**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | *  | CC Docket No. 96-45          |
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| Federal-State Joint Board on     | ** | CC Docket No. 98-171         |
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| Universal Service                | *  | CC Docket No. 90-571         |
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| 1998 Biennial Regulatory Review  | ** | CC Docket No. 92-237         |
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| Reporting                        | ** | CC Docket No. 99-200         |
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| Requirements Associated with     | *  | CC Docket No. 95-116         |
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+----------------------------------+----+------------------------------+

**REPORT AND ORDER**

**AND SECOND FURTHER NOTICE OF PROPOSED RULEMAKING**

**Adopted: December 12, 2002 Released: December 13, 2002**

**Comment Date: 30 days from publication in the Federal Register.**

**Reply Comment Date: 60 days from publication in the Federal
Register.**

By the Commission: Chairman Powell, Commissioners Abernathy, Copps and
Martin issuing separate statements; Commissioner Adelstein not
participating.

**[TABLE OF CONTENTS]{.underline}**

Page

[I. introduction and overview 3](#introduction-and-overview)

[II. Background 6](#background)

[A. The Act 6](#the-act)

[B. The Current Methodology 7](#the-current-methodology)

[C. History of Contribution Methodology Proceeding
10](#history-of-contribution-methodology-proceeding)

[III. Report and order 12](#report-and-order)

[A. Modified Revenue-Based Assessment Methodology
13](#modified-revenue-based-assessment-methodology)

[1. Mobile Wireless Safe Harbor 13](#mobile-wireless-safe-harbor)

[2. Assessment on Projected Collected Revenues
17](#assessment-on-projected-collected-revenues)

[B. Recovery of Universal Service Contributions
23](#recovery-of-universal-service-contributions)

[1. Recovery Limitations 23](#recovery-limitations)

[2. Labeling of Line-Item Charges 32](#labeling-of-line-item-charges)

[IV. SECOND FURTHER NOTICE OF PROPOSED RULEMAKING
32](#second-further-notice-of-proposed-rulemaking)

[A. Connections-Based Methodology with Mandatory Minimum Obligation
36](#connections-based-methodology-with-mandatory-minimum-obligation)

[B. Splitting Connection-Based Contributions Between Switched Transport
and Access Providers
40](#splitting-connection-based-contributions-between-switched-transport-and-access-providers)

[C. Telephone Number-Based Assessments
44](#telephone-number-based-assessments)

[V. procedural matters 46](#procedural-matters)

[A. Final Regulatory Flexibility Analysis
46](#final-regulatory-flexibility-analysis)

[B. Paperwork Reduction Act Analysis
56](#paperwork-reduction-act-analysis)

[C. Initial Regulatory Flexibility Act Analysis
56](#initial-regulatory-flexibility-act-analysis)

[D. Initial Paperwork Reduction Act of 1995 Analysis
59](#initial-paperwork-reduction-act-of-1995-analysis)

[E. Comment Filing Procedures 60](#comment-filing-procedures)

[F. Ex Parte Presentations 61](#ex-parte-presentations)

[VI. ordering clauses 61](#ordering-clauses)

Appendix A -- Final Rules

Appendix B -- List of Commenters

Appendix C -- Revised Form 499-Q and Instructions

# introduction and overview

1.  In this Report and Order (Order) and Second Further Notice of
    Proposed Rulemaking (*Second Further Notice*), we take interim
    measures to maintain the viability of universal service in the near
    term \-- a fundamental goal of this Commission \-- while we consider
    further long-term reforms. First, we increase to 28.5 percent the
    current interim safe harbor that allows cellular, broadband Personal
    Communications Service (PCS), and certain Specialized Mobile Radio
    (SMR) providers to assume that 15 percent of their
    telecommunications revenues are interstate.[^1] We also require
    wireless telecommunications providers to make a single election
    whether to report actual revenues or to use the revised safe harbor
    for all affiliated entities within the same safe harbor
    category.[^2] In addition, we seek to improve competitive neutrality
    among contributors by modifying the existing revenue-based
    methodology to require universal service contributions based on
    contributor-provided projections of collected end-user interstate
    and international telecommunications revenues, instead of historical
    gross-billed revenues. These changes will be implemented with the
    FCC Form 499-Q filed on February 1, 2003. We conclude that our
    actions to modify the current revenue-based contribution methodology
    will sustain the universal service fund and increase the
    predictability of support in the near term, while we continue to
    examine more fundamental reforms.

2.  In light of these changes, we also conclude that telecommunications
    carriers may not recover their federal universal service
    contribution costs through a separate line item that includes a
    mark-up above the relevant contribution factor beginning April
    1, 2003. Limiting the federal universal service line-item charge to
    an amount that does not exceed the contribution factor, set
    quarterly by the Commission, will increase billing transparency and
    decrease confusion for consumers about the amount of universal
    service contributions that are passed through by carriers. Carriers
    will continue to have the flexibility to recover legitimate
    administrative costs from consumers through other means.

3.  Although the interim measures we adopt today will improve the
    current contribution methodology, they do not address our concerns
    regarding the long-term viability of any revenue-based system. In
    the *First Further Notice*, we observed that interstate
    telecommunications revenues are becoming increasingly difficult to
    identify as customers migrate to bundled packages of interstate and
    intrastate telecommunications and non-telecommunications products
    and services.[^3] This has increased opportunities to
    mischaracterize revenues that should be counted for contribution
    purposes. Such mischaracterization may result in decreases in the
    assessable revenue base. Increased competition also is placing
    downward pressure on interstate rates and revenues, which also
    contributes to the decline in the contribution base.[^4] For
    example, traditional long-distance providers increasingly are
    entering local markets at the same time that competitive and
    incumbent local exchange carriers are increasingly providing
    long-distance services. Customers also are migrating to mobile
    wireless and Internet-based services. As we recently noted, these
    changes have led to fluctuations in the contribution base and rising
    contribution obligations.[^5]

4.  The Commission initiated this proceeding to consider alternatives or
    modifications to a revenue-based system.[^6] An analysis of the
    record reveals interest in a connection-based methodology that would
    assess carriers based on their provision of connectivity to
    interstate networks, regardless of how many minutes of use or
    revenues are derived from a connection. A substantial number of
    parties across various industry segments now support adoption of a
    connection-based assessment methodology.[^7] In addition, four out
    of five state members of the Federal-State Joint Board on Universal
    Service (Joint Board) recommend adoption of a connection-based
    system for calculating universal service contributions, while the
    fifth member proposes assessing contributions on a combination of
    connections, capacity, and terminating minutes of use.[^8]

5.  Although many parties agree that a connection-based contribution
    methodology will best ensure the long-term viability of the
    Commission's universal service mechanisms as the telecommunications
    marketplace continues to evolve, they differ on how best to
    implement such a mechanism. Key areas of disagreement include
    whether to make the provider of the end-user connection (most often
    the local exchange carrier) solely responsible for contributions or
    whether that responsibility should be shared between the access
    (e.g., local exchange carrier) and transport (e.g., interexchange
    carrier) providers.[^9] Commenters also disagree on how best to
    calculate assessments for higher-capacity connections.[^10]
    Moreover, parties have expressed concern that they cannot estimate
    assessments for multi-line business connections without access to
    more reliable data on the number and capacity of non-switched (e.g.,
    special access or private line) connections.[^11]

6.  We conclude that it is appropriate to further study long-term
    reforms of the contribution methodology.[^12] In this *Second
    Further Notice*, we seek comment on whether to retain a
    revenue-based system and specific aspects of three connection-based
    proposals in the record. First, we ask for comment on a proposed
    contribution methodology that would impose a minimum contribution
    obligation on all interstate telecommunications carriers and a flat
    charge for each end-user connection depending on the nature or
    capacity of the connection. Next, we seek comment on a proposal to
    assess all connections based purely on capacity. Under this
    proposal, contribution obligations for each switched end-user
    connection would be shared between access and transport providers.
    Finally, we seek comment on a proposal to assess providers of
    switched connections based on their working telephone numbers. We
    remain committed to adopting a contribution methodology that will
    ensure the continued viability of universal service as the
    marketplace continues to evolve.

# Background

## The Act

7.  The assessment and recovery of universal service contributions are
    governed by the statutory framework established by Congress in the
    Act.[^13] Section 254(b) instructs the Commission to establish
    universal service support mechanisms with the goal of ensuring the
    delivery of affordable telecommunications services to all Americans,
    including consumers in high-cost areas, low-income consumers,
    eligible schools and libraries, and rural health care
    providers.[^14] Section 254(d) of the Act states 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."[^15]

8.  In addition to the specific universal service provisions of section
    254, sections 201(b) and 202(a) of the Act govern carrier services
    and charges.[^16] Section 201(b) requires that all carrier charges,
    practices, classifications, and regulations "for and in connection
    with" interstate communications service be just and reasonable, and
    gives the Commission jurisdiction to enact rules to implement that
    requirement.[^17] Section 202(a) prohibits "unjust or unreasonable
    discrimination" in connection with the provision of communications
    services. Section 202(a) also prohibits carriers from making or
    giving "any undue or unreasonable preference or advantage to any
    particular person, class of persons, or locality, or to subject any
    particular person, class of persons, or locality to any undue or
    unreasonable prejudice or disadvantage."[^18]

## The Current Methodology

9.  In the 1997 *Universal Service Order*, the Commission decided to
    assess contributions on contributors' gross-billed end-user
    telecommunications revenues.[^19] The Commission did so after
    considering the Recommended Decision of the Joint Board and the
    record developed at that time.[^20] Specifically, the Commission
    concluded that assessments based on end-user telecommunications
    revenues would be competitively neutral, would be easy to
    administer, and would eliminate some economic distortions associated
    with an assessment based on gross telecommunications revenues.[^21]

10. In addition, the Commission declined to adopt a mandatory end-user
    surcharge for recovery of universal service contributions by
    telecommunications providers, agreeing with the state members of the
    Joint Board that a mandatory end-user surcharge "would dictate how
    carriers recover their contribution obligations and would violate
    Congress's mandate."[^22] The Commission expressed concern that
    mandating recovery through an end-user surcharge might affect
    contributors' flexibility to offer, for example, bundled services or
    new pricing options, possibly resulting in fewer options for
    consumers.[^23] Instead, the Commission allowed contributors to
    decide for themselves whether, how, and how much of their universal
    service contributions to recover from their customers.[^24] The
    Commission required only that contributors not shift more than an
    equitable share of their contributions to any customer or group of
    customers, and that contributors provide accurate, truthful, and
    complete information regarding the nature of the charge.[^25]

11. In the *Second Order on Reconsideration*, the Commission set forth
    the specific method of computation for universal service
    contributions.[^26] The Commission also designated the Universal
    Service Administrative Company (USAC) as the neutral entity
    responsible for administering the universal service support
    mechanisms, including billing contributors, collecting contributions
    to the universal service support mechanisms, and disbursing
    universal service support funds.[^27] The Commission required
    contributors to report their end-user telecommunications revenues to
    USAC on a Telecommunications Reporting Worksheet (Worksheet)
    semi-annually.[^28] Contributions were based on the reporting of
    billed end-user telecommunications revenues from the prior year.
    Therefore, the interval between the accrual of revenues by
    contributors and the assessment of universal service contributions
    based on those revenues originally was 12 months.[^29]

12. The Commission also has implemented various rules and guidelines
    intended to reduce administrative burdens for certain categories of
    contributors. For example, the Commission established interim safe
    harbors for wireless telecommunications providers. As an alternative
    to reporting their actual interstate telecommunications revenues,
    CMRS providers currently may report a fixed percentage of revenues
    ranging from one to fifteen percent of total end-user
    telecommunications revenues.[^30] The Commission's rules also
    provide a safe harbor for the reporting of telecommunications
    revenues when bundling telecommunications services with customer
    premises equipment or information services.[^31]

13. In addition, the Commission has adopted *Truth-in-Billing* rules to
    improve consumers' understanding of their telephone bills. These
    rules require, among other things, that charges on consumer wireline
    telephone bills "must be accompanied by a brief, clear,
    non-misleading, plain language description of the service or
    services rendered."[^32] In the *Truth-In-Billing* proceeding, the
    Commission also adopted a guideline that "line item charges
    associated with federal regulatory action should be identified
    through standard and uniform labels" used by all telecommunications
    providers (other than CMRS carriers).[^33] In the *TIB Order and
    FNPRM*, the Commission focused primarily on three types of line-item
    charges that result from federal regulatory action: (1) universal
    service-related fees; (2) subscriber line charges; and (3) local
    number portability charges. It sought comment on specific standard
    labels to be used for these charges.[^34]

## History of Contribution Methodology Proceeding

14. As part of its efforts to ensure the long-term stability and
    sufficiency of the universal service support system in an
    increasingly competitive marketplace, the Commission began a
    proceeding to revisit its universal service contribution methodology
    in May 2001.[^35] In the *2001 Notice*, the Commission sought
    comment generally on whether and how to streamline and reform both
    the contribution assessment methodology and the manner in which
    contributors may elect to recover the costs of contributions from
    their customers.[^36] Among other things, the Commission sought
    comment on whether to modify the existing revenue-based methodology,
    as well as whether to replace that methodology with one that
    assesses contributions on the basis of a flat-fee charge, such as a
    per-line charge.[^37] The Commission also sought comment on whether
    to require carriers that choose to recover universal service
    contributions from their customers through line items to do so
    through a uniform universal service line item that corresponds to
    the contribution assessment.[^38]

15. Seeking to further develop the record regarding various proposals
    submitted in response to the *2001 Notice*, we released a Further
    Notice of Proposed Rulemaking and Report and Order in February
    2002.[^39] Specifically, we sought more focused comment on a
    proposal to replace the existing revenue-based assessment mechanism
    with one based on the number and capacity of connections provided to
    a public network.[^40] In the *First* *Further Notice*, we also
    invited commenters to supplement the record with any new arguments
    or data on proposals to retain or modify the existing, revenue-based
    assessment methodology.[^41] Moreover, we sought additional comment
    on possible reforms to the manner in which carriers recover
    contribution costs from their customers.[^42]

16. Commenters responding to the *First Further Notice* generally
    discussed two paths for reform of the universal service contribution
    system: (1) modification of the existing revenue-based mechanism;
    or (2) adoption of a connection-based mechanism. Commenters in favor
    of retaining a revenue-based system, for example, have argued that
    the Commission should base contributions on collected or projected
    interstate and international telecommunications revenues, rather
    than gross-billed or historical end-user telecommunications
    revenues, maintaining that these measures would eliminate the need
    for carriers to engage in complex calculations to account for
    variables like uncollected revenues, credits, and the need to
    recover universal service contributions from a declining revenue
    base.[^43] Other commenters asserted that the Commission should
    revisit the interim mobile wireless safe harbor in light of the
    significant migration of interstate telecommunications revenues from
    wireline to mobile wireless providers.[^44]

17. On the other hand, several commenters, including all of the state
    members of the Joint Board, asserted that the Commission should
    adopt some form of a connection-based mechanism.[^45] The essential
    difference among the various connection-based proposals put forth in
    the record is their treatment of different industry segments and
    types of customers. The Coalition for Sustainable Universal Service
    (CoSUS), for example, proposed a connection-based system that would
    initially charge residential or single-line business connections,
    including mobile wireless connections, a flat monthly amount of
    \$1.00 per connection, and paging connections \$0.25 per connection,
    with the remaining universal service funding needs being recovered
    through capacity-based assessments on multi-line business
    connections.[^46] Under the CoSUS proposal, assessment rates would
    be adjusted as needed to account for growth in the number and
    capacity of connections and universal service funding
    requirements.[^47]

18. Variations of the CoSUS connection-based proposal would fix the
    \$1.00 per connection charge on residential, single-line business,
    and wireless connections for five years,[^48] or maintain the
    relative contribution burdens paid by the wireline and wireless
    industry segments based on the interim safe harbor established under
    the current revenue-based system.[^49] The connection-based proposal
    jointly submitted by SBC and BellSouth would split connection-based
    contribution assessments between access and interstate transport
    providers, without distinguishing between residential and business
    "connections," and assess telecommunications services not tied to
    connections based on revenue.[^50] The SBC/BellSouth proposal also
    would impose assessments on all connections provided by Internet
    service providers, both facilities-based and
    non-facilities-based.[^51] Under an alternative version of the SBC
    and BellSouth proposal, connection-based assessments would only be
    split between the access and transport providers when the switched
    access and transport elements are not provided on a bundled basis
    (i.e., the end user does not buy switched local service and
    interstate long-distance service from the same carrier).[^52] Under
    this proposal, a revenue-based assessment would be assigned to the
    transport component of such a switched connection and would be
    recovered from both presubscribed and non-presubscribed
    long-distance providers based on their interstate telecommunications
    revenues.[^53] Ad Hoc and AT&T also have advocated a contribution
    assessment methodology based on working telephone numbers and
    connection-based assessments for special access and private
    lines.[^54] Still other commenters favor a connection-based
    mechanism that would treat presubscribed interexchange lines or
    customer accounts as "connections" subject to a connection-based
    assessment.[^55]

# Report and order

19. As noted above, we adopt several modifications to the current
    revenue-based system to ensure the sufficiency and predictability of
    universal service while we consider reforms to sustain the universal
    service fund for the long term. To address concerns raised in the
    record that the current interim safe harbor for mobile wireless
    providers is inappropriate in light of changing market conditions,
    we raise the safe harbor from 15 to 28.5 percent.[^56] We establish
    an all-or-nothing rule for affiliated wireless telecommunications
    providers when determining whether to report actual interstate
    telecommunications revenues or to avail themselves of the wireless
    safe harbor percentages.[^57] We also modify the current
    revenue-based methodology by basing contributions on a percentage of
    projected collected, instead of historical gross-billed, interstate
    and international end-user telecommunications revenues reported by
    contributors on a quarterly basis. [^58] In light of the
    modifications we adopt today, we conclude that carriers may not mark
    up universal service line item amounts above the contribution
    assessment rate.[^59] Finally, we revise our Lifeline rules to
    prohibit all Eligible Telecommunications Carriers (ETCs) from
    recovering contribution costs from their Lifeline customers.

## Modified Revenue-Based Assessment Methodology

### Mobile Wireless Safe Harbor

#### Background 

20. In 1998, in response to concerns raised by certain wireless
    telecommunications providers regarding difficulties associated with
    distinguishing between their interstate and intrastate revenues, the
    Commission adopted interim safe harbors for CMRS providers to use
    when reporting interstate telecommunications revenues for universal
    service contribution purposes.[^60] Specifically, cellular,
    broadband PCS, and digital SMR providers[^61] may assume that no
    more than 15 percent of their cellular, broadband PCS, and SMR
    telecommunications revenues are interstate.[^62] The current interim
    safe harbor percentage for mobile wireless providers was based on
    the nationwide average percentage of interstate wireline traffic
    reported in 1997 for purposes of the Dial Equipment Minute (DEM)
    weighting program, which is the predecessor of local switching
    support.[^63] The current interim safe harbor percentages for paging
    providers and analog SMR providers that do not primarily provide
    wireless telephony are 12 percent and one percent,
    respectively.[^64] Currently, carriers may pick and choose which
    affiliated legal entities report actual interstate
    telecommunications revenues or the safe harbor percentage of
    revenues, rather than making their election on a company-wide basis,
    including all affiliated entities.[^65] An entity that elects to
    report a percentage of interstate telecommunications revenues that
    is less than the relevant "safe harbor" percentage is required to
    document the method used to calculate its percentage and make that
    information available to the Commission or USAC upon request.[^66]
    In the current proceeding to reform the universal service
    contribution system, the Commission sought comment on whether to
    continue or modify the interim safe harbors, citing, among other
    things, the significant migration of interstate telecommunications
    revenues from wireline to mobile wireless providers.[^67]

#### Discussion 

21. Based on the record before us, we raise the current safe harbor for
    mobile wireless providers from 15 percent to 28.5 percent.[^68] We
    conclude that a 15 percent interim mobile wireless safe harbor no
    longer reflects the extent to which mobile wireless consumers
    utilize their wireless phones for interstate calls, particularly in
    light of the increased substitution of wireless for traditional
    wireline service.[^69] According to revenue data included on the
    latest FCC Form 499-Q, it appears that 43 percent of mobile wireless
    filers, representing 78 percent of mobile wireless end-user
    telecommunications revenues, currently avail themselves of the
    mobile wireless safe harbor.[^70] As noted by several commenters,
    revising the mobile wireless safe harbor is appropriate because it
    is no longer based on actual market conditions.[^71] Increasing the
    interim mobile wireless safe harbor will, therefore, help to ensure
    that universal service contributions remain equitable and
    non-discriminatory. Such action also will improve the near-term
    viability of the universal service mechanisms by ensuring that the
    contribution base more accurately reflects today's marketplace.

22. We increase the interim safe harbor for mobile wireless providers to
    28.5 percent based on information provided in the record by the
    wireless industry. According to CTIA, six of its wireless service
    provider members have conducted traffic studies using various
    methodologies and assumptions. Five unnamed large national mobile
    wireless providers reported interstate minutes of use that range
    from 19.6 percent to 28.5 percent, while one niche provider,
    TracFone, reported interstate usage of 10 percent.[^72] Most
    participants in the CTIA survey utilized minutes of use as a proxy
    for revenues and identified the jurisdictional nature of a call
    based on the originating cell site and the terminating area
    code.[^73] There appeared to be a split among participants as to
    whether to include both outgoing and incoming calls in their traffic
    studies. We conclude it is appropriate to revise the safe harbor for
    mobile wireless providers to correspond to the highest estimate of
    minutes of use provided by the wireless carriers. Setting the safe
    harbor at the high end of the range of estimates provided by the
    wireless studies should provide mobile wireless providers an
    incentive to report their actual interstate telecommunications
    revenues if they are able to do so.

23. The American Association of Paging Carriers (AAPC) asserted that the
    safe harbor for non-nationwide paging carriers should be reduced to
    1 percent, but did not submit traffic studies or other data to
    support its assertion.[^74] Therefore, we find that the record
    developed at this time does not support adjustment of the safe
    harbors for analog SMR and paging providers.[^75] Accordingly, the
    safe harbors for analog SMR and paging providers will remain at one
    percent and 12 percent, respectively.

24. Mobile wireless providers availing themselves of the revised interim
    safe harbor will be required to report 28.5 percent of their
    telecommunications revenues as interstate beginning with fourth
    quarter 2002 revenues reported on the February 1, 2003, FCC Form
    499-Q. Mobile wireless providers will still have the option of
    reporting their actual interstate telecommunications revenues. We
    note that mobile wireless providers must provide documentation to
    support the reporting of actual interstate telecommunications
    revenues upon request.

25. In order to ensure that contributions remain equitable and
    nondiscriminatory, we also adopt an all-or-nothing rule for wireless
    telecommunications providers seeking to avail themselves of the safe
    harbors.[^76] Under this rule, wireless providers will continue to
    be permitted to report revenues at either the legal entity level or
    on a consolidated basis, but will be required to decide whether to
    report either actual or safe harbor revenues for all of their
    affiliated legal entities within the same safe harbor category
    (i.e., 28.5 percent, 12 percent or 1 percent).[^77] We conclude, in
    the interests of consistency, equity, and fairness, that such a
    contributor that chooses to determine actual interstate
    telecommunications revenues for one of its affiliated entities must
    do so for all affiliated entities within the same safe harbor
    category. Likewise, wireless telecommunications providers must use
    the safe harbor for all affiliated carriers within the same category
    if they choose to use it for one. As previously noted, the
    Commission created the interim safe harbors because wireless
    providers asserted at the time that they have difficulty
    distinguishing their interstate and intrastate revenues.[^78] If a
    wireless telecommunications provider can and does separate its
    interstate revenues from intrastate revenues for universal service
    contribution purposes, we find that it is reasonable to presume that
    its affiliates subject to the same safe harbor can employ the same
    measures to report their interstate revenues. It is inappropriate,
    therefore, to allow affiliated wireless providers to "pick and
    choose" which entities use the interim safe harbors.

26. Beginning with the first Form 499-Q filing following the effective
    date of this Order, wireless providers, including mobile wireless
    providers, paging providers, and analog SMR providers, shall
    determine whether to report revenues based on the interim wireless
    safe harbors at the affiliated-company level, as opposed to the
    legal-entity level, as is the case today. Under this new
    requirement, if one wireless entity chooses to report and contribute
    based on actual interstate telecommunications revenues, all
    affiliated companies subject to the same safe harbor must do the
    same. Conversely, if one wireless entity chooses to utilize the
    interim safe harbors, all affiliated companies in the same safe
    harbor category must also use the safe harbor.[^79] For purposes of
    this requirement and consistent with section 3(1) of the Act, we
    define "affiliate" as a person that (directly or indirectly) owns or
    controls, is owned or controlled by, or is under common ownership or
    control with, another person.[^80]

27. In addition to the universal service support mechanisms, consistent
    with existing Commission practice, revenues reported on the Form
    499-A will continue to be used in administering the
    Telecommunications Relay Services, North American Numbering Plan,
    Local Number Portability programs, as well as the regulatory fees
    administration program for wireline telecommunications providers.
    [^81] We can see no reason to permit carriers to use a different
    safe harbor for revenue reporting for purposes of these other
    programs. Thus, we conclude that our actions taken here to revise
    the interim mobile wireless safe harbor and modify the reporting of
    data by wireless providers on the 499-A also will apply to
    assessments for the mechanisms established for Telecommunications
    Relay Services, the North American Numbering Plan, and the Local
    Number Portability programs.

### Assessment on Projected Collected Revenues

#### Background

28. Currently, universal service contributions are based on a percentage
    of historical gross-billed revenues. [^82] As we have previously
    noted, however, the telecommunications marketplace has changed
    rapidly as technologies have evolved since adoption of the current
    system in 1997.[^83] The *2001 Notice* sought comment on whether,
    among other things, to assess contributions based on projected
    collected revenues.[^84] In the *First Further Notice*, we asked
    commenters to supplement the record with any new arguments or data
    regarding proposals to modify the revenue-based system.[^85] Some
    commenters asserted that the Commission should retain the existing
    system, while other commenters proposed various modifications,
    including reliance on current or projected revenues rather than
    gross-billed revenues, as well as assessment on collected or
    net-booked revenues.[^86] Several commenters, however, indicated
    that modifying the existing revenue-based system would not address
    problems implicating the long-term sustainability of the
    system.[^87]

#### Discussion

29. Based on our experience with the current collection methodology, we
    now find it appropriate to modify this aspect of the methodology to
    promote competitive neutrality and to simplify the assessment and
    recovery of universal service contributions for carriers and
    consumers. We therefore conclude that, instead of assessing
    universal service contributions based on revenues accrued as much as
    six months prior, USAC will assess contributions based on
    projections provided by contributors of their collected end-user
    interstate and international telecommunications revenues for the
    following quarter. Because contributors will be assessed in the
    period for which revenues are projected, the modified methodology
    will eliminate the interval between the accrual of revenues and the
    assessment of universal service contributions based on those
    revenues. The modified methodology also will result in minimal
    changes to current reporting requirements.[^88] The revised
    methodology therefore will base assessments on revenue data that is
    more reflective of current market conditions, without significantly
    increasing administrative costs for contributors and USAC.[^89] We
    view this and other changes we make to the revenue-based system to
    be interim measures while we consider the approaches raised in the
    *Second Further Notice*.

30. We also conclude that the revised contribution methodology ensures
    that contributions to universal service support mechanisms continue
    to operate in a competitively neutral manner.[^90] As noted by
    several commenters, the current contribution system based on
    historical revenues creates competitive advantages for new entrants
    and contributors with increasing interstate telecommunications
    revenues, while disadvantaging those carriers with declining
    revenues.[^91] Interexchange carriers, for example, which currently
    contribute more than 60 percent of universal service contributions,
    are particularly disadvantaged by the so-called "lag" that results
    because they have experienced sharp declines in their interstate
    revenues.[^92] Because contributions are assessed on revenues from
    six months prior, carriers with decreasing revenues must recover
    their contributions from a revenue base smaller than the one
    assessed. By basing contribution assessments on projected collected
    end-user interstate and international telecommunications revenues,
    as opposed to historical gross-billed revenues, the modified
    mechanism mitigates the anti-competitive effects of the current
    system. This, in turn, helps to ensure the sufficiency and stability
    of the universal service fund.

31. Although concerns have been expressed about the potential volatility
    of basing contributions on projected revenues, the mechanisms we
    adopt today minimize such concerns. The change to a projected
    collected revenue approach also complements measures we take to
    address carrier recovery practices. As discussed below, we conclude
    that carriers may not recover their federal universal service
    contribution costs through a separate line item that includes a
    mark-up above the relevant contribution factor.[^93] Contributors
    currently recover from consumers amounts in excess of the relevant
    assessment rate in part to account for the fact that they are
    obligated to pay universal service assessments on gross-billed
    revenues from up to six months prior. By eliminating the interval
    between the reporting of revenue and assessment on that revenue and
    by excluding uncollectibles from a provider's contribution
    obligation, we eliminate these reasons for carriers to mark up
    universal service charges.

32. For purposes of our revised contribution methodology, "collected
    end-user" revenues refers to gross-billed end-user interstate and
    international telecommunications revenues less estimated
    uncollectibles.[^94] We define uncollectibles as the percentage of
    interstate and international telecommunications revenues that the
    contributor anticipates will not be collected from end-user
    customers.[^95] Contributors must make best efforts to collect
    interstate and international telecommunications revenues, including
    any federal universal service pass-through charges, before
    characterizing revenues as uncollectible. As we discuss below, these
    projected uncollectibles will be trued up against actual
    uncollectibles reported on the FCC Form 499-A.[^96] This percentage
    should be calculated in accordance with Generally Accepted
    Accounting Principles.[^97] Contributors will report their
    uncollectible percent on the Form 499 filings (i.e., Forms 499-Q and
    499-A), which will be modified to collect additional information
    about uncollectibles consistent with the rules adopted in this
    Order.[^98]

33. Because the projected collection approach we adopt is similar to the
    existing contribution methodology, it will be relatively easy for
    both USAC and contributors to administer and implement this
    modification to our current methodology while we consider other
    reforms to the current system. Consistent with our existing policy,
    contributors will continue to file a Form 499-Q on a quarterly basis
    and the Form 499-A on an annual basis. The Commission and USAC will
    also continue to set contribution factors on a quarterly basis using
    the same timeframes as the current methodology. Under the revised
    methodology, however, in addition to filing the Form 499-Q to report
    historical gross-billed revenues from the prior quarter,
    contributors also will project their gross-billed and collected
    end-user interstate and international telecommunications revenues
    for the upcoming quarter. We believe that this will not be
    burdensome for contributors, as they need to develop such
    projections for their own internal business purposes. Consistent
    with current procedures, contributors will have the option of
    certifying as to the confidential nature of such projections on the
    FCC Form 499-Q.

