profit health care providers, libraries, and colleges and
    universities, support such exemptions. We do not address those
    exemptions at this time.

[^1630]: *See, e.g.*, CU et al*.* *Contribution First FNPRM* Comments at
    12; NASUCA *Contribution First FNPRM* Comments at 14; Keep USF Fair
    Mar. 27, 2006 *Ex Parte* Letter, Attach. at 1.

[^1631]: *See supra* para. 171; *see also* Sprint *Contribution First
    FNPRM* Comments at 7.

[^1632]: *But see* IDT Aug. 2, 2007 *Ex Parte* Letter at 6--7 (arguing
    that low-volume consumers who make no long distance calls pay about
    \$1.40 in universal service contribution assessments).

[^1633]: *See supra* para. 170.

[^1634]: Telematics is a service that is provided through a transceiver,
    which is usually built into a vehicle but can also be a handheld
    device, that provides public safety information to public safety
    answering points (PSAPs) using global positioning satellite data to
    provide location information regarding accidents, airbag
    deployments, and other emergencies in real time. *See, e.g*., Letter
    from David L Sieradzki, Counsel for OnStar, to Marlene H. Dortch,
    FCC, CC Docket No. 96-45, Attach. at 1 (filed Mar. 2, 2006);
    *Revision of the Commission's Rules To Ensure Compatability with
    Enhanced 911 Emergency Systems*, CC Docket No. 94-102, Order, 18 FCC
    Rcd 21531, 21531--33, paras. 2, 8 (2003).

[^1635]: Letter from Jennifer D. Brandon, Executive Director, Community
    Voice Mail National, to Tom Navin, Wireline Competition Bureau, FCC,
    CC Docket No. 96-45 at 1 (filed May 30, 2006) (Community Voice Mail
    May 30, 2006 *Ex Parte* Letter) (arguing for an exemption for these
    services).

[^1636]: One-way services include, but are not limited to, one-way
    paging, electronic facsimile (e-fax), and voicemail services (other
    than stand-alone voicemail services, as discussed above).

[^1637]: *See, e.g.*, Letter from Matthew Brill, Counsel for USA
    Mobility, Inc., to Marlene H. Dortch, Secretary, FCC, WC Docket No.
    06-122, CC Docket No. 96-45, at 2 (filed Oct. 24, 2008) (opposing
    the assessment of a numbers-based fee on paging carriers and their
    customers); Letter from Kenneth Hardman, representing the American
    Association of Paging Carriers, to Marlene H. Dortch, Secretary,
    FCC, WC Docket No. 06-122, CC Docket No. 96-45, at Attach. (filed
    Oct. 22, 2008).

[^1638]: *See* Letter from Ari Q. Fitzgerald, Counsel, Mercedes-Benz
    USA, LLC, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45,
    at 1 (filed Apr. 12, 2006) (Mercedes-Benz Apr. 12, 2006 *Ex Parte*
    Letter); *see also* Letter from John E. Logan, ATX Group, Inc., to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, at 2 (filed
    Mar. 16, 2006) (ATX Mar. 16, 2006 *Ex Parte* Letter); Letter from
    David M. Don, Counsel for j2 Global Communications, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, at 1 (filed Nov. 18,
    2005) (j2 Global Nov. 18, 2005 *Ex Parte* Letter); Letter from
    William B. Wilhelm, Jr., Counsel for Bonfire Holdings, to Tom Navin,
    Chief, Wireline Competition Bureau, CC Docket No. 96-45 (filed Feb.
    13, 2006) (Bonfire Feb. 13, 2006 *Ex Parte* Letter); j2 Global
    *Contribution Second FNPRM* Comments at 2; Letter from Kenneth E.
    Hardman, Counsel for American Association of Paging Carriers, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 1
    (filed Oct. 6, 2005) (AAPC Oct. 6, 2005 *Ex Parte* Letter); Letter
    from Frederick M. Joyce, Counsel for USA Mobility, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, Attach. at 1--3 (filed
    Mar. 22, 2006) (USA Mobility Mar. 22, 2006 *Ex Parte* Letter).

[^1639]: We similarly decline to adopt an exemption from the
    numbers-based contribution assessment method for services provided
    by alarm companies. *See* Letter from Donald J. Evans, Counsel for
    Corr Wireless Communications, LLC, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92, WC Docket No. 06-122, WT Docket No.
    05-194, at 2 (filed Oct. 23, 2008). These services are receiving the
    benefit of having access to the PSTN and should therefore contribute
    to universal service.

[^1640]: Telematics providers argue against imposition of a \$1.00 per
    number per month contribution assessment on telematics numbers due
    to the service's critical role in advancing public safety, and
    because the \$1.00 assessment would be prohibitively expensive.
    *See, e.g.*, Letter from Gary Wallace, Vice President Corporate
    Relations, ATX Group, Inc., to Kevin Martin, Chairman, FCC, CC
    Docket No. 96-45, WC Docket No. 06-122 at 1--2 (filed Oct. 28,
    2008); OnStar Oct. 28, 2008 *Ex Parte* Letter at 3--4; Letter from
    Matthew Brill, Counsel for Toyota Motor Sales USA, Inc., to Marlene
    Dortch, Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45 at
    1--2 (filed Oct. 24, 2008). We find, however, that treating these
    services differently than other residential services would not be
    equitable, given their use of the PSTN and the ability of telematics
    providers to recover the assessment from their end users. Given the
    public safety benefit to consumers, we find unpersuasive the
    telematics' providers assertions that consumers will discontinue use
    of the service based on an assessment of only \$1.00 per number.
    Furthermore, we disagree with commenters who argue that telematics
    service should be treated as a business service, and conclude that
    telematics service is a residential service that should be assessed
    under the \$1.00 per number per month residential contribution
    methodology. *See* OnStar Oct. 28, 2008 *Ex Parte* Letter at 2;
    Letter from Tamara Preiss, Legal and External Affairs, Verizon
    Wireless, to Marlene Dortch, Secretary, FCC, WC Docket No. 06-122,
    CC Docket No. 96-45 at 1 (filed Oct. 29, 2008).

[^1641]: *See, e.g.*, j2 Global *Contribution Second FNPRM* Comments at
    7 (arguing that a connections-based universal service methodology
    would force many heavily used one-way communications services out of
    existence).

[^1642]: *See, e.g.*, j2 Global *Contribution Second FNPRM* Comments at
    8 (describing a "free" service supported by advertising revenue).

[^1643]: *See, e.g.*, AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter
    at 4; CTIA *2006 Contribution FNPRM* Comments at 5--6; Leap Wireless
    *2006 Contribution FNPRM* Comments at 2--3; T-Mobile Apr. 4, 2006
    *Ex Parte* Letter at 2.

[^1644]: *E.g.*, AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 2 at 4; CTIA *2006 Contribution FNPRM* Comments at 5--6;
    Leap Wireless *2006 Contribution FNPRM* Comments at 2--3; T-Mobile
    Apr. 4, 2006 *Ex Parte* Letter at 2--3. *But see* AAPC Oct. 9, 2008
    *Ex Parte* Letter at 2.

[^1645]: There are, as of December 2007, 249,235,715 mobile wireless
    subscribers, a more than 9% increase from the previous year. *See*
    [FCC, Local Telephone Competition: Status as of December 31,
    2007,]{.smallcaps} tbl. 14 at 18 (2008), *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-285509A1.pdf.
    Moreover, where a wireless provider is eligible to receive universal
    service support, it receives the same level of support for each
    handset. *See* WTA/OPASTCO/ITTA Oct. 10, 2008 *Ex Parte* Letter at
    2.

[^1646]: Qwest Sept. 24, 2008 *Ex Parte* Letter, Attach. at 7; Qwest May
    4, 2006 *Ex Parte* Letter, Attach. at 9; *see also* CTIA Oct. 2,
    2008 *Ex Parte* Letter at 1.

[^1647]: *See* Letter from Deb MacLean, Communication Access Center for
    the Deaf and Hard of Hearing, et al. to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 06-122, CC Docket No. 96-45, at 1--2
    (filed Sept. 29, 2008) (CSDVRS Sept. 29, 2008 *Ex Parte* Letter).

[^1648]: *See* *Telecommunications Relay Services and Speech-to-Speech
    Services for Individuals with Hearing and Speech Disabilities*, CG
    Docket No. 03-123, WC Docket No. 05-196, Report and Order and
    Further Notice of Proposed Rulemaking, 23 FCC Rcd 11591, 11646,
    para. 149 (2008) ("We . . . seek comment on whether, and to what
    extent, the costs of acquiring numbers, including porting fees,
    should be passed on to the Internet-based TRS users, and not paid
    for by the \[TRS\] Fund. . . . We also seek comment on whether there
    are other specific costs that result from the requirements adopted
    in the *Order* that, mirroring voice telephone consumers, should be
    passed on to consumers, including, for example, E911 charges.").

[^1649]: To the extent that Internet-based TRS users utilize a proxy
    number or identifier other than an assigned ten-digit number
    during/pending the transition to ten-digit numbering for
    Internet-based TRS services, we make clear that those numbers or
    identifiers are NOT subject to universal service contribution at
    this time. This treatment is necessary to ensure the smooth
    transition to ten-digit numbering for these services, and to prevent
    duplicative charges for end users of these services.

[^1650]: *See, e.g.*, *Second Wireless Safe Harbor Order*, 17 FCC Rcd at
    24969, para. 29. Filers are required to file revisions to FCC Form
    499-Q within 45 calendar days of the original filing date. *See*
    [FCC, Instructions to the Telecommunications Reporting
    Worksheet]{.smallcaps}, FCC Form 499-Q, at 10 (Feb. 2008),
    *available at* http://www.fcc.gov/Forms/Form499-Q/499q.pdf. Filers
    are required to file revisions to FCC Form 499-A by March 31 of the
    year after the original filing date. *See* [FCC, Instructions to the
    Telecommunications Reporting Worksheet]{.smallcaps}, FCC Form 499-A,
    at 11--12 (Feb. 2008), *available at*
    http://www.fcc.gov/Forms/Form499-A/499a-2008.pdf.

[^1651]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24972,
    para. 35.

[^1652]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at 24972,
    para. 36.

[^1653]: We decline to adopt the suggestion by AT&T and Verizon to
    transition the Telecommunications Relay Services Fund, local number
    portability cost recovery, and numbering administration to a
    numbers/connections-based assessment methodology. *See* AT&T and
    Verizon Oct. 20, 2008 *Ex Parte* Letter at 6. Although these
    programs rely on the revenue information reported in the current FCC
    Form 499-A, they do not rely on many of the revenue distinctions,
    such as interstate and intrastate, that necessitate the change from
    a revenue-based assessment for the universal service fund.

[^1654]: *See* AT&T and Verizon Sept. 11, 2008 *Ex Parte* Letter,
    Attach. 1 at 2-3; CTIA Oct. 2, 2008 *Ex Parte* Letter, Attach. at 5;
    USF by the Numbers Oct. 3, 2008 *Ex Parte* Letter.

[^1655]: *See Second Wireless Safe Harbor Order*, 17 FCC Rcd at
    24969--70, paras. 29--32.

[^1656]: *Development of Nationwide Broadband Data to Evaluate
    Reasonable and Timely Deployment of Advanced Services to All
    Americans, Improvement of Wireless Broadband Subscribership Data,
    and Development of Data on Interconnected Voice over Internet
    Protocol (VoIP) Subscribership*, WC Docket No. 07-38, 23 FCC Rcd
    9691, 9704, para. 24 (2008) (*Broadband Data Gathering Order*),
    Order on Reconsideration, 23 FCC Rcd 9800 (2008).

[^1657]: *Broadband Data Gathering Order* at para. 24 n.91.

[^1658]: In other words, the SLC type and rate must be established
    pursuant to the Commission's rules. 47 C.F.R. §§ 69.104(o)(1),
    69.152(k)(1). To the extent that the contributor is not required to
    charge a SLC (e.g., is not rate-regulated by the Commission), a
    voluntary business choice to include a "subscriber line charge" on a
    customer's bill may not be dispositive of the type of service,
    residential or business, being provided.

[^1659]: 47 C.F.R. §§ 69.104(n)(1), 69.152(d)(1).

[^1660]: *Comprehensive Review Report and Order*, 22 FCC Rcd at 16387,
    para. 27.

[^1661]: Pursuant to section 1.80 of the Commission's rules, failure to
    file required forms or information carries a base forfeiture amount
    of \$3,000 per instance and is subject to adjustment criteria. *See*
    47 C.F.R. § 1.80.

[^1662]: *Comprehensive Review Report and Order*, 22 FCC Rcd at 16372,
    para. 27; *see also* 47 C.F.R. §§ 54.706(e), 54.711(a).

[^1663]: *See Comprehensive Review Report and Order*, 22 FCC Rcd at
    16372, para. 27; 47 C.F.R. § 54.706(e).

[^1664]: *See Comprehensive Review Report and Order*, 22 FCC Rcd at
    16387, paras. 27--28. We note that contributors who also report NRUF
    data to the NANPA are currently required to maintain internal
    records of their numbering resources for audit purposes. *NRO I
    Order*, 15 FCC Rcd at 7601, para. 62.

[^1665]: *See* AT&T and Verizon Oct. 20, 2008 *Ex Parte* Letter, Attach.
    at 3 (proposing a 12-month transition to the new mechanism taking
    effect).

[^1666]: *See* CTIA *2006 Contribution FNPRM* Comments at 7; *see also*
    Verizon and AT&T Sept. 11, 2008 *Ex Parte* Letter, Attach. at 2
    (advocating a 12-month implementation period followed by a 6-month
    transition period). Some parties advocated for a transition period
    as short as possible. *See, e.g.*, Letter from Gregory J. Vogt,
    Counsel for CenturyTel, to Marlene H. Dortch, Secretary, FCC, WC
    Docket No. 05-337, Attach. at 2 (filed Sept. 19 2008) (CenturyTel
    Sept. 19, 2008 *Ex Parte* Letter); Sprint Nextel June 14, 2006 *Ex
    Parte* Letter. Others advocated for a longer transition period.
    *See, e.g.*, Qwest Mar. 21, 2006 *Ex Parte* Letter, Attach. at 3
    (advocating 18 months); XO Communications Oct. 3, 2008 *Ex Parte*
    Letter, Attach. at 11 (advocating at least 18 months).

[^1667]: *See* AT&T and Verizon Oct. 20, 2008 *Ex Parte* Letter, Attach.
    at 3 (recommending a six-month transition period for filers and USAC
    to test and calibrate the new system prior to its taking effect).

[^1668]: 47 U.S.C. § 151.

[^1669]: The company that became AT&T was originally called the Bell
    Telephone Company. *See* AT&T, A Brief History: Origins,
    http://www.corp.att.com/history/history1.html (last visited Sept.
    11, 2008) (AT&T Brief History). For simplicity, we use the term
    "AT&T" to include all predecessor companies.

[^1670]: Between 1894 and 1904, "over six thousand independent telephone
    companies went into business in the United States, and the number of
    telephones boomed from 285,000 to 3,317,000." *See* AT&T Brief
    History. By 1900, independent telephone companies controlled "38
    percent of the phones installed in the United States." [Gerald W.
    Brock, The Telecommunications Industry, The Dynamics of Market
    Structure]{.smallcaps} 148 (1981) ([The Telecommunications
    Industry]{.smallcaps}). And, by 1902, 451 out of 1002 cities with
    telephone service had two or more competing providers. *See*
    [Michael K. Kellogg et al. Federal Telecommunications
    Law]{.smallcaps} 11 (1992) ([Federal Telecommunications
    Law]{.smallcaps}).

[^1671]: [The Telecommunications Industry]{.smallcaps} at 116.

[^1672]: [Federal Telecommunications Law]{.smallcaps} at 11; *see also*
    Adam D. Thierer, *Unnatural Monopoly: Critical Moments In The
    Development Of The Bell System Monopoly*, [14 Cato J.]{.smallcaps} 2
    (1994), *available at*
    http://www.cato.org/pubs/journal/cjv14n2-6.html (*Unnatural
    Monopoly*). Although independent companies competed with AT&T for
    local service, AT&T had the only long-distance network operating at
    the time and possessed important long-distance technology patents.
    *See* [The Telecommunications Industry]{.smallcaps} at 148.
    According to Brock, there is some evidence that the independent
    companies had planned on starting a separate long-distance network
    until AT&T refused interconnection. [Gerald W. Brock, The Second
    Information Revolution]{.smallcaps} 30--32 (2003) ([Second
    Information Revolution]{.smallcaps}).

[^1673]: [Federal Telecommunications Law]{.smallcaps} at 11--12; [The
    Telecommunications Industry]{.smallcaps} at 148; David F. Weiman &
    Richard C. Levin, *Preying for Monopoly? The Case of Southern Bell
    Telephone Company, 1894--1912*, 102 [J. Pol. Econ.]{.smallcaps} 103,
    103--26 (1994).

[^1674]: [Federal Telecommunications Law]{.smallcaps} at 11. In 1912
    alone, AT&T purchased 136,000 telephone companies and sold 43,000.
    *See* [The Telecommunications Industry]{.smallcaps} at 156.

[^1675]: Original Petition, *United States v. AT&T*, No. 6082 (D. Or.
    1913); *United States v. AT&T*, No. 6082, 1 [Decrees and Judgment in
    Civil Action Cases]{.smallcaps} 483 (D. Or. 1914); *see also* [Peter
    Temin, The Fall of the Bell System: A Study in Prices and
    Politics]{.smallcaps} 9--10 (1987); [Robert W. Garnet, The Telephone
    Enterprise: The Evolution of the Bell System's Horizontal Structure,
    1876--1909]{.smallcaps} 152--53 (1985).

[^1676]: The Kingsbury Commitment was a "unilateral letter rather than
    an actual consent decree." *See* [The Telecommunications
    Industry]{.smallcaps} at 155. The Kingsbury Commitment was
    republished in AT&T's 1913 Annual Report at 24--26, *available at*
    http://www.porticus.org/bell/pdf/1913ATTar_Complete.pdf. AT&T also
    agreed to sell off its Western Union stock, a large independent
    telephone company that AT&T had recently acquired. *See id*. at 24.
    *See* [Federal Telecommunications Law]{.smallcaps} at 11--12; *see
    also Unnatural Monopoly*.

[^1677]: *See*, *e.g.*, *Unnatural Monopoly* (noting that a Senate
    Commerce Committee hearing in 1921 stating that "telephoning is a
    natural monopoly" and a House of Representative committee report
    stated that "\[t\]here is nothing to be gained by local competition
    in the telephone business.") (quoting G. H. Loeb, *The
    Communications Act Policy Toward Competition: A Failure to
    Communicate*, [1 Duke Law J.]{.smallcaps} 14 (1978)); *see also id.*
    (explaining that many state regulatory agencies began refusing
    requests by telephone companies to construct new lines in areas
    already served by another carrier and continued to encourage
    monopoly swapping and consolidation in the name of "efficient
    service") (citing Warren G. Lavey, *The Public Policies That Changed
    the Telephone Industry Into Regulated Monopolies: Lessons From
    Around 1915*, 39 [Fed. Comm. L.J.]{.smallcaps} 171, 184--85 (1987));
    [Federal Telecommunications Law]{.smallcaps} at 17.

[^1678]: A natural monopoly arises "when a single firm can efficiently
    serve the entire market because average costs are lower with one
    firm than with two firms." [R. Preston McAfee, Introduction to
    Economic Analysis]{.smallcaps} 6--241 (2006), *available at*
    http://www.mcafee.cc/Introecon/IEA.pdf; *see also* [Daniel F.
    Spulber, Regulation and Markets]{.smallcaps} 3--4 (1989) ("Natural
    monopoly generally refers to a property of productive technology,
    often in conjunction with market demand, such that a single firm is
    able to serve the market at less cost than two or more firms.
    Natural monopoly is due to economies of scale or economies of
    multiple-output production.").

[^1679]: For discussions of rate of return regulation, see*, e.g.*,
    [James C. Bonbright et al., Principles of Public Utility
    Rates]{.smallcaps} 197--376 (1988); [Charles F. Phillips, Jr., The
    Economics of Regulation: Theory and Practice in the Transportation
    and Public Utility Industries]{.smallcaps} 260--302 (1969)
    ([Phillips]{.smallcaps}, [The Economics of Regulation]{.smallcaps});
    1 [Alfred E. Kahn, The Economics of Regulation: Principles and
    Institutions]{.smallcaps} 20--58 (1970) ([The Economics of
    Regulation)]{.smallcaps}.

[^1680]: *See, e.g*., [Jonathan E. Nuechterlein & Philip J. Weiser,
    Digital Crossroads: American Telecommunications Policy in the
    Internet Age]{.smallcaps} 10--15 (2007) ([Digital
    Crossroads]{.smallcaps}).

[^1681]: *See Economic Implications and Interrelationships Arising from
    Policies and Practices Relating to Customer Information,
    Jurisdictional Separations and Rate Structures*, Docket No. 20003,
    First Report, 61 FCC 2d 766, 796--97, paras. 81--82 (1976).

[^1682]: Under the settlements process, the local exchange companies
    were allowed to recover the portion of their costs allocated to the
    interstate jurisdiction from the interstate toll revenues. The
    process for affiliated companies was a process of intracorporate
    accounting known as "division of revenues," while the process for
    unaffiliated companies represented real payments from AT&T to the
    independent companies. *See* [The Second Information
    Revolution]{.smallcaps} at 188. According to Brock, the revenue
    sharing settlements process was a major source of support for small
    rural companies, which often could recover a large share of their
    costs from the interstate toll revenue pool (in some cases as much
    as 85 % of their non-traffic sensitive costs). *See id.*

[^1683]: *See* [Digital Crossroads]{.smallcaps} at 60--64.

[^1684]: AT&T argued that MCI would cherry pick the most profitable
    customers (those paying above-cost rates) and force AT&T to increase
    local rates thereby undermining the goal of universal service. AT&T
    opposed the entry of MCI before the Commission and the courts. *See*
    [Federal Telecommunications Law]{.smallcaps} at 602--14; *Bell
    System Tariff Offerings of Local Distribution Facilities for Use by
    Other Common Carriers*, Docket No. 19896, Decision, 46 FCC 2d 413
    (1974), *aff'd Bell Tel. Co. of Pa. v. FCC*, 503 F.2d 1250 (3d Cir.
    1974); *see also* [Digital Crossroads]{.smallcaps} at 60--64 (noting
    that AT&T fought "tooth and nail" to deprive MCI of effective access
    and even unplugged certain MCI lines from AT&T's network).

[^1685]: Equal access requires that all long-distance carriers be
    accessible by dialing a 1 and not a string of long-distance codes
    before dialing the called party's telephone number. *See, e.g*.,
    [Harry Newton, Newton's Telecom Dictionary]{.smallcaps} 326 (16th
    ed. 2000).

[^1686]: During much of the 1970s, AT&T and MCI debated before the
    Commission and courts about the charges that MCI should pay the BOCs
    for originating and terminating interstate calls placed by or to end
    users on the BOCs' local networks. In December 1978, under the
    Commission's supervision, AT&T, MCI, and other IXCs entered into a
    comprehensive interim agreement, known as Exchange Network
    Facilities for Interstate Access (ENFIA), which set the rates that
    AT&T's affiliated BOCs would charge IXCs for originating and
    terminating access to local exchange networks. *See* *Exchange
    Network Facilities for Interstate Access (ENFIA)*, CC Docket No.
    78-371, Memorandum Opinion and Order, 71 FCC 2d 440 (1979)
    (subsequent history omitted).

[^1687]: *See United States v. AT&T*, 524 F. Supp. 1336, 1346 (D.D.C.
    1981).

[^1688]: *See United States v. AT&T*, 552 F. Supp. 131 (D.D.C. 1982),
    *aff'd* *sub nom. Maryland v.* *United States*, 460 U.S. 1001
    (1983). The 1982 consent decree, as entered by the court, was called
    the Modification of Final Judgment because it modified a 1956 Final
    Judgment against AT&T stemming from a 1949 antitrust lawsuit. *See*
    [The Telecommunications Industry]{.smallcaps} at 116--20.

[^1689]: The Act defines "dialing parity" to mean that a "person that is
    not an affiliate of a local exchange carrier is able to provide
    telecommunications services in such a manner that customers have the
    ability to route automatically, without the use of any access code,
    their telecommunications to telecommunications services provider of
    the customer's designation from among 2 or more telecommunications
    services providers (including such local exchange carrier)." 47
    U.S.C. § 153(15).

[^1690]: *See United States v. AT&T*, 552 F. Supp. 131 (D.D.C. 1982).

[^1691]: *MTS and WATS Market Structure*, CC Docket No. 78-72, Phase I,
    Third Report and Order, 93 FCC 2d 241 (1983) (*1983 Access Charge
    Order*), *modified on recon.*, 97 FCC 2d 682 (1983), *modified on
    further recon.*, 97 FCC 2d 834 (1983), *aff'd in part and remanded
    in part*, *Nat'l Ass'n of Regulatory Util. Commissioners v. FCC*,
    737 F.2d 1095 (D.C. Cir. 1984).

[^1692]: *See MTS and WATS Market Structure*, CC Docket No. 78-72,
    Notice of Inquiry and Proposed Rulemaking, 67 FCC 2d 757 (1978);
    Supplemental Notice of Inquiry and Proposed Rulemaking, 73 FCC 2d
    222 (1979); Second Supplemental Notice of Inquiry and Proposed
    Rulemaking, 77 FCC 2d 224 (1980); Report and Third Supplemental
    Notice of Inquiry and Proposed Rulemaking, 81 FCC 2d 177 (1980); and
    Fourth Supplemental Notice of Inquiry and Proposed Rulemaking, 90
    FCC 2d 135 (1982).

[^1693]: *See* *MTS and WATS Market Structure*, CC Docket No. 78-72,
    Memorandum Opinion and Order, 97 FCC 2d 682, 683, para. 2 (1983)
    (*First Reconsideration of 1983 Access Charge Order*).

[^1694]: *See First Reconsideration of 1983 Access Charge Order*, 97 FCC
    2d 682.

[^1695]: *See Access Charge Reform Order*, 12 FCC Rcd at 15991--92,
    para. 22.

[^1696]: *See*, *e.g.*, *First Reconsideration of 1983 Access Charge
    Order*, 97 FCC 2d at 683, para. 3 (identifying the four primary
    objectives of: (1) elimination of unreasonable discrimination and
    undue preferences among rates for interstate services; (2) efficient
    use of the local network; (3) prevention of uneconomic bypass; and
    (4) preservation of universal service).

[^1697]: *See* *First Reconsideration of 1983 Access Charge Order*, 97
    FCC 2d*.* at 686, para. 7.

[^1698]: *See* *First Reconsideration of 1983 Access Charge Order*, 97
    FCC 2d*.* at 688--89, para. 10; *see also Access Charge Reform
    Order*, 12 FCC Rcd at 15992, para. 24 ("The Commission has
    recognized in prior rulemaking proceedings that, to the extent
    possible, costs of interstate access should be recovered in the same
    way that they are incurred, consistent with principles of
    cost-causation.").

[^1699]: *Access Charge Reform Orde*r, 12 FCC Rcd at 15992, para. 23.

[^1700]: *1983 Access Charge Order*, 93 FCC 2d at 253, para. 35; *see
    also id.* at 243, para. 4 (finding that a "transitional plan is
    necessary" in part because "\[i\]mmediate recovery of high fixed
    costs through flat end user charges might cause a significant number
    of local exchange service subscribers to cancel local exchange
    service despite the existence of a Universal Service Fund" and
    "\[s\]uch a result would not be consistent with the goals of the
    Communications Act."). As a result, the Commission initially limited
    the flat rate charge imposed on end users, also known as the
    subscriber line charge or SLC, to \$1.00 (subsequent orders raised
    the cap on the subscriber line charge for residential users to
    \$6.50).

[^1701]: This per-minute charge was called the carrier common line
    charge. *See Access Charge Reform Orde*r, 12 FCC Rcd at 15992, para.
    24. Additional charges were imposed on IXCs to recover the
    interstate portion of the costs of other parts of a local exchange
    carrier's network, such as local switches and transport. *See*
    *First Reconsideration of 1983 Access Charge Order*, 97 FCC 2d at
    735--40, paras. 129--34, 137--43.

[^1702]: *See* 47 C.F.R. §§ 69.301--.502; *see also Policy and Rules
    Concerning Rates for Dominant Carriers*, CC Docket No. 87-313,
    Second Report and Order, 5 FCC Rcd 6786, 6787, para. 1 (1990) (*LEC
    Price Cap Order*). The rate-of-return regulations are set forth in
    Part 69 of our rules. *See* *generally* 47 C.F.R. §§ 69.1--701.

[^1703]: Price cap regulation was mandatory for the BOCs and GTE and
    optional for other incumbent local exchange carriers. *See* *LEC
    Price Cap Order*, 5 FCC Rcd at 6818--20, paras. 257--79; *see also*
    *Access Charge Reform; Price Cap Performance Review for Local
    Exchanges Carriers; Interexchange Carrier Purchases of Switch Access
    Services Offered by Competitive Local Exchange Carriers; Petition of
    U.S. West Commc'ns, Inc. for Forbearance from Regulation as a
    Dominant Carrier in the Phoenix, Arizona MSA*, CC Docket Nos.
    96-262, 94-1, 98-157, Fifth Report and Order and Further Notice of
    Proposed Rulemaking, 14 FCC Rcd 14221, 14224 n.1 (1999) (*Pricing
    Flexibility Order*).

