**DA06-2506**

**Released: December 13, 2006**

**Proposed First Quarter 2007 Universal Service Contribution Factor**

CC Docket No. 96-45

In this Public Notice, the Office of Managing Director (OMD) announces
that the proposed universal service contribution factor for the first
quarter of 2007 will increase to 0.097 or 9.7 percent.[^1]

**[Rules for Calculating the Contribution Factor]{.underline}**

Contributions to the federal universal service support mechanisms are
determined using a quarterly contribution factor calculated by the
Federal Communications Commission (Commission).[^2] The Commission
calculates the quarterly contribution factor based on the ratio of total
projected quarterly costs of the universal service support mechanisms to
contributors' total projected collected end-user interstate and
international telecommunications revenues, net of projected
contributions.[^3]

**[USAC Projections of Demand and Administrative Expenses]{.underline}**

Pursuant to section 54.709(a)(3) of the Commission's rules,[^4] the
Universal Service Administrative Company (USAC) submitted projections of
demand and administrative expenses for the first quarter of 2007.[^5]
Accordingly, the projected demand and expenses are as follows:

(\$ millions)

+----------------+----------+--------+----------+----------+----------+
| Program Demand | P        | Admin. | App      | App      | Total    |
|                | rojected | Ex     | lication | lication | Program  |
|                | Program  | penses |          | of       | Co       |
|                | Support  |        | Of       | Periodic | llection |
|                |          |        | Interest | True-Ups |          |
|                |          |        | Income   |          |          |
+----------------+----------+--------+----------+----------+----------+
| Schools and    | 540.935  | 21.565 | -37.527  | -70.037  | 454.936  |
| Libraries      |          |        |          |          |          |
+----------------+----------+--------+----------+----------+----------+
| Rural Health   | 39.440   | 1.874  | -0.729   | -2.919   | 37.666   |
| Care           |          |        |          |          |          |
+----------------+----------+--------+----------+----------+----------+
| High-Cost      | 1        | 7.928  | -8.975   | -104.433 | 960.613  |
|                | ,066.093 |        |          |          |          |
+----------------+----------+--------+----------+----------+----------+
| Low Income     | 203.657  | 2.407  | -3.592   | -33.901  | 168.571  |
+----------------+----------+--------+----------+----------+----------+
| TOTAL          | 1        | 33.774 | -50.823  | -211.290 | 1        |
|                | ,850.125 |        |          |          | ,621.786 |
+----------------+----------+--------+----------+----------+----------+

**[USAC Projections of Industry Revenues]{.underline}**

USAC submitted projected collected end-user telecommunications revenues
for January through March 2007 based on information contained in the
First Quarter 2007 Telecommunications Reporting Worksheet (FCC Form
499-Q).[^6] The amount is as follows:

> Total Projected Collected Interstate and International End-User
> Telecommunications Revenues for First Quarter 2007: \$18.549119
> billion.

**[Adjusted Contribution Base]{.underline}**

To determine the quarterly contribution base, we decrease the first
quarter 2007 estimate of projected collected interstate and
international end-user telecommunications revenues by the projected
revenue requirement to account for circularity, and decrease the result
by one percent to account for uncollectible contributions. Accordingly,
the quarterly contribution base for the first quarter of 2007 is as
follows:

Adjusted Quarterly Contribution Base for Universal Service Support
Mechanism

> First Quarter 2007 Revenues - Projected Revenue Requirement - 1%
>
> (\$18.549119 billion -- \$1.621786 billion) \* 0.99
>
> \$16.758060 billion.

**[Unadjusted Contribution Factor]{.underline}**

Using the above-described adjusted contribution base and the total
program collection requirement from the table above, the proposed
unadjusted contribution factor for the first quarter of 2007 is as
follows:

> Contribution Factor for Universal Service Support Mechanisms
>
> Total Program Collection / Adjusted Quarterly Contribution Base
>
> \$1.621786 billion / \$16.758060 billion
>
> 0.096776
>
> .

