**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

+----------------------------------+----+------------------------------+
| In the Matter of                 | *  | WC Docket No. 05-337         |
|                                  | *) |                              |
| Iowa Telecom Petition for        | ** |                              |
| Forbearance Under                |    |                              |
|                                  | *  |                              |
| 47 U.S.C. § 160(c) from the      | *) |                              |
| Universal Service High-Cost Loop | ** |                              |
| Support Mechanism                |    |                              |
|                                  | *  |                              |
|                                  | *) |                              |
|                                  | ** |                              |
|                                  |    |                              |
|                                  | *  |                              |
|                                  | *) |                              |
|                                  | ** |                              |
|                                  |    |                              |
|                                  | *  |                              |
|                                  | *) |                              |
|                                  | ** |                              |
+----------------------------------+----+------------------------------+

**ORDER**

**Adopted: August 6, 2007 Released: August 6, 2007**

By the Commission:

# introduction

1.  In this Order, we deny a petition filed by Iowa Telecommunications
    Services, Inc. (Iowa Telecom, or Petitioner) requesting that the
    Commission forbear from enforcing certain sections of the
    Commission's rules to permit Iowa Telecom to be eligible for
    high-cost universal service support under the non-rural mechanism,
    rather than under the high-cost loop support mechanism for rural
    carriers.[^1] Specifically, the Petitioner requests that the
    Commission forbear from enforcing sections 36.601-36.631, 54.305,
    54.309, 54.313, and 54.314 of the Commission's rules to the extent
    necessary to permit Iowa Telecom to be eligible for high-cost
    universal service support based on its network's forward-looking
    economic costs.[^2] For the reasons set forth below, we find that
    the requested forbearance would not give Iowa Telecom the relief it
    seeks, and that it fails to satisfy the requirements of section 10
    of the Communications Act of 1934, as amended (the Act).[^3] We
    therefore deny Iowa Telecom's Forbearance Petition.

# background

2.  The Telecommunications Act of 1996 (1996 Act)[^4] codified the
    Commission's historical commitment to promote universal service of
    telecommunications services to all Americans.[^5] In section 254 of
    the Act, Congress instructed the Commission, after consultation with
    the Federal-State Joint Board on Universal Service (Joint Board), to
    establish specific, predictable, and sufficient support mechanisms
    to preserve and advance universal service.[^6] In addition, Congress
    articulated a national goal that consumers in all regions of the
    nation, including rural, insular, and high-cost areas, should have
    access to telecommunications and information services at rates that
    are reasonably comparable to rates charged for similar services in
    urban areas.[^7]

3.  In implementing the universal service provisions of the Act, and in
    particular the high-cost support mechanism, the Joint Board and the
    Commission have consistently recognized that rural carriers face
    diverse circumstances and that "one size does not fit all."[^8] When
    the Commission determined, in the 1997 *Universal Service First
    Report and Order*, that high-cost universal service support should
    be based on the forward-looking economic cost of constructing and
    operating the network facilities and functions used to provide the
    supported services, it also determined that rural carriers' support
    would not begin to be based on forward-looking economic cost until
    further review.[^9] In reaching this conclusion, the Commission
    recognized, consistent with the Joint Board's recommendation, that,
    compared to the large non-rural carriers, rural carriers generally
    serve fewer subscribers, serve more sparsely populated areas, and
    generally do not benefit as much as non-rural carriers do from
    economies of scale and scope.[^10] The Commission determined that
    rural carriers would begin receiving support based on
    forward-looking economic costs "only when \[the Commission has\]
    sufficient validation that forward-looking support mechanisms for
    rural carriers produce results that are sufficient and
    predictable."[^11]

4.  In the 1999 *Ninth Report and Order*, the Commission adopted a
    universal service support mechanism based on forward-looking
    economic costs for non-rural carriers.[^12] Rather than attempting
    to modify the forward-looking economic cost mechanism, the Rural
    Task Force, which was appointed to consider the appropriate
    mechanism for rural carriers, recommended the continued use of
    embedded costs to determine high-cost support for rural carriers for
    a five-year period.[^13] Based on these recommendations, and those
    of the Joint Board,[^14] the Commission adopted a modified embedded
    cost mechanism for a five-year period in the 2001 *Rural Task Force
    Order*.[^15] In the 2004 *Rural Referral Order*, the Commission
    asked the Joint Board to review the Commission's rules relating to
    the high-cost universal service support mechanisms for rural
    carriers and to determine the appropriate rural mechanism to succeed
    the plan adopted in the *Rural Task Force Order*.[^16] In May 2006,
    the Commission extended the high-cost universal service support
    rules adopted in the *Rural Task Force Order* on an interim basis
    until the Commission concludes its rural review proceeding and
    adopts changes, if any, to those rules.[^17] The Joint Board
    recently sought comment on various proposals for rural high-cost
    support reform and plans to make further recommendations regarding
    comprehensive high-cost universal service reform by November 1,
    2007.[^18]

5.  Iowa Telecom is a rural, price-cap local exchange carrier (LEC)
    serving approximately 250,000 lines in Iowa, which acquired its
    exchanges from GTE in 2000.[^19] Currently, Iowa Telecom receives
    interstate access support (IAS), but does not receive any other
    high-cost support, except for the support received by its separately
    operated Montezuma Mutual Telephone Company (Montezuma).[^20] Iowa
    Telecom claims that providing high-cost support to Iowa Telecom
    based upon embedded cost-based methodologies undermines section
    254's universal service goals, because the low embedded cost of the
    network Iowa Telecom acquired from GTE in 2000 results in zero
    high-cost loop support for Iowa Telecom.[^21] Iowa Telecom asserts
    that it invested nearly \$32 million in 2001, another \$34 million
    in 2002, and additional amounts in subsequent years, but
    nevertheless received no safety valve support because its historical
    costs remain too low to qualify for support.[^22]

6.  On May 8, 2006, Iowa Telecom filed a petition asking the Commission
    to forbear from enforcing sections 36.601-36.631, 54.305, 54.309,
    54.313, and 54.314 of the Commission's rules to the extent necessary
    to permit Iowa Telecom to be eligible for high-cost universal
    service support based on its network's forward-looking economic
    costs and on the non-rural mechanism.[^23] Iowa Telecom requests
    that forbearance be effective "until such time as the FCC adopts a
    final successor regime to the *Rural Task Force Order* that allows
    Iowa Telecom to receive loop support based on its network's
    forward-looking economic costs."[^24] On April 6, 2007, pursuant to
    section 10(c) of the Act, the Wireline Competition Bureau (Bureau)
    extended by ninety days, to August 6, 2007, the date by which Iowa
    Telecom's forbearance petition shall be deemed granted in the
    absence of a Commission decision that the Petition fails to meet the
    standard for forbearance under section 10(a) of the Act.[^25]

# discussion

## General Basis for Denial

7.  As an initial matter, we conclude that forbearance from rules
    36.601-36.631, 54.305, 54.309, 54.313, and 54.314 would not give the
    Petitioner the relief it seeks. Iowa Telecom seeks to use section 10
    forbearance to create a new category of high-cost universal service
    support, i.e., support for a rural carrier receiving high-cost
    universal service support based on its forward-looking economic
    costs under the non-rural mechanism.[^26] Section 10 is not the
    proper procedural device to request such relief. First, forbearance
    from these rules would not result in Iowa Telecom receiving support
    under the non-rural mechanism. Second, contrary to Iowa Telecom's
    contention, the non-rural high-cost support mechanism is not a
    default rule of general applicability, and the Joint Board and the
    Commission have never found that the current non-rural
    forward-looking cost model should be used to determine rural
    carriers' high-cost support.[^27] We therefore deny the Forbearance
    Petition.