34. We note that we retain the requirement for an officer to certify to
    the truthfulness and accuracy of the FCC Form 499-A submitted to the
    Administrator. We also will require an executive officer to certify
    that the projections of gross-billed and collected revenues included
    in the FCC Form 499-Q represent a good-faith estimate based on
    company policies and procedures. To ensure that contributors report
    correct information on the FCC Form 499-A, we require all
    contributors to maintain records and documentation to justify the
    information reported in the Form 499-A for three years. We also will
    require filers to maintain records detailing the methodology used to
    determine projections in the Form 499-Q for three years. Filers will
    be required to provide such records and documentation to the
    Commission and USAC upon request.[^99]

35. Under the modified methodology, contributors will continue to
    include pass-through charges, if any, as part of their projection of
    collected end-user revenues. In order to eliminate circularity,
    however, the Administrator will reduce each provider's contribution
    obligation by a circularity discount factor representing the
    provider's projected contributions to universal service in the
    upcoming quarter.[^100] Prior to each quarter, we will announce a
    contribution factor equal to the projected universal service funding
    requirement for the upcoming quarter (projected revenue requirement)
    divided by an adjusted contribution base.[^101] As discussed below,
    carriers will be prohibited from marking up their federal universal
    service line item above this contribution factor.[^102] In order to
    calculate an individual provider's contribution, USAC then will
    reduce the provider's unadjusted contribution obligation (i.e., its
    projected collected end-user revenues times the contribution factor)
    by an amount equal to its contribution obligation times the
    circularity discount factor. The circularity discount factor will
    equal one minus an amount equal to the adjusted contribution base
    divided by total projected end-user interstate and international
    telecommunication revenues. USAC will send contributors a firm bill
    each month based on the above-described calculation. Therefore, we
    do not anticipate the need for a reserve fund, because contributors
    will be billed monthly based on their reported projected collected
    revenues, the same amounts used to calculate the contribution
    factor.

36. Although our modified mechanism relies on the ability of
    contributors to project gross-billed and collected revenues on a
    quarterly basis, it only requires contributors to project for the
    upcoming quarter, which should minimize the potential for inaccurate
    estimates. Similar to existing policies, contributors will have an
    opportunity to correct their projections up to 45 days after the due
    date of each Form 499-Q filing and through the annual true-up
    process. We find it appropriate to modify the current requirement
    that revisions be filed by the due date of the next Form 499-Q
    (which effectively provides 90 days for revisions) in light of the
    changes to the methodology we adopt today. In particular, we believe
    it necessary to eliminate incentives for contributors to revise
    their revenue projections after the announcement of the contribution
    factor for the upcoming quarter in order to reduce their
    contribution obligations and to otherwise reduce the likelihood of a
    shortfall in universal service funding in a given calendar quarter.
    USAC will use the actual revenue data provided by contributors on
    the FCC Form 499-A to perform annual true-ups to the quarterly
    projected revenue data submitted by contributors during the prior
    calendar year.[^103] As necessary, USAC will then refund or collect
    from contributors any over-payments or under-payments. If the
    combined quarterly projected revenues reported by a contributor are
    greater than those reported on its annual revenue report (Form
    499-A), then a refund will be provided to the contributor based on
    an average of the two lowest contribution factors for the year. If
    the combined quarterly revenues reported by a contributor are less
    than those reported on its annual revenue report (Form 499-A), then
    USAC will collect the difference from the contributor using an
    average of the two highest contribution factors from that year. This
    approach is consistent with the existing system.[^104]

37. We direct USAC to begin implementation of the revised reporting
    requirements, consistent with our modifications to ensure that
    carriers begin contributing based on projected collected end-user
    revenues, in the next quarterly filing to occur on February 1, 2003.
    Therefore, the contribution factor for the second quarter of 2003
    will be based on projected collected end- user interstate and
    international telecommunications revenues. As part of the transition
    to the modified contribution system, contributors must begin
    providing information concerning their projected collected end-user
    interstate and international telecommunications revenues (*i.e.,*
    anticipated end-user revenues and estimated uncollectibles) for the
    upcoming quarter with the filing of the modified 499-Q on February
    1, 2003, to reflect projections for the second quarter of 2003. In
    order to provide USAC with a full year of projected revenues with
    which to conduct the annual true up for 2003 revenues, contributors
    also will be required to include projected collected revenues for
    the first quarter of 2003 on the 499-Q that will be filed on
    February 1, 2003. As discussed above, subsequent 499-Qs will only
    include historical revenues from the prior calendar quarter and
    projected revenues for the upcoming quarter. The FCC Form 499-A,
    which must be filed on April 1, 2003, will include historical
    gross-billed revenues for the period of January 2002 through
    December 2002. Subsequent FCC Form 499-As will include historical
    gross-billed revenues and actual collected end-user interstate and
    international telecommunications revenues for the relevant reporting
    year.

38. At this time, we decline to adopt a pure collect-and-remit system,
    as proposed by some commenters.[^105] Under such a system, carriers
    would include a prescribed universal service contribution line-item
    on customer bills and would only be required to remit to USAC those
    contributions actually collected from end-user customers. Although
    such a collect-and-remit system would eliminate the need for
    carriers to mark-up line items to reflect uncollectibles and other
    factors, we share concerns about such a proposal raised in the
    record.[^106]

39. This form of a collect-and-remit system would likely reduce
    incentives for carriers to recover universal service contributions
    from their customers, thereby risking the overall predictability and
    sufficiency of the universal service fund. Unlike the revised
    methodology we adopt, a provider would not be required to contribute
    unless the customer actually paid the universal service charge on
    its bill. Thus, this form of a collect-and-remit system would
    relieve carriers of any risk associated with the recovery of
    universal service contributions, which would lessen carrier
    incentives to collect such charges.[^107] This, in turn, would make
    it more difficult to maintain a predictable, sufficient fund. In
    contrast, under our modified revenue-based methodology, if a
    customer refuses to pay a universal service pass-through charge on
    its bill, but pays the remaining charges on the bill, the carrier's
    assessment would only be reduced by the percentage of its total
    revenues that it could not collect from that customer.[^108] In
    addition, because we would not be able to predict with accuracy how
    many assessments contributors would collect from end-user customers
    and remit to USAC in a given calendar quarter, a collect-and-remit
    system would create the possibility of shortfalls in the universal
    service fund. USAC would need to establish a significant reserve
    fund to account for such potential shortfalls.[^109] This form of a
    collect-and-remit system would also pose complex implementation
    details (for example, how carriers would treat partial payment of
    customer bills) that we avoid by adopting our modified methodology.

## Recovery of Universal Service Contributions 

40. In this Order, we also take steps to address consumer concerns
    regarding disparate contributor recovery practices. We conclude that
    telecommunications carriers may not recover their federal universal
    service contribution costs through a separate line item that
    includes a mark up above the relevant contribution factor.
    Contributing carriers still will have the flexibility to recover
    their contribution costs through their end-user rates if they so
    choose and to recover any administrative or other costs they
    currently recover in a universal service line-item through their
    customer rates or through another line item.[^110] Contributors will
    also have the flexibility to express the line item either as a flat
    amount or a percentage, as long as the line item does not exceed the
    total amount associated with the contribution factor, or the actual
    percentage thereof. Consistent with the universal service goals of
    the Act, we also extend the prohibition on recovery of universal
    service contributions from Lifeline customers to all ETCs, including
    competitive local exchange carriers (CLECs) and CMRS providers
    designated as ETCs.

### Recovery Limitations

#### Background

41. The statutory framework established by Congress in the Act governs
    the recovery of universal service contributions by
    telecommunications carriers. Sections 201(b) and 202(a) govern
    common carrier services and charges.[^111] Section 201(b) requires
    that all charges, practices, classifications, and regulations "for
    and in connection with" interstate communications service be just
    and reasonable, and gives the Commission jurisdiction to enact rules
    to implement that requirement.[^112] Section 202(a) prohibits
    "unjust or unreasonable discrimination" in connection with the
    provision of communications services. Section 202(a) also prohibits
    providers from making or giving "any undue or unreasonable
    preference or advantage to any particular person, class of persons,
    or locality, or to subject any particular person, class of persons,
    or locality to any undue or unreasonable prejudice or disadvantage."

42. As discussed above, carriers currently have the flexibility to
    recover their contribution obligations in any manner that is
    equitable and nondiscriminatory.[^113] To the extent that carriers
    recover their contribution costs through a separate line item on
    customer bills, they must accurately describe the nature of the
    charge.[^114] In the *Universal Service Order*, the Commission
    rejected proposals to impose a mandatory end-user universal service
    surcharge on customer bills, stating that a mandatory surcharge
    might affect contributors' flexibility to offer bundled services or
    new pricing options, possibly resulting in fewer options for
    consumers.[^115]

43. In the *First* *Further Notice*, we sought comment on whether and
    how to regulate the recovery of universal service contribution
    costs. We also noted that, in looking at whether the current system
    was effective in carrying out the Act, we must balance the duty to
    make sure the collection process is fair and reasonable to consumers
    with the need to give carriers the maximum flexibility to respond to
    market forces.[^116] We also expressed concern that even though the
    contribution factor is uniform for all interstate telecommunications
    carriers, recovery practices vary widely among different carriers,
    and among different customer classes.[^117] These concerns were
    shared by many commenters in this proceeding. For example,
    commenters expressed concern that disparate recovery of universal
    service contributions confuses consumers.[^118] Other commenters
    suggested that the Commission require that contributing carrier line
    items match the contribution factor.[^119] Other commenters,
    however, urged that the Commission allow carriers to retain
    flexibility in their contribution recovery practices.[^120]

44. In the *First* *Further Notice*, we sought comment on proposals to
    reconcile concerns about the equity and transparency of carrier
    recovery practices with the need for carriers to retain flexibility
    to respond to market forces. Specifically, we sought comment on
    whether to continue providing carriers with flexibility in the
    recovery of universal service contribution-related costs.
    Alternatively, we asked whether to require carriers that elect to
    recover contributions through a separate line item to make that
    line-item amount or percentage rate uniform for all customers.[^121]
    We also sought comment on whether to continue allowing carriers to
    mark up their universal service line items to account for
    uncollectibles and administrative costs. In addition, we sought
    comment on whether to require carriers that elect to impose a
    separate universal service line-item charge to describe the line
    item as the "Federal Universal Service Fee." Finally, we asked
    whether to prohibit all telecommunications carriers from recovering
    universal service costs from Lifeline customers.[^122]

#### Discussion

45. In this Order, consistent with the goals of the Act and this
    Commission for universal service, we adopt rules related to
    contribution recovery that will ensure that federal universal
    service line items on customer bills accurately reflect the extent
    of a carrier's contribution obligations, while at the same time
    maximizing fairness and flexibility for carriers. First, in light of
    the modifications to the contribution methodology adopted herein,
    beginning April 1, 2003, carriers may not mark up universal service
    line-item amounts above the relevant contribution factor. Second, we
    extend our current prohibition on the recovery of contribution costs
    from Lifeline customers to all ETCs.

46. Although the contribution factor is uniform for all contributors,
    universal service line items currently vary widely among carriers,
    and often significantly exceed the amount of the contribution
    factor. The contribution factor for the fourth quarter of 2002 is
    approximately 7.28 percent, but the federal universal service line
    items assessed on residential customers by the three largest
    interexchange carriers significantly exceed this amount.[^123]
    Interexchange carriers have attributed this difference to the lag
    between the reporting and assessment of revenues, uncollectibles,
    and administrative costs. Moreover, carriers may charge their
    business customers lower line items than they charge residential
    consumers, even though the assessment rate is uniform.[^124]

47. Such practices are not, however, confined to the major interexchange
    carriers. An analysis of federal universal service line-item charges
    across industry segments reveals that such charges often bear little
    or no relationship to the amount of the assessment. For example,
    several mobile wireless providers include flat universal service
    line-item charges on customer bills that bear little or no apparent
    relationship to an individual customer's interstate calling or the
    amount of interstate telecommunications revenues the mobile
    telecommunications carrier reports to USAC, the fund administrator.
    In addition, some incumbent LECs have flat federal universal service
    line-item charges that exceed the product of their subscriber line
    charge and the relevant contribution factor.[^125] Several carriers
    also charge customers large, up-front universal service fees that
    are apparently unrelated to the amount of their assessment for that
    customer.[^126] In addition, some interexchange carriers entirely
    exempt specific customers or customer classes, such as dial-around
    customers, from universal service pass-through charges.[^127]

48. We acknowledge that carriers in the past may have marked up their
    universal service line items above the relevant assessment amount to
    account for uncollectibles and other factors. We are concerned,
    however, that the flexibility provided under our current rules may
    have enabled some companies to include other completely unrelated
    costs in their federal universal service line items. Some
    commenters, for example, allege that carriers include
    service-related costs in their federal universal service line items
    in order to reduce their service-related charges.[^128]

49. Based on our experience over the course of the last three years, we
    believe it is necessary to provide greater clarity about the
    practices we deem reasonable to protect consumers. In light of the
    changes to the contribution methodology adopted herein, we conclude
    that the practice of marking up federal universal service line-item
    charges above the relevant assessment amount will be prohibited
    prospectively. We reject proposals to address such practices on a
    case-by-case basis through enforcement proceedings.[^129] Using our
    enforcement authority to address such a systemic problem would not
    be an efficient use of the Commission's resources. We conclude that
    a rule of general application will be far more effective in ensuring
    that such practices do not occur in the future after we have
    adjusted our contribution methodology. Once carriers' contributions
    are assessed on the basis of projected collected interstate and
    international revenues, carriers may not mark up federal universal
    service line-item charges above the relevant contribution factor.
    This position is supported by the state members of the Joint Board,
    as well as a number of commenters.[^130] Any carrier that applies a
    federal universal service line-item charge above the relevant
    assessment amount could be subject to enforcement action for
    violating the rules we adopt herein.

50. The elimination of mark-ups in carrier universal service line items
    will also alleviate end-user confusion regarding the universal
    service line item. Specifically, the amount of a carrier's federal
    universal service line item will not exceed the relevant interstate
    telecommunications portion of the bill times the relevant
    contribution factor. This result should eliminate a significant
    portion of the consumer frustration and confusion pertaining to
    universal service line items. This requirement also should foster a
    more competitive market by better enabling customers to comparison
    shop among carriers. This furthers our goal of promoting
    transparency for the end user in order to facilitate informed
    customer choice.

51. Therefore, beginning April 1, 2003, carriers that elect to recover
    their contribution costs through a separate line item may not mark
    up the line item above the relevant contribution factor. To the
    extent that a carrier recovers its contribution costs through a line
    item, that line item may not exceed the relevant assessment rate.
    So, for example, if the contribution factor is 7.28 percent, a
    carrier's federal universal service line-item cannot exceed 7.28
    percent of the total amount of the interstate portion of charges for
    telecommunications service on each customer's bill.[^131] Likewise,
    if a carrier chooses to express its federal universal service
    line-item charge as a flat amount, that amount may not exceed the
    interstate telecommunications portion of the bill times the relevant
    contribution factor. In addition, we no longer will permit carriers
    -- whether wireline or wireless -- to average contribution costs
    across all end-user customers when establishing federal universal
    service line-item amounts.[^132] Similarly, because customers of
    Lifeline services do not generate assessable interstate
    telecommunications revenues for ETCs, the relevant assessment rate
    and contribution amounts recovered from such customers would be
    zero.

52. We recognize that these changes may require modifications in billing
    practices for certain carriers. Accordingly, this requirement will
    not become effective until April 1, 2003. We will monitor closely
    carrier compliance with these new requirements and will take
    appropriate action if it appears carriers are not complying with our
    rules.

53. We stress that this rule only applies to carriers that choose to
    recover their contribution costs through a line item. Carriers will
    continue to have flexibility to recover their contribution costs
    through their rates or through a line item.[^133] In this way, we
    accommodate entities such as payphone and prepaid wireless providers
    that are unable, for practical or business reasons, to recover
    universal service contribution costs through a line item. In
    addition, carriers will have the flexibility to express the line
    item either as a flat amount or as a percentage, as long as the line
    item does not exceed the interstate telecommunications portion of a
    customer's bill times the relevant contribution factor.

54. We have taken steps in this Order to address some of the reasons for
    mark-ups to federal universal service line-item charges by
    eliminating the interval between the accrual and assessment of
    revenues and allowing carriers to reduce their assessable revenues
    by an uncollectible percentage.[^134] We also previously have
    eliminated circularity from contribution assessment by excluding
    contributors' actual universal service contributions from their
    assessable revenues base.[^135] We acknowledge that contributors may
    continue to incur some administrative costs associated with the
    collection of the universal service charges from end users that may
    not be recovered through a federal universal service line item. We
    clarify that we do not believe it appropriate for carriers to
    characterize these administrative and other costs as regulatory fees
    or universal service charges after April 1, 2003. These costs, in
    our view, are no different than other costs associated with the
    business of providing telecommunications service and may be
    recovered through rates or other line item charges. We conclude it
    is unreasonable to describe an amount as a universal service
    regulatory fee when that amount varies from the contribution factor
    mandated by the regulator. Carriers, therefore, may not include
    administrative costs in line items that are characterized as federal
    universal service contribution recovery charges. In particular, a
    carrier may not describe an amount as a regulatory fee relating to
    universal service when that amount exceeds the contribution factor
    times the interstate telecommunications revenues on the customer's
    bill after April 1, 2003.

55. Carriers that are not rate-regulated by this Commission, namely
    interexchange carriers, CMRS providers, and competitive local
    exchange carriers, will have the same flexibility that exists today
    to recover legitimate administrative and other related costs. In
    particular, such costs can always be recovered through these
    carriers' rates or through other line items. The rule that we adopt
    today does not prevent any legitimate cost recovery. Administrative
    costs of incumbent local exchange carriers (ILECs) subject to
    rate-of-return regulation solely related to implementation and
    compliance with the contribution methodology will be included in
    their cost accounting and therefore will be part of their end-user
    revenue requirement. As for carriers subject to price cap
    regulation, we do not anticipate that administrative costs
    associated with our contribution methodology will be extraordinary.
    [^136] Nothing in this Order modifies our existing Truth-in-Billing
    requirements.[^137]

56. We are not persuaded by AT&T's argument that it has no means to
    recover certain contribution costs it categorizes as "unbillable."
    AT&T has argued that it is unable to recover its universal service
    contribution costs when certain local exchange carriers perform
    billing functions on its behalf, but do not include a universal
    service line-item charge on AT&T's portion of the bill.[^138] For
    example, AT&T states that it is prevented from including a separate
    universal service line-item charge on the bills of presubscribed
    customers served by certain rural LECs.[^139] Likewise, AT&T states
    that it is unable to pass through universal service contribution
    costs when Regional Bell Operating Companies and other incumbent
    LECs bill on AT&T's behalf for dial-around, collect calling, and
    other "casual" calling services on customer accounts for which AT&T
    is not the presubscribed interexchange carrier.[^140]

57. We reiterate that carriers, such as AT&T, that are not rate
    regulated remain free to recover fully their universal service
    contributions from their customers. Indeed, we note that other
    interexchange carriers dispute AT&T's argument that such amounts
    cannot be recovered.[^141] Therefore, we conclude there is no need
    to permit carriers to treat such revenues as "uncollectibles."[^142]
    Our decision to continue to assess such interstate revenues is
    competitively neutral, because all carriers will be assessed at the
    same contribution factor for such revenues and will be subject to
    the same contribution recovery limitations. Moreover, we have
    concerns with any approach that would remove a significant amount of
    revenues from the contribution base for business reasons that are
    within a contributor's control.

58. We find that, in such instances, interexchange carriers may,
    consistent with sections 201 and 254(g), charge customers a combined
    charge that includes service-related and federal universal service
    recovery charges. Thus, for example, if a customer's long-distance
    charges totaled \$15 and the contribution factor was 10 percent, the
    interexchange carrier could direct the LEC to bill the customer one
    \$16.50 charge. The label for the combined charge, however, must not
    indicate that the charge consists solely of a federal universal
    service charge and must not otherwise be misleading. The
    interexchange carrier must also inform customers of the component
    amounts of the combined charge upon request and retain documentation
    of the component amounts for three years. We also find that it would
    be unreasonable for a LEC, when it is performing a billing and
    collection function for an interexchange carrier, to refuse to
    implement in a timely manner any rate changes necessitated by the
    imposition of such combined interexchange carrier charges.

59. In addition, AT&T has asserted that it may be prevented by existing
    contracts from recovering its universal service contributions from
    certain business customers.[^143] We find that the recovery
    limitations adopted herein constitute a change in universal service
    policy that was not anticipated at the time existing contracts were
    signed. Therefore, we conclude contributors should be afforded a
    fresh look at existing contracts and may be permitted to renegotiate
    contractual terms that prohibit the pass through of universal
    service recovery charges.

60. We emphasize that the rules we adopt today do not require the filing
    of new tariffs, but may result in revisions to existing tariffs. We
    note that the Commission has detariffed most interstate services
    offered by interexchange carriers.[^144] Further, CLECs and CMRS
    providers do not tariff their federal universal service line items
    with the Commission.

61. Because carriers cannot include mark ups in their federal universal
    service line item, we need not address whether such charges should
    be uniform across customer classes. We also need not adopt an
    interim safe harbor for mark ups.

62. Consistent with the record developed in this proceeding, we prohibit
    all eligible telecommunications carriers from recovering
    contribution costs from their Lifeline customers.[^145] Under our
    current rules, ILECs may not recover universal service contributions
    from Lifeline customers, while other carriers may do so.[^146] We
    find that extending the prohibition on recovery of universal service
    contributions from Lifeline customers to all ETCs, including CLECs
    and CMRS providers designated as ETCs, will promote equitable and
    nondiscriminatory contributions, consistent with section 254 of the
    Act. Prohibiting recovery of universal service contributions from
    Lifeline customers also helps to increase subscribership by reducing
    qualifying low-income consumers' monthly basic local service
    charges, consistent with our rules.[^147] We also conclude that our
    actions here further the universal service goals of the Act by
    helping to ensure that low-income consumers have access to
    telecommunications and information services.[^148]

63. While we believe that the adoption of rules in this Order will
    greatly reduce the amount of customer confusion surrounding
    contribution recovery issues, the Consumer and Governmental Affairs
    Bureau will continue to monitor complaints and consumer calls
    received on this topic. In addition, the Consumer and Governmental
    Affairs Bureau will continue its educational and outreach programs
    regarding federal universal service.[^149] We expect the Consumer
    and Governmental Affairs Bureau will educate consumers about the new
    rules adopted in this order. In this way we can monitor whether the
    policy goal of fostering competition through consumer choice is
    being met. If we observe a sustained marked increase in consumer
    complaints regarding the recovery of carrier contribution costs, we
    may revisit this issue at that time.

### Labeling of Line-Item Charges 

#### Background

64. The Commission's Truth-in-Billing rules require that consumer bills
    be clearly organized, clearly identify the service provider,
    highlight any new providers, and contain clear and conspicuous
    disclosure of information the consumer may need to make inquiries
    about or contest charges.[^150] In the *First* *Further Notice,* we
    sought comment on various potential modifications to our
    Truth-in-Billing rules, such as whether to require carriers that
    elect to impose a separate line-item charge on customer bills to
    recover their contribution costs to describe the line item as the
    "Federal Universal Service Fee."[^151]

#### Discussion

65. At this time, we decline to mandate a specific label for federal
    universal service line-items pursuant to our Truth-in-Billing rules.
    We will monitor how the reforms we adopt today affect carrier
    recovery practices and will take further action if necessary.

# SECOND FURTHER NOTICE OF PROPOSED RULEMAKING

66. In this *Second Further Notice*, we seek to further refine the
    record in this proceeding. We are hopeful that we will adopt
    additional modifications to our contribution methodology to ensure
    the continued viability of universal service as the marketplace
    continues to develop.

67. First, we ask commenters to discuss whether the changes to the
    revenue-based methodology adopted herein are sufficient to ensure
    the long-term viability of universal service as the
    telecommunications marketplace evolves. Should any additional
    modifications to the revenue-based system be made? For example, we
    seek comment on whether bundling of local and long distance services
    raises any unique problems for wireline carriers in identifying
    interstate telecommunications revenues and how such problems should
    be addressed.

68. In addition, although we have increased the mobile wireless safe
    harbor to 28.5 percent, we note that some commenters assert that,
    using certain methodologies, mobile wireless carriers are capable of
    determining their actual interstate end-user telecommunications
    revenues.[^152] If a revenue-based system is retained, we seek
    comment on whether we should abolish the safe harbor for mobile
    wireless carriers and, if so, how such carriers should determine
    their actual interstate end-user telecommunications revenues.[^153]
    We specifically seek comment on whether minutes of use is an
    appropriate proxy for determining interstate revenues for mobile
    wireless providers. We also request comment on whether the
    originating cell site and the terminating area code or NPA of a call
    reasonably approximates the jurisdictional nature of traffic for
    reporting purposes. In addition, we seek comment on whether it would
    be appropriate to include both outgoing and incoming calls in mobile
    wireless provider traffic studies and whether and how to include
    roaming and international minutes in such studies. We seek comment
    on burdens presented by proposed methodologies to determine
    interstate revenues and particularly invite comment from smaller
    mobile wireless providers on whether they face unique difficulties
    in identifying interstate telecommunications revenues. We also ask
    commenters to discuss whether other CMRS carriers, such as paging
    and analog SMR carriers,[^154] are able to determine their actual
    interstate end-user telecommunications revenues and whether those
    safe harbors should also be abolished. We seek comment on how
    eliminating the safe harbors would affect wireless carriers whose
    contributions to universal service are *de minimis*.

69. Although the actions taken today will improve the operation of our
    revenue-based methodology in the near term, we remain concerned that
    any contribution system based on interstate telecommunications
    revenues will be dependent on the ability of contributors to
    distinguish between interstate and intrastate telecommunications and
    non-telecommunications revenues.[^155] Several commenters have
    argued that a connection-based mechanism may be the best alternative
    to ensure the long-term viability of the Commission's universal
    service mechanisms as the telecommunications marketplace continues
    to evolve.[^156] We, therefore, seek additional comment on three
    specific connection-based proposals.

70. In the *First Further Notice*, we sought comment on a specific
    proposal to base contributions on the number and capacity of
    connections a contributor provides to interstate networks, rather
    than revenues.[^157] Since that time, a number of parties across
    various industry segments, as well as four out of five state members
    of the Joint Board, have supported adoption of a connection-based
    assessment methodology and have proposed their own variations of
    connection-based proposals.[^158] Proponents of a connection-based
    methodology argue that such a system would provide a sufficient and
    predictable funding source for universal service in a
    telecommunications marketplace increasingly characterized by new and
    innovative bundles of intrastate and interstate telecommunications
    and non-telecommunications products and services, and increased
    competition between wireline and wireless technology
    platforms.[^159] These commenters point out that the number of
    connections historically has been more stable than end-user
    interstate telecommunications revenues.[^160] Commenters also point
    out that connection-based assessments would eliminate the need for
    contributors to distinguish between interstate and intrastate
    revenues, or revenues from telecommunications and
    non-telecommunications services, as is required under the current
    methodology.[^161] These commenters therefore argue that
    connection-based assessments would better accommodate new services
    and technologies as they develop. Such a framework also may be more
    economically efficient than the current revenue-based methodology,
    because connection-based assessments are less likely to create
    inefficient incentives for end users to curtail their usage of
    interstate telecommunications networks.

71. The proponents of certain connection-based proposals argue that
    their proposals would be consistent with the requirement of section
    254(d) that every telecommunications carrier that provides
    interstate telecommunications services contribute to the
    Commission's universal service mechanisms on an equitable and
    nondiscriminatory basis. However, several other parties have
    expressed concerns that such proposals in the record would be
    inconsistent with this statutory mandate.[^162] We specifically take
    note of arguments that specific connection-based proposals in the
    record may be inconsistent with section 254(d)'s requirement that
    every provider of interstate telecommunications service contribute
    on an equitable basis.[^163]

72. We conclude it is appropriate to further develop the record on
    aspects of certain proposals to assess universal service
    contributions on the number and capacity of connections. We also
    conclude it is appropriate to continue refining our analysis of the
    potential impacts on contributors, and, ultimately, consumers, of
    the various proposals. In this *Second Further Notice*, we seek
    comment on specific measures the Commission could take to ensure
    that a connection-based contribution methodology would be consistent
    with the Act. First, we seek comment on a contribution methodology
    that would impose a minimum contribution obligation on all
    interstate telecommunications carriers, and a flat charge for each
    end-user connection, depending on the nature or capacity of the
    connection. Next, we seek comment on a proposal to assess all
    connections based purely on capacity (without regard to distinctions
    between residential/single-line business and multi-line business
    connections), and share contribution obligations for each switched
    end-user connection between access and transport providers. Finally,
    we seek comment on a proposal to assess providers of switched
    connections based on their number of working telephone numbers.

73. We invite commenters to discuss potential advantages and
    disadvantages of each approach, and whether each satisfies the
    requirements of section 254 that "\[e\]very telecommunications
    carrier that provides interstate telecommunications services . . .
    contribute, on an equitable and nondiscriminatory basis, to the
    specific, predictable, and sufficient \[universal service support\]
    mechanisms."[^164] We urge commenters to submit data and analysis on
    assessment levels under each approach. We further request comment on
    the relative contribution obligations of different industry segments
    under each approach. We ask commenters to address the potential
    impacts of the different methodologies on consumers, both generally
    and also on residential consumers that place no long-distance
    calls.[^165] What would be the impact of each of the proposals on
    the average residential customer and on residential customers
    generally? Would the typical residential customer pay more, less, or
    approximately the same amount of pass-through charges to different
    carriers than they do today?

74. Commenters should also describe and estimate the costs associated
    with the implementation of each proposal, including the cost of any
    necessary billing system changes. We also invite comment on the
    reporting obligations associated with each of the proposals
    discussed below and ask that commenters quantify, to the extent
    possible, the burdens associated with each proposal and compare the
    relative burdens. We seek comment on whether it would be appropriate
    to require contributors to report their number and capacity of
    end-user connections and/or numbers on a monthly basis, or whether
    less frequent reporting would be adequate. We particularly invite
    comment on the potential administrative burdens associated with each
    of these proposals from entities that are "small business concerns"
    under the Small Business Act. We also seek comment on whether to
    continue basing contributions to the Telecommunications Relay
    Service, Numbering Administration, Local Number Portability and
    wireline regulatory fees programs on annual revenue data, or whether
    contributions to these mechanisms also should be based on
    connections and/or numbers.

