Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, DC 20554

In the Matter of )

) CC Docket No. 96-45

Federal-State Joint Board on )

Universal Service )

**[REPLY COMMENTS OF U S WEST, INC.]{.underline}**

> Kathryn Marie Krause
>
> Suite 700
>
> 1020 19th Street, N.W.
>
> Washington, DC 20036
>
> \(303\) 672-2859
>
> Attorney for
>
> U S WEST, INC.

Of Counsel,

Dan L. Poole

May 7, 1996

[TABLE OF CONTENTS]{.underline}

[Page]{.underline}

I. THE BCM FILED BY THE JOINT SPONSORS IS THE MOST REASONABLE

AND APPROPRIATE FOUNDATION TO EMPLOY IN DETERMINING

UNIVERSAL SERVICE HIGH-COST
FUNDING\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...
2

A. The Joint Sponsor BCM Proposal Is Non-Biased As It Addresses

High-Cost Funding
Issues\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....
2

B. BellSouth's Criticisms Of An Optimized Network
Model\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\.....
6

II\. INAPPROPRIATE ATTEMPTS TO "LRIC"-IZE THE
BCM\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....
7

A. BCM
Purpose\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...
7

B. Hatfield Associates
Study\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\.....
11

C. NCTA/ETI
Analyses\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...
14

D. Back To
Basics\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...
16

III\. UNIVERSAL SERVICE IS A MATTER OF SIGNIFICANT FEDERAL INTEREST

AND SHOULD BE APPROACHED FROM SUCH A
PERSPECTIVE\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...
17

IV\. USF FUNDING SHOULD BE DONE THROUGH A RETAIL REVENUE
ASSESSMENT\...\...\...\...\...\...\...\... 21

V.
CONCLUSION\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\...\....
22

[SUMMARY]{.underline}

While the initial comments filed in this proceeding deal with a
multitude of complex issues, U S WEST, in the interest of efficiency
(and in compliance with the prescribed page limit), confines its reply
comments to three major issues.

Despite repeated explanations by U S WEST and others of the intended
scope and limitations of the Benchmark Cost Model, parties continue to
argue against its use, citing what the Model will not do. In these reply
comments, U S WEST again explains what the BCM was designed to do and
again explains what it was not designed to do. U S WEST again declares
its support for the Benchmark Cost Model and again demonstrates why this
model is the most reasonable and appropriate foundation for determining
universal service high-cost funding. The BCM presents no bias toward
either incumbent LECs or new entrants and allows for the most efficient
evolution of local competition, without the artificial influence of
high-cost funds. The BCM's strength lies in its reasonableness and
moderation.

Second, we discuss the scope and intent of the federal interest in
universal services matters and funding. It is incumbent upon the
Commission to keep in mind at all times in this proceeding and others
the clear message from Congress that the issues the Commission has been
asked to address are national, not local or regional, issues. This is
not to say that state and local governments will have no role, but the
Commission must set the tone and advance the benefits of universal
service always on behalf of the citizens of the United States.

Last, we discuss the most appropriate funding mechanism for determining
the universal service high-cost fund, again showing why such
telecommunications service provider funding based on interstate retail
revenues is the most broadly based, competitively neutral mechanism.

Before the

FEDERAL COMMUNICATIONS COMMISSION

Washington, DC 20554

In the Matter of )

)

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

Universal Service )

)

**[REPLY COMMENTS OF U S WEST, INC.]{.underline}**

Below U S WEST, Inc. (or "U S WEST") addresses only three issues from
among the many and complex issues raised in the Comment stage of the
current proceeding. First we address the strength and balance of the
Benchmark Cost Model ("BCM" or "Model"), as that Model is endorsed by
the Joint Sponsors.[^1] The BCM was a careful, cautious effort by a
number of telecommunications providers, with varying interests, to craft
and design a workable model to address the targeting of high-cost
funding in a universal service environment.

In these Comments, U S WEST will respond to misuse of the Model. As has
only been made more obvious by the most recent round of comments, the
strength of the BCM using the ARMIS cost factor lies in its eminent
reasonableness and moderation. Despite repeated references to and
descriptions of the purpose of the BCM, as well as its scope, relevance
and validity to the purpose for which it was created,[^2] commentors
have, increasingly, deemed it permissible to unilaterally modify the BCM
model, its assumptions, and its potential utility. Below, we comment on
the inappropriate nature of these modifications for the targeting of
high-cost support.

Second, we address the scope and extent of the federal interest in
universal services matters and funding, particularly in light of the
Telecommunications Act of 1996.[^3] That interest should
[not]{.underline} be defined or confined by the Federal Communications
Commission's ("Commission" or "FCC") traditional jurisdictional cost
separations theory or rules.[^4] Separations rules are simply not
well-suited to addressing "larger" universal service issues and those
rules should not be allowed to "force fit" the most optimal solution to
universal service high-cost funding.

Finally, U S WEST addresses the matter of the most appropriate funding
for the universal service high-cost fund (or "HCF"). We note
considerable support for our position that funding should be
accomplished broadly, specifically *via* telecommunications service
provider funding based on [retail]{.underline} revenues. We encourage
the Commission to adopt this approach, particularly in light of its
competitive neutrality.

I. THE BCM FILED BY THE JOINT SPONSORS IS THE MOST REASONABLE

AND APPROPRIATE FOUNDATION TO EMPLOY IN DETERMINING

[UNIVERSAL SERVICE HIGH-COST FUNDING      ]{.underline}

A. The Joint Sponsors' BCM Proposal Is Non-Biased As It Addresses

[High-Cost Funding Issues       ]{.underline}

As we have throughout the various proceedings on universal service since
1994, U S WEST herein reiterates our support for the BCM, utilizing
ARMIS factors (referred to throughout the remainder of this filing as
the "BCM/ARMIS" or "Model")[^5] within the context of universal service
high-cost funding. Of those commentors supporting proxy models, in the
first instance, the majority support the BCM/ARMIS,[^6] albeit sometimes
only if certain "corrections" are made to the Model.[^7]

The BCM/ARMIS Model suffers from neither incumbent local exchange
carrier ("LEC") nor new-entrant bias. It allows for the most efficient
evolution of local competition, without the artificial influence of
high-cost funds. The BCM/ARMIS is the model that provides the best
targeting of customers who reside in areas that are high-cost to serve
and permits the Commission to meet its Congressional mandate to assure
affordable basic service for all Americans.

