**Before the**

**FEDERAL COMMUNICATIONS COMMISSION**

**Washington, D.C. 20554**

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

)

In the Matter of )

)

Improved Regulation of Interstate Services ) RM No. 10011

of Non-Price Cap Incumbent )

Local Exchange Carriers )

And Interexchange Carriers )

\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_)

####### **EXHIBIT 1**

###### DETAILED DESCRIPTION 

###### 

###### PLAN FOR IMPROVED REGULATION

OF

NON-PRICE CAP INCUMBENT

#######  LOCAL EXCHANGE CARRIERS

# October 20, 2000

# **TABLE OF CONTENTS**

I. INTRODUCTION [1](#i.-introduction)

II\. POOL PARTICIPATION [2](#ii.-pool-participation)

A. Incentive Regulation Within The Pool
[3](#incentive-regulation-within-the-pool)

B. Traditional Regulation Within the Pool
[4](#b.-traditional-regulation-within-the-pool)

1\. Path A LECs [4](#path-a-lecs)

2\. Path B LECs [5](#path-b-lecs)

III\. POOLING OPTION ELEMENTS [6](#iii.-pooling-option-elements)

A. Access Elements [6](#access-elements)

1\. Subscriber Line Charge [6](#subscriber-line-charge)

2\. Composite Access Rate [7](#composite-access-rate)

3\. Special Access Services [8](#special-access-services)

4\. New Access Services [8](#new-access-services)

B. Pool Settlement Process And Incentive Regulation
[8](#pool-settlement-process-and-incentive-regulation)

1\. Settlements During The Transition Period
[8](#settlements-during-the-transition-period)

2\. Settlements After The Transition Period
[10](#settlements-after-the-transition-period)

3\. Low End Adjustment [11](#low-end-adjustment)

C. Adjustments for New Regulatory Requirements
[12](#__RefHeading___Toc492440784)

D. Acquisitions and Mergers [13](#__RefHeading___Toc492440785)

IV\. LECs THAT DO NOT PARTICIPATE IN THE POOL
[14](#iv.-lecs-that-do-not-participate-in-the-pool)

V. UNIVERSAL SERVICE SUPPORT 16

VI\. TOLL RATE AVERAGING [22](#vi.-toll-rate-averaging)

##### I. INTRODUCTION

The comprehensive plan for improved regulation of incumbent local
exchange carriers not subject to price-cap regulation ("non-price cap
LECs") described herein has several policy objectives. The plan will
benefit consumers by promoting universal service, particularly by
ensuring comparable rural and urban rates and services. The plan also
reduces implicit universal service subsidies by creating an explicit
portable support mechanism for universal service funding that operates
in the pooling environment for non-price cap LECs. Through access
reform, the plan will increase economic efficiency by mandating
increases in the subscriber line charge ("SLC") for all LECs subject to
the plan, thereby increasing flat-rate recovery of fixed costs. For the
customers of all such LECs, the plan will expand the Lifeline
definition, and will remove the caps now in place on universal service
support. Moreover, interexchange carriers ("IXCs") will be required to
offer customers in rural, insular, and high-cost areas \-- the service
territories of LECs subject to the plan \-- the same discount plans
available to urban customers.

The plan defines two regulatory regimes, or "paths," known as Path A and
Path B, which non-price cap LECs must elect on a company-wide basis.
Path A establishes a five-year transition period, to commence on July1,
2001, during which such LECs would be able to move on a per-study area
basis to a new form of incentive regulation which is based on revenues
per line that are fixed but adjusted for inflation.[^1] Pursuant to
Path B, such LECs would remain under their existing forms of regulation
unless they elect incentive regulation pursuant to Path A during the
transition period on a company-wide basis.

The National Exchange Carrier Association ("NECA") will convert its
present two pools into a single pool. Prior to the start of the plan,
all non-price cap LECs will elect, on a per-operating company basis, the
path through which they will participate.[^2] Once a LEC has elected
Path A (becoming a "Path A LEC"), it will be permitted to decide at the
study area level when, during the transition period, to move from its
present form of regulation to the incentive regulation established in
this plan. At the end of the transition period, which is proposed to be
July 1, 2006, all study areas of all Path A LECs will move to incentive
regulation.