## Connections-Based Methodology with Mandatory Minimum Obligation 

75. Under the first approach, every telecommunications carrier that
    provides interstate telecommunications services would be subject to
    a mandatory minimum annual contribution, except to the extent that
    the provider's contribution is *de minimis*. A provider's
    contribution would be *de minimis* if the provider received less
    than \$100,000 in annual interstate telecommunications revenues.
    Residential, single-line business, payphone, mobile wireless, and
    pager connections would be assessed a flat monthly fee (Lifeline
    connections would be exempt), and a residual amount would be
    assessed on multi-line business connections. Providers initially
    would be assessed \$1.00 per month for each residential, single-line
    business, payphone, and mobile wireless connection, and \$0.10 and
    \$0.20 per month, respectively, for each one-way and two-way pager
    connection. Multi-line business connections would be assessed at
    varying amounts based on their classification into different tiers
    of capacity, at levels sufficient to cover residual funding
    requirements. The capacity of a connection would be defined as the
    maximum capacity that the end user has ordered onto its premises in
    a given month, regardless of the facility used to provide that
    connection.[^166]

76. Connections would be defined as facilities that provide end users
    with access to an interstate public or private network, regardless
    of whether the connection is circuit-switched, packet-switched,
    wireline or wireless, or leased line.[^167] International-only and
    intrastate-only connections would be exempt, because they do not
    have an interstate component.[^168] In the case of a prepaid
    wireless connection, a connection would be defined as an activated
    handset that is either usable by a customer on the last calendar day
    of the month, or, if a provider cannot determine whether a handset
    is usable by a customer on the last calendar day of the month, one
    that has sent or received a call during the calendar month.[^169]
    PBX connections would be assessed based on capacity as with any
    other multi-line business connection, while Centrex connections
    would be assessed at one-ninth the rate of a Tier 1
    connection.[^170] Private service providers that provide interstate
    connections solely to meet their internal needs (i.e.,
    self-providers) would not be required to contribute under this
    methodology.[^171] Whether and how connections that provide
    broadband Internet access---whether over cable modems, satellites,
    wireless, or wireline technology---would be assessed would be
    deferred pending action in the current proceeding regarding
    classification of wireline broadband Internet access.[^172]

77. Under this approach, each provider would report monthly the number
    of its connections as of the last day of the previous month to the
    Administrator and remit payments on a monthly billing cycle.
    Consistent with the revised methodology we adopt today, each
    contributor would be permitted to adjust its monthly contribution
    obligation to account for the percentage of monthly
    telecommunications revenues that the contributor anticipates would
    not be collected from end users. Providers would continue to report
    telecommunications revenues annually for purposes of determining
    whether a filer is subject to minimum contribution obligations or
    qualifies for the *de minimis* exemption*.* The annual FCC Form
    499-A revenue filing would also be used to calculate contributions
    for Telecommunications Relay Service, Numbering Administration,
    Local Number Portability, and regulatory fees, which would continue
    to be assessed using the revenue-based methodology.[^173] The FCC
    Form 499-A also would continue to be used for true-up purposes if,
    for example, uncollectible rates reported on a monthly or quarterly
    basis are reconciled with actual uncollectibles reported on an
    annual basis. There would be a one-year transition period to allow
    providers to modify billing systems, and to allow the Administrator
    time to compile data necessary to finalize the calculation of
    initial assessment rates. Assessments for residential, single-line
    business, payphone, pager, and mobile wireless connections could be
    adjusted annually, while assessment levels for multi-line business
    connections could be adjusted quarterly to account for fluctuations
    in demand on the fund and the number and capacity of
    connections.[^174]

78. We seek comment generally on the benefits and drawbacks of this
    proposal. We also seek comment in particular on the following
    aspects of this approach. First, we seek comment on the operation of
    a minimum contribution requirement. Under one variation,
    telecommunications providers would continue reporting their annual
    interstate telecommunications revenues on the FCC Form 499-A.[^175]
    If a telecommunications provider reports annual interstate
    telecommunications revenues greater than or equal to \$100,000 on
    the Form 499-A, regardless of whether it provides connections, it
    would be subject to a minimum total annual contribution obligation
    equal to a flat percentage of its annual interstate
    telecommunications revenues, such as, for example, one
    percent.[^176] The minimum requirement would be based on all
    interstate telecommunications revenues, not end-user
    telecommunications revenues. Thus, wholesale carriers would be
    required to contribute directly to universal service. Providers of
    connections could offset their connection-based assessments against
    their minimum contribution. If, however, the annual interstate
    telecommunications revenues of a provider as reported on the FCC
    Form 499-A were less than \$100,000, it would be exempt from either
    revenue-based or connection-based contribution obligations. We seek
    comment on this proposal. We seek comment on whether it is
    reasonable to make \$100,000 the threshold for determining *de
    minimis* status, and whether one percent or some other percentage of
    interstate telecommunications revenues should form the basis of the
    minimum contribution requirement.

79. We recognize that a minimum contribution requirement based on all
    interstate telecommunications revenues may lead to the
    "double-counting" of revenues. In the *Universal Service Order*, the
    Commission declined to count wholesale revenues in the contribution
    base, reasoning that counting such revenues would competitively
    disadvantage resellers.[^177] The Commission stated that because
    resellers would likely be charged a pass-through by the underlying
    facilities-based carriers, and would, in turn, pass that increased
    cost to customers, resellers would likely be required to sell total
    services at a higher cost than would their facilities-based
    competitors, whose prices would incorporate only one
    assessment.[^178] We seek comment on how to address this potential
    competitive issue consistent with section 254(d).

80. We also seek comment on an alternative form of minimum contribution
    obligation on the basis of revenue-based tiers, whereby contributors
    would be assessed at increasing percentages of telecommunications
    revenues, or increasing flat-fee amounts, tied to their level of
    interstate telecommunications revenues. We seek comment on the
    appropriate number of tiers, and the revenue ranges within each
    tier. We seek comment on whether such a tiered structure may create
    incentives to mischaracterize revenues in order to be assessed at a
    lower tier, and if so, how such incentives may be minimized.

81. []{#_Ref23674832 .anchor}In addition, we seek comment on the
    appropriate assessment levels for multi-line business connections
    based on capacity. Specifically, we seek comment on the following
    four-tier structure:

    [Tier Capacity Assessment x Tier 1 Rate]{.underline}

    Tier 1 Up to 725 Kbps 1

    Tier 2 726 Kbps - 5 Mbps 16

    Tier 3 5.01 Mbps - 90 Mbps 224

    Tier 4 Greater than 90 Mbps 336

    Multi-line business connections with maximum capacity up to 725 Kbps
    would be assessed at the Tier 1 rate; multi-line business
    connections with maximum capacity between 726 Kbps and 5 Mbps would
    be assessed at 16 times the Tier 1 rate; and so on. We invite
    commenters to submit a projection of the Tier 1 rate under this
    proposed methodology, and to submit data supporting such a
    projection.

82. Unlike the CoSUS proposal submitted in the record, which contained
    three tiers,[^179] this methodology would add a fourth tier in order
    to more equitably assess higher-bandwidth connections and reduce the
    impact of changing to a connection-based methodology on small
    multi-line business customers. For example, while the CoSUS plan
    would assess an OC-3 connection with a capacity of 155.52 Mbps, or
    2016 times the capacity of a voice-grade connection, at 40 times the
    Tier 1 rate, this plan would assess such a connection at the rate of
    336 times the rate of a voice-grade connection. We seek comment on
    whether such modifications to the CoSUS plan would help to mitigate
    potentially inequitable burdens on small businesses by ensuring that
    higher capacity connections typically sold to larger businesses are
    assessed at a rate that reflects to a greater degree their increased
    capacity. We also seek comment on whether these factors
    approximately reflect market pricing of various typical services
    such as T-1, DS-3, and OC-3. Further, we seek comment on whether
    there may be instances in which a given tier inappropriately
    encompasses categories of connections that provide quite different
    levels of connectivity to interstate networks. For example, both a
    fractional T-1 connection with a maximum capacity of 768 Mbps and a
    T-1 with a capacity of 1.544 Mbps would fall within the second tier
    and would therefore be assessed at the same rate, despite the
    difference in capacity. We seek comment on the treatment under this
    approach of these and other services, and whether the assessment
    rates for each tier are reasonable in light of the goals and
    mandates of the statute.

83. We seek comment on the capacity ranges for each tier. As the
    Commission recognized in the *First Further Notice,* because
    movement to an adjacent tier would result in a significant increase
    in contribution obligations, a tiered approach potentially could
    deter some multi-line business customers from purchasing certain
    thresholds of additional capacity.[^180] We seek comment
    specifically on whether, in order to minimize possible market
    distortions, the ranges of these four capacity tiers would result in
    more common service offerings falling within a given tier. For
    example, a typical T-1 connection with a maximum downstream capacity
    of 1.544 Mbps should fall well within the parameter of the second
    tier, well below the upper range of 5 Mbps and sufficiently higher
    than the lower threshold of 726 Kbps. We seek comment on whether
    locating the break points in this manner would ensure that a higher
    or lower tier will not unexpectedly capture a common service
    offering if a given provider offers it with slightly different
    capacity.

84. We also seek comment on the impact of this proposal on residential
    customers. If the single-line connection rate were set at \$1.00 per
    month, would residential households, as a whole, pay more, less, or
    about the same as they would under the newly modified revenue-based
    system? What percentage of households would pay more under a \$1.00
    single-line connection approach than they would under the
    revenue-based approach? Would \$1.00 be the appropriate monthly
    assessment level for single-line connections?

85. We recognize that this proposal would require new regulatory
    reporting requirements. We urge commenters to quantify the cost of
    changes to carrier billing systems and other costs associated with
    implementation of a new reporting requirement.

## Splitting Connection-Based Contributions Between Switched Transport and Access Providers 

86. Second, we seek comment on the benefits and drawbacks of a system
    that would split connection-based contribution assessments between
    switched access and interstate transport providers, would assess
    access providers for non-switched connections, and would assess
    interstate telecommunications services not directly tied to
    connections based on revenues.[^181] Under such a system, CMRS
    providers and wireline carriers that provide both local and
    interexchange services to the end user would be assessed two units
    per connection (one for access and one for transport), while a LEC
    that does not provide interexchange service would be assessed one
    unit, and the interexchange carrier serving the customer would be
    assessed one unit. We invite commenters to project what the monthly
    per unit assessment rate would be under this proposal.

87. This proposal is similar to that proposed by SBC/BellSouth, although
    we do not propose at this time to directly assess information
    service providers.[^182] Connections would be defined as facilities
    that provide end users with access to an interstate public or
    private network, regardless of whether the connection is
    circuit-switched, packet-switched, wireline or wireless, or leased
    line.[^183] Assessments would not distinguish between residential
    and business connections, but rather would be based purely on
    capacity. As a result, assessments on a typical residential
    connection would be higher than under the first proposal discussed
    above. Under this proposal, there would be different capacity tiers
    for different types of connections, as with the connection-based
    approach described above.[^184] One-way pagers would be treated as
    one-half of an access connection, and two-way pagers would be deemed
    to be one access connection. Centrex lines would be assessed at the
    rate of one-ninth that of PBX lines, consistent with treatment of
    Centrex and PBX under our current rules.[^185] Intrastate-only and
    international-only connections would be excluded from the
    contribution base. Self-providers would be exempt from contribution,
    and there would be a *de minimis* exemption similar to that
    described above, such that a provider would be *de minimis* if it
    received less than \$100,000 in annual interstate telecommunications
    revenues.

88. We seek comment on the overall feasibility of this approach. We
    specifically seek comment on claims by interexchange carriers that
    they do not have access to information needed to determine their
    switched transport-related contribution obligation under such a
    system.[^186] Several commenters argue that this information sharing
    has the potential to create the sort of inefficiencies and increased
    transaction costs that were associated with implementing the
    Presubscribed Interexchange Carrier Charge (PICC), which the
    Commission ultimately found problematic.[^187] We seek comment on
    whether such a proposal could be structured in a manner that creates
    incentives for the local exchange carrier to share connection
    information with the transport provider in a timely fashion. We also
    seek comment on whether such information sharing could lead to
    inequities among providers, in that LECs that also provide
    long-distance service would not have to incur the administrative
    costs of sharing information that a traditional stand-alone IXC
    would incur. We seek comment on the treatment of Lifeline
    connections under such a proposal, in light of commenters'
    statements that IXCs do not know which of their customers are
    Lifeline customers.[^188] We invite commenters to provide detailed
    information on the costs associated with such data-sharing, and to
    address whether systems could be devised, and under what time frame,
    to facilitate necessary information sharing. Furthermore, we seek
    comment on the treatment under this approach of customers that make
    no long-distance calls in a given month, because many IXCs do not
    currently bill such customers on a monthly basis.[^189]

89. As originally proposed by SBC/BellSouth, a revenue-based assessment
    would be applied only to IXCs that do not provide the transport
    portion of a switched connection on a presubscribed basis (*e.g.,*
    dial-around providers).[^190] We specifically seek comment on
    whether this approach would create disincentives for certain
    categories of customers, such as high volume users, to use such
    non-presubscribed services. We seek comment on whether this approach
    would be competitively neutral. We also seek comment on the
    frequency of such revenue-based reporting, and how to calculate such
    revenue-based assessments.

90. We seek comment on the impact of this proposal on different
    categories of customers. Would residential households, as a whole,
    pay more, less, or about the same as they would under the
    revenue-based system? What percentage of residential households
    would pay more under this approach compared to the revenue-based
    methodology?

91. We recognize that this proposal would require new regulatory
    reporting requirements. We urge commenters to quantify the costs of
    charges to carrier billing systems and other costs associated with
    implementation of a new reporting requirement.

92. We also seek comment on two alternatives to this proposal that would
    assess wireline switched access and transport providers partly on a
    connection basis, and partly on a revenue basis.[^191] Under the
    first of these alternatives, wireline switched access providers
    would be assessed on the basis of the number and capacity of
    connections, and wireline switched transport providers (including
    both presubscribed and non-presubscribed long-distance providers)
    would be assessed on the basis of interstate end-user revenues. The
    second alternative, however, would only split assessments between
    switched access and transport providers when the access and
    transport elements are not provided by the same wireline
    carrier.[^192]  Under this second alternative, the presubscribed
    transport provider that does not also provide the access element of
    a connection would be assessed on a revenue basis, as would the
    non-presubscribed transport provider. The switched access provider
    would be assessed the full connection-based charge (for both access
    and transport) when it provides both the interstate access and
    transport elements.  Thus, under either of these alternatives, only
    the access provider would be assessed for non-switched connections,
    and providers of non-presubscribed services would be assessed on a
    revenue basis.

93. Under the first of these alternatives, a capacity-based assessment
    would be assigned to each end-user connection. In order to calculate
    assessments under this system, the capacity-based assessment
    assigned to each wireline switched end-user connection would be
    divided equally between the access provider and the transport
    provider.[^193] The transport portion of the capacity-based
    assessment would be the basis for determining the total amount that
    would be recovered from all switched long-distance providers on a
    revenue basis. For example, in order to determine revenue-based
    assessments for switched long-distance providers on an annual basis,
    the Commission would divide the projected revenue requirement for
    the universal service mechanisms in the upcoming calendar year by
    the total projected number of capacity units (including non-switched
    capacity units) for the upcoming calendar year in order to determine
    a monthly assessment per capacity unit. That rate would then be
    multiplied by the total number of switched capacity units, resulting
    in the monthly total switched connection assessment. The total
    switched long-distance revenues as reported on the FCC Form 499-A,
    divided into an amount equal to half the total switched connection
    assessment,[^194] would result in a revenue-based contribution
    factor for all switched transport providers, and those providers
    would be assessed monthly on that factor, multiplied by one twelfth
    of their annual interstate end-user telecommunications revenues.

94. We also seek comment on the second alternative, which would only
    split connection-based assessments between interstate switched
    access and transport providers when the access and transport
    elements are not provided by the same carrier.[^195]  Under this
    second proposal, the switched access provider would be assessed the
    full connection-based charge when it provides both the interstate
    access and transport elements.[^196]

95. We seek comment on how such approaches might work, and the benefits
    and drawbacks of each. In particular, we seek comment on whether
    these alternative approaches would avoid some of the difficulties
    commenters have cited regarding the sharing of information between
    LECs and IXCs. We also seek comment on whether this proposal
    potentially would place traditional long distance providers at a
    competitive disadvantage when competing against integrated providers
    of local and long distance. We seek comment on whether continuing to
    assess a major segment of the industry on the basis of revenues
    would adequately address our concerns about the difficulties
    associated with distinguishing interstate from non-interstate
    revenues, and other potential long-term problems associated with a
    revenue-based methodology.[^197] We invite comment on whether
    high-volume users would have incentives to purchase bundled local
    and long-distance service in order to avoid revenue-based
    assessments. We seek comment on how frequently the Commission should
    determine revenue-based assessment rates for switched transport
    providers and what reporting obligations would be necessary to
    calculate such assessments. We also seek comment on whether such a
    proposal would increase the administrative costs associated with
    complying with universal service contribution obligations. In
    addition, we seek comment on the likely impact of these two
    alternatives on residential customers.

## Telephone Number-Based Assessments 

96. Third, we seek comment on the benefits and drawbacks of proposals to
    assess connections on the basis of telephone numbers. AT&T and Ad
    Hoc recently proposed a methodology that would assess providers on
    the basis of telephone numbers assigned to end users (assigned
    numbers), while assessing special access and private lines that do
    not have assigned numbers on the basis of the capacity of those
    end-user connections.[^198] We seek comment on whether such a system
    would provide a sufficient and sustainable basis for funding
    universal service. We also ask whether the plan might encourage
    public policy goals such as the conservation and optimization of
    existing telephone number resources.[^199] We seek comment on
    whether a telephone number-based methodology would address some of
    the concerns expressed by commenters regarding a connection-based
    approach. For instance, some commenters argue that a flat-fee
    connection-based approach would be an illegal assessment on
    intrastate revenues under section 2(b), because connections provide,
    in part, intrastate access.[^200] We seek comment on whether the
    Commission's exclusive jurisdiction over numbering resources
    addresses section 2(b) concerns raised by some commenters.[^201] We
    also seek comment on whether, in conjunction with this telephone
    number-based approach, we should impose a minimum contribution
    obligation on all providers.[^202]

97. We seek comment on how to implement a telephone number-based
    methodology. We also invite commenters to estimate assessment rates
    under this proposal. We seek comment on how multi-line switched
    business services such as Centrex and PBX, as well as 500, 900, and
    distinctive ring numbers, should be treated under a telephone
    number-based approach.[^203] We also seek comment on whether to
    assess telephone numbers associated with pagers at a lower level. If
    certain telephone numbers associated with specific types of
    services, such as electronic fax services, should be treated
    differently, we ask commenters to address how we would identify such
    telephone numbers. We seek comment on how a telephone number-based
    methodology would assess ported telephone numbers. In addition, we
    seek comment on whether it would be appropriate to assign lower
    telephone number-based assessment rates to local exchange carriers
    that do not participate in 1,000 block number pooling. We ask
    commenters to discuss whether seasonal-use telephone numbers and
    telephone numbers assigned for a customer's intermittent or cyclical
    use should be assessed and, if so, at what charge. We seek comment
    on whether working, rather than assigned, toll free numbers should
    be assessed.[^204] We ask commenters to discuss whether the
    Responsible Organizations should be assessed for toll free numbers
    and whether we could assess such entities if they are neither
    telecommunications carriers nor providers of
    telecommunications.[^205]

98. We seek comment on the relative impact of a telephone number-based
    methodology on carriers that provide connections with smaller
    amounts of capacity, such as those provided to residential and
    single-line business users, compared to providers of higher-capacity
    connections to large multi-line businesses or providers of
    smaller-capacity connections to large businesses with heavily used
    toll free numbers (e.g., a national retail catalog company). We also
    seek comment on whether there are any numbers associated with
    special access and private lines that could be assessed. If not, we
    ask commenters to discuss whether special access and private lines
    should be assessed based on the capacity of the connection, and
    whether doing so would sufficiently offset possible inequities
    related to differences of capacity. We particularly seek comment on
    that aspect of the Ad Hoc and AT&T proposal that would assess
    non-switched multi-line business connections based on three tiers of
    capacity with the same multipliers proposed by CoSUS.[^206] We seek
    comment on whether these multipliers would unfairly advantage
    contributors that provide high-capacity connections, and whether an
    increased number of tiers or different tier levels may reduce such
    an advantage. Alternatively, we seek comment on whether to
    categorize connections into the same four tiers described above,
    based on capacity.[^207] We invite commenters to address in detail
    how such a plan might work, and note potential advantages and
    disadvantages.

99. Further, we seek comment on whether a methodology basing assessments
    on telephone numbers would be easier for the Administrator to
    implement and audit than other connection-based proposals in the
    record. We also seek comment regarding the process for contributors
    to report telephone numbers under a telephone number-based
    methodology. Section 52.15(f)(6) of our current rules requires
    telecommunications carriers that receive numbering resources to file
    forecast and utilization reports twice per year.[^208] These reports
    include the number of assigned telephone numbers.[^209] This
    proposal therefore could rely upon existing reporting requirements.
    We seek comment on whether this semi-annual reporting requirement
    would be sufficient for universal service purposes. For example,
    would these reports adequately identify a telecommunications carrier
    that receives a telephone number from a non-carrier? We seek comment
    on whether contributors should be required to submit additional
    documentation, such as the nature of the service provided via the
    telephone number, or report more frequently, perhaps on a monthly
    basis. We seek comment on other mechanisms that could be used to
    identify the number of telephone numbers that have been assigned to
    particular carriers. We ask that commenters quantify the costs of
    changes to any carrier billing systems and other costs associated
    with implementing this proposal.

100. As with the other proposals, we also seek comment on the impact of
     this proposal on different categories of customers. Would
     residential households, as a whole, pay more, less, or about the
     same as they would under a revenue-based system? What percentage of
     residential households would pay more under this approach, compared
     to the revenue-based methodology?

# procedural matters

## Final Regulatory Flexibility Analysis 

101. As required by the Regulatory Flexibility Act of 1980, as amended
     (RFA),[^210] an Initial Regulatory Flexibility Analysis (IRFA) was
     incorporated in the *First Further Notice*.[^211] The Commission
     sought written public comment on the proposals in the *First
     Further Notice*, including comment on the IRFA. This present Final
     Regulatory Flexibility Analysis (FRFA) conforms to the RFA.[^212]
     To the extent that any statement in this FRFA is perceived as
     creating ambiguity with respect to our rules or statements made in
     preceding sections of this Order, the rules and statements set
     forth in those preceding sections shall be controlling.

### Need for, and Objectives of, the Report and Order

102. In this Order, we take interim measures to maintain the viability
     of universal service in the near term \-- a fundamental goal of
     this Commission \-- while we consider further long-term reforms.
     First, we increase to 28.5 percent the current interim safe harbor
     that allows cellular, broadband PCS, and certain specialized SMRS
     providers to assume that 15 percent of their telecommunications
     revenues are interstate.[^213] We also will require wireless
     telecommunications providers to make a single election whether to
     report actual revenues or to use the revised safe harbor for all
     affiliated entities within the same safe harbor category.[^214] In
     addition, we seek to improve competitive neutrality among
     contributors by modifying the existing revenue-based methodology to
     require universal service contributions based on contributor
     provided projections of collected end-user interstate
     telecommunications revenues, instead of historical gross-billed
     revenues.[^215] We conclude that our actions to modify the current
     revenue-based contribution methodology will sustain the universal
     service fund and increase the predictability of support in the near
     term, while we continue to examine more fundamental reforms.

103. We also take steps to protect consumers from unjust and
     unreasonable universal service contribution recovery
     practices.[^216] Specifically, we conclude that telecommunications
     carriers may not recover their federal universal service
     contribution costs through a separate line item that includes a
     mark up above the relevant contribution factor. Limiting the
     federal universal service line-item charge to an amount that does
     not exceed the contribution factor, set quarterly by the
     Commission, will increase billing transparency and decrease
     confusion for consumers about the amount of universal service
     contributions that are passed through by carriers. Carriers will
     continue to have the flexibility to recover legitimate
     administrative costs from consumers through other means. We find
     that our modified contribution methodology will simplify the
     assessment and recovery of universal service contributions for all
     carriers and consumers, including small entities.

### Summary of Significant Issues Raised by Public Comments In Response to the IRFA

104. The Commission received no comments specifically addressing the
     IRFA. We did receive, however, some general small entity-related
     comments. Some commenters, for example, asserted that a
     connection-based methodology would be inequitable and burdensome
     for small businesses, particularly with respect to assessment of
     multi-line business connections based on the proposed tiers of
     capacity outlined in the *First Further Notice*.[^217] Commenters
     also expressed general concerns about carrier recovery
     practices.[^218] Other commenters maintained that a *de minimis*
     exemption was essential to any contribution system adopted by the
     Commission.[^219] In this Order, we modify the existing
     methodology; therefore, issues raised with respect to the impact of
     a connection-based assessment on small entity concerns are not
     directly implicated by our actions taken today. We do note,
     however, that the Commission, concurrent with the issuance of the
     Order adopted a *Second Further Notice* that seeks comment on
     specific aspects of three connection-based proposals in the record.
     To the extent that commenters continue to have small entity-related
     concerns, they may submit comments in response to the *Second
     Further Notice*, as discussed in detail below.[^220]

105. In the Order, we adopt certain modifications to the existing
     methodology.[^221] As noted in the Order, we, among other things,
     have adopted rules related to contribution recovery that will
     increase billing transparency and decrease confusion for all
     consumers, including small entities, about the amount of universal
     service contributions that are passed through by carriers, while
     maximizing fairness and flexibility for carriers.[^222] By allowing
     carriers to contribute based on projections of their collected
     end-user revenues, we eliminate one of the major reasons for
     carriers to recover amounts in excess of the relevant assessment
     rate.[^223] We prohibit carriers from marking up federal universal
     service line items above the contribution factor. These actions
     address small entity concerns regarding recovery practices. We have
     also retained the *de minimis* exemption to ensure that compliance
     costs associated with contributing to universal service do not
     exceed actual contribution amounts.

### Description and Estimate of the Number of Small Entities to Which Rules Will Apply 

106. 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 rules adopted herein.[^224] The RFA generally
     defines the term \"small entity\" as having the same meaning as the
     terms \"small business,\" \"small organization,\" and \"small
     governmental jurisdiction.\"[^225] A small organization is
     generally "any not-for-profit enterprise which is independently
     owned and operated and is not dominant in its field."[^226]
     Nationwide, as of 1992, there were approximately 275,801 small
     organizations.[^227] "Small governmental jurisdiction"[^228]
     generally means "governments of cities, counties, towns, townships,
     villages, school districts, or special districts, with a population
     of less than 50,000."[^229] As of 1992, there were approximately
     85,006 governmental entities, total, in the United States.[^230]
     This number includes 38,978 cities, counties, and towns; of these,
     37,566, or 96%, have populations of fewer than 50,000.[^231] The
     Census Bureau estimates that this ratio is approximately accurate
     for all governmental entities. Thus, of the 85,006 governmental
     entities, we estimate that 81,600 (96%) are small entities. In
     addition, the term \"small business\" has the same meaning as the
     term \"small business concern\" under the Small Business Act,
     unless the Commission has developed one or more definitions that
     are appropriate to its activities.[^232] Under the Small Business
     Act, a \"small business concern\" is one that: (1) is independently
     owned and operated; (2) is not dominant in its field of operation;
     and (3) meets any additional criteria established by the Small
     Business Administration (SBA).[^233]

107. We have included small incumbent local exchange carriers 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.\"[^234] The SBA\'s Office of Advocacy contends
     that, for RFA purposes, small incumbent local exchange carriers are
     not dominant in their field of operation because any such dominance
     is not \"national\" in scope.[^235] We have therefore included
     small incumbent local exchange carriers in this FRFA analysis,
     although we emphasize that this RFA action has no effect on
     Commission analyses and determinations in other, non-RFA contexts.

108. *Wireline Carriers and Service Providers (Wired Telecommunications
     Carriers)*.[^236] The SBA has developed a small business size
     standard for Wired Telecommunications Carriers, which consists of
     all such companies having 1500 or fewer employees.[^237] According
     to Census Bureau data for 1997, there were 2,225 firms in this
     category, total, that operated for the entire year.[^238] Of this
     total, 2,201 firms had employment of 999 or fewer employees, and an
     additional 24 firms had employment of 1,000 employees or
     more.[^239] Thus, under this size standard, the great majority of
     firms can be considered small.

109. *Local Exchange Carriers, Interexchange Carriers, Competitive
     Access Providers, Operator Service Providers, Payphone Providers,
     and Resellers*. Neither the Commission nor SBA has developed a
     definition particular to small local exchange carriers (LECs),
     interexchange carriers (IXCs), competitive access providers (CAPs),
     operator service providers (OSPs), payphone providers or resellers.
     The closest applicable definition for these carrier-types under SBA
     rules is for Wired Telecommunications Carriers.[^240] Under that
     SBA definition, such a business is small if it has 1,500 or fewer
     employees.[^241] According to our most recent data, there are 1,329
     incumbent LECs, 532 CAPs, 229 IXCs, 22 OSPs, 936 payphone providers
     and 710 resellers.[^242] Of these, an estimated 1,024 incumbent
     LECs, 411 CAPs, 181 IXCs, 20 OSPs, 933 payphone providers, and 669
     resellers reported that they have 1,500 or fewer employees; 305
     incumbent LECs, 121 CAPs, 48 IXCs, 2 OSPs, 3 payphone providers,
     and 41 resellers reported that, alone or in combination with
     affiliates, they have more than 1,500 employees.[^243] We do not
     have data specifying the number of these carriers that are not
     independently owned and operated, and therefore we are unable to
     estimate with greater precision the number of these carriers that
     would qualify as small business concerns under SBA\'s definition.
     Consequently, most incumbent LECs, IXCs, CAPs, OSPs, payphone
     providers and resellers are small entities that may be affected by
     the decisions and rules adopted in this Order.

110. *Wireless Service Providers*. The SBA has size standards for
     wireless small businesses within the two separate Economic Census
     categories of Paging and of Cellular and Other Wireless
     Telecommunications. For both of those categories, the SBA considers
     a business to be small if it has 1,500 or fewer employees.[^244]
     According to the most recent *Trends in Telephone Report* data,
     1,761 companies reported that they were engaged in the provision of
     wireless service.[^245] Of these 1,761 companies, an estimated
     1,175 reported that they have 1,500 or fewer employees and 586
     reported that, alone or in combination with affiliates, they have
     more than 1,500 employees.[^246] Consequently, we estimate that
     most wireless service providers are small entities that may be
     affected by the rules adopted herein.

111. *Broadband Personal Communications Service (PCS).* The broadband
     PCS spectrum is divided into six frequency 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.[^247] For Block F, an additional
     classification for "very small business" was added and is defined
     as an entity that, together with affiliates, has average gross
     revenues of not more than \$15 million for the preceding three
     calendar years.[^248] These standards defining "small entity" in
     the context of broadband PCS auctions have been approved by the
     SBA.[^249] No small businesses within the SBA-approved definition
     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.[^250] 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 this auction, 29 qualified as "small" or "very
     small businesses." Based on this information, we conclude that the
     number of small broadband PCS licensees will include the 90 winning
     C Block bidders, the 93 qualifying bidders in the D, E, and F
     blocks, the 48 winning bidders in the 1999 re-auction, and the 29
     winning bidders in the 2001 re-auction, for a total of 260 small
     entity broadband PCS providers, as defined by the SBA small
     business size standards and the Commission\'s auction rules.
     Consequently, we estimate that 260 broadband PCS providers are
     small entities that may be affected by the rules and policies
     adopted herein.

