**Before the**

**Federal Communications Commission**

**Washington, D.C. 20554**

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**RECOMMENDED DECISION**

**Adopted:** December 22, 2000 **Released:** December 22, 2000

By the Federal-State Joint Board: Joint Board Chairman Ness and
Commissioners Furtchgott-Roth and Tristani issuing separate statements;
Joint Board State Chairman Schoenfelder and Commissioner Rowe concurring
and issuing separate statements; Public Counsel Hogerty concurring in
part and dissenting in part and issuing a separate statement; Chairman
Wood issuing a statement at a later date.

# INTRODUCTION

1.  In this Recommended Decision, we send to the Commission the Rural
    Task Force Recommendation that can serve as a good foundation for
    implementing a rural universal service plan that benefits consumers.
    Generally, we find that the Rural Task Force sought to achieve the
    goals of the Telecommunications Act of 1996 to preserve and advance
    universal service, facilitate competition in rural areas, and
    provide a predictable level of universal service support.[^1]
    Moreover, we believe that implementation of the Rural Task Force's
    framework would provide a stable environment for rural carriers to
    invest in rural America.

# background

## Statutory Requirements

2.  In the 1996 Act, Congress established a number of principles for the
    preservation and advancement of universal service in a competitive
    telecommunications environment. In particular, section 254 of the
    1996 Act provides that consumers in all regions of the Nation,
    including consumers in rural, insular, and high-cost areas, should
    have access to telecommunications services at rates that are
    affordable and reasonably comparable.[^2] Section 254 also provides
    that access to advanced telecommunications and information services
    should be provided in all regions of the Nation, and that federal
    universal service support mechanisms should be specific,
    predictable, and sufficient to preserve and advance universal
    service.[^3] The Commission adopted the additional principle that
    federal support mechanisms should be competitively neutral, neither
    unfairly advantaging nor disadvantaging particular service providers
    or technologies.[^4] Federal universal service policies should
    strike a fair and reasonable balance among these principles or goals
    enumerated in section 254 of the 1996 Act.[^5] The 1996 Act also
    requires the Commission to consult with the Federal-State Joint
    Board on Universal Service (Joint Board) in implementing section
    254.[^6]

## Prior Joint Board and Commission Actions

3.  Pursuant to the 1996 Act, the Joint Board provided its first set of
    recommendations regarding universal service to the Commission in
    November 1996.[^7] Based on these recommendations, the Commission
    adopted the *First Report and Order* in May 1997.[^8] Among other
    things, the Commission concluded that federal universal service
    support for all carriers, both rural and non-rural,[^9] should be
    based on the forward-looking economic cost of constructing and
    operating the network used to provide the supported services, rather
    than each carrier's embedded costs.[^10] The Commission explained
    that using forward-looking economic costs provides sufficient
    support without giving carriers an incentive to inflate their costs
    or to refrain from efficient cost cutting.

4.  Nevertheless, the Commission adopted the Joint Board's
    recommendation that rural carriers not use a cost model or other
    means of determining forward-looking economic cost immediately to
    calculate their support for serving rural high-cost areas.[^11] The
    Commission agreed with the Joint Board that, compared to the large
    non-rural carriers, "rural carriers generally serve fewer
    subscribers, serve more sparsely populated areas, and do not
    generally benefit as much from economies of scale and scope. For
    many rural carriers, universal service support provides a large
    share of the carriers' revenues, and thus, any sudden change in the
    support mechanisms may disproportionately affect rural carriers'
    operations."[^12] Accordingly, working with rural carriers and their
    associations, the Commission stated that it would not implement
    forward-looking support for rural carriers before January 1, 2001,
    and only after selecting an appropriate high-cost support mechanism
    based on recommendations from the Joint Board and a Rural Task Force
    appointed by the Joint Board.[^13] In recommending a proxy model as
    a framework for determining non-rural carrier high-cost support, the
    Joint Board emphasized that it did "not intend for the Commission to
    create any precedent for any potential revisions to support
    mechanisms for rural carriers."[^14] In this regard, the Commission
    agreed with the state Joint Board members that a task force "should
    provide valuable assistance in identifying the issues unique to
    rural carriers and analyzing the appropriateness of proxy cost
    models for rural carriers."[^15]

## Rural Task Force Recommendation

5.  The Joint Board announced the creation of the Rural Task Force in
    September 1997, and appointed the Rural Task Force members in July
    1998.[^16] The Joint Board requested that the Rural Task Force
    provide its recommendations no later than nine months after the
    implementation of the forward-looking high-cost mechanism for
    non-rural carriers, which became effective on January 1, 2000.[^17]
    Accordingly, the Rural Task Force presented its Recommendation to
    the Joint Board on September 29, 2000.[^18] The Recommendation
    represents the consensus of individual Rural Task Force members, who
    work for a broad range of interested parties, including rural
    telephone companies, competitive local exchange carriers,
    interexchange carriers, wireless providers, consumer advocates, and
    state and federal government agencies. The Rural Task Force offers
    its Recommendation as an integrated package, and asks that it be
    adopted without modification. It urges that the Recommendation be
    implemented immediately and remain in place over a five-year period.
    The Recommendation is attached as Appendix A to this Recommended
    Decision.[^19] Below, we summarize salient features of the
    Recommendation.

