**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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| In the Matter of                 | *  | WC Docket No. 05-337         |
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| High-Cost Universal Service      | ** | CC Docket No. 96-45          |
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| Federal-State Joint Board on     | *) |                              |
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**NOTICE OF PROPOSED RULEMAKING**

**Adopted: January 9, 2008 Released: January 29, 2008**

**Comment Date: (30 days after date of publication in the Federal
Register)**

**Reply Comment Date: (60 days after date of publication in the Federal
Register)**

By the Commission: Chairman Martin and Commissioners Copps, Adelstein,
Tate and McDowell issuing separate statements.

Table of Contents

Paragraph \#

I. Introduction 1

II\. Background 2

III\. Discussion 5

A. Basis of Support for Competitive ETCs 5

B. Determination of Costs for Competitive ETCs 13

1\. Methods for Examining Competitive ETC Costs 14

2\. Cost Reporting Requirements 18

C. Calculation of Support 20

D. Ceiling on Competitive ETC Per-Line Support 25

E. Other Issues 26

IV\. Procedural Matters 27

A. Initial Regulatory Flexibility Analysis 27

B. Paperwork Reduction Act Analysis 28

C. *Ex Parte* Presentations 29

D. Comment Filing Procedures 30

V. Ordering Clauses 33

APPENDIX: Initial Regulatory Flexibility Analysis

# Introduction

1.  In this Notice of Proposed Rulemaking, we seek comment on the
    Commission's rules governing the amount of high-cost universal
    service support provided to competitive eligible telecommunications
    carriers (ETCs). As discussed below, we tentatively conclude that we
    should eliminate the Commission's current "identical support" rule
    -- also known as the "equal support rule" -- which provides
    competitive ETCs with the same per-line high-cost universal service
    support amounts that incumbent local exchange carriers (LECs)
    receive. We seek comment on this tentative conclusion. We also seek
    comment on our tentative conclusion to provide support to a
    competitive ETC based on its own costs of providing the supported
    services. We then seek comment on methodologies for determining a
    competitive ETC's relevant costs for universal service support
    purposes, and other matters related to how the support should be
    calculated, including the appropriate reporting obligations, and
    whether we should cap such support at the level of the incumbent
    LECs.

# Background

2.  Section 254(b) of the Communications Act of 1934, as amended, (the
    Act) directs the Federal-State Joint Board on Universal Service
    (Joint Board) and the Commission to base policies for the
    preservation and advancement of universal service on several general
    principles, including the principle that there should be specific,
    predictable, and sufficient federal and state universal service
    support mechanisms.[^1] The Commission adopted the additional
    principle[^2] that federal support mechanisms should be
    competitively neutral.[^3] Consistent with this principle and with
    the Joint Board's recommendation, the Commission determined in 1997
    that federal universal service support should be made available, or
    "portable," to all ETCs that provide supported services, regardless
    of the technology used.[^4] Section 254(e) of the Act requires that
    a carrier that receives support "shall use that support only for the
    provision, maintenance, and upgrading of facilities and services for
    which the support is intended."[^5] Furthermore, pursuant to section
    214(e) of the Act, an ETC must provide service and advertise its
    service throughout the entire service area.[^6] In order to receive
    universal service support, competitors must obtain ETC status from
    the relevant state commission, or the Commission in cases where the
    state commission lacks jurisdiction.[^7]

3.  Under the Commission's existing rules, a competitive ETC that serves
    a customer in an incumbent LEC's service area receives the same
    per-line amount of high-cost universal service support that the
    incumbent LEC would receive for serving that same customer.[^8] The
    Commission's universal service rules do not distinguish between
    primary and secondary lines; therefore, multiple connections to a
    single end-user in high-cost areas may receive universal service
    support for each connection.[^9]

4.  High-cost support for competitive ETCs has grown rapidly over the
    last several years, placing extraordinary pressure on the federal
    universal service fund.[^10] In 2006, the universal service fund
    provided approximately \$4.1 billion per year in high-cost
    support.[^11] In contrast, in 2001, high-cost universal service
    support totaled approximately \$2.6 billion.[^12] In recent years,
    this growth has been due to increased support provided to
    competitive ETCs, which receive high-cost support based on the
    per-line support that the incumbent LECs receive, rather than on the
    competitive ETCs' own costs. While support to incumbent LECs has
    been flat, or has even declined since 2003,[^13] competitive ETC
    support, in the six years from 2001 through 2006, has grown from
    under \$17 million to \$980 million -- an annual growth rate of over
    100 percent.[^14] Competitive ETCs received \$557 million in
    high-cost support in the first six months of 2007.[^15] Annualizing
    this amount projects that they will receive approximately \$1.11
    billion in 2007.

# Discussion

## Basis of Support for Competitive ETCs

5.  To ensure the sufficiency of the universal service mechanism,[^16]
    we believe that the Commission must fundamentally reform how we
    distribute support under the existing high-cost mechanism. We
    therefore tentatively conclude that we should eliminate the
    Commission's current identical support rule for competitive ETCs,
    which bears no relationship to the amount of money such competitive
    ETCs have invested in rural and other high-cost areas of the
    country.[^17] We further tentatively conclude that a competitive ETC
    should receive high-cost support based on its own costs, which
    better reflect real investment in rural and other high-cost areas of
    the country, and which creates greater incentives for investment in
    such areas.

6.  In its 1996 *Recommended Decision,* the Joint Board recommended
    *inter alia* that the Commission should "establish 'competitive
    neutrality' as an additional principle upon which it shall base
    policies for the preservation and advancement of universal
    service."[^18] The Joint Board did not define what it meant by
    "competitive neutrality," however. The Joint Board further
    recommended that the support payments to incumbent LECs be made
    "portable" to competitive ETCs. Specifically, it recommended that
    "\[a\] CLEC should be allowed to receive support payments to the
    extent that it is able to capture subscribers formerly served by
    carriers eligible for frozen support payments or to add new
    customers in the incumbent LEC's study area."[^19] The Joint Board
    also recommended that high-cost support be limited to "a single
    connection to a subscriber's principal residence."[^20]

7.  In May 1997, the Commission adopted the majority of the Joint
    Board's recommendations.[^21] First, it adopted "competitive
    neutrality" as a principle for universal service support. The
    Commission provided the following very general definition of
    competitive neutrality: "competitive neutrality means that universal
    service support mechanisms and rules neither unfairly advantage or
    disadvantage one provider over another, and neither unfairly favor
    or disfavor one technology over another."[^22] The Commission did
    not explain what it meant to "unfairly advantage or disadvantage one
    provider over another," however. In addition, the Commission
    acknowledged that, "given the complexities and diversity of the
    telecommunications marketplace it would be extremely difficult to
    achieve strict competitive neutrality."[^23]

8.  The Commission also adopted the Joint Board's recommendation that it
    make incumbent carriers' support payments "portable to other
    eligible telecommunications carriers."[^24] In justifying this
    portability requirement, both the Joint Board and Commission made
    clear that they envisioned that competitive ETCs would compete
    directly against incumbent LECs and try to take existing customers
    from them. Thus, for example, the Commission explained:

A competitive carrier that has been designated as an eligible
telecommunications carrier shall receive universal service support to
the extent that it *captures* subscribers' lines *formerly served by* an
incumbent LEC or new customer lines in that incumbent LEC's study area.
At the same time, the incumbent LEC will continue to receive support for
the customer lines it *continues to serve*.[^25]

9.  The predictions of the Joint Board and the Commission have proven
    inaccurate, however. First, they did not foresee that competitive
    ETCs might offer supported services that were not viewed by
    consumers as substitutes for the incumbent LEC's supported service.
    Second, wireless carriers, rather than wireline competitive LECs,
    have received a majority of competitive ETC designations, serve a
    majority of competitive ETC lines, and have received a majority of
    competitive ETC support.[^26] These wireless competitive ETCs do not
    capture lines from the incumbent LEC to become a customer's sole
    service provider, except in a small portion of households.[^27]
    Thus, rather than providing a complete substitute for traditional
    wireline service, these wireless competitive ETCs largely provide
    mobile wireless telephony service in addition to a customer's
    existing wireline service.

10. This has created a number of serious problems for the high-cost
    fund, and calls into question the rationale for the identical
    support rule. First, instead of competitive ETCs competing against
    the incumbent LECs for a relatively fixed number of subscriber
    lines, the certification of wireless competitive ETCs has led to
    significant increases in the total number of supported lines.[^28]
    Because the majority of households do not view wireline and wireless
    services to be direct substitutes,[^29] many households subscribe to
    both services and receive support for multiple lines, which has led
    to a rapid increase in the size of the fund.[^30] In addition, the
    identical support rule fails to create efficient investment
    incentives for competitive ETCs.[^31] Because a competitive ETC's
    per-line support is based solely on the per-line support received by
    the incumbent LEC, rather than its own network investments in an
    area, the competitive ETC has little incentive to invest in, or
    expand, its own facilities in areas with low population densities,
    thereby contravening the Act's universal service goal of improving
    the access to telecommunications services in rural, insular and
    high-cost areas.[^32] Instead, competitive ETCs have a greater
    incentive to expand the number of subscribers, particularly those
    located in the lower-cost parts of high-cost areas, rather than to
    expand the geographic scope of their networks.

11. For these and other reasons, numerous parties and the Joint Board
    have recommended that the Commission consider abandoning the
    identical support rule and replacing it with a requirement that
    competitive ETCs receive support based on their own costs. Since
    2004, several parties have recommended that the Commission make such
    a change.[^33] More recently, on May 1, 2007, the Joint Board issued
    a recommended decision that "recommend\[ed\] the Commission consider
    abandoning the identical support rule"[^34] and also issued a public
    notice that sought comment on comprehensive high-cost reform,
    including "whether the Commission should replace the current
    identical support rule with a requirement that competitive ETCs
    demonstrate their own costs in order to receive support."[^35] The
    Joint Board also sought comment on other possible avenues of
    comprehensive high-cost reform.[^36]

12. Given the near-unanimous support of Joint Board members for the
    Commission moving to eliminate the identical support rule,[^37] and
    for the reasons set forth above, we tentatively conclude that the
    goal of universal service will be better served if we eliminate the
    identical support rule and instead provide support based on the
    competitive ETCs' own costs. We tentatively conclude that such a
    change in policy is further justified by the failure of the
    identical support rule to reward investment in communications
    infrastructure in rural and other high-cost areas.[^38]
    Additionally, we tentatively conclude that we should require
    competitive ETCs that seek high-cost support to file cost data
    demonstrating their costs of providing service in high-cost service
    areas. We seek comment on whether this proposal is consistent with
    the goal of competitive neutrality, given that the majority of
    competitive ETCs generally do not sell services that consumers view
    as direct substitutes for wireline services. To the extent that
    commenters argue that elimination of the identical support rule
    would be inconsistent with the goal of competitive neutrality, we
    seek comment on whether such a minimal departure is compensated by
    the potential stabilization of the high-cost fund and improved
    investment incentives that would result from the rule change. We
    seek comment on the above analysis and on these proposals.