112. *Narrowband PCS.* To date, two auctions of narrowband PCs licenses
     have been conducted. Through these auctions, the Commission has
     awarded a total of 41 licenses, out of which 11 were obtained by
     small businesses. For purposes of the two auctions that have
     already been held, small businesses were defined as entities with
     average gross revenues for the prior three calendar years of \$40
     million or less. To ensure meaningful participation of small
     business entities in the auctions, the Commission adopted a
     two-tiered definition of small businesses in the *Narrowband PCS
     Second Report and Order*.[^251] 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. These
     definitions have been approved by the SBA. In the future, the
     Commission will auction 459 licenses to serve 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 auctions. 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.
     The Commission assumes, for purposes of this FRFA, 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.

113. *Specialized Mobile Radio (SMR)*. 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 three
     previous calendar years, respectively.[^252] In the context of both
     the 800 MHz and 900 MHz SMR service, the definitions of \"small
     entity\" and \"very small entity\" have been approved by the SBA.
     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. We do 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. We assume, for our
     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 and very
     small entities in the 900 MHz auctions. Of the 1,020 licenses won
     in the 900 MHz auction, bidders qualifying as small and very small
     entities won 263 licenses. In the 800 MHz SMR auction, 38 of the
     524 licenses won were won by small and very small entities.
     Consequently, we estimate that there are 301 or fewer small entity
     SMR licensees in the 800 MHz and 900 MHz bands that may be affected
     by the rules and policies adopted herein.

114. *Rural Radiotelephone Service.* The Commission has not adopted a
     definition of small entity specific to the Rural Radiotelephone
     Service.[^253] A significant subset of the Rural Radiotelephone
     Service is the Basic Exchange Telephone Radio Systems
     (BETRS).[^254] For purposes of this FRFA, we will use the SBA\'s
     size standard applicable to wireless service providers, *supra* \--
     an entity employing no more than 1,500 persons.[^255] There are
     approximately 1,000 licensees in the Rural Radiotelephone Service,
     and the Commission estimates that almost all of them qualify as
     small entities under the SBA\'s size standard. Consequently, we
     estimate that there are 1,000 or fewer small entity licensees in
     the Rural Radiotelphone Service that may be affected by the rules
     and policies adopted herein.

115. *Air-Ground Radiotelephone Service.* The Commission has not adopted
     a definition of small entity specific to the Air-Ground
     Radiotelephone Service.[^256] For purposes of this FRFA, we will
     use the SBA\'s size standard applicable to wireless service
     providers, *supra* \-- an entity employing no more than 1,500
     persons.[^257] 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 definition.

### Description of Projected Reporting, Recordkeeping, and Other Compliance Requirements 

116. Pursuant to the Order, contributions to the Commission's universal
     service will be based on projections provided by contributors of
     their collected end-user interstate and international
     telecommunications revenues (*i.e.*, end-user telecommunications
     revenues less estimated uncollectibles).[^258] As noted in the
     Order, the modified methodology will result in minimal changes to
     current reporting requirements.[^259] Because the projected
     collection approach we adopt is similar to the existing
     contribution methodology, it will be relatively easy for both USAC
     and contributors to administer and implement this modification to
     our current methodology while we consider other reforms to the
     current system. Consistent with our existing policy, contributors
     will continue to file a Form 499-Q on a quarterly basis and the
     Form 499-A on an annual basis. The Commission and USAC will also
     continue to set contribution factors on a quarterly basis using the
     same timeframes as the current methodology. Under the revised
     methodology, however, in addition to filing the Form 499-Q to
     report historical gross-billed revenues from the prior quarter,
     contributors also will project their gross-billed and collected
     end-user interstate and international telecommunications revenues
     for the upcoming quarter. We believe that this will not be
     burdensome for contributors, as they need to develop such
     projections for their own internal business purposes. Consistent
     with current procedures, contributors will have the option of
     certifying as to the confidential nature of such projections on the
     FCC Form 499-Q.

117. As noted in the Order, we retain the requirement for an officer to
     certify to the truthfulness and accuracy of the FCC Form 499-A
     submitted to the Administrator.[^260] We also will require an
     officer to certify that the projections of revenue and
     uncollectibles included in the FCC Form 499-Q represent a
     good-faith estimate based on company policies and procedures. To
     ensure the contributors report correct information on the FCC Form
     499-A, we require all contributors to maintain records and
     documentation to justify the information reported in the Form 499-A
     for three years. We also will require filers to maintain records
     detailing the methodology used to determine projections in the Form
     499-Q for three years. Filers will be required to provide such
     records and documentation to the Commission and USAC upon
     request.[^261]

### Steps Taken To Minimize Significant Economic Impact on Small Entities, and Significant Alternatives Considered 

118. The RFA requires an agency to describe any significant 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 or reporting requirements under the rule for 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 small entities."[^262]

119. The Commission has taken numerous steps to minimize significant
     economic impact on small entities in adopting modifications to the
     revenue-based methodology for assessing and recovering
     contributions to the federal universal service mechanisms. In
     modifying the existing contribution system, we have adopted rules
     related to contribution recovery that will increase billing
     transparency and decrease confusion for consumers about the amount
     of universal service contributions that are passed through by
     carriers, while ensuring that carriers continue to have the
     flexibility to recover legitimate administrative costs from
     consumers through other means.[^263] By allowing carriers to
     contribute based on projected collected end-user revenues, we
     eliminate one of the major reasons for carriers to recover amounts
     in excess of the relevant assessment rate. In light of these
     changes, we prohibit carriers from marking up federal universal
     service line items above the contribution factor. These actions
     address small entity concerns regarding recovery practices. We have
     also retained the *de minimis* exemption to ensure that compliance
     costs associated with contributing to universal service do not
     exceed actual contribution amounts. Consistent with the views
     expressed by many commenters, including small entity commenters, we
     find that the alternatives to revise or eliminate the *de minimis
     exemption* are not supported by the record developed at this
     time.[^264]

120. As discussed in the Order, we have also considered various
     alternative proposals on how to reform the universal service
     contribution system.[^265] We conclude that the modifications to
     the current revenue-based contribution methodology, as adopted in
     the Order will maintain the viability of universal service in the
     near term, while we continue to examine reforms that are more
     fundamental based on proposals submitted in the record in this
     proceeding.

### Report to Congress

121. The Commission will send a copy of the Order, including the FRFA,
     in a report to be sent to Congress pursuant to the Congressional
     Review Act.[^266] In addition, the Commission will send a copy of
     the Order, including this FRFA, to the Chief Counsel for Advocacy
     of the Small Business Administration. A copy of this Order and FRFA
     (or summaries thereof) will also be published in the Federal
     Register.[^267]

## Paperwork Reduction Act Analysis

122. The action contained herein has been analyzed with respect to the
     Paperwork Reduction Act of 1995 and found to impose new or modified
     reporting and recordkeeping requirements or burdens on the public.
     Implementation of these new or modified reported and recordkeeping
     requirements will be subject to approval by the Office of
     Management and Budget (OMB) as prescribed by the Act, and will go
     into effect upon announcement in the Federal Register of OMB
     approval.

## Initial Regulatory Flexibility Act Analysis 

123. As required by the Regulatory Flexibility Act (RFA), the Commission
     has prepared this Initial Regulatory Flexibility Analysis (IRFA) on
     the possible significant economic impact on small entities of
     policies and rules proposed in this Second Further Notice of
     Proposed Rulemaking. 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 *Second Further
     Notice* provided below in section V.E.

### Need for and Objectives of the Proposed Rules

124. The assessment and recovery of universal service contributions are
     governed by the statutory framework established by Congress in the
     Act.[^268] Section 254(b) instructs the Commission to establish
     universal service support mechanisms with the goal of ensuring the
     delivery of affordable telecommunications services to all
     Americans, including consumers in high-cost areas, low-income
     consumers, eligible schools and libraries, and rural health care
     providers.[^269] Section 254(d) of the Act states 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."[^270]

125. Consistent with section 254 of the Act and as noted in the Order,
     today we take interim measures to maintain the viability of
     universal service in the near term \-- a fundamental goal of this
     Commission \-- while we consider further long-term reforms.[^271]
     As discussed in further detail in the Order, although the interim
     measures we adopt today will improve the current contribution
     methodology, they do not address our concerns regarding the
     long-term viability of any revenue-based system.[^272] We therefore
     conclude that it is appropriate to further study long-term reforms
     of the contribution methodology.

126. Therefore, in this *Second Further Notice*, we seek comment on
     specific aspects of three connection-based proposals in the
     record.[^273] First, we ask for comment on a proposed contribution
     methodology that would impose a minimum contribution obligation on
     all interstate telecommunications carriers and flat charge for each
     end-user connection depending on the nature or capacity of the
     connection. Next, we seek comment on a proposal to assess all
     connections based purely on capacity. Under this proposal,
     contribution obligations for each switched end-user connection
     would be shared between access and transport providers. Finally, we
     seek comment on a proposal to assess providers of switched
     connections based on their working telephone numbers.

### Legal Basis

127. The legal basis as proposed for this *Second Further Notice* is
     contained in sections 4(i), 4(j), 201-205, 254, and 403 of the
     Communications Act of 1934, as amended, 47 U.S.C. §§ 4(i), 4(j),
     201-205, 254, 403.

### Description and Estimate of the Number of Small Entities to Which the Proposed Rules Will Apply

128. 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 rules adopted herein.[^274] The RFA generally
     defines the term \"small entity\" as having the same meaning as the
     terms \"small business,\" \"small organization,\" and \"small
     governmental jurisdiction.\"[^275] In addition, the term \"small
     business\" has the same meaning as the term \"small business
     concern\" under the Small Business Act, unless the Commission has
     developed one or more definitions that are appropriate to its
     activities.[^276] Under the Small Business Act, a \"small business
     concern\" is one that: (1) is independently owned and operated; (2)
     is not dominant in its field of operation; and (3) meets any
     additional criteria established by the Small Business
     Administration (SBA).[^277]

129. We have described in detail, *supra*, in the Final Regulatory
     Flexibility Analysis, the categories of entities that may be
     directly affected by any rules or proposals adopted in our efforts
     to reform the universal service contribution system.[^278] For this
     Initial Regulatory Flexibility Analysis, we hereby incorporate
     those entity descriptions by reference.

### Description of Projected Reporting, Recordkeeping, and Other Compliance Requirements

130. Should the Commission decide that fundamental reform of the
     existing contribution methodology is needed, the associated rule
     changes potentially could modify the reporting and recordkeeping
     requirements of telecommunications service providers regulated
     under the Communications Act. Under a connection-based mechanism,
     we potentially could require telecommunications service providers
     to file additional and/or different monthly or quarterly
     reports.[^279] Any such reporting requirements potentially could
     require the use of professional skills, including legal and
     accounting expertise. Without more data, we cannot accurately
     estimate the cost of compliance by small telecommunications service
     providers. In this IFRA, we therefore seek comment on the frequency
     with which carriers should submit reports to USAC, the types of
     burdens carriers will face in periodically submitting reports to
     USAC, and whether the costs of such reporting are outweighed by the
     potential benefits of the possible reforms.[^280] Entities,
     especially small businesses and small entities, more generally, are
     encouraged to quantify the costs and benefits of the reporting
     requirement proposals.

### Steps Taken to Minimize Significant Economic Impact on Small Entities, and Significant Alternatives Considered

131. The RFA requires an agency to describe any significant 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 or reporting requirements under the rule for 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 small entities.[^281]

132. The *Second Further Notice* seeks comment on a number of
     connection-based alternatives to modify the existing contribution
     methodology system. Although the proponents of specific
     connection-based proposals argue that they would be consistent with
     the requirements of section 254(d) of the Act that every
     telecommunications carrier that provides interstate
     telecommunications services contribute to the Commission's
     universal service mechanisms on a equitable and nondiscriminatory
     basis, several other parties have expressed concerns that the
     connection-based proposals in the record would be inconsistent with
     the statutory mandate.[^282] We specifically take note of those
     commenters that argue that the connection-based proposals in the
     record would result in inequitable contributions.[^283]

133. We therefore believe it is appropriate to further develop the
     record on aspects of certain proposals to assess universal service
     contributions at least in part on the number and capacity of
     connections. We also believe it is appropriate to continue refining
     our analysis of the potential impacts on consumers and
     contributors, including small entities, of adopting such a
     methodology. In this *Second Further Notice*, we seek comment on
     specific measures the Commission could take to ensure that a
     connection-based contribution methodology would be consistent with
     these statutory mandates. The Commission will also consider
     additional significant alternatives developed in the record.

134. Wherever possible, the *Second Further Notice* seeks comment on how
     to reduce the administrative burden and cost of compliance for
     small telecommunications service providers. For example, we seek
     comment on the operation of a *de minimis* exemption under the
     various connections-based proposals. We also seek comment on the
     appropriate frequency and content of reporting under a
     connection-based methodology. We specifically seek comment from
     contributors that are small entities under the Small Business Act.

### Federal Rules that May Duplicate, Overlap, or Conflict with the Proposed Rules

135. None.

## Initial Paperwork Reduction Act of 1995 Analysis

136. The *Second Further Notice* contains either a proposed or modified
     information collection. As part of a continuing effort to reduce
     paperwork burdens, we invite the general public and the Office of
     Management and Budget (OMB) to take this opportunity to comment on
     the information collections contained in this Further Notice, as
     required by the Paperwork Reduction Act of 1995, Public Law 104-13.
     Public and agency comments are due at the same time as other
     comments on the *Second Further Notice*; OMB comments are due 60
     days from the date of publication of the *Second Further Notice* in
     the Federal Register. Comments should address: (a) whether the
     proposed collection of information is necessary for the proper
     performance of the functions of the Commission, including whether
     the information shall have practical utility; (b) the accuracy of
     the Commission's burden estimates; (c) ways to enhance the quality,
     utility, and clarity of the information collected; and (d) ways to
     minimize the burden of the collection of information on the
     respondents, including the use of automated collection techniques
     or other forms of information technology.

## Comment Filing Procedures

137. Pursuant to sections 1.415 and 1.419 of the Commission\'s rules, 47
     C.F.R. §§ 1.415, 1.419, interested parties may file comments 30
     days or fewer from publication in the Federal Register, and reply
     comments 60 days or fewer from publication in the Federal Register.
     Comments may be filed using the Commission\'s Electronic Comment
     Filing System (ECFS) or by filing paper copies.[^284]

138. Comments filed through the ECFS can be sent as an electronic file
     via the Internet to \<http://www.fcc.gov/e-file/ecfs.html\>.
     Generally, only one copy of an electronic submission must be filed.
     If multiple docket or rulemaking numbers appear in the caption of
     this proceeding, however, commenters must transmit one electronic
     copy of the comments to each docket or rulemaking number referenced
     in the caption. In completing the transmittal screen, commenters
     should include their full name, U.S. Postal Service mailing
     address, and the applicable docket or rulemaking number. Parties
     may also submit an electronic comment by Internet e-mail. To get
     filing instructions for e-mail comments, commenters should send an
     e-mail to ecfs@fcc.gov, and should include the following words in
     the body of the message, \"get form \<your e-mail address\>.\" A
     sample form and directions will be sent in reply.

139. Parties who choose to file by paper must file an original and four
     copies of each filing. If more than one docket or rulemaking number
     appears in the caption of this proceeding, commenters must submit
     two additional copies for each additional docket or rulemaking
     number. 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). The Commission\'s contractor,
     Vistronix, Inc., 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 entering the building. 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. U.S. Postal Service first-class mail, Express
     Mail, and Priority Mail should be addressed to 445 12th Street, SW,
     Washington, D.C. 20554. All filings must be addressed to the
     Commission\'s Secretary, Marlene H. Dortch, Office of the
     Secretary, Federal Communications Commission.

140. Parties also must send three paper copies of their filing to Sheryl
     Todd, Telecommunications Access Policy Division, Wireline
     Competition Bureau, Federal Communications Commission, 445 12th
     Street S.W., Room 5-B540, Washington, D.C. 20554. In addition,
     commenters must send diskette copies to the Commission\'s copy
     contractor, Qualex International, Portals II, 445 12th Street,
     S.W., Room CY-B402, Washington, D.C. 20054.

## Ex Parte Presentations

141. This is a permit but disclose rulemaking proceeding. Ex parte
     presentations are permitted, except during the Sunshine Agenda
     period, provided that they are disclosed as provided in the
     Commission's rules.[^285]

# ordering clauses 

142. Accordingly, IT IS ORDERED THAT, pursuant to the authority
     contained in sections 1-4, 201-205, 214, 218-220, 254, 403, and 405
     of the Communications Act of 1934, as amended, 47 U.S.C. §§
     151-154, 201-205, 214, 218-220, 254, 403, and 405, this REPORT AND
     ORDER IS ADOPTED.

143. IT IS FURTHER ORDERED that Part 54 of the Commission's rules, 47
     C.F.R. Part 54, IS AMENDED as set forth in Appendix A hereto,
     effective 30 days after their publication in the Federal Register.
     The collections of information contained within are contingent upon
     approval by the Office of Management and Budget.

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

145. IT IS FURTHER ORDERED that, pursuant to the authority contained in
     sections 4(i), 4(j), 201-205, 254, and 403 of the Communications
     Act of 1934, as amended, 47 U.S.C. §§ 154(i), 154(j), 201-205, 254,
     and 403, this Second Further Notice of Proposed Rulemaking IS
     ADOPTED.

146. IT IS FURTHER ORDERED that the Commission's Consumer and
     Governmental Affairs Bureau, Reference Information Center, SHALL
     SEND a copy of this Second 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 -- FINAL RULES**

Part 54 of the Code of Federal Regulations is amended as follows:

[PART 54---UNIVERSAL SERVICE]{.underline}

[Subpart H---Administration]{.underline}

1\. Amend section 54.706 to revise paragraphs (b) and (c) as follows:

[§ 54.706 Contributions]{.underline}

\(a\) \* \* \*

\(b\) Prior to April 1, 2003, except as provided in paragraph (c) of
this section, every telecommunications carrier that provides interstate
telecommunications services, every provider of interstate
telecommunications that offers telecommunications for a fee on a
non-common carrier basis, and every payphone provider that is an
aggregator shall contribute to the federal universal service support
mechanisms on the basis of its interstate and international end-user
telecommunications revenues, net of prior period actual contributions.
Beginning April 1, 2003, except as provided in paragraph (c), every such
provider shall contribute on the basis of its projected collected
interstate and international end-user telecommunications revenues, net
of projected contributions.

\(c\) Prior to April 1, 2003, any entity required to contribute to the
federal universal service support mechanisms whose interstate end-user
telecommunications revenues comprise less than 12 percent of its
combined interstate and international end-user telecommunications
revenues shall contribute to the federal universal service support
mechanisms for high cost areas, low-income consumers, schools and
libraries, and rural health care providers based only on such entity\'s
interstate end-user telecommunications revenues, net of prior period
actual contributions. Beginning April 1, 2003, any entity required to
contribute to the federal universal service support mechanisms whose
projected collected interstate end-user telecommunications revenues
comprise less than 12 percent of its combined projected collected
interstate and international end-user telecommunications revenues shall
contribute based only on such entity\'s projected collected interstate
end-user telecommunications revenues, net of projected contributions.
For purposes of this paragraph, an \"entity\" shall refer to the entity
that is subject to the universal service reporting requirements in 47
CFR 54.711 and shall include all of that entity\'s affiliated providers
of telecommunications services.

\* \* \* \* \*

2\. Amend section 54.709 to revise paragraphs (a), (a)(1), and the first
sentence of paragraph (a)(2) as follows:

[§ 54.709 Computations of required contributions to universal service
support mechanisms.]{.underline}

\(a\) Prior to April 1, 2003, contributions to the universal service
support mechanisms shall be based on contributors' end-user
telecommunications revenues and on a contribution factor determined
quarterly by the Commission. Contributions to the mechanisms beginning
April 1, 2003 shall be based on contributors' projected collected
end-user telecommunications revenues, and on a contribution factor
determined quarterly by the Commission.

\(1\) For funding the federal universal service support mechanisms prior
to April 1, 2003, the subject revenues will be contributors\' interstate
and international revenues derived from domestic end users for
telecommunications or telecommunications services, net of prior period
actual contributions. Beginning April 1, 2003, the subject revenues will
be contributors\' projected collected interstate and international
revenues derived from domestic end users for telecommunications or
telecommunications services, net of projected contributions.

\(2\) Prior to April 1, 2003, the quarterly universal service
contribution factor shall be determined by the Commission based on the
ratio of total projected quarterly expenses of the universal service
support mechanisms to the total end-user interstate and international
telecommunications revenues, net of prior period actual contributions.
Beginning April 1, 2003, the quarterly universal service contribution
factor shall be determined by the Commission based on the ratio of total
projected quarterly expenses of the universal service support mechanisms
to the total projected collected end-user interstate and international
telecommunications revenues, net of projected contributions. \* \* \*

3\. Amend section 54.711 to revise paragraph (a) as follows:

[§ 54.711 Contributor reporting requirements.]{.underline}

\(a\) Contributions shall be calculated and filed in accordance with the
Telecommunications Reporting Worksheet which shall be published in the
[Federal Register]{.underline}. The Telecommunications Reporting
Worksheet sets forth information that the contributor must submit to the
Administrator on a quarterly and annual basis. The Commission shall
announce by Public Notice published in the [Federal
Register]{.underline} and on its website the manner of payment and dates
by which payments must be made. An executive officer of the contributor
must certify to the truth and accuracy of historical data included in
the Telecommunications Reporting Worksheet, and that any projections in
the Telecommunications Reporting Worksheet represent a good-faith
estimate based on the contributor's policies and procedures. The
Commission or the Administrator may verify any information contained in
the Telecommunications Reporting Worksheet. Contributors shall maintain
records and documentation to justify information reported in the
Telecommunications Reporting Worksheet, including the methodology used
to determine projections, for three years and shall provide such records
and documentation to the Commission or the Administrator upon request.
Inaccurate or untruthful information contained in the Telecommunications
Reporting Worksheet may lead to prosecution under the criminal
provisions of Title 18 of the United States Code. The Administrator
shall advise the Commission of any enforcement issues that arise and
provide any suggested response.

\* \* \* \* \*

4\. Add section 54.712 to subpart H as follows:

[§ 54.712 Carrier recovery of universal service costs from
end-users.]{.underline}

\(a\) Federal universal service contribution costs may be recovered
through interstate telecommunications-related charges to end users. If a
telecommunications carrier chooses to recover its federal universal
service contribution costs through a line item on a customer's bill, as
of April 1, 2003, the amount of the federal universal service line-item
charge may not exceed the interstate telecommunications portion of that
customer's bill times the relevant contribution factor.

\(b\) Eligible telecommunications carriers may not recover federal
universal service contribution costs from Lifeline customers.

**APPENDIX B**

**PARTIES FILING COMMENTS AND REPLY COMMENTS**

**IN CC DOCKET NOS. 96-45, 98-171, 90-571, 92-237, 99-200-95-116,
98-170**

**Comments:**

**[Commenters]{.underline} [Abbreviation]{.underline}**

# Ad Hoc Telecommunications Users Committee Ad Hoc {#ad-hoc-telecommunications-users-committee-ad-hoc .unnumbered}

Alaska Telephone Association ATA

# Allied Personal Communications Industry  {#allied-personal-communications-industry .unnumbered}

Association of California Allied

AOL Time Warner Inc. AOL

American Association of Paging Carriers AAPC

American Mobile Telecommunications Assoc. Inc. AMTA

American Public Communications Council APCC

# Arch Wireless, Inc. Arch {#arch-wireless-inc.-arch .unnumbered}

# Association of Communications Enterprises ASCent {#association-of-communications-enterprises-ascent .unnumbered}

# AT&T Corp. AT&T {#att-corp.-att .unnumbered}

# AT&T Wireless Services, Inc. AWS {#att-wireless-services-inc.-aws .unnumbered}

BBG Communications, Inc. BBG

Beacon Telecommunications Advisors, LLC Beacon

# BellSouth Corporation BellSouth {#bellsouth-corporation-bellsouth .unnumbered}

# BT North America Inc. BTNA {#bt-north-america-inc.-btna .unnumbered}

California Public Utilities Commission and

The People of the State of California CPUC

Coalition for Sustainable Universal Service CoSUS

Competitive Telecommunications Association CompTel

# Concerned Paging Carriers CPC {#concerned-paging-carriers-cpc .unnumbered}

Consumer's Union,

Texas Office of Public Utility Counsel,

Consumer Federation of America

Appalachian People's Action Coalition,

Center for Digital Democracy,

Edgemont Neighborhood Coalition,

and Migrant Legal Action Program CU et al.

ePHONE Telecom, Inc. ePHONE

Fred Williamson and Associates, Inc. FW&A

General Services Administration GSA

Home Telephone Company, Inc.,

Bluffton Telephone Co., Inc.,

Hargray Telephone Co., Inc.,

Chesnee Telephone Co.,

Chester Telephone Co.,

Lockhart Telephone Co., Inc.

Ridgeway Telephone Co., Inc.

Farmers Telephone Co., Inc.

Palmetto Rural Telephone Cooperative, Inc.

PBT Telecom, Inc.

Piedmont Rural Telephone Cooperative, Inc.

Sandhill Telephone Cooperative, Inc.

Sandwich Isles Communications, Inc.

Yukon Telephone Co., Inc. Home et al.

Information Technology Association of America ITAA

National Association of State Utility Consumer Advocates NASUCA

National Exchange Carrier Association, Inc. NECA

National Rural Telecom Association and the Organization

for Promotion and Advancement of Small Telecom

Companies NRTA and OPASTCO

National Telecommunications Cooperative Association NTCA

# Nebraska Independent Companies Nebraska {#nebraska-independent-companies-nebraska .unnumbered}

# Nextel Communications, Inc. Nextel {#nextel-communications-inc.-nextel .unnumbered}

# OnStar Corporation OnStar {#onstar-corporation-onstar .unnumbered}

PaeTec Communications, Inc. PaeTec

Rural Cellular Association, The RCA

Rural Independent Competitive Alliance, The RICA

# SBC Communications Inc. SBC {#sbc-communications-inc.-sbc .unnumbered}

Sprint Corporation Sprint

Texas, State of Texas

# Teletouch Communications, Inc. Teletouch {#teletouch-communications-inc.-teletouch .unnumbered}

Time Warner Telecom,

XO Communications,

and Allegiance Telecom Time Warner et al.

TracFone Wireless, Inc. TracFone

United States Cellular Corporation USCC

United States Telecom Association USTA

# Verizon telephone companies Verizon  {#verizon-telephone-companies-verizon .unnumbered}

# Verizon Wireless Verizon Wireless {#verizon-wireless-verizon-wireless .unnumbered}

Vincent J. Stoneking V. Stoneking

# Virgin Mobile USA, LLC Virgin Mobile {#virgin-mobile-usa-llc-virgin-mobile .unnumbered}

# VoiceStream Wireless Corporation VoiceStream {#voicestream-wireless-corporation-voicestream .unnumbered}

# Western Wireless Corporation Western {#western-wireless-corporation-western .unnumbered}

Working Assets Funding Service, Inc. Working Assets

WorldCom, Inc. WorldCom

**Reply Comments:**

**[Reply Commenters]{.underline} [Abbreviation ]{.underline}**

Alaska Communications Systems ACS

AOL Time Warner Inc. AOL

American Library Associations ALA

American Public Communications Council APCC

Arch Wireless Arch

Association of Communications Enterprises ASCENT

Association for Local Telecommunications Services ALTS

BellSouth Corporation BellSouth

BT North America BTNA

Cable & Wireless USA, Inc. C&W

Coalition for Sustainable Universal Service CoSUS

Concerned Paging Carriers

AirCall, Inc

The Beeper People, Inc.

Business Service Center, Inc.

Com-Nav Inc., d/b/a Radio Telephone of Maine

Cook telecom, Inc., Lubbock Radio Paging Service, Inc.

Mobile Phone of Texas, Inc.

Mobilpage, Inc.

Omnicom Paging Plus, LLC

Page-All, LLC

Professional Answering Service, Inc.

RCC Inc., d/b/a/ Radio Comm. Co.

RediCall Communications Co.

Robert F. Ryder d/b/a Radio Paging Service

Salisbury Mobile Telephone, Inc.

SEMA-PHOON, Inc. d/b/a/ R.A. Communications

Starpage, Inc. CPC

Consumers Union

Texas Office of Public Utility Counsel

Consumer Federal of America

Appalachian People's Action Coalition

Center for Digital Democracy

Edgemont Neighborhood Coalition

Migrant Legal Action Program CU

Earthlink, Inc. Earthlink

Industrial Telecommunications Association, Inc. ITA

Information Technology Assocation of America ITAA

National ALEC Association/Prepaid Communications

Association NALA

National Rural Telecom Association

Organization for the Promotion and Advancement

Of Small Telecommunications Companies NRTA and OPASTCO

National Telecommunications Cooperative Association NTCA

Nextel Communications, Inc. Nextel

Public Utilities Commission of Ohio Ohio PUC

OnStar Corporation OnStar

Qwest Communications International Inc. Qwest

SBC Communications Inc. SBC

Sprint Corporation Sprint

Southern Communications Services, Inc. d/b/a

Southern LINC Southern

Texas, State of Texas

TracFone Wireless, Inc. TracFone

United States Cellular Corporation USCC

Verizon Verizon

Verizon Wireless Verizon Wireless

Voice on the Net Coalition VON

Voicestream Wireless Corporation Voicestream

Warriner, Gesinger & Associations, LLC Warriner et al.

WebLink Wireless, Inc. WebLink

Western Alliance Western Alliance

Worldcom, Inc. Worldcom

**APPENDIX C**

**REVISED FORM 499-Q AND INSTRUCTIONS**

The form and attached instructions that follow have not yet been
approved by OMB and have been attached for informational purposes.

![](media/image1.png){width="7.940277777777778in"
height="10.785416666666666in"}

FCC Form 499-Q, February 2003

Pending Approval by OMB

Estimated Average Burden Hours Per Response: 10 Hours

**Telecommunications Reporting Worksheet, FCC Form 499-Q**

**Instructions for Completing the Quarterly**

**Worksheet for Filing Contributions**

**to Universal Service Support Mechanisms**

\* \* \* \* \*

NOTICE TO INDIVIDUALS: Sections 54.706, 54.711, and 54.713 of the
Federal Communications Commission\'s rules require all
telecommunications carriers providing interstate telecommunications
services, providers of interstate telecommunications that offer
interstate telecommunications for a fee on a non-common carrier basis,
and payphone providers that are aggregators to contribute to universal
service and file this Telecommunications Reporting Worksheet (FCC Form
499-Q) on February 1, May 1, August 1, and November 1, each year. 47
C.F.R. §§ 54.706, 54.711, 54.713. This collection of information stems
from the Commission\'s authority under Section 254 of the Communications
Act of 1934, as amended, 47 U.S.C. § 254. The data in the Worksheet will
be used to calculate contributions to the universal service support
mechanisms. Selected information provided in the Worksheet will be made
available to the public in a manner consistent with the Commission\'s
rules.