LECs that elect Path B ("Path B LECs") will remain subject to their
current forms of regulation unless they elect Path A during the
transition period. From the time that such LECs become Path A LECs
through the end of the transition period (June 30, 2006), they will be
able to elect incentive regulation on a per-study area basis, like other
Path A LECs. After the end of the transition period, like other Path A
LECs, all of their study areas will be subject to incentive regulation.
After the end of the transition period, Path B LECs would have to obtain
a waiver from the Commission in order to be subject to Path A incentive
regulation. Path B LECs and Path A LECs with study areas not subject to
incentive regulation will be subject to the currently authorized rate of
return.

##### II. POOL PARTICIPATION

At the beginning of the five-year transition period, a single pool for
both Path A LECs and Path B LECs will replace the present system of two
pools that NECA administers. NECA will continue to administer this
single pool. NECA's current rate banding ability will continue, so that
it may band rates as appropriate. Path A LECs and Path B LECs will
decide for each of their study areas whether to participate in the
pool.[^3] Once a Path A LEC decides whether one or more of its study
areas will participate in the pool, it must make further choices:

########  {#section-1 .unnumbered}

######## Incentive Regulation Within The Pool 

########   {#section-2 .unnumbered}

Path A LECs with study areas in the pool may elect by study area to be
subject to incentive regulation, as described in section II-B below, at
the start of the plan or in any subsequent year until the end of the
five-year transition period. Under Path A's form of incentive
regulation, a study area recovers all of its common line and traffic
sensitive switched settlements on a revenue-per-line ("RPL") basis from
the pool. The RPL of each Path A study area is set at the per-line
revenue level based on the most recent cost study data or average
schedule revenue requirement data available prior to the study area
converting to incentive regulation. This initial RPL for each study area
is adjusted for inflation, using the Gross Domestic Product-Chained
Price Index ("GDP-PI") prepared by the U.S. Department of Commerce, and
will be adjusted annually thereafter for inflation. Similar types of
incentives for efficiency that exist for price caps are present for this
form of incentive regulation.

Under Path A, special access settlements for study areas subject to
incentive regulation within the pool will also be recovered on an
incentive basis. Once a Path A LEC elects incentive regulation for any
study area in the pool, it cannot later choose to recover that study
area's costs based on traditional rate-of-return regulation.

During the transition period, a Path A or Path B study area within the
pool may elect to participate in the common line tariff only or the
common line and traffic sensitive tariffs. After the transition period
ends, a study area may elect to participate in the common line and
traffic sensitive tariffs. Special access tariff participation will
continue to be an option during and after the transition period for Path
A LECs.

At the end of the transition period, all study areas of Path A LECs will
be subject to incentive regulation.

######## B. Traditional Regulation Within the Pool {#b.-traditional-regulation-within-the-pool .unnumbered}

#### **1. Path A LECs** {#path-a-lecs .unnumbered}

During the five-year transition period, a Path A LEC may choose for any
of its study areas to recover revenues within the pool on the same basis
that the study area does today. Thus, if a Path A LEC's study area is
settling with the pool at the start of the plan on a cost basis, it may
continue during the transition period to settle with the pool based on
its reported costs. Similarly, a Path A LEC currently operating on an
average schedule basis may choose for one or more of its study areas to
remain regulated on that basis during the transition period. That study
area will continue to settle with the pool based on average schedule
settlement formulas.

NECA will update average schedule formulas for changes in costs and
demand over the five-year period using changes in relative cost and
demand data of similarly-sized study areas that settle on a cost basis.
NECA also may make structural modifications to the design of

the average schedule formulas, to reflect changes in the mix of service
offerings, changes in network design, or changes in operating
practices.[^4]

Path A LECs now under average schedule rules would be able to opt into
incentive regulation within the pool on a per-study-area basis at any
time during the five-year transition period. Path A LECs with average
schedule study areas could also elect to convert to cost at any time
during the transition period on a per-study area basis, consistent with
current rules, as long as they have not moved to incentive regulation.

As noted above, at the end of the five-year transition period, each
study area of a Path A LEC in the pool not already under incentive
regulation as defined in this plan would become subject to such
regulation.

#### **Path B LECs**

Path B LECs will participate in the single NECA pool created under the
plan. These LECs will retain their current ability to exit that pool, as
well as their current ability to elect price cap regulation. While
Path B LECs will have the ability to elect Path A regulation at any time
during the five-year transition period, these LECs will have to seek a
waiver of the Commission's rules to elect such regulation after the
transition period ends.