## Determination of Costs for Competitive ETCs

13. We tentatively conclude that competitive ETCs should file cost data
    showing their own per-line costs of providing service in a supported
    service area in order to receive high-cost universal service
    support. Specifically, we propose that each competitive ETC should
    file cost data with the Commission or the relevant state commission
    -- whichever approved, or subsequently approves, its ETC application
    -- on an annual basis and line-count data on a quarterly basis. We
    further propose that competitive ETCs have the option of updating
    their cost data on a quarterly basis, as do rural incumbents
    today.[^39] Only if the cost data is approved by the relevant state
    commission or the Commission may the competitive ETC then file the
    cost data submission with the Universal Service Administrative
    Company (USAC). We seek comment on these tentative conclusions.
    Additionally, we invite parties to submit detailed cost data
    proposals or, in the case of competitive ETCs, actual cost data that
    would enable us to compare their costs for supported services in
    high-cost areas to those of incumbent LECs for those same areas. We
    note that Advocates for Regulatory Action submitted a proposal to
    replace the identical support rule with wireless carrier actual
    costs (the WiCAC Proposal), and we seek comment on that
    proposal.[^40]

### Methods for Examining Competitive ETC Costs

14. Consistent with our tentative conclusions above, a competitive ETC
    would be required to report sufficient cost information to allow the
    Commission or the state commissions to evaluate competitive ETC's
    costs for purposes of determining high-cost support. We seek comment
    on the manner in which competitive ETCs should be required to report
    their costs.

15. *[Disaggregation]{.underline}*. Incumbent LECs are required to
    separate their network costs into components pursuant to Part 32 of
    the Commission's rules.[^41] Rural incumbent LECs receive high-cost
    loop support (HCLS) on a per-line basis based on costs assigned to
    the common line network component, and non-rural incumbent LECs
    receive high-cost model support (HCMS) on a per-line basis for the
    common line, local switching, and local transport network
    components. Although traditionally we have not regulated the manner
    in which non-dominant carriers record their costs and revenues, we
    seek comment here on whether we should require competitive ETCs
    seeking high-cost support to separate costs into network components
    in a similar manner, so that their costs can be compared to the
    incumbent LECs' cost benchmarks for purposes of determining whether
    competitive ETCs qualify for high-cost support. We further seek
    comment on whether the Commission should develop a system of
    accounts for competitive ETCs, including wireless carriers, that
    mirror the Part 32 rules applicable to incumbent LECs.[^42] For
    example, the WiCAC Proposal would utilize 23 specific Part 32
    accounts to calculate wireless competitive ETC costs.[^43] We seek
    comment on the WiCAC Proposal's use of Part 32 accounts specifically
    to determine wireless competitive ETC costs. We also seek comment
    generally on other possible methods of identifying the network
    components and associated costs in a wireless network that are
    equivalent to a wireline carrier's local loop, switching, and
    transport components. We also seek comment on whether, if we require
    disaggregation of costs into network components, competitive ETCs
    should be able to recover costs for different network components for
    non-rural service areas than for rural service areas.[^44] Finally,
    we seek comment on whether the Commission should consider any
    limitations on the total per-line support available to ETCs in a
    designated area.[^45]

16. *[Geographic Disaggregation]{.underline}*. We further seek comment
    on whether, because competitive ETCs will, in general, operate in
    multiple study areas of incumbent carriers, it will be necessary to
    disaggregate each competitive ETC's cost by relevant competitive ETC
    service area, and by the relevant incumbent LEC study area, wire
    center, or disaggregation zone.[^46] We seek comment on whether the
    default methodology for such geographic disaggregation should be to
    allocate costs (total or by individual network component) in
    proportion to the active telephone numbers employed or the number of
    customers served in each study area. As an alternative, if a
    competitive ETC can demonstrate that it has maintained separate cost
    accounts by individual study area, then these accounts can be used
    to report cost for each study area individually. We seek comment on
    these issues. We also seek comment on how to best ensure that a
    competitive ETC does not inflate the costs being allocated to
    high-cost areas as compared to lower cost areas for which the
    competitive ETC may not be seeking support. For example, should we
    require that a competitive ETC identify total costs for all study
    areas or wire centers as well as the specific costs which the
    competitive ETC is associating with the study or services areas or
    wire centers for which it is seeking support?

17. *[Wireless-Specific Costs]{.underline}*. We tentatively conclude
    that wireless spectrum costs should be included in high-cost support
    cost submissions only to the extent that the competitive ETC
    actually paid for the spectrum, either through an auction or by
    purchasing it on the open market. We also tentatively conclude that
    a carrier should not be able to assign a market value or opportunity
    costs to spectrum. Thus, a wireless provider that obtained spectrum
    at auction would be able to include the price it paid for the
    spectrum at auction, but if a carrier obtained its spectrum through
    a lottery, it would not be able to recover any costs for the
    spectrum from the high-cost universal service mechanisms.[^47]
    Further, we tentatively conclude that wireless handsets should not
    be treated as an allowed expense, both because they are more akin to
    traditional customer-owned telephones in a wireline network than to
    the network interface device, and because the handsets are purchased
    by subscribers rather than leased to customers by carriers. We seek
    comment on these tentative conclusions.

### Cost Reporting Requirements

18. To aid the Commission and state commissions in their review of
    competitive ETC cost submissions, we propose a general set of rules
    to govern the cost data submitted by competitive ETCs. We
    tentatively conclude that the competitive ETCs should use Generally
    Accepted Accounting Principles (GAAP) and, with the exceptions
    discussed below, the accounting methodologies should be the same as
    those used to provide information about the company's performance to
    external parties, such as investors and creditors. The cost of
    capital should be assumed to be 11.25 percent, which is the average
    cost of capital used in the Commission's forward-looking model and
    in other regulatory proceedings.[^48] Depreciation expense should be
    computed in a manner consistent with GAAP, and, in addition, the
    same depreciation schedules used by the competitive ETC in any other
    financial reports must be used for purposes of determining total
    network cost for universal service support purposes. Operating and
    maintenance expense should be based on actual expenses incurred. The
    allocation for corporate overhead should be comparable to the
    limitations imposed on rural and non-rural carriers. Specifically,
    for rural carriers the amount of corporate operations expenses
    included in determining high-cost loop support is the lesser of
    actual expenses or the amount calculated under the formulas in
    section 36.622(a)(4) of the Commission's rules.[^49] For non-rural
    carriers, the input value for common support services expenses is
    \$7.32 per line, per month.[^50] Consistent with the approach under
    the HCMS rules, corporate operations expenses for competitive ETCs
    serving non-rural study areas would be the lesser of actual expenses
    or \$7.32 per line, per month. Further, any costs not kept in
    separate books of account should be identified and allocated to the
    appropriate study area based on active telephone numbers employed or
    the number of customers served.[^51] All elements of the cost report
    will be subject to audit. We seek comment on these observations,
    proposals, and tentative conclusions.

19. It may be necessary to adopt additional requirements concerning the
    manner in which competitive ETCs are allowed to report their costs.
    For example, although spectrum acquired through an auction or
    purchased on the open market may be a legitimate business expense,
    it is not clear that we should allow carriers to earn a return of
    11.25 percent on these investments in perpetuity if spectrum costs
    are not depreciated.[^52] In addition to those issues identified
    above, other issues may arise due to fundamental differences between
    wireline and wireless network design. We seek comment on these
    issues. We also seek comment on whether we should adopt any
    additional requirements on the competitive ETC cost
    submissions.[^53]

## Calculation of Support

20. As noted above, we seek comment on whether a competitive ETC should
    receive high-cost universal service support based on its own costs
    by applying the same benchmarks that are applied to the incumbent
    LEC's costs to determine its support. For example, in the case of a
    competitive ETC providing service in a non-rural study area, a cost
    per line would be developed, which would be compared to the
    benchmark threshold for support calculated by the High-Cost Proxy
    Model. For competitive ETCs providing service to rural study areas,
    a cost per line would be developed for each competitive ETC for each
    incumbent study area that it serves. Support could be determined by
    comparing the competitive ETC's cost per loop incurred to provide
    the supported services to the national average cost per loop
    developed by the National Exchange Carrier Association (NECA)
    pursuant to section 36.613 of the Commission's rules, as adjusted to
    accommodate the cap on incumbent high-cost loop support.[^54] We
    seek comment on this methodology and other possible methodologies
    for providing support to competitive ETCs serving rural areas.
    Similarly, we seek comment on a methodology for developing support
    based on wireless costs for competitive ETCs serving non-rural
    areas. We also seek comment on whether we should develop a method of
    estimating wireless competitive ETCs' forward-looking economic costs
    analogous to the High-Cost Proxy Model the Commission currently uses
    to calculate HCMS.

21. HCLS and HCMS both are calculated in terms of per-line support.
    Because a competitive ETC may have few or no lines when it first
    receives its ETC designation, performing a calculation of per-line
    support at the initial time of market entry likely would result in a
    considerable upward bias in the resulting support amount. We
    therefore seek comment on whether a competitive ETC should be
    required to project its subscribership for some future point in time
    when performing its cost submissions. To the extent that we require
    such subscribership projections, we seek comment on how far into the
    future a competitive ETC should be required to project (e.g., 3
    years, 5 years). We also seek comment on whether, and when, it would
    be appropriate to switch from projected future subscribership to
    actual subscribership. Further, for wireless ETCs, we seek comment
    on whether subscribership should be based on the number of handsets
    or on some other statistic, such as individual billing accounts.

22. We also seek comment on whether the Commission should examine
    wireless competitive ETC costs independently from wireline LEC costs
    for purposes of determining high-cost support. Wireless networks may
    be very different from wireline networks, potentially resulting in
    very different costs. We seek comment on methods for reviewing and
    determining wireless high-cost support on a separate basis from the
    existing wireline mechanisms, and whether adopting such a separate
    wireless high-cost support mechanism comports with the goal of
    competitive neutrality.