We have estimated that each response to this collection of information
will take, on average, 10.0 hours. Our estimate includes the time to
read the instructions, look through existing records, gather and
maintain the required data, project growth or decline in revenues, and
actually complete and review the form or response. If you have any
comments on this estimate, or how we can improve the collection and
reduce the burden it causes you, please write the Federal Communications
Commission, AMD-PERM, Washington, D.C. 20554, Paperwork Reduction
Project (3060-0855). We also will accept your comments via the Internet
if you send them to jboley@fcc.gov. Please DO NOT SEND COMPLETED
WORKSHEETS TO THIS ADDRESS.

Remember \-- You are not required to respond to a collection of
information sponsored by the Federal government, and the government may
not conduct or sponsor this collection, unless it displays a currently
valid Office of Management and Budget (OMB) control number. This
collection has been assigned an OMB control number of 3060-0855.

The Commission is authorized under the Communications Act of 1934, as
amended, to collect the information we request in this form. We will use
the information that you provide to determine contribution amounts. If
we believe there may be a violation or potential violation of a statute
or a Commission regulation, rule, or order, your Worksheet may be
referred to the Federal, state, or local agency responsible for
investigating, prosecuting, enforcing, or implementing the statute,
rule, regulation, or order. In certain cases, the information in your
Worksheet may be disclosed to the Department of Justice, court, or other
adjudicative body when (a) the Commission; or (b) any employee of the
Commission; or (c) the United States government, is a party to a
proceeding before the body or has an interest in the proceeding.

With the exception of your employer identification number, if you do not
provide the information we request on the Worksheet, the Commission may
consider you in violation of sections 1.47, 52.17, 52.32, 54.713, and
64.604 of the Commission\'s rules. 47 C.F.R. §§ 1.47, 52.17, 52.32,
54.713, and 64.604.

The foregoing Notice is required by the Privacy Act of 1974, P.L.
93-579, December 31, 1974, 5 U.S.C. § 552(a)(e)(3), and the Paperwork
Reduction Act of 1995, P.L. No. 104-13, 44 U.S.C. § 3501, *et seq*.

\* \* \* \* \*

[Table of Contents]{.underline}

I. Introduction 3

II\. Filing Requirements and General Instructions 3

A. Who Must File 3

1\. Universal service exemption for *de minimis* telecommunications
providers 4

2\. Exception for government, broadcasters, schools and libraries 6

3\. Exception for systems integrator and self providers 6

B. Filing by Legal Entity 6

C. When and Where to File 8

D. Rounding of Numbers and Negative Numbers 9

E. Obligation to File Revisions 9

F. Compliance 9

III\. Specific Instructions 10

A. Block 1: Contributor Identification Information 10

B. Block 2: Contact Information 10

C. Block 3: Contributor Revenue Information 11

1\. Separating revenues from other contributors to the federal universal
service support mechanisms from end-user and non- telecommunications
revenues

information (carrier\'s carrier vs end user) 11

2\. Column (a) - total revenues 12

3\. Columns (b) and (c) - percent interstate & international 12

4\. Explanation of historical revenue categories 14

5\. Projected gross billed end-user interstate and international
revenues 15

6\. Projected collected end-user interstate and international revenues
16

D. Block 4: Certification 17

V. Reminders 18

Figure 1: Table to determine if a contributor meets the *de minimis*
standard for purposes

of universal service contribution 5

Figure 2: Filing schedule 8

I. [Introduction]{.underline}

As required under the Communications Act of 1934, as amended,[^286] the
Commission has established procedures to finance universal service
support mechanisms. To accomplish this Congressionally-directed
objective, contributions are collected from telecommunications carriers
providing interstate telecommunications and certain other providers of
interstate telecommunications. This Worksheet sets forth information
that the contributor must submit, so that the administrator of the
universal service support mechanisms may calculate and assess
contributions.[^287]

II\. [Filing Requirements and General Instructions]{.underline}

A. [Who Must File]{.underline}

All providers of interstate telecommunications within the United
States,[^288] with very limited exceptions, must file an FCC Form 499-Q
Telecommunications Reporting Worksheet.[^289]

For purposes of determining whether an entity provides
telecommunications, please note that the term \"telecommunications\"
means 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. For the purpose of
filing, the term \"interstate telecommunications\" includes, but is not
limited to, the following types of services: wireless telephony,
including cellular and personal communications services (PCS); paging
and messaging services; dispatch services; mobile radio services;
operator services; access to interexchange service; special access; wide
area telecommunications services (WATS); subscriber toll-free services;
900 services; message telephone services (MTS); private line; telex;
telegraph; video services; satellite services; and resale services.
Note, for example, that all incumbent and competitive local exchange
carriers provide access to an interstate public network and, therefore,
provide interstate telecommunications.

Note also that entities must file this Worksheet, and are subject to
universal service contribution requirements, if they offer interstate
telecommunications for a fee to the public even if only a narrow or
limited class of users could utilize the services. Included are entities
that provide interstate telecommunications to entities other than
themselves for a fee on a private, contractual basis. In addition,
owners of pay telephones, sometimes referred to as \"pay telephone
aggregators,\" must file this Worksheet if they do not qualify for the
*de minimis* exemption under the Commission's universal service
rules.[^290]

The following three sections list types of telecommunications providers
that are not required to file the Form 499-Q. Note that such entities
are treated as end users by their underlying carriers and therefore may
be subject to pass-through charges.

1\. [Universal service exemption for *de minimis*]{.underline}
[telecommunications providers]{.underline}

Section 54.708 of the Commission's rules states that telecommunications
carriers and telecommunications providers are not required to contribute
directly to the universal service support mechanisms for a given year if
their contribution for that year is less than \$10,000.[^291] Thus,
potential contributors whose contribution to the universal service
support mechanisms would be *de minimis* under the universal service
rules are not required to file the Worksheet (FCC Form 499-Q) or
contribute directly to universal service^.^ Telecommunications carriers
and other telecommunications providers should complete the table
contained in Figure 1 to determine whether they meet the *de minimis*
standard. To complete Figure 1, potential filers and all affiliates must
first complete block 3 of the Worksheet and enter the amounts from Line
122(b) and 122(c) in Figure 1.

Telecommunications providers that do not file this Worksheet because
their contributions would be *de minimis* should retain Figure 1 and
documentation of their contribution base revenues for three years and
may be required to provide it to the administrator or FCC upon request.

Figure 1: Table to determine if a contributor meets the *de minimis*
standard

for purposes of universal service contribution

+----+-------------------------------------------------+---------------+
| 1  | Interstate contribution base for the quarter    | \$            |
|    | for filer (amount reportable on filer's Form    |               |
|    | 499-Q; Line 122(b))                             |               |
+----+-------------------------------------------------+---------------+
| 2  | International contribution base for the quarter | \$            |
|    | for filer (amount reportable on filer's Form    |               |
|    | 499-Q; Line 122(c))                             |               |
+----+-------------------------------------------------+---------------+
| 3  | Interstate contribution base for the quarter    | \$            |
|    | for all affiliates\* (total of amounts          |               |
|    | reportable on Form 499-Q; Line 1220(b) for all  |               |
|    | affiliates of the filer)                        |               |
+----+-------------------------------------------------+---------------+
| 4  | International contribution base for the quarter | \$            |
|    | for all affiliates (total of amounts reportable |               |
|    | on Form 499-Q; Line 122(e) for all affiliates   |               |
|    | of the filer)                                   |               |
+----+-------------------------------------------------+---------------+
| 5  | Consolidated interstate contribution base: Line | \$            |
|    | (1) + Line (3)                                  |               |
+----+-------------------------------------------------+---------------+
| 6  | Consolidated international contribution base:   | \$            |
|    | Line (2) + Line (4)                             |               |
+----+-------------------------------------------------+---------------+
| 7  | Total potential contribution base for filer and | \$            |
|    | its affiliates: Line (5) + Line (6)             |               |
+----+-------------------------------------------------+---------------+
| 8  | Combined interstate contribution base as a      | \%            |
|    | percentage of total potential contribution      |               |
|    | base: Line (5) / Line (7)                       |               |
+----+-------------------------------------------------+---------------+
| 9  | Interstate contribution base for filer from     | \$            |
|    | Line (1)                                        |               |
+----+-------------------------------------------------+---------------+
| 10 | If the amount in Line (8) is equal to or        | \$            |
|    | greater than 12%, enter into Line (10) the      |               |
|    | international contribution base for the filer   |               |
|    | from Line (2). If the amount on Line (8) is     |               |
|    | less than 12%, enter \$0                        |               |
+----+-------------------------------------------------+---------------+
| 11 | Revenue base for the filer for the quarter for  | \$            |
|    | determining contributions to universal service  |               |
|    | support mechanisms: Line (9) + Line (10)        |               |
+----+-------------------------------------------------+---------------+
| 12 | Actual contributions to federal universal       | \$            |
|    | service support mechanisms made in the calendar |               |
|    | quarter for which revenues are being reported.  |               |
+----+-------------------------------------------------+---------------+
| 13 | Contribution base: Line (11) -- Line (12)       | \$            |
+----+-------------------------------------------------+---------------+
| 14 |                                                 | 4             |
+----+-------------------------------------------------+---------------+
| 15 | Annualized contribution base; Line (13)         |               |
|    | multiplied by Line (14)                         |               |
+----+-------------------------------------------------+---------------+
| 16 | Estimation factor for determining whether to    | 0.095\*       |
|    | file a 499-Q                                    |               |
+----+-------------------------------------------------+---------------+
| 17 | Estimated annual contribution: amount in Line   | \$            |
|    | (15) multiplied by Line (16)                    |               |
+----+-------------------------------------------------+---------------+
| \* |                                                 |               |
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+----+-------------------------------------------------+---------------+

2\. [Exception for government, broadcasters, schools, and
libraries]{.underline}

Certain entities are explicitly exempted from contributing directly to
the universal service support mechanisms and need not file this
Worksheet. Government entities that purchase telecommunications services
in bulk on behalf of themselves, *e.g.*, state networks for schools and
libraries, are not required to file or contribute directly to universal
service. Public safety and local governmental entities licensed under
Subpart B of Part 90 of the Commission\'s rules are not required to file
or contribute directly to universal service. Similarly, if an entity
provides interstate telecommunications exclusively to public safety or
government entities and does not offer services to others, that entity
is not required to file or contribute directly to universal service. In
addition, broadcasters, non-profit schools, non-profit libraries,
non-profit colleges, non-profit universities, and non-profit health care
providers are not required to file the Worksheet or contribute directly
to universal service.

3\. [Exception for systems integrators and self providers]{.underline}

Systems integrators that derive less than five percent of their systems
integration revenues from the resale of telecommunications are not
required to file or contribute directly to universal service. Systems
integrators are providers of integrated packages of services and
products that may include the provision of computer capabilities,
interstate telecommunications services, remote data processing services,
back-office data processing, management of customer relationships with
underlying carriers and vendors, provision of telecommunications and
computer equipment, equipment maintenance, help desk functions, and
other services and products). Legal entities that provide services only
to themselves or to commonly owned affiliates need not file.

B. [Filing by Legal Entity]{.underline}

**Each legal entity that provides interstate telecommunications service
for a fee, including each affiliate or subsidiary of an entity, must
complete separately and file a copy of the attached Telecommunications
Reporting Worksheet,** except as provided for below. Entities that have
distinct articles of incorporation are separate legal entities. Each
affiliate or subsidiary should identify their ultimate controlling
parent or entity on Block 1 Line (105) \-- Holding Company.

Consolidated filing will be permitted only if the filing entity
certifies that all of the following conditions are met:[^292]

(1) A single entity oversees the management of the affiliated systems;

(2) A single entity sends bills to customers and these bills identify a
    single entity (or trade name) as the service provider, rather than
    identifying the individual legal entities;

(3) All revenues are posted to a single general ledger;

(4) To the extent that separate revenue and expense accounts exist, they
    are derived from one consolidated set of books and the consolidated
    filing must cover all revenues contained in the consolidated books;

(5) Customers have a single point of contact;

(6) The consolidated filer acknowledges that process served on the
    consolidated filer would represent process served on any or all of
    the affiliated legal entities;

(7) The consolidated filer agrees to document and resolve all slamming
    complaints that might be served on either the filing entity or any
    of the affiliated legal entities;[^293]

(8) The consolidated filer obtains a separate FCC Registration Number
    (FRN) from those assigned to its affiliated legal entities;

(9) The consolidated filer acknowledges that its obligations with regard
    to universal service, Telecommunications Relay Services, Local
    Number Portability, the North American Numbering Plan, and
    regulatory fees will be based on the data provided in consolidated
    Worksheet filings, that it bears the responsibility to satisfy those
    obligations, and that all legal entities covered by the filing are
    jointly and severally liable for such obligations; and

(10) The consolidated filer acknowledges that it: (A) was not insolvent
     on the date it undertook to make payments on a consolidated basis
     or on the date of actual payments to universal service,
     Telecommunications Relay Services, Local Number Portability, the
     North American Numbering Plan, and regulatory fees, and did not
     become insolvent as a result of such undertaking or payments; (B)
     was not left with unreasonably small capital as a result of such
     undertaking or payments; and (C) was not left unable to pay debts
     as they matured as a result of such undertaking or payments.[^294]

     Each year, entities choosing to file on a consolidated basis must
     file a statement certifying that they meet all of the above
     conditions. Such certification also must include: (1) a list of the
     legal names of all legal entities that are covered by the
     filing; (2) the Form 499 identification numbers of all legal
     entities that are covered by the filing; (3) the consolidated
     filer's FRN; and (4) for wireless carriers, a list of all radio
     licenses (call signs) issued to each legal entity covered by the
     filing. Consolidated filers should file this certification with the
     Commission's Data Collection Agent. Furthermore, a contributor
     choosing to file on a consolidated basis should recognize that any
     penalties associated with failure to pay or with underpayment of
     any of its obligations will be assessed on the total revenue
     reported on the consolidated basis, rather than on a separate legal
     entity basis.

C. [When and Where]{.underline} [to File]{.underline}

Figure 2 provides the filing schedule and relevant filing addresses. If
a filing date is a holiday (as defined in Section 1.4(e)(1) of the
Commission\'s rules), Worksheets are due the next business day.

Figure 2: Filing schedule

+--------------------+------------------------+------------------------+
| When to file       | What to file           | Where to file \*       |
+--------------------+------------------------+------------------------+
| February 1 of each | Completed Form 499-Q   | Form 499 Data          |
| year               | containing revenue     | Collection Agent       |
|                    | information for        |                        |
|                    | October 1 through      | Attn: Cristy Dolechal  |
|                    | December 31 of the     |                        |
|                    | prior calendar year    | 80 South Jefferson Rd. |
|                    | and projections for    |                        |
|                    | April 1 through June   | Whippany, NJ 07981     |
|                    | 30\*\*                 |                        |
+--------------------+------------------------+------------------------+
| April 1 of each    | Completed Form 499-A   | Form 499 Data          |
| year               | containing revenue     | Collection Agent       |
|                    | information for        |                        |
|                    | January 1 through      | (address above)        |
|                    | December 31 of the     |                        |
|                    | prior calendar year    |                        |
+--------------------+------------------------+------------------------+
| May 1 of each year | Completed Form 499-Q   | Form 499 Data          |
|                    | containing revenue     | Collection Agent       |
|                    | information for        |                        |
|                    | January 1 through      | (address above)        |
|                    | March 31 and           |                        |
|                    | projections for July 1 |                        |
|                    | through September 30   |                        |
+--------------------+------------------------+------------------------+
| August 1 of each   | Completed Form 499-Q   | Form 499 Data          |
| year               | containing revenue     | Collection Agent       |
|                    | information for April  |                        |
|                    | 1 through June 30 and  | (address above)        |
|                    | projections for        |                        |
|                    | October 1 through      |                        |
|                    | December 31            |                        |
+--------------------+------------------------+------------------------+
| November 1 of each | Completed Form 499-Q   | Form 499 Data          |
| year               | containing revenue     | Collection Agent       |
|                    | information for July 1 |                        |
|                    | through September 30   | (address above)        |
|                    | and projections for    |                        |
|                    | January 1 through      |                        |
|                    | March 31 of the coming |                        |
|                    | year                   |                        |
+--------------------+------------------------+------------------------+
| > \* Do not send   |                        |                        |
| > universal        |                        |                        |
| > service          |                        |                        |
| > contributions    |                        |                        |
| > with this        |                        |                        |
| > Worksheet or to  |                        |                        |
| > the above        |                        |                        |
| > address. The     |                        |                        |
| > universal        |                        |                        |
| > service          |                        |                        |
| > administrator    |                        |                        |
| > will calculate   |                        |                        |
| > the amount of    |                        |                        |
| > contribution due |                        |                        |
| > and send a bill  |                        |                        |
| > to the billing   |                        |                        |
| > contact person   |                        |                        |
| > and billing      |                        |                        |
| > address          |                        |                        |
| > identified in    |                        |                        |
| > Line (112) of    |                        |                        |
| > the Form 499-Q.  |                        |                        |
| >                  |                        |                        |
| > \*\* The         |                        |                        |
| > February 1, 2003 |                        |                        |
| > filing also      |                        |                        |
| > includes         |                        |                        |
| > projections for  |                        |                        |
| > the first        |                        |                        |
| > calendar quarter |                        |                        |
| > of 2003.         |                        |                        |
+--------------------+------------------------+------------------------+

D. [Rounding]{.underline} [of Numbers and Negative Numbers]{.underline}

All information provided in the Worksheet should be neatly printed in
ink or typed. Please provide an original officer signature in ink in
Line (124).

[Dollar Amounts]{.underline}. Reported revenues in Block 3 that are
greater than a thousand dollars may be rounded to the nearest thousand
dollars. Regardless of rounding, **all dollar amounts must be reported
in whole dollars**. For example, \$2,271,881.93 could be reported as
\$2,271,882 or as \$2,272,000, but could not be reported as \$2272
thousand, \$2,270,000.00 or \$2.272 million. Please enter \$0 in any
line for which the contributor had no revenues for the year.

[Negative Numbers]{.underline}. Contributors are directed to provide
billed revenues on Lines (115) through (119) and (121) without
subtracting any expenses, allowances for uncollectibles or settlement
payments and without making out-of-period adjustments. The amount of
projected uncollectibles (the difference between Line (119) and Line
(120) and the difference between Line (121) and Line (122)) cannot
exceed projected billings. Therefore, do not enter negative numbers on
the form.

E. [Obligation to File Revisions]{.underline}

Line (128) provides check boxes to show whether the Worksheet is the
original filing or a revised filing for the quarter. A contributor must
file a revised 499-Q Worksheet if it discovers an error in the data that
it reports^,^ *i.e*., if the filer discovers that it omitted or
misclassified a major category of revenue. However, revised filings must
be made within 45 calendar days of the original filing date. In general,
the historical revenues contained in the quarterly filings will be based
on unaudited books from a point in time and the projections will
represent the filer's expectations as of a point in time. Contributors
need not file revisions to the Form 499^-^Q as a result of ordinary
accounting adjustments such as out-of-period adjustments^.^ Revenue
information from the Form 499-A will be used to ensure that
contributions for the whole year are based on all subject revenues for
the year.

Contributors should not file a revised Form 499-Q Telecommunications
Reporting Worksheet to reflect mergers, acquisitions, or sales of
operating units. In the event that a contributor that filed a Form 499-Q
no longer exists, the successor company to the contributor\'s assets or
operations is responsible for continuing to make payments, if any, for
the funding period and must notify the Commission's Data Collection
Agent.

F. [Compliance]{.underline}

Failure to file the Telecommunications Reporting Worksheet or to pay
contributions in a timely fashion may subject entities to the
enforcement provisions of the Communications Act and any other
applicable law. In addition, telecommunications providers may be billed
by the administrators for reasonable costs, including interest and
administrative costs that are caused by late, inaccurate, or untruthful
filing of the Worksheet or overdue contributions.[^295]

III\. [Specific Instructions]{.underline}

A. [Block 1: Contributor Identification Information]{.underline}

Block 1 of the Telecommunications Reporting Worksheet requires
identification information.

Line (101) \-- enter the \"Filer 499 ID\" number for the filing entity.
This code is assigned by the Commission's Data Collection Agent after a
company files its first FCC Form 499-A. Filer 499 IDs for current filers
can be found at <http://gullfoss2.fcc.gov/cib/form499/499a.cfm> or in
the FCC report *Telecommunications Provider Locator*, which is available
on the Commission\'s web site at
[www.fcc.gov/ccb/stats](http://www.fcc.gov/ccb/stats). This code should
be entered at the top of any cover letter or supporting documentation.
New filers are assigned Filer 499 ID numbers after a completed Form
499-A Telecommunications Reporting Worksheet is received by the data
collection agent.

Line (102) \-- enter the legal name of the filer as it appears on
articles of incorporation and other legal documents. Each legal entity
must file a separate Worksheet unless affiliated entities are filing on
a consolidated basis.[^296]

Line (103) \-- provide the Internal Revenue Service (IRS) employer
identification number (EIN) for the filer. This should be the same EIN
that the company uses to file federal excise taxes or income taxes, if
the filer offers services subject to those taxes. The EIN is also known
as the taxpayer identification number (TIN) or for individuals as the
social security number (SSN).

Line (104) \-- provide the principal name under which the company
conducts telecommunications activities. This would typically be the name
that appears on customer bills, or the name used when service
representatives answer customer inquiries.

Line (105) \-- **use this block to provide a common identifier for all
affiliated filers**. Typically, this would be the name of the filer\'s
holding company or controlling entity, if any. The common name used by
all affiliates need not be a common carrier. All reporting affiliates or
commonly controlled entities should have the **identical** name
appearing on line (106). An affiliate is a \"person that (directly or
indirectly) owns or controls, is owned or controlled by, or is under
common ownership or control with, another person.\"[^297]

Line (106) \-- provide the FCC Registration Number (FRN). The FRN is a
ten digit number that includes a check-digit. The FRN is used to
identify an entity within all Commission Licensing/Filing systems and
RAMIS (the Commission's Revenue Accounting Management Information
System.) This number is assigned by CORES (the Commission Registration
System) and can be obtained at
https://gullfoss2.fcc.gov/cores/CoresHome.html. For assistance, contact
the CORES help desk at (877) 480-3201 or by e-mail at CORES@fcc.gov.

Line (107) \-- enter the complete mailing address of the corporate
headquarters of the reporting entity.

B. [Block 2: Contact Information]{.underline}

Lines (108-111) \-- enter the name, telephone number, fax number, and
e-mail address of the person who filled out the Form 499-Q. This should
be a person who can provide clarifications or additional information,
and, if necessary, who could serve as the first point of contact in the
event that either the Commission or an administrator should choose to
verify or audit information provided in the Telecommunications Reporting
Worksheet.

Line (112) \-- provide a billing contact person name and address for
administrators to send billing information for contributions to the
universal service fund. Information on establishing electronic fund
transfer and bills for universal service will be sent to this address
unless other arrangements are made via written request.

C. [Block 3: Contributor Revenue Information]{.underline}

Line (113) -- enter the year for which revenue information is being
filed.

Line (114) -- check the appropriate box to indicate the calendar
quarters for which historical and projected revenue information are
being reported.

Lines (115-120) contain detailed revenue data.

1.  [Separating Revenue from Service Provided to Other Universal Service
    Contributors for Resale \[Line (115)\] from End-User
    Telecommunications]{.underline} [Revenues \[Line (116)\] (carrier\'s
    carrier vs. end user)]{.underline}

In the Telecommunications Reporting Worksheet, filers must report
revenues using two broad categories: (1) Revenues from other
contributors to the federal universal service support mechanisms; and,
(2) Revenues from all other sources. Taken together, these revenues
should include all revenues billed to customers and should include all
revenues on the reporting entities' books of account.

For the purposes of this Worksheet, "Revenues from services provided for
resale by other contributors to federal universal service support
mechanisms" are revenues from services provided by underlying carriers
to other entities that currently are contributors to federal universal
service support mechanisms and that are resold in the form of
telecommunications. Such revenues are referred to herein as \"carrier\'s
carrier revenues\" or \"revenues from resellers.\" Revenues from all
other sources consist primarily of revenues from services provided to
end users, referred to here as \"end-user revenues.\" This latter
category includes non-telecommunications revenues

For the purpose of completing Line (115), a "reseller" is a
telecommunications carrier or telecommunications provider that: 1)
incorporates purchased telecommunications services into its own
telecommunications offerings; and 2) can reasonably be expected to
contribute to federal universal service support mechanisms based on
revenues from such offerings when provided to end users.

Each filer should have documented procedures to ensure that it reports
as "revenues from resellers" only revenues from entities that reasonably
would be expected to contribute to support universal service. The
procedures should include but not be limited to maintaining the
following information on resellers: Filer 499 ID; legal name; address;
name of a contact person; and phone number of the contact person. The
filer should verify that each reseller will: 1) resell the filer's
services in the form of telecommunications; and 2) contribute directly
to the federal universal service support mechanisms. If the filer does
not have independent reason to know that the reseller satisfies these
criteria, it should obtain a signed statement certifying that these
criteria are met. Current contributors to universal service are
identified at <http://gullfoss2.fcc.gov/cib/form499/499a.cfm>.

Note: For the purposes of filling out this Worksheet \-- and for
calculating contributions to the universal service support mechanisms
\-- certain telecommunications carriers and service providers may be
exempt from contribution to the universal service support mechanisms.
These exempt entities, including \"international only\" and \"intrastate
only\" carriers and carriers that meet the *de minimis* universal
service threshold, should not be treated as resellers for the purpose of
reporting revenues on Line (115). That is, filers that are underlying
carriers should report revenues derived from the provision of
telecommunications to exempt carriers and providers (including services
provided to entities that are *de minimis* for universal service
purposes) on Line (116). Underlying carriers must contribute to the
universal service support mechanisms on the basis of such revenues.

2\. [Column (a) - total revenue]{.underline}[s]{.underline}

The reporting entity must report gross revenues from all sources,
including nonregulated and non-telecommunications services on Lines
(115) through (117) and these must add to total gross revenues as
reported on Line (118). Gross revenues should include revenues derived
from the activation and provision of interstate, international, and
intrastate telecommunications and non-telecommunications services. Gross
revenues consist of total revenues billed to customers during the filing
period with no allowances for uncollectibles, settlements, or
out-of-period adjustments. Gross billed revenues may be distinct from
booked revenues. NECA pool companies should report the actual gross
billed revenues (CABS Revenues) reported to the NECA pool and not
settlement revenues received from the pool.

Where two contributors have merged prior to the filing date, the
successor company should report total revenues for the reporting period
for all predecessor operations. The two contributors, however, should
continue to report separately if each maintains separate corporate
identities and continues to operate.[^298] Where an entity obtains,
through purchase or transfer, the telecommunications operations or
customer base of a telecommunications provider during a quarter, it must
report all telecommunications revenues associated with such operations
or customer base including revenues billed in the quarter prior to the
date of acquisition.

Gross revenues also should include any surcharges on telecommunications
services that are billed to the customer and either retained by the
contributor or remitted to a non-government third party under contract.
Gross revenues should exclude taxes and any surcharges that are not
recorded on the company books as revenues but which instead are remitted
to government bodies. Note that any charge included on the customer bill
and represented to recover or collect contributions to federal or state
universal service support mechanisms must be included in Line (116).
Other surcharges treated as revenue should be included in the revenue
categories on which the surcharges were levied.

For international services, gross revenues consist of gross revenues
billed by U.S. contributors with no allowances for settlement payments.
International settlement receipts for foreign billed service should not
be included in revenues.

If you have any revenue for Lines (115) and (116), you may not omit the
dollar amounts from column (a) even if 100% of the revenue is for
interstate or international service.

3\. [Column (b) and (c) - interstate & international]{.underline}

Columns (b) and (c) are provided to identify the part of gross revenues
that arise from interstate and international service for Lines (115) and
(116). Intrastate telecommunications means communications or
transmission between points within the same State, Territory, or
possession of the United States, or the District of Columbia. Interstate
and international telecommunications means communications or
transmission between a point in one State, Territory, possession of the
United States or the District of Columbia and a point outside that
State, Territory, possession of the United States or the District of
Columbia. Revenues from services offered under interstate tariffs, such
as revenues from federal subscriber line charges and from federally
tariffed local number portability surcharges, should be identified as
interstate revenues.

For example, if a prepaid calling card provider collects a fixed amount
of revenue per minute of traffic, and 65 percent of minutes are
interstate, then interstate revenues would include 65 percent of the
end-user revenue. Similarly, if a LEC bills local measured service
charges for calls that originate in one state and terminate in another,
these billings should be classified as interstate even though the
charges are covered by a state tariff and the revenues are included in a
local service account. Note that under the Commission\'s rules, if over
ten percent of the traffic carried over a private or WATS line is
interstate, then the revenues and costs generated by the entire line are
classified as interstate.[^299] In general, flat-rated unbundled network
access elements should be classified according to the regulatory agency
that has primary jurisdiction over the contracts. Amounts billed to
customers to recover federal universal service contribution obligations
should be attributed as either interstate or international revenues, as
appropriate, but no portion of such amounts may be reported as
intrastate revenues.

In many cases, interstate and international revenues cannot be
determined directly from corporate books of account or subsidiary
records. Filers that cannot derive interstate and international revenues
or that cannot derive the line-by-line revenue breakdowns may provide on
the Worksheet good faith estimates of these figures. Information
supporting good faith estimates must be made available to either the FCC
or to the Universal Service Administrator upon request. For convenience,
calculated interstate and international revenue amounts that are greater
than one thousand dollars may be rounded to the nearest thousand
dollars. Please enter zero dollars in column (b) or column (c) if, and
only if, there were no interstate or international revenues for the line
for the reporting period.

Pursuant to FCC orders,[^300] wireless telecommunications providers may
utilize the following safe harbor percentages of interstate revenues
associated with wireless services normally reported on Line (309) of the
Form 499-A and included on Line (115) of the Form 499-Q, and on Line
(409) and Line (410) of the Form 499-A and included on Line (116) of the
Form 499-Q:

28.5% of cellular and broadband PCS telecommunications revenues

12% of paging revenues

1% of analog SMR dispatch revenues

Wireless telecommunications providers that choose to avail themselves of
these safe harbor percentages for interstate revenue may assume that the
FCC will not find it necessary to review or question the data underlying
their reported percentages. All affiliated wireless telecommunications
providers must make a single election whether to report actual revenues
or to use the revised safe harbor within the same safe harbor category.
So, for example, if in a given period a wireless telecommunications
provider reports actual interstate revenues for its cellular and
broadband PCS telecommunications services, all of its affiliated legal
entities must also report actual interstate telecommunications revenues
for cellular and broadband PCS offerings. The same wireless
telecommunications provider and all affiliates, however, could use the
safe harbor for paging services.

These safe harbor percentages may not be applied to universal service
pass-through charges, fixed local service revenues, or toll service
charges. All filers must report the actual amount of interstate and
international revenues for these services. For example, toll charges for
itemized calls appearing on mobile telephone customer bills should be
reported as intrastate, interstate or international based on the
origination and termination points of the calls. Thus, for example, if a
filer uses the safe harbor percentage for wireless revenues and has
separate charges only for international calls, it would report as
interstate 28.5% of its cellular wireless revenues on Line (116) column
(b) and it would report as international 100% of its revenues associated
with international calls on Line (116) column (c). As a result, the
total of revenues identified as interstate and international in columns
(b) and (c) on FCC Form 499-Q Line (116) would exceed 28.5% of the
amount reported in Line (116) column (a).