[^1704]: *LEC Price Cap Order*, 5 FCC Rcd at 6789--91, paras. 21--37;
    *Special Access Rates for Price Cap Carriers*, WC Docket No. 05-25,
    Order and Notice of Proposed Rulemaking, 20 FCC Rcd 1994, 1998--99,
    para. 11 (2005); *Section 272(b)(1)'s "Operate Independently"
    Requirement for Section 272 Affiliates*, WC Docket No. 03-228, CC
    Docket Nos. 96-149, 98-141, 96-149, 01-337, Report and Order,
    Memorandum Opinion and Order, 19 FCC Rcd 5102, 5115, para. 22
    (2004); *Access Charge Reform; Price Cap Performance Review for
    LECs; Low-Volume Long Distance Users; Federal-State Joint Board on
    Universal Service*, CC Docket Nos. 96-262, 94-1, 99-249, 96-45,
    Order on Remand, 18 FCC Rcd 14976, 14979, para. 4 (2003); *Cost
    Review Proceeding for Residential and Single-Line Business
    Subscriber Line Charge (SLC) Caps; Price Cap Performance Review for
    Local Exchange Carriers*, CC Docket Nos. 96-262, 94-1, Order, 17 FCC
    Rcd 10868, 10873,  para. 9 (2002). *See also* *Windstream Petition
    for Conversion to Price Cap Regulation and for Limited Waiver
    Relief*, WC Docket No. 07-171, Order, 23 FCC Rcd 5294 (2008);
    *Petition of Puerto Rico Telephone Company, Inc, for Election of
    Price Cap Regulation and Limited Waiver of Pricing and Universal
    Service Rules; Consolidated Communications Petition for Conversion
    to Price Cap Regulation and for Limited Waiver Relief; Frontier
    Petition for Limited Waiver Relief upon Conversion of Global Valley
    Networks, Inc., to Price Cap Regulation*, WC Docket Nos. 07-291,
    07-292, 08-18, Order, 23 FCC Rcd 7353 (2008).

[^1705]: *See generally* 47 C.F.R. §§ 61.1--.193, 69.1--.701.

[^1706]: *See* Letter from Jerry Ellig, Senior Research Fellow, Mercatus
    Center, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92,
    96-45, WC Docket Nos. 08-183, 07-135, 05-337, 99-68 at 2 (filed
    Sept. 22, 2008) (Mercatus Center Sept. 22, 2008 *Ex Parte* Letter)
    (citing [Robert W. Crandall, After The Breakup: U.S.
    Telecommunications In A More Competitive Era]{.smallcaps} 141 (1991)
    and [Robert W. Crandall & Leonard Waverman, Who Pays For Universal
    Service?]{.smallcaps} 120 (2000)).

[^1707]: Among the reasons that switched access rates remained high were
    that they were based on fully distributed costs and included a large
    allocation of common and overhead network costs. *See supra* note
    414.

[^1708]: *See*, *e.g.*, *Expanded Interconnection with Local Telephone
    Company Facilities*, CC Docket No. 91-141, Memorandum Opinion and
    Order, 9 FCC Rcd 5154, 5158, para. 8 (1994) (recognizing that local
    competition should lead to more efficient operations, the deployment
    of "new technologies facilitating innovative service offerings,
    increase the choices available to access customers, and reduce the
    prices of services subject to competition").

[^1709]: *See* *Implementation of the Local Competition Provisions in
    the Telecommunications Act of 1996 and Interconnection between Local
    Exchange Carriers and Commercial Mobile Radio Service Providers*, CC
    Docket Nos. 96-98, 95-185, First Report and Order, 11 FCC Rcd 15499,
    15505, para. 3 (1996) (subsequent history omitted) (*Local
    Competition First Report and Order*).

[^1710]: Specifically, Congress directed that universal service support
    "should be explicit and sufficient to achieve the purposes" of
    section 254. 47 U.S.C. § 254(e); *see also* S. [Rep.
    No.]{.smallcaps} 104-230, at 131 (1996) (Conf. Rep) (stating that,
    "\[t\]o the extent possible, . . . any support mechanisms continued
    or created under new section 254 should be explicit, rather than
    implicit as many support mechanisms are today").

[^1711]: *Access Charge Reform Order*, 12 FCC Rcd at 15987, para. 9.

[^1712]: *See* 47 U.S.C. §§ 251--52; *Local Competition First Report and
    Order*, 11 FCC Rcd at 15505, para. 3.

[^1713]: *See* 47 U.S.C. § 251(g); *WorldCom, Inc. v. FCC*, 288 F.3d
    429, 432 (D.C. Cir. 2002) (*WorldCom*) (subsequent history omitted)
    (holding that section 251(g) appears to provide for the continued
    enforcement "of certain pre-Act regulatory 'interconnection
    restrictions and obligations'"); *see also Competitive Telecomms.
    Ass'n v. FCC*, 117 F.3d 1068, 1072 (8th Cir. 1997) (finding that
    section 251(g) preserves certain rate regimes already in place and
    "leaves the door open for the promulgation of new rates at some
    future date").

[^1714]: 47 U.S.C. § 251(g).

[^1715]: *See* 47 U.S.C. §§ 251(b)--(c). Certain rural carriers were
    exempt from section 251(c) until such time as a requesting carrier
    met the statutory test for removing the so-called "rural exemption."
    *See* 47 U.S.C. § 251(f)(1).

[^1716]: 47 U.S.C. § 251(b)(5).

[^1717]: 47 U.S.C. § 252.

[^1718]: 47 U.S.C. § 252(d)(1).

[^1719]: See 47 U.S.C. § 252(d)(2).

[^1720]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    15812--929, paras. 618--862 (implementing the pricing principles
    contained in sections 251(c)(2) and (c)(3) and section 252(d)(1) of
    the 1996 Act); *see also* 47 U.S.C. §§ 251(c)(2)--(3), 252(d)(1).
    Among other things, the 1996 Act required incumbent LECs to make
    portions of their networks (the physical facilities and features,
    functions, and capabilities associated with those facilities)
    available to requesting competitive carriers on an unbundled basis.
    *See Local Competition First Report and Order*, 11 FCC Rcd at 15624,
    15631, paras. 241, 258.

[^1721]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    15844--56, paras. 672--703.

[^1722]: *See* *Local Competition First Report and Order*, 11 FCC Rcd at
    15851--54, paras. 694--98; 47 C.F.R. §§ 51.503, 51.505. The term
    "common costs" refers to "costs that are incurred in connection with
    the production of multiple products or services, and remains
    unchanged as the relative proportion of those products or services
    varies." *Local Competition First Report and Order*, 11 FCC Rcd at
    15845, para. 676. In its rules, the Commission defines
    forward-looking common costs as "economic costs efficiently incurred
    in providing a group of elements or services . . . that cannot be
    attributed directly to individual elements or services." 47 C.F.R. §
    51.505(c)(1). The term "overhead costs" refers to common costs
    incurred by the firm's operations as a whole, such as the salaries
    of executives. *Local Competition First Report and Order*, 11 FCC
    Rcd at 15851, para. 694.

[^1723]: The Commission recognized that, "\[b\]ecause the cost of
    capacity is determined by the volume of traffic that the facilities
    are able to handle during peak load periods, we believe, as a matter
    of economic theory, that if usage-sensitive rates are used, then
    somewhat higher rates should apply to peak period traffic, with
    lower rates for non-peak usage." *Local Competition First Report and
    Order*, 11 FCC Rcd at 15878, para. 755. The Commission recognized
    that higher costs are incurred to carry additional traffic at peak
    volumes, because additional capacity is required to carry that
    traffic. *Id.* at 15878, para. 755. In contrast, "off-peak traffic
    imposes relatively little additional cost because it does not
    require any incremental capacity to be added to base plant." *Id.*
    at 15878, para. 755. The Commission found that there would be
    administrative difficulties with establishing peak-load prices,
    however, and did not require or forbid states from adopting that
    approach. *Id.* at 15878--79, paras. 756--57.

[^1724]: *See generally Local Competition First Report and Order*, 11
    FCC Rcd at 16008--58, paras. 1027--118 (implementing the reciprocal
    compensation obligations contained in section 251(b)(5) of the 1996
    Act). The reciprocal compensation rules currently require the
    calling party's LEC to compensate the called party's LEC for the
    additional costs associated with transporting a call subject to
    section 251(b)(5) from the carriers' interconnection point to the
    called party's end office, and for the additional costs of
    terminating the call to the called party. Section 51.701(c) of the
    Commission's rules defines transport as "the transmission and any
    necessary tandem switching of telecommunications traffic subject to
    section 251(b)(5) of the Act from the interconnection point between
    the two carriers to the terminating carrier's end office switch that
    directly serves the called party, or equivalent facility provided by
    a carrier other than an incumbent LEC." 47 C.F.R. § 51.701(c).
    Section 51.701(d) of the Commission's rules defines termination as
    "the switching of telecommunications traffic at the terminating
    carrier's end office switch, or equivalent facility, and delivery of
    such traffic to the called party's premises." 47 C.F.R. § 51.701(d).
    In the *Local Competition First Report and Order*, the Commission
    also concluded that "the new transport and termination rules should
    be applied to LECs and CMRS providers." 11 FCC Rcd at 16016--17,
    para. 1043.

[^1725]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16028, para. 1063. This determination led to per-minute pricing for
    transport and termination, except in the case of dedicated
    facilities, which may be flat-rated. *Id.* at 16028, para. 1063.
    Specifically, the Commission required that all interconnecting
    parties be offered the option of purchasing dedicated facilities on
    a flat-rated basis. *Id.* at 16028, para. 1063.

[^1726]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16024--25, para. 1057. Although the Commission concluded that
    "non-traffic sensitive costs should not be considered 'additional
    costs,'" the only non-traffic sensitive costs specifically
    identified and required to be removed were the costs of local loops
    and line ports. *Id.* at 16025, para. 1057.

[^1727]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16023--25, paras. 1054--58. As with its pricing rules for UNEs, the
    Commission determined that termination rates established pursuant to
    the TELRIC methodology should include a reasonable allocation of
    forward-looking common costs. *Id.* at 16025, para. 1058. Similarly,
    the Commission again noted that the costs of transporting and
    terminating traffic during peak and off-peak hours may not be the
    same. *Id.* at 16028--29, para. 1064. In light of administrability
    concerns, the Commission once again neither required nor forbid
    states from adopting rates that reflected peak and off-peak costs,
    but expressed hope that some states or negotiating parties would
    consider peak-load pricing. *Id.* at 16028--29, para. 1064.

[^1728]: A number of parties appealed the Commission's *Local
    Competition First Report and Order*, including the rules it adopted
    governing the setting of rates for unbundled network elements and
    reciprocal compensation. In *AT&T v. Iowa Utilities Board*, the
    Supreme Court upheld the Commission's jurisdiction to "design a
    pricing methodology" to govern state rate setting under section 252
    of the Act. *AT&T Corp. v. Iowa Utils. Bd*., 525 U.S. 366, 397
    (1999) (*AT&T v. Iowa Utils. Bd*.). Subsequently, in *Verizon
    Commc'ns, Inc. v. FCC*, the Supreme Court affirmed the Commission's
    choice of TELRIC as a permissible methodology for states to use in
    ratemaking proceedings. *Verizon Commc'ns, Inc. v. FCC*, 535 U.S.
    467, 497--529 (2002) (*Verizon v. FCC*). The court held that the
    Commission's decision to adopt a forward-looking cost methodology
    was a reasonable interpretation of the statute and that the
    Commission did not err in rejecting alternative methodologies
    advocated by the incumbent LECs. *Verizon v. FCC*, 535 U.S. at
    507--08. The Court also rejected arguments that various aspects of
    the TELRIC methodology were unlawful. *Verizon v. FCC*, 535 U.S. at
    523.

[^1729]: *See Access Charge Reform Order*, 12 FCC Rcd at 16004--07,
    paras. 54--66 (summarizing the rate structure changes).

[^1730]: *Access Charge Reform Order*, 12 FCC Rcd at 15986, para. 6.

[^1731]: *Access Charge Reform Order*, 12 FCC Rcd at 15987, para. 9.

[^1732]: *Access Charge Reform Order*, 12 FCC Rcd at 15987, para. 9;
    *see also id.* at 16002--03, paras. 45--47.

[^1733]: Explaining its reliance on a "market-based" approach to access
    reform, it stated its belief that emerging competition in the local
    exchange markets would provide a more accurate means of identifying
    implicit subsidies and moving access rates to economically
    sustainable levels. *Access Charge Reform Order*, 12 FCC Rcd at
    16001--02, para. 44.

[^1734]: *Access Charge Reform Order*, 12 FCC Rcd at 16003, para. 48.
    The Commission also applied its market-based approach to the
    terminating access rates charged by competitive LECs and declined to
    adopt any regulations governing competitive LEC access charges.
    *Id.* at 16141, para. 363. It reasoned that "the possibility of
    competitive responses by IXCs will have a constraining effect on
    non-incumbent LEC pricing." *Id.* at 16141, para. 362. This reliance
    on a market-based approach proved misplaced. In subsequent years,
    competitive LECs, instead of reducing access charges, frequently
    raised them above the regulated rates of incumbent LECs. As a
    result, the Commission was forced to regulate competitive LEC access
    charges. *See* 47 C.F.R. § 61.26; *Access Charge Reform, Reform of
    Access Charges Imposed by Competitive Local Exchange Carriers*, CC
    Docket No. 96-262, Seventh Report and Order, 16 FCC Rcd 9923, 9924,
    paras. 1--3 (2001) (*CLEC Access Charge Order*) (establishing
    benchmark rates for competitive LEC access charges), *recon*.,
    *Access Charge Reform, Reform of Access Charges Imposed by
    Competitive Local Exchange Carriers, Petition of Z-Tel Commc'ns Inc.
    For Temporary Waiver of Commission Rule 61.26(d) to Facilitate
    Deployment of Competitive Service in Certain Metropolitan
    Statistical Areas*, CC Docket No. 96-262, CCB/CPD File No. 01-19,
    Eighth Report and Order and Fifth Order on Reconsideration, 19 FCC
    Rcd 9108 (2004) (*CLEC Access Charge Recon. Order*).

[^1735]: *See*, *e.g.*, *Access Charge Reform Order*, 12 FCC Rcd at
    16010--11, para 73. To reduce per-minute carrier common line (CCL)
    charges, the Commission created the presubscribed interexchange
    carrier charge (PICC), a flat-rated, monthly charge imposed on IXCs
    on a per-line basis. *Id.* at 15998--16000, paras. 37--40. The
    Commission also shifted the cost of line ports from per-minute local
    switching charges to the common line category and established a
    mechanism to phase out the per-minute Transport Interconnection
    Charge (TIC). *Id.* at 16035--40, 16073--86, paras. 125--34,
    210--43.

[^1736]: *Access Charge Reform Order*, 12 FCC Rcd at 15987, para. 9.

[^1737]: *See CALLS* *Order*, 15 FCC Rcd 12962.

[^1738]: *See supra* note 455 (discussing the PICC).

[^1739]: *See generally CALLS Order*, 15 FCC Rcd at 13025--28, paras.
    151--59 (reducing interstate switched access rates); *id.* at
    12991--13007, paras. 76--112 (raising SLC caps and eliminating
    PICCs); *id.* at 13007--14, paras. 113--28 (deaveraging SLCs).

[^1740]: *See* *CALLS Order*, 15 FCC Rcd at 13046--49, paras. 201--05
    (establishing a "\$650 million interstate access universal service
    support mechanism").

[^1741]: *Multi-Association Group (MAG) Plan for Regulation of
    Interstate Services of Non-Price Cap Incumbent Local Exchange
    Carriers and Interexchange Carriers*, CC Docket No. 00-256, Second
    Report and Order and Further Notice of Proposed Rulemaking,
    *Federal-State Joint Board on Universal Service*, CC Docket No.
    96-45, Fifteenth Report and Order, *Access Charge Reform for
    Incumbent Local Exchange Carriers Subject to Rate-of-Return
    Regulation*, CC Docket No. 98-77, Report and Order, *Prescribing the
    Authorized Rate of Return From Interstate Services of Local Exchange
    Carriers*, CC Docket No. 98-166, Report and Order, 16 FCC Rcd 19613
    (2001) (*MAG Order*), *recon. in part,* *Multi-Association Group
    (MAG) Plan for Regulation of Non-Price Cap Incumbent Local Exchange
    Carriers and Interexchange Carriers*, CC Docket No. 00-256, First
    Order on Reconsideration, *Federal-State Joint Board on Universal
    Service*, CC Docket 96-45, Twenty-Fourth Order on Reconsideration,
    17 FCC Rcd 5635 (2002), *amended on recon., Multi-Association Group
    (MAG) Plan for Regulation of Non-Price Cap Incumbent Local Exchange
    Carriers and Interexchange Carriers*, CC Docket No. 00-256,
    *Federal-State Joint Board on Universal Service*, CC Docket 96-45,
    Third Order on Reconsideration, 18 FCC Rcd 10284 (2003); *see also*
    *Multi-Association Group (MAG) Plan for Regulation of Non-Price Cap
    Incumbent Local Exchange Carriers and Interexchange Carriers;*
    *Federal-State Joint Board on Universal Service*, CC Docket Nos.
    00-256, 96-45, Report and Order and Second Further Notice of
    Proposed Rulemaking, 19 FCC Rcd 4122 (2004).

[^1742]: *MAG Order*, 16 FCC Rcd at 19617, para. 3.

[^1743]: *MAG Order*, 16 FCC Rcd at 19621, para. 15.

[^1744]: *MAG Order*, 16 FCC Rcd at 19617, para. 3. A new universal
    service support mechanism, Interstate Common Line Support (ICLS),
    was implemented to replace the CCL charge beginning July 1, 2002.
    *Id.* at 19621, para. 15. This mechanism recovers any shortfall
    between the allowed common line revenue requirement of
    rate-of-return carriers and their SLC and other end-user revenues,
    thereby ensuring that changes in the rate structure did not affect
    the overall recovery of interstate access costs by rate-of-return
    carriers serving high-cost areas. *Id.* at 19642, 19667--73, paras.
    61, 128--41. To reform the local switching and transport rate
    structure of rate-of-return carriers, the Commission shifted the
    non-traffic sensitive costs of local switch line ports to the common
    line category, and reallocated the remaining costs contained in the
    TIC to other access rate elements, thus reducing per-minute switched
    access charges. *Id.* at 19649--61, paras. 76--111.

[^1745]: *See*, *e.g.*, *BA-WV's Intrastate Access Charges*, Case No.
    00-0318-T-GI, Commission Order, 2001 WL 935643 (West Virginia PSC
    June 1, 2001) (ordering that "the traffic-sensitive intrastate
    access charges of Verizon-WV shall be modified to mirror the
    interstate rate structure and rate elements"); *Tariff Filing of
    BellSouth Telecommunications, Inc to Mirror Interstate Rates*, Case
    No. 98-065, Order (Kentucky PSC Mar. 31, 1999) (requiring BellSouth
    "to eliminate the state-specific Non-Traffic Sensitive Revenue
    Requirement . . . , thus moving its aggregate intrastate switched
    access rate to the FCC's 'CALLS' interstate rate"); *Establishment
    of Carrier-to-Carrier Rules*, Case No. 06-1344-TP-ORD, Order, 2007
    WL 3023991 (Ohio PUC Oct. 17, 2007) ("\[T\]his Commission requires
    ILECs to mirror their interstate switched access rate on the
    intrastate side . . . .").

[^1746]: *See*, *e.g*., Letter from David C. Bartlett, Vice President of
    Federal Government Affairs, Embarq, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92, Exh. C (filed Aug. 1, 2008) (noting
    intrastate terminating switched access rates five to ten times
    higher than interstate rates in Missouri, Washington, Virginia, and
    several other States).

[^1747]: *Developing a Unified Intercarrier Compensation Regime*, CC
    Docket No. 01-92, Notice of Proposed Rulemaking, 16 FCC Rcd 9610
    (2001) (*Intercarrier Compensation NPRM*).

[^1748]: The phrase "regulatory arbitrage" refers to profit-seeking
    behavior that can arise when a regulated firm is required to set
    difference prices for products or services with a similar cost
    structure. *See, e.g.*, [Patrick DeGraba, Bill and Keep at the
    Central Office as the Efficient Interconnection Regime]{.smallcaps}
    1, para. 2 n.3 (Federal Communications Commission, OPP Working Paper
    No. 33, 2000), *available at*
    http://www.fcc.gov/Bureaus/OPP/working_papers/oppwp33.pdf.

[^1749]: *See* *Intercarrier Compensation for ISP-Bound Traffic*, CC
    Docket Nos. 96-98, 99-68, Order on Remand and Report and Order, 16
    FCC Rcd 9151, 9183, para. 70 (2001) (subsequent history omitted)
    (*ISP Remand Order*).

[^1750]: *See Intercarrier Compensation for ISP-Bound Traffic*, CC
    Docket Nos. 96-98, 99-68, Declaratory Ruling and Notice of Proposed
    Rulemaking, 14 FCC Rcd 3689, 3703--06, paras. 21--27 (1999)
    (*Declaratory Ruling*), *vacated and remanded*, *Bell Atlantic Tel.
    Cos. v. FCC*, 206 F.3d 1 (D.C. Cir. 2000) (*Bell Atlantic*).

[^1751]: *Bell Atlantic*, 206 F.3d at 1.

[^1752]: *See Bell Atlantic*, 206 F.3d at 5.

[^1753]: *Bell Atlantic*, 206 F.3d at 6.

[^1754]: *See ISP Remand Order*, 16 FCC Rcd at 9171--72, para. 44.

[^1755]: *See ISP Remand Order*, 16 FCC Rcd at 9175, para. 52. Thus, the
    Commission affirmed its prior finding in the *Declaratory Ruling*
    that ISP-bound traffic is jurisdictionally interstate. *See id*;
    *see also Declaratory Ruling*, 14 FCC Rcd at 3701--03, paras.
    18--20.

[^1756]: *ISP Remand Order*, 16 FCC Rcd at 9184--85, paras. 74--75. The
    Commission discussed at length the market distortions and regulatory
    arbitrage opportunities created by the application of per-minute
    reciprocal compensation rates to ISP-bound traffic. In particular,
    the Commission found that requiring compensation for this type of
    traffic at existing reciprocal compensation rates undermined the
    operation of competitive markets because competitive LECs were able
    to recover a disproportionate share of their costs from other
    carriers, thereby distorting the price signals sent to their ISP
    customers. *See id*. at 9181--86, paras. 67--76.

[^1757]: *See ISP Remand Order*, 16 FCC Rcd at 9155--57, paras. 7--8.
    The interim regime adopted by the Commission consisted of: (1) a
    gradually declining cap on intercarrier compensation for ISP-bound
    traffic, beginning at \$.0015 per minute-of-use and declining to
    \$.0007 per minute-of-use; (2) a growth cap on total ISP-bound
    minutes for which a LEC may receive this compensation; (3) a "new
    markets rule" requiring bill-and-keep for the exchange of this
    traffic if two carriers were not exchanging traffic pursuant to an
    interconnection agreement prior to the adoption of the interim
    regime; and (4) a "mirroring rule" that gave incumbent LECs the
    benefit of the rate cap only if they offered to exchange all traffic
    subject to section 251(b)(5) at the same rates. *Id*. at 9187--89,
    9193--94, paras. 78, 80, 89. In a subsequent order, the Commission
    granted forbearance to all telecommunications carriers with respect
    to the growth caps and the new markets rule. *See Petition of Core
    Commc'ns Inc. for Forbearance Under 47 U.S.C. § 160(c) from
    Application of the ISP Remand Order*, WC Docket No. 03-171, Order,
    19 FCC Rcd 20179 (2004) (*Core Forbearance Order*). Thus, only the
    rate caps and mirroring rule remain in effect today.

[^1758]: *See WorldCom*, 288 F.3d at 429.

[^1759]: *See WorldCom*, 288 F.3d at 433.

[^1760]: *See WorldCom*, 288 F.3d at 434.

[^1761]: Pet. for Writ of Mandamus, In re Core Communications Inc., No.
    07-1446 (D.C. Cir. Nov. 5, 2007).

[^1762]: *In re Core Commc'ns Inc*., 531 F.3d 849, at 861--62 (D.C. Cir.
    2008) (*Core Decision*).

[^1763]: *See Core Decision*, 531 F.3d at 861--62. If the Commission
    fails to comply with the writ by the November 5th deadline, the
    interim rules will be vacated on November 6, 2008. *See id*. at 862.

[^1764]: *See CLEC Access Charge Order*, 16 FCC Rcd at 9931, para. 22.
    For instance, the Commission found that certain competitive LECs
    charged \$0.09 per minute and that the weighted average of
    competitive LEC access rates was above \$0.04 per minute. *Id.* In
    contrast, the same underlying data showed a composite incumbent LEC
    rate of \$0.0056 for that same traffic.  *See* AT&T Additional
    Comments, CC Docket Nos. 96-262, 97-146, CCB/CPD File No. 98-63,
    App. A. (Jan. 11, 2001). The Commission found that competitive LECs
    could impose excessive charges due to two factors. First, the
    Commission observed that access charges are paid by the IXC rather
    than the end-user customer. Because the IXC has no ability to affect
    the calling or called party's choice of service providers, it cannot
    avoid carriers with high access charges. *CLEC Access Charge Order*,
    16 FCC Rcd at 9935, para. 31. Second, the Commission found that the
    rate averaging requirements in section 254(g) of the Act precluded
    IXCs from passing through particular competitive LECs' excessive
    access charges to the end user customers of those competitive LECs.
    *Id*. As a result, the Commission found the existing regulatory
    regime did not effectively create the incentives for the end users
    to select a lower-priced access provider. *Id*.

[^1765]: *See* 47 C.F.R. § 61.26 (containing rules governing the
    tariffing of competitive LEC interstate switched exchange access
    services). As a general matter, the Commission's rules governing
    competitive LEC access charges limit these rates to those charged by
    the competing incumbent LEC. *Id*.

[^1766]: *See infra* Part V.D.

[^1767]: *See* *infra* para. 326.

[^1768]: *See*, *e.g*., *Qwest Commc'ns Corp. v. Farmers and Merchs.
    Mut. Tel. Co.*, File No. EB-07-MD-001, Memorandum Opinion and Order,
    22 FCC Rcd 17973, para. 1 (2007) (addressing Qwest's allegations
    that Farmers deliberately planned to "increase dramatically the
    amount of terminating access traffic delivered to its exchange, via
    agreements with conference calling companies").

[^1769]: *See Establishing Just and Reasonable Rates for Local Exchange
    Carriers*, WC Docket No. 07-135, Notice of Proposed Rulemaking, 22
    FCC Rcd 17989, para. 1 (2007) (*Access Stimulation NPRM*).

[^1770]: *Access Stimulation NPRM*, 22 FCC Rcd 17989.

[^1771]: *See Intercarrier Compensation NPRM*, 16 FCC Rcd 9610. The
    Commission acknowledged a number of problems with the existing
    regimes, including inefficient rates and different rates for the
    same types of calls. *Id.* at 9616--18, paras. 11--18. The
    Commission thus sought comment on alternative approaches to
    reforming intercarrier compensation, including moving to a
    bill-and-keep approach to intercarrier compensation. *Id.* at
    9611--13, paras. 2--4.

[^1772]: *See, e.g.*, Regulatory Reform Proposal of the Intercarrier
    Compensation Forum (ICF Proposal), *attached to* Letter from Gary M.
    Epstein and Richard R. Cameron, Counsel for the Intercarrier
    Compensation Forum, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92, App. A (filed Oct. 5, 2004) (ICF Oct. 5, 2004 *Ex Parte*
    Letter); Comprehensive Plan For Intercarrier Compensation Reform of
    Expanded Portland Group (EPG Proposal), *attached to* Letter from
    Glenn H. Brown, EPG Facilitator, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92 (filed Nov. 2, 2004); Intercarrier
    Compensation Reform Plan of Alliance for Rational Intercarrier
    Compensation (ARIC Plan), *attached to* Letter from Wendy Thompson
    Fast, President, Consolidated Companies, and Ken Pfister, Vice
    President---Strategic Policy, Great Plains Communications, to
    Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45,
    99-68, 96-98, WC Docket No. 04-36 (filed Oct. 25, 2004); Cost-Based
    Intercarrier Compensation Coalition (CBICC Proposal), *attached to*
    Letter from Richard M. Rindler, Counsel for the Cost-Based
    Intercarrier Compensation Coalition, to Marlene Dortch, Secretary,
    FCC, CC Docket No. 01-92 (filed Sept. 2, 2004); Updated Ex Parte of
    Home Telephone Company, Inc. and PBT Telecom (Home/PBT Proposal),
    *attached to* Letter from Keith Oliver, Vice President, Finance,
    Home Telephone Company, and Ben Spearman, Vice President, Chief
    Regulatory Officer, PBT Telecom, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92 (filed Nov. 2, 2004); NASUCA Intercarrier
    Compensation Proposal at 1 (NASUCA Proposal), *attached to* Letter
    from Philip F. McClelland, Senior Assistant Consumer Advocate,
    NASUCA, to Marlene Dortch, Secretary, FCC, CC Docket No. 01-92
    (filed Dec. 14, 2004); Western Wireless Intercarrier Compensation
    Reform Plan at 9 (Western Wireless Proposal), *attached to* Letter
    from David L. Sieradzki, Counsel for Western Wireless Corp., to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Dec.
    1, 2004).