23. We tentatively conclude that competitive ETCs should no longer
    receive Interstate Access Support (IAS) and Interstate Common Line
    Support (ICLS). IAS and ICLS were created by the Commission in order
    to maintain the Commission's cap on subscriber line charge (SLC)
    rates that incumbent LECs may charge end users, while eliminating
    the implicit support found in common line access charges, imposed by
    incumbent LECs on interexchange carriers, that previously preserved
    the lower SLC rates.[^55] Some parties previously have argued that,
    because competitive ETCs' rates generally are not regulated and they
    are not subject to SLC caps, they are able to recover their revenues
    from end users and have no need to recover additional interstate
    revenues from access charges or from universal service, and
    therefore should not be eligible for support under IAS or ICLS.[^56]
    We tentatively conclude that permitting competitive ETCs to receive
    IAS or ICLS is inconsistent with how competitive ETCs recover their
    costs or set rates. We seek comment on these tentative conclusions.

24. Similarly, we seek comment on whether competitive ETCs should no
    longer receive Local Switching Support (LSS). The Commission created
    LSS in the *First Report and Order* by removing the existing Dial
    Equipment Minutes weighting subsidy from the access rate structure
    and, instead, providing carriers explicit support from the universal
    service fund.[^57] LSS therefore includes a number of assumptions
    regarding switching costs, such as the economies of scope and scale,
    that are not likely to be accurate for competitive ETCs. We seek
    comment on whether LSS should no longer be available to competitive
    ETCs.[^58] Accordingly, if competitive ETCs no longer receive IAS,
    ICLS, and LSS, competitive ETCs would be permitted to receive
    high-cost support only for their local loop-equivalent costs, to the
    extent such costs can be shown to be high-cost. We seek comment on
    whether to limit competitive ETC support in this manner.

## Ceiling on Competitive ETC Per-Line Support

25. We seek comment on whether we should establish a ceiling on the
    per-line high-cost support that a competitive ETC may receive. An
    incumbent LEC's HCMS is limited by the forward-looking estimated
    costs produced by the model, even if the incumbent LEC's actual
    costs are higher. For competitive ETCs providing service in
    non-rural study areas, we seek comment on setting the ceiling at the
    per-line HCMS that the incumbent LEC receives in a particular wire
    center. For competitive ETCs providing service in rural areas, we
    seek comment on setting the ceiling at the amount that the incumbent
    LEC receives from HCLS or, in the alternative, at the sum of the
    per-line HCLS and LSS that the incumbent receives.[^59] Adopting a
    ceiling for competitive ETCs at the level of incumbent LEC support
    could avoid rewarding competitive ETCs for being inefficient and
    reduce incentives for competitive ETCs to inflate their costs. We
    seek comment on this analysis, as well as on whether there are any
    other approaches for adopting a ceiling for competitive ETC funding.

## Other Issues

26. We also seek comment regarding the sufficiency of the Commission's
    existing use certifications with respect to competitive ETCs.
    Section 254(e) of the Act requires that "\[a\] carrier that receives
    \[universal service support\] shall use that support only for the
    provision, maintenance, and upgrading of facilities and services for
    which the support is intended."[^60] Currently, the Commission
    requires each state to file an annual certification stating that all
    federal high-cost universal service support provided to LECs or
    competitive ETCs within the state will be used only for the purposes
    for which the support is intended.[^61] The Commission also requires
    that each LEC or competitive ETC receiving IAS or ICLS must file a
    certification that the high-cost support received pursuant to those
    mechanisms will be used for the intended purpose.[^62] Some parties
    contend, however, that wireless competitive ETCs are not using their
    universal service support to promote universal service goals.[^63]
    We seek comment on whether these certifications, as well as the
    Commission's rules requiring competitive ETCs to submit five-year
    build out plans (beginning October 1, 2006),[^64] provide sufficient
    protection against misuse of universal service support by
    competitive ETCs. We request that parties arguing that stronger
    protections are necessary identify with specificity any recommended
    additional protections.

# Procedural Matters

## Initial Regulatory Flexibility Analysis

27. As required by the Regulatory Flexibility Act of 1980, as
    amended,[^65] the Commission has prepared an Initial Regulatory
    Flexibility Analysis (IRFA) for this notice of proposed rulemaking,
    of the possible significant economic impact on a substantial number
    of small entities by the policies and rules proposed in this notice
    of proposed rulemaking. The IRFA is in the attached Appendix A.
    Written public comments are requested on this IRFA. Comments must be
    identified as responses to the IRFA and must be filed by the
    deadlines for comments on the notice of proposed rulemaking. The
    Commission will send a copy of the notice of proposed rulemaking,
    including this IRFA, to the Chief Counsel for Advocacy of the Small
    Business Administration.[^66] In addition, the notice of proposed
    rulemaking and IRFA (or summaries thereof) will be published in the
    Federal Register.[^67]

## Paperwork Reduction Act Analysis

28. This document contains proposed new information collection
    requirements. The Commission, as part of its continuing effort to
    reduce paperwork burdens, invites the general public and the Office
    of Management and Budget (OMB) to comment on the information
    collection requirements contained in this document, as required by
    the Paperwork Reduction Act of 1995.[^68] Public and agency comments
    are due 60 days after this notice of proposed rulemaking is
    published in the Federal Register. Comments should address: (a)
    whether the proposed collection of information is necessary for the
    proper performance of the functions of the Commission, including
    whether the information shall have practical utility; (b) the
    accuracy of the Commission\'s burden estimates; (c) ways to enhance
    the quality, utility, and clarity of the information collected;
    and (d) ways to minimize the burden of the collection of information
    on the respondents, including the use of automated collection
    techniques or other forms of information technology. In addition,
    pursuant to the Small Business Paperwork Relief Act of 2002, we seek
    specific comment on how we might "further reduce the information
    collection burden for small business concerns with fewer than 25
    employees."[^69]

## *Ex Parte* Presentations

29. This proceeding shall be treated as a "permit-but-disclose"
    proceeding in accordance with the Commission's *ex parte*
    rules.[^70] Persons making oral *ex parte* presentations are
    reminded that memoranda summarizing the presentations must contain
    summaries of the substance of the presentations and not merely a
    listing of the subjects discussed. More than a one or two sentence
    description of the views and arguments presented is generally
    required.[^71] Other requirements pertaining to oral and written
    presentations are set forth in section 1.1206(b) of the Commission's
    rules.[^72]

## Comment Filing Procedures

30. Pursuant to sections 1.415 and 1.419 of the Commission's rules,[^73]
    interested parties may file comments and reply comments on or before
    the dates indicated on the first page of this document. Comments may
    be filed using: (1) the Commission's Electronic Comment Filing
    System (ECFS); (2) the Federal Government's eRulemaking Portal;
    or (3) by filing paper copies.[^74]

-   Electronic Filers: Comments may be filed electronically using the
    Internet by accessing the ECFS: <http://www.fcc.gov/cgb/ecfs/> or
    the Federal eRulemaking Portal:
    [http://www.regulations.gov](http://www.regulations.gov/). Filers
    should follow the instructions provided on the website for
    submitting comments.

    -   For ECFS filers, if multiple docket or rulemaking numbers appear
        in the caption of this proceeding, filers must transmit one
        electronic copy of the comments for each docket or rulemaking
        number referenced in the caption. In completing the transmittal
        screen, filers should include their full name, U.S. Postal
        Service mailing address, and the applicable docket or rulemaking
        number. Parties may also submit an electronic comment by
        Internet e-mail. To get filing instructions, filers should send
        an e-mail to <ecfs@fcc.gov>, and include the following words in
        the body of the message, "get form." A sample form and
        directions will be sent in response.

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-   Paper Filers: Parties who choose to file by paper must file an
    original and four copies of each filing. If more than one docket or
    rulemaking number appears in the caption of this proceeding, filers
    must submit two additional copies for each additional docket or
    rulemaking number.

> Filings can be sent by hand or messenger delivery, by commercial
> overnight courier, or by first-class or overnight U.S. Postal Service
> mail (although we continue to experience delays in receiving U.S.
> Postal Service mail). All filings must be addressed to the
> Commission's Secretary, Office of the Secretary, Federal
> Communications Commission.

-   The Commission's contractor will receive hand-delivered or
    messenger-delivered paper filings for the Commission's Secretary at
    236 Massachusetts Avenue, NE, Suite 110, Washington, DC 20002. The
    filing hours at this location are 8:00 a.m. to 7:00 p.m. All hand
    deliveries must be held together with rubber bands or fasteners. Any
    envelopes must be disposed of [before]{.underline} entering the
    building.

-   Commercial overnight mail (other than U.S. Postal Service Express
    Mail and Priority Mail) must be sent to 9300 East Hampton Drive,
    Capitol Heights, MD 20743.

-   U.S. Postal Service first-class, Express, and Priority mail must be
    addressed to 445 12^th^ Street, SW, Washington DC 20554.

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-   People with Disabilities: To request materials in accessible formats
    for people with disabilities (Braille, large print, electronic
    files, audio format), send an e-mail to <fcc504@fcc.gov> or call the
    Consumer & Governmental Affairs Bureau at 202-418-0530 (voice),
    202-418-0432 (tty).

31. In addition, one copy of each pleading must be sent to each of the
    following:

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(1) The Commission's duplicating contractor, Best Copy and Printing,
    Inc, 445 12^th^ Street, S.W., Room CY-B402, Washington, D.C. 20554;
    website: [www.bcpiweb.com](http://www.bcpiweb.com/); phone:
    1-800-378-3160;

(2) Antoinette Stevens, Telecommunications Access Policy Division,
    Wireline Competition Bureau, 445 12^th^ Street, S.W., Room 5-B540,
    Washington, D.C. 20554; e-mail: <Antoinette.Stevens@fcc.gov>.

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32. For further information regarding this proceeding, contact Ted
    Burmeister, Attorney Advisor, Telecommunications Access Policy
    Division, Wireline Competition Bureau at (202) 418-7389, or
    theodore.burmeister@fcc.gov, or Katie King, Telecommunications
    Access Policy Division, Wireline Competition Bureau, (202) 418-7491,
    or <katie.king@fcc.gov>.

# Ordering Clauses

33. Accordingly, IT IS ORDERED that, pursuant to the authority contained
    in sections 1, 2, 4(i), 4(j), 201-205, 214, 254, and 403 of the
    Communications Act of 1934, as amended, 47 U.S.C. §§ 151, 152,
    154(i)-(j), 201-205, 214, 254, 403 and sections 1.1, 1.411-1.419,
    and 1.1200-1.1216 of the Commission's rules, 47 C.F.R. §§ 1.1,
    1.411-1.419, 1.1200-1.1216, this Notice of Proposed Rulemaking IS
    ADOPTED.