4\. [Explanation of historical revenue categories]{.underline}

Total gross revenue reported on Line (118) should equal the total of the
detail amounts reported on Lines (115) through (117).

Line (115) \-- Revenues from services provided to other universal
service contributors for resale. This line should contain revenues from
telecommunications services provided to resellers (*i.e*.,
telecommunications revenue derived from other universal service
contributors). This category comprises what is commonly-referred to as
"carrier's carrier revenues." Filers may wish to consult the
instructions for Form 499-A, Lines (303) through (314), when calculating
this figure.

Line (116) \-- Universal service contribution base revenues. This line
should contain end-user telecommunications revenues (*i.e.*,
telecommunications revenues derived from entities that do not contribute
directly to universal service), except for revenue from international
calls that both originate and terminate in foreign points. Filers may
wish to consult the instructions for Form 499-A, Line (420), when
calculating this figure.

Line (117) \-- Other revenue that should not be reported in the
universal service contribution base. This line should contain revenue
from international calls that both originate and terminate in foreign
points and revenues that are reportable on Form 499-A, Line (418).

Line (117) should include all non-telecommunications service revenues on
the reporting entity\'s books as well as some revenues that are derived
from telecommunications-related functions but that should not be
included in the universal service or other fund contribution bases. For
example, information services offering a capability for generating,
acquiring, storing, transforming, processing, retrieving, utilizing, or
making available information via telecommunications are not included in
the universal service or other fund contribution bases. Information
services do not include any use of any such capability for the
management, control, or operation of a telecommunications system or the
management of a telecommunications service. Information services also
are called enhanced services because they are offered over common
carrier transmission facilities used in interstate communications and
employ computer processing applications that act on the format, content,
code, protocol, or similar aspects of the subscriber\'s transmitted
information; provide the subscriber additional, different, or
restructured information; or involve subscriber interaction with stored
information. For example, call moderation and call transcription
services are information services. These services are exempt from
contribution requirements and should be reported on line (117). Line
(117) should include revenues from published directory and carrier
billing and collection services. Line (117) should include revenues from
the sale, lease, installation, maintenance, or insurance of customer
premises equipment (CPE), inside wiring charges, inside wiring
maintenance insurance. Line (117) should include the sale or lease of
transmission equipment, such as dark fiber, that is not provided as part
of a telecommunications service. Line (117) should include revenues from
providing open video systems (OVS), cable leased access, and direct
broadcast satellite (DBS) services. Line (117) should include late
payment charges and charges (penalties) imposed by the company for
customer checks returned for non-payment. Line (117) should include
revenues from telecommunications services provided in a foreign country
where the traffic does not transit the United States or where the
carrier is providing service as a foreign carrier, *i.e.*, a carrier
licensed in that country.

Line (118) \-- Gross billed revenues from all sources. This line should
equal the sum of revenues by type of service reported on Lines (115)
through (117).

As noted above, for further detail on the types of revenues that should
be reported on Lines (115) through (117), filers may wish to consult the
Instructions for the Form 499-A, available at the Commission\'s web site
(www.fcc.gov/formpage.html).

5\. [Projected gross billed end-user interstate and international
revenues]{.underline}

The projection quarter is the calendar quarter that starts two months
after the filing date and finishes 5 months after the filing date. Line
(121) should contain projected gross-billed end-user interstate and
international revenues, including any pass-through charges for federal
universal service contributions. These amounts should be the amounts
that the filer anticipates reporting on Line (116), column (b) and
column (c), in the Form 499-Q filing due six months after the present
filing date. In order to estimate these amounts, the filer could review
the amounts they are reporting on Line (116) in the instant filing and
amounts reported in recent filings. In addition, filers could take into
account general business conditions, new contracts covering the
projection period, pricing trends, marketing programs, expansion plans,
and other relevant information. Filers must develop good faith
projections based on company procedures and policies. If the filer
anticipates that revenues are as likely to increase as decrease, then it
may copy the historic values from Line (116) to use as its projections
for Line (121) or it could develop projections by trending historic
values from previous quarterly filings. Filers need not make projections
for Line (121) column (a).

Line (119) should contain projected gross-billed end-user interstate and
international revenues, including any pass-through charges for federal
universal service contributions for January 1, 2003 through March 31,
2003. These projections should be made using the same procedures as are
used for making the projections on Line (121).

6\. [Projected collected end-user interstate and international
revenues]{.underline}

Line (122) should show the interstate and international revenues that
the filer anticipates collecting from customers during the projection
quarter. For this purpose "collected end-user" revenues refers to
gross-billed end-user interstate and international telecommunications
revenues, including any pass-through charges for federal universal
service contributions, less estimated uncollectibles.[^301] We define
uncollectibles as the percentage of interstate and international
telecommunications revenues that the contributor anticipates will not be
collected from end-user customers. This percentage should be calculated
in accordance with Generally Accepted Accounting Principles.[^302]
Filers that use the accrual method of accounting should use the
percentage of billed revenues that they recognize currently as a reserve
for uncollectibles in their books of accounts. Carriers that use the
cash method of accounting should base this percentage on a comparison of
actual collections and billed revenues, with the periods chosen to allow
for the average delay between when services are billed and when payments
are received. The amounts shown on Line (122) should be the amounts on
Line (121) reduced by the percentage of uncollectibles.

Line (120) should show the interstate and international revenues that
the filer anticipates collecting from customers during for January 1,
2003 through March 31, 2003. These projections should be made using the
same procedures as are used for making the projections on Line (121).

Filers will be billed based on the amounts reported on Line (122). Any
revisions to these amounts must be filed within 45 calendar days. No
adjustments to billings will be made during the quarter to reflect
actual levels of billed service and actual collection rates. The
administrator will use the actual revenue data provided by contributors
on the FCC Form 499-A to perform annual true-ups to the quarterly
projected revenue data submitted by contributors during the prior
calendar year.[^303] As necessary, the administrator will then refund or
collect from contributors any over-payments or under-payments. If the
combined quarterly projected revenues reported by a contributor are
greater than those reported on its annual revenue report (Form 499-A),
then a refund will be provided to the contributor based on an average of
the two lowest contribution factors for the year. If the combined
quarterly revenues reported by a contributor are less than those
reported on its annual revenue report (Form 499-A), then administrator
will collect the difference from the contributor using an average of the
two highest contribution factors from that year.

Filers are required to maintain records and documentation to justify the
information reported on the Telecommunications Reporting Worksheet for
three years. Filers also must maintain records detailing the methodology
used to determine projections reported on the Telecommunications
Reporting Worksheet. Upon request, filers may be required to provide
such records and documentation to the Commission or to the
administrator.

D. [Block 4: Certification.]{.underline}

Line (123) \-- Filers may use the box in Line (123) to request
nondisclosure of the revenue information contained on the
Telecommunications Reporting Worksheet. By checking this box, the
officer of the company signing the Worksheet certifies that the
information contained on the Worksheet is privileged or confidential
commercial or financial information and that disclosure of such
information would likely cause substantial harm to the competitive
position of the company filing the Worksheet. This box may be checked in
lieu of submitting a separate request for confidentiality pursuant to
section 0.459 of the Commission\'s rules.[^304] All decisions regarding
disclosure of company-specific information will be made by the
Commission. The Commission regularly makes publicly available the names
(and Block 1 and 2 contact information) of the entities that file the
Telecommunications Reporting Worksheet.

Lines (124) through (127) \-- An officer of the reporting entity must
examine the data provided in the Telecommunications Reporting Worksheet
and certify that the information provided therein is accurate and that
projections provided therein represent good faith estimates based on
company procedures and policies. An officer is a person who occupies a
position specified in the corporate by-laws (or partnership agreement),
and would typically be president, vice president for operations, vice
president for finance, comptroller, treasurer, or a comparable position.
If the reporting entity is a sole proprietorship, the owner must sign
the certification. The signature on Line (124) must be in ink.

A person who willfully makes false statements on the Worksheet can be
punished by fine or imprisonment under title 18 of the United States
Code.[^305]

Line (128) \-- Indicate whether this filing is an original filing or a
revised filing.[^306]

[Reminders]{.underline}

 Filers are required to maintain records and documentation to justify
information reported on the Telecommunications Reporting Worksheet for
three years. Filers also must maintain records detailing the methodology
used to determine projections reported on the Telecommunications
Reporting Worksheet. Upon request, filers may be required to provide
such records and documentation to the Commission or to the
administrator.

 Is the filer affiliated with another telecommunications provider? Each
legal entity must file separately unless they qualify for filing on a
consolidated basis. *See* Section II-B. Each affiliate or subsidiary
[must]{.underline} show the same holding company name on Line (105).

 Provide data for all lines that apply. Show a zero for services for
which the contributor had no revenues for the filing period.

 Contributors to universal service support mechanisms must make five
FCC Form 499 filings each year. *See* Figure 2.

 Wherever possible, revenue information should be taken from the
contributors\' financial records. Filers also must provide projected
revenue information on Line (119) through Line (122).

 The Worksheet must be signed by an officer of the reporting entity. An
officer is a person who occupies a position specified in the corporate
by laws (or partnership agreement), and would typically be president,
vice president for operations, comptroller, treasurer, or a comparable
position.

 Do not mail the Worksheet to the FCC. *See* Section II-C for filing
instructions.

-   Note that Form 499 is one of several forms that telecommunications
    carriers and other providers of interstate telecommunications may
    need to file. Information concerning common filing requirements for
    such providers may be found on the FCC web site, at
    [www.fcc.gov/wcb/filing.html](http://www.fcc.gov/wcb/filing.html).

If you have questions about the Worksheet or the instructions, you may
contact:

Form 499 Telecommunications Reporting Form499@neca.org

Worksheet Information (973) 560-4460

Wireline Competition Bureau

Industry Analysis and Technology Division (202) 418-0940

TTY (202) 418-0484

If you have questions regarding contribution amounts, billing procedures
or the mechanisms, you may contact:

Universal Service Administration (202) 776-0200

\- FCC -

SEPARATE STATEMENT OF

**CHAIRMAN MICHAEL K. POWELL**

*Re: Federal-State Board on Universal Service et al., CC Docket Nos.
96-45 et al.*

The Act demands that this Commission take responsible steps to ensure
that our universal service contribution system remains equitable and
nondiscriminatory. This item meets that test. The measures we adopt
today, however, are interim. Make no mistake, during this interim
period, the migration of traditional telecommunications services to
digital platforms will continue to occur -- and at a gathering speed.
The resulting bundles of innovative telecommunications and information
services will continue to stress our current revenues-based contribution
system if we do not act. For this reason, among others, we must
challenge ourselves to reform the contribution system in creative ways.
I believe that it remains our long-term goal and is in the best interest
of American consumers that we migrate to a connection-based contribution
system. I write separately today to underscore this point.

Universal service contribution policy cannot remain static. Guided --
indeed commanded - by the statute, we must ensure that it evolves as
telecommunications technology and markets change. The foundation the
Commission has built needs to be refined to account for technological
substitution and the realities of a competitive market. The actions we
take today represent a timely effort to recalibrate the current
revenue-based system to reflect better the growth of wireless services
and improve competitive neutrality among contributors by basing
contributions on projections of collected revenues. At the same time, we
take action to protect consumers from unjust and unreasonable recovery
practices by increasing the transparency of universal service line items
on customer bills. These are prudent first steps.

We must never forget, however, that the cost of these programs
ultimately is borne by American consumers. Failure to engage in reform
may jeopardize the stability and sufficiency of the fund and impose
unfair burdens on certain classes of carriers and their customers. By
asking more questions and seeking specific comment on the assumptions
that underlie each proposed contribution methodology, including
connection-based systems, we will be able to refine the record in this
proceeding and take further steps to ensure the long-term viability of
universal service. I also recognize that some of my colleagues have
suggested that the Commission address the universal service contribution
requirements for broadband platforms in this proceeding. I believe,
however, that such a decision must be made in the context of the
Commission's pending proceeding concerning the appropriate statutory
classification for broadband services. I wish to emphasize that adopting
a connections-based approach to universal service contributions does not
automatically mean that broadband platforms will be assessed. Rather, a
connections-based approach provides a rational, simplified mechanism for
addressing the disparity that currently exists between DSL and cable
modem platforms. In the end, a functioning broadband market and
principles of technological neutrality require that consumer choices for
broadband services should not be skewed by artificial regulatory
requirements.

Finally, I look forward to working with my federal and state colleagues
to establish an equitable and nondiscriminatory contribution system that
provides for specific, predictable, and sufficient funding to preserve
and advance universal service.

SEPARATE STATEMENT OF

COMMISSIONER KATHLEEN Q. ABERNATHY

*Re: Federal-State Joint Board on Universal Service, et al., Report and
Order and Second Further Notice of Proposed Rulemaking, CC Docket Nos.
96-45 et al.*

Today's Order represents an important step in our effort to overhaul the
contribution methodology for the federal universal service support
mechanisms. But much work remains. While the interim measures we are
adopting will help alleviate some of the inequities associated with our
existing contribution rules, they do not address the fundamental shifts
in the communications marketplace that call into question the long-term
viability of a revenue-based contribution scheme. Most significantly,
the increasing prevalence of bundling ― of interstate and intrastate
services, on the one hand, and of telecommunications services,
information services, and customer premises equipment, on the other ―
tentatively persuades me that a connection-based contribution
methodology would best promote the critical statutory objective of
preserving and advancing universal service.

Commission staff have exhaustively combed through the existing record in
an effort to develop an assessment methodology based (at least in part)
on physical connections to interstate networks. I commend them for their
efforts. Introducing a connections-based component to our contribution
methodology will bolster the stability of universal service funding. We
must also ensure that all carriers will contribute on an equitable and
nondiscriminatory basis, as section 254(d) requires, and that any new
regime will not impose undue administrative burdens and transaction
costs. On the current record, the Commission was unable to conclude that
any connection-based proposal satisfies all of these objectives.
Moreover, legitimate concerns have been raised about our ability to
gauge the likely consumer impact of leading proposals ― which were being
tweaked almost daily ― without additional data and analysis. But I am
optimistic that the proposals described in the Further Notice, together
with the input we expect to receive from commenters, will enable the
Commission to implement more comprehensive reforms in the coming year.

I understand that not all of my colleagues are persuaded at this
juncture that a pure revenue-based methodology is unsustainable. Nor am
I completely certain myself. But it seems increasingly clear that any
methodology that assesses contributions based solely on revenues from
end-user interstate telecommunications services is fundamentally
incompatible with the direction of the communications industry. I have
often spoken about the need for our regulations to keep up with the
rapidly changing pace of technologies and markets. This is a perfect
example: There is no question that the industry is moving headlong from
a marketplace dominated by distinct offerings of local and long distance
services to one in which bundles of any-distance telecommunications
services are becoming the norm (for wireless) or at least commonplace
(for wireline). And in this new environment, telecommunications services
are increasingly being packaged with information services and CPE.

Some argue that instead of giving up on a revenue-based methodology, we
can ensure sustainable support by assessing the telecommunications
component of information services and

adopting additional revenue-allocation rules for bundled services. But
that is easier said than done.[^307] When a telecom carrier offers, for
example, an integrated bundle of local and long distance voice services
plus broadband Internet access for a single monthly price, it is not
clear how the Commission could accurately assess the revenues
attributable to the interstate voice service and to the
telecommunications component of the information service. By the same
token, when cable modem providers offer broadband services, the fact
that most do not separately provide broadband transmission services
would make it very difficult to segregate the revenues attributable to
the telecommunications portion of the information service. These
line-drawing conundrums will become even more problematic as bundled
service offerings become more varied and complex. As a result, providers
will have the opportunity and incentive to contribute less than their
fair share by understating the portion of their bundled offering that is
attributable to an interstate telecommunications service.

The upshot, I fear, will be a continued decline in the reported base of
interstate telecommunications service revenues ― and a corresponding
increase in the contribution factor. If, on the other hand, providers of
end-user connections to interstate networks contributed based on these
connections, rather than on a portion of their revenues, all of these
intractable revenue-allocation issues would disappear.

Finally, although the Commission did not raise the question of assessing
contributions on broadband Internet access services in this proceeding
(it is raised in the pending *Wireline Broadband* rulemaking), some of
my colleagues have suggested resolving that issue now. I do not think it
would be appropriate to do so until we complete our analysis of the
statutory classification of wireline broadband services, which bears
directly on our authority to assess contributions. I would also like to
have a better sense of whether the Commission will adopt a
connection-based approach before deciding whether and how broadband
providers should contribute, because the merits of separately assessing
the telecommunications component of broadband services may differ in
that case. I would have taken a more limited step in this interim
period, however, by exempting from assessment any DSL transmission
service provided *to ISPs*, pending the outcome of the *Wireline
Broadband* proceeding. There are two reasons for doing so. First, the
fact that LECs providing DSL service currently contribute to universal
service, while cable modem providers do not, creates an obvious
competitive distortion. We should either assess both broadband platforms
or neither. Second, the Commission already has determined in another
context that incumbent LECs' sale of bulk DSL transmission services are
properly considered wholesale telecommunications services,[^308] and it
seems logical to treat those services as wholesale ― and thus not
subject to any contribution obligation ― for universal service purposes
as well. I regret that the Commission was unable to agree on a means of
ending the DSL/cable modem contribution disparity, but I am hopeful that
we will do so in the *Wireline Broadband* proceeding.

STATEMENT OF

COMMISSIONER MICHAEL J. COPPS

*Re:* *Federal-State Joint Board on Universal Service*

I am pleased that the Commission is taking interim steps toward ensuring
that every carrier contributes on an equitable and nondiscriminatory
basis to universal service. Without today's action, consumers of
long-distance services would have seen a significant increase on their
bills as of April 1.

Notwithstanding the actions we take today, we must continue to look for
long- term solutions that will put the fund on a solid footing to
preserve and advance universal service. In the abstract, I find much to
recommend a revenue-based system. It is undoubtedly equitable and
nondiscriminatory for those who use the network more to contribute more
to further the goals of universal service. That being said, I am fully
cognizant of the pressures on our revenue-based system that are detailed
in our decision today. For that reason, I am willing to consider
changing our methodology for assessing carrier contributions to the
universal service fund. Before I would agree to any paradigm shift in
our methodology and the attendant administrative costs, however, I want
to be certain that our methodology meets the statutory requirements and
is administratively workable.

I also urge the Commission to address expeditiously the issue of
broadband providers' contribution to universal service. I am
disappointed that the current disparity under which DSL providers
contribute and cable modem providers do not will continue for an
indefinite period of time. When the Commission finally addresses this
issue, I hope we will do so in a manner that does not narrow the
contribution base and undermine the sufficiency of the fund. We must
also work to avoid a system that opens the door to regulatory arbitrage
or distortions in the market. I would also stress my belief that
broadband will satisfy the statutory criteria for inclusion in the list
of supported services in the near future.

As we move forward with this contribution methodology proceeding, let us
also recognize that taking action on the contribution side is only half
of the equation. The Commission and the Federal-State Joint Board on
Universal Service must also address distribution issues if we are to
confront all of the pressures on the fund. That means we must complete
such proceedings as the current one on portability of universal service
in markets with competition.

Finally, I hope we will work closely with our state colleagues as
partners on these universal service issues. The statute makes clear that
Federal and State governments each have a significant role to play in
preserving and advancing universal service. It is only through a
cooperative effort that we will meet our statutory obligation to ensure
that all Americans, no matter who they are or where they live, have
access to reasonably comparable services at reasonably comparable rates.
Each and every American should have access to the best, most accessible,
and cost-effective communications system in the world. In this modern
era, that is a fundamental right.

**STATEMENT OF\
COMMISSIONER KEVIN J. MARTIN**

*Re: Federal-State Joint Board on Universal Service, **CC Docket No.
96-45**;*

*1998 Biennial Regulatory Review---Streamlined Contributor Reporting
Requirements Associated with Administration of Telecommunications Relay
Service, North American Numbering Plan, Local Number Portability, and
Universal Service Support Mechanisms, **CC Docket No. 98-171**;*

*Telecommunications Services for Individuals with Hearing and Speech
Disabilities, and the Americans with Disabilities Act of 1990, **CC
Docket No. 90-571***;

*Administration of the North American Numbering Plan and North American
Numbering Plan Cost Recovery Contribution Factor and Fund Size **CC
Docket No. 92-237 NSD File No. L-00-72**;*

*Number Resource Optimization **CC Docket No. 99-200**; Telephone Number
Portability **CC Docket No. 95-116**; Truth-in-Billing and Billing
Format **CC Docket No. 98-170.***

#  {#section .unnumbered}

Good item. [^309]

**Appendix A**

SEPARATE STATEMENT OF\
COMMISSIONER KEVIN J. MARTIN

*Re: Federal-State Joint Board on Universal Service,* Further Notice of
Proposed Rulemaking and Report and Order, CC Docket No. 96-45 *et al.*

I am pleased to join in approving this item, which seeks comment on
proposals to alter our universal service contribution methodology.
Maintaining the stability of the universal service contribution system
is one of the Commission\'s most important responsibilities. Congress
codified this responsibility in section 254 of the Telecommunications
Act of 1996, which requires the Commission to, among other things,
ensure there are specific, predictable, and sufficient support
mechanisms to preserve and advance universal service. *See* 47 U.S.C. §
254(b)(5). I am firmly committed to carrying out this directive and to
fulfilling Congress\' goals of ensuring affordable telecommunications
services and access to advanced services in all regions of the nation.
*See id.* § 254(b).

To fulfill this responsibility, the Commission today issues a notice
reevaluating the contribution methodology. As consumers migrate to new
products and services, we may need new methods for assessing universal
service contributions. Accordingly, I welcome consideration of novel and
different proposals of how to assess universal service contributions.

While we consider these comprehensive reforms, however, I believe it may
be important to take some immediate steps. For example, AT&T has
complained that assessing contribution obligations on past revenues, as
the system currently does, unfairly penalizes carriers with declining
revenues and unfairly benefits those with increasing revenues. I believe
we should take action on AT&T\'s waiver request, which seeks to allow
AT&T to pay its contributions based on projected rather than past
revenue. Whether we make changes along these lines or some other
alterations to the current system, I believe some short term adjustments
may be warranted.

I also wish to highlight one issue for comment. In weighing the various
proposals, we must make sure that \"\[a\]ll providers of
telecommunications services . . . make an equitable and
nondiscriminatory contribution to the preservation and advancement of
universal service.\" 47 U.S.C. § 254(b)(4). We must also follow the
Court of Appeals for the Fifth Circuit\'s holding that the
Communications Act prohibits the Commission from assessing contributions
on intrastate revenue. *See Texas Office of Public Utility Counsel v.
FCC*, 183 F.3d 393, 448 (5th Cir. 1999). I thus think it is crucial that
parties comment on how the different proposals comply with both of these
limitations.

Finally, I wish to emphasize the importance of participation by the
states in this proceeding. We welcome comments from the state
commissions, and we have committed to seeking input from the Universal
Service Joint Board before making any significant changes to the
contribution methodology. I am confident that we could do so in a manner
that does not cause any unnecessary delay.

STATEMENT OF COMMISSIONER KEVIN J. MARTIN, APPROVING IN PART

AND DISSENTING IN PART

Re: Schools and Libraries Universal Service Support Mechanism - - CC
Docket No. 02- 6

At the outset, I want to reaffirm my support for the universal service
program and the critical function it serves to ensure access for
consumers in rural and high cost areas, and promote access to advanced
services for schools, libraries, and health care service providers in
rural areas.

I am pleased that the Commission has clarified that effective no later
than second quarter 2003 any unused funds from the schools and libraries
support mechanism in any given year will be carried forward for
disbursement in subsequent funding years. The schools and libraries
program has been instrumental in facilitating access to advanced
services. Today's action will help us ensure that schools and libraries
will be able to use the funding available under the existing \$2.25
billion annual cap.

I am also pleased that the Commission is moving forward today to take
action to stabilize the universal service contribution factor for
consumers. I agree with the majority's decision to blunt the impact of
spikes in the universal service contribution factor. I have concerns,
however, regarding the methodology used to achieve this result. I would
have taken a different path to achieve relief for consumers while
providing greater market certainty and ensuring that we achieve our
mutual goal of protecting the continuing health and sustainability of
the universal service fund.

Some of the systemic problems of our universal service contribution
methodology are not new. Back in April 2001, the Commission outlined
these issues and sought comment on various potential solutions. For
example, the Commission acknowledged the inequities in the universal
service contribution system of declining revenues for certain wireline
interexchange carriers, as well as the potential impact that the growth
in the wireless telecommunications sector may be having on the fund.

At that time, the Commission adopted a Notice of Proposed Rulemaking
that acknowledged the inequities of the current system and sought
comment on specific proposals to address comprehensive reform of the
universal service contribution system. Eight months later, with no
permanent relief in sight, AT& T presented this Commission with a
request to help level the playing field on contributions to the
universal service fund made by its over 50 million long distance
customers. For example, AT& T customers now face a monthly federal
universal service fund surcharge that stands at over 11%, while
customers of new entrant long- distance providers pay at or below the
FCC contribution rate set within the 7% range. I supported taking action
on their petition at that time and today. [^310]

I support the Commission's efforts to address the long- term issues
created by a converging and competitive marketplace. I look forward to
working with my colleagues to establish an equitable and
nondiscriminatory contribution system that provides for specific,
predictable and sufficient funding to preserve and advance universal
service.

At its heart, today's decision takes unused money from the schools and
libraries program to stem the growth of the contribution factor while
the Commission grapples with long term solutions.

I would have preferred to put in place medium term remedies to address
some of these contribution methodology issues (e. g., declining revenues
and the potential impact that growth of the wireless telecommunications
sector has on the fund). While we continue to address the long term
issues, I believe we should address the various inequities that require
certain service providers and their customers to bear a disproportionate
share of funding the universal service system. Especially since demand
for the school and libraries program has always exceeded the cap, I
believe we should have taken these steps first before taking any unused
monies.

I believe it is incumbent upon us to have taken steps immediately
available that could both minimize the impact of any increase on
consumers and address potential inequities in our current system prior
to taking some of today's actions.

Accordingly, I approve in part and dissent in part from the order.

STATEMENT OF COMMISSIONER KEVIN J. MARTIN

Re: Federal-State Joint Board on Universal Service; CC Docket No. 96-45

AT&T Petition For Waiver

I disagree with today's decision by the Wireline Competition Bureau to
deny AT&T's request to contribute to universal service based on its
projected, rather than its historical, revenues.

Under the FCC's rules that govern universal service contributions,
carrier payments to the fund are based on a snapshot of interstate
revenues during the previous six months. Over time, increased
competition, regional Bell company entry into the interexchange market,
and changes in the marketplace have continued to reduce the interstate
revenues of the traditional interexchange carriers.

The Commission's rules now place certain interexchange carriers---such
as AT&T that face declining revenues at a distinct competitive
disadvantage. To comply with the Commission's rules, carriers with
declining interstate revenues must collect a greater share of universal
service contributions from a shrinking customer base. In particular,
consumers of these long distance carriers have been required to
contribute a disproportionate and inequitable share to ensure the
preservation and advancement of universal service. AT&T's long distance
customers, for example, now face a monthly federal universal service
fund surcharge that stands at over 11%, while the FCC's contribution
rate is set within the 7% range. While AT&T's customers bear this
burden, customers of new entrant long-distance providers (e.g., Bell
operating companies) have the unfair benefit of supporting the fund at
or below the FCC contribution rate.

I am concerned that the Commission has been aware of the magnitude of
this problem for quite some time and yet has failed to act. In April
2001, the Commission adopted a Notice of Proposed Rulemaking that
acknowledged the inequities of the current system and sought comment on
specific proposals to address comprehensive reform of the universal
service contribution system. Eight months later, with no permanent
relief in sight, AT&T filed its petition for waiver for an immediate
interim fix so that it could contribute to universal service based on
projected revenues.

I supported granting AT&T's waiver last December and would have
supported granting all similarly situated carriers similar relief.
Granting the waiver would have, at a minimum, provided immediate relief
for at least 50 million long distance customers nationwide while the
Commission continued to deliberate on a more permanent solution to the
contribution methodology issue. In addition, it would have set the
groundwork for creating a more equitable contribution system by closing
the gap on the contribution obligations of different service providers
and their end-user customers. This measure would have also brought us
one step closer to establishing a more level playing field for
contributions amongst carriers providing interstate services in the
marketplace.

In my view, by waiting six months to address AT&T's waiver request the
Commission has created greater uncertainty in the marketplace and has
exacerbated an already troublesome situation. With each passing day,
AT&T's competitive disadvantage resulting from universal service
contributions grows as the Bell Operating Companies continue to receive
271 long distance authority throughout the country and gain significant
long distance market share. In general, I support Commission's policies
that encourage service providers to compete for service offerings based
on market factors such as price, service quality, and convenience but do
not favor policies that advantage certain competitors through
distortions and loopholes in our regulatory framework.

Unfortunately, I am not as confident that a permanent solution is right
around the corner. I would have therefore granted AT&T's petition for
waiver last December and would do so again now.

Maintaining a specific, predictable and sufficient universal service
funding mechanism is a vital responsibility of the Commission. I support
the Commission's efforts to address the long-term issues created by a
converging and competitive marketplace. I do not believe, however, that
we should stop making on-going adjustments to the current mechanism to
address competitive inequities while we spend months and/or years
grappling with the longer term problems. I believe we have a duty to
address such immediate and mid term problems as well as the long term
ones.

Accordingly, I disagree with the result of the Bureau's Order.

[^1]: *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)
    (*Interim* *CMRS Safe Harbor Order*). In this Order, we use the term
    "mobile wireless" to refer to these non-paging Commercial Mobile
    Radio Service (CMRS) providers and not fixed wireless providers.

[^2]: So, for example, if in a given period a wireless
    telecommunications provider reports actual revenues for one
    affiliated paging provider, it will be required to report actual
    interstate telecommunications revenues for all other affiliated
    paging providers.

[^3]: *See* *Federal-State Joint Board on Universal Service, 1998
    Biennial Regulatory Review -- Streamlined Contributor Reporting
    Requirements Associated with Administration of Telecommunications
    Relay Service, North American Numbering Plan, Local Number
    Portability, and Universal Service Support Mechanisms,
    Telecommunications Services for Individuals with Hearing and Speech
    Disabilities, and the Americans with Disabilities Act of 1990,
    Administration of the North American Numbering Plan and North
    American Numbering Plan Cost Recovery Contribution Factor and Fund
    Size, Number Resource Optimization, Telephone Number Portability,
    Truth-in-Billing and Billing Format*, 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 (2002) (*First*
    *Further Notice*).

[^4]: *See* *id.* at 3755-56, paras. 7-9.

[^5]: *See Schools and Libraries Universal Service Support Mechanism*,
    First Report and Order, CC Docket No. 02-6, 17 FCC Rcd 11521,
    11522-11524, paras. 1-3 (2002) (authorizing use of unused funds from
    schools and libraries support mechanism to prevent further increases
    to the contribution factor in the third and fourth quarters of 2002
    and the first quarter of 2003).

