**Federal Communications Commission FCC 04J-1**

SEPARATE STATEMENT OF

COMMISSIONER KATHLEEN Q. ABERNATHY

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

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

A major impetus for initiating this proceeding was widespread
uncertainty regarding the appropriate standards for determining whether
the designation of a competitive ETC serves the public interest. We have
responded to requests for guidance from state commissions and carriers
by setting forth a comprehensive set of recommended minimum standards
for the designation of ETCs. As I explained in a recent FCC designation
decision, I believe that an ETC must be prepared to serve all customers
upon reasonable request, and it must offer high-quality services at
affordable rates throughout the designated service area.[^1] State
commissions, acting under section 214(e)(2), and the FCC, acting under
section 214(e)(6), plainly should be able to impose conditions designed
to ensure that all ETCs are appropriately qualified. Perhaps most
importantly, the certifying authority should make sure that a
prospective ETC has the ability and commitment to build out facilities
as necessary to serve the entire designated area. I am pleased that my
federal and state colleagues have unanimously agreed on this principle
as well as other core standards that should make the designation process
more rigorous, and also more uniform and predictable. I hope that state
commissions and the FCC heed this guidance in upcoming designation
proceedings.

The Commission's other principal charge to the Joint Board was to
consider a variety of means to ensure the sustainability of high-cost
funding in rural areas as competition grows. A majority of the Joint
Board believe that the most promising proposals call for some kind of
modification to the current system that funds all connections from all
carriers (although, as discussed below, I believe that we must also
continue to explore possible changes to the basis for calculating
support). I do not know at this stage whether I will ultimately vote to
adopt a primary-line restriction of the sort discussed in this
Recommended Decision, but it seems clear that the universal service fund
can no longer subsidize an unlimited number of connections provided by
an unlimited number of carriers. Nor do I believe that the
Communications Act contemplates such a result. Section 254 at bottom
requires a "lifeline" connection to the PSTN ― in other words,
reasonably priced access to the network that provides the core
"supported services" that make up universal service.[^2] That goal will
be fulfilled as long as the Commission continues to support a primary
connection for every consumer living in high-cost rural areas.

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

Finally, I am pleased that we will continue to examine proposals to
modify the basis of support for ETCs. Notably, every member of the Joint
Board has recognized that "funding a competitive ETC based on the
incumbent LEC's embedded costs may not be the most economically rational
method for calculating support."[^3] While we agree on the problem, the
solution has been elusive. If the Commission wanted to fund competitors
based on their own embedded costs, the record does not tell us how to
calculate such costs, given that competitive carriers are not subject to
a regulatory accounting regime. More troublingly, several parties have
suggested that wireless carriers' per-line support would be *higher*
than incumbents' if calculated based on their own network costs, given
the new entrants' lower penetration rates ― and obviously that would
frustrate our goal of *restraining* growth in high-cost funding.
Alternatively, if we were to pursue a forward-looking cost methodology,
similar questions remain about how to implement such an approach at this
time. And several parties have argued convincingly that, instead of
focusing narrowly on the basis of support for competitive carriers, the
Joint Board should comprehensively review the basis of support for *all*
ETCs ― as the Commission pledged in its *Rural Task Force Order* to do
by 2006. The Joint Board has accordingly recommended that the Commission
refer this broader issue for its consideration, and I hope that the FCC
takes that step in the very near future.

[^1]: Separate Statement of Commissioner Kathleen Q. Abernathy,
    *Federal-State Joint Board on Universal Service, Virginia Cellular,
    LLC Petition for Designation as an Eligible Telecommunications
    Carrier in the Commonwealth of Virginia*, Memorandum Opinion and
    Order, CC Docket No. 96-45, FCC 03-338 (rel. Jan. 22, 2004).

[^2]: Support for the networks that provide the core services also
    enables consumers in rural areas to receive all of the other
    services ― including advanced services ― available over those
    networks.

[^3]: Recommended Decision, para. 96.