34. IT IS FURTHER ORDERED that the Commission's Consumer and
    Governmental Affairs Bureau, Reference Information Center, SHALL
    SEND a copy of this Notice of Proposed Rulemaking, including the
    Initial Regulatory Flexibility Analysis, to the Chief Counsel for
    Advocacy of the Small Business Administration.

    FEDERAL COMMUNICATIONS COMMISSION

    Marlene H. Dortch

    Secretary

    Appendix

    **Initial Regulatory Flexibility Analysis**

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1.  As required by the Regulatory Flexibility Act (RFA),[^75] the
    Commission has prepared this Initial Regulatory Flexibility Analysis
    (IRFA) of the possible significant economic impact on small entities
    by the policies and rules proposed in the Notice of Proposed
    Rulemaking (Notice). Written public comments are requested on this
    IRFA. Comments must be identified as responses to the IRFA and must
    be filed by the deadlines for comments on the Notice provided in
    paragraph 30 of the item. The Commission will send a copy of the
    Notice, including this IRFA, to the Chief Counsel for Advocacy of
    the Small Business Administration (SBA).[^76] In addition, the
    Notice and IRFA (or summaries thereof) will be published in the
    Federal Register.[^77]

## Need for, and Objectives of, the Proposed Rules

1.  Over the last few years, the size of the universal service fund has
    grown rapidly, threatening the sustainability of the fund.[^78] This
    growth has been driven largely by the increase in high-cost
    universal service support for competitive eligible
    telecommunications carriers (ETCs).[^79] The increase in high-cost
    support to competitive ETCs is, in turn, a product of the growing
    number of competitive ETC lines (due to both new designations of
    competitive ETCs and growth in subscribership to wireless services),
    the availability of support for multiple lines per household, and
    the identical support rule, which provides that each competitive ETC
    receives the same per-line support amount that the incumbent local
    exchange carrier (LEC) receives.[^80] In the Notice, the Commission
    tentatively concludes that the identical support rule should be
    eliminated because it bears no relationship to the amount of money
    competitive ETCs have invested in rural and other high-cost areas of
    the country.[^81] The Commission seeks comment on its tentative
    conclusion to provide support based on a competitive ETC's own costs
    as a means of constraining the growth of the universal service fund
    and providing appropriate investment incentives for competitive
    ETCs.[^82]

## Legal Basis

2.  The legal basis for any action that may be taken pursuant to the
    Notice is contained in sections 1, 2, 4(i), 4(j), 201-205, 214, 254,
    and 403 of the Communications Act of 1934, as amended, and sections
    1.1, 1.411-1.419, and 1.1200-1.1216 of the Commission's rules.[^83]

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

3.  The RFA directs agencies to provide a description of, and, where
    feasible, an estimate of the number of small entities that may be
    affected by the rules, if adopted.[^84] The RFA generally defines
    the term "small entity"[^85] as having the same meaning as the terms
    "small business,"[^86] "small organization," [^87] and "small
    governmental jurisdiction."[^88] In addition, the term "small
    business" has the same meaning as the term "small business concern"
    under the Small Business Act, unless the Commission has developed
    one or more definitions that are appropriate to its activities.[^89]
    Under the Small Business Act, a "small business concern" is one
    that: (1) is independently owned and operated; (2) is not dominant
    in its field of operation; and (3) meets any additional criteria
    established by the SBA.[^90] Nationwide, there are a total of
    approximately 22.4 million small businesses, according to SBA
    data.[^91] A small organization is generally "any not-for-profit
    enterprise which is independently owned and operated and is not
    dominant in its field."[^92] Nationwide, as of 2002, there were
    approximately 1.6 million small organizations.[^93]

4.  The most reliable source of information regarding the total numbers
    of certain common carrier and related providers nationwide, as well
    as the number of commercial wireless entities, is the data that the
    Commission publishes in its *Trends in Telephone Service*
    report.[^94] The SBA has developed small business size standards for
    wireline and wireless small businesses within the three commercial
    census categories of Wired Telecommunications Carriers,[^95]
    Paging,[^96] and Cellular and Other Wireless
    Telecommunications.[^97] Under these categories, a business is small
    if it has 1,500 or fewer employees. Below, using the above size
    standards and others, we discuss the total estimated numbers of
    small businesses that might be affected by our actions.

### Wireline Carriers and Service Providers

5.  We have included small incumbent LECs in this present RFA analysis.
    As noted above, a "small business" under the RFA is one that,
    *inter* *alia*, meets the pertinent small business size standard
    (e.g., a telephone communications business having 1,500 or fewer
    employees), and "is not dominant in its field of operation."[^98]
    The SBA's Office of Advocacy contends that, for RFA purposes, small
    incumbent LECs are not dominant in their field of operation because
    any such dominance is not "national" in scope.[^99] We have
    therefore included small incumbent LECs in this RFA analysis,
    although we emphasize that this RFA action has no effect on
    Commission analyses and determinations in other, non-RFA contexts.

6.  *Incumbent LECs*. Neither the Commission nor the SBA has developed a
    size standard for small businesses specifically applicable to
    incumbent LECs. The closest applicable size standard under SBA rules
    is for Wired Telecommunications Carriers. Under that size standard,
    such a business is small if it has 1,500 or fewer employees.[^100]
    According to Commission data,[^101] 1,307 carriers reported that
    they were engaged in the provision of local exchange services. Of
    these 1,307 carriers, an estimated 1,019 have 1,500 or fewer
    employees, and 288 have more than 1,500 employees. Consequently, the
    Commission estimates that most providers of incumbent local exchange
    service are small businesses that may be affected by our action.

7.  *Competitive LECs, Competitive Access Providers (CAPs),
    "Shared-Tenant Service Providers," and "Other Local Service
    Providers."* Neither the Commission nor the SBA has developed a
    small business size standard specifically for these service
    providers. The appropriate size standard under SBA rules is for the
    category Wired Telecommunications Carriers. Under that size
    standard, such a business is small if it has 1,500 or fewer
    employees.[^102] According to Commission data,[^103] 859 carriers
    reported that they were engaged in the provision of either
    competitive LEC or CAP services. Of these 859 carriers, an estimated
    741 have 1,500 or fewer employees, and 118 have more than 1,500
    employees.[^104] In addition, 16 carriers have reported that they
    are "Shared-Tenant Service Providers," and all 16 are estimated to
    have 1,500 or fewer employees. In addition, 44 carriers have
    reported that they are "Other Local Service Providers." Of the 44,
    an estimated 43 have 1,500 or fewer employees, and one has more than
    1,500 employees. Consequently, the Commission estimates that most
    competitive LECs, CAPs, "Shared-Tenant Service Providers," and
    "Other Local Service Providers" are small entities that may be
    affected by our action.

### Wireless Carriers and Service Providers

8.  *Wireless Service Providers*. The SBA has developed a small business
    size standard for wireless firms within the two broad economic
    census categories of "Paging"[^105] and "Cellular and Other Wireless
    Telecommunications."[^106] Under both categories, the SBA deems a
    wireless business to be small if it has 1,500 or fewer employees.
    For the census category of Paging, Census Bureau data for 2002 show
    that there were 807 firms in this category that operated for the
    entire year.[^107] Of this total, 804 firms had employment of 999 or
    fewer employees, and three firms had employment of 1,000 employees
    or more.[^108] Thus, under this category and associated small
    business size standard, the majority of firms can be considered
    small. For the census category of Cellular and Other Wireless
    Telecommunications, Census Bureau data for 2002 show that there were
    1,397 firms in this category that operated for the entire
    year.[^109] Of this total, 1,378 firms had employment of 999 or
    fewer employees, and 19 firms had employment of 1,000 employees or
    more.[^110] Thus, under this second category and size standard, the
    majority of firms can, again, be considered small.

9.  *Wireless Telephony*. Wireless telephony includes cellular, personal
    communications services (PCS), and specialized mobile radio (SMR)
    telephony carriers. As noted earlier, the SBA has developed a small
    business size standard for "Cellular and Other Wireless
    Telecommunications" services.[^111] Under that SBA small business
    size standard, a business is small if it has 1,500 or fewer
    employees.[^112] According to Commission data, 432 carriers reported
    that they were engaged in the provision of wireless telephony.[^113]
    We have estimated that 221 of these are small under the SBA small
    business size standard.

### Satellite Service Providers

10. *Satellite Telecommunications and Other Telecommunications*. There
    is no small business size standard developed specifically for
    providers of international service. The appropriate size standards
    under SBA rules are for the two broad census categories of
    "Satellite Telecommunications" and "Other Telecommunications." Under
    both categories, such a business is small if it has \$13.5 million
    or less in average annual receipts.[^114]

11. The first category of Satellite Telecommunications "comprises
    establishments primarily engaged in providing point-to-point
    telecommunications services to other establishments in the
    telecommunications and broadcasting industries by forwarding and
    receiving communications signals via a system of satellites or
    reselling satellite telecommunications."[^115] For this category,
    Census Bureau data for 2002 show that there were a total of 371
    firms that operated for the entire year.[^116] Of this total, 307
    firms had annual receipts of under \$10 million, and 26 firms had
    receipts of \$10 million to \$24,999,999.[^117] Consequently, we
    estimate that the majority of Satellite Telecommunications firms are
    small entities that might be affected by our action.

12. The second category of Other Telecommunications "comprises
    establishments primarily engaged in (1) providing specialized
    telecommunications applications, such as satellite tracking,
    communications telemetry, and radar station operations; or (2)
    providing satellite terminal stations and associated facilities
    operationally connected with one or more terrestrial communications
    systems and capable of transmitting telecommunications to or
    receiving telecommunications from satellite systems."[^118] For this
    category, Census Bureau data for 2002 show that there were a total
    of 332 firms that operated for the entire year.[^119] Of this total,
    259 firms had annual receipts of under \$10 million and 15 firms had
    annual receipts of \$10 million to \$24,999,999.[^120] Consequently,
    we estimate that the majority of Other Telecommunications firms are
    small entities that might be affected by our action.