[^6]: *See Federal-State Joint Board on Universal Service, 1998 Biennial
    Regulatory Review -- Streamlined Contributor Reporting Requirements
    Associated with Administration of Telecommunications Relay Service,
    North American Numbering Plan, Local Number Portability, and
    Universal Service Support Mechanisms, Telecommunications Services
    for Individuals with Hearing and Speech Disabilities, and the
    Americans with Disabilities Act of 1990, Administration of the North
    American Numbering Plan and North American Numbering Plan Cost
    Recovery Contribution Factor and Fund Size, Number Resource
    Optimization, Telephone Number Portability*, CC Docket Nos. 96-45,
    98-171, 90-571, 92-237, 99-200, 95-116, Notice of Proposed
    Rulemaking, 16 FCC Rcd 9892, 9894-96, paras. 2-6 (2001) (*2001*
    *Notice*).

[^7]: Interest in a connection-based methodology spans across various
    industry segments. *See generally* ASCENT Comments; ATA Comments;
    BellSouth Reply Comments; C&W Reply Comments; Home et al. Comments;
    ITAA Comments; Qwest Reply Comments; SBC Comments; Sprint Comments;
    Letter from Walter McCormick, United States Telecom Association, to
    Marlene H. Dortch, Federal Communications Commission, filed Oct. 21,
    2002 (*USTA Oct. 21 Ex Parte*); VON Reply Comments. NRTA and OPASTCO
    support adoption of a flat-fee mechanism. *See* NRTA and OPASTCO
    Comments. The Coalition for Sustainable Universal Service (CoSUS),
    representing various interexchange carriers and end-users, also
    supports adoption of a connection-based mechanism. The original
    membership of CoSUS was comprised of Ad Hoc Telecommunications Users
    Committee (Ad Hoc), AT&T, e-commerce & Telecommunications Users
    Group (eTUG), Level 3 Communications, and WorldCom. *See* CoSUS
    Comments at 1-4. Ad Hoc and AT&T, which continue to support some
    form of a connection-based mechanism, are no longer members of
    CoSUS. *See* Letter from James S. Blaszak, Counsel for Ad Hoc
    Telecommunications Users Committee, to Marlene H. Dortch, Federal
    Communications Commission, filed Oct. 3, 2002 (*Ad Hoc Oct. 3 Ex
    Parte*) (asserting that the Commission should adopt a contribution
    assessment methodology based on working telephone numbers and
    connections-based assessments for special access and private lines);
    Letter from Robert W. Quinn, Jr., AT&T, to Marlene Dortch, Federal
    Communications Commission, filed Oct. 22, 2002 (*AT&T Oct. 22 Ex
    Parte*).

[^8]: Letter from G. Nanette Thompson, State Chair of the State Joint
    Board Members, to Chmn. Michael K. Powell, Federal Communications
    Commission, filed Aug. 7, 2002 (*State Joint Board Ex Parte*).

[^9]: *See infra* paras. 16-18.

[^10]: *See, e.g.,* CoSUS Comments; Qwest Comments; SBC/BellSouth
    Comments; Letter from Jamie M. (Mike) Tan, SBC Communications, Inc.,
    to Marlene Dortch, Federal Communications Commission, filed Oct. 10,
    2002 (*SBC Oct. 10 Ex Parte*).

[^11]: *See, e.g.*, Nextel Reply Comments at 7; Letter from W. Scott
    Randolph, Director Regulatory Affairs of Verizon, to Marlene H.
    Dortch, Federal Communications, dated Oct. 29, 2002 (*Verizon Oct.*
    *29* *Ex Parte*), at Attachment, pg. 7.

[^12]: *See, e.g.,* Letter from Cellular Telecommunications and Internet
    Association, Qwest Communications, International, Inc., United
    States Telecom Association, Verizon Communications, Verizon
    Wireless, to Marlene H. Dortch, Federal Communications Commission,
    dated Oct. 25, 2002 (*Interim Revenue Coalition Ex Parte*).

[^13]: Communications Act of 1934, as amended, 47 U.S.C. §§ 201, 202,
    254. The Telecommunications Act of 1996 amended the Communications
    Act of 1934. *See* Telecommunications Act of 1996, Pub. L. No.
    104-104, 110 Stat. 56 (1996) (1996 Act).

[^14]: 47 U.S.C. § 254(b).

[^15]: 47 U.S.C. § 254(d). *See also* 47 U.S.C. § 254(b)(4), (5)
    (providing that Commission policy on universal service shall be
    based, in part, on the principles that contributions should be
    equitable and nondiscriminatory, and support mechanisms should be
    specific, predictable, and sufficient). The Commission adopted the
    additional principle that federal support mechanisms should be
    competitively neutral, neither unfairly advantaging nor
    disadvantaging particular service providers or technologies. *See
    Federal-State Joint Board on Universal Service*, CC Docket No.
    96-45, Report and Order, 12 FCC Rcd 8776, 8801-03, paras. 46-51
    (1997), as corrected by *Federal-State Joint Board on Universal
    Service*, Erratum, CC Docket No. 96-45, FCC 97-157 (rel. June 4,
    1997), and Erratum, 13 FCC Rcd 24493 (1997), *aff'd in part, rev'd
    in part, remanded in part sub nom*, *Texas Office of Public Utility
    Counsel v. FCC*, 183 F.3d 393 (5^th^ Cir. 1999)*,* *cert. denied¸*
    530 U.S. 1210 (2000), *cert. dismissed*, 531 U.S. 975 (2000)
    (*Universal Service Order*).

[^16]: *See* 47 C.F.R. §§ 201(b), 202(a).

[^17]: 47 C.F.R. § 201(b).

[^18]: 47 C.F.R. § 202(a).

[^19]: *See Universal Service Order*, 12 FCC Rcd at 9206-07, paras.
    843-44. Contributions for the high-cost and low-income support
    mechanisms were based on interstate and international end-user
    telecommunications revenues, while contributions for the schools and
    libraries and rural health care support mechanisms initially were
    based on intrastate, interstate, and international end-user
    telecommunications revenues. Following a decision by the United
    States Court of Appeals for the Fifth Circuit, the Commission
    established a single contribution base for all universal service
    support mechanisms based on interstate and international revenues.
    *See 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, 1685-86, para. 15 (1999) (*Eighth
    Report and Order*).

[^20]: *Federal-State Joint Board on Universal Service*, CC Docket No.
    96-45, Recommended Decision, 12 FCC Rcd 87 (Jt. Bd. 1996).

[^21]: *Universal Service Order*, 12 FCC Rcd at 9206-09, paras. 844-50.

[^22]: *Id.* at 9210-11, para. 853.

[^23]: *Id.*

[^24]: *Id.*

[^25]: *Id*. at 9199, para. 829. We note that the Commission originally
    prohibited incumbent local exchange carriers from recovering
    universal service costs from end users, and instead required
    incumbent local exchange carriers to recover universal service costs
    through access charges. *See id.* at 9200, para. 830. The United
    States Court of Appeals for the Fifth Circuit held that incumbent
    local exchange carrier recovery of universal service contributions
    through access charges constituted an implicit subsidy, and the
    Commission's rules permitting that practice to continue at an
    incumbent local exchange carrier's discretion violated section
    254(e) of the Act. *See COMSAT Corp. v. FCC*, 250 F.3d 931, 938-40
    (5^th^ Cir. 2001). The Commission therefore amended its rules to
    prohibit local exchange carriers from recovering contributions to
    the universal service mechanisms through access charges imposed on
    interexchange carriers. *See* 47 C.F.R. § 69.4(d).

[^26]: *Changes to the Board of Directors of the National Exchange
    Carrier Association, Inc., Federal-State Joint Board on Universal
    Service*, CC Docket Nos. 96-45, 97-21, Report and Order and Second
    Order on Reconsideration, 12 FCC Rcd 18400 (1997) (*Second Order on
    Reconsideration*).

[^27]: *See id.* at 18423-24, para. 41; *see also* 47 C.F.R. § 54.701.

[^28]: *Second Order on Reconsideration*, 12 FCC Rcd 18400, Appendix B;
    *see also* 47 C.F.R. § 54.711(a) (providing that "\[c\]ontributions
    shall be calculated and filed in accordance with the
    Telecommunications Reporting Worksheet . . . ."); *Second Order on
    Reconsideration*, 12 FCC Rcd at 18424, para. 43, 18442, para. 80,
    18501-02, Appendix C. The Commission adopted the Worksheet and
    attached it as Appendix C to the *Second Reconsideration Order*.
    Subsequent to its issuance of the *Second Order on Reconsideration*,
    in an effort to reduce administrative burdens on contributors, the
    Commission consolidated carrier reporting requirements. *See* *1998
    Biennial Regulatory Review -- Streamlined Contributor Reporting
    Requirements Associated with Administration of Telecommunications
    Relay Service, North American Numbering Plan, Local Number
    Portability, and Universal Service Support Mechanisms*, CC Docket
    98-171, Report and Order, 14 FCC Rcd 16602 (1999) (*Consolidated
    Reporting Order*); *see also Common Carrier Bureau Announces Release
    of September Version of Telecommunications Reporting Worksheet (FCC
    Form 499-S) for Contributions to the Universal Service Support
    Mechanisms*, CC Docket No. 98-171, Public Notice, DA 99-1520 (rel.
    July 30, 1999); *Common Carrier Bureau Announces Release of
    Telecommunications Reporting Worksheet (FCC Form 499-A) for April 1,
    2000 Filing by All Telecommunications Carriers*, CC Docket No.
    98-171, Public Notice, 15 FCC Rcd 16434 (Com. Car. Bur. 2000).

[^29]: Last year, the Commission reduced the interval between the
    accrual of revenues by contributors and assessment of universal
    service contributions based on those revenues from 12 months to an
    average interval of six months. *See* *Federal-State Joint Board on
    Universal Service, Petition for Reconsideration filed by AT&T*, CC
    Docket No. 96-45, Report and Order and Order on Reconsideration, 16
    FCC Rcd 5748, paras. 1-2 (2001) (*Quarterly Reporting Order*). The
    Commission concluded that the shortened interval allows
    contributions to more accurately reflect market trends influencing
    carrier revenues, such as the entry of new providers into the
    interstate marketplace. *Id.* at 5751-52, para. 9.

[^30]: *See Interim* *CMRS Safe Harbor Order*, 13 FCC Rcd at 21258-60,
    paras. 13-15. Although slightly less than a majority of CMRS
    providers subject to the 15 percent safe harbor avail themselves of
    that safe harbor, those that do represent the vast majority of
    revenues reported by CMRS providers in this category.

[^31]: *See Policy and Rules Concerning 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 Services Unbundling
    Rules In the Interexchange, Exchange Access And Local Exchange
    Markets*, CC Docket Nos. 96-61, 98-183, Report and Order, 16 FCC Rcd
    7418, 7446-48, paras. 47-54 (2001) (*Bundling Order*).

[^32]: 47 C.F.R. § 64.2401(b).

[^33]: *Truth-in-Billing and Billing Format*, CC Docket No. 98-170,
    Report and Order and Further Notice of Proposed Rulemaking, 14 FCC
    Rcd 7492, 7525-26, para. 54, 7522-25, paras. 49-53 (*TIB Order and
    FNPRM*), *reconsideration granted in part*, Order on
    Reconsideration, 15 FCC Rcd 6023 (2000), Errata, 15 FCC Rcd 16544
    (Com. Car. Bur. 2000).

[^34]: *See id.* at 7523-25, paras. 51-52, 7537, para. 71.

[^35]: *See 2001 Notice*, 16 FCC Rcd 9892 (2001).

[^36]: *Id*. at 9894, para. 2.

[^37]: *Id*.

[^38]: *Id.*

[^39]: *See First Further Notice*, 17 FCC Rcd at 3754, para. 2.

[^40]: *Id.*

[^41]: *Id.*

[^42]: *Id*.

[^43]: *See, e.g.*, Allied Comments at 11-12; Arch Comments at 10-12;
    CPUC Comments at 8-9; Verizon Comments at 5; Verizon Wireless
    Comments at 16; *Cf.* FW&A Comments at 11-12; USCC Comments at 13
    (arguing against the use of projected revenue data as a means to
    reform the contribution system).

[^44]: *See, e.g.,* Allied Comments at 11; ALTS Reply Comments at 4;
    FW&A Comments at 9-10; NASUCA Comments at 6-7; NECA Comments at 3-4;
    Nebraska Comments at 5-7; NRTA and OPASTCO Comments at 11 n.25; NTCA
    Comments at 5-6; USCC Comments at 9-10. Several CMRS carriers, in
    fact, have acknowledged that the current mobile wireless safe harbor
    percentage may be too low. *See, e.g.*, Letter from Mitchell F.
    Brecher, Counsel for TracFone Wireless, Inc., to Marlene H. Dortch,
    Federal Communications Commission, filed Oct. 4, 2002 (*TracFone
    Oct. 4 Ex Parte*); Letter from Michael Altschul, Cellular
    Telecommunications and Internet Association, to Marlene H. Dortch,
    Federal Communications Commission, filed Sep. 30, 2002 (*CTIA
    Traffic Studies Ex Parte*).

[^45]: *See, e.g.*, Ad Hoc Comments at 2; BellSouth Reply Comments at
    8-9; CoSUS Comments at 9-12; C&W Reply Comments at 7; Home et al.
    Comments at 3-4; ITAA Comments at 3; Qwest Reply Comments at 3; SBC
    Comments at 5; Sprint Comments at 2; *State Joint Board Ex Parte* at
    1-3. As previously noted, NRTA and OPASTCO support a
    connection-based contribution mechanism. *See* NRTA and OPASTCO
    Comments at 4.

[^46]: *See* CoSUS Comments at 12-17.

[^47]: *Id*. at 15.

[^48]: *See, e.g.*, *State Joint Board Ex Parte* at 3.

[^49]: *See* Sprint Comments at 3.

[^50]: *See* SBC Comments at 5. Under the SBC/BellSouth proposal,
    "access" services include switched access and special access over
    the wireline telephone network, cable telephony, wireless, one-way
    paging, dedicated Internet access, and a private line access link to
    a packet-switched data network or other network, while interstate
    transport services include traditional interexchange long distance
    service, private line transport service, packet-switched transport
    service, and the interstate transport associated with Internet
    traffic or other content provided over an Internet connection. *Id*.
    at 9.

[^51]: *Id.* at 5.

[^52]: *See* Letter from David J. Hostetter, SBC Telecommunications,
    Inc., and W.W. (Whit) Jordan, BellSouth Corporation, to Marlene
    Dortch, Federal Communications Commission, filed Nov. 5, 2002
    (*SBC/BellSouth Nov. 5 Ex Parte*).

[^53]: *See id.* at 1.

[^54]: *Ad Hoc Oct. 3 Ex Parte* at 3; *AT&T Oct. 22 Ex Parte*.

[^55]: *See, e.g.*, NRTA and OPASTCO Comments at 12 n.26 (noting that
    assessments could be made on the basis of presubscribed lines).
    State Commissioner Jaber supports a modified connection-based
    mechanism that would treat customer accounts presubscribed to IXCs
    as "connections." *See State Joint Board Ex Parte* at Attachment,
    page 2.

[^56]: *See, e.g.*, *Ad Hoc Oct. 3 Ex Parte* at 7; ALTS Reply Comments
    at 4; FW&A Comments at 9; *Interim Revenue Coalition Ex Parte* at 2;
    NASUCA Comments at 6-7; Nebraska Comments at 5-7; NRTA and OPASTCO
    Comments at 11 n.25; Time Warner et al. Comments at 18; *USTA Oct.
    21 Ex Parte* at 4.

[^57]: *See, e.g.*, *Interim Revenue Coalition Ex Parte* at 2; *USTA
    Oct. 21 Ex Parte* at 2.

[^58]: *See* *infra* paras. 29-32.

[^59]: *See* *infra* paras. 45-51.

[^60]: *Id.*; *see also Interim CMRS Safe Harbor Order*, 13 FCC Rcd at
    21254-58, paras. 5-12.

[^61]: The interim safe harbor for mobile wireless providers applies to
    SMR providers that primarily provide wireless telephony rather than
    dispatch or other mobile services. A digital SMR provider operates
    more like a cellular provider than a SMR provider. Digital SMR
    service offers consumers dispatch capabilities over much broader
    geographic areas, along with a unique combination of fully
    integrated services, such as cellular and broadband PCS service.
    Nextel is an example of a digital SMR provider.

[^62]: *See Interim CMRS Safe Harbor Order*, 13 FCC Rcd at 21258-59,
    para. 13.

[^63]: *Id.* at 21257, para. 11, 21259, para. 13 n.25.

[^64]: *Id.* at 21259-60, paras. 14-15.

[^65]: As evidenced by FCC Form 499 filings, carriers may file actual
    interstate telecommunications for one affiliated legal entity, while
    other affiliated legal entities file revenue information based on
    the interim safe harbors.

[^66]: *Interim CMRS Safe Harbor Order*, 13 FCC Rcd at 21257-58, para.
    11.

[^67]: *See* *2001 Notice*, 16 FCC Rcd at 9904-05, para. 24; *see also
    First Further Notice*, 17 FCC Rcd at 3757-59, paras. 11-16.

[^68]: *See, e.g.*, *CTIA Traffic Studies Ex Parte*; FW&A Comments at
    9-10; NASUCA Comments at 6-7; NECA Comments at 3-4; Nebraska
    Comments at 5-7; Ohio PUC Reply Comments at 4; Letter from John W.
    Kure, Executive Director -- Federal Policy and Law, Qwest
    Communications, to Marlene H. Dortch, Federal Communications
    Commission, filed Oct. 24, 2002 (*Qwest Oct. 24 Ex Parte*) at
    Attachment, pg. 11; *USTA Oct. 21 Ex Parte* at 2; *Verizon Oct. 29
    Ex Parte* at 2; Letter from John T. Scott, III, Verizon Wireless, to
    William F. Maher, Federal Communications Commission, filed Nov. 27,
    2002.

[^69]: *See CTIA Traffic Studies Ex Parte*; *see also* FW&A Comments at
    9-10; NASUCA Comments at 6-7; NECA Comments; Time Warner et al.
    Comments at 18.

[^70]: We note that this calculation was made at the legal entity level
    and not the holding company level.

[^71]: *See, e.g.*, Allied Comments at 11; ALTS Reply Comments at 4;
    NASUCA Comments at 6-7; Nebraska Comments at 5-7; NRTA and OPASTCO
    Comments at 11 n.25.

[^72]: *See CTIA Traffic Studies Ex Parte* at 3-4.

[^73]: *Id*.

[^74]: *See* Letter from Kenneth Hardman, Counsel for American
    Association of Paging Carriers, to Marlene H. Dortch, Federal
    Communications Commission, filed Nov. 25, 2002. We note that the
    interim safe harbor for paging carriers was established based on
    paging carriers' reported interstate revenues. *See Interim CMRS
    Safe Harbor Order*, 13 FCC Rcd at 21260, para. 14.

[^75]: *See* Letter from Kenneth D. Patrick, Counsel for Arch Wireless
    Operating Company, Inc., to Marlene H. Dortch, Federal
    Communications Commission, filed Oct. 31, 2002.

[^76]: *See, e.g., Interim Revenue Coalition Ex Parte* at 2; *USTA Oct.
    21 Ex Parte* at 2.

[^77]: For example, if a wireless telecommunications provider uses the
    interim safe harbor for its paging services, all of its affiliated
    legal entities must also use the safe harbor for paging services.
    That same wireless telecommunications provider could choose to
    report actual interstate telecommunications revenues for its
    affiliates that provide mobile wireless services.

[^78]: *See supra* para. 20.

[^79]: We note that this requirement will not impose additional
    reporting obligations. Contributors may continue to file by legal
    entity or on a consolidated basis. Contributors, however, must
    determine whether to report actual interstate revenues for each
    filer at the affiliated-entity level.

[^80]: 47 U.S.C. § 153(1).

[^81]: *See* 47 C.F.R. §§ 52.17, 52.32, 64.604(c)(5)(iii)(A). Regulatory
    fees for CMRS providers are based on units served, not on revenues.

[^82]: *See Universal Service Order*, 12 FCC Rcd at 9206-07, paras.
    843-44.

[^83]: *See First Further Notice*, 17 FCC Rcd at 3755-59, paras. 7-14.

[^84]: *2001 Notice*, 16 FCC Rcd at 9902-9904, paras. 18-23.

[^85]: *See* *First Further Notice*, 17 FCC Rcd at 3789-90, para. 84.

[^86]: *See* Allied Comments at 11-12; Arch Comments at 10-12; CPUC
    Comments at 8-9; Verizon Comments at 5; Verizon Wireless Comments at
    16. *See also* Letter from Lawrence E. Sarjeant, United States
    Telecom Association, to Chairman Michael K. Powell and Commissioners
    Kathleen Q. Abernathy, Michael Copps, and Kevin Martin, Federal
    Communications Commission, filed Nov. 26, 2002, at 3 (suggesting
    that contributions should be based on gross-billed interstate retail
    revenue adjusted by a carrier-specific factor to account for
    non-collectible amounts).

[^87]: *See, e.g.,* BellSouth Reply Comments at 5; CoSUS Reply Comments
    at 14-21; WorldCom Reply Comments at 6-8.

[^88]: *See infra* discussion at paras. 33-37.

[^89]: *See* USAC Comments to *2001 Notice* at 12.

[^90]: *See, e.g.*, CPUC Comments at 8-9; CU et al. Comments at 7;
    Verizon Comments at 5.

[^91]: *See, e.g.*, Ad Hoc Comments at 2-3; CoSUS Comments at 29-31;
    Sprint Comments at 2; Verizon Wireless Comments at 16.

[^92]: *See, e.g.*, Ad Hoc Comments at 2-3; C&W Reply Comments at 4;
    CoSUS Comments at 6-11; Sprint Comments at 2-3; WorldCom Comments at
    2-3. *See also* AT&T Corp., S.E.C. Form 10-Q, filed Aug. 14, 2002
    (consumer services revenue declined 21.6%, or \$1.7 billion, for the
    first six months of 2002 compared with the corresponding period in
    2001) (*AT&T 2^nd^ Quarter 2002 10-Q*); WorldCom Inc., S.E.C. Form
    10-Q, filed May 15, 2002 (consumer revenues, which include domestic
    voice communications service for consumer customers, for the first
    three months of 2002 decreased 11.7% over the prior year period);
    Sprint Corp., S.E.C. Form 10-Q, filed Aug. 6, 2002 (voice revenues
    from its Global Markets Division decreased 12% in the first
    six-months of 2002 compared with the corresponding period in 2001).

[^93]: *See infra* paras. 45-55.

[^94]: *See* *2001 Notice*, 16 FCC Rcd at 9903, para. 22 n. 57.

[^95]: Contributors should not include so-called "unbillables" in their
    projections of uncollectibles. *See infra.* para. 56. *See also*
    Letter from Patrick H. Merrick, AT&T to Marlene H. Dortch, Federal
    Communications Commission, filed Dec. 4, 2002.

[^96]: *See infra.* paras. 36-37.

[^97]: General Accepted Accounting Principles (GAAP) encompasses the
    conventions, rules, and procedures necessary to define accepted
    practice in the preparation of financial statements in the United
    States. The Financial Accounting Standards Board (FASB) is currently
    the primary authority to establish GAAP for all companies. Carriers
    subject to the Uniform System of Accounts would derive this figure
    from the amount recorded in Account 5301, Uncollectible Revenue -
    Telecommunications. *See also* Qwest Comments to the *2001 Notice*
    at 4.

[^98]: *See infra* Appendix C.

[^99]: We also note that persons willfully making false statements in
    the Worksheets can be punished by fine or imprisonment under title
    18 of the United States Code. *See* 18 U.S.C. § 1001.

[^100]: Under current procedures, USAC excludes each contributor's
    actual universal service contributions from its assessable
    gross-billed interstate telecommunications revenues. *See First
    Further Notice*, 17 FCC Rcd at 3801-02, paras. 113-116. This
    eliminates one cause for contributors to recover amounts in excess
    of the contribution factor.

[^101]: The adjusted contribution base will equal the total projected
    collected end-user interstate telecommunications revenues for the
    upcoming quarter reported on the FCC Form 499-Q minus the projected
    revenue requirement. One percent will be deducted to account for
    contributions that USAC cannot collect from telecommunications
    providers.

[^102]: *See infra* discussion at paras. 45-51.

[^103]: *See* Telecommunications Reporting Worksheet, FCC Form 499-A,
    OMB 3060-0855 (February 2002) (FCC Form 499-A). We will revise FCC
    Form 499-A at a later date, consistent with the rules and policies
    outlined in this Order.

[^104]: *See generally Quarterly Reporting Order*, 16 FCC Rcd at
    5752-53, para. 12.

[^105]: *See* ALTS Comments at 4; AT&T Comments at 8, 10-11; AWS
    Comments at 11-12; CoSUS Comments at 14; Nextel Comments at 22-23;
    Sprint Comments at 3; Verizon Comments at 5; Working Assets Comments
    at 5-6; WorldCom Comments at 7-8.

[^106]: *See, e.g.*, ACS Reply Comments at 10 (asserting that collect
    and remit rewards inefficiency and unfairly shifts burden to
    companies that do collect); NRTA & OPASTCO Comments at 22-23
    (stating that a collect and remit system threatens the sufficiency
    and predictability of universal service funding, and violates
    section 254(d) by placing contribution obligations on end-users);
    Texas Reply Comments at 2-3 (indicating that collect and remit
    system would violate section 254 of the Act by impermissibly
    shifting contribution obligations to end-users); USCC Comments at
    13-14 (stating that a collect and remit system would lead to the
    demise of the federal universal service fund).

[^107]: *See, e.g.,* ACS Reply Comments at 10; Time Warner et al.
    Comments at 20; USCC Comments at 13-14.

[^108]: For example, if a customer refused to pay a \$1.00 line item,
    but paid the remaining \$9.00 of its total \$10.00 bill, the carrier
    would discount its assessable revenues by its 10% uncollectible
    percentage. Assuming a 10 percent contribution factor, it would
    contribute \$0.90 for that customer (\$9.00 x .10). Under a collect
    and remit system, if a customer refused to pay the \$1.00 federal
    universal service line item, the carrier would contribute nothing
    for that customer.

[^109]: In contrast, under our modified methodology, we will be able to
    predict with a greater degree of accuracy the total amount of
    contributions in a given quarter because the amount of a provider's
    contribution will be based on projected collected revenues reported
    on the FCC Form 499-Q. Therefore, a reserve fund will not be
    necessary.

[^110]: *See* 47 C.F.R. §§ 69.131, 69.158.

[^111]: 47 U.S.C. §§ 201(b), 202(a). Because sections 201 and 202 of the
    Act only apply to "common carriers" or "telecommunications
    carriers," and not to the broader category of telecommunications
    providers that are currently subject to universal service
    contribution obligations pursuant to the Commission's authority
    under section 254(d) of the Act, throughout this section we refer to
    the recovery obligations of "carriers," not "contributors." *See
    id.*; *see also* 47 U.S.C. §§ 153(44), 153(46).

[^112]: 47 U.S.C. § 201(b).

[^113]: *See Universal Service Order* 12 FCC Rcd at 9206-07, para 844.

[^114]: *Id*. at 9199, para. 829, 9211-12, para. 855.

[^115]: *See id.*

[^116]: *See First Further Notice*, 17 FCC Rcd at 3791, para. 89.

[^117]: *Id.* at 3760-61, paras. 18-19.

[^118]: *See, e.g.*, *Ad Hoc Oct. 3 Ex Parte* at 5-6; CPUC Comments at
    14; CU et al. Comments at 20-21; GSA Comments at 8-9; NASUCA
    Comments at 17; SBC Comments at 4; Working Assets Comments at 6.

[^119]: CPUC Comments at 14; CU et al. Comments at 20; GSA Comments at
    8; Home et al. Comments at 13; NASUCA at 17; Texas PUC Comments at
    2; Working Assets Comments at 6.

[^120]: *See, e.g.*, AT&T Comments at 7; Sprint Comments at 5; Verizon
    Comments at 8.

[^121]: *See First Further Notice*, 17 FCC Rcd at 3794, paras. 95-96.

[^122]: *Id.* at 3793-94, para. 94.

[^123]: *See* *Proposed Fourth Quarter 2002 Universal Service
    Contribution Factor*, Public Notice, CC Docket No. 96-45, DA 02-2221
    (rel. Sept. 10, 2002) (*Fourth Quarter 2002 Contribution Public
    Notice)* (providing second quarter 2002 estimate of interstate and
    international end-user telecommunications revenues of \$18.488
    billion).

[^124]: *See, e.g.,* http://www.att.com (AT&T's "Universal Connectivity
    Charge" for residential customers is 11 percent, while its charge
    for business customers is 9.6 percent); Sprint Terms and Conditions
    of Service, available at http://www.sprint.com (Sprint's "Carrier
    Universal Service Charge" for residential customers is 9.6 percent,
    while its charge for business customers is 8.3 percent); MCI General
    Service Agreements, available at http://www.mci.com (MCI's "Federal
    Universal Service Fee" for residential customers is 9.9 percent,
    while its charge for small business customers is 9.3 percent).
    Effective January 1, 2003, MCI has announced plans to further
    increase its Federal Universal Service Fee for residential customers
    from 9.9 percent to 10.5 percent. *See*
    http://www.mci.com/mci_service_agreement/res_most_recent_info.jsp.

[^125]: *See, e.g.*, BellSouth Telecommunications, Inc., Tariff FCC No.
    1, Sections 4.7(A), issued Jun. 17, 2002, 4.7(E), issued Sep. 16,
    2002 (\$0.48 per line per month \"Federal Universal Service Charge\"
    for residential customers equivalent to an assessment rate of
    approximately 8 percent based on subscriber line charge of \$6.00
    per primary line per month); Pacific Bell Telephone Company Tariff
    FCC No. 1, Sections 4.7(A), issued Jun. 17, 2002, 4.7(G), issued
    Sep. 16, 2002 (\$0.42 per line per month \"Federal Universal Service
    Fee\" for residential customers in California equivalent to an
    assessment rate of approximately 9.38 percent based on subscriber
    line charge of \$4.48 per line per month); Qwest Corporation Tariff
    FCC No. 1, Sections 4.7.1, issued Aug. 5, 2002, 13.21, issued Jun.
    18, 2002 (\$0.56 per line per month \"Federal Universal Service End
    User Charge\" for residential customers in Iowa equivalent to an
    assessment rate of approximately 11.5 percent based on subscriber
    line charge of \$4.87 per line per month); Verizon Tariff F.C.C. No.
    1, Sections 4.1.7.1(A), issued Jun. 28, 2002, 4.1.7.1(H), issued
    Oct. 15, 2002 (\$0.59 per line per month \"Federal Universal Service
    Fund\" surcharge for residential customers in the District of
    Columbia equivalent to an assessment rate of approximately 15.28
    percent based on subscriber line charge of \$3.86 per line per
    month).