The BCM/ARMIS does not seek to base explicit federal high-cost support
on an incumbent's actual book costs.[^8] Instead, the BCM/ARMIS utilizes
a cost structure that could be expected from a new entrant, a company
utilizing current technology at current costs. This cost is less than
the embedded cost base of incumbent LECs. Thus, the BCM/ARMIS cost
structure assumptions are not biased in favor of incumbent LECs.

Neither, however, is the BCM/ARMIS biased in favor of new entrants.
While utilizing a cost structure that could be associated with a new
entrant, the BCM/ARMIS's use of Census Block Groups ("CBG") as the
geographic unit inherent in the Model neutralizes what would otherwise
be a predictable new-entrant bias, [i.e.]{.underline}, the use of wire
centers as the geographic unit. As the comments demonstrate, a number of
potential new entrants support a wire center approach to targeting
high-cost support.[^9] But, as the evidence demonstrates, using wire
centers as the basic geographic unit for targeting high-cost support
allows new entrants access to high-cost support regardless of whether
they ever actually serve high-cost customers.[^10]

The self-serving nature of the arguments made by the potential new
entrants is self evident. By arguing for wire centers, rather than CBGs,
as the basic geographic unit for targeting, potential new entrants seek
to lessen the total amount of the universal service HCF, with the
corollary that the support new entrants would have to contribute (either
individually or collectively) to the fund would also be minimized. At
the same time, because of the cost averaging that occurs with wire
center utilization, the amount such new entrants would theoretically be
able to withdraw from the fund would be increased. [^11]

By utilizing CBGs, rather than wire centers, new entrants are unable to
game the "high-cost" aspect of the high-cost fund. Under the BCM/ARMIS,
new entrants are virtually precluded from receiving high-cost support
when they do not serve customers who are, in fact, high cost to serve.
Certainly, a laudable policy result.

Given the BCM/ARMIS is not biased in favor of either incumbent LECs or
new entrants, it represents the clear "voice of reason" in the high-cost
funding debate. While there are those from the original Joint Sponsors
group who have apparently left the fold and now appear to have adopted
something of a revisionist history of the scope of the BCM, its purpose,
and its assumptions,[^12] the fact that U S WEST and Sprint continue to
support the model is strong evidence of the model's reasonableness and
balance. Between the two companies there are represented LEC,
interexchange carrier ("IXC"), competitive access provider ("CAP"), and
cable company interests.

It is difficult to imagine a proxy model more in line with the broad
range of telecommunications provider interests than the BCM/ARMIS, as
evidenced by the continuing support of U S WEST and Sprint. The BCM, as
modified by the currently planned enhancements,[^13] provides a
competitively neutral method of determining high-cost areas and
providing support for any eligible telecommunications carrier serving a
high-cost CBG. And the Model's demonstrated superiority is not evident
just at the provider level.

The BCM/ARMIS is the model that provides the best targeting of customers
who reside in areas that are high cost to serve. Its adoption and
utilization would permit the Commission to meet its Congressional
mandate to assure affordable basic service for all Americans. It would
also promote the Commission's ability to craft a specific and
predictable support mechanism.[^14] In all of its particulars, the
BCM/ARMIS is the proxy model most consonant with the goals of a properly
and prudently-designed universal service HCF.

B. [BellSouth's Criticisms Of An Optimized Network Model]{.underline}

BellSouth[^15] states that an optimized network model, like the BCM,
provides only the lower bound of costs of serving an area.[^16] It
suggests that this "lower bounding" is an inappropriate method for
determining an amount to provide as an explicit subsidy for serving a
high-cost area. U S WEST obviously disagrees.

Use of an incumbent LEC's historical costs, which undoubtedly would be
above the "lower bound," misstates the current economic realities that
new entrants face in serving a new area.[^17] Use of the BCM/ARMIS
ensures that all carriers make economically based decisions about
whether to serve a specific geographic area at this point in history,
considering the currently available technology,[^18] with the decision
to serve or not to serve uninfluenced by the presence or absence of
targeted high-cost funding.

That is not to say, however, that the use of BCM/ARMIS \-- with its
"lower bounding" \-- is appropriate for other purposes. It is not. As we
indicated in our opening Comments[^19] and as we stress again here,
costs that are calculated by optimized models, such as the BCM, should
not be used as the determiner of the price that an individual carrier
(whether incumbent or new entrant) charges for its service. Rates for a
service should be designed to recover actual costs.

Each carrier's price for a service should reflect its own costs, based
upon its own network. Carriers need to and should be allowed to
rebalance their rates to ensure the recovery of their costs. In this
way, competing carriers in an area receive the same explicit high-cost
subsidy but may charge different prices for similar services, reflecting
different underlying cost structures or different market values of the
service.

II\. [INAPPROPRIATE ATTEMPTS TO "LRIC"-IZE THE BCM]{.underline}

A. [BCM Purpose]{.underline}

In the Executive Summary of the BCM filing, the Joint Sponsors clearly
describe the purpose of the study: "The purpose of the BCM is to
identify areas where \[the\] cost of service can reasonably be expected
to be so high as to require explicit high cost support for the
preservation of universal service."[^20] In the December 1, 1995 letter
transmitting the 49-state BCM results, the Joint Sponsors stated that
they "support\[ed\] the use of the BCM for the analysis of the targeting
of explicit high cost support. They do not agree on its use for other
purposes such as the setting of rates for telephone service."[^21]

Despite these clear statements of the scope and limitations of the BCM,
certain parties continue to misrepresent the BCM calculations as
providing the total loop cost for the provision of local service. Such
misrepresentations find their way into this proceeding through studies
made by Hatfield Associates (on behalf of MCI) and Economics and
Technology, Inc. ("ETI") (on behalf of NCTA).[^22]

In light of its limited purpose, the BCM does not \-- in fact or by
intention \-- calculate all the investments associated with providing
the loop portion of basic service.[^23] The BCM is not, and was not
designed as, a proxy model to calculate Long-Run Incremental Costs
("LRIC") or TSLRIC for pricing purposes.

Rather, the BCM was designed to target high-cost areas. The BCM is a
high-level engineering process model that identifies the major cost
components of residential service that differentiate high-cost CBGs from
low-cost CBGs. It was designed specifically to identify high-cost CBGs,
to quantify the costs of providing telephone service to customers in
these CBGs, and to establish funding support relative to a Federal
Funding Benchmark ("FFB").