8.  Forbearance from the rules identified by Petitioner would not result
    in it receiving high-cost support under the non-rural mechanism.
    Section 54.305 provides that a carrier acquiring exchanges from an
    unaffiliated carrier shall receive the same per-line levels of
    high-cost universal service support for which the acquired exchanges
    were eligible prior to their transfer.[^28] Since GTE did not
    receive high-cost support in Iowa at the time of the acquisition,
    Iowa Telecom is similarly not eligible for support, consistent with
    this rule. Forbearance from section 54.305, however, would not
    provide Petitioner with high-cost loop support as long as its costs
    remain too low to qualify under the rural support mechanism,[^29]
    nor would it move Iowa Telecom from the rural support mechanism to
    the non-rural support mechanism. Sections 36.601-36.631 of the
    Commission's rules specify the method for calculating high-cost loop
    support for rural carriers.[^30] Forbearing from these rules would
    not provide Iowa Telecom with high-cost support under the non-rural
    mechanism, which is calculated and distributed pursuant to section
    54.309, and from which Iowa Telecom also asks us to forbear.[^31]
    Sections 36.611 and 36.612 require rural and non-rural incumbent
    LECs to file certain line count information upon which support is
    based.[^32] If the Commission were to forbear from these
    requirements, the line count data needed to calculate support for
    Iowa Telecom under the non-rural mechanism pursuant to section
    54.309 would not be available.[^33] Sections 54.313 and 54.314
    require states that want non-rural and rural carriers, respectively,
    to receive support to certify that support provided to carriers
    within their jurisdiction will be used only for the provision,
    maintenance, and upgrading of facilities and services for which the
    support is intended.[^34] Forbearing from these sections would allow
    Iowa Telecom to receive support without state certification, but
    would have no effect on what type of support, rural or non-rural,
    Iowa Telecom would be eligible to receive. In sum, forbearing from
    these rules would simply create a vacuum rather than enabling Iowa
    Telecom to receive support under the non-rural mechanism.[^35]

9.  Additionally, we do not agree with Iowa Telecom's contention that
    the non-rural mechanism is a default rule of general applicability,
    and that, if the rural high-cost support rules did not apply to Iowa
    Telecom, it would automatically receive support under the non-rural
    mechanism. In particular, Iowa Telecom seeks forbearance from "the
    current universal service carve-out for rural carriers to permit
    receipt of support available to all other carriers under the default
    non-rural mechanism."[^36] Iowa Telecom claims that the rural
    high-cost support mechanism based on embedded costs is an exception
    to the general Commission policy that universal service support
    should be based on forward-looking economic costs, and that it seeks
    forbearance to allow the default rule of general applicability to
    apply.[^37] We find Petitioner's argument unpersuasive.

10. Iowa Telecom's claim that support based on forward-looking economic
    cost is "a cornerstone" of the Commission's universal service reform
    efforts reflects general policy goals that were originally set forth
    a decade ago, but have not as of yet been implemented for rural
    carriers.[^38] Iowa Telecom claims that the Commission, in the
    *First Universal Service Report and Order*, "establish\[ed\] that
    the level of support for service to a particular customer will
    ultimately be determined based upon the forward-looking economic
    cost of constructing and operating the network facilities and
    functions used to provide that service."[^39] Iowa Telecom argues
    that the Commission reiterated in the *Rural Task Force Order* that
    "rural carriers would shift gradually to a forward-looking economic
    cost methodology,"[^40] and again intimated in the *Rural Referral
    Order* that "support based on forward-looking economic cost
    estimates, rather than embedded costs, would send the correct
    signals for entry, investment, and innovation."[^41] Both of these
    references, however, are in background sections describing the
    Commission's previous statements.

11. Moreover, Iowa Telecom ignores the fact that the Commission has not
    as of yet adopted a forward-looking cost standard to determine rural
    carriers' support because of concerns regarding the ability of
    existing forward-looking cost mechanisms to accurately predict the
    cost of serving rural areas,[^42] and the lack of suitable rural
    input values for use in any forward-looking mechanism.[^43] On a
    number of occasions, the Commission has found that the modified
    embedded cost rules for rural carriers continue to be
    reasonable.[^44] Further, the Joint Board sought comment on, and is
    considering, a number of reform proposals that would not use
    forward-looking economic costs to determine support.[^45] In
    addition, in response to the issues raised by the decision of the
    United States Court of Appeals for the Tenth Circuit (Tenth Circuit)
    in *Qwest II*, the Commission sought comment regarding a rate-based
    universal service support mechanism for non-rural carriers.[^46]
    Although the Commission has had a policy goal of moving carriers to
    a forward-looking economic cost support mechanism, it remains just
    that -- a goal. Thus, Iowa Telecom fails to persuade us that the
    Commission's non-rural support rules represent the default regime.

12. Accordingly, in light of the fact that forbearance from the rules
    identified by Petitioner would not result in it receiving support
    under the non-rural mechanism, and the fact that the non-rural
    mechanism is not a default rule of general applicability, we deny
    the Forbearance Petition.

## Application of the Section 10 Forbearance Criteria

13. We conclude that, even if forbearance would provide Iowa Telecom
    with the relief it is seeking, Iowa Telecom has failed to
    demonstrate that its forbearance request meets the requirements of
    section 10 of the Act.[^47] For the Commission to grant the
    forbearance requested by Iowa Telecom, we must determine that the
    elements of section 10 of the Act are satisfied. In particular,
    section 10(a) provides that:

    The Commission shall forbear from applying any regulation or any
    provision of this Act to a telecommunications carrier or
    telecommunications service, or class of telecommunications carriers
    or telecommunications services, in any or some of its or their
    geographic markets, if the Commission determines that --

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(1) enforcement of such regulation or provision is not necessary to
    ensure that the charges, practices, classifications or regulations
    by, for, or in connection with that telecommunications carrier or
    telecommunications service are just and reasonable, and are not
    unjustly or unreasonably discriminatory;

(2) enforcement of such regulation or provision is not necessary for the
    protection of consumers; and

(3) forbearance from applying such provision or regulation is consistent
    with the public interest.[^48]

    With regard to the public interest determination required by section
    10(a)(3), section 10(b) requires the Commission to "consider whether
    forbearance from enforcing the provision or regulation will promote
    competitive market conditions, including the extent to which such
    forbearance will enhance competition among providers of
    telecommunications services."[^49] Further, "\[i\]f the Commission
    determines that such forbearance will promote competition among
    providers of telecommunications services, that determination may be
    the basis for a Commission finding that forbearance is in the public
    interest."[^50]

### Sections 10(a)(2) and (3)

14. Iowa Telecom has failed to demonstrate that the high-cost universal
    service support rules are not necessary for the protection of
    consumers or that forbearance is in the public interest. On the
    contrary, we find, as explained below, that, although providing Iowa
    Telecom with high-cost support under the non-rural mechanism could
    potentially benefit some consumers in Iowa, doing so would harm
    consumers in ten other states that would lose support if we were to
    grant Iowa Telecom's request. We further find that forbearance would
    not serve the public interest because we do not find that the
    potential benefits to consumers in Iowa would outweigh the harm to
    consumers in the ten states that would lose support, and it is not
    clear to what extent Iowa consumers would benefit or the public
    interest would be served if we were to grant Iowa Telecom's request
    for relief. Finally, it is not in the public interest to provide
    Iowa Telecom with support under the non-rural mechanism due to data
    problems associated with applying the mechanism to Iowa Telecom.