[^1773]: *See Developing a Unified Intercarrier Compensation Regime*, CC
    Docket No. 01-92, Further Notice of Proposed Rulemaking, 20 FCC Rcd
    4685, 4687, para. 4 (2005) (*Intercarrier Compensation FNPRM*).

[^1774]: *See* Missoula Plan for Intercarrier Compensation Reform
    (Missoula Plan), *attached to* Letter from Tony Clark, Commissioner
    and Chair, NARUC Committee on Telecommunications, Ray Baum,
    Commissioner and Chair, NARUC Task Force, and Larry Landis,
    Commissioner and Vice-Chair, NARUC Task Force, to Hon. Kevin Martin,
    Chmn., FCC, CC Docket No. 01-92 (filed July 24, 2006) (NARUC Task
    Force July 24, 2006 *Ex Parte* Letter).

[^1775]: *Comment Sought on Missoula Intercarrier Compensation Reform
    Plan*, CC Docket No. 01-92, Public Notice, 21 FCC Rcd 8524 (2006).
    Subsequently, the Missoula Plan supporters filed additional details
    concerning specific aspects of the plan, on which the Commission
    continued to seek comment. *See* *Comment Sought on Missoula Plan
    Phantom Traffic Interim Process and Call Detail Records Proposal*,
    CC Docket No. 01-92, Public Notice, 21 FCC Rcd 13179 (2006);
    *Comment Sought on Amendments to the Missoula Plan Intercarrier
    Compensation Proposal to Incorporate a Federal Benchmark Mechanism*,
    CC Docket No. 01-92, Public Notice, 22 FCC Rcd 3362 (2007).

[^1776]: The Commission invited parties to refresh the record in these
    and other relevant dockets. *Interim Cap Clears Path for
    Comprehensive Reform: Commission Poised to Move Forward on Difficult
    Decisions Necessary to Promote and Advance Affordable
    Telecommunications for All Americans*, News Release (May 2, 2008),
    *available at*
    http://hraunfoss.fcc.gov/edocs_public/attachmatch/DOC-281939A1.pdf.

[^1777]: *See, e.g.*, [T. Randolph Beard & George S. Ford, Do High Call
    Termination Rates Deter Broadband Deployment?]{.smallcaps} (Phoenix
    Center Policy Bulletin No. 22, Oct. 2008), *available at*
    http://www.phoenix-center.org/PolicyBulletin/PCPB22Final.pdf.

[^1778]: *See, e.g.*, *Verizon/América Móvil Transfer* Order, 22 FCC Rcd
    at 6211, para. 36 (describing "difficult to serve terrain and
    dramatic urban/rural differences" in Puerto Rico); *Rates and
    Services Integration Order*, 4 FCC Rcd at 396, paras. 7--8
    (describing the unique market conditions and structure in Alaska);
    GCI Oct. 3, 2008 *Ex Parte* Letter (citing cost distinctions between
    Alaska and the continental United States).

[^1779]: *Cf.* *Policies and Service Rules for the
    Broadcasting-Satellite Service Order*, 22 FCC Rcd at 8860, para. 47
    ("The Commission is committed to establishing policies and rules
    that will promote service to all regions in the United States,
    particularly to traditionally underserved areas, such as Alaska and
    Hawaii, and other remote areas.").

[^1780]: A number of parties argue for a shorter transition period than
    that provided here. *See, e.g.*, Letter from Robert W. Quinn, Senior
    Vice President, Federal Regulatory, AT&T, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 01-92 (filed Oct. 23, 2008) (AT&T Oct.
    23, 2008 *Ex Parte* Letter); Letter from Kyle McSlarrow, President
    and CEO, NCTA, to Kevin J. Martin, Chairman, FCC, CC Docket No.
    01-92 (filed Oct. 28, 2008) (NCTA Oct. 28, 2008 *Ex Parte* Letter);
    Letter from Paul W. Garnett, Assistant Vice-President, CTIA---The
    Wireless Association, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 (filed October 27, 2008) (CTIA October 27, 2008 *Ex
    Parte* Letter); Small Business Administration Office of Advocacy
    (SBA) *ICC FNPRM* Comments at 5--7. We note that the reforms adopted
    today do not preclude carriers from entering into agreements that
    would reduce intercarrier charges more quickly, (*See, e.g*., Letter
    from Susanne A. Guyer, Senior Vice-President, Verizon, to Kevin J.
    Martin, Chairman, FCC, CC Docket No. 01-92 (filed October 28, 2008)
    at 6.) nor do they prevent state commissions from accelerating the
    glide path toward the final reciprocal compensation rate if they
    deem it appropriate.

[^1781]: To the extent that a carrier's intrastate terminating access
    rate already is below its interstate terminating access rate, it
    will not change that rate.

[^1782]: We recognize that the state-wide interim, uniform reciprocal
    compensation rates may vary state-by-state as state commissions
    consider the best means of transitioning to a final, uniform
    reciprocal compensation rate.

[^1783]: Although CMRS providers may not tariff access charges, they are
    not prohibited from entering into contracts with interexchange
    carriers that provide for the payment of such charges. *Petitions of
    Sprint PCS and AT&T Corp. For Declaratory Ruling Regarding CMRS
    Access Charges,* WT Docket No. 01-316, Declaratory Ruling, 17 FCC
    Rcd 13192 (2002) (*CMRS Access Charges Declaratory Ruling*).

[^1784]: Consistent with our conclusion that CMRS providers are unable
    to assess access charges during the transition, we make clear that
    our symmetry rule, set forth in Part V.C.1.b, will not apply until
    the transition is over.  Even so, we clarify that, to the extent
    that any carrier has a terminating rate above the permissible rate,
    such carrier must reduce the rate to the permissible
    level.  Specifically, in the first year of the transition, all
    carriers with intrastate access charges higher than their interstate
    access charges must reduce such charges by 50 percent of the
    difference between its interstate switched access rate and its
    intrastate switched access rate.  Similarly, once the state-set
    interim, uniform rate is in effect, all carriers must reduce
    terminating rates, whether interstate access, reciprocal
    compensation, or ISP-bound traffic, by 50 percent of the difference
    between the current terminating switched access rate and the
    interim, uniform rate (as it is reduced over time). Even though
    rates during the transition will not reflect true symmetry, rates
    for most carriers should be symmetric before the transition is over
    as all carriers reduce charges to the final, uniform rate.

[^1785]: *See ISP Remand Order*, 16 FCC Rcd at 9153, 9186--93, paras.
    21, 77--88.

[^1786]: *See* *Core Forbearance Order*, 19 FCC Rcd at 20184--89, paras.
    16--26.

[^1787]: *ISP Remand Order*, 16 FCC Rcd at 9187, para. 77.

[^1788]: *ISP Remand Order*, 16 FCC Rcd at 9187, para. 78.

[^1789]: *ISP Remand Order*, 16 FCC Rcd at 9190--91, para. 85.

[^1790]: *ISP Remand Order*, 16 FCC Rcd at 9190--91, para. 85; *see also
    Petition of ACS of Anchorage, Inc. Pursuant to Section 10 of the
    Communications Act of 1934, as Amended, for Forbearance from
    Sections 251(c)(3) and 252(d)(1) in the Anchorage Study Area*, WC
    Docket No. 05-281, 22 FCC Rcd 1958, 1984--85, paras. 39, 40 n.136
    (2007) (finding that "commercially negotiated rates" provide "just
    and reasonable prices"); *Review of the Section 251 Unbundling
    Obligations of Incumbent Local Exchange Carriers;* *Implementation
    of the Local Competition Provisions of the Telecommunications Act of
    1996; Deployment of Wireline Services Offering Advanced
    Telecommunications Capability*, CC Docket Nos. 01-338, 98-147,
    96-98, Report and Order and Order on Remand and Further Notice of
    Proposed Rulemaking, 18 FCC Rcd 16978, 17389, para. 664 (2003)
    (subsequent history omitted) (*Triennial Review Order*) (finding
    that "arms-length agreements . . . to provide \[an\] element at
    \[a\] rate" "demonstrate\[s\]" that the rate is "just and
    reasonable").

[^1791]: *See*, *e.g*., Letter from Gregory J. Vogt, Counsel for
    CenturyTel, Inc. to Marlene H. Dortch, Secretary, FCC, WC Docket No.
    05-337, CC Docket Nos. 96-45, 01-92, Attach. at 10 (filed July 8,
    2008) (asking the Commission to maintain the existing compromises
    reached with respect to ISP-bound traffic); Letter from Gary L.
    Phillips, Associate General Counsel, AT&T, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-98, 99-68 at 8 (filed May
    9, 2008) (asserting that the public interest would be best served by
    maintaining the existing transitional rates pending broader
    intercarrier compensation reform); Letter from L. Charles Keller,
    Counsel for Sage Telecom, to Marlene H. Dortch, Secretary, FCC, WC
    Docket Nos. 99-68, 01-92, Attach. at 6 (Sage Telecom May 9, 2008 *Ex
    Parte* Letter) (stating that retaining the ISP rate serves broad
    policy goals); Letter from John T. Nakahata, Counsel for Level 3
    Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos.
    01-92, 99-68 at 1 (filed May 7, 2008) (supporting continuation of
    the interim compensation rules); Letter from Joshua Seidmann, Vice
    President of Regulatory Affairs, ITTA, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 99-68, 96-98, Attach. at 2 (filed
    Apr. 28, 2008) (ITTA Apr. 28, 2008 *Ex Parte* Letter) (asking the
    Commission to retain the current \$0.0007 rate for ISP-bound
    traffic); Letter from Donna Epps, Vice President of Federal
    Regulatory Affairs, Verizon, to Marlene H. Dortch, Secretary, FCC,
    CC Docket Nos. 99-68, 96-98 at 1 (filed Apr. 7, 2008) (urging the
    Commission to support its earlier finding that \$0.0007 is
    appropriate compensation for dial-up ISP traffic); Letter from L.
    Charles Keller, Counsel for Verizon Wireless, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 99-68, Attach. (filed May 1,
    2008) (describing how elimination of the existing ISP rate would
    create substantial burdens on a number of carriers and state
    commissions) (Verizon Wireless May 1, 2008 *Ex Parte* Letter);
    Letter from Glenn Reynolds, Vice President, Policy, USTelecom, to
    Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68,
    96-262, WC Docket No. 07-135 at 2 (filed Apr. 29, 2008) (noting that
    the Commission's existing rules have "largely mitigated the debate
    around compensation for ISP-bound traffic, but there is every reason
    to believe the same problems would arise if the Commission were to
    reverse direction on this issue") (USTelecom Apr. 29, 2008 *Ex
    Parte* Letter).

[^1792]: *See, e.g*., USTelecom Apr. 29, 2008 *Ex Parte* Letter at 2;
    Letter from Melissa E. Newman, Vice President, Federal Regulatory,
    Qwest, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68,
    96-98, WC Docket No. 07-135, Attach. at 3--5 (filed Apr. 25, 2008)
    (Qwest April 25, 2008 *Ex Parte* Letter); Verizon and BellSouth,
    Further Supplemental White Paper on ISP Reciprocal Compensation at
    20 (Verizon/BellSouth Further Supp. ISP White Paper), *attached to*
    Letter from Donna Epps, Vice President, Federal Regulatory Advocacy,
    Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-98,
    99-68 (filed Sept. 27, 2004).

[^1793]: *See*, *e.g.*, Verizon Wireless May 1, 2008 *Ex Parte* Letter,
    Attach.

[^1794]: *See, e.g*., Verizon Wireless May 1, 2008 *Ex Parte* Letter
    (stating that "the \[m\]irroring \[r\]ule simplified wireless-ILEC
    interconnection negotiations tremendously."); Supplemental Comments
    of Verizon and Verizon Wireless on Intercarrier Payments for
    ISP-Bound Traffic and the *WorldCom* Remand, CC Docket Nos. 01-92,
    96-98, 99-68 at 38--40 (filed Oct. 2, 2008) (Verizon/Verizon
    Wireless Oct. 2, 2008 Supp. Comments) (indicating that Verizon
    entered into multiple agreements using the \$.0007 rate cap
    established in the *ISP Remand Order*).

[^1795]: *See, e.g*., ITTA April 28, 2008 *Ex Parte* Letter, Attach. at
    3, 5; Embarq May 1, 2008 *Ex Parte* Letter, Attach. at 2, 5--7.

[^1796]: *See, e.g*., Letter from Tamar E. Finn, Counsel for Earthlink,
    to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 99-68, 01-92,
    Attach. at iii, 11--12 (filed Aug. 14, 2008) (estimating that 24% of
    dial-up users in rural America say that broadband service is not
    available where they live); Sage Telecom May 9, 2008 *Ex Parte*
    Letter at 3--4; Embarq May 1, 2008 *Ex Parte* Letter, Attach. at 6
    (calculating its cost to be \$100 million if all ISP-bound minutes
    were subject to TELRIC-based rates under section 251(b)(5)); ITTA
    Apr. 28, 2008 *Ex Parte* Letter (noting that dial-up usage remains
    strong in rural areas); USTelecom Apr. 29, 2008 *Ex Parte* Letter
    (noting a "recent study from the Pew Internet & American Life
    Project that indicated that while the number of dial-up subscribers
    had dropped 63% since 2001, the number of minutes spent online by
    each dial-up subscriber had increased approximately 70%. As a
    result, some USTelecom member companies are actually seeing an
    *increase* in dial-up minutes.") (emphasis in original); Letter from
    Bennett L. Ross, General Counsel---D.C., BellSouth D.C., to Marlene
    H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68, WC Docket
    No. 03-171 (filed Aug. 29, 2005) (attaching a chart showing that
    "dial-up subscribers would continue to generate substantial minutes
    of dial-up ISP calls, notwithstanding projections of a continued
    decline in the number of dial-up subscribers.").

[^1797]: *Core Forbearance Order*, 19 FCC Rcd at 20815--16, para. 18.

[^1798]: *See infra* para. 250.

[^1799]: *Core Forbearance Order*, 19 FCC Rcd at 20816, para. 19.

[^1800]: *See, e.g.*, Verizon/Verizon Wireless Oct. 2, 2008 Supp.
    Comments at 40.

[^1801]: Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments*.* at 40.

[^1802]: *See* Letter from Michael B. Hazzard, Counsel for Core
    Communications, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos.
    99-68, 01-92, Attach. at 18 & n.8 (filed May 14, 2008) (Core May 14,
    2008 *Ex Parte* Letter). We also reject Core's argument that the
    *ISP Remand Order* unlawfully delegates to incumbent LECs the
    decision of whether the *ISP Remand Order* applies. *See* *id*. at
    19--20. The Commission did not delegate its authority in the *ISP
    Remand Order* but rather provided options that were not mandatory.
    *See, e.g.*, *ISP Remand Order*, 16 FCC Rcd at 9193, para. 89.
    Additionally, Core argues that the Commission provided no reasoned
    explanation for the growth cap and new market rules adopted in the
    *ISP Remand Order* and never provided notice or an opportunity for
    comment on those specific rules. These rules, as applicable to all
    carriers, were forborne from in the *Core Forbearance Order*. *See*
    *Core Forbearance Order*, 19 FCC Rcd at 20186--87, paras. 20--21. As
    such, this argument is moot.

[^1803]: *See* Core May 14, 2008 *Ex Parte* Letter, Attach. at 20--26.

[^1804]: *In re Core Commc'ns* 455 F.3d at 277--80 (internal quotation
    marks omitted).

[^1805]: 47 U.S.C. §§ 152(a), 201, 202.

[^1806]: 47 U.S.C. § 332.

[^1807]: *See, e.g.*, *Telephone Number Requirements for IP-Enabled
    Services Providers; Local Number Portability Porting Interval and
    Validation Requirements; IP-Enabled Services; CTIA Petitions for
    Declaratory Ruling on Wireline-Wireless Porting Issues*, CC Docket
    Nos. 99-200, 95-116, WC Docket Nos. 07-243, 07-244, 04-36, Report
    and Order, Declaratory Ruling, Order on Remand, and Notice of
    Proposed Rulemaking, 22 FCC Rcd 19531, 19538--40, paras. 14, 16
    (2008) (*LNP Order*) (imposing LNP requirements, and noting that the
    Commission previously imposed the requirement to provide 911
    service, to contribute to universal service, to protect the privacy
    of customers, to comply with disability access and
    telecommunications relay service requirements, and to satisfy
    certain CALEA obligations).

[^1808]: On one hand, the Commission classified as an "information
    service" Pulver.com's free service that did not provide transmission
    and offers a number of computing capabilities. *Petition for
    Declaratory Ruling that Pulver.com\'s Free World Dialup is Neither
    Telecommunications nor a Telecommunications Service*, WC Docket No.
    03-45, Memorandum Order and Opinion, 19 FCC Rcd 3307 (2004)
    (*Pulver.com Order*). On the other hand, the Commission found that
    certain "IP-in-the-middle" services were "telecommunications
    services" where they: : (1) use ordinary customer premises equipment
    (CPE) with no enhanced functionality; (2) originate and terminate on
    the public switched telephone network (PSTN); and (3) undergo no net
    protocol conversion and provide no enhanced functionality to end
    users due to the provider\'s use of IP technology. *See, e.g.*,
    *Petition for Declaratory Ruling that AT&T\'s Phone-to-Phone IP
    Telephony Services are Exempt from Access Charges*, WC Docket No.
    02-361, Order, 19 FCC Rcd 7457 (2004) (*IP-in-the-Middle Order*).
    *See also, e.g.*, *Regulation of Prepaid Calling Card Services*, WC
    Docket No. 05-68, Declaratory Ruling and Report and Order, 21 FCC
    Rcd 7290 (2006) (*Prepaid Calling Card Order*).

[^1809]: We use the term "IP/PSTN" as a shorthand, without reaching any
    universal conclusions regarding the technology underlying the PSTN.
    Today the PSTN continues to rely primarily on circuit-switched
    technology to connect to end-user customers, although we recognize
    that carriers increasingly are converting portions of their networks
    to IP technology. *See, e.g.*, *IP-Enabled Services; E911
    Requirements for IP-Enabled Service Providers*, WC Docket Nos.
    04-36, 05-196, First Report and Order and Notice of Proposed
    Rulemaking, 20 FCC Rcd 10245, 10258, para. 24 & n.77 (2005)
    (distinguishing the "specialized" CPE required for interconnected
    VoIP services from the standard CPE used for typical telephone
    calls); *Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Report to Congress, 13 FCC Rcd 11501, 11532, para. 84
    (1998) ("'IP telephony' services enable real-time voice transmission
    using Internet protocols. The services can be provided in two basic
    ways: through software and hardware at customer premises, or through
    'gateways' that enable applications originating and/or terminating
    on the PSTN. Gateways are computers that transform the
    circuit-switched voice signal into IP packets, and vice versa, and
    perform associated signaling, control, and address translation
    functions."). Insofar as a service allows a customer to originate a
    communication on an IP network and terminate it on a
    circuit-switched network, or vice versa, it involves a net protocol
    conversion, and we classify it as an "information service" today.
    Insofar as that service allows communications with no net protocol
    conversion, it is not subject to our "information service"
    classification here. We note that the presence of a net protocol
    conversion is not the only basis for classifying a service as an
    "enhanced" or "information service." *See, e.g.*, 47 C.F.R. §
    64.702(a); *Computer II Final Decision*, 77 FCC 2d at 420--21, para.
    97. We do not reach those issues at this time, however.

[^1810]: *See, e.g.*, *Implementation of the Non-Accounting Safeguards
    of Sections 271 and 272 of the Communications Act of 1934, as
    Amended*, CC Docket No. 96-149, First Report and Order and Further
    Notice of Proposed Rulemaking, 11 FCC Rcd 21905, 21957--58, para.
    106 (1996) (*Non-Accounting Safeguards Order*). Interpreting the
    1996 Act's definition of "information services," the Commission held
    that "all of the services that the Commission has previously
    considered to be 'enhanced services' are 'information services.'"
    *Non-Accounting Safeguards Order*, 11 FCC Rcd at 21956, para. 103.
    For the all reasons discussed in Part V.B.2, we decline to defer the
    classification of IP/PSTN services, as requested by some parties,
    instead finding it appropriate to address this issue as part of our
    comprehensive reforms. *See*, *e.g.*, Letter from Ben Scott, Policy
    Director, Free Press, to Marlene H. Dortch, Secretary, FCC, WC
    Docket Nos. 05-337, 06-122, CC Docket Nos. 96-45, 01-92 at 15 (filed
    Oct. 24, 2008) (Free Press Oct. 24, 2008 *Ex Parte* Letter); Letter
    from Brad E. Mutschelknaus and Genevieve Morelli, Counsel for
    Broadview Networks, et al., to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 at 2 (filed Oct. 28, 2008).

[^1811]: Two of the exceptions are: (1) protocol processing involving
    communications between an end user and the network itself (e.g., for
    initiation, routing, and termination of calls) rather than between
    or among users; and (2) protocol conversion to facilitate the
    interconnection of networks. *Non-Accounting Safeguards Order*, 11
    FCC Rcd at 21957--58, para. 106. These categories of protocol
    processing services may involve protocol conversions, but they
    result in no net protocol conversion between the end users.
    *Implementation of the Non-Accounting Safeguards of Sections 271 and
    272 of the Communications Act of 1934, as Amended*, CC Docket No.
    96-149, Order on Reconsideration, 12 FCC Rcd 2297, 2297--99, para. 2
    (1997). Thus, they are not relevant here.

[^1812]: *Amendment to Sections 64.702 of the Commission's Rules and
    Regulations (Third Computer Inquiry); and Policy and Rules
    Concerning Rates for Competitive Common Phase II Carrier Service and
    Facilities Authorization Thereof; Communications Protocols Under
    Section 64.702 of the Commission's Rules and Regulations*, CC Docket
    No. 85-229, Report and Order, 2 FCC Rcd 3072, 3081, para. 65 (1987)
    (*Computer III Phase II Order*). *See also Non-Accounting Safeguards
    Order*, 11 FCC Rcd at 21957--58, para. 106.

[^1813]: *Communications Protocols under Section 64.702 of the
    Commission's Rules and Regulations*, GN Docket No. 80-756,
    Memorandum Opinion, Order, and Statement Of Principles, 95 FCC 2d
    584, para. 16 (1983) (*Protocols Order*).

[^1814]: *See, e.g.*, Letter from Donna Epps, Vice President, Federal
    Regulatory, Verizon, to Marlene H. Dortch, Secretary, FCC, WC Docket
    Nos. 04-36, 06-122, CC Docket No. 01-92, Attach. at 9--11 (filed
    Sept. 19, 2008); Letter from Susanne A. Guyer, Senior Vice
    President, Federal Regulatory Affairs, Verizon, to Chairman Kevin J.
    Martin, FCC, WC Docket No. 04-36, at 10--11 (filed Aug. 6, 2007);
    Letter from AT&T et al., to Chairman Kevin J. Martin, FCC, et al.,
    WC Docket No. 04-36, CC Docket No. 01-92 at 2--3 (filed Aug. 6,
    2008); VON Coalition *IP-Enabled Services NPRM* Comments at 3--16;
    AT&T *IP-Enabled Services NPRM* Comments at 13--17. We thus disagree
    with parties who suggest, in essence, that IP/PSTN services are no
    different than "basic" services. *See, e.g.*, Letter from Thomas
    Jones and Jonathan Lechter, Counsel for tw telecom et al., to
    Marlene H Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC
    Docket Nos. 05-337, 99-68, 04-36, Attach. at 2 (filed Oct. 28, 2008)
    (tw telecom *et. al* Oct. 28, 2008 *Ex Parte* Letter). We note that
    whether a service is viewed by consumers as a possible substitute
    for a "basic" service is a distinct question from whether, as a
    matter of technology and the nature of the service offering, the
    service simply replaces the technology underlying a pre-existing
    basic service. Thus, our conclusion here is not inconsistent with
    the Commission's recognition that interconnected VoIP services
    increasingly are viewed by consumers as a substitute for traditional
    telephone services. *See, e.g.*, *LNP Order*, 22 FCC Rcd at 19547,
    para. 28.

[^1815]: *Vonage Order*, 19 FCC Rcd at 22404; *see also* *Pulver.com
    Order*, 19 FCC Rcd at 3316, para. 15 ("We determine, consistent with
    our precedent regarding information services, that FWD is an
    unregulated information service and any state regulations that seek
    to treat FWD as a telecommunications service or otherwise subject it
    to public-utility type regulation would almost certainly pose a
    conflict with our policy of nonregulation.").

[^1816]: For example, states are free to require contributions to state
    universal service or telecommunications relay service funds through
    methodologies that are consistent with federal policy. *See, e.g.*,
    Letter from Robert W. Quinn, Jr. Senior Vice President, Federal
    Regulatory, AT&T, to Chairman Kevin J. Martin, FCC, WC Docket Nos.
    04-36, 06-122, CC Docket No. 96-45 at 11--16 (filed July 23, 2008)
    (describing ways that states could require contributions to state
    universal service or telecommunications relay service funds in a
    manner that is consistent with federal policy).

[^1817]: *See* *Local Competition First Report and Order*, 11 FCC Rcd at
    15544, para. 83.

[^1818]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15544--45, para. 85.

[^1819]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15546--47, para. 91.

[^1820]: 47 U.S.C. § 251(i).

[^1821]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15546--47, para. 91.

[^1822]: *Implementation of Sections 3(n) and 332*, Second Report and
    Order, 9 FCC Rcd 1411, 1498, para. 230 (1994).

[^1823]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16005, para. 1023.

[^1824]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16005, para. 1023 ("By opting to proceed under sections 251 and 252,
    we are not finding that section 332 jurisdiction over
    interconnection has been repealed by implication, or rejecting it as
    an alternative basis for jurisdiction.").

[^1825]: We note that the Supreme Court later reversed this decision and
    affirmed the TELRIC methodology. *See Verizon v. FCC*, 535 U.S. at
    467.

[^1826]: *Iowa Utils. Bd. v. FCC*, 120 F.3d 753, 800 n.21 (8th Cir.
    1997) (*Iowa Utils. I*), *rev'd in part and* *remanded on other
    grounds*, *AT&T v. Iowa Utils. Bd*., 525 U.S. 366.

[^1827]: *Qwest Corp. v. FCC*, 252 F.3d 462, 465--66 (D.C. Cir. 2001)
    (describing the Eighth Circuit's analysis of section 332(c)(1)(B) in
    *Iowa Utils. I* and concluding that an attempt to relitigate the
    issue was barred by the doctrine of issue preclusion).

[^1828]: 47 U.S.C. § 251(b)(5).

[^1829]: 47 U.S.C. § 252(d)(2)(A).

[^1830]: *See* *supra* paras. 203--09. *See also, e.g.*, Letter from
    John T. Nakahata, Counsel for Level 3 Communications, to Marlene H.
    Dortch, Secretary, FCC, WC Docket No. 01-92 at 9--11 (filed on Aug.
    18, 2008) (Level 3 Aug. 18, 2008 *Ex Parte* Letter). Contrary to
    Verizon's claims, we thus find no tension between permitting states
    to set reciprocal compensation rates for interstate traffic under
    the section 251 and 252 framework and the Commission's continuing
    authority over traffic subject to its jurisdiction, including
    section 201 authority expressly preserved under section 251(i).

[^1831]: We recognize that "the just and reasonable rates required by
    Sections 201 and 202 . . . must ordinarily be cost-based, absent a
    clear explanation of the Commission's reasons for a departure from
    cost-based ratemaking." *Access Charge Reform*, CC Docket Nos.
    96-262, 94-1, 91-213, Second Order on Reconsideration and Memorandum
    Opinion and *Order*, 12 FCC Rcd 16606, 16619--20, para. 44 (*Access
    Charge Reform Second Order*) (citing *Competitive Telecomms. Ass\'n
    v. FCC*, 87 F.3d 522, 529 (D.C. Cir. 1996)). In this order, we adopt
    an incremental cost methodology for setting termination rates. We
    find that the proper application of that methodology produces rates
    that are "just and reasonable" under section 201. As discussed
    below, we find it appropriate to adopt a transition before carriers
    begin charging rates set pursuant to our incremental cost
    methodology.

[^1832]: 47 U.S.C. § 201(b) ("The Commission may prescribe such rules
    and regulations as may be necessary in the public interest to carry
    out the provisions of this Act.").

[^1833]: *AT&T v. Iowa Utils. Bd.*, 525 U.S. at 378.

[^1834]: *AT&T v. Iowa Utils. Bd.*, 525 U.S. at 378 n.6 ("\[T\]he
    question in these cases is not whether the Federal Government has
    taken the regulation of local telecommunications competition away
    from the States. With regard to the matters addressed by the 1996
    Act, it unquestionably has.").

[^1835]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16012--13, para. 1033.