In order to perform this task, the Model inputs very detailed geographic
information and then applies high-level engineering designs of the major
cost components of basic service. The Model includes only the network
cost drivers that contribute to the differentiation between high-cost
and low-cost areas. The high-level engineering approach of the BCM was
utilized to keep the complexity of the Model to a manageable level,
while allowing use of the most important cost drivers.

As a result, the BCM does not quantify the capital costs of all
investment in plant and equipment and the direct expenses associated
with a LRIC study. For example, the BCM currently utilizes a simplified
architecture for distribution plant that produces an accurate portrayal
of rural distribution plant, but severely underestimates distribution
costs in urban areas.[^24] **This simplification has very limited impact
on the BCM's ability to identify high-cost CBGs.** However, in order to
develop a LRIC cost for a total service, [all]{.underline} the relevant
cost components of providing that service would have to be included in
the study.

While it is clear that one cannot extract from the BCM an accurate total
local service cost (because the Model does not contain the investments
for all network components necessary to provide local service and urban
distribution costs are underestimated), that does not render the Model
unsuitable or unreasonable with respect to identifying high-cost CBGs
\-- the purpose for which the Model was designed. The BCM is not fairly
or logically subject to criticism for not doing what it was never
designed to do or not including variables that are irrelevant to its
purpose.

Arguments that a LRIC model, rather than the basic BCM, better identify
high-cost service areas and that such a LRIC model should have different
variables than those included in the BCM are largely, and logically,
misplaced. They should be rejected because they are off the mark.

The Commission should not be persuaded by those who attempt to
disassociate the BCM from its foundation or to gain immediate
credibility by associating other models with the BCM. For example, in
some circumstances the BCM is claimed to be "accepted," followed almost
immediately by arguments pressing for changes in certain of the BCM's
most [basic]{.underline} assumptions or attacking the BCM for not having
different (usually LRIC) assumptions (which would, of course, lead to
different outcomes).

In other circumstances, what commentors describe as the "BCM Model" has
become so different from the original Model (and its supporting
assumptions) that calling the reformatted, reconfigured model the "BCM"
is both factually incorrect and borderline unethical. With further
examination of the pseudo-BCM models, we hope clarity will be achieved.
We are also hopeful that the detractors of the BCM will find their
arguments rejected.

The basic BCM is a tool well suited to identifying high-cost CBGs \--
its intended purpose. A LRIC model is [not]{.underline} better suited to
the task. With respect to the matter of providing service to customers
living in [high-cost]{.underline} areas, an inappropriately designed
LRIC model could incorporate factors that are not necessarily relevant,
that are \-- at a minimum \-- contentious, but which are in all
instances calculated to "drive down" \-- in an economically artificial
way \-- the cost of providing service to these customers.

At least with respect to certain LRIC studies and arguments (such as
those proffered by Hatfield and ETI), the variables chosen as
"substitutes" for certain of the BCM variables or assumptions are
variously not relevant to identifying high-cost CBGs (although they
might be relevant to identifying high-cost wire centers), are not
independently verifiable, or employ assumptions that are not realistic
from an economic perspective. Upon examination, it appears that each and
every variable that can be included to [reduce]{.underline} the
calculated cost of service to customers is included, even when the
validity of the variable cannot be independently tested or defies logic
and reason.

Furthermore, the models incorporate [inappropriate]{.underline}
averaging of costs by utilizing wire centers as their basic geographic
units. While wire centers will allow a cost averaging to occur, which in
turn could reduce the overall amount of a federal universal service fund
(in turn, reducing the amount that carriers have to contribute), the
averaging is less than desirable from an economic perspective and should
be from a policy perspective.

Averaging makes implicit what should be explicit \-- in-town areas are
generally not high cost, while away-from-town areas are. For this reason
alone, the adoption of any proxy model that incorporates wire center
targeting, rather than CBG targeting, should be rejected. CBGs, not wire
centers, produce the best targeting of high-cost customers. There is
simply no way around it.

B. [Hatfield Associates Study]{.underline}

MCI, one of the original Joint Sponsors, has chosen to work with
Hatfield Associates to "change" or "correct" the original BCM. Contrary
to the conclusions of some, the Hatfield Model cannot fairly be said to
"incorporate\[ \] elements of the \[BCM which\] has been presented to
the FCC."[^25] What it can be "fairly said" to incorporate is not clear.
So far, Hatfield has not permitted third parties to engage in the kind
of analysis necessary to determine whether there is [any]{.underline}
original BCM material left.

During the time MCI was working on the BCM with U S WEST and the other
Joint Sponsors, it was also working with AT&T and Hatfield to develop
the Hatfield Study. That Study purports to incorporate some elements and
algorithms of the BCM (which cannot be verified, as discussed more
below). However, the Study makes a number of changes to key BCM
assumptions and algorithms which differ significantly from the consensus
assumptions and algorithms developed and agreed to by the Joint
Sponsors.

What changes or modifications have been made to the original BCM is
impossible to verify.[^26] While the Hatfield Model claims to "use"
certain components of the BCM in producing its output, the BCM is
subjected to unverifiable and seemingly arbitrary changes from the logic
and factors developed by the Joint Sponsors. While U S WEST has been
unable to determine precisely what all the changes are,[^27] the changes
all have \-- not surprisingly \-- a common attribute: the reduction in
the apparent cost of providing basic telephone service, with a
concomitant claim for a smaller \-- rather than a larger \-- HCF.

Despite requests by U S WEST to review an electronic version of the
Hatfield Model, no such version has been provided. While a limited
number of U S WEST employees were able to view a portion of the model on
April 25, 1996, at the Hatfield Associates offices in Boulder, Colorado,
that "viewing" opportunity was \-- to say the least \-- disappointing.
Two of the BCM modules were not available for U S WEST to inspect. Not
only were requests for electronic versions of the two BCM modules
refused, but requests for inspection of the Hatfield runs of the BCM
were also refused. Furthermore, U S WEST personnel were advised that
while they could examine the model on premises, they were not to ask
questions.[^28]

On Friday, May 3, 1996, U S WEST personnel were advised that a change in
position had occurred on the part of Hatfield. We were advised that we
would now be permitted to have certain access to the Hatfield
study/computer model. However, the precise parameters of that access
were not made clear. (Thus, for example, we do not know if we will be
permitted to ask questions.)