6.  The Rural Task Force recommends against using the Commission's
    forward-looking high-cost mechanism for non-rural carriers to
    distribute high-cost support for rural carriers.[^20] Instead, it
    recommends the use over the next five years of a modified version of
    the current high-cost loop support mechanism under Part 36 of the
    Commission's rules, based on carriers' embedded costs.[^21] In
    addition, the Rural Task Force recommends continuation of the Long
    Term Support (LTS) and Local Switching Support (LSS) programs.[^22]

7.  The Rural Task Force's proposed modifications to the high-cost loop
    support mechanism include various upward adjustments to current
    limits on universal service support for rural carriers,
    including (a) recomputing the indexed cap on high-cost loop
    support[^23] and the corporate operations expense limitation[^24] as
    if the caps had not been in effect for the calendar year
    2000,[^25] (b) providing above-the-cap "safety net additive" support
    for carriers with over 14 percent growth in telecommunications plant
    in service on a per-line basis, and (c) creating a "safety valve" to
    provide additional support for "meaningful investment" in acquired
    telephone exchanges.[^26] The Rural Task Force also recommends that
    per-line universal service support payment levels within a study
    area become fixed once a competitive eligible telecommunications
    carrier begins providing service in the study area, and subsequently
    adjusted for growth in lines and inflation rather than changes in
    cost. Under the Rural Task Force's proposal, "safety net additive"
    support, support for acquired exchanges and "safety valve" support,
    support for competitive eligible telecommunications carriers, and
    catastrophic event support[^27] would be excluded from the cap on
    high-cost loop support. Total "safety valve" support would be
    limited to five percent of the overall cap.

8.  The Rural Task Force also recommends the use of a new annual index
    known as the "rural growth factor" to adjust the cap on high-cost
    loop support, the corporate operations expense limitation, and fixed
    per-line support (in areas where competitive carriers are providing
    service) on a going-forward basis. The rural growth factor would be
    the sum of annual line growth for rural carriers and a general
    inflation factor (Gross Domestic Product-Chained Price Index).

9.  The Rural Task Force suggests various other reforms. Among other
    things, it proposes that rural carriers be given a choice of three
    different options for disaggregating and targeting per-line
    universal service support, to be exercised within 270 days of the
    effective date of the proposed new rules. Furthermore, the Rural
    Task Force recommends adoption of a "no barriers to advanced
    services" policy, and suggests a number of principles for replacing
    any implicit subsidies in interstate access charges with explicit
    universal service support.[^28]

# discussion

10. The Rural Task Force faced a challenging task. Congress recognized
    that, while competition could encourage investment in rural
    infrastructure and bring new, improved services to rural America,
    special measures were required to preserve and advance universal
    service. In several areas, Congress provided separate rules for
    markets served by small, rural telephone companies.[^29]
    Accordingly, in implementing the 1996 Act, the Joint Board and the
    Commission have consistently recognized that rural carriers face
    diverse circumstances and that, in considering universal service
    support mechanisms, "one size does not fit all." The Rural Task
    Force thus was charged with the task of considering the needs of
    rural carriers.[^30] The Rural Task Force recommends a flexible plan
    designed to balance competing goals, a plan that was endorsed by all
    the members of the Task Force. We find it significant that the
    Recommendation represents a consensus of competing views. We
    encourage the Commission to take advantage of this opportunity to
    craft a rural universal service plan that enjoys widespread support
    among diverse interests.

11. The Recommendation preserves a predictable level of universal
    service support that will provide stability to rural carriers --
    incumbents and competitors -- for planning their investments over
    the next several years. By recommending a flexible system for
    disaggregating support to establish the portable per-line support
    amount available to all eligible telecommunications carriers, the
    Rural Task Force seeks to encourage competitors to enter high-cost
    areas. In addition, the Rural Task Force recommends certain
    modifications to the caps and limitations on high-cost loop support.
    These modifications are generally designed to provide carriers
    serving rural areas with increased incentives to invest in new
    infrastructure and technologies. Under the current mechanism,
    high-cost loop support for rural carriers is estimated to be \$835
    million in 2001. The Rural Task Force estimates that, under its
    Recommendation, high-cost loop support for rural carriers will be
    \$961 million in 2001 and increase to \$1.29 billion in 2005.[^31]
    The Rural Task Force thus proposes to increase the rural high-cost
    loop fund by \$1.26 billion in the aggregate over the proposed
    five-year period, compared to the projected growth under the current
    mechanism.[^32]