[^1836]: *See, e.g.*, Verizon/Verizon Wireless Oct. 2, 2008 Supp.
    Comments at 24--32; Letter from Daniel Mitchell, Vice President,
    Legal and Industry, NTCA, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 at 9 (filed Sept. 30, 2008) (NCTA Sept. 30, 2008
    *Ex Parte* Letter); Verizon *ICC FNPRM* Comments at 38--42; NARUC
    *ICC FNPRM* Comments at 6--7; Rural Alliance *ICC FNPRM* Comments at
    144--49; Cincinnati Bell *ICC FNPRM* Comments at 5--11; Maine PUC
    and Vermont Pub. Serv. Bd. *ICC FNPRM* Comments at 7; New York State
    PSC *ICC FNPRM* Comments at 7; Verizon and BellSouth, Supplemental
    White Paper on ISP Reciprocal Compensation, CC Docket No. 96-98,
    99-68 at 16--20 (filed July 20, 2004) (Verizon/BellSouth Supp. ISP
    White Paper); NARUC's Initial Comments at 7 n.13 (May 23, 2004).
    *But see, e.g*., ICF *ICC FNPRM* Comments at 39.

[^1837]: *ISP Remand Order*, 16 FCC Rcd at 9166--67, para. 35. *See
    also, e.g.*, Qwest, Legal Authority for Comprehensive Intercarrier
    Compensation Reform at 2--4, *attached to* Letter from Melissa
    Newman, Counsel for Qwest, to Marlene H. Dortch, Secretary, FCC, CC
    Docket Nos. 01-92, 06-45, 99-68, WC Docket Nos. 04-36, 05-337,
    05-195, 06-122 (filed Oct. 7, 2008); Letter from Kathleen O'Brien
    Ham et al., Counsel for T-Mobile, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92 at 9--10 (filed Oct. 3, 2008); Level 3 Aug.
    18, 2008 *Ex Parte* Letter at 2, 15--18; AT&T *Missoula* *Phantom
    Traffic* Reply at 35--41; Brief from Gary M. Epstein, Counsel for
    ICF, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at
    29--35 (filed Oct. 5, 2004)

[^1838]: *AT&T v. Iowa Utils. Bd.*, 525 U.S. at 397.

[^1839]: 47 U.S.C. § 251(b)(5).

[^1840]: 47 U.S.C. § 153(43).

[^1841]: *Id.* at § 153(47).

[^1842]: *Id.* at § 153(48).

[^1843]: *Id.* at § 153(16).

[^1844]: As discussed above, we classify IP/PSTN services as
    "information services." We note, however, that information services,
    by definition, are provided "via telecommunications," enabling us to
    bring IP/PSTN traffic within the section 251(b)(5) framework. 47
    U.S.C. § 153(20). Moreover, given that we retain independent
    authority under section 201, we find it reasonably ancillary to that
    authority to regulate IP/PSTN services in this regard, consistent
    with our efforts to ensure uniform treatment of all traffic on the
    PSTN for intercarrier compensation purposes. Thus, IP/PSTN traffic
    ultimately will be subject to the final uniform reciprocal
    compensation rates established pursuant to the methodology adopted
    in this order. We maintain the status quo for this traffic during
    the transition, however.

[^1845]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16012, para. 1033.

[^1846]: *ISP Remand Order*, 16 FCC Rcd at 9173, para. 46.

[^1847]: *ISP Remand Order*, 16 FCC Rcd at 9167, para. 34.

[^1848]: 47 U.S.C. § 251(g).

[^1849]: *See WorldCom,* 288 F.3d at 429.

[^1850]: 47 U.S.C. 251(g). 

[^1851]: *WorldCom*, 288 F.3d at 430.

[^1852]: Verizon notes that although the Commission in the *ISP Remand*
    Order deleted the word "local" from its regulations governing
    reciprocal compensation, the regulations continued to exclude access
    services from the scope of section 251(b)(5). *See* Verizon/Verizon
    Wireless Oct. 2, 2008 Supp. Comments at 24--32; 47 C.F.R. §
    51.701(b)(1). At that time, it made sense to retain the access
    exemption because the Commission had not issued rules superseding
    the access regime preserved by section 251(g). We supersede the
    grandfathered access regime in this order, at least in part.

[^1853]: *Intercarrier Compensation NPRM*, 16 FCC Rcd at 9616, para. 12.

[^1854]: *See,* *e.g*., Verizon/Verizon Wireless Oct. 2, 2008 Supp.
    Comments ("The best interpretation of § 251(b)(5) -- read in light
    of the text, structure, and history of the 1996 Act -- is that the
    reciprocal compensation obligation applies only to intraexchange (or
    'local') voice calls that originate on the network of one LEC (or
    wireless provider) and terminate on the network of another LEC (or
    wireless provider) operating in the same exchange (or, in the case
    of wireless providers, the same MTA."); Verizon and BellSouth,
    Internet-Bound Traffic is Not Compensable Under Sections 251(b)(5)
    and 252(d)(2) at 26 (Verizon/BellSouth ISP White Paper) ("By its
    nature, 'reciprocal compensation' must . . . apply to
    'telecommunications' exchanged *between LECs* (or carriers, like
    CMRS providers, that the Commission is authorized to treat as LECs),
    not to traffic that is exchanged between LECs and non-LECs."),
    *attached to* Letter from Ann D. Berkowitz, Associate Director,
    Federal Regulatory Advocacy, Verizon, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 99-68, 96-98 (filed May 17, 2004).

[^1855]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16013--16, paras. 1034--41. *See also* 47 C.F.R. 51.703(a) ("Each
    LEC shall establish reciprocal compensation arrangements for
    transport and termination of telecommunications traffic with any
    requesting telecommunications carrier."); *ISP Remand Order*, 16 FCC
    Rcd at 9193--94, para. 89 n.177 ("Section 251(b)(5) applies to
    telecommunications traffic between a LEC and a telecommunications
    carrier . . . .").

[^1856]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15996, para. 1005. In this regard, we note that, absent a
    determination that CMRS providers are LECs, IXC-CMRS traffic would
    not be encompassed by section 251(b)(5), since neither are LECs.
    Nevertheless, it is our intention that, at the end of the
    transition, CMRS providers be entitled to reciprocal compensation
    for all the traffic they terminate. As the Commission has observed,
    "\[t\]here are three ways in which a carrier seeking to impose
    charges on another carrier can establish a duty to pay such charges:
    pursuant to (1) Commission rule; (2) tariff; or (3) contract."
    *Petitions of Sprint PCS and AT&T Corp. For Declaratory Ruling
    Regarding CMRS Access Charges, Declaratory Ruling*, 17 FCC Rcd
    13192, 13196, para. 8 (2002).

[^1857]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15997, para. 1008.

[^1858]: If Congress had intended to limit the class of potential
    beneficiaries of LECs' duty to establish reciprocal obligation
    arrangements, it would have said so explicitly. *See* 47 U.S.C. §
    251(b)(3) (describing the "duty to provide dialing parity to
    competing providers of telephone exchange service and telephone toll
    service").

[^1859]: *See, e.g.,* Verizon/BellSouth ISP White Paper at 41--43; New
    York State PSC *ICC FNPRM* Comments at 8--9; TDS *ICC FNPRM*
    Comments at 19 n.27; Qwest *ICC FNPRM* Comments at 39; NASUCA *ICC
    FNPRM* Reply at 17--18.

[^1860]: 47 U.S.C. § 252(d)(2)(A)(i).

[^1861]: *See, e.g.*, Maine PUC and Vermont Pub. Serv. Bd. *ICC FNPRM*
    Comments at 7--8; New York State PSC *ICC FNPRM* Comments at 7--10;
    Verizon/BellSouth Supp. ISP White Paper at 16--20; NARUC *ICC FNPRM*
    Comments at 7 n.13.

[^1862]: 47 U.S.C. § 252(d)(2)(A)(i).

[^1863]: *See, e.g.*, Verizon/Verizon Wireless Oct. 2, 2008 Supp.
    Comments at 33--34; Verizon/BellSouth ISP White Paper at 31--32.

[^1864]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16015, para. 1040. *See also* 47 C.F.R. § 51.701(d).

[^1865]: 206 F.3d at 6.

[^1866]: Because ISP-bound traffic did not fall within the section
    251(g) carve out from section 251(b)(5) as "there had been *no*
    pre-Act obligation relating to intercarrier compensation for
    ISP-bound traffic," *WorldCom*, 288 F.3d at 433, ISP-bound traffic
    is, and always has been, subject to section 251(b)(5), although
    clearly interstate in nature and subject to our section 201
    authority.

[^1867]: We reject Verizon's argument against the application of section
    251(b)(5) to ISP-bound traffic because this traffic is one-way
    traffic and as such is not reciprocal. *See* Verizon/Verizon
    Wireless Oct. 2, 2008 Supp. Comments at 26; Verizon/BellSouth ISP
    White Paper at 41--43. As Level 3 points out, these arguments have
    been rejected by the Commission and the U.S. Court of Appeals for
    the Ninth Circuit. *See* Level 3 Aug. 18, 2008 *Ex Parte* Letter at
    18; *Pacific Bell v. Cook Telecom, Inc.*, 197 F.3d 1236, 1242--44
    (9th Cir. 1999) (reciprocal compensation applies to paging traffic);
    *TSR Wireless, LLC v. U.S. West Commc'ns, Inc.*, 15 FCC Rcd 11166,
    11178, para. 21 (2000) (the Commission's reciprocal compensation
    rules draw "no distinction between one-way and two-way carriers").
    Because our conclusion in this order concerning the scope of section
    251(b)(5) is no longer tied to whether this traffic is local or long
    distance, we need not address arguments made by the parties as to
    whether ISP-bound traffic constitutes "telephone exchange service"
    under the Act. *See, e.g*., Letter from John T. Nakahata, Counsel
    for Level 3 Communications, LLC, to Marlene H. Dortch, Secretary,
    FCC, CC Docket Nos. 99-68, 96-98, Attach. at 1 (filed Sept. 24,
    2004). We note, however, that we retain our interim ISP-bound
    traffic rules. *See supra* paras. 194--200.

[^1868]: *See* Verizon *ICC FNPRM* Comments at 41.

[^1869]: 47 U.S.C. § 251(g).

[^1870]: *See* 47 U.S.C. § 271(c)(2)(B)(xiii).

[^1871]: *See* Verizon/Verizon Wireless Oct. 2, 2008 Supp. Comments at
    26; Verizon/BellSouth ISP White Paper at 9.

[^1872]: *United States Telecom Ass'n v. FCC*, 359 F.3d 554, 592 (D.C.
    Cir. 2004) (*USTA II*) ("Even under the deferential *Chevron*
    standard of review, an agency cannot, absent strong structural or
    contextual evidence, exclude from coverage certain items that
    clearly fall within the plain meaning of a statutory term. The
    argument that long distance services are not 'telecommunications
    services' has no support."). In *USTA II*, the D.C. Circuit was
    addressing whether the term "telecommunications services" was
    limited to local telecommunications services under section 251(c),
    while here we consider the analogous question of whether
    "telecommunications" is limited to local telecommunications under
    section 251(b).

[^1873]: *See*, *e.g.*, Letter from Grace E. Koh, Policy Counsel, Cox
    Enterprises, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92, Attach. A at 1 (filed Oct. 6, 2008); Letter from Teresa D.
    Bauer and Richard R. Cameron, Counsel for Global Crossing North
    America, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92
    at 1 (filed Sept. 18, 2008); Letter from Susanne A. Guyer, Senior
    Vice President of Federal Regulatory Affairs, Verizon, to Kevin
    Martin et al., Commissioners, FCC, CC Docket. 01-92 at 4 (filed
    Sept. 12, 2008) (Verizon Sept. 12, 2008 *Ex Parte* Letter). *But
    see, e.g.*, Letter from Richard A. Askoff, Executive
    Director---Regulatory, NECA, to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 at 3 (filed Oct. 7, 2008) ("Prescription of a
    nationwide uniform default rate of \$0.0007 is unnecessary to solve
    the rate arbitrage problems identified by Verizon. It would also
    represent bad policy."); Letter from Lawrence Zawalick, Senior Vice
    President, Rural Telephone Finance Cooperative, to Kevin Martin et
    al., Commissioners, FCC, CC Docket 01-92 at 1 (filed Sept. 30, 2008)
    ("The Rural Telephone Finance Cooperative (RTFC) strongly opposes
    \[the \$0.0007\] proposal.").

[^1874]: *See, e.g*., Letter from Donna Epps, Vice President, Federal
    Regulatory, Verizon, to Marlene H. Dortch, Secretary, FCC, WC Docket
    Nos. 04-36, 06-122, CC Docket No. 01-92, Attach. at 14--25 (filed
    Sept. 19, 2008) (Verizon Sept. 19, 2008 *Ex Parte* Letter).

[^1875]: In some cases, parties propose that the Commission make
    available universal service support as an "enticement" for states to
    reform intrastate rates, but ultimately the decisions would be left
    to the individual states. *See* Letter from Tom Karalis, Counsel for
    Rural Alliance, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92, Attach. at 7 (filed Sept. 26, 2008).

[^1876]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16016, para. 1042*. See also* 47 C.F.R. § 51.703(b) (stating that a
    "LEC may not assess charges on any other telecommunications carrier
    for telecommunications traffic that originates on the LEC's
    network").

[^1877]: *See, e.g.*, Verizon Sept. 12, 2008 *Ex Parte* Letter at 5
    (asking the Commission to defer reform of originating access);
    Letter from Grace E. Kohl, Policy Counsel, Cox, to Marlene H.
    Dortch, Secretary, FCC, WC Docket Nos. 06-122, 05-337, CC Docket
    Nos. 96-45, 01-92, 99-68, 96-262 at 2 (filed Oct. 6, 2008)
    (supporting proposals to delay reform of originating access) (Cox
    Oct. 6, 2008 *Ex Parte* Letter); Letter from Brian Benison,
    Director---Federal Regulatory, AT&T, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 99-68, 96-45, WC Docket Nos.
    05-337, 07-135, Attach. at 3 (filed Oct. 7, 2008) (describing model
    with "No Change to Current Structure and Rates" for originating
    access); Letter from Kathleen O'Brien Ham, Federal Regulatory
    Affairs, T-Mobile, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92 at 5 (filed Oct. 3, 2008); *cf.* Letter from Mary C.
    Albert, Assistant General Counsel, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92, WC Docket Nos. 04-36, 05-337, Attach. at 1
    (filed Oct. 2, 2008) (urging the Commission to delay any changes to
    intercarrier compensation).  *But see* Letter from Anna M. Gomez,
    Vice President, Government Affairs, COMPTEL, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at
    7 (filed Oct. 1, 2008) (urging the Commission to reform originating
    access immediately) (Sprint Oct. 1, 2008 *Ex Parte* Letter).

[^1878]: *See infra* para 343.

[^1879]: This prohibition on increasing access rates also applies to the
    Primary Interexchange Carrier Charge in section 69.153 of the
    Commission's rules, the per-minute Carrier Common Line charge in
    section 69.154 of the Commission's rules, and the per-minute
    Residual Interconnection Charge in section 69.155 of the
    Commission's rules. 47 C.F.R. §§ 69.153, 69.154, 69.155.

[^1880]: *See supra* para. 194 (prohibiting carriers from increasing
    their current rates, even if the interim, uniform reciprocal
    compensation rate is higher than one or more of its current rates).

[^1881]: *See supra* section V.B.2.

[^1882]: This approach is consistent with Commission precedent set forth
    in Part V.A, which started reforming intercarrier compensation in
    the 1980s. There the Commission found that a "transitional plan is
    necessary" in part because "\[i\]mmediate recovery of high fixed
    costs through flat end-user charges might cause a significant number
    of local exchange service subscribers to cancel local exchange
    service despite the existence of a Universal Service Fund" and
    "\[s\]uch a result would not be consistent with the goals of the
    Communications Act." *1983 Access Charge Order,* 93 FCC 2d at 243,
    para. 4. As a result, the Commission initially limited the flat rate
    charge imposed on end users, also known as the subscriber line
    charge or SLC, to \$1.00 (subsequent orders raised the cap on the
    subscriber line charge for residential users to \$6.50).

[^1883]: *Competitive Telecomms. Ass'n v. FCC*, 309 F.3d 8, 14 (D.C.
    Cir. 2002).

[^1884]: *Southwestern Bell Tel. Co. v. FCC*, 153 F.3d 523, 538 (8th
    Cir. 1998).

[^1885]: *See, e.g.*, BellSouth *ICC FNPRM* Comments at 17 ("In order to
    avoid the market disruption and dislocation that would be associated
    with instantaneous implementation of a unified plan, BellSouth
    proposes a two-phase transition plan."); CCG *ICC FNPRM* Comments at
    2 ("Any plan that reduces access rates should be phased-in over as
    long a period as possible, at least for rural carriers, so these
    companies have time to prepare for and adjust to the economic
    impact."); Cincinnati Bell *ICC FNPRM* Comments at 12 ("The
    Commission must allow carriers the opportunity to earn this lost
    access revenue in the transition to a new compensation regime in
    order to make any regime change revenue neutral to the affected
    carriers."); CCAP *ICC FNPRM* Comments at 23 ("The CCAP believes
    that any reform of the existing intercarrier compensation regimes
    should take place over a three-to-five-year period . . . .").

[^1886]: Missoula Plan, Executive Summary at 3 ("Recognizing the vast
    differences among carriers, the Plan creates three different
    transition schedules for intercarrier compensation rates.").

[^1887]: Letter from Gary M. Epstein and Richard R. Cameron, Counsel for
    ICF, to Marlene H. Dortch, Secretary, FCC, CC Docket 01-92, Attach.
    2 at 3 (filed Aug. 16, 2004).

[^1888]: Verizon Sept. 12, 2008 *Ex Parte* Letter at 9--10.

[^1889]: Letter from Henry Hultquist, Federal Regulatory Vice-President,
    AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket 01-92, Attach
    1 at 4 (filed July 17, 2008).

[^1890]: Letter from Richard M. Rindler, Counsel for CBICC, to Marlene
    H. Dortch, Secretary, FCC, CC Docket 01-92, Attach. 1 at 2.

[^1891]: ARIC *ICC FNPRM* Comments, Attach. 1 at 33.

[^1892]: NARUC *ICC FNPRM* Comments, Attach. C at 6.

[^1893]: Letter from Philip F. McClelland, Senior Assistant Consumer
    Advocate, NASUCA, to Marlene H. Dortch, Secretary, FCC, CC Docket
    01-92, Attach. 1 at 1 (filed Dec. 14, 2004).

[^1894]: *WorldCom*, 288 F.3d at 433.

[^1895]: 47 U.S.C. § 251(g) (emphasis added). At the least, section
    251(g) preserved the interstate access regime the Commission had
    prescribed for all carriers (*see* *id.* (preserving "obligations
    (including receipt of compensation) . . . under any . . .
    regulation, order, or policy of the Commission . . . .")) and the
    intrastate access regime the Bell Operating Companies had agreed to
    in the Modified Final Judgment. *See* *United States v. AT&T*, 552
    F. Supp. at 169. Recognizing, however, that it would be
    "'incongruous to conclude that Congress was concerned about the
    effects of potential disruption to the interstate access charge
    system, but had no such concerns about the effects on analogous
    intrastate mechanisms,'" the Commission has consistently interpreted
    section 251(g) to preserve the intrastate access regime pre-dating
    the Act for all carriers. *ISP Remand Order*, 16 FCC Rcd at 9168
    n.66 (quoting *Local Competition First Report and Order*, 11 FCC Rcd
    at 15869, para. 732); *see also* *Competitive Telecomms. Ass'n v.
    FCC*, 117 F.3d 1068, 1072 (8th Cir. 1997) ("\[I\]t is clear from the
    Act that Congress did not intend all access charges to move to
    cost-based pricing, at least not immediately. The Act plainly
    preserves certain rate regimes already in place.").

[^1896]: *See* *MAG Order*, 16 FCC Rcd 19613 (reducing interstate access
    charges for rate-of-return carriers); *CALLS Order*, 15 FCC Rcd
    12962 (reducing interstate access charges for price-cap carriers),
    *aff'd in relevant part by* *Texas Office of Pub. Util. Counsel v.
    FCC*, 265 F.3d at 324 (reasoning that because the Commission had not
    yet superseded the pre-Act interstate access regime, it retained
    authority under section 201(b) to set just and reasonable rates for
    interstate access); *see also* *WorldCom*, 288 F.3d at 433 ("We will
    assume without deciding that under § 251(g) the Commission might
    modify LECs' pre-Act 'restrictions' or 'obligations,' pending full
    implementation of relevant sections of the Act. The Fifth Circuit
    appeared to make that assumption . . . .").

[^1897]: *AT&T v.* *Iowa Utils. Bd*., 525 U.S. at 384; *see also id*. at
    378 ("The FCC has rulemaking authority to carry out the 'provisions
    of this Act,' which include §§ 251 and 252, added by the
    Telecommunications Act of 1996.")

[^1898]: *See supra* para. 207.

[^1899]: 47 U.S.C. § 201(b).

[^1900]: 47 U.S.C. § 332.

[^1901]: We have consistently found that ISP-bound traffic is
    jurisdictionally interstate. ISP-bound traffic melds a traditional
    circuit-switched local telephone call over the PSTN to packet
    switched IP-based Internet communication to Web sites. *Declaratory
    Ruling*, 14 FCC Rcd at 3702, para. 18; *ISP Remand Order*, 16 FCC
    Rcd at 9175, para. 52. This conclusion has not been questioned by
    the D.C. Circuit. *See WorldCom*, 288 F.3d at 431; *Bell Atlantic v.
    FCC*, 206 F.3d at 5 ("There is no dispute that the Commission has
    historically been justified in relying on this method when
    determining whether a particular communication is jurisdictionally
    interstate"). In other contexts, the Commission has likewise found
    that services that offer access to the Internet are jurisdictionally
    interstate services. In 1998, for example, the Commission found that
    ADSL service is jurisdictionally interstate. *See GTE Tel. Operating
    Cos.*, CC Docket No. 98-79, Memorandum Opinion and Order, 13 FCC Rcd
    22466, 22481, para. 28 (1998) ("finding that GTE's ADSL service is
    subject to federal jurisdiction" and is "an interstate service").
    More recently, the Commission has confirmed this ruling for a
    variety of broadband Internet access services. *See Inquiry
    Concerning High-Speed Access to the Internet Over Cable and Other
    Facilities*, GN Docket No. 00-185, CS Docket No. 02-52, Declaratory
    Ruling and Notice of Proposed Rulemaking, 17 FCC Rcd 4798, 4832,
    para. 59 (2002) (finding that, "on an end-to-end analysis," "cable
    modem service is an interstate information service"); *Wireline
    Broadband Internet Access Order*, 20 FCC Rcd at 14914, para. 110,
    *aff'd by Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs.*
    (*Brand X*), 545 U.S. 967 (2005); *Appropriate Regulatory Treatment
    for Broadband Access to the Internet Over Wireless Networks*, WT
    07-53, Declaratory Ruling, 22 FCC Rcd 5901, 5911, para. 28 (2007);
    *United Power Line Council's Petition for Declaratory Ruling
    Regarding the Classification of Broadband over Power Line Internet
    Access Service as an Information Service*, WC 06-10, Memorandum
    Opinion and Order, 21 FCC Rcd 13281, 13288, para. 11 (2006). In the
    *Vonage Order*, the Commission likewise found that VoIP services are
    jurisdictionally interstate, employing the same end-to-end analysis
    reflected in those other orders. *Vonage Order*, 19 FCC Rcd at
    22413--14, paras. 17--18.

[^1902]: *ISP Remand Order*, 16 FCC Rcd at 9174, para. 50.

[^1903]: *See ISP Remand Order*, at 9175, para. 51.

[^1904]: We thus respond to the D.C. Circuit's remand order in
    *WorldCom*, 288 F.3d at 434, and the court's writ of mandamus in
    *Core Communications*, 531 F.3d at 861--62, which directed the
    Commission to explain its legal authority to issue the interim
    pricing rules for ISP-bound traffic adopted in the *ISP Remand
    Order*. Specifically, we find, for the reasons set forth above and
    in Part V.B.3, that the Commission had the authority to adopt the
    interim pricing regime pursuant to our broad authority under section
    201(b) to issue rules governing interstate traffic.

[^1905]: *See* *Bell Atlantic*, 206 F.3d at 5.

[^1906]: *See WorldCom*, 288 F.3d at 434.

[^1907]: *Iowa Utils. Bd. v. FCC*, 219 F.3d 744, 757 (8^th^ Cir. 2000)
    (*Iowa Utils. II*), *rev'd in part sub nom. Verizon v. FCC*, 535
    U.S. 467.

[^1908]: Indeed, as discussed above, the court expressly confirmed the
    Commission's independent authority to set rates for CMRS traffic
    pursuant to section 332 and declined to vacate the Commission's
    pricing rules as they applied in the context of CMRS service. *See
    supra* para. 214; *Iowa Utils. I*, 120 F.3d at 800 n.21.

[^1909]: 47 U.S.C. § 252(d)(2)(A).

[^1910]: 47 U.S.C. § 252(d)(2)(B).

[^1911]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15515, 15844--96, paras. 29, 672--732.

[^1912]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15850--57, paras. 690--703, *see also* 47 C.F.R. § 51.505.

[^1913]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16023, para. 1054. In applying the TELRIC methodology to reciprocal
    compensation, the Commission found that the "additional costs" to
    the LEC of terminating a call that originates on another carrier's
    network "primarily consists of the traffic-sensitive component of
    local switching." For purposes of setting rates, the Commission
    concluded that "only that portion of the forward-looking, economic
    cost of end-office switching that is recovered on a usage-sensitive
    basis constitutes an 'additional cost' to be recovered through
    termination charges." *Id.* at 16024--25, para. 1057. The Commission
    excluded non-traffic sensitive costs, such as the costs of local
    loops and line ports. *Id.* Further, the Commission concluded that
    termination rates established pursuant to the TELRIC methodology
    should include a reasonable allocation of forward-looking common
    costs because, the Commission reasoned, a rate equal to incremental
    costs may not compensate carriers fully when common costs are
    present. *Id.* at 16025, para. 1058. For transport, the Commission
    required the calling party's LEC to compensate the called party's
    LEC for the "additional costs" associated with transporting a call
    subject to section 251(b)(5) from the carriers' interconnection
    point to the called party's end office and for the additional costs
    of terminating the call to the called party. *Id.* at 16008--58,
    paras. 1027--118; see also 47 C.F.R. §§ 51.701(c), (d).

[^1914]: *ISP* Remand Order, 16 FCC Rcd at 9185, para. 75); see also
    Letter from Norina Moy, Director, Government Affairs, Sprint Nextel,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, WC Docket
    No. 04-36 (filed Sept. 26, 2008) (Sprint Nextel Sept. 26, 2008 Ex
    Parte Letter).

[^1915]: *Intercarrier Compensation NPRM*, 16 FCC Rcd at 9616, para. 11.

[^1916]: *See, e.g., Intercarrier Compensation NPRM*, 16 FCC Rcd at
    9616, para. 11; *see also* *Intercarrier Compensation FNPRM*, 20 FCC
    Rcd at 4698 n.67 ("\[R\]eciprocal compensation rates often
    substantially exceed the per-minute incremental cost of terminating
    a call and therefore create a potential windfall for carriers that
    serve customers that primarily or exclusively receive traffic.");
    *ISP Remand Order*, 16 FCC Rcd at 9192, para. 87 ("\[T\]here may be
    a considerable margin between current reciprocal compensation rates
    and the actual costs of transport and termination."); BellSouth
    *ICC* NPRM Comments at 9 ("\[R\]eciprocal compensation payments
    enabled carriers to offer services to their customers at rates that
    bore little relationship to actual costs and provided the recipients
    of reciprocal compensation an advantage over their competitors.");
    Verizon *2000 Remand of ISP Declaratory Ruling Public Notice*
    Comments at 11--12 (noting that competitive LECs with ISP customers
    reap a "windfall profit" because of high reciprocal compensation
    rates).

[^1917]: *See*, *e.g.,* Eastern Rural Telecom Ass'n *ICC FNPRM* Comments
    at 2--3 ("Depending on the assumptions used to develop a company's
    TELRIC study, the results can vary significantly and be open to
    challenge.").

[^1918]: If *C*(*q*) represents the cost of producing an output *q* and
    ∆*q* represents an increment of output, then incremental cost is
    equal to *C*(*q*+∆*q*) -- *C*(*q*). If incremental cost is used as a
    guide to pricing, then price should be set equal to the average
    incremental cost ![](media/image7.wmf){width="1.19375in"
    height="0.4583333333333333in"}. If there are no fixed costs and
    initial output *q* = 0, then incremental cost pricing is equivalent
    to average cost pricing. If ∆*q* is small, then incremental cost
    pricing approximates marginal cost pricing. *Cf. Local Competition
    First Report and Order,* 11 FCC Rcd at 15844, para. 675.

[^1919]: 1 [Kahn, The Economics of Regulation]{.smallcaps} at 65--66.
    *See also* [Principles of Public Utility Rates]{.smallcaps} at
    [393.]{.smallcaps}

[^1920]: If price is greater than the competitive level, consumer demand
    is less than supply, and demand would determine market volume. If
    price is less than the competitive level, then producers voluntarily
    would supply no more than the amount at which marginal cost is equal
    to price.