Furthermore, due to the current schedule of the U S WEST employee with
the primary subject matter expertise on the BCM, it is clear that no
analysis will be possible prior to the time these Reply Comments are
filed. And, it is unclear when any analysis \-- once begun \-- would be
completed.[^29] In fighting wars involving "dueling models," timing is
everything. And here, Hatfield has managed to delay permissible
inspection to the point where an inspection, once completed, could be
meaningless.

In short, the type of inspection regime devised by Hatfield (and,
apparently supported by some carriers)[^30] renders it impossible to
understand how the Hatfield model works, much less to validate its
results. And, other than verbal assurances, there has been no ability to
ascertain, let alone ensure, that the algorithms or calculations
incorporated from the BCM modules had not been modified. It is
impossible to determine, for example, whether the fundamental logic of
the Model has been changed.

The "black box" approach to testimony and commentary renders it
impossible to find the Hatfield Study verifiable or suitable, despite
the putative "expertise" associated with it. As far as U S WEST can
tell, the modifications made to the BCM are based on undocumented
assumptions,[^31] improperly used data sources, or the guesses of
self-described "experts" whose sole apparent purpose is to underestimate
the cost of providing a local loop. This "underestimation" is, of
course, important because it impacts not only universal service
initiatives, but those dealing with interconnection and resale of local
services, as well.[^32] Thus, these "experts" have every reason to argue
for less, rather than more, costs associated with local service
provisioning.

Contrast this approach with that of the Joint Sponsors. The Joint
Sponsors designed the BCM for a single purpose. They made it available
for full public scrutiny so that commenting parties could suggest
modifications to the model to improve its ability to target high-cost
support. The original filing of the BCM included a copy of the computer
software for the Model, as well as full documentation of the model
algorithms, cost data, and Model data for six states.[^33]

C. [NCTA/ETI Analyses]{.underline}

The comments of NCTA contained, in an Attachment authored by ETI, the
most comprehensive evaluation of the BCM to date. While U S WEST is
gratified by certain of ETI's more laudatory observations about the
BCM,[^34] we are less than supportive of the way in which ETI wrongfully
appropriated the BCM's contents and the way in which it "corrected" the
BCM for what it considers to be existing BCM deficiencies. This is
particularly the case as ETI's "corrections" are often in the holy name
of appropriate "LRICness," yet are sometimes internally inconsistent and
other times at odds with logic.

As an initial objection, we note that ETI violated the BCM license
agreement and copyright by intentionally overriding the main logic
password protection and changing the model logic.[^35] While the
Commission is certainly not a copyright enforcer, it should not
countenance, much less approve or endorse, such unlawful and unethical
conduct. Above and beyond ETI's unlawful conduct, however, U S WEST
demonstrates in the attached Appendix A that ETI's "corrections" are
variously internally inconsistent, self-serving, and sometimes just
plain illogical.

ETI begins its analysis with the definition of a "proper" proxy model.
It states that such a model [should]{.underline} develop TSLRIC.[^36]
While this "long-run" approach is appropriate for a TSLRIC model, and
might actually be something the BCM could accommodate, the BCM does
[not]{.underline} take this view of "long run" in its current modeling.

Nor do ETI's demand assumptions support its "definition" of "long-run."
In fact, ETI feels free to wander between long-run outlooks and
historical outlooks at will, utilizing whichever outlook develops the
lowest possible cost. This is true regardless of whether these
reductions are based on sound economic or engineering principles, or
even on common sense.

In a similar vein, ETI switches from total service demand definitions to
incremental demand definitions as best serves ETI's purpose. As far as
can be determined, the only "logic" to its purpose is to lower the cost
calculated by the BCM.

One of the more egregious illogical assumptions employed by ETI is its
assumption that single line residential service is a static, non-growing
service, unchanging and totally predictable. This "definition" of
single-line residential service bears no resemblance to the real world
or sound forecasting. Yet, it forms the foundation for many of ETI's
"economies of scale" corrections, the most basic of which is a 95% fill
factor for the utilization of plant facilities. ETI's arguments in this
area are obviously results driven, in an effort to assign all economies
of installing a unified network, but none of its related costs, to
universal service.

Finally, ETI's analysis concludes that both the price inputs to the BCM,
as well as the BCM's expense components are inaccurate. ETI then
substitutes its "accurate cost data," which are shown to be the guesses
of self-described "experts," whose sole purpose is to underestimate the
cost of providing local residential service.

Overall, ETI's corrections are not designed to increase the engineering
validity of the BCM, nor to apply more consistent economic principles.
ETI's sole purpose is to lower the cost of universal service as
calculated by the BCM. Unfortunately, the changes to the BCM that ETI is
promoting do not reduce the true cost of universal service, they succeed
only in ignoring them.

D. [Back To Basics]{.underline}

The BCM is [not]{.underline} a LRIC model, either generally or of a
specific company. If it were, [admittedly]{.underline} it would contain
certain additional information and certain of its basic assumptions
would be different.[^37] Thus, those who attack the Model for not having
that information or making those assumptions raise totally immaterial
objections.[^38]

While some proxy models might well be "multiple-use" models, capable of
appropriate use for various purposes and with various goals, the BCM is
[not]{.underline} such a model. It is a "single" purpose model.[^39]
Varying the Model has a cascading effect. For example, does the
variation change an assumption or add one? What is the effect of
modifying an existing assumption? What is the effect of adding an
assumption on the existing assumptions? With each variation come
argument and disagreement over the changes, the purposes of the changes,
and the validity of the changes with respect to the purpose to be
achieved, as well as an analysis of the materiality or irrelevancy of
the changes. As important as the variations themselves are in changing
the possible outcomes is the fact that the [consensus]{.underline} or
agreement about and around the Model itself disappears. What appears in
its place is dispute and contention.

The BCM was proffered by a group of Joint Sponsors. Those Joint Sponsors
are in support of certain changes to the Model. Other variations,
however, such as those proposed by Hatfield and ETI, are
[not]{.underline} changes about which there is general or wide-spread
agreement. The changes that the Joint Sponsors have not agreed to are,
predictably, changes that will affect the balance and lack of bias
reflected in the current BCM changes. Those changes should be
resoundingly rejected.