12. In determining federal support for non-rural carriers, the Joint
    Board previously has recognized its obligation to provide sufficient
    support to ensure affordable and comparable rates. The Rural Task
    Force has noted that the 1996 Act sets standards to provide
    sufficient support while preventing "waste, windfall, and excessive
    expense for contributing carriers and their customers."[^33] While a
    significant number of commenters urge the Joint Board to recommend
    the Rural Task Force plan without modification,[^34] other
    commenters, including some rural carriers, believe that the Rural
    Task Force Recommendation would provide too little support.[^35]
    Still other commenters, including several state commissions and
    carriers, believe it would provide too much support.[^36] We believe
    that the nature of these comments is consistent with a
    recommendation that is a consensus proposal put forth by
    representatives of disparate interests.

13. The Rural Task Force has proceeded with caution by proposing
    modifications to the current embedded cost system for a five-year
    period, rather than attempting to modify the Commission's
    forward-looking cost mechanism that currently is used to determine
    non-rural support. We agree with the Rural Task Force that
    understanding the diversity among rural carriers and the differences
    between small rural carriers and large carriers is desirable in
    designing appropriate universal service support mechanisms. The
    Rural Task Force provided valuable data on these differences in
    their second White Paper, "The Rural Difference."[^37] Specifically,
    the Rural Task Force demonstrated the inappropriateness of using
    input values designed for non-rural carriers to determine support
    for rural carriers.[^38] We urge the Commission to use the period
    during which a Rural Task Force Recommendation is in place to
    develop a long-term universal service plan that better targets
    support to rural companies serving the highest cost areas. The Joint
    Board should remain involved in the process to develop improvements
    to the rural system. We also urge the Commission to evaluate the
    rural and non-rural support systems to ensure they work together
    efficiently, while at the same time recognizing the significant
    distinctions among rural carriers and between rural and non-rural
    carriers.[^39] In sum, we conclude that the Rural Task Force
    Recommendation presents a good foundation for implementing a rural
    universal service plan.

14. We observe that the Recommendation proposes modifications to the
    Commission's rules that involve specific implementation details that
    the Commission may need to address. Below, we highlight some of
    these implementation issues.

## Mergers and Acquisitions Cap & the "Safety Valve" Mechanism

15. Section 54.305 of the Commission's rules provides that a carrier
    acquiring exchanges from an unaffiliated carrier shall receive the
    same per-line levels of high-cost universal service support for
    which the acquired exchanges were eligible prior to their
    transfer.[^40] The Rural Task Force recommends that the Commission
    retain section 54.305 of its rules, but establish an appropriate
    "safety valve" mechanism to enable rural carriers acquiring access
    lines eligible for high-cost loop support to recover additional
    support reflecting "meaningful investment" in acquired access
    lines.[^41] The Rural Task Force provides an illustration of such a
    mechanism in Appendix D of its Recommendation.[^42] In Appendix D,
    the Rural Task Force defines "meaningful investment" for purposes of
    qualifying a rural carrier for "safety valve" support as the
    difference between the "index year expense adjustment" calculated in
    accordance with section 36.631 of the Commission's rules[^43] and
    subsequent year expense adjustments.[^44] The Rural Task Force's
    example also proposes to limit the total "safety valve" support
    available to all eligible study areas to no more than five percent
    of the indexed high-cost loop fund cap for rural carriers.[^45]

16. We support the Rural Task Force's proposal for providing additional
    support to rural carriers that acquire high-cost exchanges and make
    post-transaction investments to enhance the network infrastructure.
    We note, however, that the Task Force's proposal does not address a
    number of important implementation issues. In order to ensure
    effective implementation of the "safety-valve" mechanism, we
    encourage the Commission to address several implementation issues.
    First, the Commission should consider the distribution of "safety
    valve" support if the total amount of eligible "safety valve"
    support exceeds the cap of five percent of the indexed high-cost
    loop support fund.[^46] The Commission should also examine the
    definition of "meaningful investment."[^47] In addition, the
    Commission should address whether a carrier's "safety valve" support
    should transfer to a different carrier as a result of a subsequent
    transfer of exchanges. Finally, the Commission should consider
    whether "safety valve" support is "frozen" when a competitive
    eligible telecommunications carrier enters the study area, just as
    other high-cost loop support would be frozen when a competitive
    eligible telecommunications carrier enters the incumbent's service
    area, and whether such an approach would unduly dissuade investment.

## Support in Competitive Study Areas

17. As discussed above, the Rural Task Force recommends that the
    Commission "freeze" per-line high-cost loop support directed to a
    rural study area if a competitive eligible telecommunications
    carrier has been designated and begins providing service in that
    study area.[^48] Under the Rural Task Force's proposal, both the
    incumbent LEC and the competitive eligible telecommunications
    carrier would receive fixed per-line support. The Rural Task Force
    also recommends that the Commission increase such fixed per-line
    support by the Rural Task Force's proposed Rural Growth Factor.[^49]
    Although we agree with the Rural Task Force that the Commission
    should "freeze" per-line high-cost loop support when a competitor
    begins providing services in a given study area, it is unclear how
    the high-cost loop fund cap would account for fixed rural carrier
    support. The Commission should seek additional input from
    commenters, including the Rural Task Force, on the operation of the
    high-cost loop fund cap on fixed rural carrier support.