[^1921]: Where the market price exceeds marginal cost, there will be an
    associated deadweight loss in social welfare. The deadweight loss
    represents the loss in consumer plus producer surplus caused by a
    deviation from the competitive equilibrium. *See, e.g.,* [Dennis W.
    Carlton & Jeffrey M. Perloff, Modern Industrial
    Organization]{.smallcaps} 84 (1990); [Kenneth E. Train, Optimal
    Regulation 185 (1992) (Optimal Regulation).]{.smallcaps}

[^1922]: *See, e.g*., Ronald. H. Coase, *The Theory of Public Utility
    Pricing and Its Applications*, 1 [Bell J. Econ.]{.smallcaps} 113,
    113--128 (1970) (*Theory of Public Utility Pricing*); 1 [Kahn, The
    Economics of Regulation]{.smallcaps} at 63--86.

[^1923]: *Theory of Public Utility Pricing*, 1 [Bell J.
    Econ.]{.smallcaps} at 122; Alexander C. Larson, *An Economic Guide
    to Competitive Standards in Telecommunications Regulation*, 1
    [CommLaw Conspectus]{.smallcaps} 31, 47 n.100 (1993) (quoting
    *Theory of Public Utility Pricing*, 1 [Bell J. Econ.]{.smallcaps} at
    121--22).

[^1924]: *See, e.g.,* 1 [Kahn, The Economics of Regulation]{.smallcaps}
    at 109--16.

[^1925]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15813, 15846, paras. 620, 679.

[^1926]: *See* 1 [Kahn, The Economics of Regulation]{.smallcaps} at
    70--75, 83--103; *see also* [Phillips, The Economics of
    Regulation]{.smallcaps} at [390--91 (]{.smallcaps}rev. ed. 1969);
    [Principles of Public Utility Rates]{.smallcaps} at 417--25.

[^1927]: 1 [Kahn, The Economics of Regulation]{.smallcaps} at [71;
    Daniel F. Spulber, Regulation and Markets]{.smallcaps} 234 (1989)
    ([Regulation and Markets)]{.smallcaps}.

[^1928]: 1 [Kahn, The Economics of Regulation]{.smallcaps} at
    [84.]{.smallcaps}

[^1929]: 1 [Kahn, The Economics of Regulation]{.smallcaps} at 88.

[^1930]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15851, para. 692.

[^1931]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16023, para. 1054.

[^1932]: 1 [Kahn, The Economics of Regulation]{.smallcaps} at
    [89.]{.smallcaps}

[^1933]: *See Local Competition First Report and Order* at 15878, paras.
    755--57. *See also* 1 [Kahn, The Economics of
    Regulation]{.smallcaps} at [91--93.]{.smallcaps}

[^1934]: *Cf. Local Competition First Report and Order,* 11 FCC Rcd at
    15845, para. 676 ("The term 'common costs' refers to costs that are
    incurred in connection with the production of multiple products or
    services, and remains unchanged as the relative proportion of those
    products or services varies (e.g., the salaries of corporate
    managers).").

[^1935]: *See, e.g*., Gerald R. Faulhaber, *Cross-Subsidization: Pricing
    in Public Enterprises*, 65 [Am. Econ. Rev.]{.smallcaps} 966, 966--77
    (1975). Faulhaber's objective in the paper was to define a test for
    cross subsidy, which could precisely define the maximum and minimum
    prices that a regulated firm should be allowed to charge to any
    subset of customers; [William J. Baumol et al., Contestable Markets
    and the Theory of Industry Structure]{.smallcaps} 351--56 (1982);
    William J. Baumol, *Minimum and Maximum Pricing Principles for
    Residual Regulation, in Current Issues in* [Public Utility
    Economics]{.smallcaps} (A. Danielson & D. Kamerschen eds., 1983).

[^1936]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15631, para. 258.

[^1937]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15848--49, paras. 683--85.

[^1938]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15850, para. 690.

[^1939]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15852--53, para. 696.

[^1940]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15693, para. 385.

[^1941]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16025, para. 1057.

[^1942]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16025, para. 1057. *Cf.* 47 U.S.C. § 51.509(b) (requiring only that
    line port costs of the unbundled local switching element be
    recovered through a flat-rated charge).

[^1943]: 47 U.S.C. § 51.509(d).

[^1944]: *See, e.g.,* [Regulation and Markets]{.smallcaps} at
    [122--23.]{.smallcaps}

[^1945]: *See, e.g.*, *Theory of Public Utility Pricing*, 1 [Bell J.
    Econ.]{.smallcaps} at 117--20; [Optimal Regulation]{.smallcaps} at
    [191--213]{.smallcaps}.

[^1946]: Demand for subscription is generally estimated to be
    significantly less elastic than demand for usage. *See* Mercatus
    Center Sept. 22, 2008 *Ex Parte* Letter at 3 n.15; Jerry Hausman &
    Howard Shelanski, *Economic Welfare and Telecommunications
    Regulation: The E-Rate Policy for Universal-Service Subsidies*, 16
    [Yale J. on Reg.]{.smallcaps} 19, 39 (1999) (estimating elasticity
    of demand for subscription to be -.005, whereas elasticity of demand
    for long-distance service is closer to -0.7); *Effects of Breakup of
    AT&T*, 83 [Am. Econ. Rev.]{.smallcaps} at 182 (estimating elasticity
    of demand for basic access at -0.005 and elasticity of demand for
    long-distances service between -0.25 and -1.2).

[^1947]: *See* Sprint Nextel Sept. 26, 2008 *Ex Parte* Letter. The data
    used in the analysis were obtained from the March 2006 "Survey of
    Unbundled Network Element Prices in the United States."

[^1948]: Sprint Nextel Sept. 26, 2008 *Ex Parte* Letter, Attach. at
    3--4.

[^1949]: We note that NuVox disputes some of Sprint Nextel's
    assumptions. *See, e.g.*, Letter from Brad Mutschelknaus & John J.
    Heitmann, Counsel to NuVox, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 and WC Docket No. 04-36 (filed Oct. 27, 2008)
    (NuVox Oct. 27 *Ex Parte* Letter). There is insufficient information
    in the two *ex parte* submissions for us to resolve this dispute.
    Carriers remain free to raise issues for consideration in the course
    of state proceedings.

[^1950]: Richard N. Clarke et al., *Economic Benefits from Reform of
    Intercarrier Compensation (ICF Economists)*, *attached to* ICF *ICC
    FNPRM* Reply, Errata, App. A.

[^1951]: *ICF Economists* at 22.

[^1952]: *ICF Economists* at 20--21.

[^1953]: *ICF Economists* at 21.

[^1954]: Letter from Henry Hultquist, Vice President-Regulatory Affairs,
    AT&T Services, Inc., to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 01-92, 05-337, 96-45, 99-68, 07-135 (filed Oct. 4, 2008) (AT&T
    Oct. 4, 2008 *Ex Parte* Letter).

[^1955]: AT&T Oct. 4, 2008 *Ex Parte* Letter at 2.

[^1956]: AT&T Oct. 4, 2008 *Ex Parte* Letter at 3.

[^1957]: AT&T Oct. 4, 2008 *Ex Parte* Letter at 2--3.

[^1958]: AT&T Oct. 4, 2008 *Ex Parte* Letter at 3--4.

[^1959]: AT&T Oct. 4, 2008 *Ex Parte* Letter at 4.

[^1960]: Letter from Eric N. Einhorn, Vice President, Federal Government
    Affairs, Windstream Communications, to Marlene H. Dortch, Secretary,
    FCC, CC Docket Nos. 96-45, 99-68, 01-92 and WC Docket Nos. 05-337,
    06-122, 07-135, 08-152 (filed Oct. 27, 2008) (Windstream Oct. 27,
    2008 *Ex Parte* Letter); Letter from John J. Heitmann, Counsel for
    NuVox, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92
    (filed Oct. 24, 2008) (NuVox Oct. 24, 2008 *Ex Parte* Letter).

[^1961]: *See* Letter from Henry Hultquist, Vice President Federal
    Regulatory, AT&T, to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 96-45, 99-68, 01-92 and WC Docket Nos. 05-337, 07-135 (Oct. 28,
    2008) (AT&T's response appears specific to the NuVox Oct. 24, 2008
    *Ex Parte* Letter).

[^1962]: *See* Windstream Oct. 27, 2008 *Ex Parte* Letter at 2.

[^1963]: *See* Windstream Oct. 27, 2008 *Ex Parte* Letter at 2--3; NuVox
    Oct. 24, 2008 *Ex Parte* Letter, Attach. at 8--9.

[^1964]: *See* NuVox Oct. 24, 2008 *Ex Parte* Letter, Attach. at 14--15.

[^1965]: *See* NuVox Oct. 24, 2008 *Ex Parte* Letter, Attach. at 18 &
    n.40.

[^1966]: *See, e.g*., VoIP-Info.org, Bandwidth Consumption,
    http://www.voip-info.org/wiki-Bandwidth+consumption (last visited
    Oct. 25, 2008); Westbay, Voice over IP Bandwidth,
    [http://www.erlang.com/bandwidth.html]{.underline} (last visited
    Oct. 24, 2008) (investigating bandwidth requirements for the
    transmission of voice over an IP based network).

[^1967]: In this analysis, we ignore the additional economies that can
    result because multiple packet streams for voice traffic can be
    transmitted simultaneously over the same channel capacity.

[^1968]: The lower estimate is contained in the Wikipedia entry
    "Broadband Internet Access,"
    http://en.wikipedia.org/wiki/Broadband_Internet_access (last visited
    Oct. 11, 2008). The higher estimate is contained the trade
    publication Telephony Online, "OFC: BellSouth Chief Architect warns
    of HD VOD costs," March 7, 2006,
    http://telephonyonline.com/iptv/news/BellSouth_VOD_costs_030706
    (last visited Oct. 11, 2008). Both estimates are also reported in
    David Clark, A Simple Cost Model for Broadband Access: What Will
    Video Cost?, Presentation at the Telecommunications Policy Research
    Conference (Sept. 28, 2008), *available at*
    http://tprcweb.com/files/Cost%20analysis%20TPRC.pdf.

[^1969]: The cost of the local loop is clearly a common cost that is
    shared by all of the voice, video, and data services consumed by the
    subscriber and should not be included under any reasonable
    definition of incremental cost.

[^1970]: Broadband Internet service is typically priced on the basis of
    capacity---either the maximum instantaneous upload and download
    speed or, as in this example, total monthly traffic. A rigorous
    application of true incremental cost pricing would require measuring
    each customer's contribution to system costs, which primarily
    consists of the delays or packet losses imposed on other users. For
    this purpose, minutes of use are largely irrelevant.

[^1971]: These estimated costs do not include the costs of billing,
    advertising, or other customer care expenses. As with the case of
    the local loop, we believe that such costs should not be included in
    any measure of long run incremental cost of call termination.

[^1972]: It is very unlikely that the cost estimates are significantly
    low. Telecommunications carriers continue to upgrade their networks
    to provide precisely the range of video and data services that the
    articles in a previous footnote were concerned with. Indeed, the
    BellSouth estimate was given with concern that such services would
    not be viable unless that estimate of cost could be reduced in the
    near future. Very similar arguments were made exactly 20 years ago
    in [Robert M. Pepper, Through the Looking Glass: Integrated
    Broadband Networks, Regulatory Policy, and Institutional
    Change]{.smallcaps} (FCC, OPP Working Paper No. 24, Nov. 1988),
    *available at*
    http://www.fcc.gov/Bureaus/OPP/working_papers/oppwp24.pdf.

[^1973]: *See infra* section V.C.1*.*

[^1974]: We find it preferable to shift entirely to an approach based on
    the traditional economic definition of incremental cost, rather than
    trying to achieve the same result through extensive revisions to the
    TELRIC methodology as some commenters suggest. *See, e.g*., Rural
    Alliance *ICC FNPRM* Comments at 50--54 (calling for a more precise
    definition of TELRIC for purposes of reciprocal compensation).

[^1975]: *Brand X*, 545 U.S. at 981 (quoting *Chevron U.S.A. Inc. v.
    Nat'l Res. Def. Counci*l (*Chevron*), 467 U.S. 837, 863--64 (1984)
    and citing *Motor Vehicle Mfrs. Ass'n of United States, Inc. v.
    State Farm Mut. Automobile Ins. Co*. (*State Farm*), 463 U.S. 29, 59
    (1983) (Rehnquist, J., concurring in part and dissenting in part)).

[^1976]: *Intercarrier Compensation FNPRM*, 20 FCC Rcd at 4719, para.
    71.

[^1977]: *See, e.g.,* CTIA *ICC FNPRM* Comments at 16 ("Because a call
    does not impose significant incremental costs on either the calling
    party's or called party's network, there is no justification for
    allowing the terminating network to impose any charge on the
    non-terminating network."); Frontier *ICC FNPRM* Comments at 7
    ("However, there is virtually NO additional incremental cost of
    sending a minute-of-use across \[dedicated hardware interfaces\].");
    Western Wireless *ICC FNPRM* Comments at 16 ("Independent Wireless
    Carriers urge the Commission to confine its analysis of 'additional
    cost' only to the incremental traffic-sensitive switching and
    transport costs actually incurred by the parties exchanging traffic
    for purposes of intercarrier compensation.").

[^1978]: We reaffirm that the TELRIC methodology is appropriate for
    setting interconnection and network element rates pursuant to
    section 252(d)(1), where Congress directed the Commission to
    consider a "reasonable profit."

[^1979]: The Supreme Court affirmed the Commission's authority to apply
    a cost methodology for the states to implement. *AT&T v.* *Iowa
    Utils. Bd.*, 525 U.S. at 378.  *See also id.* at 378 n.6 ("\[T\]he
    question in these cases is not whether the Federal Government has
    taken the regulation of local telecommunications competition away
    from the States.  With regard to the matters addressed by the 1996
    Act, it unquestionably has."); 47 U.S.C. § 201(b); *United Telegraph
    Workers, AFL-CIO v. FCC*, 436 F.2d 920, 923 (D.C. Cir. 1970)
    (citations and quotations omitted) (finding that section 201(b)
    authorizes the Commission to "prescribe such rules and regulations
    as may be necessary in the public interest to carry out the
    provisions of this Act").

[^1980]: *See* *Verizon v. FCC*, 535 U.S. at 499--501 ("\[W\]ithout any
    better indication of meaning than the unadorned term, the word
    'cost' in section 252(d)(1), as in accounting generally, is 'a
    chameleon,' a 'virtually meaningless' term . . . .") (citations
    omitted).

[^1981]: *See* *Verizon v. FCC*, 535 U.S. at 499--501 (quoting *AT&T
    Corp. v. Iowa Utils. Bd.*, 525 U.S. at 423 (Breyer, J., concurring
    in part and dissenting in part)).

[^1982]: *Capital Network System, Inc. v. FCC,* 28 F.3d 201, 204 (D.C.
    Cir. 1994). 

[^1983]: *Brand X*, 545 U.S. at 981 (quoting *Chevron*, 467 U.S. at
    863--64 and citing *State Farm*, 463 U.S. at 59 (Rehnquist, J.,
    concurring in part and dissenting in part)).

[^1984]: *See, e.g.,* *Adoption Of Rules For The Regulation Of Cable
    Television Pole Attachments,* CC Docket No. 78-144, Memorandum and
    Opinion and Second Report and Order, 72 FCC 2d 59, 62, para. 8
    (1979); *Adoption Of Rules For The Regulation Of Cable Television
    Pole Attachments,* CC Docket No. 78-144, Notice of Proposed
    Rulemaking, 68 FCC 2d 3, 15, App. (1978) (*Cable Television Pole
    Attachment NPRM*).

[^1985]: *Cable Television Pole Attachment NPRM,* CC Docket No. 78-144,
    Notice of Proposed Rulemaking, 68 FCC 2d at 15, App.
    ("'Additional costs' are generally equivalent to what is referred to
    as incremental cost, and the proportional part of 'Operating
    expenses and actual capital costs' are generally equivalent to fully
    allocated costs." (quoting S. Rep. No. 95-580 at 19--21 (1977)).

[^1986]: *See, e.g.,* *Atlantic Cleaners & Dyers, Inc. v. United
    States*, 286 U.S. 427, 433 (1932).

[^1987]: *Compare* 47 U.S.C. § 252(d)(1) *with* 47 U.S.C. § 252(d)(2).

[^1988]: *See, e.g.*, *Intercarrier Compensation FNPRM*, 20 FCC Rcd at
    4694, 4697--98, 4717, 4719, paras. 16, 23--24, 66, 71--72;
    *Intercarrier Compensation NPRM*, 16 FCC Rcd at 9616-18, paras.
    11--18; *ISP Remand Order*, 16 FCC Rcd at 9161--62, paras. 18--20.

[^1989]: For the same reasons, we reject suggestions that TELRIC should
    be used to set a unified rate for intercarrier compensation. *See,
    e.g*., Ohio PUC *ICC FNPRM* Comments at 20 ("\[T\]he Ohio Commission
    recommends the use of the TELRIC standard for setting intercarrier
    compensation rates."); Pac West et al*.* *ICC FNPRM* Comments at 9
    ("The 'additional cost' standard should continue to be tied to
    TELRIC"); Time Warner Telecom et al*.* *ICC FNPRM* Comments at 1--2
    ("\[A\] central component of reform must be the requirement that, to
    the extent possible, each carrier charge a single, cost-based rate
    for the exchange of all types of traffic. . . . \[T\]he Commission
    arguably has the authority to mandate that states use a cost-based
    methodology, in particular TELRIC, as the basis for setting all
    intercarrier termination rates."); Integra *ICC FNPRM* Comments at 3
    ("Integra urges the Commission to . . . \[u\]nify access and
    reciprocal compensation rates at TELRIC based levels on a
    company-by-company basis."); KMC and Xspedius *ICC FNPRM* Reply at 3
    ("\[T\]he Commission should support tariffed-based intercarrier
    compensation arrangements that: (i) set rates no higher than the
    comparable TELRIC (or similar cost-based) rates."); XO *ICC FNPRM*
    Reply at 11 ("\[T\]he only appropriate intercarrier compensation
    regime must include TELRIC-based rates.").

[^1990]: The national average of TELRIC rates for transport and
    termination of calls was \$0.00212 in 2004, which likely overstates
    the actual incremental costs because, as noted above, TELRIC
    includes common and overhead costs and examines the average cost of
    the function, not the additional cost of terminating traffic. Letter
    from Richard M. Rindler, Counsel for the Cost-Based Intercarrier
    Compensation Coalition, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 at 3 (filed Sept. 2, 2004) (CBICC Sept. 9 *Ex
    Parte* Letter); *see also* Sprint Nextel Sept. 26, 2008 *Ex Parte*
    Letter.

[^1991]: *See* T-Mobile *ICC FNPRM* Comments at 29--30.

[^1992]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16025, para. 1057.

[^1993]: A number of parties advocate for or against Commission adoption
    of bill-and-keep for intercarrier compensation. *See*, *e.g.*,
    Letter from Jonathan Askin, Counsel for FeatureGroup IP, to Marlene
    H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 3--4 (filed Oct.
    7, 2008); Letter from Paul W. Garnett, Assistant Vice President of
    Regulatory Affairs, CTIA, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 at 1 (filed Oct. 7, 2008); Corr *ICC FNPRM*
    Comments at 8; Cox *ICC FNPRM* Comments at 8--9; ICF *ICC FNPRM*
    Comments at 26, 30; Western Wireless et al. *ICC FNPRM* Comments at
    6--8. *But see, e.g.*, Letter from Tamar E. Finn, Counsel for
    PAETEC, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92,
    Attach. at 10 (filed Oct. 7, 2008) ("Mandatory Bill-and-Keep Is Not
    A Viable or Fair Solution"); Letter from Brad E. Mutschelknaus and
    Genevieve Morelli, Counsel for Cavalier Telephone et al*.,* to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed
    Oct. 3, 2008) ("\[T\]he adoption of mandatory bill-and-keep
    arrangements is extremely ill advised as a policy matter.");
    BellSouth *ICC FNPRM* Comments at 9 ("\[A\] plan to transition rates
    ultimately to bill-and-keep would not promote economic efficiency or
    preserve universal service, nor is bill-and-keep competitively
    neutral."); CCG Consulting Inc. (CCG) *ICC FNPRM* Comments at 7
    ("\[A\]ccess rates should not be reduced to zero through
    implementation of a Bill and Keep mechanism."); CenturyTel *ICC
    FNPRM* Comments at 4 (". . . CenturyTel unequivocally opposes
    replacing intercarrier compensation with a "bill and keep"
    regime."); CCAP *ICC FNPRM* Comments at 11 ("The CCAP urges the
    Commission to avoid implementation of a bill and keep regime
    . . . ."); Frontier *ICC FNPRM* Comments at 6 (arguing that bill and
    keep is inappropriate because it does not account for asymmetric
    traffic patterns); SBA *ICC FNPRM* Comments at 7 (arguing that
    bill-and-keep is inappropriate between rural and larger LECs due to
    various asymmetries). We believe the reforms we adopt here are
    preferable to a pure bill-and-keep requirement and more
    appropriately balance the interests of consumers and carriers at
    this time. The approach we adopt in this order avoids the need to
    resolve disputes in the record regarding bill-and-keep in various
    circumstances because it allows parties to advocate for such an
    approach before state commissions and parties may negotiate such
    arrangements.

[^1994]: Some carriers have suggested that our changes in ratemaking
    methodology will necessarily produce confiscatory rates and
    constitute a taking. *See, e.g.*, NTCA, Interim Universal Service &
    Intercarrier Compensation Reform Proposal (NTCA Interim Proposal) at
    19--22, *attached to* Letter from Daniel Mitchell, Vice President,
    Legal & Industry, NTCA, to Marlene H. Dortch, Secretary, FCC, WC
    Docket No. 05-337, CC Docket Nos. 96-45, 01-92 (filed Oct. 6, 2008)
    (NTCA Oct. 6, 2008 *Ex Parte* Letter) (contending that the
    Commission's current access regime, not to mention any reductions in
    access rates, threatens rate-of-return carriers with
    unconstitutional takings). *See also* Cincinnati Bell *ICC FNPRM*
    11--12 ("The elimination of interstate switched access charges
    without an opportunity to earn the revenue in another fashion could
    be confiscatory . . . ."); GVNW Consulting *ICC FNPRM* Comments at 9
    ("The existing system of cost recovery consisting of three equally
    important components of access charges, universal service support,
    and local rates is the only approach available to the Commission
    that will enable it to avoid valid claims of confiscation."). This
    argument lacks merit. Faced with a similar challenge to the TELRIC
    methodology previously adopted by the Commission, the Supreme Court
    stated unequivocally that "this Court has never considered a taking
    challenge on a ratesetting methodology without being presented with
    specific rate orders alleged to be confiscatory . . . ." *Verizon v.
    FCC*, 535 U.S. at 524 (citations omitted).

[^1995]: *See FPC v. Hope Natural Gas Co*., 320 U.S. 591, 605 (1944)
    ("Rates which enable the company to operate successfully, to
    maintain its financial integrity, to attract capital, and to
    compensate its investors for the risks assumed certainly cannot be
    condemned as invalid, even though they might produce only a meager
    return . . . .").

[^1996]: *FPC v. Hope Natural Gas Co*., 320 U.S. at 605*.*

[^1997]: We recognize that the incremental cost of terminating traffic
    may include certain non-traffic-sensitive costs, such as the cost of
    a trunk port. Consistent with cost-causation principles, however,
    such non-traffic-sensitive costs may not be recovered through
    per-minute charges, but must rather be recovered through flat-rated
    monthly charges associated with interconnection trunks.

[^1998]: *See supra* section V.B.4.c.

[^1999]: *See supra* section V.B.4.c.

[^2000]: *See supra* section V.B.4.c.

[^2001]: *See, e.g.*, *Federal-State Joint Board on Universal Service;
    Forward-Looking Mechanism for High Cost Support for Non-Rural LECs*,
    CC Docket Nos. 96-45, 97-160, Tenth Report and Order, 14 FCC Rcd
    20156, 20237, para. 186 (1999) (subsequent history and citation
    omitted) ("As we explained in the *Inputs Further Notice*, in
    determining appropriate cable sizes, network engineers include a
    certain amount of spare capacity to accommodate administrative
    functions, such as testing and repair, and some expected amount of
    growth."); *Triennial* *Review Order*, 18 FCC Rcd at 17166, para.
    312 n.919 (citing evidence that "the first carrier to lay fiber to a
    particular location will lay significantly more than it will need
    because the incremental cost of burying additional fibers is
    negligible").

[^2002]: *See supra* section V.B.4.c.

[^2003]: We thus go beyond the requirement in the *Local Competition
    First Report and Order* that only required states to exclude the
    cost of line ports, *see* 11 FCC Rcd at 16025, para. 1057, and
    mandate that *all* non-traffic sensitive costs be excluded.

[^2004]: *See, e.g.*, *supra* section V.B.4.c.

[^2005]: *See* Letter from Hank Hultquist, AT&T Services, Inc., and
    Donna Epps, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92 at 1--2 (filed Oct. 14, 2008) (AT&T and Verizon Oct. 14,
    2008 *Ex Parte* Letter) (providing seven default rules); Letter from
    John N. Rose, President, OPASTCO, and Kelly Worthingon, Executive
    Vice President, WTA, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 96-45, 01-92, WC Docket No. 05-337, Attach. at 2 (filed Oct. 29,
    2008) (Corrected OPASTCO/WTA Oct. 29, 2008 *Ex Parte* Letter)
    (discussing a "rural transport rule" for rural rate-of-return
    incumbent LECs). We reject PAETEC's assertion that the Commission
    lacked notice to adopt such rules. *See* Letter from Jonathan S.
    Frankel and Michael A. Romano, Counsel for PAETEC, CC Docket Nos.
    99-68, 01-92 at 2-3 (Oct. 28, 2008) (PAETEC Oct. 28, 2008 *Ex Parte*
    Letter). The Commission expressly sought comment on this issue in
    the *Intercarrier Compensation FNPRM*. *Intercarrier Compensation
    FNPRM*, 20 FCC Rcd at 4687, 4702-03, 4712-13, 4727-30, paras. 4, 34,
    40-44, 54, 91-97.

[^2006]: Thus, the default "edge" rule we adopt today does not alter any
    obligations of incumbent LECs' to interconnect at any technically
    feasible point, nor does the rule alter carriers' ability to request
    interconnection. *See, e.g.*, Letter from Susanne A. Guyer, Verizon,
    to Chairman Kevin J. Martin, FCC, CC Docket Nos. 96-45, 01-92, WC
    Docket Nos. 05-337, 06-112 at 5 (filed Oct. 5, 2008). *See also,
    e.g.*, PAETEC Oct. 28, 2008 *Ex Parte* Letter at 5-6 (expressing
    concern that the adoption of rules regarding a network "edge" not
    alter existing rules and obligations regarding physical
    interconnection). Moreover, the "edge" rules we adopt, which will
    apply at the end of the transition period, are merely a default, and
    carriers are free to negotiate alternative arrangements.

[^2007]: "Symmetrical compensation arrangements are those in which the
    rate paid by an incumbent LEC to another telecommunications carrier
    for transport and termination of traffic originated by the incumbent
    LEC is the same as the rate the incumbent LEC charges to transport
    and terminate traffic originated by the other telecommunications
    carrier." *Local Competition First Report and Order*, 11 FCC Rcd at
    16031--32, para. 1069.

[^2008]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16040, para. 1085. The Commission provided the following findings
    supporting its conclusion: (1) "using the incumbent LEC's
    forward-looking costs for transport and termination of traffic as a
    proxy for the costs incurred by interconnected carriers satisfies
    the requirements of section 252(d)(2)" and "is consistent with
    section 252(d)(2)(B)(ii)"; (2) "\[i\]f both parties are incumbent
    LECs, . . . the larger LEC's forward-looking costs should be used to
    establish the symmetrical rate for transport and termination";
    (3) "larger LECs are generally in a better position to conduct a
    forward-looking economic cost study"; (4) "imposing symmetrical
    rates based on the incumbent LEC's additional forward-looking costs
    will not substantially reduce carriers' incentives to minimize those
    costs"; and (5) "states may establish transport and termination
    rates in the arbitration process that vary according to whether the
    traffic is routed through a tandem switch or directly to the
    end-office switch." *Id.* at 16040--42, paras. 1085--86, 1090.

[^2009]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16040, para. 1085.

[^2010]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16040, para. 1086 ("A symmetric compensation rule gives the
    competing carriers correct incentives to minimize its own costs of
    termination because its termination revenues do not vary directly
    with changes in its own costs.").

[^2011]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16041, para. 1087 (noting that incumbent LECs have used their
    greater bargaining power to negotiate asymmetrical rates with CMRS
    providers and to charge CMRS providers origination, as well as
    termination, charges).

[^2012]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16041--42, para. 1088.

[^2013]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16042, para. 1089.

[^2014]: *See Local Competition First Report and Order*, 11 FCC Rcd at
    16042, para. 1089.

[^2015]: We note that the rates that will apply under our transition
    plan, discussed *supra* Part V.B.2, will not necessarily be
    symmetric. For example, we do not permit CMRS providers to assess
    access charges during the transition. *See supra* para. 197; 47
    U.S.C. § 251(f)(2). Our symmetry rules thus apply outside the
    transition framework, i.e., for carriers exchanging traffic at the
    final, uniform reciprocal compensation rate, or for carriers that
    have received a suspension or modification of our intercarrier
    compensation requirements pursuant to 251(f)(2).