III\. UNIVERSAL SERVICE IS A MATTER OF SIGNIFICANT FEDERAL INTEREST

[AND SHOULD BE APPROACHED FROM SUCH A PERSPECTIVE         ]{.underline}

The filed comments demonstrate that some commentors argue for an
exceedingly parochial approach to universal service funding.[^40] These
arguments would maintain that in examining the cost of basic telephone
service for purposes of assuring affordable service for all Americans,
the Commission should limit itself to the roughly 25% of costs which are
assigned to the interstate jurisdiction through the separations process.
The remaining 75% of costs which are assigned to the state jurisdiction
would be addressed and supported solely at the state level.

Such arguments are at odds with the clear expectation reflected in the
1996 Act that the Commission's jurisdiction over and interest in
universal service matters are extremely broad.

As U S WEST stated in our opening Comments, the nationalist and
federalist approach to universal service, long a part of the universal
service agenda incorporated in the Communications Act of 1934 and the
Commission's interpretations and implementation of that Act, are
re-enforced and embellished by the 1996 Act.[^41] The 1996 Act makes
evident the extent to which universal service considerations are to be
framed, addressed, and ultimately resolved in favor of the United,
rather than the separate, States.

The 1996 Act requires, as a guiding principle of this federalism, that
it is the policy of the United States "to make available, so far as
possible, to all the people of the United States, without discrimination
on the basis of race, color, religion, national origin, or sex a rapid,
efficient, nationwide, and world-wide wire and radio communication
service with adequate facilities at reasonable charges."[^42] The 1996
Act is replete with references to and the need for access to basic
telephony, information services, and advanced telecommunications
services.[^43] These services are clearly expected to contribute to
economic development, enhance educational opportunities, and provide for
broad-based health care services for the "people of the United States."

The acknowledgment in the 1996 Act that access to telephony and
information services is critical in an information age, and that such
access can render less material the heretofore commercial and personal
significance of disparate geographies that comprise and separate the
Eastern corridor from the Great Plains, is a legislative pronouncement
that must guide the Commission in all of its universal service
deliberations. In an environment where numerous telecommunications
carriers are operating in a market, offering divergent communications
services over combinations of landline and wireless technologies, state
services and interstate services become virtually
indistinguishable.[^44] In such an environment, only a federal
regulatory agency can ensure that all telecommunications providers
contribute fairly and appropriately for the preservation and advancement
of universal service. Only a federal agency can establish the
appropriate national parameters necessary to support a national
universal service infrastructure, an infrastructure that is properly
targeted, appropriately sized for the needs to be addressed, and which
provides a base level of national support to address universal service
issues.

Furthermore, connecting every potential subscriber who wishes access to
the public switched network generates benefits that go beyond state
boundaries. These external benefits need to be recognized in the funding
of universal service. It would be a lost opportunity for the nation if
the federal government failed to use its influence in ways that correct
localized deficiencies and that contribute to national development.

While the 1996 Act clearly outlines a significant role for the States,
through the vehicle of Joint Board participation, eligibility
determinations, and state universal service funds, it also demonstrates
that \-- without question \-- the provision of universal service and the
affordability of the link/line that allows such service to be realized
is profoundly a matter of federal concern. Affordable telecommunications
and information access should be realized as much in Wyoming as in New
York, as much in Denver, Colorado, as in Dolores, Colorado.

Particularly as framed by the 1996 Act, universal service is first and
foremost a national agenda. The goal is driven not just by a desire to
physically connect callers "from sea to shining sea," but to provide
comparable services at affordable rates to the citizens of the United
States, from the young ones in kindergarten to the citizenry in need of
critical health care services, whether living in urban or rural areas.
This federal agenda must form the predicate for Commission action in the
area of universal service.

It is critical that the Commission keep in mind that Congress envisioned
the universal service issue as one to be addressed universally \-- not
regionally, not state-by-state. A system that transfers "funds" from the
East Coast region to the midwest is not fundamentally flawed in design.
Rather, it is a system that accomplishes the Congressional goal. A
system that acknowledges that the "federal interest" in universal
service is clearly more than 25% is not one inconsistent with rational
universal service policy. Rather, it is one that acknowledges that \--
given the legislative mandates in the area of universal service \-- the
federal interest in accomplishing a forward-looking universal service
agenda is substantially greater than some previously and arbitrarily
determined "25% of the local loop costs."

This is not to diminish state interest in universal service. The role of
state agencies is indispensable. However, each state alone cannot solve
its historical universal service dilemmas. Not all states are well
suited to deal with universal service problems acting in a
state-by-state capacity or on a state-by-state basis. If a substantial
portion of the funding burden is returned to the individual states, then
those heavily rural, high-cost states will not be able to support the
fund sizes necessary to keep their rural rates comparable with those
rural areas in states that are more urbanized.

IV\. [USF FUNDING SHOULD BE DONE THROUGH A RETAIL REVENUE
ASSESSMENT]{.underline}

The most competitively neutral, broadly based funding mechanism proposed
in the initial round of comments for funding universal service is an
end-user surcharge on all telecommunications carriers' retail revenues.
This funding methodology was proposed and supported by a substantial
number of commenters.[^45] However, while it supports the idea of a
surcharge on retail revenues generally, AT&T argues that a "surcharge
credit" for telecommunications services that are purchased and used for
resale should be incorporated into the USF funding model.[^46] AT&T is
concerned there will be a double count of the assessment in the resale
scenario.[^47] AT&T's concern is unfounded.

Retail revenues are revenues collected from the ultimate end user of a
service. AT&T would not be such an end user. It, therefore, would not be
required to pay the surcharge. Instead, resellers would be considered
wholesale purchasers of the services they purchase from a
facilities-based carrier and then sell, in turn, to end users. There
would, therefore, not be a double count of the assessment.

The self interest of those commentors supporting a "gross revenues net
of payments made to other carriers" funding model is self evident. This
support comes from those carriers who stand to benefit competitively
from this position \-- specifically, MCI, Sprint, and competitive access
providers.[^48]

As demonstrated in U S WEST's initial Comments, basing payments into the
USF on gross revenues net of payments made to other carriers is not
competitively neutral.[^49] When the incumbent provider must impute
charges into its rate structure for like services it sells to
competitors, the incumbent provider should be allowed to deduct these
same charges from its gross revenue assessment, as its competitors will
under a net-of-payments proposal. The significant administrative burdens
of netting out payments made to other providers and corresponding
imputed charges are not only unnecessary, but could lead to the need for
additional audit oversight that will not be needed under the retail
revenue approach.