15. A provision or regulation is "necessary" if there is a strong
    connection between the requirement and regulatory goal.[^51] In
    section 254(b) of the Act, Congress provided a list of principles
    upon which the Commission must base policies for the preservation
    and advancement of universal service.[^52] Among other things,
    section 254(b) provides that consumers in rural, insular, and
    high-cost areas should have access to telecommunications services at
    rates that are "reasonably comparable to rates charged for similar
    services in urban areas."[^53] Consistent with this statutory
    directive, the Commission's high-cost universal service rules are
    designed to ensure that consumers have access to telecommunications
    service in areas where the cost of such service otherwise might be
    prohibitively expensive.[^54]

16. Because rural carriers generally have higher operating and equipment
    costs, due to lower subscriber densities, small exchanges, and lack
    of economies of scale, the Commission determined that support for
    rural carriers should continue to be based on embedded costs, rather
    than forward-looking costs, for the duration of the *Rural Task
    Force Order* rules.[^55] The Commission found that "providing
    support based on embedded costs will provide important certainty to
    rural carriers, which generally receive a greater portion of their
    revenues from universal service support mechanisms than non-rural
    carriers."[^56] The modifications to the embedded cost mechanism
    proposed by the Rural Task Force and adopted by the Commission were
    "generally designed to provide carriers serving rural areas with
    increased incentives to invest in new infrastructure and
    technologies."[^57] Basing support on embedded costs allows rural
    LECs to receive more support if they increase their costs by
    investing in their networks. Therefore, unlike support based on
    forward-looking costs, the modified embedded cost mechanism provides
    more direct incentives to the rural LEC to invest.[^58]

17. To demonstrate that enforcement of the existing rules is not
    necessary to protect consumers, Iowa Telecom argues that "\[t\]he
    manner in which carriers are eligible to receive universal service
    high-cost loop support has no direct bearing on consumers, and,
    therefore, the application of the Commission's rural mechanism on
    Iowa Telecom is clearly not necessary for the protection of
    consumers."[^59] Iowa Telecom claims, however, that forbearing from
    applying the rural mechanism, and granting its request to receive
    support based on forward-looking costs, "would greatly benefit Iowa
    Telecom's consumer base."[^60]

18. Iowa Telecom argues that granting its request would serve the public
    interest by ensuring Iowa Telecom's "concerted investment in its
    network facilities and deployment of improved services can continue
    for the foreseeable future."[^61] Iowa Telecom asserts that it has
    no realistic opportunity under the rural mechanism to recoup its
    substantial expenses related to investing in historically
    under-invested communities that require significant capital
    outlays,[^62] but that "forward-looking economic cost-based support
    would provide incentives for Iowa Telecom and competitive carriers
    to invest in \[rural Iowa\] communities, and would send the
    appropriate entry and investment signals."[^63] Iowa Telecom
    estimates that it would be eligible to receive approximately \$22.2
    million annually under the non-rural mechanism, but that the total
    effect on the universal service fund would be an increase of only
    \$7.7 million due to offsetting reductions in support to other
    non-rural carriers.[^64]

19. First, we disagree with Iowa Telecom's contention that the manner in
    which carriers are eligible to receive universal service high-cost
    loop support has no direct bearing on consumers. Iowa Telecom
    estimates that, if it were to receive support under the non-rural
    mechanism, non-rural carriers currently receiving support under the
    non-rural mechanism in ten states would lose a total of
    approximately \$20.8 million.[^65] Under the non-rural mechanism,
    each state receives support to the extent that its statewide average
    forward-looking economic costs, as estimated by the Commission's
    cost model, exceed a benchmark of two standard deviations above the
    nationwide average.[^66] Currently, Iowa receives no non-rural
    support because Qwest, the only non-rural carrier in Iowa, does not
    have costs that exceed the benchmark. Including Iowa Telecom in the
    non-rural mechanism would increase the average cost in Iowa so that
    Qwest also would be eligible to receive support.[^67] Including Iowa
    Telecom in the non-rural mechanism also would raise the national
    average cost and increase the standard deviation, which would
    increase the benchmark.[^68] Because the average costs in the states
    currently receiving support would not change, they would have fewer
    costs above the higher benchmark and receive less support. As a
    result of these changes, Commission staff estimates that the
    following states would lose a total of approximately \$23.6 million
    in non-rural support: Mississippi (\$5.9 million), Alabama (\$5
    million), Kentucky (\$3.9 million), West Virginia (\$2.2 million),
    Nebraska (\$1.9 million), Maine (\$1.4 million), Montana
    (\$939,000),Vermont (\$838,000), Wyoming (\$770,000), and South
    Dakota (\$772,000).[^69] Consequently, consumers in these states
    would be affected adversely if the Commission were to forbear from
    applying the rural mechanism to Iowa Telecom and permit it to
    receive support under the non-rural mechanism.

20. Although consumers in Iowa may benefit if Iowa Telecom were to
    receive support under the non-rural mechanism and use the support to
    invest in its network, section 10(a)(2) of the Act requires that we
    consider the welfare of all consumers.[^70] State commissions in
    seven states that would lose support oppose Iowa Telecom's
    forbearance petition and assert that non-rural carriers and
    consumers in their states would be harmed.[^71] The states argue
    that granting the Forbearance Petition "will make support
    insufficient for other non-rural carriers to ensure their rates are
    reasonably comparable to urban rates nationwide and
    affordable."[^72] They estimate that "\[s\]ome states will lose a
    high percentage of their existing support." [^73] Mississippi claims
    that its carriers "will absorb a funding loss approaching five
    million dollars," if we grant Iowa Telecom's requested relief, and
    is even more concerned "that Mississippi and other state recipients
    of universal service high cost funding will suffer even larger
    losses if additional, similarly situated carriers apply for and
    receive similar treatment."[^74] Alabama claims that "the ongoing
    efforts of the affected carriers to make their rates reasonably
    comparable and affordable for rural subscribers will certainly be
    impeded."[^75] Because adding Iowa Telecom to the non-rural
    mechanism would result in carriers in the ten states that currently
    receive high-cost model support losing support, we find that many
    more consumers potentially would be harmed in those states than
    those who may be helped by a grant of Iowa Telecom's Forbearance
    Petition. Accordingly, we disagree with Petitioner that the
    application of the Commission's rural mechanism to Iowa Telecom is
    not necessary for the protection of consumers under section 10(a)(2)
    of the Act.

21. Second, we also conclude that granting forbearance in this instance
    would not be consistent with the public interest as required under
    section 10(a)(3) of the Act. Forbearance would not serve the public
    interest because, as discussed above, we do not find that the
    potential benefits to consumers in Iowa would outweigh the harm to
    consumers in the ten states that would lose support.