[^2016]: Indeed, we are only aware of one case where a competitive LEC
    attempted to rebut the presumption and, in that case, the state
    commission found that the competitive LEC had failed to do so. *See*
    Petition of Sprint Spectrum L.P. d/b/a Sprint PCS, Pursuant to
    Section 252(b) of the Telecommunications Act of 1996, for
    Arbitration to Establish an Intercarrier Agreement with Verizon New
    York Inc., Case 01-C-0767, Arbitration Order, 2002 WL 31505732 (N.Y.
    P.S.C. 2002) (holding that Sprint did not rebut the presumption that
    its costs were higher than the incumbent LEC's).

[^2017]: *See* [The Commission of the European Communities, Draft
    Commission Recommendation on the Regulatory Treatment of Fixed and
    Mobile Termination Rates in the EU]{.smallcaps} 3, para. 3 (2008),
    *available at*
    http://ec.europa.eu/information_society/policy/ecomm/doc/library/public_consult/termination_rates/termination.pdf
    (last visited Oct. 24, 2008) ([European Communities]{.smallcaps}).

[^2018]: *See* [European Communities]{.smallcaps} at [2,]{.smallcaps}
    para[. 2]{.smallcaps}.

[^2019]: *See* [European Communities]{.smallcaps} at [3,]{.smallcaps}
    para[. 3]{.smallcaps}.

[^2020]: This section requires that, in setting rates under
    interconnection agreements, states must ensure that reciprocal
    compensation charges are a "reasonable approximation of the
    additional costs of terminating such calls." *See* 47 U.S.C.
    § 252(d)(2)(A)(ii). In the *Local Competition First Report and
    Order*, the Commission found that the incumbent LEC's costs were a
    reasonable proxy for other carriers' costs. 11 FCC Rcd at 16040,
    para. 1085*.* We reaffirm that finding, especially given that our
    pricing methodology focuses on the costs of the least cost, most
    efficient network technology. Moreover, per the express terms of the
    Act, the "additional costs" standard applies only to the costs of
    the incumbent LEC, not the competitive LEC. This interpretation of
    the Act promotes efficiency and therefore bolsters competition,
    consistent with the goals of the Act. *See* 1996 Act, Preamble
    (declaring the purpose of the Act to be "to promote competition and
    reduce regulation in order to secure lower prices and higher quality
    services for American telecommunications consumers and encourage the
    rapid deployment of new telecommunications technologies").

[^2021]: *See supra* section V.B.4.c.

[^2022]: 47 U.S.C. § 251(f)(2).

[^2023]: 47 U.S.C. § 251(f)(2).

[^2024]: *Local Competition First Report and Order*, 11 FCC Rcd at
    16118, para. 1263; 47 U.S.C. § 251(f)(2).

[^2025]: *AT&T v. Iowa Utils. Bd*., 525 U.S. at 385.

[^2026]: *See* 47 C.F.R. § 51.405(b). In the *Local Competition First
    Report and Order*, the Commission held that, in petitions under
    section 251(f)(2), "a LEC must offer evidence that application of
    those requirements would be likely to cause undue economic burdens
    beyond the economic burdens typically associated with efficient
    competitive entry." 11 FCC Rcd at 16118, para. 1262. The Commission
    also placed the burden of proof on the carrier seeking the relief
    under section 251(f)(2). *Id*. at 16118, para. 1263. Although the
    Supreme Court ultimately upheld the Commission's authority to
    interpret section 251(f), *see* *AT&T v. Iowa Utils. Bd*., 525 U.S.
    at 385, the Eighth Circuit subsequently vacated the Commission's
    interpretation of "undue economic burden," finding that the Act
    requires a state to look at the entire economic burden not just the
    additional burden of complying with sections 251(b) or 251(c). *See
    Iowa Utils. II*, 219 F.3d at 759--62. The Eighth Circuit also found
    that the Commission erred in placing the burden of proof on the
    rural LEC when a requesting carrier seeks to remove the section
    251(f)(1) exemption from section 251(c). The Eighth Circuit
    therefore vacated sections 51.405(a), (c), and (d) of our rules,
    *id*. at 762, but did not disturb the allocation of burden of proof
    under section 251(f)(2) as set forth in 47 C.F.R. § 51.405(b).

[^2027]: 47 U.S.C. § 251(f)(2) (emphasis added).

[^2028]: 47 U.S.C. § 251(f)(1).

[^2029]: Moreover, if, in the future, we have evidence that states are
    granting arbitrarily long suspensions/modifications to requesting
    LECs, the Commission will consider imposing a limit on the number of
    years that a suspension/modification is appropriate.

[^2030]: 47 U.S.C. § 251(f)(2)(A)(i) (emphasis added).

[^2031]: [Webster's Ninth New Collegiate Dictionary]{.smallcaps} 1096
    (1991).

[^2032]: 47 U.S.C. § 251(f)(2)(A)(i) (emphasis added).

[^2033]: *See* 47 U.S.C. § 251(f)(2)(A)(ii).

[^2034]: *Iowa Utils. II*, 219 F.3d at 761. The Commission initially
    interpreted undue economic burden to mean the "undue economic burden
    beyond the economic burden that is typically associated with
    efficient competitive entry." 47 C.F.R. § 51.405(d). The Eighth
    Circuit vacated this reading of the statute. *See Iowa Utils. II*,
    219 F.3d at 760--61.

[^2035]: 47 U.S.C. § 251(f)(2)(A)(iii).

[^2036]: 47 U.S.C. § 251(f)(2)(B).

[^2037]: *See* *supra* section V.A.3.

[^2038]: *AT&T v. Iowa Utils. Bd*., 525 U.S. at 385.

[^2039]: Section 201(b) authorizes the Commission to "prescribe such
    rules and regulations as may be necessary in the public interest to
    carry out the provisions of this Act." 47 U.S.C. § 201(b); *see
    also* 47 U.S.C. § 154(i) ("The Commission may perform any and all
    acts, make such rules and regulations, and issue such orders, not
    inconsistent with this Act, as may be necessary in the execution of
    its functions."). "\[T\]he grant in § 201(b) means what it says: The
    FCC has rulemaking authority to carry out the 'provisions of this
    Act.'" *AT&T v. Iowa Utils. Bd*., 525 U.S. at 378. As the Supreme
    Court has confirmed, this grant of authority necessarily includes
    section 251(f). *AT&T v. Iowa Utils. Bd*., 525 U.S. at 385 (holding
    that the Commission has "jurisdiction to promulgate rules . . .
    regarding rural exemptions"); *see also id.* at 378 n.6 ("\[T\]he
    question in theses cases is not whether the Federal Government has
    taken the regulation of local telecommunications competition away
    from the States.  With regard to the matters addressed by the 1996
    Act, it unquestionably has."). 

[^2040]: 47 U.S.C. § 251(f)(2) ("The State commission shall act upon any
    petition filed under this paragraph within 180 days after receiving
    such petition.").

[^2041]: *See* 47 U.S.C. § 252.

[^2042]: *See* *Triennial Review Order*, 18 FCC Rcd at 17404, para. 700.
    Although section 252(a)(1) and section 252(b)(1) refer to requests
    that are made *to* incumbent LECs, we have interpreted that in the
    interconnection agreement context to mean that either the incumbent
    or the competitive LEC may make such a request, consistent with the
    parties' duty to negotiate in good faith pursuant to section
    251(c)(1). *See Triennial Review Order*, 18 FCC Rcd at 17405, para.
    703 n.2087; *see also* 47 U.S.C. §§ 251(c)(1), 252(a)(1), (b)(1). We
    believe that this adequately addresses concerns about existing
    interconnection agreements that do not include express change of law
    provisions.

[^2043]: *See, e.g.,* Verizon Sept. 12, 2008 *Ex Parte* Letter, Attach.
    at 5--6 (urging that any new intercarrier compensation regime
    displace such contracts). By the same token, we decline to insulate
    existing interconnection agreements from the section 252 processes
    to the extent that some commenters propose that they remain in
    effect. *See, e.g.*, Letter from Melissa E. Newman, Vice
    President---Federal Regulatory, Qwest, to Marlene H. Dortch,
    Secretary, FCC, WC Docket Nos. 05-337, 04-36, 06-122, 05-195, CC
    Docket Nos. 01-92, 96-45, 99-68, Attach. at 13 (filed Oct. 7, 2008)
    (proposing that the Commission "order that those prior arrangements
    should at least presumptively remain in force after the
    implementation of a new, unified . . . rate regime").

[^2044]: 47 U.S.C. § 251(a)(1).

[^2045]: Several commenters request that the Commission give them a
    fresh look at existing contracts. *See, e.g.*, Letter from Richard
    R. Cameron and Teresa D. Baer, Counsel for Global Crossing, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 08-152; CC Docket
    Nos. 01-92, 99-68, 96-45 at 2 (filed Sept. 18, 2008) (asking that
    the Commission "provide an 18-month window within which carriers can
    reconfigure their interconnection facilities without incurring
    reconfiguration charges or early termination liabilities under
    existing transport contracts"); Ad Hoc *ICC FNPRM* Comments at
    22--24 (arguing that customers should be allowed to opt out of
    existing contracts); Earthlink *ICC FNPRM* Reply at 7 (arguing that
    end users should have the opportunity to negotiate different terms
    and, if renegotiation is not possible, be permitted to terminate
    existing contracts without liability).

[^2046]: *See, e.g.*, *Triennial Review Order*, 18 FCC Rcd at 17400,
    17402--03, paras. 692, 697--99; *see also,* *e.g.*, AT&T *ICC FNPRM*
    Reply at 17--19 (arguing against giving end users a fresh look at
    existing contracts). To the extent that there is evidence that
    particular termination penalties are inappropriate, the Commission
    can resolve such a matter through an enforcement proceeding. *See
    Triennial Review Order*, 18 FCC Rcd at 17403, para. 698.

[^2047]: *See Triennial Review Order*, 18 FCC Rcd at 17403, para. 699.

[^2048]: This situation is thus different than cases where the
    Commission found that certain contract provisions might adversely
    affect competition or where end-user customers would be denied the
    benefits of new Commission policy absent a fresh look opportunity.
    *See, e.g.*, *Local Competition First Report and Order*, 11 FCC Rcd
    at 16044, para. 1094; *Expanded Interconnection with Local Telephone
    Company Facilities*, CC Docket No. 91-141, Second Memorandum Opinion
    and Order on Reconsideration, 8 FCC Rcd 7341, 7350, para. 21 (1993)
    (allowing a fresh look at agreements in "situations where excessive
    termination liabilities would affect competition for a significant
    period of time"); *Competition in the Interstate Interexchange
    Marketplace*, CC Docket No. 90-132, Report and Order, 6 FCC Rcd
    5880, 5907, para. 151 (1991) (giving customers of AT&T 90 days to
    terminate their contracts without penalty to let them "tak\[e\]
    advantage of 800 number portability when it arrives").

[^2049]: *See supra* paras. 186--268.

[^2050]: *See supra* paras. 159--185.

[^2051]: *See, e.g.*, *First Reconsideration of 1983 Access Charge
    Order*, 97 FCC 2d 682; *Access Charge Reform Order*, 12 FCC Rcd
    15982; *CALLS Order*, 15 FCC Rcd 12962; *MAG Order*, 16 FCC Rcd
    19613.

[^2052]: *First Reconsideration of 1983 Access Charge Order*, 97 FCC 2d
    at 686, para. 7.

[^2053]: *CALLS Order*, 15 FCC Rcd at 12976, para. 33; *see also, e.g.*,
    *1983 Access Charge Order*, 93 FCC 2d at 243, para. 4 (finding that
    a "transitional plan is necessary" in part because "\[i\]mmediate
    recovery of high fixed costs through flat end user charges might
    cause a significant number of local exchange service subscribers to
    cancel local exchange service despite the existence of a Universal
    Service Fund" and "\[s\]uch a result would not be consistent with
    the goals of the Communications Act").

[^2054]: For price cap and rate-of-return carriers, the current SLC cap
    for residential and single-line business lines is \$6.50, 47 C.F.R.
    §§ 69.104(n)(1)(ii)(C), 69.152(d)(1)(ii)(D), and the current SLC cap
    for multi-line business and Centrex lines is \$9.20, 47 C.F.R.
    §§ 69.104(o)(1)(i); 69.152(k)(1)(i). Price cap carriers currently
    also have a SLC cap of \$7.00 for non-primary residential lines. 47
    C.F.R. § 69.152(e)(1)(i).

[^2055]: *See, e.g*., ICF *ICC FNPRM* Comments, App. C at C-7; NARUC
    Task Force July 24, 2006 *Ex Parte* Letter, Attach. 2 at 7; Letter
    from Curt Stamp, President, ITTA, to Marlene H. Dortch, Secretary,
    FCC, CC Docket No. 01-92, Attach at 2--3 (filed Sept. 19, 2008);
    Verizon Sept. 12, 2008 *Ex Parte* Letter, Attach. at 6--7; Letter
    from Mary L. Henze, Executive Director---Federal Regulatory, AT&T,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92; WC Docket
    Nos. 05-337, 06-112, 99-68, 07-135, Attach. at 2 (filed Oct. 9,
    2008).

[^2056]: *See, e.g.*, Letter from Anna M. Gomez, Vice President of
    Government Affairs, Sprint, to Marlene H. Dortch, Secretary, FCC, CC
    Docket Nos. 01-92, 96-45, WC Docket No. 04-36 at 5 (filed Oct. 7,
    2008); Letter from Kathleen O'Brien Ham et al*.*, Federal Regulatory
    Affairs, T-Mobile USA, Inc., to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 at 8 (filed Oct. 3, 2008); Cox *ICC FNPRM*
    Comments at 5--6; Eschelon *ICC FNPRM* Comments at 12.

[^2057]: *See* Letter from Ben Scott, Policy Director, Free Press, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC Docket
    Nos. 96-45, 01-92, Attach. 2 at 22 (filed Sept. 19, 2008); Letter
    from David C. Bergmann, Assistant Consumer's Counsel Chair, NASUCA
    Telecommunications Committee, to Marlene H. Dortch, Secretary, FCC,
    WC Dockets Nos. 08-152, 07-135, 06-122, 05-337, 05-195, 04-36,
    03-109, 02-60, CC Dockets Nos. 02-6, 01-92, 00-256, 99-68, 96-262,
    96-45, 80-286 at 10 (filed Sept. 30, 2008); Letter from James S.
    Blaszak, Counsel for Ad Hoc Telecommunications Users Committee, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC Docket
    Nos. 96-45, 01-92, Attach. at 4 (filed Oct. 14, 2008).

[^2058]: *CALLS Order*, 15 FCC Rcd at 12976, para. 33. We note that
    section 54.403 of the Commission's rules provides for Tier 1
    lifeline support to cover the tariffed SLCs established by
    rate-of-return and price cap carriers pursuant to sections 69.104
    and 69.152 of the Commission's rules. 47 C.F.R. § 54.403.

[^2059]: 2008 [Trends in Telephone Service]{.smallcaps}, tbl. 1.1
    (providing national weighted average SLCs for price cap carriers and
    all LECs in the NECA pool as of June 30, 2008).

[^2060]: 2008 [Trends in Telephone Service,]{.smallcaps} tbl. 1.1.

[^2061]: 2008 [Trends in Telephone Service,]{.smallcaps} tbl. 1.1

[^2062]: Should a carrier agree to (or tariff) intercarrier charges
    below those that would be required by the reforms adopted in this
    order, the difference between the charges it sets and the maximum
    charges it is allowed to set may not be recovered through increased
    SLCs, nor may such carriers seek to obtain supplemental universal
    service support, as described in Part V.C.2, based on that
    difference.

[^2063]: As discussed below, we are referring to the Joint Board, among
    other things, the question of whether, and to what extent, net
    reductions in intrastate intercarrier compensation revenues should
    be offset by revenues from interstate end-user charges. *See infra*
    paras. 303--310.

[^2064]: To the extent that a carrier's state retail rates have been
    deregulated, that carrier may not increase its SLCs to recover any
    net loss in intrastate intercarrier compensation revenues.

[^2065]: *Cf. Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Ninth Report and Order and Eighteenth Order on
    Reconsideration, 14 FCC Rcd 20432, 20486--87, para. 106 (1999)
    (*Universal Service Ninth Report and Order*) (specifying that
    "hold-harmless" universal service support "should continue to
    operate through the jurisdictional separations process to reduce
    book costs to be recovered in the intrastate jurisdiction.").

[^2066]: *See, e.g.*, *Universal Service Ninth Report and Order*, 14 FCC
    Rcd 20432 (providing high-cost universal service support for
    intrastate costs).

[^2067]: *Access Charge Reform Second Order*, 12 FCC Rcd at 16619--20,
    para. 44 (citing *Competitive Telecomms. Ass\'n v. FCC*, 87 F.3d
    522, 529 (D.C. Cir. 1996)).

[^2068]: *See, e.g.*, *LEC Price Cap Order*, 5 FCC Rcd 6786 (adopting
    price cap regulation, under which rates are not tied directly to
    cost); *Pricing Flexibility Order*, 14 FCC Rcd 14221, 14307, para.
    168 (once price cap carriers are granted pricing flexibility, they
    lose the option of a low end adjustment, which would permit
    incumbent LECs earning rates of return less than 10.25% in a given
    year to increase their price cap indices to a level that would
    enable them to earn 10.25%.); *MCI Telecomms. Corp. v. U S WEST
    Commc'ns, Inc*., File Nos. E-97-08, E-97-20 through 24, Memorandum
    Opinion and Order, 15 FCC Rcd 9328, 9334, para. 14 (2000) (finding
    that incumbent LECs' non-cost-based PICC did not violate section
    201(b) given the Commission's prior establishment of a safe harbor).

[^2069]: *Cf.* *Telephone Number Portability*, CC Docket No. 95-116,
    Third Report and Order, 13 FCC Rcd 11701, 11725--26, 11773--80,
    paras. 39, 135--49 (1998) (carriers other than incumbent LECs
    permitted to recover such costs in any lawful manner).

[^2070]: 47 U.S.C. § 410(c).

[^2071]: The Commission has referred non-separations issues to the
    Separations Joint Board previously. *See, e.g.*, *MTS and WATS
    Market Structure and Amendment of Part 67 of the Commission\'s
    Rules*, CC Docket Nos. 78-72, 80-286, Further Notice of Proposed
    Rulemaking, 49 Fed. Reg. 18318, 18318, para. 1 (1984) (referring to
    a Separations Joint Board issues including: (1) the subscriber line
    charge for residential and single-line business customers; (2) the
    transition mechanism for implementing subscriber line charges for
    these customers; (3) an exemption from the subscriber line charge or
    other assistance for low income households; and (4) additional
    assistance for small telephone companies.); *MTS and WATS Market
    Structure and Amendment of Part 67 of the Commission\'s Rules*, CC
    Docket Nos. 78-72, 80-286, Recommended Decision, 49 Fed. Reg. 48325,
    48327, para. 9 n.20 (1984) (noting that "\[s\]ince these issues do
    not involve the allocation of costs between the jurisdictions,
    preparation of a Joint Board recommendation is not mandatory.").

[^2072]: ICF *ICC FNPRM* Comments, App. C at C-7.

[^2073]: NARUC Task Force July 24, 2006 *Ex Parte* Letter, Attach. 2 at
    7.

[^2074]: ITTA Sept. 19, 2008 *Ex Parte* Letter, Attach. at 2--3.

[^2075]: CTIA Oct. 2, 2008 *Ex Parte* Letter, Attach. at 10. *See also,
    e.g.*, Letter from Norina Moy, Director, Government Affairs, Sprint,
    to Marlene H. Dortch, Secretary, FCC, WC Docket No. 04-36, CC Docket
    No. 01-92 at 2 (filed Aug. 7, 2008).

[^2076]: Letter from Ben Scott, Policy Director, Free Press, Washington
    Office, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337,
    CC Docket Nos. 96-45, 01-92, Attach. 2 at 22 (filed Sept. 19, 2008);
    NASUCA Sept. 30, 2008 *Ex Parte* Letter at 10; Letter from James S.
    Blaszak, Counsel for Ad Hoc Telecommunications Users Committee, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337, CC Docket
    Nos. 96-45, 01-92, Attach. at 4 (filed Oct. 14, 2008).

[^2077]: Verizon Sept. 12, 2008 *Ex Parte* Letter at 6--7.

[^2078]: Verizon Sept. 12, 2008 *Ex Parte* Letter.

[^2079]: To the extent that interstate end-user charges are used to
    offset any lost intrastate intercarrier compensation revenues, we
    mandate that the states take account of those revenues in their
    state ratemaking by reducing the intrastate costs or revenue
    requirement to be recovered through intrastate rates.

[^2080]: In this order, we do not decide the maximum amount that
    incumbent LECs ultimately may charge customers in the form of
    interstate end-user charges. As discussed above, that will depend
    upon further Commission action based on recommendations from the
    Joint Board.

[^2081]: *See, e.g.*, *CALLS Order*, 15 FCC Rcd 12962; *MAG Order*, 16
    FCC Rcd 19613; *see also* *MAG* Second *FNPRM*, 19 FCC Rcd 4122.

[^2082]: *Alenco*, 201 F.3d at 620.

[^2083]: CTIA *ICC* *FNPRM* Comments at 37 citing Western Wireless
    Reply, CC Docket No. 96-45, Attach. at 2--5 (filed Dec. 14, 2004)
    (attaching Economics and Technology, Inc., *Reforming Universal
    Service Funding for Rural ILECs: An Idea Whose Time Has Come*).

[^2084]: Thomas W. Hazlett, *"Universal Service Telephone Subsidies:
    What Does \$7 Billion Buy?* (*Universal Service Telephone
    Subsidies*) at 33*, attached to* Core *Missoula Phantom Traffic*
    Comments, Tab B (quotation omitted).

[^2085]: *A Fair Copper*, [Financial Times]{.smallcaps}, Oct. 28, 2008,
    at 16.

[^2086]: *Universal Service Telephone Subsidies* at 34.

[^2087]: *Universal Service Telephone Subsidies* at 34, 70. *See also*
    Julie Tanner, General Counsel, Chinook Wireless, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 96-45, WC Docket Nos. 05-337,
    08-10, Attach. 1 at 7 (filed Feb. 22, 2008) (arguing that incumbent
    LECs receiving universal service support "send a comfortable return
    on investment to investors (and rural cooperative members) with no
    accountability"); NTCH, CC Docket No. 96-45, WC Docket Nos. 05-337,
    08-10 at 8 (filed Feb. 22, 2008) ("The object of the \[universal
    service\] subsidy is not to prop up high cost legacy companies and
    technologies or assure their profitability, nor to add to the
    profits of wireless carriers.").

[^2088]: *Universal Service Telephone Subsidies* at 70.

[^2089]: *See, e.g.*, GCI *Missoula* *Phantom Traffic* Comments at 68
    ("Even if excessive support does not lead to unaffordable increases
    in rates for non-subsidized subscribers, requiring those customers
    to pay more than is necessary in order to excessively subsidize
    rates for other \[services\] (or worse yet, to finance high dividend
    payments to owners of rural ILECs) is not consistent with
    maintaining just and reasonable rates."); Time Warner Telecom
    *Missoula* *Phantom Traffic* Comments at 10 (noting that "RBOCs are
    already realizing substantial profits from \[network\] investments,
    easily compensating for any loss in access payments that they may
    face" and that "a high \[universal service\] contribution level may
    approach the point at which the USF charges imposed upon end-users
    actually threaten the goal of universal service").

[^2090]: *See, e.g*., CenturyTel Sept. 19, 2008 *Ex Parte* Letter,
    Attach. at 5 (arguing that revenue neutrality should be a
    fundamental goal of comprehensive intercarrier compensation reform);
    Letter from Stuart Polikoff, Director of Government Relations,
    OPASTCO, to Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 96-45,
    01-92, WC Docket Nos. 04-36, 05-337, 06-122, Attach. at 3 (filed
    Sept. 16, 2008) (arguing that, if the Commission does not adopt the
    Missoula Plan, it should establish a mechanism for "rural RoR ILECs
    that allows for full recovery of the revenues lost as a result of
    the change in intrastate access rates and structure, on a revenue
    neutral basis."). *See also* Rural Alliance *ICC FNPRM* Comments at
    21 (arguing that decreases in intercarrier compensation rate levels
    should be offset from the USF or another revenue replacement
    mechanism).

[^2091]: NASUCA Sept. 30, 2008 *Ex Parte* Letter at 6.

[^2092]: Comments of the National Association of State Utility Consumer
    Advocates to Refresh the Record, CC Docket Nos. 96-45, 02-6, 01-92,
    00-256, 96-262, 99-68, 80-256, WC Docket Nos. 05-337, 07-135,
    06-122, 05-195, 03-109, 02-60 at 6 (filed July 7, 2008) (NASUCA July
    7, 2008 Supp. Comments). *See also id*. at 10 ("Adding insult to
    injury, there is no consideration in the Missoula Plan of the
    additional revenues that ILECs gain from serving new broadband lines
    which are outside of the current ICC system. In other words, ILECs
    are losing lines and MOU as consumers drop traditional landlines and
    add broadband lines to access the Internet. However, the revenue
    gains from broadband line additions are totally out of the picture
    as far as the Missoula Plan is concerned.").

[^2093]: Time Warner Telecom *Missoula* *Phantom Traffic* Comments at 10
    ("According to AT&T, the revenue derived from the ILECs' advanced
    services more than doubles the revenue from switched access
    services. As AT&T stated in its Annual Report, '\[w\]e have found
    that when customers add broadband to a basic package, they are 40
    percent less likely to switch to another provider, and average
    revenue per customer jumps nearly 120 percent.' It would make little
    sense for the ratepayers to subsidize the ILECs' already profitable
    business decisions.").

[^2094]: Free Press Oct. 13, 2008 *Ex Parte* Letter at 6. *See also id*.
    at 6--7 ("While we'd like the Commission to consider a carrier's
    entire revenue stream before allowing increased USF support to
    offset lost access revenues" to the extent that there is such
    support it "should be confined to rate-of-return carriers only.").

[^2095]: NASUCA July 7, 2008 Supp. Comments at 6. Indeed, there is some
    indication that carriers may be earning excessive returns even with
    respect to their regulated services. *See, e.g.*, GCI *Missoula*
    *Phantom Traffic* Comments at 66--67 (asserting that ACS of
    Anchorage has regularly earned returns in excess of an 11.25% rate
    of return on its regulated interstate switched access services,
    including 32.12% for 1997--98, 30.26% for 1999--2000; 35.29% for
    2001--02; and 15.01% for 2003--04).

[^2096]: *See*, *e.g.*, Letter from Mary C. Albert, Assistant General
    Counsel, COMPTEL, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92, WC Docket Nos. 05-337, 04-36 at 1 (filed Oct. 2, 2008);
    NASUCA July 7, 2008 Supp. Comments at 32--34; Letter from Anna M.
    Gomez, Vice President of Government Affairs, Sprint Nextel, to
    Marlene H. Dortch, Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC
    Docket No. 04-36 at 1--2 (filed Oct. 7, 2008).

[^2097]: *See, e.g.*, Letter from Donna Epps, Vice President---Federal
    Regulatory, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 01-92, 96-45, WC Docket No. 04-36 at 1--2 (filed Oct. 2, 2008);
    Letter from Robert W. Quinn, Jr., Senior Vice President---Federal
    Regulatory, AT&T, to Kevin Martin, Chairman, FCC, CC Docket Nos.
    01-92, 99-68, 96-45, WC Docket Nos. 07-135, 05-337 at 5--7 (filed
    July 17, 2008); Letter from Anthony M. Alessi, Senior Counsel,
    Sprint Nextel, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    96-45, WC Docket No. 05-337 at 3--5 (filed May 23, 2008); Cox *ICC
    FNPRM* Comments at 12--13.

[^2098]: Although we do not adopt a particular revenue benchmark here,
    as some commenters propose, the Joint Board may well recommend such
    an approach. Thus, depending upon the Joint Board's proposal, and
    the Commission's subsequent action, maximum federal SLCs and/or
    state retail local rates might be determined, in part, by such a
    benchmark.

[^2099]: For these same reasons, should a carrier agree to (or tariff)
    intercarrier charges below those that would be required by the
    reforms adopted in this order, that carrier may not seek to obtain
    supplemental universal service support based on the difference
    between the charges it sets and the maximum charges it is allowed to
    set.

[^2100]: *See, e.g.*, Free Press Oct. 13, 2008 *Ex Parte* Letter at 6--7
    (noting that, to the extent that there is universal service support
    to address any net loss in intercarrier compensation revenues, it
    "should be confined to rate-of-return carriers only."). *But see,
    e.g.*, GCI *Missoula Phantom Traffic* Comments at 66--67 (asserting
    that ACS of Anchorage has regularly earned returns in excess of an
    11.25 percent rate of return on its regulated interstate switched
    access services).

[^2101]: *See, e.g.*, Corrected OPASTCO/WTA Oct. 29, 2008 *Ex Parte*
    Letter, Attach. at 2 (requesting, among other things, that the
    Commission ensure that "\[s\]upplemental interstate common line
    support (ICLS) (i.e., "the restructure mechanism") is automatically
    available for carriers that are currently under RoR regulation in
    the interstate jurisdiction without any other conditions applying").

[^2102]: 47 U.S.C. § 254(i) (requiring that "\[t\]he Commission and the
    States should ensure that universal service is available at rates
    that are just, reasonable, and affordable."); *see also* 47 U.S.C.
    §254(b)(1) (stating that "\[q\]uality services should be available
    at just, reasonable, and affordable rates").