##### III. POOLING OPTION ELEMENTS

######## Access Elements

In the single NECA pool that will exist after plan approval, the current
access rate structure and means of tariff administration will remain
basically intact for both Path A and Path B LECs.[^5] Per-minute access
charges will be reduced as SLCs increase, consistent with the CALLS
order.[^6]

#### **Subscriber Line Charge**

The SLCs of all Path A and Path B LECs will increase by tracking the SLC
caps for carriers subject to the CALLS order (the "CALLS carriers").
Consistent with section 254(g) of the Communications Act (added by the
Telecommunications Act of 1996), this assumes that those caps remain
reasonably comparable to the SLCs that the CALLS carriers actually
charge. Assuming such comparability, the SLC for residential and single
business lines would change to \$5.00 per month on July 1, 2001, and
would change consistent with the SLC caps for CALLS carriers thereafter.
There would be no separate SLC for non-primary residence lines. SLCs for
multi-line business lines would transition over two years -- to July 1,
2003-- from the current rate of \$6.00 per line to \$9.20 per line.[^7]

The increased SLCs will recover a larger portion of the
non-traffic-sensitive ("NTS") costs. For Path A LECs, remaining NTS
costs will be recovered first through the existing explicit universal
service support mechanism and the carrier common line ("CCL") charge. If
necessary, any remaining NTS costs would be recovered through a new
explicit universal service support element known as Rate Averaging
Support ("RAS"). For Path B LECs, to which the RAS does not apply, any
portion of NTS costs not recovered in SLCs and existing explicit
universal service support mechanisms would continue to be recovered
through CCL charges.

Beginning on July 1, 2001, non-price cap LECs may geographically
de-average SLCs into up to three geographic zones per wire center**,**
so long as no multi-line business SLC is set lower than the lowest
residential SLC. Such LECs must file their SLCs for each zone, together
with a geographic description and map of each such zone, with the
Commission. If such LECs participate in the pool, the Association will
impute revenues from SLCs as if they had been set at the maximum amount.

#### **Composite Access Rate** 

The plan preserves the existing per-minute switched access rate
structure, including the local switching and transport elements, the
transport interconnection charge, and the CCL charge. However, for
Path A LECs, the plan creates a composite rate target known as the
Composite Access Rate ("CAR") which translates these rates into an
aggregate per-minute rate. The CAR is not a specific rate element, but
represents the target weighted per minute aggregate of Path A LECs'
switched access rates. Under the plan, NECA will adjust the CAR to be
1.6 cents per minute on average two years after the beginning of the
transition period for Path A LECs' study areas that participate in the
pool. At the 1.6 cents per minute level, the CAR reflects a percentage
reduction in per minute access charges comparable to that of the CALLS
order. The CAR acts as a constraint on the aggregate levels of
per-minute switched access rates for Path A pool participants.

#### **Special Access Services**

NECA will tariff special access services for Path A and Path B study
areas participating in the pool. These LECs could also elect to tariff
their special access services outside the NECA pool. Current flexibility
for individual rates, such as term and volume discounts, would continue.
NECA will have the flexibility to develop other price structures within
the pool that would align study area prices and costs more closely.

#### **4. New Access Services**  {#new-access-services .unnumbered}

To the extent that new services are subject to regulation, they would be
introduced at prevailing market rates and administered by NECA for those
study areas in the pool.

######## Pool Settlement Process And Incentive Regulation

#### **1. Settlements During The Transition Period**  {#settlements-during-the-transition-period .unnumbered}

Under the plan, LEC study areas in the pool will receive interstate
access settlements in one of three ways: through the use of average
schedules, on a cost basis, or through incentive regulation based on a
fixed RPL (revenue per line) for switched access elements.[^8]
Regardless of how a study area settles with the NECA pool, the pool's
authorized rate of return during the transition period will remain at
11.25%, and separations factors will be frozen consistent with the Joint
Board's Recommended Decision in CC Docket No. 80-286.[^9]

During the transition period, the pool settlements for study areas under
incentive regulation will be based on the study area's RPL requirement,
but adjusted for the pool's realized rate of return. This means that a
Path A LEC subject to incentive regulation during the transition period
could realize settlements paid on an RPL basis slightly above or below
its individual RPL. All pool participants will share in the risks, as
well as the earnings, of the pool during the transition period. NECA
will retain the discretion to create separate pools for Path A and
Path B LECs if, for example, a substantial number of Path B LECs remain
subject to rate-of-return regulation after the transition period.
However, as described in subsection 2 below, after the transition
period, pool settlements for study areas subject to incentive regulation
will not be tied to the pool's earnings.