[^126]: Under one carrier's surcharge, a customer that makes a \$0.19
    one minute call would be charged a \$1.20 (or over 600%) universal
    service fee. For examples of such practices visit
    \<http://www.1010phonerates.com\>.

[^127]: *See* Susan McGovern, *AT&T Boosts Subscriber Charges to Recoup
    USF Contributions*, [TR Daily]{.smallcaps}, Jan. 3, 2002, at 3.

[^128]: *See, e.g.*, Ad Hoc Comments at 19-21; CU et al. Comments at 18;
    NASUCA Comments at 17 (asserting that carriers "game" their
    universal service fund line-items).

[^129]: *See, e.g.*, Time Warner et al. Comments at 25-26.

[^130]: *See, e.g., State Joint Board Ex Parte* at 3.

[^131]: For local exchange carriers, the subscriber line charge
    represents the interstate portion of the bill. For interexchange
    carriers, all charges associated with interstate calling are
    interstate. For CMRS providers, the portion of the total bill that
    is deemed interstate will depend on whether the carrier reports
    actual revenues or utilizes the safe harbor. For wireless
    telecommunications providers that avail themselves of the interim
    safe harbors, the interstate telecommunications portion of the bill
    would equal the relevant safe harbor percentage times the total
    amount of telecommunications charges on the bill.

[^132]: Carriers may charge all their end-user customers the same flat
    federal universal service line-item charge so long as that amount
    does not exceed the contribution factor times the interstate
    telecommunications revenues derived from any individual customer.

[^133]: We note that incumbent local exchange carriers are required to
    recover their federal universal service contribution costs through a
    line item, which may be combined for billing purposes with another
    rate element. *See* 47 C.F.R. §§ 69.131, 69.158.

[^134]: *See supra* paras. 29-32.

[^135]: *See* *First Further Notice*, 17 FCC Rcd at 3801, para. 113. We
    now instead exclude contributors' projected contributions in order
    to address the circularity issue. *See supra* para. 35.

[^136]: *See* 47 C.F.R. § 61.45(d)(1)(vi).

[^137]: *See* *TIB Order and NPRM,* 14 FCC Rcd 7510, para. 28, 7516,
    para. 37, 7522-25, paras. 49-53. *See also* 47 C.F.R. § 64.2401.

[^138]: *See* Letter from Patrick H. Merrick, AT&T, to Marlene H.
    Dortch, Federal Communications Commission, filed Dec. 4, 2002 at 4
    (*AT&T Dec. 4 Ex Parte*). *But see* Letter from Marybeth M. Banks,
    Sprint, to Marlene H. Dortch, Federal Communications Commission,
    filed Dec. 3, 2002 (*Sprint Dec. 3 Ex Parte*).

[^139]: *See* *AT&T Dec. 4 Ex Parte* at 4.

[^140]: *Id.*

[^141]: *See Sprint Dec. 3 Ex Parte* at 3.

[^142]: If a carrier believes that it has special circumstances that
    warrant deviation from the rules, that carrier may request a waiver
    of the Commission's rules. *See* 47 C.F.R. § 1.3.

[^143]: *See id*.

[^144]: *See* *Policy and Rules Concerning the Interstate, Interexchange
    Marketplace, Implementation of Section 254(g) of the Communications
    Act of 1934*, CC Docket No. 96-61, Order on Reconsideration, 12 FCC
    Rcd 15014 (1997); *Policy and Rules Concerning the Interstate,
    Interexchange Marketplace, Implementation of Section 254(g) of the
    Communications Act of 1934*, CC Docket No. 96-61, Second Order on
    Reconsideration and Erratum, 14 FCC Rcd 6004 (1999); *Domestic,
    Interexchange Carrier Detariffing Order Takes Effect*, CC Docket No.
    96-61, Public Notice, DA 00-1028 (Com. Car. Bur. May 9, 2000); *MCI
    WorldCom, Inc. v. FCC*, 209 F.3d 760 (D.C. Cir. 2000); *Policy and
    Rules Concerning the Interstate, Interexchange Marketplace,
    Implementation of Section 254(g) of the Communications Act of 1934*,
    CC Docket No. 96-61, Order, 15 FCC Rcd 22321 (2001); *see also 2000
    Biennial Regulatory Review, Policy and Rules Concerning the
    International, Interexchange Marketplace, IB Docket No. 00-202*,
    Report and Order, 16 FCC Rcd 10647 (2001) (requiring mandatory
    detariffing of international interexchange services provided by
    non-dominant providers with limited exceptions for dial-around,
    local exchange carrier implemented services, inbound collect
    calling, and on-demand Mobile Satellite Systems).

[^145]: *See, e.g.*, ACS Reply Comments at 10-11; NRTA and OPASTCO
    Comments at 23-24; Ohio PUC Reply Comments at 7; Texas Reply
    Comments at 1.

[^146]: *See generally Federal-State Joint Board on Universal Service*,
    *Multi-Association Group (MAG) Plan for Regulation of Interstate
    Services of Non-Price Cap Incumbent Local Exchange Carriers and
    Interexchange Carriers*, CC Docket Nos. 96-45 & 00-256, Fourteenth
    Report and Order and Twenty-Second Order on Reconsideration and
    Report and Order, 16 FCC Rcd 11244 (2001) (*Rural Task Force
    Order*).

[^147]: *See* 47 C.F.R. §§ 54.401, 54.403.

[^148]: 47 U.S.C. § 254(b).

[^149]: The Consumer and Governmental Affairs Bureau currently conducts
    outreach directed at educating consumers about all aspects of the
    Commission's universal service programs, including the contribution
    recovery process. For example, the Consumer and Governmental Affairs
    Bureau operates two consumer centers that consumers can contact to
    obtain information on the Commission's universal service programs.
    The consumer centers may be reached at 1-888-CALL-FCC
    (1-888-225-5322) (voice) or 1-888-TELL-FCC (1-888-835-5322) (TTY).
    The Consumer and Governmental Affairs Bureau also provides fact
    sheets on universal service issues through the Commission's website.
    *See* <http://www.fcc.gov/cgb>\>.

[^150]: *See* 47 C.F.R. § 64.2401.

[^151]: *See First Further Notice*, 17 FCC Rcd at 3797-98, para. 103.

[^152]: *See, e.g.,* USCC Comments at 9-10; Letter from Mitchell F.
    Brecher, counsel for TracFone Wireless, Inc., to Marlene H. Dortch,
    Federal Communications Commission, filed Dec. 5, 2002; Letter from
    L. Charles Keller, counsel for Verizon Wireless, to Marlene H.
    Dortch, Federal Communications Commission, filed Oct. 28, 2002;
    *CTIA Traffic Studies Ex Parte*.

[^153]: *See id.* at 3-4.

[^154]: *See supra* para. 20.

[^155]: *See* discussion *supra* para. 3. *See also* Ad Hoc Comments at
    2; CompTel Comments at 2; CoSUS Comments at 18-23; WorldCom Comments
    at 2-5

[^156]: *See, e.g.*, Ad Hoc Comments at 2-3; C&W Reply Comments at 4-5;
    CoSUS Comments at 9-10; ITAA Comments at 3-5; SBC Comments at 3-5;
    Qwest Reply Comments at 9.

[^157]: *See* *First Further Notice*, 17 FCC Rcd at 3754, para. 2.

[^158]: *See, e.g.,* CoSUS Comments at 2; SBC/BellSouth Comments at 5-6;
    *State Joint Board Ex Parte* at 2-3.

[^159]: *See* CoSUS Reply Comments at 19-20; Sprint Reply Comments at 4;
    WorldCom Reply Comments at 6-7.

[^160]: *See, e.g.,* Ad Hoc Comments at 2-3; CoSUS Comments at 36-38;
    Sprint Comments at 4. *See also* Universal Service Monitoring
    Report, Federal and State Staff for the Federal-State Joint Board on
    Universal Service, Table 6.1 (Oct. 2002) (*Joint Board Monitoring
    Report*) (showing growth in households from 78 million in 1982 to
    102 million in 2001).

[^161]: *See* CompTel Comments at 2; C&W Reply Comments at 5-6; NRTA and
    OPASTCO Comments at 4-5.

[^162]: *See* 47 U.S.C. § 254(d).

[^163]: *See, e.g.,* ACS Reply Comments at 8-9; Arch Reply Comments at
    7; Verizon Reply Comments at 5.

[^164]: 47 U.S.C. § 254(d).

[^165]: Currently, residential consumers that have no interstate
    long-distance charges on their wireline bills typically pay
    universal service line items ranging from approximately \$0.42 to
    \$0.59 per line per month, based on the subscriber line charge on
    their local bills. *See, e.g.*, Pacific Bell Telephone Company
    Tariff F.C.C. No. 1, Sections 4.7(A), issued Jun. 17, 2002, 4.7(G),
    issued Sep. 16, 2002; Verizon Tariff F.C.C. No. 1, Sections
    4.1.7.1(A), issued Jun. 28, 2002, 4.1.7.1(H), issued Oct. 15, 2002.

[^166]: *See* CoSUS Comments at 14.

[^167]: Under this definition, a cable telephony provider that provides
    a voice connection to a public or private interstate network would
    be assessed for that connection.

[^168]: *See* Letter from David Sieradzki, Counsel for BT North America,
    to Marlene Dortch, Federal Communications Commission, filed Oct. 23,
    2002 (*BTNA Oct. 23 Ex Parte*).

[^169]: This definition takes into account providers such as TracFone,
    which cannot determine the number of handsets that may be used by
    customers at a point in time, because customers purchase cards that
    provide minutes of use in conjunction with a purchased handset.
    TracFone is, however, able to determine whether connections have
    been used in a given month. *See TracFone Oct. 4 Ex Parte*.

[^170]: *See* CoSUS Comments at 56.

[^171]: This is consistent with our current policy. In the *Universal
    Service Order*, the Commission reasoned that, for self-providers of
    interstate telecommunications, telecommunications is incidental to
    their primary non-telecommunications business. *See Universal
    Service Order*, 12 FCC Rcd 9185, para. 799.

[^172]: *See Appropriate Framework for Broadband Access to the Internet
    over Wireline Facilities, Universal Service Obligations of Broadband
    Providers*, CC Docket No. 02-33, Notice of Proposed Rulemaking, 17
    FCC Rcd 3019 (2002) (*Broadband NPRM*).

[^173]: We note that CMRS providers pay regulatory fees on a per-unit
    basis.

[^174]: A local exchange carrier's Subscriber Line Charge (SLC)
    designation on a customer's bill would serve to determine whether a
    fixed connection were a residential/single-line business or
    multi-line business connection. SLCs are charges that are assessed
    by local phone companies to recover some or all of the costs
    associated with providing interstate access through the local phone
    network. *See* *Access Charge Performance Review for Local Exchange
    Carriers, Transport Rate Structure and Pricing, End User Common Line
    Charge*, CC Docket Nos. 96-262, 94-1, 91-213, and 95-72, First
    Report and Order, 12 FCC Rcd 15982, 16007, para. 68 (1997) (*Access
    Charge Reform Order*). The SLC designation would not be used for
    purposes of determining assessments for payphone connections.

[^175]: *See generally* 47 C.F.R. § 54.711 (outlining contributor
    reporting requirements); FCC Form 499-A.

[^176]: Mobile wireless providers would be permitted to use a safe
    harbor under which they would assume for reporting purposes that
    28.5 percent of telecommunications revenues are interstate, though
    such providers could report based on a different percentage based on
    actual interstate revenues. Wireless telecommunications providers
    also would have the option of using the interim safe harbors of 12
    percent and one percent for pager providers and analog SMR
    providers, respectively.

[^177]: *See Universal Service Order*, 12 FCC Rcd at 9206-07, paras.
    843-47.

[^178]: *Id.*

[^179]: CoSUS proposed a first tier for connections with a capacity of
    less than 1.5 Mbps; a second tier for connections with capacity
    between 1.5 Mbps and 45 Mbps; and a third tier for connections with
    a capacity of at least 45 Mbps. *See* CoSUS Comments at 14. The
    tiers under that plan would be assessed, respectively, at the Tier 1
    level, five times the Tier 1 level, and 40 times the Tier 1 level.
    *See id.* at 66.

[^180]: *See First Further Notice*, 17 FCC Rcd at 3775, para. 54; USCC
    Comments at 3-4; Verizon Comments at 12.

[^181]: *See* SBC Comments at 2, 7-12. We note that we are not proposing
    to directly assess Information Service Providers, as proposed by SBC
    and BellSouth. In addition, as originally proposed, the
    SBC/BellSouth proposal would have assessed both access and transport
    providers for non-switched connections. In their latest proposal,
    SBC and BellSouth only propose to assess transport providers for
    switched connections. *SBC/BellSouth Nov. 5 Ex Parte* at 3.

[^182]: *See* SBC/BellSouth Comments at 8-9.

[^183]: This definition could be modified depending on which version of
    this proposal is adopted.

[^184]: We note that SBC and BellSouth recently have proposed using up
    to 14 capacity tiers. *See SBC Oct. 10 Ex Parte.*

[^185]: *See* 47 C.F.R. §§ 69.158, 69.153(e); NRTA and OPASTCO Comments
    at 19-20; Verizon Comments at 12; Texas Comments at 5.

[^186]: According to CoSUS, interexchange carriers "do not, as a routine
    part of their commercial operations, have the information about
    their customers' end user access connections necessary to report and
    pay \[universal service fund\] contributions under SBC-BellSouth,
    but would have to obtain that information from the \[local exchange
    carrier\]." *See* Letter from John T. Nakahata, Counsel to the
    Coalition for Sustainable Universal Service, to Marlene Dortch,
    Federal Communications Commission, filed Sep. 9. 2002 (*CoSUS Sep.
    9* *Ex Parte).*

[^187]: *See, e.g.,* CoSUS Reply Comments at 30-33; Sprint Reply
    Comments at 18. The *CALLS Order* eliminated residential and
    single-line business PICCs. *See Access Charge Reform, Price Cap
    Performance Review for Local Exchange Carriers*, CC Docket Nos.
    96-262 and 94-1, Sixth Report and Order, *Low-Volume Long Distance
    Users*, CC Docket No. 99-249, Report and Order, *Federal-State Joint
    Board on Universal Service*, CC Docket No. 96-45, Eleventh Report
    and Order, 15 FCC Rcd 12962, 12991, para. 76 (*CALLS Order*)
    (subsequent history omitted). In that Order, the Commission
    acknowledged the inefficiencies and increased transactional costs
    associated with assessing interexchange carriers based on
    presubscribed lines. *Id*. at 12991-94, paras. 76-81.

[^188]: *See, e.g.,* Sprint Reply Comments at 18-19.

[^189]: *See* CoSUS Reply Comments at 31.

[^190]: *See* SBC Comments at 11.

[^191]: Under these alternatives, CMRS providers would be assessed
    purely on a connection basis.

[^192]: *See SBC/BellSouth Nov. 5 Ex Parte*.

[^193]: For switched connections, the number of access and transport
    connections would be the same.

[^194]: Half the switched connection assessment would equal 12 times the
    projected switched capacity units times the assessment rate, divided
    by 2.

[^195]: *See id*.

[^196]: *Id.*

[^197]: *See supra* paras. 3-4.

[^198]: *See AT&T Oct. 22 Ex Parte*; *Ad Hoc Oct. 3 Ex Parte*. "Assigned
    numbers" are defined as "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 ...."
    *See* 47 C.F.R. § 52.15(f)(1)(iii).

[^199]: *See AT&T Oct. 22 Ex Parte*; *Ad Hoc Oct. 3 Ex Parte*.

[^200]: *See, e.g.,* Verizon Wireless Comments at 7-9; 47 U.S.C. §
    2(b)(1) ("\[N\]othing in this Act shall be construed to apply or to
    give the Commission jurisdiction with respect to (1) charges,
    classifications, practices, services, facilities, or regulations for
    or in connection with intrastate communication service by wire or
    radio of any carrier . . . .").

[^201]: *See* 47 U.S.C. § 251(e)(1) ("The Commission shall have
    exclusive jurisdiction over those portions of the North American
    Numbering Plan that pertain to the United States.") *See also AT&T
    Oct. 22 Ex Parte*.

[^202]: *See supra* at paras. 78, 80.

[^203]: *See AT&T Oct. 22 Ex Parte.*

[^204]: A toll-free number has working status if it is "loaded in the
    Service Control Points and is being utilized to complete toll free
    service calls." *See* 47 C.F.R. § 52.105(a)(9). A toll-free number
    is assigned when it has "specific subscriber routing information
    entered by the Responsible Organization in the Service Management
    System database and is pending activation in the Service Control
    Points." *See* 47 C.F.R. § 52.103(a)(1).

[^205]: A Responsible Organization is the "entity chosen by a toll-free
    subscriber to manage and administer the appropriate records in the
    toll free Service Management System for the toll free subscriber."
    *See* 47 C.F.R. § 52.101(b).

[^206]: *See Ad Hoc Oct. 3 Ex Parte* at 3 n.7.

[^207]: *See supra* para. [37](#_Ref23674832).

[^208]: *See* 47 C.F.R. § 52.15(f)(6).

[^209]: *Id.*

[^210]: *See* 5 U.S.C. § 603. The RFA, *see* 5 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 (SBREFA).

[^211]: *See* *First Further Notice*, 17 FCC Rcd at 3808-18, paras.
    131-161.

[^212]: *See* 5 U.S.C. § 604.

[^213]: *See supra* paras. 21-24.

[^214]: *Id*. at paras. 25-27.

[^215]: *Id*. at paras. 29-32.

[^216]: *See generally* discussion *supra* at Part III.B.

[^217]: *See, e.g.,* Allied Comments at 2-4; ASCENT Reply Comments at
    2-4; Beacon Comments at 5; ITA Reply Comments at 4.

[^218]: *See, e.g.*, CPUC Comments at 14; CU et al. Comments at 20-21;
    NASUCA Comments at 17; Texas Reply Comments at 2.

[^219]: *See, e.g.*, AAPC Comments at 10; Allied Comments at 9; ITA
    Reply Comments at 6-7; NECA Comments at 7-8; Teletouch Comments at
    10.

[^220]: *See* *infra* paras. 137-140.

[^221]: *See generally* discussion *supra* Part III.A.

[^222]: *Id*. at Part III.B.

[^223]: *Id*. at Part III.A.

[^224]: 5 U.S.C. § 604(a)(3).

[^225]: 5 U.S.C. § 601(6).

[^226]: 5 U.S.C. § 601(4).

[^227]: U.S. Department of Commerce, Bureau of the Census, 1992 Economic
    Census, Table 6 (special tabulation of data under contract to the
    Office of Advocacy of the U.S. Small Business Administration).

[^228]: 47 C.F.R. § 1.1162.

[^229]: 5 U.S.C. § 601(5).

[^230]: U.S. Department of Commerce, Bureau of the Census, 1992 Census
    of Governments.

[^231]: *Id*.

[^232]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    \"small business concern\" in 5 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 in the Federal Register.\"

[^233]: 15 U.S.C. § 632.

[^234]: *Id*.

[^235]: *See* Letter from Jere W. Glover, Chief Counsel for Advocacy,
    SBA, to Chairman William E. Kennard, Federal Communications
    Commission (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) (Small Business Act); 5 U.S.C. § 601(3) (RFA). SBA
    regulations interpret \"small business concern\" to include the
    concept of dominance on a national basis. 13 C.F.R. § 121.102(b).

[^236]: For the limited purposes of this FRFA, we will use the term
    "Wired Telecommunications Carriers" to connote wireline carriers and
    service providers.

[^237]: 13 C.F.R. § 121.201, North American Industry Classification
    System (NAICS) code 513310.

[^238]: U.S. Census Bureau, 1997 Economic Census, Subject Series:
    Information, "Employment Size of Firms Subject to Federal Income
    Tax: 1997," Table 5, NAICS code 513310 (issued Oct. 2000).

[^239]: *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 "Firms with 1,000
    employees or more."

[^240]: NAICS code 513310.

[^241]: 13 C.F.R. § 121.201, NAICS codes 513310 and 513330.

[^242]: FCC, Wireline Competition Bureau, Industry Analysis and
    Technology Division, Trends in Telephone Service (May 2002),
    (*Trends in Telephone Report*) at Table 16.3. The total for
    resellers includes both toll resellers and local resellers. The
    category for CAPs also includes competitive local exchange carriers
    (CLECs).

[^243]: *See Trends in Telephone Report* at Table 5.3.

[^244]: 13 C.F.R. § 121.201, NAICS codes 517211 and 517212.

[^245]: *Trends in Telephone Report* at Table 5.3.

[^246]: *Id*.

[^247]: *See* *Amendment of Parts 20 and 24 of the Commission's Rules --
    Broadband PCS Competitive Bidding and the Commercial Mobile Radio
    Service Spectrum Cap*, Report and Order, WT Docket No. 96-59,
    *Report and Order*, 11 FCC Rcd 7824, paras. 57-60 (1996), 61 Fed.
    Reg. 33859 (July 1, 1996); *see also* 47 C.F.R. § 24.720(b).

[^248]: *See* *Amendment of Parts 20 and 24 of the Commission's Rules --
    Broadband PCS Competitive Bidding and the Commercial Mobile Radio
    Service Spectrum Cap*, Report and Order, WT Docket No. 96-59, 11 FCC
    Rcd 7824, paras. 57-60 (1996), 61 Fed. Reg. 33859 (July 1, 1996).

[^249]: *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, 5581-84, paras. 115-17
    (1994).

[^250]: 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), 62 Fed. Reg. 55348 (Oct. 24, 1997).

[^251]: *Amendment of the Commission's Rules to Establish New Personal
    Communications Services, Narrowband PCS,* Docket No. ET 92-100,
    Docket No. PP 93-253, Second Report and Order and Second Further
    Notice of Proposed Rulemaking, 15 FCC Rcd 10456 (2000).

[^252]: 47 C.F.R. § 90.814.

[^253]: The service is defined in section 22.99 of the Commission\'s
    Rules. 47 C.F.R. § 22.99.

[^254]: BETRS is defined in sections 22.757 and 22.759 of the
    Commission\'s Rules. 47 C.F.R. §§ 22.757, 22.759.

[^255]: 13 C.F.R. § 121.201, NAICS codes 513321, 513322.

[^256]: The service is defined in section 22.99 of the Commission\'s
    Rules. 47 C.F.R. § 22.99.

[^257]: 13 C.F.R. § 121.201, NAICS codes 513321, 513322.

[^258]: *See* *supra* paras. 29-32.

[^259]: *Id*. at paras. 33-37.

[^260]: *Id*. at para. 34.

[^261]: We also note that persons willfully making false statements in
    the Worksheets can be punished by fine or imprisonment under title
    18 of the United States Code. *See* 18 U.S.C. § 1001.

[^262]: 5 U.S.C. § 603(c)(1)-(4).

[^263]: *See supra* para. 2; s*ee generally* discussion *supra* at Part
    III.B.

[^264]: *See, e.g.*, Allied Comments at 9; CPC Comments at 14-15; ITA
    Reply Comments at 6-7; NECA Comments 7-8.

[^265]: *See generally* discussion *supra* at Part III.

[^266]: *See* 5 U.S.C. § 801(a)(1)(A).

[^267]: *See* 5 U.S.C. § 604(b).

[^268]: *See* 47 U.S.C. §§ 201, 202, 254.

[^269]: 47 U.S.C. § 254(b).

[^270]: 47 U.S.C. § 254(d). *See also* 47 U.S.C. § 254(b)(4), (5)
    (providing that Commission policy on universal service shall be
    based, in part, on the principles that contributions should be
    equitable and nondiscriminatory, and support mechanisms should be
    specific, predictable, and sufficient). The Commission adopted the
    additional principle that federal support mechanisms should be
    competitively neutral, neither unfairly advantaging nor
    disadvantaging particular service providers or technologies. *See
    Universal Service Order*, 12 FCC Rcd at 8801-03, paras. 46-51.

[^271]: *See generally* discussion *supra* at Parts I & III.

[^272]: *See supra* paras. 3-4.

[^273]: *See supra* at Part IV.

[^274]: 5 U.S.C. § 604(a)(3).

[^275]: 5 U.S.C. § 601(6).

[^276]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    \"small business concern\" in 5 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 in the Federal Register.\"

[^277]: 15 U.S.C. § 632.

[^278]: *See supra* paras. 108-115.

[^279]: *See supra* at paras. 77-78.

[^280]: *Id*.

[^281]: 5 U.S.C. § 603(c).

[^282]: *See generally* discussion *supra* at Part I.

[^283]: *See generally* discussion *supra* at Part IV.

[^284]: ^?^ *See* Electronic Filing of Documents in Rulemaking
    Proceedings, 63 Fed. Reg. 24,121 (1998).

[^285]: *See generally* 47 C.F.R. §§ 1.1202, 1.1203, 1.1203, and 1.1206.

[^286]: 47 U.S.C. §§ 151 *et seq*.

[^287]: On March 9, 2001, the Commission modified its rules to base
    universal service contributions on information reported on quarterly
    Telecommunications Reporting Worksheet filings, with an annual
    true-up based on information reported on annual Telecommunications
    Reporting Worksheets. *Federal-State Joint Board on Universal
    Service; Petition for Reconsideration filed by AT&T*, CC Docket No.
    96-45, FCC 01-85 (rel. Mar. 14, 2001). *See* also *1998 Biennial
    Regulatory Review \-- Streamlined Contributor Reporting Requirements
    Associated with Administration of Telecommunications Relay Services,
    North American Numbering Plan, Local Number Portability, and
    Universal Service Support Mechanisms*, Report and Order, FCC 99-175,
    CC Docket No. 98-171 (rel. Jul. 14, 1999) (*Contributor Reporting
    Requirements Order*).

[^288]: For this purpose, the United States is defined as the contiguous
    United States, Alaska, Hawaii, American Samoa, Baker Island, Guam,
    Howland Island, Jarvis Island, Johnston Atoll, Kingman Reef, Midway
    Island, Navassa Island, the Northern Mariana Islands, Palmyra,
    Puerto Rico, the U.S. Virgin Islands, and Wake Island.

[^289]: Section 254(d) applies not only to "every telecommunications
    carrier that provides interstate telecommunications *services*" but
    also to certain "other provider\[s\] of interstate
    telecommunications." 47 U.S.C. § 254(d) (emphasis added). Solely for
    the purposes of these Instructions, we use the terms
    "telecommunications services" and "telecommunications"
    interchangeably, unless otherwise specified. For more information on
    these terms, s*ee* 47 U.S.C. §§ 3(43), (46); *Federal-State Joint
    Board on Universal Service*, CC Docket No. 96-45, Report and Order,
    12 FCC Rcd 8776 (1997) (Universal Service Order).

[^290]: 47 C.F.R. § 54.708. *See also* Figure 1.

[^291]: 47 C.F.R. § 54.708.

[^292]: *Federal‑State Joint Board on Universal Service, 1998 Biennial
    Regulatory Review ‑ Streamlined Contributor Reporting Requirements
    Associated with Administration of Telecommunications Relay Service,
    North American Numbering Plan, Local Number Portability, and
    Universal Service Support Mechanisms, Telecommunications Services
    for Individuals with Hearing and Speech Disabilities, and the
    Americans With Disabilities Act of 1990, Administration of the North
    American Numbering Plan and North American Numbering Plan Cost
    Recovery Contribution Factor and Fund Size, Number Resource
    Optimization, Telephone Number Portability, Truth‑in‑Billing and
    Billing Format*, 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, FCC 02‑43 (rel. Feb. 26, 2002).

[^293]: A CMRS carrier that is not subject to certain slamming
    regulations is not required to certify that it will document and
    resolve all slamming complaints that might be served on either the
    filing entity or any of its affiliated legal entities that also are
    not subject to the slamming regulations.

[^294]: For purposes of this certification, the term \"insolvent\" means
    either unable to pay debts when due or having liabilities greater
    than assets. *See* 11 U.S.C. § 101(32).

[^295]: *See* 47 C.F.R. § 54.713.

[^296]: *See* Section II-B, page 6, for information on making
    consolidated filings.

[^297]: *See* 47 U.S.C. § 153(1).

[^298]: *See also* Section II-E, above.

[^299]: *See* 47 C.F.R. § 36.154(a).

[^300]: *Federal-State Joint Board on Universal Service*, Memorandum
    Opinion and Order and Further Notice of Proposed Rulemaking, CC
    Docket No. 96-45, 13 FCC Rcd 21252, 21258-60 (1998); *Federal-State
    Joint Board on Universal Service 1998 Biennial Regulatory Review on
    Streamlined Contributor Reporting Requirements* Report and Order and
    Second Further Notice of Proposed Rulemaking, FCC 02-329 (rel. Dec.
    13, 2002) (*Contribution Methodology Order*).

[^301]: *Federal-State Joint Board on Universal Service*, Memorandum
    Opinion and Order and Further Notice of Proposed Rulemaking, CC
    Docket No. 96-45, 13 FCC Rcd 21252, 21258-60 (1998); *Contribution
    Methodology Order*, para 32.

[^302]: General Accepted Accounting Principles (GAAP) encompasses the
    conventions, rules, and procedures necessary to define accepted
    practice in the preparation of financial statements in the United
    States. The Financial Accounting Standards Board (FASB) is currently
    the primary authority to establish GAAP for all companies. Carriers
    subject to the Uniform System of Accounts would derive this figure
    from the amount recorded in Account 5301, Uncollectible Revenue -
    Telecommunications.

[^303]: *See* Telecommunications Reporting Worksheet, FCC Form 499-A,
    OMB 3060-0855 (February 2002) (FCC Form 499-A).

[^304]: 47 C.F.R. § 0.459. *See also* *Examination of Current Policy
    Concerning the Treatment of Confidential Information Submitted to
    the Commission*, Report and Order, FCC 98-184, GC Docket No. 96-55
    (rel. Aug. 1998) (listing the showings required in a request that
    information be withheld and stating that the Commission may defer
    action on such requests until a formal request for public inspection
    has been made).

[^305]: *See* 18 U.S.C. § 1001.

[^306]: *See* Section II-E.

[^307]: Others argue that we should preserve a revenue-based methodology
    *without* assessing the telecommunications functionality underlying
    information services, but that would seem to be a recipe for
    sky-high contribution factors going forward.

[^308]: *Deployment of Services Offering Advanced Telecommunications
    Capability*, CC Docket No. 98-147, Second Report and Order, 14 FCC
    Rcd 19237 (1999) (*AOL Bulk Services Order*).

[^309]: *See* Appendix A. Separate Statement of Commissioner Kevin J.
    Martin, Federal-State Joint Board on Universal Service, Further
    Notice of Proposed Rulemaking and Report and Order, CC Docket 96-45,
    *et. al* (rel. February 14, 2002; Separate Statement of Commissioner
    Kevin J. Martin, Federal-State Joint Board on Universal Service, CC
    Docket No. 96-45 (rel. June 13, 2002); Separate Statement of
    Commissioner Kevin J. Martin, Schools and Libraries Universal
    Service Support Mechanism: CC Docket No. 02-6 (rel. June 13, 2002).

[^310]: See Separate Statement of Commissioner Kevin J. Martin,
    Federal-State Joint Board on Universal Service: CC Docket No. 96-45
    (rel. June 13, 2002).