22. Moreover, it is not clear to what extent Iowa consumers or the
    public interest would benefit if Iowa Telecom were to receive
    support based on its forward-looking economic costs.[^76] Several
    states argue that providing Iowa Telecom with support based on its
    forward-looking costs "will actually *reduce* the company's
    incentives to invest," because under the rural mechanism high-cost
    loop support program, Iowa Telecom can increase its loop costs and
    become eligible for support.[^77] In contrast, they argue, providing
    Iowa Telecom with forward-looking support "will actually *eliminate*
    the existing incentives for investment," because "its subsequent
    investment, or lack thereof, would not affect its universal service
    support levels."[^78] We agree that support based on Iowa Telecom's
    own costs, rather than forward-looking costs, provides a more direct
    incentive for investment in network infrastructure.

23. In considering whether forbearance will promote competitive market
    conditions,[^79] we recognize that increasing support to Iowa
    Telecom could provide incentives to competitive eligible
    telecommunications carriers (ETCs) to enter the market in Iowa,
    because, under the "identical support" rule, competitive ETCs
    receive the same per-line support as the incumbent LECs.[^80] We do
    not find, however, that this potential increase in competition in
    Iowa outweighs the potential harm to consumers and to competitive
    ETCs in the ten states that would lose support. Indeed, under this
    same logic, competitive ETCs would lose incentives to enter or
    remain in markets in the ten states that would lose support. In
    addition, the Joint Board currently is considering whether the
    Commission should consider abandoning or modifying the identical
    support or portability rule.[^81] Finally, there is evidence that
    competitors have already entered Iowa Telecom's market to provide
    broadband service without receiving any universal service
    support.[^82]

24. We also find that it would not be in the public interest to provide
    Iowa Telecom with support under the non-rural mechanism due to data
    problems associated with applying the mechanism to Iowa Telecom.
    Based on record data, applying the high-cost model to determine Iowa
    Telecom's forward-looking costs would result in a significant data
    mismatch. The forward-looking cost estimates used to calculate
    support for non-rural carriers are based on model results using
    year-end 2002 line count data, and have been used to provide support
    since the beginning of 2004.[^83] Although the per-line support
    amounts are based on these cost estimates, total support amounts are
    adjusted to reflect the number of lines reported by non-rural
    carriers each quarter. Instead of using year-end 2002 line count
    data, Iowa Telecom used year-end 2004 line count data to estimate
    its forward-looking costs (presumably because this was the most
    recent data available when Iowa Telecom was creating its
    estimate).[^84] Non-rural carriers are required to file line count
    data at the wire center level for purposes of using the high-cost
    model to calculate support. As a rural carrier, Iowa Telecom is not
    required to file line count data at the wire center level,[^85] and
    did not provide (and would have had no reason to retain) its 2002
    line count data by wire center.[^86] Thus, relying on Petitioner's
    filing would result in the Commission mixing line count data from
    2002 and 2004, and determining support for all non-rural carriers
    based on this mismatched data.

25. Although the Commission could rerun the model for the non-rural
    carriers using year-end 2004 line count data, or could rerun the
    model for the non-rural carriers and Iowa Telecom using the most
    recent data, updating line counts without making other changes to
    the model raises significant issues.[^87] For example, in 2004, the
    Bureau sought comment on whether it would be appropriate to defer
    updating line counts until the Commission addresses issues raised by
    commenters in the past *Line Counts Update* proceedings.[^88] Unlike
    in previous years, in 2004 no commenter supported updating line
    counts, and all parties filing comments in that proceeding urged us
    to defer line count updates until the issues that have been raised
    about the model and its inputs can be addressed by the Commission.
    In response, the Bureau took no action to update line counts and has
    not further sought to update the line counts used to estimate
    forward-looking costs under the non-rural mechanism.

26. When the Commission updated line counts in the past, it always has
    sought comment on updating lines and provided interested parties
    with an opportunity to comment.[^89] If the Commission were to
    propose using updated line counts in the model to determine
    non-rural support, it would seek comment on doing so, consistent
    with past practice.

27. Because of the problems associated with updating line counts in the
    model, we conclude that it would not be in the public interest to
    update the cost estimates of other rural carriers so they would be
    consistent with Iowa Telecom's estimates. We also do not find it in
    the public interest to use line counts from different years for Iowa
    Telecom and other non-rural carriers.

### Section 10(a)(1)

28. Although we need not reach a conclusion regarding compliance with
    section 10(a)(1) because of our conclusion that Iowa Telecom's
    forbearance request fails to demonstrate compliance with sections
    10(a)(2) and (3) of the Act, we nevertheless find that Iowa Telecom
    has failed to show compliance with section 10(a)(1). Specifically,
    we find that Iowa Telecom has not shown that enforcement of the
    regulations is not necessary to ensure that Iowa Telecom's charges
    or practices remain just and reasonable and are not unjustly or
    unreasonably discriminatory.[^90] Iowa Telecom claims that
    "forbearance would be invaluable to Iowa Telecom's ability to
    maintain just and reasonable rates in the long-term."[^91] Without
    federal high-cost support, Iowa Telecom claims that it "will likely
    face a difficult decision in the future as to whether to implement
    further retail rate increases at the risk of creating potential
    affordability problems with its customers, and/or forgoing (or
    significantly delaying) network investment given the significant
    ongoing cost of such efforts. Either alternative has potential
    adverse consequences for the reasonableness of end-user rates, the
    terms and conditions of service offerings, and the quality if those
    services."[^92] However, as discussed above, grant of Iowa Telecom's
    forbearance request would not provide it with any federal high-cost
    support.[^93] Iowa Telecom erroneously relies on the fact that the
    non-rural high-cost support mechanism is a default into which Iowa
    Telecom would fall if we were to forbear from application of the
    rural high-cost support mechanism. This is not the case. As we
    explain above, forbearance from the rural high-cost support
    mechanism does not place Iowa Telecom in the non-rural
    mechanism.[^94] Further, even if Iowa Telecom's belief was correct
    and the non-rural high-cost support mechanism was the default
    support mechanism, Iowa Telecom's petition seeks forbearance from
    both the rural and non-rural support mechanism rules.[^95] Grant of
    Iowa Telecom's forbearance request would leave it without the
    ability to receive support under either the rural or non-rural
    high-cost support mechanisms, negating Iowa Telecom's claims that
    the support it would receive after grant of its forbearance request
    would allow it to retain reasonable rates.

# CONCLUSION

29. As discussed above, grant of Iowa Telecom's forbearance request
    would not afford Iowa Telecom the relief that it is seeking, in that
    forbearing from the rule sections requested by Iowa Telecom would
    not allow Iowa Telecom to receive high-cost universal service
    support pursuant to the non-rural mechanism. Even if a grant of its
    forbearance petition would afford it the relief it seeks, however,
    Iowa Telecom has not demonstrated that forbearance from the rural
    high-cost universal service mechanism and application of the
    non-rural mechanism meet the requirements of section 10 of the Act.

# ORDERING CLAUSE

30. Accordingly, IT IS ORDERED THAT, pursuant to sections 4(i), 10, and
    254 of the Communications Act of 1934, as amended, 47 U.S.C. §§
    154(i), 160, and 254, the petition for forbearance filed by Iowa
    Telecommunication Services, Inc. on May 8, 2006, IS DENIED.