The RPL for study areas of Path A LECs subject to incentive regulation
will be initialized based on the most recent cost or average schedule
revenue requirement data prior to conversion to incentive regulation and
adjusted for inflation based on the GDP-PI.[^10] Annually thereafter,
the RPL will be adjusted for inflation using the GDP-PI. NECA will pay
settlements to participating LECs on a monthly basis. Settlements for
Path A study areas subject to incentive regulation will be calculated as
the product of participating study areas' actual average monthly access
line count and their RPL.

NECA will determine special access settlements for all Path A pool
participants subject to incentive regulation using retention ratios for
the base year that a participant elected such regulation.[^11] A
retention ratio equal to the base year's retention ratio (adjusted for
rate changes) would apply. During the transition period, pool
settlements related to new access services will be based on existing
procedures for study areas not yet subject to incentive regulation,
while settlements for study areas subject to incentive regulation will
be based on RPL or retention ratios.

####  **2. Settlements After The Transition Period** {#settlements-after-the-transition-period .unnumbered}

After the five-year transition period ends, all Path A study areas in
the pool will be subject to a settlement mechanism based on incentive
regulation. Settlements will be calculated as the product of actual line
counts and the RPL. Path A special access settlements will be based on
the applicable retention ratio, multiplied by billed revenues. Path A
study areas under incentive regulation will receive settlements based on
their RPL and special access retention ratio. NECA will make any
adjustments needed to bring the available pool revenues and settlement
claims into balance for Path A LECs once actual data are available. This
adjustment amount will be

included in the RAS on a monthly basis to reflect the lag in the
reporting of actual access lines and revenues.

####  **3. Low End Adjustment** {#low-end-adjustment .unnumbered}

Path A LECs subject to incentive regulation, both in and out of the
pool, may apply for a low end adjustment if their interstate access rate
of return drops below a predetermined threshold. The plan distinguishes
between Path A LECs with five or fewer study areas subject to incentive
regulation, which are subject to high levels of risk, and Path A LECs
with more than five study areas subject to incentive regulation, which,
because of the diversity of their study areas, are subject to less risk.

**a. Five or Fewer Study Areas Subject To Incentive Regulation Within
the Pool**: Path A LECs with five or fewer study areas under incentive
regulation within the pool may apply for a low end adjustment at the end
of a tariff period if their study area interstate access rate of return
for that period drops more than 50 basis points below the authorized
level of 11.25% -- that is, to less than 10.75%. These participants must
submit a cost study to NECA to demonstrate that one or more of their
study areas earned less than 10.75% for a given year. Upon such
demonstration, these Path A LECs would be entitled to a payment in
twelve equal installments over the following year to bring the prior
year's earnings of the study area or study areas up to 10.75%. The
accounting for these payments will provide that such payments will not
increase the LEC's earnings for the period in which they are received.
These payments generally would terminate at the end of the twelve-month
period following the year in which the study area underearned. Any claim
for an adjustment in a subsequent year would have to be supported by a
new cost study. NECA would increase the RAS to allow the affected study
areas to earn a rate of return of 10.75% during the twelve-month period
for which the adjustment is sought.

**b. More than Five Study Areas Subject To Incentive Regulation Within
The Pool**: Path A LECs with more than five study areas that are in the
pool and subject to incentive regulation can only qualify for a low-end
adjustment if they demonstrate in a cost study filed with NECA that
their study area interstate access rate of return for a given year drops
more than 100 basis points below the authorized level -- that is, to
less than 10.25%. These participants must perform a cost study that they
submit to NECA to demonstrate that one or more of their study areas
earned less than 10.25% for a given year. Upon such demonstration, these
Path A LECs would be entitled to a payment in twelve equal installments
over the following year to bring their prior year's earnings up to
10.25%. The accounting for these payments will provide that such
payments will not increase the LEC's earnings for the period in which
they are received. These payments generally would terminate at the end
of the twelve-month period following the year in which the study area
underearned. Any claim for an adjustment in a subsequent year would have
to be supported by a new cost study. NECA would increase the RAS to
allow the affected study area or areas to earn a rate of return of
10.25% during the twelve-month period for which the adjustment is
sought.