Clearly, the easiest proposal to administer is the end-user surcharge on
retail revenue. This funding model also benefits from the fact that it
is broadly based and competitively neutral. In all of its particulars,
it is a sound economic model that can clearly be deployed in the
promotion of the overall national public interest.

V. [CONCLUSION]{.underline}

With respect to the purposes for which it was designed, the BCM is
clearly the most reasonable proxy model to utilize in targeting
customers who are high cost to serve. It has been publicly produced,
scrutinized, and subjected to constructive critcisms. It will be
modified in the future to incorporate certain enhancements that will
allow for even better targeting. The BCM is a powerful targeting tool.

From a competitive perspective, the BCM benefits from its competitive
neutrality. It favors neither incumbent LECs nor new entrants. In this
respect, the BCM is an appropriately moderate tool. The Commission
should adopt the BCM as providing the best tool for high-cost support
targeting.

Within its universal service considerations, the Commission must assume
the leadership role that the 1996 Act provides. That role is not
confined or defined by the Commission's current separations rules.
Universal service considerations are, by their nature and by federal
legislative pronouncement, national considerations. The Commission
should approach them this way, striving toward the development of
universal service support systems that take into account the federal
interests associated with and advanced by universal service.

In light of the broad federal interests associated with universal
service, the Commission should craft a broadly based funding mechanism
for universal service support systems. That mechanism should be based on
telecommunications service provider funding based on retail revenues, as
supported by a number of commentors.

By adopting the BCM/ARMIS, acknowledging the broad federal interests
associated with universal service, including high-cost funding matters,
and crafting a broadly based funding mechanism ([i.e.]{.underline},
retail revenue assessments), the Commission will demonstrate strong
federal leadership in the area of universal service. That leadership
will, in turn, be supported by tools and systems evidencing economic and
policy integrity. All in all, a powerful combination with respect to an
important social and regulatory initiative \-- universal service for all
Americans.

> Respectfully submitted,
>
> U S WEST, INC.
>
> By:
>
> Kathryn Marie Krause
>
> Suite 700
>
> 1020 19th Street, N.W.
>
> Washington, DC 20036
>
> \(303\) 672-2859
>
> Its Attorney

Of Counsel,

Dan L. Poole

May 7, 1996

[^1]: The Joint Sponsors include U S WEST, Sprint Corporation
    ("Sprint"), The NYNEX Telephone Companies ("NYNEX") and MCI
    Telecommunications Corporation ("MCI").

[^2]: In the transmittal letter for the BCM results, the following
    statement appears: "The Joint Sponsors support the use of the BCM
    for the analysis of the targeting of explicit high cost support.
    They do not agree on its use for other purposes such as the setting
    of rates for telephone service." Letter from Glenn Brown, U S WEST,
    Inc., [et al.]{.underline} to William F. Caton, FCC, filed Dec. 1,
    1995, at n.\*. [And]{.underline} [see]{.underline} Letter from Glenn
    Brown, U S WEST, Inc. to Richard Metzgar, FCC, dated April 16, 1996,
    at 2 (attached hereto as Appendix B).

[^3]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56
    (1996) ("1996 Act" or "Act").

[^4]: Certainly, it would be inappropriate to argue that the Commission
    has only a "25% interest" in universal service matters, including
    high-cost funding.

[^5]: Below, the Commission will see references to the "BCM" without the
    reference to ARMIS. This will be within the context of discussing
    the original crafting and designing of the BCM and its basic model
    assumptions. [See]{.underline} pp. 7-17, below.

[^6]: Comments on the BCM generally fall into two broad categories:
    those parties that support the use of proxy models for establishing
    a high-cost fund; and those parties that support the use of actual
    or book costs for establishing a high-cost fund. For example,
    BellSouth Corporation, [et al.]{.underline} and Southwestern Bell
    Telephone Company fall into the latter category.

[^7]: [See]{.underline}, [e.g.]{.underline}, NCTA Comments at iii (a
    proxy model should be used to determine USF support levels and the
    BCM is currently the best available model, although it might require
    certain corrections); 9-10 (BCM is superior to model proposed by
    Pacific Telesis);Teleport Communications Group, Inc. Comments at 7
    (while the BCM is not without its shortcomings, those shortcomings
    are generally identifiable and potentially correctable); NASUCA
    Comments at 19 (the Commission should adopt a proxy cost model that
    calculates forward-looking verifiable cost estimates); 20-21 (BCM is
    superior to model proposed by Pacific Telesis); [and see
    also]{.underline} AT&T Corp. ("AT&T") Comments at App. A.

[^8]: Of course, incumbent LECs are entitled to full recovery of their
    reasonable actual costs, through a combination of universal service
    funding and rates to customers.

[^9]: Some new entrants, such as NCTA, argue for a variation on the
    basic theme. NCTA supports the use of the BCM to determine CBG
    specific costs, but proposes that high-cost support be provided only
    at the wire center level. NCTA Comments at 10.

[^10]: In our opening Comments, U S WEST presented credible, persuasive
    evidence on the issue of why "wire center targeting" was not
    appropriate for the targeting of high-cost support. U S WEST
    Comments at 12 n.25 and App. A. Wire center targeting would allow a
    cable company, for example, to serve a "wire center" by actually
    providing service only to customers near the in-town central office.
    The cable company would receive "high-cost assistance" to serve
    customers that were [not]{.underline} high cost to serve (perhaps
    even making a profit on the difference between its actual costs and
    the money it received for serving the "high-cost area"). And, it
    would [not]{.underline} serve customers who in fact were high cost
    to serve, [i.e.]{.underline}, those at the outer edges of the wire
    center. Those customers would be left to the incumbent service
    provider \-- who would also need high-cost funding to serve those
    customers. This is not a good economic or policy result. Wire center
    "targeting" is simply [not]{.underline} the best targeting. Given
    the fact that nothing absolutely drives one to that level of
    targeting, it should be rejected as contrary to sound economics and
    prudent universal service public policy.