18. The Rural Task Force also recommends that the Commission permit
    incumbent LECs receiving "frozen" per-line high-cost to adjust
    frozen per-line support to recover costs associated with
    catastrophic events affecting the carrier's ability to provide
    supported services.[^50] The Commission should seek further input on
    the impact of "catastrophic" support provided by other sources such
    as insurance, Rural Utilities Service loans, and federal or state
    emergency management relief.[^51]

## The "Safety Net Additive"

19. In years in which the Rural Task Force's new indexed cap on the
    high-cost loop support fund is triggered and growth in
    telecommunications plant in service (TPIS) per line in a rural study
    area is at least 14 percent greater than the study area's TPIS per
    line in the prior year, the Rural Task Force proposes a "safety net
    additive," which would enable a carrier to recover 50 percent of the
    difference between capped and uncapped support.[^52] Any study area
    that qualifies for the safety net additive support also would
    qualify for safety net additive support in each of the four
    succeeding years, regardless of whether the study area meets the 14
    percent criterion in those years.[^53] Safety net additive support
    would be in addition to capped high-cost loop support, and would not
    be subject to the Rural Task Force's new indexed cap on such
    support.[^54] We agree with the Rural Task Force that additional
    support in the form of a safety net additive should be available to
    rural carriers that make significant investment in rural
    infrastructure, but urge the Commission to seek further comment on
    whether the safety net additive mechanism enables a carrier to
    recover more than 100 percent reimbursement on incremental loop
    investment.[^55]

## Interstate Access Universal Service Support for Non-Price Cap Carriers

20. The Rural Task Force recommends that the Commission replace implicit
    universal service support included in rural carrier interstate
    access charges with an uncapped "High Cost Fund III."[^56] The Rural
    Task Force also articulates several principles that the Commission
    should follow in implementing that task.[^57] We concur with the
    Rural Task Force that the Commission should consider creating an
    explicit universal service support mechanism to replace support that
    may be implicit within interstate access charges collected by rural
    carriers.[^58] We acknowledge, however, that the access charge
    issues raised by the Rural Task Force and the MAG are interstate in
    nature and, therefore, are properly before the Commission.[^59]
    However, the MAG plan raises issues beyond interstate access reform,
    and proposes universal service policy and procedural changes,
    including rate comparability under section 254(b)(3) and the overall
    size of the universal service mechanisms. Section 254(b) and 254(c)
    of the 1996 Act both contemplate that the Joint Board remain
    involved in matters related to universal service.[^60] We therefore
    encourage the Commission to ensure the Joint Board remains actively
    involved in review of those aspects of the MAG plan that relate to
    universal service. A significant number of Joint Board members urge
    that this involvement include a referral to the Joint Board of the
    universal service issues raised by the MAG plan.

## Future Steps

21. As discussed above, the Rural Task Force urges that its
    recommendation be implemented immediately and remain in place over a
    five-year period.[^61] In addition to the Commission's ongoing
    consultation with the Joint Board during this period, we urge the
    Commission to refer to the Joint Board, no later than January 1,
    2002, a proceeding to consider implementation of an appropriate
    high-cost mechanism for rural carriers after the expiration of the
    Rural Task Force's plan. We note that the Commission and the Joint
    Board are already committed to review the operation of the high-cost
    support mechanism for non-rural carriers on or before January 1,
    2003.[^62] This proposed timing would permit the Joint Board and the
    Commission to consider the appropriate rural mechanism to succeed
    the plan that the Commission adopts pursuant to the Rural Task
    Force's recommendation and devote sufficient time to the task prior
    to the termination of that plan. We also recommend eventual
    comprehensive review of the high-cost support mechanisms for rural
    and non-rural carriers as a whole to ensure that both mechanisms
    function efficiently and in a coordinated fashion. We urge the
    Commission to use the transitional period during which a modified
    embedded cost mechanism is in place to develop a long-term universal
    service plan that better targets support to rural companies serving
    the highest cost areas, while at the same time recognizing the
    significant distinctions among rural carriers and between rural and
    non-rural carriers.

# iv. RECOMMENDING CLAUSE {#iv.-recommending-clause .unnumbered}

22. For the reasons discussed herein, the Federal-State Joint Board on
    Universal Service, pursuant to section 254(a)(1) and section 410(c)
    of the Communications Act of 1934, as amended, 47 U.S.C. §§
    254(a)(1), 410(c), recommends that the Commission adopt the Rural
    Task Force Recommendation as a foundation for implementing a rural
    universal service plan.

