**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                | *  | CC Docket No. 96-45          |
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| Federal-State Joint Board on    | ** |                              |
| Universal Service               |    |                              |
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+---------------------------------+----+------------------------------+

**ORDER**

**Adopted:** July 8, 2004 **Released:** July 20, 2004

By the Commission:

# introduction

1.  In this Order, we grant, in part, waiver requests filed by AT&T
    Corp. (AT&T), SBC Communications Inc. (SBC), and the Verizon
    telephone companies (Verizon) (collectively Petitioners) regarding
    the true-up process for universal service contributions based on
    2003 revenues.[^1] The Petitioners assert that this process unfairly
    disadvantages them by requiring them to pay true-up amounts in
    excess of their appropriate contributions for second through fourth
    quarter 2003. The current true-up process for 2003 contributions was
    adopted to address the transition from contributions based on
    historical billed to projected collected revenues, which occurred on
    April 1, 2003. We grant, in part, the Petitioners' requests and
    direct the Administrator[^2] to utilize Petitioners' historical
    gross billed revenues for first quarter 2003 reported on their Form
    499-Qs filed May 1, 2003, adjusted to reflect the annual
    uncollectible rate reported on their FCC Form 499-As filed April 1,
    2004, when truing up Petitioners' 2003 contributions.

# Background

2.  On December 12, 2002, the Federal Communications Commission
    (Commission) adopted modifications to the revenue-based universal
    service assessment system to ensure the sufficiency and
    predictability of universal service while it considers reforms to
    sustain the universal service fund for the long term.[^3] Among
    other things, the Commission determined that beginning with second
    quarter 2003, universal service contributions would be based on
    contributor-provided projections of collected revenues, rather than
    historical gross-billed revenues.[^4] As a result of this change to
    the assessment system, two quarters of historical revenues were not
    utilized to calculate universal service contributions -- fourth
    quarter 2002 and first quarter 2003. The Commission also adopted an
    annual true-up designed to ensure that carriers accurately project
    their revenues and thereby pay appropriate universal service
    contributions.

3.  In the *Order and Second Order on Reconsideration*, the Commission
    slightly modified the true-up process for universal service
    contributions to take into account the transition to the new
    revenue-based methodology on April 1, 2003.[^5] The Commission
    stated "the \[Administrator\] will subtract revenues projected for
    the first quarter of 2003 from annual revenues reported on the FCC
    Form 499-A to arrive at an estimate of a contributor's actual
    revenues for the second through fourth quarters of 2003. \[The
    Administrator\] will then compare this amount to the sum of revenues
    projected for the second through fourth quarters of 2003 to
    determine whether a refund or collection is appropriate."[^6]

4.  Petitioners' actual collected revenues for first quarter 2003
    exceeded their projections of collected revenues for first quarter
    2003.[^7] Thus, even if their projections for the second through
    fourth quarters of 2003 were completely accurate, and they made
    appropriate contributions for those quarters, Petitioners would be
    billed additional contribution amounts in the true-up process,
    because they under-projected collected revenues for the first
    quarter of 2003. Petitioners assert such a result is unfair, because
    first quarter 2003 revenues were not used to calculate universal
    service contributions. Accordingly, Petitioners ask the Commission
    to modify the true-up process for them and subtract their actual
    collected revenues for first quarter 2003, rather than their
    projections.

5.  In addition to SBC and Verizon, Verizon Wireless and Cingular
    Wireless LLC (Cingular) submitted comments in response to AT&T's
    petition for waiver.[^8] Verizon Wireless opposed AT&T's waiver,
    asserting that AT&T failed to present unique circumstances
    justifying a waiver. Instead, Verizon Wireless supported modifying
    the true-up process for all contributors. Cingular supported AT&T's
    waiver request and asked that the Commission extend the waiver to
    all similarly situated carriers. No other party submitted comments
    in response to the petitions for waiver.