    It is encouraging that some parties who do not even support the
    concept of "proxy models" see the benefits of targeting high-cost
    fund support at smaller geographic areas than wire centers. GVNW's
    Comments (at 13) would, for example, find the BCM an acceptable tool
    to disaggregate actual (as opposed to proxy) costs below the wire
    center level.

[^11]: This "give a little, get a lot" approach to universal service
    funding issues is, obviously, not one that strikes the most balanced
    economic or public policy resolution of the complex issues involved.

[^12]: MCI, through its work with Hatfield Associates ("Hatfield"),
    began this process somewhat early on. Until recently, however, MCI
    was cautious in promoting the more extensive revisions that Hatfield
    argued needed to be made to the BCM. For example, in the State of
    Washington, the Hatfield Study was introduced through the advocacy
    of AT&T, rather than that of MCI (although MCI "supported" the AT&T
    advocacy). Recently, however, in a proceeding in Pennsylvania and in
    *ex parte* filings, MCI itself has made clear its departure from the
    ranks of those who support the original BCM. In the Pennsylvania
    proceeding, AT&T and MCI sponsored the introduction of the Hatfield
    material. [And see]{.underline} Letters from Leonard S. Sawicki, MCI
    to W. Caton, FCC, filed Mar. 28, 1996 and Apr. 9, 1996.

[^13]: In our opening comments, U S WEST indicated that a number of
    enhancements are currently planned to be made to the BCM/ARMIS.
    [See]{.underline} U S WEST Comments at App. A. These changes will
    advance the BCM's ability to more accurately reflect distribution
    plant in urban areas.

[^14]: Telecommunications Act of 1996, 110 Stat. at 72, § 254(b)(5).

[^15]: [See]{.underline} BellSouth Comments at Att. A (NERA [Comments on
    Universal Service]{.underline}), p. 40.

[^16]: [Id.]{.underline} at Att. A, p.38 ("the optimization process
    usually succeeds only at providing the lower bound on incremental
    costs").

[^17]: [Id.]{.underline} at Att. A, p. 39 ("While such a model may well
    serve as a predictor of costs for a [new]{.underline} network, it
    cannot possibly depict costs of an existing network with its
    inherent rigidities.") (emphasis in original).

[^18]: Even if the BCM/ARMIS were "corrected" with respect to certain
    fundamental Total Service Long-Run Incremental Cost ("TSLRIC")
    attributes ([see]{.underline} note 37, [infra]{.underline}), the BCM
    would not represent any individual company\'s TSLRIC for at least
    four reasons. First, the BCM uses national level cost data for the
    major network components, where individual companies' material
    prices are based on company-specific contracts. Second, the
    structure costs of the network are also based on national average
    contractor prices. Third, individual companies may use
    forward-looking technology or mix of technologies different than the
    BCM. Finally, the BCM utilizes a hypothetical network design and
    does not attempt to replicate any individual company's network
    arrangements.

[^19]: Comments of U S WEST at 12 n.25.

[^20]: Attachment to Letter from Glenn Brown, U S WEST, Inc., [et
    al.]{.underline} to William F. Caton, FCC, filed Dec. 1, 1995, at
    I-2 (Executive Summary).

[^21]: [See]{.underline} note 2, [supra]{.underline}.

[^22]: [See]{.underline} *Ex Parte* Letter from Leonard S. Sawicki, MCI,
    to W. Caton, FCC, filed Mar. 28, 1996 ([The Cost of Basic Network
    Elements: Theory, Modeling and Policy Implications]{.underline},
    prepared by Hatfield Associates for MCI, pp. 12, 16) and Comments of
    NCTA at Att. A ([The Cost of Universal Service: A Critical
    Assessment of the Benchmark Cost Model]{.underline}, by Economics
    and Technology, Inc., p.180).

[^23]: [See]{.underline} Surrebuttal of Peter B. Copeland, USWC, in
    Docket No. 95-2206-01, before the Utah Public Service Commission,
    May 1, 1996, at 6 (attached hereto as Appendix C) and Direct
    Testimony of Robert A. Mercer, AT&T, in Docket No. 95-2206-01,
    before the Utah Public Service Commission, Mar. 14, 1996, at 5
    (attached hereto as Appendix D).

[^24]: Any model that utilizes the BCM or the loop portion of the BCM,
    as the Hatfield Model purports to do, also will produce results with
    a low calculation of urban distribution plant. For LRIC purposes,
    this underestimation would have to be corrected.

[^25]: [Washington Utilities and Transportation Commission v.
    USWC]{.underline}, Docket No. UT-950200, [Fifteenth Supplemental
    Order]{.underline}, at Part 5, II, A, 3.

[^26]: While Dr. Mercer has testified that the model incorporates three
    of the four BCM modules: 1) the BCM input data (which assigns CBGs
    to the closest central office, determines the CBG's spatial
    relationship to the CBG, and lists the USGS terrain data associated
    with the CBG); 2) a module which determines the feeder quadrant on
    which a CBG is served, the feeder plant distance, the distribution
    plant distance, and the terrain structure multipliers applicable to
    the CBG; and 3) a module which designs the feeder and distribution
    plant with the appropriate sharing of feeder plant, the associated
    structure and the total investments involved for the major cost
    drivers contained in the model ([see]{.underline} Direct Testimony
    of Robert A. Mercer, [supra]{.underline} note 23, at 6-7), the
    inability to independently verify any of this requires a leap of
    faith to assume that the Hatfield Study actually incorporates intact
    the original BCM modules.

[^27]: [See]{.underline} Surrebuttal Testimony of Geraladine G.
    Santos-Rach, USWC, in Docket No. 95-2206-01, before the Utah Public
    Service Commission, May 1, 1996, at 6 (attached hereto as Appendix
    E). [And see]{.underline} Rebuttal Testimony of Peter B. Copeland,
    USWC, in Docket No. 95-2206-01, before the Utah Public Service
    Commission, at 24-26 (attached hereto as Appendix F) for a
    discussion of what U S WEST has been advised was changed in the
    original BCM module and how those represented changes would affect
    the Study.

[^28]: [See]{.underline} Surrebuttal of Peter B. Copeland,
    [supra]{.underline} note 23, at 4.

[^29]: This subject matter expert is also a U S WEST witness in state
    rate, universal service, and interconnection cases.

[^30]: AT&T had a representative at the inspection site.