    FEDERAL COMMUNICATIONS COMMISSION

> Magalie Roman Salas Secretary

**APPENDIX A**

**RURAL TASK FORCE**

**RECOMMENDATION TO**

**THE FEDERAL-STATE JOINT BOARD ON UNIVERSAL SERVICE**

**APPENDIX B**

**PARTIES FILING INITIAL COMMENTS**

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

Alaska, Regulatory Commission RCA

Alaska, State of Rural Task Force Alaska

AT&T Corp. AT&T

Bristol Bay Telephone Cooperative, Inc. Bristol

CenturyTel Service Group, Inc. CenturyTel

Charter Communications, Inc. Charter

Chugwater Telephone Company Chugwater

Citizens Communications Company Citizens

Direct Communications Rockland Telephone Co. Rockland

Evans Telephone Company

Happy Valley Telephone Co.

Hornitos Telephone Co.

Humboldt Telephone Co.

Kerman Telephone Co.

Oregon-Idaho Utilities, Inc.

Pine Tree Telephone & Telegraph Co.

Pinnacles Telephone Co.

The Ponderosa Telephone Co.

The Siskiyou Telephone Co.

The Volcano Telephone Co.

War Telephone Co.

Winterhaven Telephone Co. Evans

Fremont Telephone Company Fremont

General Communication, Inc. GCI

GVNW Consulting, Inc. GVNW

Iowa Telecommunications Services, Inc. Iowa Telecom

Ketchikan, City of

d.b.a. Ketchikan Public Utilities Ketchikan

Maine Public Utilities Commission

Vermont Department of Public Service

Vermont Public Service Board Maine

Manti Telephone Company Manti

Mike Stagg Mike Stagg

Montana Telecommunications Association MTA

Mt. Angel Telephone Company Angel

National Association of State Utility

Consumer Advocates NASUCA

National Exchange Carrier Association, Inc. NECA

National Telephone Cooperative Association NTCA

Nebraska Rural Independent Companies Nebraska

New York State Dept. of Public Service

Connecticut Dept. of Public Utility Control

Illinois Commerce Commission

Maryland Public Service Commission New York

North-State Telephone company North-State

Oregon Exchange Carrier Association OECA

Oregon Telecommunications Association OTA

Oregon Telephone Corporation OTC

People, State of California

California Public Utilities Commission People

Pioneer Telephone Cooperative PTC

Qwest Corporation Qwest

Roseville Telephone Company Roseville

Rural Independent Competitive Alliance RICA

Rural Utilities Service RUS

Sprint Corporation Sprint

South Dakota Independent Telephone Coalition, Inc. SDITC

TDS Telecommunications Corporation TDS Telecom

Tularosa Basin Telephone Company, Inc. Tularosa

United States Telecom Association

Organization for the Promotion & Advancement

Of Small Telecommunications Companies

National Rural Telecom Association USTA

Valor Telecommunications Enterprises, LLC Valor

Verizon Verizon

Virgin Islands Telephone Corporation Vitelco

Western Alliance Western

Washington Independent Telephone Association WITA

WorldCom, Inc. WorldCom

Wyoming Public Service Commission WPSC

YCOM Networks YCOM

**APPENDIX C**

**PARTIES FILING REPLY COMMENTS**

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

Ad Hoc Telecommunications User Committee Ad Hoc

Alaska Rural Coalition Alaska Rural Coalition

Alaska, State of Alaska or the State

AT&T Corp. AT&T

Competitive Universal Service Coalition CUSC

Florida Public Service Commission Florida PSC

Gold West Telecommunications Coop., Inc

and Vivian Telephone Company Gold West and Vivian

GVNW Consulting, Inc. GVNW

Hanson County Telephone Company Hanson

Hawaii, State of Hawaii

Interstate Telecommunications Cooperative, Inc. Interstate

Kennebec Telephone Company Kennebec

Maine, State of Maine

McCook Cooperative Telephone Company McKook

Nebraska Rural Independent Companies Nebraska (Companies)

National Telephone Cooperative Association NTCA

Sanborn Telephone Cooperative Sanborn

Sancom, Incorporated Sancom

SBC Communications, Inc. SBC

Sioux Valley Telephone Company Sioux

Small Rural LECs

Evans Telephone Company

Happy Valley Telephone Company

Hornitos Telephone Company

Humboldt Telephone Company

Kerman Telephone Company

Oregon-Idaho Utilities, Inc.