[^2103]: *See, e.g.,* *CALLS Order*, 15 FCC Rcd at 12971, para. 24; *MAG
    Order*, 16 FCC Rcd at 19669--70, para. 132.

[^2104]: Section 4(i) provides that the Commission may "perform any and
    all acts, make such rules and regulations, and issue such orders,
    not inconsistent with this chapter, as may be necessary in the
    execution of its functions." 47 U.S.C. § 154(i). Prior to the
    enactment of section 254 (as part of the 1996 Act), sections 1 and
    4(i) provided authority for the Commission's adoption of a universal
    service fund. *See Rural Telephone Coalition v. FCC*, 838 F.2d 1307
    (D.C. Cir. 1988). *See also New England Telephone and Telegraph Co.
    v. FCC*, 826 F.2d 1101, 1107 (D.C. Cir. 1987) (describing section
    4(i) as a "wide-ranging source of authority"), *cert. denied*, 490
    U.S. 1039 (1989).

[^2105]: *Policy and Rules Concerning Rates for Competitive Common
    Carrier Services and Facilities Authorizations Therefor*, CC Docket
    No. 79-252, Notice of Inquiry and Proposed Rulemaking, 77 FCC 2d 308
    (1979); First Report and Order, 85 FCC 2d 1 (1980) (*Competitive
    Carrier First Report and Order*); Further Notice of Proposed
    Rulemaking, 84 FCC 2d 445 (1981); Second Further Notice of Proposed
    Rulemaking, FCC 82-187, 47 Fed. Reg. 17308 (1982); Second Report and
    Order, 91 FCC 2d 59 (1982) (*Competitive Carrier Second Report and
    Order*); Order on Reconsideration, 93 FCC 2d 54 (1983); Third
    Further Notice of Proposed Rulemaking, 48 Fed. Reg. 28292 (1983);
    Third Report and Order, 48 Fed. Reg. 46791 (1983); Fourth Report and
    Order, 95 FCC 2d 554 (1983) (*Competitive Carrier Fourth Report and
    Order*), *vacated, AT&T v. FCC*, 978 F.2d 727 (D.C. Cir. 1992),
    Fifth Report and Order, 98 FCC 2d 1191 (1984) (*Competitive Carrier
    Fifth Report and Order*); Sixth Report and Order, 99 FCC 2d 1020
    (1985), *vacated, MCI Telecomms. Corp. v. FCC*, 765 F.2d 1186 (D.C.
    Cir. 1985) (*Competitive Carrier Sixth Report and Order*), *aff\'d,
    MCI v. AT&T*, 512 U.S. 218 (1994) (collectively, the *Competitive
    Carrier* proceeding); *see* 47 C.F.R. § 61.3(q), (y).

[^2106]: *Competitive Carrier First Report and Order*, 85 FCC 2d at
    10--11, para. 26.

[^2107]: *See* *Section 272(f)(1) Sunset of the BOC Separate Affiliate
    and Related Requirements;* *2000 Biennial Regulatory Review Separate
    Affiliate Requirements of Section 64.1903 of the Commission's
    Rules*, WC Docket No. 02-112; CC Docket No. 00-175, Report and Order
    and Memorandum Opinion and Order, 22 FCC Rcd 16440, 16484, para. 90
    (2007).

[^2108]: For instance, the Commission has declined to regulate the SLCs
    of competitive LECs. *See Cost Review Proceeding for Residential and
    Single-Line Business Subscriber Line Charge (SLC) Caps;* *Price Cap
    Performance Review for Local Exchange Carriers*, CC Docket Nos.
    96-262, 94-1, Order, 17 FCC Rcd 10868, 10870 n.8 (2002) (subsequent
    history omitted); *see also CLEC Access Charge Order*, 16 FCC Rcd at
    9955, para. 81 (stating that competitive LECs competing with CALLS
    incumbent LECs are free to build into their end-user rates a
    component equivalent to the incumbent LEC's SLC).

[^2109]: *See, e.g*., T-Mobile Oct. 3, 2008 *Ex Parte* Letter at 9 &
    n.14 (arguing that "any ICC replacement mechanism be fully portable
    to competitive carriers in order to fulfill the principles of
    competitive and technological neutrality."). Sprint argues that a
    fund that compensates only incumbent LECs (and not competitive LECs,
    wireless carriers, and IXCs) for lost access revenues is "blatantly
    anti-competitive." Letter from Anna M. Gomez, Vice President of
    Government Affairs, Sprint Nextel Corp., to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-45; WC Docket No. 04-36 at
    4 (filed Oct. 1, 2008). Many CMRS carriers maintain that any
    replacement mechanism must be fully portable to competitive carriers
    in order to fulfill the principles of competitive and technological
    neutrality. *See, e.g.*, Leap *ICC FNPRM* Reply at 18; Allied
    National *ICC FNPRM* Comments at 10; CTIA *ICC FNPRM* Comments at
    37; SouthernLINC *ICC FNPRM* Reply at 9; RCA *ICC FNPRM* Comments at
    4; US Cellular *ICC FNPRM* Comments at 4; T-Mobile *ICC FNPRM*
    Comments at 26; Dobson and American *ICC FNPRM* Comments at 10.

[^2110]: *See, e.g*., ICF *ICC FNPRM* Comments at 32--33 (stating that
    any funding should be temporary and limited to those that lose
    access revenue because of intercarrier compensation reform); USTA
    *ICC FNPRM* Comments at 40 (arguing that funding should not
    compensate wireless carriers and that it should not be portable);
    CCAP *ICC FNPRM* Reply at 14 (stating that funding "should not be
    portable to competitive eligible telecommunications carriers.");
    Letter from Susanne A. Guyer, Senior Vice President of Federal
    Regulatory Affairs, Verizon, to Marlene H. Dortch, Secretary, FCC,
    CC Docket Nos. 01-92, 96-45, Attach. at 7 (filed Oct. 12, 2008)
    (asserting that funding should compensate only LECs that have lost
    revenues because of intercarrier compensation reform); Letter from
    Curt Stamp, President, ITTA, to Marlene H. Dortch, Secretary, FCC,
    Docket Nos. 01-92, 04-36, 96-45, 05-337, Attach. at 9 (filed Oct. 3,
    2008) (arguing that the Commission should "limit duplicative
    networks" by prohibiting wireless carriers and other carriers that
    do not receive access compensation from benefiting from the fund);
    Letter from Alex J. Harris, Vice President---Regulatory, Frontier,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92, Attach.
    at 16, 18 (filed May 11, 2005) (proposing that the funding be
    confined to incumbent LECs in rural study areas but available to all
    carriers that lost access revenues in non-rural study areas); *see
    also* Letter from Brad E. Mutschelknaus, Counsel to XO
    Communications, Kelley Drye & Warren LLP, to Marlene H. Dortch,
    Secretary, FCC, CC Docket Nos. 01-92, 96-45, WC Docket No. 06-122,
    Attach. at 4 (filed Oct. 3, 2008) (contending that revenue
    replacement funding should either be "competitively neutral" or
    limited to only rate-of-return carriers).

[^2111]: Some competitive LECs claim that, in practice, they have little
    opportunity to recover their costs because the incumbent LEC, whose
    prices are regulated, effectively sets a ceiling on the prices they
    charge. *See, e.g.*, COMPTEL *Missoula Phantom Traffic* Comments at
    7. Although we acknowledge that, in a homogeneous goods market with
    a single price, such an argument might be plausible, we do not find
    such assumptions apply in modern telecommunications markets. In
    particular, with modern telecommunications technology, carriers are
    offering an expanding number of new services and marketing them
    through a variety of bundled service offerings. As a result,
    telecommunications services are becoming much more of a
    differentiated product, and competitors have greater opportunity to
    offer niche services. In light of these developments, we find
    unpersuasive arguments that competitors are effectively price
    regulated and thus do not have an opportunity to recover lost access
    revenues.

[^2112]: *See, e.g*., NCTA *ICC FNPRM* Comments at 11 (arguing that
    funding should be limited to "non-Tier 1 rural carrier\[s\]"); NTCA
    *ICC FNPRM* Comments at 56 (asserting that funding "should be
    targeted at rural ILECs exclusively"); Comments of the Rural
    Alliance, CC Docket No. 01-92 at 4 (filed Jun. 27, 2008) (stating
    that the fund should only compensate rural rate-of-return carriers
    that lose access revenues).

[^2113]: For these same reasons, should a carrier agree to (or tariff)
    intercarrier charges below those that would be required by the
    reforms adopted in this order, that carrier may not seek to obtain
    supplemental universal service support based on the difference
    between the charges it sets and the maximum charges it is allowed to
    set.

[^2114]: *Local Competition First Report and Order*, 11 FCC Rcd at
    15854, para. 699.

[^2115]: *See supra* para. 312.

[^2116]: *Universal Service Telephone Subsidies* at 33.

[^2117]: As discussed below, Lifeline customers are exempt from
    contribution assessments. *See infra* para. 137.

[^2118]: NASUCA Sept. 30, 2008 *Ex Parte* Letter at 6.

[^2119]: NASUCA July 7, 2008 *Ex Parte* Letter at 6.

[^2120]: The non-regulated costs and revenues to be included in this
    calculation are those associated with non-regulated activities
    involving the common or joint use of assets or resources in the
    provision of both regulated and non-regulated products and services.

[^2121]: Pursuant to section 61.41(d) of the Commission's rules, once a
    carrier is subject to price cap regulation, it may not "withdraw
    from such regulation." 47 C.F.R. § 61.41(d); *see also* 47 C.F.R. §
    61.41(b), (c) (requiring conversion from rate-of-return to price cap
    regulation under certain circumstances). Under section 1.3 of the
    Commission's rules, however, "any provision of the Commission's
    rules may be waived by the Commission . . . if good cause therefore
    is shown." 47 C.F.R. § 1.3. As interpreted by the courts, this
    requires that a petitioner demonstrate that "special circumstances
    warrant a deviation from the general rule and that such a deviation
    will serve the public interest." *Northeast Cellular Telephone Co.
    v. FCC*, 897 F.2d 1164 (D.C. Cir. 1990) (citing *WAIT Radio v. FCC*,
    418 F.2d 1153, 1158 (D.C. Cir. 1969)). In other circumstances in the
    past, the Commission has found good cause to waiver section 61.41(d)
    and other related provisions of the Commission's rules to enable
    operations subject to price cap regulation to convert to
    rate-of-return regulation. *See, e.g.*, *ALLTEL Corp. Petition for
    Waiver of Section 61.41 of the Commission\'s Rules and Application
    for Transfer of Control*, CCB/CPD No. 99-1, Memorandum Opinion and
    Order, 14 FCC Rcd. 14191 (1999); *CenturyTel of Northwest Arkansas,
    LLC et al., Joint Petition for Waiver of Definition of "Study Area"
    Contained in the Part 36 Appendix-Glossary of the Commission\'s
    Rules, Petition for Waiver of Sections 61.41(c) and 69.3(g)(2) of
    the Commission's Rules*, CC Docket No. 96-45, Memorandum Opinion and
    Order, 15 FCC Rcd 25437 (Acc. Pol. Div. 2000); *ALLTEL Service
    Corporation, Petition for Waiver of Section 61.41 of the
    Commission\'s Rules*, Order, 8 FCC Rcd 7054 (Com. Car. Bur. 1993)
    (granting waiver of sections 61.41(c), (d) of the Commission's
    rules). Likewise, as noted above, we find it appropriate, upon
    request, to allow price cap carriers to make a one-way election of
    rate-of-return regulation.

[^2122]: *See supra* para. 313.

[^2123]: *See*, *e*.*g*., Ad Hoc *ICC FNPRM* Reply at 10--11 (arguing
    that the Commission has no legal obligation to allow revenue
    neutrality); CTIA *ICC FNPRM* Comments at 46; Nextel *ICC FNPRM*
    Comments at 20; T-Mobile *ICC FNPRM* Comments at 13 (intercarrier
    compensation was not intended to guarantee an ILEC revenue stream or
    preserve low local rates for a given industry segment, doing so
    would perpetuate inefficiencies); NASUCA *ICC FNPRM* Reply at 34--38
    (arguing that the Commission is not required to provide for revenue
    neutrality and that revenue neutrality deviates from the
    Commission's past policy).

[^2124]: Corrected OPASTCO/WTA Oct. 29, 2008 *Ex Parte* Letter, Attach.
    at 2.

[^2125]: Corrected OPASTCO/WTA Oct. 29, 2008 *Ex Parte* Letter, Attach.
    at 2. This support will remain available at least through the ten
    year transition period adopted in this order.

[^2126]: *See supra* Part II.B.3 (describing broadband build-out
    requirement). *See also* Corrected OPASTCO/WTA Oct. 29, 2008 *Ex
    Parte* Letter, Attach. at 2.

[^2127]: We use the term "service providers" in this section to refer
    both to carriers that provide telecommunications services and to
    providers of services that originate calls on IP networks and
    terminate them on circuit switched networks.

[^2128]: Parties frequently use the term "phantom traffic" in describing
    this problem. We will not use that term in the regulations we adopt
    here because there is no consensus as to how it should be defined,
    nor is such a definition necessary for us to address the underlying
    issues faced by service providers in billing for traffic they
    receive.

[^2129]: Similarly, we believe that the transition to a uniform
    intercarrier compensation rate based on the additional costs
    methodology described above also will address the access stimulation
    concerns that have recently been raised. *See supra* para. 185. In
    the unlikely event that service providers persist in these
    activities, however, we note that the Commission has an open
    proceeding in which appropriate responses to such actions may be
    considered. *See generally* *Access Stimulation NPRM*, 22 FCC Rcd
    17989.

[^2130]: This order initiates a process of unifying terminating
    intercarrier compensation rates, thereby eliminating the rate
    distinctions between local and long distance calls. Although knowing
    the origination point of a call remains important, especially during
    the period of transition to a unified terminating rate, the
    origination point is less significant for the purpose of determining
    intercarrier compensation due.

[^2131]: *See,* *e.g*., Letter from Patrick J. Donovan, Counsel for
    PacWest Telecomm, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92 at 3--4 (filed Oct. 14, 2005).

[^2132]: SS7 is an out-of-band signaling system that is separate from,
    but runs parallel to, the public switched telephone network (PSTN)
    and is used to set up call paths between calling and called parties.
    The following steps typically occur when SS7 sets up a call path for
    a wireline LEC to wireline LEC call originating and terminating on
    the PSTN. When a wireline LEC customer dials a call destined for an
    end user served by a different wireline LEC, the calling party's LEC
    determines, based on the dialed digits, that it cannot terminate the
    call. The SS7 call signaling system then begins the process of
    identifying a path that the call will take to reach the called
    party's network. SS7 identifies each service provider in the call
    path and provides each with the called party's telephone number and
    other information related to the call, including message type and
    nature of connection indicators, forward call indicators, calling
    party's category, and user service information if that information
    was correctly populated and not altered during the signaling
    process. *See* Letter from L. Charles Keller, Counsel for Verizon
    Wireless, to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92
    at 2 (filed Sept. 13, 2005) (Verizon Wireless Sept. 13, 2005 *Ex
    Parte* Letter). SS7 was designed to facilitate call routing and was
    not designed to provide billing information to terminating carriers.
    *See* Verizon, *Verizon's Proposed Regulatory Action to Address
    Phantom Traffic* at 5--7 (Verizon Phantom Traffic White Paper),
    attached to Letter from Donna Epps, Vice President, Federal
    Regulatory Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 (filed Dec. 20, 2005). Technical content and
    format of SS7 signaling is governed by industry standards rather
    than by Commission rules, although Commission rules require carriers
    using SS7 to transmit calling party number (CPN) to subsequent
    carriers on interstate calls where it is technically feasibly to do
    so. 47 C.F.R. § 64.1601.

[^2133]: Industry standard billing records are the other common source
    of information that terminating service providers not directly
    connected to originating service providers receive about calls sent
    to their networks for termination. Billing records are typically
    created by a tandem switch that receives a call for delivery to a
    terminating network via tandem transit service. Tandem switches
    create billing records by combining CPN or Charge Number (CN)
    information from the SS7 signaling stream with information
    identifying the originating service provider to provide terminating
    service providers with information necessary for billing. *See*
    Verizon Phantom Traffic White Paper at 5--7. The tandem switch
    creating the billing record identifies service providers from whom
    it receives traffic using the trunk group number (TGN) of the trunk
    on which a call arrives. *See* Verizon Phantom Traffic White Paper
    at 4; *see also* Letter from Glenn T. Reynolds, Vice
    President---Federal Regulatory, BellSouth, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 01-92, Attach. at 5 (filed Jan. 12,
    2006) (BellSouth Jan. 12, 2006 *Ex Parte* Letter). The tandem switch
    translates the TGN into one of two codes identifying the originating
    the service provider: Carrier Identification Code (CIC) if the
    originating service provider is an IXC, or Operating Company Number
    (OCN) for non-IXC calls. The appropriate CIC or OCN is then added,
    by the tandem switch, if it is equipped to record such information,
    to the billing record for the call, which is then forwarded to the
    terminating service provider. *See* Verizon Phantom Traffic White
    Paper at 5--7; *see* *also* Verizon *ICC FNPRM* Reply at 16. Service
    providers delivering billing records typically use the Exchange
    Message Interface (EMI) format created and maintained by the
    Alliance for Telecommunications Industry Solutions Ordering and
    Billing Forum (ATIS/OBF), an industry standards setting group. *See*
    ATIS Exchange Message Interface 22 Revision 2, ATIS Document number
    0406000-02200 (July 2005).

[^2134]: *See* Verizon Phantom Traffic White Paper at 5--7.

[^2135]: The Commission recognized that the ability of service providers
    to identify the provider to bill appropriate intercarrier
    compensation payments depends, in part, on billing records generated
    by intermediate service providers. Thus, the Commission sought
    comment on whether current rules and industry standardscreate
    billing records that are sufficiently detailed to permit
    determinations of the appropriate compensation due. *See
    Intercarrier Compensation FNPRM*, 20 FCC Rcd at 4743, para. 133.

[^2136]: For example, when a call bound for a number that has been
    ported to a different service provider is delivered without the
    responsible service provider performing a local number portability
    (LNP) query, the call may be delivered to the wrong end office and
    then may be re-routed to a tandem switch for delivery to the correct
    end office. *See* Verizon Phantom Traffic White Paper at 18--19.
    According to Verizon, neither the end office that re-routes the call
    nor the tandem switch receiving the rerouted call are able to route
    the call over an access trunk; the call must be sent over a local
    interconnection trunk. *See id*. In this scenario, the terminating
    carrier may have difficulty billing the appropriate charges to the
    IXC that sent the call.

[^2137]: *See* Letter from Stephen T. Perkins, General Counsel, Cavalier
    Telephone, LLC, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92 at 1 (filed Sept. 29, 2005). *See also* Letter from Donna
    Epps, Vice President, Federal Regulatory Advocacy, Verizon, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 10 (filed
    Oct. 21, 2005).

[^2138]: *See* Letter from Donna Epps, Vice President---Federal
    Regulatory Advocacy, Verizon, to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92, Attach. at 5 (filed Aug. 1, 2005); Verizon
    Wireless Sept. 13, 2005 *Ex Parte* Letter at 2.

[^2139]: Verizon Wireless Sept. 13, 2005 *Ex Parte* Letter at 3.

[^2140]: *See, e.g.*, Balhoff and Rowe *ICC FNPRM* Reply at 10;
    California Small LECs *ICC FNPRM* Comments at 9; ITCI *ICC FNPRM*
    Reply at 7; Montana Independent Telecommunications Systems (MITS) et
    al. *ICC FNPRM* Comments at 14, 20; MITS et al. *ICC FNPRM* Reply at
    23--24, 33; NECA *ICC FNPRM* Comments at 16; Rural Alliance *ICC
    FNPRM* Comments at 108; SureWest *ICC FNPRM* Comments at 7; TDS *ICC
    FNPRM* Comments at 10; BellSouth Jan. 11, 2006 *Ex Parte* Letter at
    6.

[^2141]: *See, e.g.*, Letter from Glenn T. Reynolds, Vice President,
    Policy, USTA, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92 (filed Feb. 12, 2008) (USTA Feb. 12, 2008 Proposal). *See
    Developing a Unified Intercarrier Compensation Regime,* CC Docket
    No. 01-92, NECA Petition for Interim Order (filed Jan. 22, 2008)
    (NECA Petition).

[^2142]: *See, e.g.*, NARUC Task Force July 24, 2006 *Ex Parte* Letter,
    Attach. 2; Letter from Supporters of the Missoula Plan to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Nov. 6, 2006)
    (Missoula Plan Supporters Nov. 6 *Ex Parte* Letter or Missoula Plan
    Call Signaling Proposal); Letter from Donna Epps, Vice President,
    Federal Regulatory Advocacy, Verizon, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 01-92 (filed Apr. 4, 2006); Letter
    from Jeffrey S. Lanning, Associate General Counsel, USTA, to Marlene
    H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Mar. 30, 2006)
    (MCC/USTA Proposal); Letter from Karen Brinkmann, Attorney for the
    MidSize Carrier Coalition, to Marlene H. Dortch, Secretary, FCC, CC
    Docket No. 01-92 (filed Mar. 31, 2006) (supporting MCC/USTA
    Proposal).

[^2143]: *See* USTA Feb. 12, 2008 Proposal; *see also* Letter from
    Melissa E. Newman, Vice President---Federal Regulatory, Qwest, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Sept.
    24, 2008); Letter from Curt Stamp, President, ITTA, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92 at 2, filed Sept. 19,
    2008); Letter from Eric Einhorn, Vice president, Federal Government
    Affairs, Windstream, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92 et al. (filed Sept. 24, 2008); Comments of Windstream, CC
    Docket Nos. 99-68, 01-92, 96-45, WC Docket Nos. 08-152, 07-135,
    04-36, 06-122, 05-337 at 16 (filed Aug. 21, 2008); Letter from
    Gregory J. Vogt, Counsel for CenturyTel, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 01-92 (filed Aug. 6, 2008); Letter
    from Henry Hultquist, Vice President, Federal Regulatory, AT&T, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 (filed July
    17, 2008).

[^2144]: The rules we adopt herein reflect the Commission's
    determinations regarding how to address call signaling problems as
    they relate to unidentified and unbillable traffic. Therefore, we
    disagree with commenters requesting that we adopt alternative
    proposals such as the NECA petition or the Missoula Plan Call
    Signaling Proposal. *See,* *e.g.*, Letter from Robert F. Aldrich,
    Counsel to the American Public Communications Council, to Marlene H.
    Dortch, Secretary, FCC, CC Docket Nos. 96-45, 01-92 (filed Oct. 21,
    2008).

[^2145]: *See, e.g.*, Letter from Paul Garnett, Director, Regulatory
    Policy, CTIA, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92 at 3 (filed Jan. 3, 2006); Letter from Donna Epps, Vice
    President, Federal Regulatory Advocacy, Verizon, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Mar. 30, 2006).

[^2146]: The rules we amend in this order were adopted in a 1995 order
    addressing Caller ID services. *See Rules and Policies Regarding
    Calling Number Identification Service -- Caller ID*, CC Docket No.
    91-281, Memorandum Opinion and Order on Reconsideration, Second
    Report and Order and Third Further Notice of Proposed Rulemaking, 10
    FCC Rcd 11700, 11728, para. 79 (1995) (*Caller ID Order*). In the
    *Caller ID Order*, the Commission found, inter alia, that the CPN
    based services to which the rules adopted apply are
    "jurisdictionally mixed" and the Commission therefore preempted an
    inconsistent state statute. *Id.* at 11722--23, paras. 62, 85. For
    these same reasons, to the extent the amendments we make to our call
    signaling rules in this order conflict with any current or future
    state statutes, those statutes are preempted. *See id.* at
    11728--34, paras*.* 78--95*.*

[^2147]: *See* USTA Feb. 12, 2008 Proposal.

[^2148]: *See, e.g.*, USTA Feb. 12, 2008 Proposal; NECA Petition.

[^2149]: Because we agree that requiring population of CPN is the best
    way to ensure that complete and accurate information about a call
    gets to the terminating service provider for that call, we disagree
    with proposals to exclude certain types of traffic from this
    requirement. *See, e.g.*, Letter from Jim Kohlenberger, Executive
    Director, The VON Coalition, to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92, WC Docket 04-36 at 6 (filed Oct. 28, 2008). We
    note that parties are free to contract with third parties to ensure
    that these requirements are met. *Cf., e.g.*, *LNP Order*, 22 FCC
    Rcd 19531 (holding that, where interconnected VoIP providers rely on
    other carriers for access to numbers, both parties must take the
    steps needed to comply with the number porting obligations
    established in that order); *Interconnected VoIP 911 Order*, 20 FCC
    Rcd 10245 (finding that interconnected VoIP providers might elect to
    comply with their 911 obligations in party by relying on services
    provided by third parties).

[^2150]: We take a cautious approach in considering any new or revised
    signaling requirements. SS7 was designed to facilitate call setup
    and routing, and action we take here is not intended to interfere
    with the ability of calls to reach their intended recipient. As
    Verizon Wireless explains, certain SS7 fields are considered
    mandatory, while others (including CPN, CN, and JIP) are considered
    optional. *See* Verizon Wireless Sept. 13, 2005 *Ex Parte* Letter at
    2. The distinction is significant, because a call will not be
    completed if a mandatory field has not been populated. *See* Letter
    from Thomas Goode, Associate General Counsel, ATIS, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92, Attach. (filed Feb. 10,
    2006). Although CPN is considered optional in the industry standard,
    our rules, before and after amendment pursuant to this order,
    require service providers to pass CPN in specified circumstances.
    *See* 47 C.F.R § 64.1601.

[^2151]: *See* 47 C.F.R. § 64.1601.

[^2152]: *See* *supra* note 862.

[^2153]: *See* Missoula Plan at 56; Letter from Brad E. Mutschelknaus,
    Counsel for XO, to Marlene H. Dortch, Secretary, FCC, CC Docket No.
    01-92 at 11--12 (filed Feb. 14, 2006).

[^2154]: *See,* *e.g.*, NECA Petition; Letter from Cheryl A. Tritt,
    Counsel for T-Mobile USA, Inc. to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 at 6 (filed Feb. 2, 2006); Verizon Phantom
    Traffic White Paper at 8--10.

[^2155]: *See* Verizon Phantom Traffic White Paper at 8.

[^2156]: *See* Verizon Phantom Traffic White Paper at 9--10. For
    example, Verizon states that on a call to a party that has forwarded
    its number, the called party's service provider will replace the
    caller's CN with the called party's CN before sending the call to
    the forward location.

[^2157]: 47 C.F.R. § 64.1601(d).

[^2158]: *See, e.g.*, EPG Proposal at 2 ("All messages that are not
    properly labeled would be billed at the highest prevailing
    intercarrier compensation rate to the interconnecting carrier
    delivering the traffic."); ARIC Plan at 55; CenturyTel *ICC FNRPM*
    Comments at 6; Hickory *ICC FNPRM* Comments at 2 ; JSI *ICC FNPRM*
    Comments at 4--6; Colorado Telecom Ass'n et al. *ICC FNPRM* Reply at
    13, TDS Telecom *ICC FNPRM* Reply 14, JSI *Missoula Phantom Traffic*
    Comments at 4--6; RICA *Missoula Phantom Traffic* Comments at 2--3;
    TexalTel *Missoula Phantom Traffic* Comments at 7--8; Cavalier
    *Missoula Phantom Traffic* Comments at 2--3; PAPUC *Missoula Phantom
    Traffic* Reply at 8.

[^2159]: We agree with commenters who note that intermediate service
    providers that provide, to subsequent service providers in a call
    path, information sufficient to identify the provider that delivered
    the traffic to the intermediate provider should not be responsible
    for terminating intercarrier payments for that traffic. *See, e.g.*,
    Letter from Susanne A. Guyer, Senior Vice President -- Federal
    Regulatory Affairs, Verizon, to Chairman Kevin Martin et al., FCC,
    CC Docket Nos. 96-45, 01-92 at 2 (filed Oct. 28, 2008); Letter from
    Mark D. Schneider, Counsel, Neutral Tandem, to Marlene H. Dortch,
    Secretary, FCC, CC Docket No. 01-92 at 2 (filed Oct. 28, 2008);
    Letter from Tamar E. Finn, Counsel, Zayo Group, LLC, to Marlene H.
    Dortch, Secretary, FCC, CC Docket Nos. 01-92, 99-68 at 2 (filed Oct.
    28, 2008).

[^2160]: ARIC Plan at 55.

[^2161]: *See, e.g.*, Letter from Donna Epps, Vice President, Federal
    Regulatory, Verizon, to Marlene H. Dortch, Secretary, FCC, CC Docket
    No. 01-92 (filed July 7, 2007); Letter from Charles W. McKee,
    Director---Government Affairs, Federal Regulatory, Sprint Nextel, to
    Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed
    Apr. 20, 2007) (Sprint Nextel April 20, 2007 *Ex Parte* Letter);
    Letter from Charon Phillips, Director---Government Affairs, Federal
    Regulatory, Verizon Wireless, to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 at 2 (filed Mar. 13, 2007).

[^2162]: *See, e.g*., Verizon *Missoula Phantom Traffic* Reply at 5--6.

[^2163]: *See* Sprint Nextel April 20, 2007 *Ex Parte* Letter at 2.