# Discussion

6.  As discussed below, we grant, in part, Petitioners' request for
    waiver of the Commission's universal service true-up procedures for
    2003 and conclude that Petitioners have demonstrated good cause to
    justify the waiver. Section 1.3 of the Commission's rules provides
    that waiver of a rule may be granted upon "good cause shown."[^9]
    Commission rules are presumed valid, however, and an applicant for
    waiver bears a heavy burden.[^10] The Commission may exercise its
    discretion to waive a rule "only if special circumstances warrant a
    deviation from the general rule and such deviation will serve the
    public interest."[^11] The Commission may take into account
    considerations of hardship, equity, or more effective implementation
    of overall policy.[^12]

7.  Applying this standard for waiver, we find that Petitioners have
    demonstrated that they are experiencing special circumstances that
    warrant grant of a waiver. Section 254 of the Communications Act of
    1934, as amended (Act), requires that interstate telecommunications
    providers contribute to the universal service mechanisms on an
    equitable and nondiscriminatory basis.[^13] Consistent with section
    254 of the Act, the purpose of the annual true-up process is to
    ensure that interstate telecommunications providers contribute
    appropriate amounts to the universal service mechanisms.[^14] As a
    consequence of the transition to the modified revenue-based
    assessment system in 2003, however, Petitioners would contribute
    more than an equitable share, because they would be assessed a
    larger true-up amount under the current true-up process than would
    otherwise occur, because they under-projected their first quarter
    2003 revenues. We conclude that the Petitioners have demonstrated
    special circumstances that warrant deviation from the Commission's
    universal service true-up procedures for 2003. We further conclude
    that this result is consistent with the public interest, because
    first quarter 2003 revenues were not utilized to calculate universal
    service contributions. Accordingly, we find that the current true-up
    procedures for 2003 should be waived for the Petitioners. We
    disagree with Verizon Wireless that AT&T failed to demonstrate
    special circumstances warranting a waiver because other contributors
    may have experienced similar circumstances. Such arguments are
    speculative, given the record before us. [^15]

8.  Although we conclude a waiver is appropriate, we adopt an
    alternative methodology to that proposed by the Petitioners to
    determine an appropriate contribution. We do so to lessen
    implementation burdens for the Administrator, while providing
    adequate relief to the Petitioners. We direct the Administrator to
    subtract Petitioners' historical gross billed revenues for first
    quarter 2003 reported on their Form 499-Qs, adjusted to reflect
    their annual uncollectible rates for 2003 reported on their Form
    499-As, when conducting true-ups for the Petitioners. Although these
    amounts may not precisely equal the Petitioners' collected revenues
    for the quarter, they will yield significantly more accurate true-up
    results than would their projections. Moreover, allowing Petitioners
    to submit the new data that they request -- actual collected
    revenues for first quarter 2003 -- to the Administrator would create
    administrative difficulties, because the Administrator would have to
    develop new systems to accept and process this data. Using data that
    is currently in the Administrator's database will pose little
    additional burdens to the Administrator and will minimize delay in
    the true-up process. We conclude that granting Petitioners' waiver
    in this manner will further the public interest by improving the
    accuracy of the 2003 true-up process for these Petitioners without
    creating significant administrative burdens.[^16]

# ordering clause

9.  Accordingly, IT IS ORDERED, pursuant to sections 1, 4(i), 254 and
    405 of the Communications Act of 1934, as amended, 47 U.S.C. §§ 151,
    154(i), 254, and 405, and sections 1.3, 1.429 of the Commission's
    rules, 47 C.F.R. §§ 1.3, 1.429, that the Petitions for Waiver filed
    by AT&T Corp., SBC Communications Inc., and Verizon telephone
    companies ARE GRANTED, IN PART, as set forth herein.

    FEDERAL COMMUNICATIONS COMMISSION

    Marlene H. Dortch

    Secretary

[^1]: AT&T Petition for Waiver, CC Docket No. 96-45, (filed Jan. 27,
    2004); SBC Petition for Waiver, CC Docket No. 96-45, (filed Feb. 27,
    2004); Verizon Petition for Waiver, CC Docket No. 96-45, (filed Feb.
    27, 2004).

[^2]: *See* 47 C.F.R. § 54.701 (stating that the Universal Service
    Administrative Company is the Administrator of the universal service
    support mechanisms).