[]{#__RefHeading___Toc492440784 .anchor}

######## Adjustments for New Regulatory Requirements

When the Commission adds or enforces new requirements for Path A LECs
with study areas in the pool that are subject to incentive regulation,
the RPL will be adjusted in order to permit recovery of the costs of
complying wi[]{#__RefHeading___Toc492440785 .anchor}th such government
requirements, including those associated with number portability and the
Communications Assistance for Law Enforcement Act, and others similar to
the exogenous costs under the price cap regime.

######## Acquisitions and Mergers 

Exchanges acquired by Path A and Path B pool participants may enter the
pool. If a Path A LEC in the pool and under incentive regulation
acquires or merges with an exchange or study area, for the first
eighteen months after the date of the transaction, the RPL for the
acquired lines will be set at the average RPL of all Path A study areas
in the pool under incentive regulation. The acquiring LEC must perform a
cost study of the acquired lines for a consecutive twelve-month period
within the first eighteen months after acquisition. The RPL for the
acquired lines will be calculated according to the cost study.

If the acquired lines are included in an existing study area of the
acquiring LEC, the RPL for that study area will be the weighted average
of the RPLs of the acquiring study area and the acquired lines. If the
acquired lines will be in a separate study area, the RPL for that study
area is calculated separately from the RPLs of the acquiring LEC's
existing study areas. The plan also modifies the Commission's existing
study area freeze and its rules regarding the application of price cap
regulation in mergers and acquisitions in order to simplify such
transactions while still providing full notice to the Commission about
them**.**[^12]

##### IV. LECs THAT DO NOT PARTICIPATE IN THE POOL

Path A and Path B LECs may elect to file interstate access rates on a
per-study area basis outside the NECA tariffing and pooling process.
Once a Path A LEC study area exits the NECA pool, it cannot return,
without obtaining a waiver of the Commission's rules.[^13] Path B LECs
may exit the pool pursuant to existing rules for doing so.

Non-pooling Path B LECs, and Path A LECs that elect the non-pooling
option for one or more of their study areas will file and administer
their own interstate access tariffs for such study areas. Rate elements
will be the same as those in the current access charge rules. There will
be no RAS for Path A or Path B study areas outside the pool.

As in the case of study areas in the pool, SLCs for non-pooling study
areas must follow the caps in place for CALLS carriers. There will be no
non-primary line SLC. Non-pooling LECs may de-average SLCs so long as no
multi-line business SLC is set lower than the lowest residential SLC.
Path A LECs will establish the rates for all other access elements for
their non-pooling study areas using the current RPL. Such rates may
include universal service revenues lost by exiting the pool. Once the
initial rates are established, they can be de-averaged so long as the
de-averaging does not increase the study area RPL.

For their non-pooling study areas, Path A LECs will establish special
access rates on a flexible market basis. Deaveraging, term and volume
discounts and contract pricing will be permitted. Such LECs may
introduce new interstate access services at market rates, subject to
non-dominant carrier regulation for such services.[^14]

The RAS mechanism available for Path A LECs' pooling study areas will
not be available to those Path A study areas outside the pool.

The low-end adjustment will be available to non-pooling Path A LECs in a
manner similar to Path A LECs in the pool.

**a. Five or Fewer Study Areas Subject To Incentive Regulation Outside
The Pool:** A Path A LEC with five or fewer study areas that do not
participate in the pool and are subject to incentive regulation may
apply at the end of a tariff period to the Commission for a low end
adjustment to its rates if the interstate access rate of return for the
prior year for its interstate tariff filing entity is below the
authorized level of 11.25% by more than 50 basis points (*i.e.*, the
return is less than 10.75%). Such application must include a cost study
demonstrating that the study areas collectively earned less than 10.25%
for a given year. Upon approval of such application, the tariff filing
entity will adjust its rates prospectively for twelve months to permit
its interstate tariff filing entity to realize an interstate return of
10.25%. The accounting for this adjustment will provide that it will not
increase the LEC's earnings for the period in which they are received.
Except in special circumstances, this adjustment would terminate at the
end of the twelve-month period following the year in which the tariff
filing entity underearned. Any claim for an adjustment in a subsequent
year would have to be supported by a new cost study.