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

13. This Notice seeks comment on whether to calculate support for
    competitive ETCs based on their own costs.[^121] If the Commission
    ultimately adopts such a method for determining high-cost support
    for competitive ETCs, it will likely require competitive ETCs to
    begin recording and reporting their cost data in order to receive
    high-cost support. Specifically, the Notice seeks comment on how
    such costs should be identified and reported, and proposes that the
    costs must be reported to the Commission or the relevant state
    authority for approval before submission to the universal service
    administrator for use in calculating and disbursing support.[^122]

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

14. The RFA requires an agency to describe any significant alternatives
    that it has considered in reaching its proposed approach, which may
    include the following four alternatives (among others): (1) the
    establishment of differing compliance and reporting requirements or
    timetables that take into account the resources available to small
    entities; (2) the clarification, consolidation, or simplification of
    compliance or reporting requirements under the rule for small
    entities; (3) the use of performance, rather than design, standards;
    and (4) an exemption from coverage of the rule, or part thereof, for
    small entities.[^123]

15. This Notice seeks comment generally on how competitive ETCs should
    identify and report their costs and how to calculate their high-cost
    universal service support.[^124] Furthermore, the Notice
    specifically seeks comment on whether less stringent cost accounting
    requirements should apply to smaller competitive ETCs.[^125] The
    Notice seeks comment on whether the methods for determining
    competitive ETC costs discussed therein would significantly
    economically affect smaller competitive ETCs.[^126] If so, the
    Notice seeks comment on alternative methods for smaller competitive
    ETCs to submit information that would allow the Commission and the
    state commissions adequately to assess these companies' costs for
    purposes of determining high-cost support.[^127] The Commission
    expects to consider the economic impact on small entities, as
    identified in comments filed in response to the Notice, in reaching
    its final conclusions and taking action in this proceeding.
    Moreover, the Notice seeks comment on whether to eliminate or retain
    the existing identical support rule, but tentatively concludes that
    the existing rule threatens the sufficiency of the universal service
    fund.[^128] The Notice seeks comment on whether replacing the
    existing rule with a support mechanism that provides support to
    competitive ETCs based on their own costs may have a significant
    economic impact on some competitive ETCs, and, if so, seeks comment
    on alternative methods for smaller competitive ETCs to report their
    costs to the Commission and the state commissions.[^129]

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

16. None.

**STATEMENT OF**

**CHAIRMAN KEVIN J. MARTIN**

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-22 (*Joint Board Comprehensive High Cost
Recommended Decision Notice*).

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-4 (*Identical Support Rule Notice*).

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-5 (*Reverse Auctions Notice*).

Today, the Commission adopts several proposals to reform the high-cost
universal service program. It is essential that we take actions that
preserve and advance the benefits of the universal service program.

 

The United States and the Commission have a long history and tradition
of ensuring that rural areas of the country are connected and have
similar opportunities for communications as other areas.  Our universal
service program must continue to promote investment in rural America's
infrastructure and ensure access to telecommunications services that are
comparable to those available in urban areas today, as well as provide a
platform for delivery of advanced services.

 

Changes in technology and increases in the number of carriers that
receive universal service support, however, have placed significant
pressure on the stability of the Fund.  A large and rapidly growing
portion of the high-cost support program is now devoted to supporting
multiple competitors to serve areas in which costs are prohibitively
expensive for even one carrier.  These additional networks don't receive
support based on their own costs, but rather on the costs of the
incumbent provider, even if their costs of providing service are lower.
In addition to recommending an interim cap, the Joint Board has
recognized the problems of maintaining this identical support rule.

 

I am supportive of several means of comprehensive reform for the
universal service program. I have circulated among my colleagues at the
Commission an Order that adopts the recommendation of the Joint Board to
place an interim cap on the amount of high-cost support available to
competitive ETCs.  And today we adopt a Notice of Proposed Rulemaking
that would require that high-cost support be based on a carrier's own
costs in the same way that rural phone companies' support is based.  I'm
supportive of both measures as a means to contain the growth of
universal service in order to preserve and advance the benefits of the
fund and protect the ability of people in rural areas to continue to be
connected. 

 

I continue to believe the long-term answer for reform of high-cost
universal service support is to move to a reverse auction
methodology.  I believe that reverse auctions could provide a
technologically and competitively neutral means of controlling the
current growth in the fund and ensuring a move to most efficient
technologies over time.  Accordingly, I am pleased that we adopt today's
Notice of Proposed Rulemaking to use reverse auctions to distribute
universal service support.

**STATEMENT OF**

**COMMISSIONER MICHAEL J. COPPS, **

**Approving in FCC 08-22**

**Approving in FCC 08-4**

**Approving in Part, Dissenting in Part in FCC 08-5**

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-22 (*Joint Board Comprehensive High Cost
Recommended Decision Notice*) (Approving).

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-4 (*Identical Support Rule Notice*)
(Approving).

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-5 (*Reverse Auctions Notice*) (Approving in
Part, Dissenting in Part).

** **

The Commission adopts and seeks comment on three Notices of Proposed
Rulemaking concerning:  the Federal-State Joint Board on Universal
Service's (Joint Board) recommendation on comprehensive reform of the
high-cost Universal Service support mechanism; the elimination of the
"Identical Support" rule; and the merits of using reverse auctions in
distributing high-cost support to eligible telecommunications carriers
(ETCs).  I am pleased that the Commission today initiates all three
NPRMs simultaneously as I have long believed that Universal Service
reform must be done in a comprehensive, systematic manner.  I write here
to express my views on all three proceedings.

 

I continue to believe that there are a variety of ways to promote
Universal Service and at the same time ensure the sustainability and
integrity of the fund.  I believe much would be accomplished if the
Commission were to include broadband on both the distribution and
contribution side of the ledger; eliminate the Identical Support rule;
and increase its oversight and auditing of the high-cost fund. 
Additionally, Congressional authorization to permit the assessment of
Universal Service contributions on intrastate as well as interstate
revenue would be a valuable tool for supporting broadband.  

 

That being said, the Joint Board made an assortment of recommendations
of its own.  I agreed with some of them and not with others. In my view,
the most important part of the recommendation is its inclusion of
broadband as part of USF for the 21^st^ Century.  My views on the
recommendation are explained in further detail in my statement that
accompanied the Joint Board's recommendation and which is attached as an
appendix to the NPRM adopted today.  I believe the recommendation merits
further action by the Commission, and therefore, I am pleased to support
the NPRM initiated today.

 

Let me briefly take this opportunity to thank the members of the Joint
Board who worked tirelessly on the difficult task of developing a
comprehensive proposal for the FCC's consideration.  I congratulate
Chairwoman Tate for her leadership in bringing these recommendations to
the Commission.  We are all deeply indebted to her co-chair,
Commissioner Ray Baum of Oregon, for his tireless and energetic work in
shepherding the Joint Board toward consensus on many items.  And I want
to pay tribute to the always visionary yet practical efforts of the
indefatigable Billy Jack Gregg whose endless good counsel is sewn
throughout the Joint Board's recommendations.

 

With regard to the NPRM on the Identical Support rule, it is clear to me
that the costs of investing and maintaining wireless and wireline
infrastructure are inherently different.  I believe that wireless can
and should be a part of Universal Service, but the time has come to put
an end to the irrational and costly system of supporting wireless
carriers based on the cost of wireline incumbents. I therefore am
supportive of the tentative conclusion that we eliminate this rule. The
NPRM is particularly important because it seeks comment on how best to
replace this rule and in particular the methodologies by which CETCs
should be able to recover costs for Universal Service support purposes.

 

 The NPRM on reverse auctions is much more of a mixed bag.  On the one
hand, I support the Commission's decision to seek comment on the merits
of reverse auctions as a method for distributing high-cost Universal
Service support. The Joint Board spent a great deal of time examining
the use of reverse auctions, but I must say that our review raised in my
mind many more questions than it answered.  For instance, how do we
ensure that the winning bidder provides adequate quality of service? 
What happens if the winner later decides it is no longer profitable to
continue its operation?  And who will be responsible for establishing
the rules and enforcing them?  Ironically, this purportedly market-based
approach strikes me as hyper-regulatory.  For these reasons, I must
dissent from the NPRM's tentative conclusion that the Commission should
develop an auction mechanism to determine high-cost support.  I believe
that the options I outlined above---including broadband as part of
Universal Service; elimination of the Identical Support rule; stepped-up
accounting oversight; and Congressional action to enable Universal
Service collections on an intrastate as well as an interstate basis
provide a more effective and less disruptive approach to Universal
Service reform.

 

The good news is that these three items, particularly the Joint Board
recommendation, put the urgent need for comprehensive Universal Service
reform squarely in front of the Commission.  I hope the FCC will deal
with these recommendations expeditiously and comprehensively. This is no
place for piecemeal actions.  We need to think expansively and
creatively about implementing the path-breaking broadband decision that
has now been presented to us. This country desperately needs a
comprehensive broadband strategy.  The Joint Board recommendation
provides the opportunity for the FCC to move toward such a strategy,
working with our own rules and making suggestions to Congress in those
areas where legislative action may be required to ensure such a
strategy.  I am looking forward to working with my colleagues in order
to turn these proposals into workable solutions.

  

**STATEMENT OF**

**COMMISSIONER JONATHAN S. ADELSTEIN,**

**Approving in FCC 08-22**

**Approving in FCC 08-4**

**Concurring in Part, Dissenting in Part in FCC 08-5**

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-22 (*Joint Board Comprehensive High Cost
Recommended Decision Notice*) (Approving).

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-4 (*Identical Support Rule Notice*)
(Approving).

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-5 (*Reverse Auctions Notice*) (Concurring in
Part, Dissenting in Part).

Through these Notices, the Commission seeks comment on potentially
profound changes to the Universal Service High Cost program. While I am
not without reservations about some of the proposals in these items, I
am pleased that the Commission is engaging in serious consideration of
how to preserve and advance universal service, one of the bedrock
principles of U.S. telecommunications policy. I am particularly
encouraged that the Commission is seeking comment on the recommendations
of the Federal-State Joint Board on Universal Service (Joint Board), and
I thank the members of the Joint Board for their considerable efforts to
bring us this Recommended Decision.

Congress and the Commission recognized early on that the economic,
social, and public health benefits of the telecommunications network are
increased for all subscribers by the addition of each new subscriber. In
Section 254 of the Communications Act, Congress affirmed the broad
principle that "consumers in all regions of the nation . . . should have
access to telecommunications and information services . . . that are
reasonably comparable to those services provided in urban areas and that
are available at rates that are reasonably comparable to rates charged
for similar services in urban areas." Implementing universal service as
intended by Congress in Section 254 of the Act is among the highest
priorities for the Commission.