Pine Tree Telephone & Telegraph Company

Pinnacles Telephone Company

The Ponderosa Telephone Company

The Siskiyou Telephone Company

The Volcano Telephone Company

War Telephone Company

Winterhaven Telephone Company Small Rural LECs

Sprint Corporation Sprint

Stockholm Strandburg Telephone Company Stockholm-Strandburg

Sully Buttes Telephone Cooperative, Inc. Sully Buttes

United States Telecom Association

Organization for the Promotion & Advancement

of Small Telecommunications Companies

National Rural Telecom Association Associations

United States Virgin Islands, Public Service Commission US Virgin
Islands

Valley Telecommunications Cooperative Assn., Inc. Valley

Virgin Islands Telephone Corporation Virgin Islands

Warinner, Gesinger & Associates WGA

West Virginia Public Service Commission West Virginia

Western Telephone Company Western

Wyoming Public Service Commission WPSC

#  {#section .unnumbered}

# Separate Statement of Joint Board Chairman Susan Ness {#separate-statement-of-joint-board-chairman-susan-ness .unnumbered}

*Re: Federal-State Joint Board on Universal Service, Recommended
Decision,* CC Docket No. 96-45

A core principle of the Telecommunications Act of 1996 is that all
Americans should have access to reasonably comparable services at
reasonably comparable rates. When the Joint Board and the FCC undertook
a thorough review of the high-cost universal service mechanism following
passage of the 1996 Act, we recognized the unique circumstances of rural
carriers and did not adopt a "one-size-fits-all" solution. Rather, we
worked with the rural carriers and their associations to convene a Rural
Task Force that brought together a diverse range of companies, consumer
advocates, and government representatives to examine the cost structures
and competitive circumstances of rural carriers.

After two years of intensive deliberations, the Rural Task Force
unanimously recommended a high-cost mechanism for rural carriers that
recognizes not only the significant differences *between* rural and
non-rural carriers, but also the vastly different cost structures
*among* rural carriers. As is the case with any consensus proposal, the
framework may not be exactly what any one entity would want.
Nevertheless, the Task Force's framework represents a good compromise --
a reasonable, but delicate balance \-- among disparate interests that
provides the certainty and stability essential for investment in rural
America.

I commend the Rural Task Force for their unwavering efforts to develop a
predictable and sufficient universal service mechanism for rural
consumers. We owe them a debt of gratitude for their hard work. I
especially want to thank the chair of the Task Force, Commissioner Bill
Gillis of the Washington Utilities and Transportation Commission. He has
worked with uncommon fortitude and patience to forge a consensus among
warring factions.

For the past ten weeks, the Joint Board has had an opportunity to review
the Report and to provide additional guidance to the FCC on the
conclusions reached, including the targeting, magnitude, and duration of
the support. Some commissioners would have preferred a vastly different
regime or a more simplified one, some a significantly shorter timeframe,
some a few points of fine-tuning to more precisely direct the funds
toward the higher cost areas, while others would have expanded the scope
of the review to include issues beyond the Rural Task Force report. In
the end, in the interest of time, and with deep appreciation of the hard
work of the Rural Task Force, the Joint Board agreed simply to forward
the Report to the FCC without recommendations.

Now that the Rural Task Force has completed its work and the Joint Board
has sent that recommendation to the Commission, I urge the Commission to
move forward as rapidly as possible to bring this process to a
successful conclusion. It is essential that we provide certainty to
rural carriers by putting in place a high-cost mechanism that makes both
economic sense and common sense. The stability offered by such a system
will allow rural carriers to plan for the future and undertake necessary
investment that benefits rural communities.

In this decision, a number of Joint Board members also request that the
Commission refer to the Joint Board the interstate universal service
aspects of an access charge reform plan recently submitted by rural
carrier associations. I would prefer to proceed concurrently with
universal service and access charge reform. The two go hand in glove.
Although I agree that the Joint Board should be actively involved in
issues that affect high-cost universal service mechanisms, I fear that a
formal referral to the Joint Board could delay the process of
implementing these reforms beyond the July 1, 2001 target date. Thus,
any referral of these issues to the Joint Board should include concrete
deadlines that would allow the Commission the ability to adopt
appropriate access charge reform on the same timetable that it
implements reform of the high-cost mechanism for rural carriers.

I look forward to continuing the dialogue with the Joint Board members
as partners in this proceeding as we continue our efforts to fulfill the
statutory requirement to preserve and advance universal service for the
benefit of all Americans.

# SEPARATE STATEMENT OF COMMISSIONER HAROLD FURCHTGOTT-ROTH {#separate-statement-of-commissioner-harold-furchtgott-roth .unnumbered}

*Re: Federal-State Joint Board on Universal Service, CC Docket No. 96-45
(rel. December 22, 2000)*

I am pleased to endorse this Joint Board referral of the Rural Task
Force report to the Federal Communications Commission. The inescapable
meaning of the language of Section 254 of the Communications Act is that
its primary purpose is the preservation and advancement of
telecommunications services in rural America. This purpose has not been
addressed by the Commission since the passage of the Telecommunications
Act nearly five years ago, although the Commission has seen fit to spend
billions of dollars of consumer fees for other purposes divined under
Section 254.