**b. More Than Five Study Areas Subject To Incentive Regulation Outside
The Pool:** A Path A LEC with more than five study areas that are
outside the pool and subject to incentive regulation may apply to the
Commission for a low end adjustment to its rates at the end of a tariff
period if the interstate access rate of return for the prior year for
its tariff filing entity is below the authorized level of 11.25% by more
than 100 basis points (*i.e.*, the return is less than 10.25%). Such
application must include a cost study demonstrating that the study areas
collectively earned less than 10.25% for a given year. Upon approval of
such application, the tariff filing entity will adjust its rates
prospectively for twelve months to bring its prior year's earnings up to
10.25%. The accounting for this adjustment will provide that it will not
increase the LEC's earnings for the period in which they are received.
Except in special circumstances, this adjustment would terminate at the
end of the twelve-month period following the year in which the tariff
filing entity underearned. Any claim for an adjustment in a subsequent
year would have to be supported by a new cost study.

##### V. UNIVERSAL SERVICE SUPPORT

The plan simplifies universal service support systems while reducing
implicit universal service support, consistent with section 254 of the
Communication Act. The plan broadens the definition of Lifeline support
to be consistent with the CALLS order. Thus, Lifeline support will
increase for low-income consumers to offset the increase to the
residential SLCs contained in this plan. This will be the tariffed
primary residential SLC plus \$3.50.

For all Path A and Path B LECs, the plan removes the current "interim"
cap on high cost loop support, as well as the corporate operations
expense limitation.[^15] Eliminating these caps will provide LECs with
greater incentives to make the investments required to deploy in high
cost areas advanced services that are comparable to those available in
lower-cost areas.

As noted above, for Path A study areas participating in the pool, the
plan introduces a new explicit, portable universal service support
mechanism, known as rate averaging support ("RAS"). The RAS will be
collected on the same basis as existing forms of explicit support.
Unlike SLCs and the CAR, which will be set by Commission rule, NECA will
calculate the RAS as the difference between the total Path A pool
revenue requirement and the Path A revenues derived from the SLC, the
switched access elements in the CAR, Long Term Support ("LTS"), and
local switching support ("LSS"). Like LTS, the RAS lowers access
charges.[^16]

Under the plan, a Path A study area during the transition period or a
Path B study area in the pool that remains subject to cost or average
schedule regulation will continue to receive universal service support
as it does today, adjusted for removal of the cap and disaggregation of
support as discussed below. When a Path A study area in the pool moves
to incentive regulation, its universal service support payments other
than the RAS will be calculated on a fixed per-line basis, adjusted for
inflation (similarly to its RPL). When a Path A LEC's study area begins
incentive regulation, NECA will calculate that study area's per-line
support based on the prior year's support and line count for that study
area. The per-line support amount will be adjusted, both for the initial
amount and annually thereafter, to reflect inflation, based on the
GDP-PI estimate produced annually by the U.S. Department of
Commerce.[^17]

The plan permits additional evolutionary adjustments to universal
service under Path A. The Commission's rules define the services to be
supported from universal service funds. These services now include voice
grade access to the public switched network and access to emergency,
interexchange, and operator services.[^18] As the definition of
universal service evolves, the RPL will be adjusted in order to ensure
that the universal service funding remains sufficient. This could be
necessary, for example, if Congress or the Commission requires increased
deployment of broadband services in rural, high cost areas.

The plan requires adjustments to reflect the costs of complying with
governmental requirements that force LECs subject to the plan to incur
costs, such as those associated with number portability and the
Communications Assistance for Law Enforcement Act, and others similar to
the exogenous costs under the price cap regime. An adjustment to the RPL
settlement amount (or customer rates for non-pooling study areas) will
take place to provide for recovery of such mandated cost requirements.
To the extent that this must be estimated, it may be necessary to adjust
per-line universal service support to cover any residual amounts not
captured by this process.

A Path A study area's annual support (excluding the RAS) would be the
product of its adjusted per-line support and its switched access line
count for that year. No other cap would apply to this support. As a
residual support mechanism the RAS will not be included in these
calculations.[^19]

The frozen per-line universal service support includes the following
components:

. **High Cost Loop Support:** LECs whose study areas receive high cost
loop support in the year prior to the effective date of the plan will
continue to receive this support. Study areas that remain on cost or
average schedules during the transition period will continue to receive
support on the same basis as before the plan, except that support will
be recalculated with the cap removed.