The task before us -- ensuring the continued vitality of universal
service -- is particularly important as technology and the marketplace
continue to evolve. Our choices in this proceeding will have a dramatic
effect on the ability of communities and consumers in Rural America to
thrive and grow with the rest of the country. History has shown that
many rural consumers would be left behind if it weren't for the support
made available through our universal service policies.

The Joint Board's Recommended Decision for comprehensive reform of the
high cost support mechanism -- and, in particular, the decision to
include broadband as a supported service -- is a landmark development. I
have long argued that the universal service fund is an integral
component of our efforts to meet the broadband challenge. So, the
decision to embrace broadband, through the list of supported services
and through targeted funding for unserved areas, and the recognition of
the effectiveness of the current High Cost Loop Fund in supporting the
capital costs of providing broadband-capable loop facilities for rural
carriers are encouraging developments.

I must express a degree of reservation over the amount of support
allocated to the Broadband Fund, among other limitations on support.
Maintaining our commitment to connectivity, particularly in the
broadband age, is more important than ever, and the Commission must
start to provide realistic assessments of what will be required. To that
end, I am also concerned about the impact of reverse auctions and
whether such mechanisms can provide adequate incentives for build out in
Rural America. For these reasons, I dissent from the tentative
conclusions in the separate Reverse Auctions Notice. While I appreciate
the majority's willingness to flesh out details of their reverse auction
proposal, I cannot support these premature tentative conclusions, and
would have preferred a more balanced presentation of the potential
disadvantages of such an approach.

There remain many questions about the Recommended Decision and details
to be vetted. While I reserve judgment on many of the proposals, there
is much here that warrants careful consideration. The Joint Board has
wrestled with many difficult issues, including the unique role of
providers of last resort, compensation for multiple providers, and the
role of the States in fostering universal service, and I look forward to
seeking comment on their recommendations. I agree with the Joint Board's
recommendation on the identical support rule and support the separate
Notice seeking comment on alternative approaches.

As we move forward with these proceedings at the Commission, I would
like to express my sincere gratitude to all the members and staff of the
Joint Board. The Joint Board, and the many parties who participated in
those proceedings, engaged in a long and arduous effort to bring us
these recommendations. I know that we will benefit considerably from
their expertise and judgment, and I look forward to the coming dialogue
on these proposals with our state commission colleagues, consumers,
providers, and the many others with a stake in the future of universal
service.

**STATEMENT OF**

**COMMISSIONER DEBORAH TAYLOR TATE**

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-22 (*Joint Board Comprehensive High Cost
Recommended Decision Notice*) (Approving).

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-4 (*Identical Support Rule Notice*)
(Approving).

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-5 (*Reverse Auctions Notice*) (Approving).

As Federal Chair of the Federal-State Joint Board on Universal Service
(Joint Board) I am particularly pleased that we are taking this
significant step forward in the journey toward comprehensive reform of
the high-cost universal service program.  This is an important program
at the heart of rural America. Its purpose, to connect all Americans to
telecommunications at affordable rates, has over the years permitted
people to be connected even in rural and remote parts of our nation.
Going forward, the Universal Service Fund will continue to play a
critical and increasing role in one of our top priorities at the
Commission -- encouraging broadband deployment to all corners of
America.  

Specifically, we seek comment on the recommendation of the Joint Board
regarding comprehensive reform of high-cost universal service support.
 It is also significant that we also incorporate by reference the
*Identical Support NPRM* and *Reverse Auctions NPRM*, including the
records to be developed in response to those NPRMs. I look forward to
receiving public input and examining these issues.  

I would like to thank my Co-Chair, Commissioner Ray Baum of the Oregon
Public Utility Commission. I am especially pleased that all eight Joint
Board members, large and small/rural and urban/donor and recipient, were
able to come to this consensus and hope this will move us forward and
provide the basic building blocks for fundamental reform to ensure Fund
stability and viability in a fiscally responsible manner. All of the
Joint Board members deserve praise for their commitment to the in-depth
analysis of these complex issues, their desire to positively affect
public policy and to make decisions in the public interest in a
thoughtful and deliberative manner. They should all be commended for
their commitment to serve on the Joint Board in addition to their full
time positions as government officials.

**STATEMENT OF**

**COMMISSIONER ROBERT M. MCDOWELL**

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-22 (*Joint Board Comprehensive High Cost
Recommended Decision Notice*) (Approving).

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-4 (*Identical Support Rule Notice*)
(Approving).

Re: *High-Cost Universal Service Support; Federal-State Joint Board on
Universal Service*, Notice of Proposed Rulemaking, WC Docket No. 05-337;
CC Docket No. 96-45, FCC 08-5 (*Reverse Auctions Notice*) (Approving).

I have consistently stated that, while the Universal Service system has
been instrumental in keeping Americans connected and improving their
quality of life, this system is in dire need of comprehensive reform. I
have maintained that we must follow five principles when considering
reforms to the Universal Service Fund. We must: (1) slow the growth of
the Fund; (2) permanently broaden the base of contributors; (3) reduce
the contribution burden for all, if possible; (4) ensure competitive
neutrality; and (5) eliminate waste, fraud and abuse. A number of
proposals have been put forth, particularly the Joint Board's
recommendations for comprehensive reform sent to the Commission on
November 19, 2007.

By adopting these three notices of proposed rulemaking, we are moving
forward to advance specific reforms to the way the Universal Service
High Cost Fund is administered. I favor a comprehensive approach where
we can consider all ideas and options for reform of this important
program. This year the Commission has an historic opportunity to
implement meaningful and lasting fiscal reform that balances
stakeholders' concerns and promotes the interests of consumers. We
should seize this opportunity and take a bold step forward.

[^1]: *See* 47 U.S.C. § 254(b). These principles also include, among
    other things, that: (1) quality services should be available at
    just, reasonable, and affordable rates; and (2) consumers in all
    regions of the nation should have access to telecommunications and
    information services that are reasonably comparable to those
    services provided in urban areas and that are available at rates
    that are reasonably comparable to rates charged for similar services
    in urban areas. *Id.*

[^2]: *See Federal-State Joint Board on Universal Service,* CC Docket
    No. 96-45, Report and Order, 12 FCC Rcd 8776, 8801, paras. 46-48
    (1997) (*First Report and Order*) (subsequent history omitted)*.*
    Section 254(b)(7) of the Act allows the Commission to add to the
    list of universal service principles "\[s\]uch other principles as
    the Joint Board and the Commission determine are necessary and
    appropriate for the protection of the public interest, convenience,
    and necessity and are consistent with this Act." *See* 47 U.S.C. §
    254(b)(7).

[^3]: *First Report and Order*, 12 FCC Rcd at 8801-02, paras. 46-48.

[^4]: *Id.* at 8932-8934 paras. 286-290, 8944-8945 paras. 311-13; *see
    also Alenco Communications, Inc. v. Federal Communications
    Commission*, 201 F.3d 608, 621-622 (5^th^ Cir. 2000) (" . . .
    portability is not only consistent with predictability, but also is
    dictated by the principles of competitive neutrality and the
    statutory command that universal service support be spent 'only for
    the provision, maintenance, and upgrading of facilities and services
    for which the \[universal service\] support is intended.'").

[^5]: 47 U.S.C. § 254(e).

[^6]: 47 U.S.C. § 214(e).

[^7]: *See* 47 U.S.C. § 254(e)(1), (e)(6).

[^8]: 47 C.F.R. § 54.307(a).

[^9]: *See First Report and Order*, 12 FCC Rcd at 8828-8830, paras.
    94-96. In addition, a competitive ETC that provides supported
    services utilizing unbundled network elements (UNEs) receives the
    lesser of the UNE price or the per-line support amount available to
    the incumbent LEC. 47 C.F.R. § 54.307(a)(2).

[^10]: Support for the fund derives from assessments paid by providers
    of interstate telecommunications services and certain other
    providers of interstate telecommunications. *See* 47 C.F.R. §
    54.706. Fund contributors are permitted to, and almost always do,
    pass those contribution assessments though to their end-user
    customers. *See* 47 C.F.R. § 54.712. Fund assessments paid by
    contributors are determined by applying the quarterly contribution
    factor to the contributors' contribution base revenues. In the
    second quarter of 2007, the contribution factor reached 11.7
    percent, which is the highest level since its inception. *See
    Proposed Second Quarter 2007 Universal Service Contribution Factor*,
    CC Docket No. 96-45, Public Notice, 22 FCC Rcd 5074 (Off. of Man.
    Dir. 2007). The contribution factor has since declined slightly to
    11.0 percent in the fourth quarter of 2007. *Proposed Fourth Quarter
    2007 Universal Service Contribution Factor*, CC Docket No. 96-45,
    Public Notice, DA 07-3928 (Off. of Man. Dir., Sept. 13, 2007).

[^11]: Universal Service Administrative Company 2006 Annual Report, 39
    (2006), available at
    http://www.usac.org/\_res/documents/about/pdf/usac-annual-report-2006.pdf
    (*USAC 2006 Annual Report*).

[^12]: *See Universal Service Monitoring Report*, CC Docket No. 98-202,
    Prepared by the Federal and State Staff for the Federal-State Joint
    Board on Universal Service in CC Docket No. 96-45, Table 3.2 (2006)
    (*Universal Service Monitoring Report*).

[^13]: Incumbent LECs received \$3.129 billion in high-cost support in
    2003; \$3.153 billion in 2004; \$3.186 billion in 2005; and \$3.116
    billion in 2006. *Universal Service Monitoring Report*, at Table 3.2
    (for 2003, 2004, and 2005 data); *USAC 2006 Annual Report* at 41
    (for 2006 data). In 2001, much of the growth in high-cost support
    was attributable to removing implicit subsidies from access charges
    and the inclusion of these amounts in explicit universal service
    mechanisms adopted in the *CALLS Order* and the *MAG Plan Order*.
    *See Access Charge Reform, Price Cap Performance Review for Local
    Exchange Carriers*; *Low-Volume Long-Distance Users*; *Federal-State
    Joint Board on Universal Service,* 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, 15 FCC Rcd
    12962 (2000) (*CALLS Order*); *Multi-Association Group (MAG) Plan
    for Regulation of Interstate Services of Non-Price Cap Incumbent
    Local Exchange Carriers and Interexchange Carriers;* *Federal-State
    Joint Board on Universal Service; Access Charge Reform for Incumbent
    Local Exchange Carriers Subject to Rate-of-Return Regulation;
    Prescribing the Authorized Rate of Return From Interstate Services
    of Local Exchange Carriers,* Second Report and Order and Further
    Notice of Proposed Rulemaking in CC Docket No. 00-256, Fifteenth
    Report and Order in CC Docket No. 96-45, and Report and Order in CC
    Docket Nos. 98-77 and 98-166, 16 FCC Rcd 19613 (2001) (*MAG Plan
    Order*), *recon. pending*.