    FEDERAL COMMUNICATIONS COMMISSION

    Marlene H. Dortch

    Secretary

    **APPENDIX**

    **Parties Filing Comments and Reply Comments**

    Comments:

    [Commenter]{.underline} [Abbreviation]{.underline}

    AT&T Inc. AT&T

    CTIA -- The Wireless Association® CTIA

    Embarq Corporation Embarq

    Independent Telephone and Telecommunications Alliance ITTA

    Iowa Utilities Board IUB

    National Association of State Utility Consumer Advocates NASUCA

    Sprint Nextel Corporation Sprint

    Reply Comments:

    [Commenter]{.underline} [Abbreviation]{.underline}

    Iowa Telecommunications Services, Inc. Iowa Telecom

[^1]: Iowa Telecom Petition for Forbearance Under 47 U.S.C. § 160(c)
    from the Universal Service High-Cost Loop Support Mechanisms, WC
    Docket No. 05-337 (filed May 8, 2006) (Forbearance Petition).

[^2]: *See* Forbearance Petition at 1; 47 C.F.R. §§ 36.601-36.631,
    54.305, 54.309, 54.313, 54.314. Iowa Telecom also filed a petition
    requesting, in the alternative, waiver of these rules. Iowa Telecom
    Petition for Interim Waiver of the Commission's Universal Service
    High-Cost Loop Support Mechanisms, WC Docket No. 05-337 (filed May
    8, 2006) (Waiver Petition). On June 2, 2006, the Commission released
    a Public Notice establishing a pleading cycle for comments on the
    Iowa Telecom Forbearance and Waiver Petitions. *Iowa Telecom
    Services, Inc., Seeks Forbearance from or Waiver of the Commission's
    Universal Service Rules to Permit it To Be Eligible for Universal
    Service Support under the High-Cost Mechanism for Non-Rural
    Carriers*, WC Docket No. 05-337, Public Notice, 21 FCC Rcd 6272
    (Wireline Comp. Bur. 2006). A list of parties filing comments in
    this proceeding is contained in the Appendix to this order.

[^3]: 47 U.S.C. § 160(c).

[^4]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56
    (1996) (1996 Act). The 1996 Act amended the Communications Act of
    1934. 47 U.S.C. §§ 151, *et seq*.

[^5]: 47 U.S.C. § 254.

[^6]: *Id*.

[^7]: 47 U.S.C. § 254(b)(3).

[^8]: *E.g., 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*, Fourteenth Report and Order, Twenty-Second
    Order on Reconsideration, and Further Notice of Proposed Rulemaking
    in CC Docket No. 96-45, and Report and Order in CC Docket No.
    00-256, 16 FCC Rcd 11244, 11247, para. 4 (2001) (*Rural Task Force
    Order*).

[^9]: *See Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Report and Order, 12 FCC Rcd 8776, 8888-89, paras. 199,
    203 (1997) (*Universal Service First Report and Order*) (subsequent
    history omitted).

[^10]: *Id.* at 8936, para. 294. Based on a Joint Board recommendation,
    in 1997 the Commission adopted, for universal service purposes, a
    definition of rural carrier that mirrored the definition of "rural
    telephone company" found in section 153 of the Act. *Id.* at
    8943-44, para. 310. Pursuant to this definition, a rural telephone
    company is a local exchange carrier operating entity to the extent
    that the entity:

    > \(A\) provides common carrier service to any local exchange
    > carrier study area that does not include either:
    >
    > \(i\) any incorporated place of 10,000 inhabitants or more, or any
    > part thereof, based on the most recently available population
    > statistics of the Bureau of the Census; or
    >
    > \(ii\) any territory, incorporated or unincorporated, included in
    > an urbanized area, as defined by the Bureau of the Census as of
    > August 10, 1993;
    >
    > \(B\) provides telephone exchange service, including exchange
    > access, to fewer than 50,000 access lines;
    >
    > \(C\) provides telephone exchange service to any local exchange
    > carrier study area with fewer than 100,000 access lines; or
    >
    > \(D\) has less than 15 percent of its access lines in communities
    > of more than 50,000 on the date of enactment of the
    > Telecommunications Act of 1996.

    47 U.S.C. § 153(37). There was no statutory requirement, however,
    that the Commission use this definition for universal service
    purposes.

[^11]: *Universal Service First Report and Order*, 12 FCC Rcd at 8917,
    para. 252.

[^12]: *See Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Ninth Report and Order and Eighteenth Order on
    Reconsideration, 14 FCC Rcd 20432 (1999) (*Ninth Report and Order*),
    *remanded*, *Qwest Corp. v. FCC*, 258 F.3d 1191 (10^th^ Cir. 2003)
    (*Qwest I*); *Federal-State Joint Board on Universal Service*, CC
    Docket No. 96-45, Order on Remand, Further Notice of Proposed
    Rulemaking, and Memorandum Opinion and Order, 18 FCC Rcd 22559
    (2003), *remanded*, *Qwest Corp. v. FCC*, 398 F.3d 1222 (10^th^ Cir.
    2005) (*Qwest II*); *Federal-State Joint Board on Universal
    Service*, *High-Cost Universal Service Support*, CC Docket No.
    96-45, WC Docket No. 05-337, Notice of Proposed Rulemaking, 20 FCC
    Rcd 19731 (2005) (*Non-Rural High-Cost Notice*); *see also
    Federal-State Joint Board on Universal Service, Forward-Looking
    Mechanism for High Cost Support for Non-Rural LECs*, CC Docket Nos.
    96-45, 97-160, Tenth Report and Order, 14 FCC Rcd 20156 (1999)
    (*Tenth Report and Order*), *affirmed*, *Qwest I*, 258 F.3d 1191.

[^13]: Letter from William R. Gillis, Chair, Rural Task Force, to
    Magalie Roman Salas, Secretary, FCC, CC Docket No. 96-45 (dated
    Sept. 29, 2000) (Rural Task Force Recommendation).

[^14]: *Federal-State Joint Board on Universal Service*, CC Docket No.
    96-45, Recommended Decision, 16 FCC Rcd 6153 (Fed.-State Jt. Bd.
    2001); *see also Federal-State Joint Board on Universal Service*, CC
    Docket No. 96-45, Further Notice of Proposed Rulemaking, 16 FCC Rcd
    6141 (2001).

[^15]: *Rural Task Force Order*, 16 FCC Rcd 11244. The high-cost
    universal service support rules adopted in the *Rural Task Force
    Order* were later modified in *Federal-State Joint Board on
    Universal Service, National Telephone Cooperative Association
    Petition for Reconsideration*, CC Docket No. 96-45, Order and Order
    on Reconsideration, 20 FCC Rcd 768 (2005) (*Rural Task Force
    Reconsideration Order*), and extended in *Federal-State Joint Board
    on Universal Service; High-Cost Universal Service Support*, CC
    Docket No. 96-45, WC Docket No. 05-337, Order, 21 FCC Rcd 5514
    (2006) (*Rural Task Force Extension Order*).

[^16]: *See Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Order, 19 FCC Rcd 11538 (2004) (*Rural* *Referral
    Order*).

[^17]: *Rural Task Force Extension Order*, 21 FCC Rcd 5514.