Study areas that move to incentive regulation and settle on an RPL basis
will have their support calculated on a per-line basis. Per-line support
will be frozen after being recalculated to remove the indexed cap, and
otherwise adjusted as described above.[^20]

**Local Switching Support:** Eligible study areas of 50,000 or fewer
access lines will qualify for local switching support under the
Commission\'s rules based on support for the year prior to the study
area moving off rate-of-return settlements.[^21] This support will also
be converted to a per-line basis as described above.

**Long Term Support:** Pooling study areas will qualify for LTS from the
base year of 1997, adjusted by changes in the actual nationwide average
unseparated loop cost and inflation.[^22] This support will be converted
to a per-line basis as described above.

The sum of these three components for each pooling study area, on a
per-line basis, will be established for the base year preceding the move
from rate-of-return based settlements to incentive settlements.

This support will be portable, because it would pass to a competing
eligible telecommunications carrier if or when the competing carrier
captures a line, consistent with the time reporting requirements of the
Universal Service Administrative Company ("USAC"). The residual support
provided by the RAS also is portable.

If a Path A LEC that participates in the pool and is under incentive
regulation acquires or merges with an exchange or study area, for the
first eighteen months after the date of the transaction, the universal
service support for the acquired lines will be set at the average
support of all Path A study areas in the pool under incentive
regulation. The acquiring LEC must perform a cost study of the acquired
lines for a consecutive twelve-month period within the first eighteen
months after acquisition, and the support for the acquired lines will be
calculated according to the cost study. If the acquired lines are
included in an existing study area of the acquiring LEC, the LECs would
receive an automatic waiver from the price cap rules so that individual
exchanges from price cap companies may convert to incentive
regulation.[^23]

The plan also permits Path A and Path B LECs to disaggregate each study
area's universal service support per line into no more than three
geographic zones per wire center. These zones could include the area
within a community or town limits as one cost region, the area
surrounding the community to a cost-based transitional point,[^24] and
then a third cost region for remote areas of the wire center where cost
is highest and customer density the lowest. Such LECs will determine the
per-line support in each zone for each wire center based on its cost
characteristics. Those per-line amounts then will be adjusted for
inflation and other factors as described above. Path A and Path B LECs
will file their zones and the associated per-line support with the
Commission, USAC, and the relevant state regulatory agency.[^25]

##### VI. TOLL RATE AVERAGING

The plan requires IXCs to pass through to long distance customers the
savings that IXCs realize from lower access rates charged by LECs
subject to the plan. The plan proposes to continue the elimination of
IXCs' minimum monthly charges for long distance service customers in the
service areas of such LECs. Similarly, the plan requires IXCs to offer
the same optional calling plans to rural and urban customers alike.

[^1]: Dates in this description of the plan assume a proposed effective
    date of July 1, 2001.

[^2]: Thus, under Path A, non-price cap LECs would elect the plan's form
    of incentive regulation on a per-study area basis, and also elect
    whether such study areas would participate in the pool. All study
    areas of such LECs not on the plan's form of incentive regulation
    would continue to be subject to their pre-existing form of
    rate-of-return regulation -- that is, regulation on a cost or
    average schedule basis.

[^3]: Path A LECs and Path B LECs may elect to operate individual study
    areas outside of the NECA pool. Those that do so would retain the
    option to elect regulation under the Commission\'s price cap rules,
    on a per-study area basis. *See* 47 C.F.R. §§ 61.41-61.49.

[^4]: An example of a structural formula change would be the development
    of a special access formula that provides for multiple retention
    ratios (varying, for example, by study area size) instead of a
    single retention ratio. The revenue requirement to be recovered by
    the formula would not change, but the distribution of the settlement
    across the population of average schedule carriers could change.

[^5]: This plan does not change NECA's current ability to band pool
    rates.

[^6]: *See Access Charge Reform, Price Cap Performance Review for Local
    Exchange Carriers, Low-Volume Long Distance Users, Federal-State
    Joint Board on Universal Service*, CC Docket No. 96-262 *et al*.,
    Sixth Report and Order in CC Docket Nos. 96-262 and 94-1, Report and
    Order in CC Docket No. 99-249, Eleventh Report and Order in CC
    Docket No. 96-45, FCC 00-193 (rel. May 31, 2000) (the "CALLS
    order").