**[Unadjusted Circularity Factor]{.underline}**

USAC will reduce each provider's contribution obligation by a
circularity discount approximating the provider's contributions in the
upcoming quarter. Accordingly, the proposed unadjusted circularity
factor for the first quarter of 2007 is as follows:

Unadjusted Circularity Factor for Universal Service Support Mechanisms

1 - ((First Quarter 2007 Revenues - Total Program Collection) / First

> Quarter 2007 Revenues)
>
> 1 -- ((\$18.549119 - \$1.621786) / \$18.549119 billion)

0.087432.

**[Proposed Contribution Factor]{.underline}**

The Commission has directed OMD to announce the contribution factor as a
percentage rounded to the nearest tenth of one percent.[^7] Accordingly,
the proposed contribution factor for the first quarter of 2007 is as
follows:

9.7

**[Proposed Circularity Factor]{.underline}**

The Commission also has directed OMD to account for contribution factor
rounding when calculating the circularity discount factor.[^8]
Accordingly, the proposed circularity factor for the first quarter of
2007 is as follows:

0.089535[^9]

**[Conclusion]{.underline}**

If the Commission takes no action regarding the projections of demand
and administrative expenses and the proposed contribution factor within
the 14-day period following release of this Public Notice, they shall be
deemed approved by the Commission.[^10] USAC shall use the contribution
factor to calculate universal service contributions for the first
quarter of 2007. USAC will reduce each provider's contribution
obligation by a circularity discount approximating the provider's
contributions in the upcoming quarter.[^11] USAC includes contribution
obligations less the circularity discount in invoices sent to
contributors. Contribution payments are due on the dates shown on the
invoice. Contributors will pay interest for each day for which the
payments are late. Contributors failing to pay contributions in a timely
fashion may be subject to the enforcement provisions of the
Communications Act of 1934, as amended, and any other applicable law. In
addition, contributors may be billed by USAC for reasonable costs of
collecting overdue contributions.[^12]

We also emphasize that carriers may not mark up federal universal
service line-item amounts above the contribution factor.[^13] Thus,
carriers may not, during the first quarter of 2007, recover through a
federal universal service line item an amount that exceeds 9.7 percent
of the interstate telecommunications charges on a customer's bill.

For further information, contact Kim Yee in Financial Operations, Office
of Managing Director, at (202) 418-0805, TTY (202) 418-0484.

![](media/image2.wmf){width="6.944444444444445e-4in"
height="6.944444444444445e-4in"}

[^1]: *See* 47 C.F.R. § 54.709(a).

[^2]: *See id.*

[^3]: *See* 47 C.F.R. § 54.709(a)(2).

[^4]: 47 C.F.R. § 54.709(a)(3).

[^5]: *See* Federal Universal Service Support Mechanisms Fund Size
    Projections for the First Quarter 2007, available at
    \<http://www.universalservice.org/overview/ filings\> (filed
    November 2, 2006) (*USAC Filing for First Quarter 2007
    Projections*). *See also* Federal Universal Service Support
    Mechanisms Quarterly Contribution Base for the First Quarter 2007,
    available at \<http://www.universalservice.org/overview/ filings\>
    (filed December 1, 2006) (*USAC Filing for First Quarter 2007
    Contribution Base*).

[^6]: *USAC Filing for First Quarter 2007 Contribution Base* at 6.

[^7]: *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, Order and Second Order on Reconsideration,
    18 FCC Rcd 4818, 4826, para. 22 (2003) (*Second Order on
    Reconsideration)*.

[^8]: *Id*.

[^9]: The proposed circularity discount factor = 1 + \[(unadjusted
    circularity discount factor -- 1) \* (unadjusted contribution factor
    / proposed contribution factor)\]. The proposed circularity discount
    factor is calculated in a spreadsheet program, which means that
    internal calculations are made with more than 15 decimal places.

[^10]: *See* 47 C.F.R. § 54.709(a)(3).

[^11]: USAC will calculate each individual contributor's contribution in
    the following manner: (proposed contribution factor \* contributor's
    projected collected revenues) -- (proposed circularity discount
    factor \* proposed contribution factor \* contributor's projected
    collected revenues).

[^12]: *See* 47 C.F.R. § 54.713.

[^13]: *See* 47 C.F.R. § 54.712.