[^18]: *See Federal-State Joint Board on Universal Service Seeks Comment
    on Long Term, Comprehensive High-Cost Universal Service Reform*, WC
    Docket No. 05-337, CC Docket No. 96-45, Public Notice, 22 FCC Rcd
    9023 (Fed.-State Jt. Bd. 2007) (*Joint Board 2007 Public Notice*).
    The Joint Board also recommended that the Commission take immediate
    action to impose an interim cap on the amount of high-cost support
    that competitive eligible telecommunications carriers (ETCs) may
    receive. *Federal-State Joint Board on Universal Service*, WC Docket
    No. 05-337, CC Docket No. 96-45, Recommended Decision, 22 FCC Rcd
    8998 (Fed.-State Jt. Bd. 2007); *see* *also Federal-State Joint
    Board on Universal Service*, WC Docket No. 05-337, CC Docket No.
    96-45, Notice of Proposed Rulemaking, 22 FCC Rcd 9705 (2007).

[^19]: When Iowa Telecom filed its petitions, it stated that it had over
    240,500 total lines. *See* Forbearance Petition, Appendix at 2.
    Based on the most recent data filed by the Universal Service
    Administrative Company (USAC), Iowa Telecom's three study areas have
    a little over 250,000 working loops. *See* Universal Service
    Administrative Company (USAC), Quarterly Administrative Filing 2007,
    Third Quarter (3Q) Appendices, at HC05 (filed May 2, 2007) (USAC 3Q
    2007 filing).

[^20]: Montezuma has 2,210 working loops. *See* USAC 3Q 2007 filing, at
    HC05. Although Iowa Telecom claims to be "the nation's only rural
    telephone company that operates exclusively under price cap
    regulation," Montezuma, which Iowa Telecom operates on a
    non-integrated basis, is a rural rate-of-return company. *See*
    Forbearance Petition, Appendix at 2 & n.5. Based on USAC's most
    recent estimates, in 2007 Iowa Telecom will receive approximately
    \$4.8 million in IAS, and Montezuma will receive approximately
    \$81,000 in high-cost loop support, \$128,000 in local switching
    support, and \$192,000 in interstate common line support (ICLS).
    *See* USAC 3Q 2007 filing, Appendices, at HC01.

[^21]: Forbearance Petition at 4-5.

[^22]: *See* Forbearance Petition, Appendix at 13-16 & n.52. Safety
    valve support allows rural carriers to receive additional high-cost
    loop support to reflect significant investments in the
    infrastructure of the acquired exchanges. Safety valve support is
    based on 50 percent of the difference between the support calculated
    under the high-cost loop support mechanism in the index year and
    subsequent years. If a carrier's costs are not high enough to
    qualify for high-cost loop support, it also would not qualify for
    safety valve support. *See* 47 C.F.R. § 54.305(d)-(f).

[^23]: *See* Forbearance Petition at 1; 47 C.F.R. §§ 36.601-36.631,
    54.305, 54.309, 54.313, 54.314.

[^24]: *See* Forbearance Petition at 1; *see also Rural Task Force
    Order*, 16 FCC Rcd 11244.

[^25]: *Iowa Telecom Petition for Forbearance Under 47 U.S.C. § 160(c)
    from the Universal Service High-Cost Loop Support Mechanisms*, WC
    Docket No. 05-337, Order, 22 FCC Rcd 6805 (Wireline Comp. Bur.
    2007).

[^26]: We note that, in other instances, when a non-rural carrier sought
    to receive high-cost loop support based on its embedded costs, the
    Commission sought comment in a Notice of Proposed Rulemaking. *See
    Non-Rural High-Cost Notice*, 20 FCC Rcd at 19732, para. 1, 19744-48,
    paras. 30-38.

[^27]: *See, e.g., Universal Service First Report and Order*, 12 FCC Rcd
    at 8935, para. 293 (recognizing that existing forward-looking cost
    mechanisms "cannot presently predict the cost of serving rural areas
    with sufficient accuracy"); *Rural Task Force Order*, 16 FCC Rcd at
    11256, para. 25 (finding that the record does not support a
    transition of rural carriers to a forward-looking high-cost
    mechanism, and additional time is necessary to develop an
    appropriate forward-looking cost mechanism for rural carriers).

[^28]: *See* 47 C.F.R. § 54.305(b).

[^29]: *See supra* para. 5.

[^30]: 47 C.F.R. §§ 36.601-36.631.

[^31]: 47 C.F.R. § 54.309.

[^32]: 47 C.F.R. §§ 36.611, 36.612.

[^33]: 47 C.F.R. § 54.309(a)(4).

[^34]: 47 C.F.R. §§ 54.313, 54.314.

[^35]: *See Fones4All Corp. Petition for Expedited Forbearance Under 47
    U.S.C. § 160(c) and Section 1.53 from Application of Rule 51.319(d)
    to Competitive Local Exchange Carriers Using Unbundled Local
    Switching to Provide Single Line Residential Service to End Users
    Eligible for State or Federal Lifeline Service*, WC Docket No.
    05-261, Memorandum Opinion and Order, 21 FCC Rcd 11125, 11130, para.
    9 (2006) (The Commission denied forbearance because "\[f\]orbearing
    from the rule . . . would simply create a vacuum rather than confer
    any rights upon requesting carriers or obligations upon incumbent
    LECs."), *appeal pending*, *Fones4All Corporation v. FCC*, No.
    06-75388 (9^th^ Cir., filed Nov. 21, 2006).

[^36]: *See* Iowa Telecom Reply Comments at 16.

[^37]: *See id*.

[^38]: Forbearance Petition*,* Appendix at 4 (arguing that "a
    cornerstone of \[the Commission's universal service\] reform is
    that, absent some compelling circumstances, the appropriate basis to
    determine eligibility for high-cost support is a carrier's
    forward-looking economic cost"); *see also* Forbearance Petition at
    3 ("The long-standing policy of the FCC is that a carrier should
    receive high-cost loop support based upon the forward-looking
    economic cost of its network absent compelling reasons in specific
    circumstances.").

[^39]: *See id.*, Appendix at 4 & n. 10 (quoting *Universal Service
    First Report and Order*, 12 FCC Rcd at 8888, para. 199).

[^40]: *Id*., Appendix at 7 (quoting *Rural Task Force Order*, 16 FCC
    Rcd at 11247, para. 4).

[^41]: *Id.* (quoting *Rural Referral Order*, 19 FCC Rcd at 11539-40
    n.8).

[^42]: *See, e.g., Universal Service First Report and Order*, 12 FCC Rcd
    at 8935, para. 293 (recognizing that existing forward-looking cost
    mechanisms "cannot presently predict the cost of serving rural areas
    with sufficient accuracy"); *Rural Task Force Order*, 16 FCC Rcd at
    11256, para. 25 (finding that the "present record fails to provide
    the analysis necessary to permit a transition of rural carriers to a
    forward-looking high-cost support mechanism").

[^43]: *Rural Task Force Order*, 16 FCC Rcd at 11313, para. 177 ("Even
    those commenters who urge the Commission to move to forward-looking
    cost for rural carriers recognize that the Commission would need
    additional time to develop suitable rural input values.").