[^2164]: *See* Missoula Plan Supporters *Missoula Phantom Traffic* Reply
    at 11--12.

[^2165]: *See* USTA Feb. 12, 2008 Proposal.

[^2166]: *See, e.g.*, Letter from Brad Mutschelknaus, Counsel to
    Broadview Networks et al. to Kevin J. Martin et al., FCC, CC Docket
    No. 01-92 (filed Oct. 22, 2008); Letter from Henry T. Kelly, Counsel
    to Peerless Networks to Marlene H. Dortch, Secretary, FCC, CC Docket
    Nos. 01-92 et al. (filed Sept. 16, 2008); Letter from Charles W.
    McKee, Director---Government Affairs, Sprint Nextel, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92 (filed Apr. 16, 2008);
    Letter from Thomas Cohen, Edward A. Yorkgitis, Jr., Counsel for
    NuVox Communications et al., to Marlene H. Dortch, Secretary, FCC,
    CC Docket No. 01-92 at 2 (filed Mar. 11, 2008); Letter from Daniel
    L. Brenner, Senior Vice President, Law and Regulatory Policy, NCTA,
    to Marlene H. Dortch, Secretary, FCC, CC Docket No. 01-92 at 2
    (filed Feb. 29, 2008); Letter from Paul Garnett, CTIA, to Marlene H.
    Dortch, Secretary, FCC, CC Docket No. 01-92 at 2 (filed Feb. 25,
    2008).

[^2167]: The USTA Feb 12, 2008 Proposal also sought certain enforcement
    commitments related to our call signaling rules. In this regard,
    USTA's proposal did not seek anything beyond the ordinary course of
    business. As with any of our rules, the Commission is committed to
    resolving complaints expeditiously and will not hesitate to initiate
    enforcement proceedings against rule violators.

[^2168]: *See supra* para. 188.

[^2169]: 47 C.F.R. § 52.12(f)(2).

[^2170]: *E.g.*, 47 C.F.R. § 52.12(e)(i) ("*Administrative numbers* are
    numbers used by telecommunications carriers . . . ."); *id.* §
    52.12(e)(v) ("*Intermediate numbers* are numbers that are made
    available . . . for the purpose of providing telecommunications
    service . . . .").

[^2171]: *See supra* para. 229.

[^2172]: *Intercarrier Compensation FNPRM*, 20 FCC Rcd at 4737--38,
    para. 120. Typically, the intermediary carrier is an incumbent LEC
    and the transited traffic is routed from the originating carrier
    through the incumbent LEC's tandem switch to the terminating
    carrier. The intermediary (transiting) carrier then charges a fee
    for use of its facilities. *See id.* We note that carriers have
    various agreements governing the provision of transit traffic. *See
    id.*

[^2173]: *See* 47 C.F.R. Part 51.

[^2174]: *See* 47 C.F.R. Part 54.

[^2175]: *See* 47 C.F.R. Part 61.

[^2176]: *See* 47 C.F.R. Part 69.

[^2177]: 47 C.F.R. § 1.200 *et seq*.

[^2178]: *See* 47 C.F.R. § 1.1206(b)(2).

[^2179]: 47 C.F.R. § 1.1206(b).

[^2180]: 47 C.F.R. §§ 1.415, 1.419.

[^2181]: *See* 5 U.S.C. § 603.

[^2182]: *See* 5 U.S.C. § 603. The RFA, *see* U.S.C. § 601 *et seq*.,
    has been amended by the Contract with America Advancement Act of
    1996, Pub. L. No. 104-121, 110 Stat. 847 (1996) ("CWAAA"). Title II
    of the CWAAA is the Small Business Regulatory Enforcement Fairness
    Act of 1996 ("Small Business Act").

[^2183]: *See* 44 U.S.C. § 3506(c)(4).

[^2184]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. §§ 601--612, has
    been amended by the Small Business Regulatory Enforcement Fairness
    Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857
    (1996).

[^2185]: *See* 5 U.S.C. § 603(a).

[^2186]: *See id*.

[^2187]: *See* 5 U.S.C. § 603(b)(3).

[^2188]: *See* 5 U.S.C. § 601(6).

[^2189]: *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). Pursuant to 5 U.S.C. § 601(3), the statutory
    definition of a small business applies "unless an agency, after
    consultation with the Office of Advocacy of the Small Business
    Administration and after opportunity for public comment, establishes
    one or more definitions of such term which are appropriate to the
    activities of the agency and publishes such definition(s) in the
    Federal Register."

[^2190]: *See* 15 U.S.C. § 632.

[^2191]: 13 C.F.R. § 121.201, U.S. Census Bureau, 2002 Economic Census,
    Subject Series: Information, "Establishment and Firm Size (Including
    Legal Form of Organization)," North American Industry Classification
    System (NAICS) code 517110.

[^2192]: 13 C.F.R. § 121.201, NAICS code 517110.

[^2193]: *See id*.

[^2194]: 13 C.F.R. § 121.201, NAICS code 517110.

[^2195]: *See Trends in Telephone Service*, Federal Communications
    Commission, Wireline Competition Bureau, Industry Analysis and
    Technology Division at Table 5.3 (Aug. 2008) (*Trends in Telephone
    Service*).

[^2196]: *See id*.

[^2197]: *See* 13 C.F.R. § 121.201, NAICS code 517110.

[^2198]: *See Trends in Telephone Service* at Table 5.3.

[^2199]: *See id*.

[^2200]: 5 U.S.C. § 601(3).

[^2201]: *See* Letter from Jere W. Glover, Chief Counsel for Advocacy,
    SBA, to William E. Kennard, Chairman, FCC (May 27, 1999). The Small
    Business Act contains a definition of "small business concern,"
    which the RFA incorporates into its own definition of "small
    business." *See* 15 U.S.C. § 632(a); *see also* 5 U.S.C. § 601(3).
    SBA regulations interpret "small business concern" to include the
    concept of dominance on a national basis. *See* 13 C.F.R. §
    121.102(b).

[^2202]: *See* 13 C.F.R. § 121.201, NAICS code 517110.

[^2203]: *See Trends in Telephone Service* at Table 5.3.

[^2204]: *See id.*

[^2205]: *See id*.

[^2206]: *See id*.

[^2207]: *See id*.

[^2208]: *See* 13 C.F.R. § 121.201, NAICS code 517110.

[^2209]: *See Trends in Telephone Service* at Table 5.3.

[^2210]: *See id.*

[^2211]: *See* 13 C.F.R. § 121.201, NAICS code 517110.

[^2212]: *See Trends in Telephone Service* at Table 5.3.

[^2213]: *See id*.

[^2214]: *See* 13 C.F.R. § 121.201, NAICS code 517110.

[^2215]: *See Trends in Telephone Service* at Table 5.3.

[^2216]: *See id*.

[^2217]: *See* 13 C.F.R. § 121.201, NAICS code 517911.

[^2218]: *See Trends in Telephone Service* at Table 5.3.

[^2219]: *See id*.

[^2220]: *See* 13 C.F.R. § 121.201, NAICS code 517911.

[^2221]: *See Trends in Telephone Service* at Table 5.3.

[^2222]: *See id*.

[^2223]: *See* 13 C.F.R. § 121.201, NAICS code 517911.

[^2224]: *See Trends in Telephone Service* at Table 5.3.

[^2225]: *See id*.

[^2226]: *See* 13 C.F.R. § 121.201, NAICS code 517110.

[^2227]: *See Trends in Telephone Service* at Table 5.3.

[^2228]: *See id*.

[^2229]: We include all toll-free number subscribers in this category,
    including those for 888 numbers.

[^2230]: *See* 13 C.F.R. § 121.201, NAICS code 517911.

[^2231]: *See Trends in Telephone Service* at Tables 18.4, 18.5, 18.6,
    18.7.

[^2232]: *See id*.

[^2233]: *See* 13 C.F.R. § 121.201, NAICS code 517210. 2007 Census data
    are not yet available.

[^2234]: *See* 13 C.F.R. § 121.201, NAICS codes 517211, 517212.

[^2235]: *See* 13 C.F.R. § 121.201, NAICS code 517211.

[^2236]: *Id.* The census data do not provide a more precise estimate of
    the number of firms that have employment of 1,500 or fewer
    employees; the largest category provided is for firms with "1,000
    employees or more."

[^2237]: *See* 13 C.F.R. § 121. 201, NAICS code 517212.

[^2238]: *See id.* The census data do not provide a more precise
    estimate of the number of firms that have employment of 1,500 or
    fewer employees; the largest category provided is for firms with
    "1,000 employees or more."

[^2239]: *See Trends in Telephone Service* at Table 5.3.

[^2240]: *See id*.

[^2241]: *See generally Amendment of Parts 20 and 24 of the Commission's
    Rules -- Broadband PCS Competitive Bidding and the Commercial Mobile
    Radio Service Spectrum Cap*, WT Docket No. 96-59, GN Docket No.
    90-314, Report and Order, 11 FCC Rcd 7824 (1996); *see also* 47
    C.F.R. § 24.720(b)(1).

[^2242]: *See generally Amendment of Parts 20 and 24 of the Commission's
    Rules -- Broadband PCS Competitive Bidding and the Commercial Mobile
    Radio Service Spectrum Cap*, WT Docket No. 96-59, GN Docket No.
    90-314, Report and Order, 11 FCC Rcd 7824 (1996); *see also* 47
    C.F.R. § 24.720(b)(2).

[^2243]: *See, e.g.*, *Implementation of Section 309(j) of the
    Communications Act -- Competitive Bidding*, PP Docket No. 93-253,
    Fifth Report and Order, 9 FCC Rcd 5532 (1994).

[^2244]: *See* FCC News, Broadband PCS, D, E and F Block Auction Closes,
    No. 71744 (rel. Jan. 14, 1997). *See also* *Amendment of the
    Commission's Rules Regarding Installment Payment Financing for
    Personal Communications Services (PCS) Licensees*, WT Docket No.
    97-82, Second Report and Order and Further Notice of Proposed
    Rulemaking, 12 FCC Rcd 16436 (1997).

[^2245]: *See generally Amendment of the Commission's Rules to Establish
    New Personal Communications Services, Narrowband PCS*, GEN Docket
    No. 90-314, ET Docket No. 92-100, PP Docket No. 93-253, Second
    Report and Order and Second Further Notice of Proposed Rulemaking,
    15 FCC Rcd 10456 (2000).

[^2246]: *See* Letter to Amy Zoslov, Chief, Auctions and Industry
    Analysis Division, Wireless Telecommunications Bureau, FCC, from
    Aida Alvarez, Administrator, SBA (Dec. 2, 1998).

[^2247]: *See* 47 C.F.R. § 24.321(a).

[^2248]: *See* 13 C.F.R. § 121.201, NAICS code 517211 (This category
    will be changed for purposes of the 2007 Census to "Wireless
    Telecommunications Carriers (except Satellite)," NAICS code
    517210.).

[^2249]: *See Amendment of Part 90 of the Commission's Rules to Provide
    for the Use of the 220-222 MHz Band by the Private Land Mobile Radio
    Service*, PR Docket No. 89-552, GN Docket No. 93-252, PP Docket No.
    93-253, Third Report and Order and Fifth Notice of Proposed
    Rulemaking, 12 FCC Rcd 10943, 11068­--70, paras. 291--295 (1997)
    (*220 MHz Third Report and Order*).

[^2250]: *See* Letter to Amy Zoslov, Chief, Auctions and Industry
    Analysis Division, Wireless Telecommunications Bureau, FCC, from A.
    Alvarez, Administrator, SBA (Dec. 2, 1998).

[^2251]: *See Revision of Part 22 and Part 90 of the Commission's Rules
    to Facilitate Future Development of Paging Systems*, WT Docket No.
    96-18, PR Docket No. 93-253, Memorandum Opinion and Order on
    Reconsideration and Third Report and Order, 14 FCC Rcd 10030,
    10085--88, paras. 98--107 (1999) (*Paging Third Report and Order*).

[^2252]: *See Trends in Telephone Service* at Table 5.3.

[^2253]: *See id*.

[^2254]: *See* 13 C.F.R. § 121.201, NAICS code 517212. (This category
    will be changed for purposes of the 2007 Census to "Wireless
    Telecommunications Carriers (except Satellite)," NAICS code
    517201.).

[^2255]: *See id*.

[^2256]: *See Trends in Telephone Service* at Table 5.3.

[^2257]: *See id*.

[^2258]: *See* 13 C.F.R. § 121.201, NAICS code 517212.

[^2259]: *See 220 MHz Third Report and Order*, 12 FCC Rcd at 11068--70,
    at paras. 291--95.

[^2260]: *See id*. at 11068--69, para. 291.

[^2261]: *See id*. at 11068--70, paras. 291--95.

[^2262]: *See* Letter to D. Phythyon, Chief, Wireless Telecommunications
    Bureau, FCC, from Aida Alvarez, Administrator, SBA (Jan. 6, 1998).

[^2263]: *See Phase II* *220 MHz Service Auction Closes*, Public Notice,
    14 FCC Rcd 605 (1998).

[^2264]: *See Phase II 220 MHz Service Spectrum Auction Closes*, Public
    Notice, 14 FCC Rcd 11218 (1999).

[^2265]: *See* 47 C.F.R. § 90.814(b).

[^2266]: *See* *Service Rules for the 746-764 and 776-794 MHz Bands, and
    Revisions to Part 27 of the Commission's Rules*, WT Docket No.
    99-168, Second Report and Order, 15 FCC Rcd 5299 (2000) (*700 MHz
    Guard Band Order*).

[^2267]: *See id*. at 5343--45 paras. 106--10.

[^2268]: *See id*.

[^2269]: *See 700 MHz Guard Band Auction Closes*, Public Notice, 15 FCC
    Rcd 18026 (2000).

[^2270]: *See 700 MHz Guard Band Auction Closes*, Public Notice, 16 FCC
    Rcd 4590 (2001).

[^2271]: *See* 47 C.F.R. § 22.99.

[^2272]: *See* 47 C.F.R. §§ 22.757, 22.759.

[^2273]: *See* 13 C.F.R. § 121.201, NAICS code 517212 (This category
    will be changed for purposes of the 2007 Census to "Wireless
    Telecommunications Carriers (except Satellite)," NAICS code
    517210.).

[^2274]: *See* 47 C.F.R. § 22.99.

[^2275]: *See* 13 C.F.R. § 121.201, NAICS code 517212 (This category
    will be changed for purposes of the 2007 Census to "Wireless
    Telecommunications Carriers (except Satellite)," NAICS code
    517210.).

[^2276]: *See* 13 C.F.R. § 121.201, NAICS code 517212 (This category
    will be changed for purposes of the 2007 Census to "Wireless
    Telecommunications Carriers (except Satellite)," NAICS code
    517210.).

[^2277]: *See generally Amendment of the Commission's Rules Concerning
    Maritime Communications*, PR Docket No. 92-257, Third Report and
    Order and Memorandum Opinion and Order, 13 FCC Rcd 19853, 19884--88
    paras. 64--73 (1998).

[^2278]: *See id*.

[^2279]: *See* 47 C.F.R. §§ 101 *et seq*. (formerly, Part 21 of the
    Commission's Rules) for common carrier fixed microwave services
    (except Multipoint Distribution Service).

[^2280]: Persons eligible under parts 80 and 90 of the Commission's
    Rules can use Private Operational-Fixed Microwave services. *See* 47
    C.F.R. Parts 80 and 90. Stations in this service are called
    operational-fixed to distinguish them from common carrier and public
    fixed stations. Only the licensee may use the operational-fixed
    station, and only for communications related to the licensee's
    commercial, industrial, or safety operations.

[^2281]: Auxiliary Microwave Service is governed by Part 74 of Title 47
    of the Commission's Rules. *See* 47 C.F.R. Part 74. This service is
    available to licensees of broadcast stations and to broadcast and
    cable network entities. Broadcast auxiliary microwave stations are
    used for relaying broadcast television signals from the studio to
    the transmitter, or between two points such as a main studio and an
    auxiliary studio. The service also includes mobile television
    pickups, which relay signals from a remote location back to the
    studio.

[^2282]: *See* 13 C.F.R. § 121.201, NAICS code 517212 (This category
    will be changed for purposes of the 2007 Census to "Wireless
    Telecommunications Carriers (except Satellite)," NAICS code
    517210.).

[^2283]: This service is governed by Subpart I of Part 22 of the
    Commission's Rules. *See* 47 C.F.R. §§ 22.1001--1037.

[^2284]: *See* 13 C.F.R. § 121.201, NAICS code 517212 (This category
    will be changed for purposes of the 2007 Census to "Wireless
    Telecommunications Carriers (except Satellite)," NAICS code
    517210.).

[^2285]: *See id*.

[^2286]: *See* 13 C.F.R. § 121.201, NAICS code 517212 (This category
    will be changed for purposes of the 2007 Census to "Wireless
    Telecommunications Carriers (except Satellite)," NAICS code
    517210.).

[^2287]: *See Amendment of the Commission's Rules Regarding the
    37.0-38.6 GHz and 38.6-40.0 GHz Bands*, ET Docket No. 95-183, PP
    Docket No. 93-253, Report and Order, 12 FCC Rcd 18600, 18661--64,
    paras. 149--151 (1997).

[^2288]: *See id.*

[^2289]: *See* Letter to Kathleen O'Brien Ham, Chief, Auctions and
    Industry Analysis Division, Wireless Telecommunications Bureau, FCC,
    from Aida Alvarez, Administrator, SBA (Feb. 4, 1998).

[^2290]: MDS, also known as Multichannel Multipoint Distribution Service
    (MMDS) has been renamed the Broadband Radio Service (BRS) and is
    regulated by Part 27 of the Commission's rules; *see* 47 C.F.R. Part
    27, subpart M. *See* *Amendment of Parts 1, 21, 73, 74 and 101 of
    the Commission's Rules to Facilitate the Provision of Fixed and
    Mobile Broadband Access, Educational and Other Advanced Services in
    the 2150-2162 and 2500-2690 MHz Bands*, WT Docket Nos. 03-66, 03-67,
    02-68, 00-230, MM Docket No. 97-217, RM-10586, RM-9718, Report and
    Order and Further Notice of Proposed Rulemaking, 19 FCC Rcd 14165
    (2004) (*MDS/ITFS Order*).

[^2291]: ITFS, an educational service, has been renamed the Educational
    Broadband Service (EBS); *see generally*, *MDS/ITFS Order*, 19 FCC
    Rcd 14165 (2004). EBS systems are regulated by Part 76 of the
    Commission's rules; *see* 47 C.F.R. Part 76.

[^2292]: *See* *generally Annual Assessment of the Status of Competition
    in the Market for the Delivery of Video Programming,* MB Docket No.
    06-189, Notice of Inquiry*,* 21 FCC Rcd 12229, 12253, para. 71
    (2006) (in which the Commission seeks industry comment on new uses
    of traditional cable systems).

[^2293]: *See id*.

[^2294]: *See Rulemaking to Amend Parts 1, 2, 21, and 25 of the
    Commission's Rules to Redesignate the 27.5-29.5 GHZ Frequency Band,
    to Reallocate the 29.5-30.0 GHZ Frequency Band, to Establish Rules
    and Policies for Local Multipoint Distribution Service and for Fixed
    Satellite Services*, CC Docket No. 92-297, Second Report and Order,
    Order on Reconsideration, Fifth Notice of Proposed Rulemaking, 12
    FCC Rcd 12545 (1997) (*LMDS Order*).

[^2295]: *See* 13 C.F.R. § 121.201, NAICS code 517510.

[^2296]: MDS Auction No. 6 began on Nov. 13, 1995, and closed on Mar.
    28, 1996 (67 bidders won 493 licenses).

[^2297]: *See generally Amendment of Parts 21 and 74 of the Commission's
    Rules with Regard to Filing Procedures in the Multipoint
    Distribution Service and in the Instructional Television Fixed
    Service*, MM Docket No. 94-131, Report and Order, 10 FCC Rcd 9589
    (1995).

[^2298]: Hundreds of stations were licensed to incumbent MDS licensees
    prior to implementation of Section 309(j) of the Communications Act
    of 1934. *See* 47 U.S.C. § 309(j). For these pre-auction licenses,
    the applicable standard is SBA's small business size standards for
    "other telecommunications" (annual receipts of \$13.5 million or
    less). *See* 13 C.F.R. § 121.201, NAICS code 517910.

[^2299]: *See* 13 C.F.R. § 121.201, NAICS code 517510.

[^2300]: In addition, the term "small entity" under SBREFA applies to
    small organizations (nonprofits) and to small governmental
    jurisdictions (cities, counties, towns, townships, villages, school
    districts, and special districts with populations of less than
    50,000). *See* 5 U.S.C. §§ 601(4)--(6). We do not collect annual
    revenue data on ITFS (now EBS) licensees.

[^2301]: The Commission has held two LMDS auctions: Auction 17 and
    Auction 23. Auction No. 17, the first LMDS auction, began on Feb.
    18, 1998, and closed on Mar. 25, 1998. (104 bidders won 864
    licenses.) Auction No. 23, the LMDS re-auction, began on Apr. 27,
    1999, and closed on May 12, 1999. (40 bidders won 161 licenses.)

[^2302]: *See generally LMDS* *Order,* 12 FCC Rcd 12545 (1997).

[^2303]: *See id.*

[^2304]: *See* Letter to Daniel Phythyon, Chief, Wireless
    Telecommunications Bureau (FCC) from A. Alvarez, Administrator, SBA
    (Jan. 6, 1998).

[^2305]: *See generally Implementation of Section 309(j) of the
    Communications Act -- Competitive Bidding*, PP Docket No. 93-253,
    Fourth Report and Order, 9 FCC Rcd 2330 (1994).

[^2306]: *See generally Amendment of Part 95 of the Commission's Rules
    to Provide Regulatory Flexibility in the 218-219 MHz Service*, WT
    Docket No. 98-169, Report and Order and Memorandum Opinion and
    Order, 15 FCC Rcd 1497 (1999).

[^2307]: *See id*.

[^2308]: *See* 13 C.F.R. § 121.201, NAICS code 517212 (This category
    will be changed for purposes of the 2007 Census to "Wireless
    Telecommunications Carriers (except Satellite)," NAICS code
    517210.).

[^2309]: Teligent acquired the DEMS licenses of FirstMark, the only
    licensee other than TRW in the 24 GHz band whose license has been
    modified to require relocation to the 24 GHz band.

[^2310]: *See Amendments to Parts 1, 2, 87 and 101 of the Commission's
    Rules to License Fixed Services at 24 GHz*, WT Docket No. 99-327,
    Report and Order, 15 FCC Rcd 16934, 16967 at para. 77 (2000); *see
    also* 47 C.F.R. § 101.538(a)(2).

[^2311]: *See Amendments to Parts 1, 2, 87 and 101 of the Commission's
    Rules to License Fixed Services at 24 GHz*, WT Docket No. 99-327,
    Report and Order, 15 FCC Rcd 16934, 16967 at para. 77 (2000); *see
    also* 47 C.F.R. § 101.538(a)(1).

[^2312]: *See* Letter to Margaret W. Wiener, Deputy Chief, Auctions and
    Industry Analysis Division, Wireless Telecommunications Bureau, FCC,
    from Gary M. Jackson, Assistant Administrator, SBA (July 28, 2000).

[^2313]: *See* 13 C.F.R. § 121.201, NAICS code 517410.

[^2314]: *See* 13 C.F.R. § 121.201, NAICS codes 517410 and 517910.

[^2315]: U.S. Census Bureau, 2002 NAICS Definitions, "517410 Satellite
    Telecommunications";
    http://www.census.gov/epcd/naics02/def/NDEF517.HTM.

[^2316]: *See* 13 C.F.R. § 121.201, NAICS code 517410.

[^2317]: *See id*. An additional 38 firms had annual receipts of \$25
    million or more.

[^2318]: U.S. Census Bureau, 2002 NAICS Definitions, "517910 Other
    Telecommunications";
    http://www.census.gov/epcd/naics02/def/NDEF517.HTM.

[^2319]: *See* 13 C.F.R. § 121.201, NAICS code 517910.

[^2320]: *See id*. An additional 14 firms had annual receipts of \$25
    million or more.

[^2321]: *See* 13 C.F.R. § 121.201.

[^2322]: U.S. Census Bureau, 2002 NAICS Definitions, "517510 Cable and
    Other Program Distribution";
    http://www.census.gov/epcd/naics02/def/NDEF517.HTM.

[^2323]: *See* 13 C.F.R. § 121.201, NAICS code 517510 (This category
    will be changed for purposes of the 2007 Census to "Wired
    Telecommunications Carriers," NAICS code 517110.).

[^2324]: *See id*.

[^2325]: *Id*. An additional 61 firms had annual receipts of \$25
    million or more.

[^2326]: *See* 47 C.F.R. § 76.901(e). The Commission determined that
    this size standard equates approximately to a size standard of \$100
    million or less in annual revenues. *See Implementation of Sections
    of the 1992 Cable Television Consumer Protection and Competition
    Act: Rate Regulation,* Sixth Report and Order and Eleventh Order on
    Reconsideration, 10 FCC Rcd 7393, 7408 at para. 28 (1995).

[^2327]: These data are derived from [R.R. Bowker, Broadcasting & Cable
    Yearbook 2006]{.smallcaps}, "Top 25 Cable/Satellite Operators,"
    pages A-8 & C-2 (data current as of June 30, 2005); [Warren
    Communications News, Television & Cable Factbook 2006]{.smallcaps},
    "Ownership of Cable Systems in the United States," pages D-1805 to
    D-1857.

[^2328]: *See* 47 C.F.R. § 76.901(c).

[^2329]: [Warren Communications News, Television & Cable Factbook
    2006]{.smallcaps}, "U.S. Cable Systems by Subscriber Size," page F-2
    (data current as of Oct. 2005). The data do not include 718 systems
    for which classifying data were not available.

[^2330]: 47 U.S.C. § 543(m)(2); *see also* 47 C.F.R. § 76.901(f) &
    nn.1--3.

[^2331]: 47 C.F.R. § 76.901(f); *see FCC Announces New Subscriber Count
    for the Definition of Small Cable Operator*, Public Notice, 16 FCC
    Rcd 2225 (Cable Services Bureau 2001).

[^2332]: These data are derived from [R.R. Bowker, Broadcasting & Cable
    Yearbook 2006]{.smallcaps}, "Top 25 Cable/Satellite Operators,"
    pages A-8 & C-2 (data current as of June 30, 2005); [Warren
    Communications News, Television & Cable Factbook 2006]{.smallcaps},
    "Ownership of Cable Systems in the United States," pages D-1805 to
    D-1857.

[^2333]: The Commission does receive such information on a case-by-case
    basis if a cable operator appeals a local franchise authority's
    finding that the operator does not qualify as a small cable operator
    pursuant to § 76.901(f) of the Commission's rules.

[^2334]: *See* 47 U.S.C. § 573.

[^2335]: *See* 13 C.F.R. § 121.201, NAICS code 517510 (This category
    will be changed for purposes of the 2007 Census to "Wired
    Telecommunications Carriers," NAICS code 517110.).

[^2336]: *See* http://www.fcc.gov/mb/ovs/csovscer.html (current as of
    Feb. 2007).

[^2337]: *See* 13 C.F.R. § 121.201, NAICS code 519130 (establishing a
    \$500,000 revenue ceiling).

[^2338]: *See* 13 C.F.R. § 121.201, NAICS code 519190 (establishing a
    \$6.5 million revenue ceiling).

[^2339]: U.S. Census Bureau, "2002 NAICS Definitions: 518111 Internet
    Service Providers";
    http://www.census.gov/epcd/naics02/def/NDEF518.HTM.

[^2340]: *See* 13 C.F.R. § 121.201, NAICS code 518111.

[^2341]: *See* 13 C.F.R. § 121.201, NAICS code 518111.

[^2342]: U.S. Census Bureau, "2002 NAICS Definitions: 518112 Web Search
    Portals"; http://www.census.gov/epcd/naics02/def/NDEF518.HTM.

[^2343]: *See* 13 C.F.R. § 121.201, NAICS code 518112.

[^2344]: *See* 13 C.F.R. § 121.201, NAICS code 518112.

[^2345]: U.S. Census Bureau, "2002 NAICS Definitions: 518210 Data
    Processing, Hosting, and Related Services";
    http://www.census.gov/epcd/naics02/def/NDEF518.HTM.

[^2346]: *See* 13 C.F.R. § 121.201, NAICS code 518210.

[^2347]: *See* 13 C.F.R. § 121.201, NAICS code 518210.

[^2348]: U.S. Census Bureau, "2002 NAICS Definitions: 519190 All Other
    Information Services";
    http://www.census.gov/epcd/naics02/def/NDEF519.HTM.

[^2349]: *See* 13 C.F.R. § 121.201, NAICS code 519190.

[^2350]: *See* 13 C.F.R. § 121.201, NAICS code 519190.

[^2351]: U.S. Census Bureau, "2002 NAICS Definitions: 516110 Internet
    Publishing and Broadcasting";
    http://www.census.gov/epcd/naics02/def/NDEF516.HTM.

[^2352]: *See* 13 C.F.R. § 121.201, NAICS code 516110.

[^2353]: *See* 13 C.F.R. § 121.201, NAICS code 516110.

[^2354]: 5 U.S.C. § 603(c)(1)--(c)(4).