[^31]: In Docket Nos. 95-2206-01, 2202-01 and 94-999-01 (Utah), in
    response to a data request from U S WEST, Dr. Mercer, indicated that
    no documents describing the purpose and function of the Hatfield
    Model exist; no documents describing the methods and procedures used
    in the Model exist; and that Dr. Mercer's testimony was the sole
    source of the Model's assumptions. With respect to certain critical
    input data, Dr. Mercer indicated that the basis of certain Model
    assumptions were "conversations we have had over the years with LEC
    staff involved in \[Digital Loop Carrier\] procurement\...." Direct
    Testimony of Robert A. Mercer, [supra]{.underline} note 23, at 7.
    Those conversations were not, according to Dr. Mercer, recorded.
    Essentially, Hatfield appears to have made input changes based on
    educated guesses, rather than on first-hand knowledge or on sources
    that could be documented or validated.

[^32]: [See]{.underline} [In the Matter of Implementation of the Local
    Competition Provisions in the Telecommunications Act of
    1996]{.underline}, CC Docket No. 96-98, [Notice of Proposed
    Rulemaking]{.underline}, FCC 96-182, rel. Apr. 19, 1996, at ¶ 134
    ("[Interconnection NPRM]{.underline}").

[^33]: Later, on November 1, 1995, the Joint Sponsors filed data for 17
    additional states; and, on December 1, 1995, data for all remaining
    states, except Alaska. The December 1st filing included a written
    summary of data for 49 states, plus Washington, D.C., as well as CD
    ROMs that included all the detailed computer runs for each state.

[^34]: "The BCM represents what may be the most comprehensive attempt to
    date to develop an objective national model of the cost of providing
    basic residential local exchange service\....The BCM satisfies many
    of the essential attributes of a useful cost proxy model, and can be
    a valuable tool for achieving the universal service and local
    competition policy goals and mandates of the *Telecommunications Act
    of 1996*." ETI, [The Cost of Universal Service: A Critical
    Assessment of the Benchmark Cost Model]{.underline},
    [supra]{.underline} note 22, at iii-iv.

[^35]: [See]{.underline} [id.]{.underline} at 112 n.166.
    [See]{.underline} [also]{.underline} Letter from Attorney Judson D.
    Cary, U S WEST, Inc. to L. Selwyn, Economics and Technology, Inc.,
    dated Apr. 26, 1996 (attached hereto as Appendix G).

[^36]: ETI, [The Cost of Universal Service: A Critical Assessment of the
    Benchmark Cost Model]{.underline}, [supra]{.underline} note 22, at
    15.

[^37]: The BCM is not a TSLRIC study of basic local service, although it
    uses forward-looking technology for its investment base. There are a
    number of areas where the BCM methodology departs from general
    TSLRIC principles. The two most important areas of difference
    are: 1) The BCM does not include long-run demand for local service
    that matches a long-run planning horizon generally defined by TSLRIC
    studies as a period of time long enough so that cost estimates are
    based on the assumption that all inputs are variable
    ([see]{.underline} ETI, [The Cost of Universal Service: A Critical
    Assessment of the Benchmark Cost Model]{.underline},
    [supra]{.underline} note 22, at 15; AT&T Comments at App. A.), and
    2) The BCM's annual expense factors are based on historical
    relationships, not on forward-looking studies for the provision of
    basic service ([see]{.underline} Rebuttal Testimony of Peter B.
    Copeland, [supra]{.underline} note 27 at 13). [And]{.underline}
    [see]{.underline} note 18, [supra]{.underline}.

[^38]: Additionally, those who attack the BCM from a LRIC perspective do
    not themselves proffer what U S WEST would characterize as sound
    LRIC arguments or analyses, in any event. [See]{.underline}
    discussion immediately below.

[^39]: In the Executive Summary of the BCM results transmission it was
    stated that the purpose of the study was "to identify areas where
    \[the\] cost of service can reasonably be expected to be so high as
    to require explicit high cost support for the preservation of
    universal service." Note 20, [supra]{.underline}.

[^40]: [See]{.underline}, [e.g.]{.underline}, MCI Comments at 4-5;
    BellSouth Comments at 9.

[^41]: U S WEST Comments at ii, 1-2.

[^42]: Telecommunications Act of 1996, 110 Stat. at 86, § 104, amending
    47 USC § 151. [See also id.]{.underline}, 110 Stat. at 72, §
    254(b)(3).

[^43]: [See id.]{.underline}, 110 Stat. at 71-72, § 254(b).

[^44]: Telecommunications services, by their nature, exist without
    regard to state boundaries. Indeed, many of these services are
    provided via airspace above and across multiple state boundaries.
    While the retail delivery of telecommunications services might well
    exist in a locality or a state, the business of telecommunications,
    the planning for telecommunications services rarely \-- if ever \--
    is state-specific. [Compare]{.underline} the Commission's recently
    issued [Interconnection NPRM]{.underline} wherein the Commission
    acknowledges (albeit in a somewhat different context) that "\[i\]t
    would make little sense, in terms of economics, technology, or
    jurisdiction, to distinguish between interstate and intrastate
    components." [Interconnection NPRM]{.underline} ¶ 37.

[^45]: [See]{.underline}, [e.g.]{.underline}, AT&T Comments at 8 ("A
    surcharge on all retail telecommunications services, both interstate
    and intrastate, creates a fair, simple and efficient recovery
    mechanism."); GTE Comments at 16 (proposing that funding should be
    obtained on the basis of a single, uniform surcharge applied to all
    end-user transactions).

[^46]: [See]{.underline} AT&T Comments at 8 n.10.

[^47]: It appears evident from AT&T's Comments that it believes it will
    have to pay a facilities-based carrier a surcharge on services AT&T
    buys in order for it to sell those services to an ultimate end user.
    AT&T Comments at 8 n.10 ("to avoid any [double count]{.underline},
    resellers would certify the portion of the telecommunications
    services that they purchased which are used for resale and apply to
    the NUSF administrator for a surcharge credit for those exempted
    purchases"); 22 ("surcharge credits to resellers for the surcharge
    they pay to their facilities-based carriers" would have to be part
    of the USF funding process).

[^48]: [See]{.underline} MCI Comments at 16; Sprint Comments at 17;
    [see]{.underline}, [e.g.]{.underline}, MFS Comments at 16.

[^49]: U S WEST Comments at 18-20 and App. B.