[^44]: *See e.g., id.* at 11256, para. 25 ("We find that continuing to
    base support for rural carriers on embedded cost for the next five
    years is a reasonable and prudent approach to take in light of the
    record before us."). In the *Rural Referral Order*, the Commission
    asked the Joint Board to "consider whether a universal service
    mechanism for rural carriers based on forward-looking economic cost
    estimates or embedded costs would most efficiently and effectively
    achieve the Act's goals." *Rural Referral Order*, 19 FCC Rcd at
    11542, para. 8. *See also* Statement of (then) Commissioner Kevin J.
    Martin, *id.* at 11546 ("I am troubled by today's decision to
    revisit whether the Commission should adopt a universal service
    support mechanism for rural carriers based on hypothetical
    forward-looking economic costs. . . . In my view, we could better
    achieve sufficient universal service support and comparability of
    rates if we base our universal service support system on actual
    rather than forward-looking costs.").

[^45]: *See Federal-State Joint Board on Universal Service Seeks Comment
    on Certain of the Commission's Rules Relating to High-Cost Universal
    Service Support*, CC Docket No. 96-45, Public Notice, 19 FCC Rcd
    16083 (Fed.-State Jt. Bd. 2004); *Federal State Joint Board on
    Universal Service Seeks Comment on Proposals to Modify the
    Commission's Rules Relating to High-Cost Universal Service Support*,
    CC Docket No. 96-45, Public Notice, 20 FCC Rcd 14267 (Fed.-State Jt.
    Bd. 2005); *Federal-State Joint Board on Universal Service Seeks
    Comment on the Merits of Using Auctions to Determine High-Cost
    Universal Service Support*, WC Docket No. 05-337, CC Docket No.
    96-45, Public Notice, 21 FCC Rcd 9292 (Fed.-State Jt. Bd. 2006).

[^46]: *See Non-Rural High-Cost Notice*, 20 FCC Rcd at 19742-43; *Qwest
    II*, 398 F.3d at 1237.

[^47]: 47 U.S.C. § 160.

[^48]: 47 U.S.C. § 160(a).

[^49]: 47 U.S.C. § 160(b).

[^50]: 47 U.S.C. § 160(b).

[^51]: *See Federal-State Joint Board on Universal Service, Petition of
    TracFone Wireless, Inc. for Forbearance from 47 U.S.C. §
    214(e)(1)(A) and 47 C.F.R. § 54.201(i)*, CC Docket No. 96-45, Order,
    20 FCC Rcd 15095, 16000 (2005) (*TracFone Forbearance Order*); *CTIA
    v. FCC*, 330 F.3d 502, 512 (D.C. Cir. 2003).

[^52]: 47 U.S.C. § 254(b)(1)-(7).

[^53]: 47 U.S.C. § 254(b)(3).

[^54]: *See, e.g., Rural Task Force Order*, 16 FCC Rcd at 11251, para.
    13 ("The purpose of high-cost universal service support is to help
    provide access to telecommunications service in areas where the cost
    of such service otherwise might be prohibitively expensive.");
    *Ninth Report and Order*, 14 FCC Rcd at 20439 para. 12 ("The purpose
    of high-cost universal service support has always been to enable
    access to telecommunications service in areas where the cost of such
    service otherwise would be prohibitively high.").

[^55]: *See Rural Task Force Order*, 16 FCC Rcd at 11246, para. 1.

[^56]: *Id.* at 11256, para. 25.

[^57]: *Id*. at 11255, para. 22. Specifically, the Commission rebased
    the indexed cap on the high-cost loop support mechanism, and adopted
    the safety net additive support and safety valve support mechanisms
    to increase incentives for rural carriers to invest in their
    networks. *See id.* at 11262, 11242, 11277, 11284, paras. 38, 42,
    79, 97.

[^58]: *See* Rural Task Force, White Paper 3: Alternative Mechanisms for
    Sizing a Universal Service Fund for Rural Telephone Companies at 10,
    24 (August 2000). "Under mechanisms using embedded cost, there is a
    built-in incentive to invest in the network: the more investment,
    the more support. With forward-looking economic costs, support is
    calculated without any reference to actual investment. Support will
    not change regardless of how much or how little a company has
    actually put into network upgrades." *Id*. at 24. The Rural Task
    Force notes that the Commission addressed the lack of an inherent
    incentive to promote investment in the non-rural mechanism by
    requiring states to certify that support is being used for the
    provision, maintenance, and upgrading of facilities and services for
    which the support is intended, as required by section 254(e) of the
    Act. *See* 47 U.S.C. § 254(e); 47 C.F.R. § 54.313. Although the
    Rural Task Force identified investment incentives as one of the
    strengths of embedded cost support, the Commission has recognized
    that the use of embedded costs could discourage prudent network
    planning because carriers could receive support for inefficient, as
    well as efficient, investments. *See Universal Service First Report
    and Order*, 12 FCC Rcd at 8901, para. 228.

[^59]: Forbearance Petition at 6.

[^60]: *Id.*

[^61]: *Id.* at 6-7.

[^62]: *Id.* at 7.

[^63]: *Id.*

[^64]: *Id.*, Appendix at 20-21.

[^65]: *See id*. Iowa Telecom's estimates are based on a model run for
    Iowa Telecom and a report prepared by QSI Consulting, Inc., (QSI)
    using Iowa Telecom proprietary data, for which Iowa Telecom
    requested confidential treatment pursuant to section 0.459 of the
    Commission's rules. *See* Letter from Mimi Dawson, Counsel for Iowa
    Telecom, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337
    (dated Feb. 13, 2007) (attaching QSI's report, "Evaluation of the
    Impact of Iowa Telecom's Participation in the Federal Non-Rural High
    Cost Support Program," March 2006 (QSI Report)); Letter from Mimi
    Weyforth Dawson, to Marlene H. Dortch, Secretary, FCC, WC Docket No.
    05-337 (dated Mar. 21, 2007); and Letter from Mimi Weyforth Dawson,
    to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337 (dated
    Mar. 21, 2007) (providing data used to run the Commission's cost
    model for Iowa Telecom). QSI used 2004 data for Iowa Telecom and
    relied on the Commission's publicly available support estimates for
    the non-rural carriers, which are based on 2002 line counts. *See*
    Model Results and Support (2004) State-by-State Summary, Cost and
    Support Spreadsheet, at
    <http://www.fcc.gov/wcb/tapd/hcpm/welcome.html>.

[^66]: *See* 47 C.F.R. § 54.309.

[^67]: Iowa Telecom estimates that Qwest would be eligible to receive
    approximately \$6.3 million in non-rural support in Iowa. *See*
    Forbearance Petition, Appendix at 21. If a state receives high-cost
    model support, the support is targeted to high-cost wire centers
    served by non-rural carriers. If Iowa Telecom were to be included in
    the model, Iowa's statewide costs would be high enough for Iowa to
    receive support, and that support would be targeted to both Iowa
    Telecom's and Qwest's high-cost wire centers.

[^68]: *See* QSI Report at 8.

[^69]: Commission staff estimated support amounts using the data filed
    by Iowa Telecom, the Commission's model results and support amounts
    posted on the Commission's website, and current lines from the USAC
    3Q 2007 filing. *See supra* notes Error: Reference source not found
    and Error: Reference source not found.

[^70]: *See TracFone Forbearance Order*, 20 FCC Rcd at 15102, para. 17
    ("Because section 10(a)(2) requires that we consider the welfare of
    all 'consumers,' we must consider the effect a grant of this
    Petition will have on consumers who will likely shoulder the effects
    of any increased contribution obligation since carriers are
    permitted to recover their contribution obligations from
    customers.").