Chairman William Gillis led the Rural Task Force in a mission designed
to fail: from disparate and conflicting parties, form a consensus view
on universal service for small rural telephone companies. Chairman
Gillis believed the Rural Task Force could succeed; practically all
outside observers believed no consensus could be reached. He was proved
correct; others were proved wrong. The members of Rural Task Force have
proven to have a greater sense of the public interest in reaching an
agreement than others believed possible.

The Rural Task Force was and is the creation of the Joint Board on
Universal Service. Where we sought their advice and when we waited two
years to receive it, we must give it some substantial degree of respect.
I cannot pretend to agree with every word in the recommendations; there
is much that I would have written differently. Moreover, many parts of
the recommendations lack detail. The FCC will have much work to fill in
the details, but surely the FCC will have the Joint Board and the Rural
Task Force to thank for an auspicious starting point.

Statement of Commissioner Gloria Tristani

> Re: Federal State Joint Board on Universal Service Recommend Decision,
> Docket CC 96-45

I am pleased to support the recommendation of the Rural Task Force on
the means to reform rural high-cost support for the next five years. The
recommendation of the Rural Task Force reflects a tremendous effort to
reform rural high-cost support in a reasonable manner that addresses
multiple competing interests. I note in particular that concerns have
been expressed about the length of time that the plan remains in place.
One of the principal goals the Rural Task Force, however, was creating
stability for investment in rural areas. I agree with the Rural Task
Force that implementation for a period of five years is an important
aspect of the recommendation and emphasize that the five-year period
should not be shortened.

As noted in the recommended decision, several members of the Joint Board
support recommending that the Commission refer the universal service
aspects of the proposal for interstate access charge and universal
service reform filed with the Commission by the Multi-Association Group
(MAG) to the Joint Board. I agree that the MAG Plan raises significant
questions of universal service policy, and that the input of the members
of the Joint Board on this plan is invaluable. Nonetheless, I cannot
support recommending a formal referral of the universal service aspects
of the plan to the Joint Board. In light of the time limitations and
resource constraints that the Commission faces, it is not practical. In
particular, the Commission has a limited amount of time to implement the
RTF proposal and consider whether the MAG plan is an appropriate access
and universal service reform package. If acceptable, both matters before
the Commission anticipate a July 1, 2001, implementation date.

Should the Commission decide not to refer the MAG Plan to the Joint
Board, the lack of a formal referral should not prevent the Joint Board
from participation in the process. I strongly encourage the Commission
to ensure that the Joint Board remains actively involved in the
Commission's consideration of the universal service aspects of the MAG
Plan.

**Concurring Statement**

**of**

**Commissioner Laska Schoenfelder**

**with Recommendation for Further Study**

**and Concurrence with**

**Commissioner Rowe\'s Statement**

**[Docket CC 96-45]{.underline}**

The Rural Task Force Recommendation (Recommendation) is remarkable when
one considers multiple industry interests and regulators gathered to
debate issues and policy with service requirements, subsidies, high and
low cost states, rural protection and competition issues in play. The
Recommendation represents substantial progress toward melding disparate
interests inherent in the crafting of national telecommunications
policy. The Recommendation of the Rural Task Force should be adopted in
its entirety, and it should remain in effect for a minimum of five
years.

Even so, with the future benefit of hindsight and further study, there
will be acknowledged mistakes and the need for policy change. There are
current unknowns that beg for data collection and study. My particular
concern is the Recommendation\'s intent to provide universal service
funding support for per customer multiple lines that may be
conjunctively provided by ILEC, CLEC, and wireless companies. It\'s
troubling that we may be providing the framework to massively inflate
high cost support programs, potentially tripling them, without advancing
universal service. I fully understand the need to resolve administrative
problems before we can fully address this issue.

We know there are customers who now have multiple wireline and wireless
options offered by eligible telecommunications carriers. I expect the
scale of this issue to grow. There is an obvious need to intensify our
examination of this issue in upcoming reviews. This issue should now be
marked for tracking and measurement. We need to focus on the possibility
of requiring multi-line customers to designate one line for receipt of
universal service support. Commissioner Rowe is also filing additional
comments addressing universal service issues which should be examined in
the near future, and I support his statement.

The Multi-Association Group Plan (MAG Plan) which has been filed before
the FCC is a comprehensive rural carrier reform plan which includes
specific universal service recommendations. Those elements of the MAG
Plan related to universal service should formally be referred to the
Joint Board.

**Statement of**

**Public Counsel Martha Hogerty**

**Concurring in part and Dissenting in part**

I appreciate the tremendous effort of Commissioner Bill Gillis and the
other members of the Rural Task Force in investigating and developing a
joint recommendation regarding rural universal service issues. Their
thorough and tireless research has significantly advanced our
understanding of rural telecommunications issues.