[^7]: ^?^ A non-price cap LEC may assess SLCs for Centrex lines based on
    a per-line charge that is 1/9 of the multi-line business SLC. If a
    customer has fewer than nine Centrex lines, it pays one multi-line
    business SLC. This is similar to the treatment of Centrex in
    assessing presubscribed interexchange carrier charges. *See* section
    69.513(g)(1) of the Rules, 47 C.F.R. § 69.513(g)(1).

[^8]: The pool settlement process for special access is described below.

[^9]: *Jurisdictional Separations Reform and Referral to the Joint
    Board*, CC Docket No. 80-286, Recommended Decision, FCC 00J-2 (Jt.
    Bd. rel. July 21, 2000).

[^10]: Path A LECs will have the option to adjust the RPL value to
    reflect updated cost study or settlement data for a study area up to
    the point when the study area converted to the incentive plan. For
    example, assuming that the plan is introduced on July 1, 2001, and a
    Path A LEC elects incentive regulation at that time for a study
    area. The study area's RPL will be based on a 1999 cost study or
    average schedule settlement data, adjusted for inflation. At the
    option of the Path A LEC, on July 1, 2002, the RPL may be adjusted
    to include updated 2000 cost study or settlement data and on July 1,
    2003, the RPL may be adjusted to reflect a half-year of updated 2001
    cost study or settlement data. In all subsequent years, the RPL only
    would be adjusted annually to reflect inflation, based on the
    GDP-PI. If a Path A LEC does not choose this option, its RPL in the
    foregoing example would be based on the 1999 cost study or average
    schedule settlement data adjusted to reflect inflation.

[^11]: A retention ratio is a factor by which a pool participant keeps a
    percentage of the revenue that it bills. Currently, average schedule
    companies settle with the NECA pools based on special access
    retention ratios.

[^12]: *See,* *e.g.,* Exhibit 3 at 3-3, 3-8.

[^13]: As noted above, lines outside the pool that are acquired by pool
    participants will be permitted to reenter the pool.

[^14]: The Commission's rules for non-dominant carriers would apply.
    *See* 47 C.F.R. §§ 61.18-61.25.

[^15]: The current cap on high cost loop support provides that if total
    support, based on each carrier's actual costs, is above the total
    allowed cap amount, each recipient of high cost loop support will
    receive a reduced amount of support to keep the total fund at a
    capped amount. *See* 47 C.F.R. § 36.601.

[^16]: RAS would also recover a portion of the special access revenue
    requirement to avoid rate increases for Path A study areas serving
    high cost regions. This portion of the plan is designed to preclude
    rate shock that could result from study areas increasing special
    access rates. The special access component of the RAS will also help
    to ensure that small rate-of-return LECs have the incentive to
    deploy advanced services in their territories.

[^17]: The plan also adjusts universal service support to reflect the
    expansion of Lifeline described above.

[^18]: *See* 47 C.F.R. § 54.101(a). The other services currently
    supported are Local Usage, DTMF signaling, single-party service,
    access to directory assistance, and toll limitation for low-income
    consumers.

[^19]: As with the RPL, this per-line universal service support may be
    adjusted on a prospective basis to reflect updated data to the point
    when the study area converted to the incentive plan. In all
    subsequent years, the universal service support amount per line will
    be adjusted for inflation as described above.

    Alternatively, for a given pooling study area, a Path A LEC could
    choose to set its universal service amount based on the data
    available at the time it converted to the incentive plan with no
    further updates, and adjusted only for inflation.

[^20]: *See Federal-State Joint Board on Universal Service*, 12 FCC Rcd
    8776, 8939-8940 (1997); 47 CFR § 36.622.

[^21]: *See* 47 C.F.R. § 54.301.

[^22]: *See id.* § 54.303. Starting in 2000, LTS is to increase by
    applying the GDP-CPI for the prior year.

[^23]: Universal service support for each study area that moves to
    incentive regulation will be established based on their initialized
    RPL for the base year adjusted for inflation, as described above.

[^24]: An example would be the location where facilities transition from
    backbone feeder routes configuration to a distributional
    configuration.

[^25]: If the characteristics of a particular wire center justify more
    than three zones, Path A LECs and Path B LECs may seek waivers from
    the Commission and the state regulator, as needed, to disaggregate
    support into additional zones.