[^14]: *Universal Service Monitoring Report*, at Table 3.2; *USAC 2006
    Annual Report* at 41.

[^15]: *See* Universal Service Administrative Company, *Universal
    Service Fund Facts -- High Cost Quarterly Program Statistics; High
    Cost Program Support Distribution By CETCs & ILECs 1998 Through
    2Q2007*,
    [http://www.universalservice.org/\_res/documents/about/pdf/fund-facts/HC%20CETC-ILEC%20Distribution.pdf](http://www.universalservice.org/_res/documents/about/pdf/fund-facts/HC CETC-ILEC Distribution.pdf)
    (July 23, 2007).

[^16]: *See* 47 U.S.C. § 254(b)(5).

[^17]: *See* 47 C.F.R. § 54.307.

[^18]: *Federal-State Joint Board on Universal Service*, Recommended
    Decision, 12 FCC Rcd 87, 101 at para. 23 (Fed-State Jt. Bd. 1996)
    (hereinafter *First Recommended Decision*).

[^19]: *Id.* at 238, para. 296. The Joint Board had recommended that
    support for rural carriers be frozen at the per-line amounts they
    were receiving at the time until rural carriers were gradually
    shifted to a proxy-based methodology. *See id.* at 151, paras.
    28-29. The Commission declined to adopt this recommendation. *First
    Report and Order*, 12 FCC Rcd at 8937-38, para. 297.

[^20]: *First Recommended Decision*, 12 FCC Rcd at 132, para. 89.

[^21]: *First Report and Order*, 12 FCC Rcd 8776*.*

[^22]: *Id.* at 8801, para. 47.

[^23]: *Id.* at 8802, para. 48.

[^24]: *Id.* at 8832, para. 287; 8944, para. 311.

[^25]: *Id.* at 8932, para. 287 (emphasis added); *see also id.* at
    8944, para. 311; *First Recommended Decision*, 12 FCC Rcd at 238,
    para. 296.

[^26]: *See* Letter from Jeffrey A. Eisenach, Chairman, Criterion
    Economics, LLC, to Marlene H. Dortch, Secretary, Federal
    Communications Commission, CC Docket No. 96-45, WC Docket No.
    05-337, Attach. The Effects of Providing Universal Service Subsidies
    to Wireless Carriers at 16-18, App. B (filed June 13, 2007)
    (Criterion Report) (claiming that, in 2006, 68 percent -- 192 out of
    281 -- of all competitive ETC service areas were wireless service
    areas, and that 94 percent -- \$770.5 million out of \$820.5 million
    -- of all competitive ETC support went to wireless competitive
    ETCs).

[^27]: *See 2006 Commercial Mobile Services Report*, 21 FCC Rcd at
    11027, para. 205 (citing survey reporting that only approximately 8
    percent of U.S. households relied exclusively on wireless phones in
    2005).

[^28]: Between November 1, 2002, and August 2, 2007, the total number of
    lines served by all ETCs receiving Interstate Common Line Support
    (ICLS) or Interstate Access Support (IAS), including competitive
    ETCs and incumbent LECs, increased by approximately 35.6 million.
    Competitive ETC line counts, which grew by approximately 27.9
    million during that period, drove the increase. *See* Universal
    Service Administrative Company, *Federal Universal Service Support
    Mechanisms Fund Size Projections for the Fourth Quarter 2007*, App.
    HC09, HC12 (filed August 2, 2007); Universal Service Administrative
    Company, *Federal Universal Service Support Mechanisms Fund Size
    Projections for the First Quarter 2003*, App. HC08, HC14 (filed Nov.
    1, 2002).

[^29]: *See Petition of Qwest Communications International Inc. for
    Forbearance from Enforcement of the Commission's Dominant Carrier
    Rules As They Apply After Section 272 Sunsets*, WC Docket No.
    05-333, Memorandum Opinion and Order, 22 FCC Rcd 5207, 5218, para.
    17 (2007) (stating that a majority of presubscribed interexchange
    customers also subscribe to mobile wireless service);
    *Implementation of Section 6002(b) of the Omnibus Budget
    Reconciliation Act of 1993, Annual Report and Analysis of
    Competitive Market Conditions with Respect to Commercial Mobile
    Services*, WT Docket No. 06-17, Eleventh Report, 21 FCC Rcd 10947,
    11027, para. 205 (2006) (citing survey reporting that approximately
    8 percent of U.S. households relied exclusively on wireless phones
    in 2005).

[^30]: *See* Congressional Budget Office, *Factors that May Increase
    Future Spending from the Universal Service Fund* 12 (2006) ("The
    fact that wireless entrants are providing additional telephone
    service rather than replacement service in many cases is part of the
    reason that total spending for support grows when wireless carriers
    enter a market covered by the USF.").

[^31]: Efficient investment by ETCs would lower the amount of high-cost
    support necessary, helping to keep universal service support
    sufficient. *See* 47 U.S.C. § 254(b)(5).

[^32]: *See* 47 U.S.C. § 254(b)(3).

[^33]: *See, e.g*., Reply Comments of the Rural Telecommunications
    Associations, CC Docket No. 96-45 at 11-15 (filed Sept. 21, 2004);
    Reply Comments of the Mid-Sized Carrier Coalition, CC Docket No.
    96-45, 23-27 (filed Sept. 21, 2004); Comments of the Coalition of
    State Telecommunications Association and Rural Telephone Companies,
    CC Docket No. 96-45 at 17-18 (filed Aug. 6, 2006), Initial Comments
    of the National Telecommunications Cooperative Association, CC
    Docket No. 96-45 at 13-14 (filed Aug. 6, 2004).

[^34]: *High-Cost Universal Service Support; Federal-State Joint Board
    on Universal Service*, WC Docket No. 05-337, CC Docket No.96-45,
    Recommended Decision, 22 FCC Rcd 8998, 9001, para. 6 (Fed.-State Jt.
    Bd. 2007) (*2007 Recommended Decision*).

[^35]: *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, 9026, para. 7 (Fed-State Jt Bd. 2007) (*2007 Joint Board
    Public Notice*).

[^36]: *Id.* at 9024-27, paras. 3-8. We hereby incorporate the record
    that has been and will continue to be filed in response to the *2007
    Joint Board Public Notice* into this proceeding, including without
    limitation all submissions made on eliminating the identical support
    rule and on any of the other comprehensive high-cost reform issues
    identified in that Public Notice. Any party wishing to update the
    comments it filed in response to the Public Notice in this
    proceeding may do so.

[^37]: *2007 Recommended Decision*, 22 FCC Rcd at 9003, para. 12.

[^38]: *See* Criterion Report at 42. Eliminating the identical support
    rule to compensate competitive ETCs more directly for their
    investments will help to ensure that quality services will be
    available to the competitive ETC's customers at affordable rates,
    and that access to telecommunications services are available in all
    areas of the nation, including rural and high-cost areas. *See* 47
    U.S.C. §§ 254(b)(1) and (3).

[^39]: *See* 47 C.F.R. §§ 36.611, 36.612.

[^40]: Letter from Jeffrey H. Smith, Advocates for Regulatory Action, to
    Marlene H. Dortch, Secretary, Federal Communications Commission, WC
    Docket No. 05-337 and CC Docket No. 96-45 (filed July 12, 2007)
    (WiCAC Proposal Letter).

[^41]: 47 C.F.R. Part 32.

[^42]: We note that the Part 32 rules apply differently to incumbent
    LECs based on their sizes, with less stringent requirements for
    smaller incumbent LECs. *See* 47 C.F.R. § 32.11. We seek comment on
    whether similar treatment should be applied to smaller competitive
    ETCs.

[^43]: WiCAC Proposal Letter at 3-5, 9-17.

[^44]: For example, an incumbent LEC that receives support under the
    rural HCLS mechanism receives support based on its loop costs,
    whereas an incumbent LEC that receives support under the non-rural
    HCMS mechanism receives support based on forward-looking loop, local
    switching, and local interoffice transport costs. *See* 47 C.F.R. §
    36.631, 54.309. We seek comment on whether a competitive ETC seeking
    HCMS in a non-rural area should receive support based on the costs
    that would be equivalent to incumbent LECs' local loop, local
    switching, and local transport costs, while one seeking HCLS in a
    rural area should receive support based on the costs that would be
    equivalent to incumbent LECs' local loop costs only. To the extent
    the Commission concludes that competitive ETCs may continue to seek
    support for local switching costs (in those areas where local
    switching support is available to the incumbent LEC) in rural areas,
    we seek comment on whether this support should be based on costs
    equivalent to the incumbent LEC's switching costs. *See infra* para.
    24.

[^45]: *See infra* section D.

[^46]: Disaggregation is the subdivision of a study area into relatively
    high- and low-cost areas for the purpose of targeting universal
    service support to the high-cost areas. The subdivisions are
    disaggregation zones. *See* *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, 11299-309, paras. 136-64
    (2001).

[^47]: Similarly, obtaining spectrum by purchasing a company or the
    assets of a company does not in and of itself qualify the spectrum
    for inclusion in high-cost support costs.

[^48]: *Prescribing the Authorized Rate of Return for Interstate
    Services of Local Exchange Carriers*, CC Docket No. 89-624, Order, 5
    FCC Rcd 7507 (1990) (prescribing authorized rate of return at 11.25
    percent); *MAG Plan Order*, 15 FCC Rcd at 19700-02, paras. 206-10
    (retaining 11.25 percent authorized rate of return). The
    Commission's High-Cost Proxy Model, used to calculated HCMS, assumes
    an 11.25 rate of return. *See 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, 20347, para. 432 (1999) (*Tenth Report and
    Order*), *affirmed*, *Qwest Corp. v. FCC*, 258 F.3d 1191 (10^th^
    Cir. 2003).

[^49]: *See* 47 C.F.R. § 36.622(a)(4).

[^50]: *See Tenth Report and Order*, 14 FCC Rcd at 20321, para. 382 &
    n.844. Rather than using the \$7.32 directly as an input value,
    however, the model uses this amount, annualized and adjusted for
    uncollectibles, or \$92.46316.

[^51]: *See infra* Section II.B.3.