[^71]: *See* Letter from Shana Knutson, Legal Counsel, Nebraska Public
    Service Commission; Joel Shifman, Senior Advisor, Maine Public
    Utilities Commission; Rolayne Ailts Wiest, Commission Attorney,
    South Dakota Public Utilities Commission; George Young, Associate
    General Counsel, Vermont Public Service Board; Christopher Campbell,
    Telecommunications Director, Vermont Department of Public Service;
    Amy E. Dougherty, Counsel for Kentucky Public Service Commission;
    Elizabeth H. Ross, Attorney for Vermont Public Service Board, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337 (dated May
    31, 2007) (Five State Letter); Letter from Nielsen Cochran,
    Chairman, Leonard Bentz, Vice Chairman, Bo Robinson, Commissioner,
    Mississippi Public service Commission, to Marlene H. Dortch,
    Secretary, FCC, WC Docket No. 05-337 (dated May 31, 2007)
    (Mississippi Letter); Letter from John A. Garner, Chief
    Administrative Law Judge, Alabama Public Service Commission, to
    Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337 (dated May
    31, 2007) (Alabama Letter). The states also argue that the
    Commission should not reduce support in the ten states receiving
    non-rural support in light of the questions raised by the Tenth
    Circuit in *Qwest II* about the sufficiency of that support. *See*
    Five State Letter at 4; Alabama Letter at 2.

[^72]: Five State Letter at 2.

[^73]: *Id.* at 3. The states' estimates of how much support each state
    would lose differ somewhat from the estimates of the Commission
    staff. The states did not have access to the model-related
    information filed by Iowa Telecom, and they developed independent
    estimates using publicly available information in Iowa Telecom's
    forbearance petition and other sources. *See id*. at 2-3.

[^74]: Mississippi Letter at 1.

[^75]: Alabama Letter at 1.

[^76]: We note that Iowa Telecom is subject to restrictive debt
    covenants that may limit its ability to make capital expenditures
    and invest in its network. *See* Iowa Telecommunications Services
    Inc. -- IWA, Form 10-K at 23 (filed Mar. 5, 2007).

[^77]: Five State Letter at 6 (emphasis in original) ("This is
    particularly true if, as Iowa Telecom asserts, serving Iowa is
    inherently a 'high cost' enterprise.").

[^78]: *Id.* at 6-7 (emphasis in original).

[^79]: *See* 47 U.S.C. § 160(b).

[^80]: *See* Five State Letter at 7 & n.25. ("In sum, Iowa Telecom is
    arguing that its competitors will invest more if Iowa Telecom
    receives more support. ... Iowa Telecom fails to mention that it
    could also improve its competitors' investment incentives without
    any forbearance or waiver. Investment incentives for Iowa Telecom's
    competitors would also improve if Iowa Telecom simply upgraded its
    own network with its own capital and became eligible for High Cost
    Loop support.").

[^81]: *Joint Board 2007 Public Notice*, 22 FCC Rcd at 9026, para. 7.

[^82]: *See* Sprint Nextel Corporation's Opposition to Petitions for
    Forbearance and Waiver, at 3-4 (filed July 3, 2006) ("Competitors
    are willing and able to provide service in competition with Iowa
    Telecom, even without having access to the subsidies that Iowa
    Telecom seeks. Sprint Nextel is a facilities-based provider that has
    sought to provide competitive telephony service to consumers in Iowa
    Telecom's market. Iowa Telecom, however, has sought to block, deter,
    or delay Sprint Nextel's entry as much as possible."); Letter from
    Joseph E. Young, Senior Vice President and General Counsel,
    Mediacom, to Marlene H. Dortch, Secretary, FCC, WC Docket No. 05-337
    at 2 (filed May 31, 2007) (Mediacom Letter) ("Mediacom has gone to
    great expense to expand and upgrade its facilities -- without
    federal subsidies -- and offers broadband service through much of
    Iowa Telecom's territory."). Mediacom also alleges that, if
    competition does not exist in portions of Iowa Telecom's study
    areas, it is the result of Iowa Telecom's failure to interconnect
    with competitors, despite being ordered to do so by the Iowa
    Utilities Board. *See* Mediacom Letter at 5 and attached order,
    *Sprint Communications Company, L.P. and MCC Telephony of Iowa, Inc.
    v. Iowa Telecommunications Services, Inc., d/b/a Iowa Telecom*,
    Final Decision and Order Allocating Costs (Iowa Utilities Board,
    rel. Nov. 9, 2006).

[^83]: *See* Model Results and Support (2004) State-by-State Summary,
    Cost and Support Spreadsheet, at
    <http://www.fcc.gov/wcb/tapd/hcpm/welcome.html>; *see also
    Federal-State Joint Board on Universal Service*, CC Docket 96-45,
    Order and Order on Reconsideration, 18 FCC Rcd 26639 (Wireline Comp.
    Bur. 2003) (*2004 Line Counts Update Order*).

[^84]: *See* QSI Report at 3.

[^85]: *See* 47 U.S.C. §§ 36.611, 36.612.

[^86]: Iowa Telecom's 2004 line count data could be used to estimate its
    2002 line count data for high-cost loops and special access lines,
    but this would introduce inaccuracies because lines do not increase
    or decrease at the same rate across wire centers.

[^87]: Since the model's original inputs were adopted in the *Tenth
    Report and Order*, line counts have been updated for purposes of
    estimating forward-looking costs in the *2001*, *2002*, and *2004
    Line Counts Update Orders*. *See generally Tenth Report and Order*,
    14 FCC Rcd 20156; *See Federal-State Joint Board on Universal
    Service*, CC Docket 96-45, Order, 15 FCC Rcd 23960 (Com. Car. Bur.
    2000) (*2001 Line Counts Update Order*); *Federal-State Joint Board
    on Universal Service*, CC Docket 96-45, Order, 16 FCC Rcd 22418
    (Com. Car. Bur. 2001) (*2002 Line Counts Update Order*);
    *Federal-State Joint Board on Universal Service*, CC Docket 96-45,
    Order and Order on Reconsideration, 18 FCC Rcd 26639 (Wireline Comp.
    Bur. 2003) (*2004 Line Counts Update Order*). Cost estimates using
    the updated lines were then used to determine support for the years
    beginning 2001, 2002, and 2004, respectively. In the *Line Counts
    Update* proceedings, various commenters have criticized the Bureau's
    practice of updating line counts annually without updating customer
    location data, and the methodology for including the costs of
    high-capacity lines, especially special access lines. Updating line
    counts also would likely raise concerns about the vintage of other
    inputs in the model that have not been updated since they were
    adopted.

[^88]: *See Wireline Competition Bureau Seeks Comment on Whether to
    Update Line Counts and Other Limited Information Used in Calculating
    High-Cost Universal Service Support for Non-Rural Carriers*, CC
    Docket No. 96-45, Public Notice, 19 FCC Rcd 19941 (Wireline Comp.
    Bur. 2004) (*2005 Line Counts Update Public Notice*). The Bureau
    also sought comment on whether it should update line counts,
    consistent with past practice.

[^89]: *See 2004 Line Counts Update Public Notice*, 18 FCC Rcd at 15534,
    nn.1-3.

[^90]: 47 U.S.C. § 160(a)(1).

[^91]: Forbearance Petition at 4.

[^92]: *Id*. at 5.

[^93]: *See supra* paras. 7-12.

[^94]: *See supra* paras. 9-12.

[^95]: *See supra* para. 7-8.