[^3]: *See* *Federal-State Joint Board on Universal Service, 1998
    Biennial Regulatory Review -- Streamlined Contributor Reporting
    Requirements Associated with Administration of Telecommunications
    Relay Service, North American Numbering Plan, Local Number
    Portability, and Universal Service Support Mechanisms,
    Telecommunications Services for Individuals with Hearing and Speech
    Disabilities, and the Americans with Disabilities Act of 1990,
    Administration of the North American Numbering Plan and North
    American Numbering Plan Cost Recovery Contribution Factor and Fund
    Size, Number Resource Optimization, Telephone Number Portability,
    Truth-in-Billing and Billing Format*, CC Docket Nos. 96-45, 98-171,
    90-571, 92-237, 99-200, 95-116, 98-170, Report and Order and Second
    Further Notice of Proposed Rulemaking, 17 FCC Rcd 24952 (2002)
    (*Interim Contribution Methodology Order*).

[^4]: *See id*., 17 FCC Rcd at 24970, para. 29.

[^5]: *See* *Federal-State Joint Board on Universal Service, 1998
    Biennial Regulatory Review -- Streamlined Contributor Reporting
    Requirements Associated with Administration of Telecommunications
    Relay Service, North American Numbering Plan, Local Number
    Portability, and Universal Service Support Mechanisms,
    Telecommunications Services for Individuals with Hearing and Speech
    Disabilities, and the Americans with Disabilities Act of 1990,
    Administration of the North American Numbering Plan and North
    American Numbering Plan Cost Recovery Contribution Factor and Fund
    Size, Number Resource Optimization, Telephone Number Portability,
    Truth-in-Billing and Billing Format*, CC Docket Nos. 96-45, 98-171,
    90-571, 92-237, 99-200, 95-116, 98-170, Order and Second Order on
    Reconsideration, 18 FCC Rcd 4818 (2003) (*Reconsideration Order*).

[^6]: *Id.*, 18 FCC Rcd at 4825, para. 17.

[^7]: *See* AT&T Petition for Waiver at 5; SBC Petition for Waiver at 4;
    Verizon Petition for Waiver at 3.

[^8]: The Commission requested comments on AT&T's petition. *See*
    Wireline Competition Bureau Seeks Comment on AT&T Corp. Waiver
    Regarding the Annual True-Up Process for 2003 Universal Service
    Contributions, CC Docket No. 96-45, *Public Notice*, DA 04-241 (rel.
    Jan. 30, 2004). *See also* Opposition of Verizon Wireless, CC Docket
    No. 96-45 (filed Feb. 27, 2004); Cingular Comments, CC Docket No.
    96-45 (filed Feb. 27, 2004).

[^9]: 47 C.F.R. § 1.3.

[^10]: *WAIT Radio v. FCC*, 418 F.2d 1153, 1157 (D.C. Cir. 1969), *cert.
    denied,* 409 U.S. 1027 (1972) (*WAIT Radio*).

[^11]: *Northeast Cellular Telephone v. FCC*, 897 F.2d 1164, 1166 (D.C.
    Cir. 1990).

[^12]: *WAIT Radio*, 418 F.2d at 1159.

[^13]: *See* 47 U.S.C. § 254(d).

[^14]: *Interim Contribution Methodology Order*, 117 FCC Rcd at 24972;
    *see also Reconsideration Order*, 18 FCC Rcd at 4824, para. 15.

[^15]: We decline to extend this waiver to all similarly situated
    parties, as requested by Cingular. Individual carriers may seek
    similar waiver relief, and such petitions would be evaluated
    consistent with the precedent established in this Order.

[^16]: In an *ex parte* filed with the Commission, AT&T states that, as
    an alternative to its proposed true-up methodology set forth in its
    petition, it "supports a process by which \[the Administrator\]
    would adjust the historical billed revenue from first quarter 2003
    (provided in AT&T's May 1, 2003 Form 499Q) for uncollectible rates
    taken from the Form 499A filed on April 1, 2004." *See* Letter from
    Amy L. Alvarez, Federal Government Affairs, AT&T, to Marlene H.
    Dortch, Secretary, Federal Communications Commission, CC Docket No.
    96-45, at 2 (filed June 18, 2004). We note that this alternative
    approach is the same methodology that we adopt herein.