[^52]: *See* Financial Accounting Standards Board, *Statement of
    Financial Accounting Standards No. 142: Goodwill and Other
    Intangible Assets* (June 2001) (providing that an intangible asset
    with an indefinite useful life shall not be amortized, but rather
    evaluated for impairment of value each reporting period); *see
    also*, *e.g.*, Alltel Corporation, Form 10-K, at F-25-26 (Feb. 20,
    2007) ("In accordance with SFAS No. 142, 'Goodwill and Other
    Intangible Assets,' Alltel tests its goodwill and other
    indefinite-lived intangible assets for impairment at least annually,
    which requires the Company to determine the fair value of these
    intangible assets, as well as the fair value of its reporting units.
    . . . The Company's indefinite-lived intangible assets consist of
    its cellular and PCS licenses.").

[^53]: We seek comment on whether the methods for determining
    competitive ETC costs discussed above would significantly
    economically affect smaller competitive ETCs. If so, we seek comment
    on alternative methods for smaller competitive ETCs to submit
    information that would allow the Commission and the state
    commissions adequately to assess these companies' costs for purposes
    of determining high-cost support.

[^54]: *See* 47 C.F.R. §§ 36.613, 36.622(c).

[^55]: *See* *CALLS Order*, 15 FCC Rcd at 12975-76, paras. 31-32; *MAG
    Order*, 16 FCC Rcd at 19667-69, paras. 128-31.

[^56]: *See* Letter from Mary L. Henze, Senior Director Federal
    Regulatory, AT&T, to Marlene Dortch, Secretary, Federal
    Communications Commission, WC Docket No. 05-337, CC Docket No.
    96-45, Attach. (filed Mar. 22, 2007).

[^57]: *Universal Service First Report and Order*, 12 FCC Rcd at 8940-41
    paras. 303-04.

[^58]: We also note that the Commission and the Joint Board are
    currently considering reform of high-cost support, including LSS,
    for rural carriers. *See Federal-State Joint Board on Universal
    Service*, CC Docket No. 96-45, Order, 19 FCC Rcd 11538 (2004)
    (requesting recommendations from the Joint Board regarding reform of
    rural high-cost support mechanisms); *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, Public Notice, 21 FCC Rcd 9292 (Fed.-State Jt. Bd. 2006);
    *2007 Joint Board Public Notice*, 22 FCC Rcd at 9024, para. 3.

[^59]: If the Commission ultimately concludes that competitive ETCs are
    not eligible for LSS, the ceiling would be set at the per-line
    support amounts that the incumbent LEC receives from the HCLS.

[^60]: 47 U.S.C. § 254(e).

[^61]: 47 C.F.R. §§ 54.313, 54.314.

[^62]: 47 C.F.R. §§ 54.809, 54.904.

[^63]: *See* Rural ILECs Petition for Revocation of Sprint/Nextel's ETC
    Designation in Virginia or, Alternatively, Motion to Show Cause, CC
    Docket No. 96-45 (filed June 4, 2007). On July 9, 2007, the Wireline
    Competition Bureau sought comment on this petition. *Comment Sought
    on a Petition by TDS Telecommunications Corp., Fairpoint
    Communications, Inc., and Burke's Garden Telephone Company for
    Revocation of Spring/Nextel's ETC Designation in Virginia, or,
    Alternatively, Motion to Show Cause*, CC Docket No. 96-45, Public
    Notice, 22 FCC Rcd 12727 (Wireline Comp. Bur. 2007).

[^64]: 47 C.F.R. § 54.202 (a)(1)(ii).

[^65]: 5 U.S.C. § 603.

[^66]: *See* 5 U.S.C. § 603(a).

[^67]: *Id.*

[^68]: Paperwork Reduction Act of 1995, Pub. L. No. 104-13, 109 Stat.
    163 (1995).

[^69]: Small Business Paperwork Relief Act of 2002, Pub. L. No. 107-198,
    116 Stat. 729 (2002); 44 U.S.C. § 3506(c)(4).

[^70]: 47 C.F.R. §§ 1.1200-1.1216.

[^71]: 47 C.F.R. § 1.1206(b)(2).

[^72]: 47 C.F.R. § 1.1206(b).

[^73]: 47 CFR §§ 1.415, 1.419.

[^74]: *See Electronic Filing of Documents in Rulemaking Proceedings*,
    GC Docket No. 97-115, Report and Order, 13 FCC Rcd 11322 (1998).

[^75]: *See* 5 U.S.C. § 603. The RFA, *see* 5 U.S.C. §§ 601 -- 612, has
    been amended by the Small Business Regulatory Enforcement Fairness
    Act of 1996 (SBREFA), Pub. L. No. 104-121, Title II, 110 Stat. 857
    (1996).

[^76]: *See* 5 U.S.C. § 603(a).

[^77]: *Id.*

[^78]: *See* Notice, para. 4.

[^79]: *Id.*

[^80]: *Id.*, paras. 5-12.

[^81]: *Id.* para. 5.

[^82]: *Id.* paras. 5-12.

[^83]: 47 U.S.C. §§ 151, 152, 154(i)-(j), 201-205, 214, 254, 403; 47
    C.F.R. §§ 1.1, 1.411-1.419, 1.1200-1.1216

[^84]: 5 U.S.C. § 604(a)(3).

[^85]: 5 U.S.C. § 601(6).

[^86]: 5 U.S.C. § 601(3).

[^87]: 5 U.S.C. § 601(4).

[^88]: 5 U.S.C. § 601(5).

[^89]: 5 U.S.C. § 601(3) (incorporating by reference the definition of
    "small business concern" in 5 U.S.C. § 632). Pursuant to 5 U.S.C. §
    601(3), the statutory definition of a small business applies "unless
    an agency after consultation with the Office of Advocacy of the
    Small Business Administration and after opportunity for public
    comment, establishes one or more definitions of such term which are
    appropriate to the activities of the agency and publishes such
    definition in the Federal Register." 5 U.S.C. § 601(3).

[^90]: 15 U.S.C. § 632.

[^91]: *See* SBA, Programs and Services, SBA Pamphlet No. CO-0028, at 40
    (July 2002).

[^92]: 5 U.S.C. § 601(4).

[^93]: Independent Sector, The New Nonprofit Almanac & Desk Reference
    (2002).

[^94]: FCC, Wireline Competition Bureau, Industry Analysis and
    Technology Division, Trends in Telephone Service, Table 5.3, page
    5-5 (February 2007) (*Trends in Telephone Service*). This source
    uses data collected as of October 20, 2005.

[^95]: 13 C.F.R. § 121.201, North American Industry Classification
    System (NAICS) code 517110.

[^96]: *Id.* § 121.201, NAICS code 517211 (This category will be changed
    for purposes of the 2007 Census to "Wireless Telecommunications
    Carriers (except Satellite)," NAICS code 517210.).

[^97]: *Id*. § 121.201, NAICS code 517212 (This category will be changed
    for purposes of the 2007 Census to "Wireless Telecommunications
    Carriers (except Satellite)," NAICS code 517210.).

[^98]: 15 U.S.C. § 632.

[^99]: *See* Letter from Jere W. Glover, Chief Counsel for Advocacy,
    SBA, to Chairman William E. Kennard, Federal Communications
    Commission (May 27, 1999). The Small Business Act contains a
    definition of "small business concern," which the RFA incorporates
    into its own definition of "small business." *See* 15 U.S.C. §
    632(a) (Small Business Act); 5 U.S.C. § 601(3) (RFA). SBA
    regulations interpret "small business concern" to include the
    concept of dominance on a national basis. 13 C.F.R. § 121.102(b).

[^100]: 13 C.F.R. § 121.201, NAICS code 517110.

[^101]: *Trends in Telephone Service* at Table 5.3.

[^102]: 13 C.F.R. § 121.201, NAICS code 517110.

[^103]: *Trends in Telephone Service* at Table 5.3.

[^104]: *Id.*

[^105]: 13 C.F.R. § 121.201, NAICS code 517211 (This category will be
    changed for purposes of the 2007 Census to "Wireless
    Telecommunications Carriers (except Satellite)," NAICS code
    517210.).

[^106]: 13 C.F.R. § 121.201, NAICS code 517212 (This category will be
    changed for purposes of the 2007 Census to "Wireless
    Telecommunications Carriers (except Satellite)," NAICS code
    517210.).

[^107]: U.S. Census Bureau, 2002 Economic Census, Subject Series:
    "Information," Table 5, Employment Size of Firms for the United
    States: 2002, NAICS code 517211 (issued Nov. 2005).

[^108]: *Id.* The census data do not provide a more precise estimate of
    the number of firms that have employment of 1,500 or fewer
    employees; the largest category provided is for firms with "1000
    employees or more."

[^109]: U.S. Census Bureau, 2002 Economic Census, Subject Series:
    "Information," Table 5, Employment Size of Firms for the United
    States: 2002, NAICS code 517212 (issued Nov. 2005).

[^110]: *Id.* The census data do not provide a more precise estimate of
    the number of firms that have employment of 1,500 or fewer
    employees; the largest category provided is for firms with "1000
    employees or more."

[^111]: 13 C.F.R. § 121.201, NAICS code 517212.

[^112]: *Id*.

[^113]: *Trends in Telephone Service* at Table 5.3.

[^114]: 13 C.F.R. § 121.201, NAICS codes 517410 and 517910.

[^115]: U.S. Census Bureau, 2002 NAICS Definitions, "517410 Satellite
    Telecommunications";
    http://www.census.gov/epcd/naics02/def/NDEF517.HTM.

[^116]: U.S. Census Bureau, 2002 Economic Census, Subject Series:
    Information, "Establishment and Firm Size (Including Legal Form of
    Organization)," Table 4, NAICS code 517410 (issued Nov. 2005).

[^117]: *Id*. An additional 38 firms had annual receipts of \$25 million
    or more.

[^118]: U.S. Census Bureau, 2002 NAICS Definitions, "517910 Other
    Telecommunications";
    http://www.census.gov/epcd/naics02/def/NDEF517.HTM.

[^119]: U.S. Census Bureau, 2002 Economic Census, Subject Series:
    Information, "Establishment and Firm Size (Including Legal Form of
    Organization)," Table 4, NAICS code 517910 (issued Nov. 2005).

[^120]: *Id*. An additional 14 firms had annual receipts of \$25 million
    or more.

[^121]: Notice, para. 12.

[^122]: Notice, paras. 14-26.

[^123]: *See* 5 U.S.C. § 603(c).

[^124]: Notice at paras. 14-26.

[^125]: *Id.*, para. 15 n.40.

[^126]: *Id.*, para. 19 n.53.

[^127]: *Id.*

[^128]: *Id.*, para. 12.

[^129]: *Id.*, para. 19 n.50.