I recognize that the Rural Task Force Recommendation is a compromise
presented as an integrated package by a broad range of interested
parties. The Joint Board Members examined all facets of the
Recommendation and during discussions addressed questions about the
wisdom of various components. Ultimately I agree that the proposal
should be adopted for a five year period. I support the Recommendation
primarily because the plan provides stability and predictability for a
period of five years. This provides carriers with a reasonable planning
horizon and provides investment incentives for rural carriers.

But I believe that the work initiated by the Rural Task Force is
incomplete. The Rural Task Force Recommendation puts forth mechanisms
that ensure that in the aggregate rural companies can provide the
supported services. However, it falls short of ensuring that the support
provided on a company basis is properly targeted. I believe that first
obligation of the members of the Joint Board is accountability to the
consumers that pay for the universal service fund. An inflated fund size
or questionable allocation of funding threatens universal service.

This Joint Board has the responsibility to the public to properly target
the universal fund. USAC collected \$4 billion for the universal service
fund in the year 2000. The proposed USF assessment on carriers for the
first quarter of 2001 is 6.68%. The RTF will add another 1.6 billion to
the fund. My fellow Joint Board members and I are certainly aware that
customers continue to object to increasing federal and state surcharges
on their bills. We owe it to them to carefully monitor the fund. My fear
is that the universal fund may not be sustainable.

Looming before us is the MAG plan. This proposal has significant
universal service implications. First, it could raise customer rates by
increasing and deaveraging the SLC, and this has implications for rate
comparability under Section 254(b)(3) of the Act and also for telephone
penetration. Second, it will increase the size of the Universal Service
Fund and the rate charged against the interstate revenues of
contributing carriers. Section 254(b) and 254(c) both contemplate that
the Joint Board makes recommendations in matters related to universal
service. Accordingly, the Commission should refer to this Joint Board
the universal service issues raised by the MAG plan, just as it should
refer any other proposed federal action that would increase the price of
universal service or increase the size of the Universal Service Fund. I
strongly oppose any decision by the FCC to proceed with consideration of
the MAG without a Joint Board recommendation and I am compelled dissent
to the portion of the Joint Board Recommendation insofar as it fails to
recommend referral of the MAG plan to the Joint Board.

Although I am able to accept the result for a limited period of time, I
am disappointed that a more concentrated effort to target support was
not achieved. I believe we can do better. It is my hope that the
referral that commences in 2002 will result in a mechanism that provides
sufficient support, to ensure just reasonable and affordable service to
high cost areas, no more and no less.

Support should be targeted narrowly to those specific geographic areas
that have a demonstrated need for the support. The need would be
demonstrated where unacceptably high costs prevent the provision of
affordable universal service absent support.

During the term of this plan, work must begin immediately to target
support where it is needed. There was testimony offered by Commissioner
Dunleavy of New York that some rural carriers receive support where the
necessity is not clearly demonstrated. There was also testimony
presented by Commissioner Welch of Maine that some areas of the country
may not have sufficient support because of extraordinary high costs, not
only for loop, but also switching, transport and general service
facilities. Commissioner Rowe has expressed his concern that unserved
areas exist that are in need of support. These concerns must be
addressed and solved. I would support Commissioner's Rowe's
recommendation to open a docket to investigate areas where no service is
available. We must develop funding concepts that involve cost analysis
and support that is more closely grounded to the existing network and
real costs of providing universal service.

Although I agree with the Rural Task Force Recommendation that
additional support in the form of a \"safety net additive\" should be
available to rural carriers that make significant investment in rural
infrastructure. I am concerned that the safety net support, combined
with high cost loop support, switching support and interstate support,
could in some cases produce more than 100% reimbursement on incremental
loop investment. I strongly support the Joint Board's Recommendation to
further investigate this problem. I believe that the Commission should
craft rules to ensure that safety net benefits do not produce more than
full recovery of the revenue requirement caused by additional carrier
investment under any circumstances.

The Rural Task Force's proposal for re-basing the high-cost loop support
fund includes a \$14.6 million increase to reflect the removal of the
Commission's corporate operations expense limitation. While I agree with
the Rural Task Force's concern that a number of rural carriers impacted
by the corporate operations expense limitation, I am most concerned
about its impact on smaller carriers. The corporate operations expense
limitation was adopted, in part, to prevent carriers from recovering
from the high-cost loop support mechanism excessive expenditures
unrelated to the provision of supported services. For larger companies,
I believe this is a reasonable restriction. I believe the lifting of the
corporate expense would have been better targeted to very small
companies.

I urge the Commission to establish an annual certification requirement
for state commissions that receive federal universal service support for
rural carriers serving within their territories. Such a requirement will
ensure that receipt of the federal support is appropriate and being used
in a manner consistent with section 254. The Commission should apply
this certification requirement to all forms of federal universal service
support received by rural carriers, including "safety net additive,"
"safety valve," and "catastrophic" support.

I share Commissioner Schoenfelder's concern that providing universal
service support for multiple lines to a single customer may
substantially increase the size of high cost support programs without
significantly advancing universal service. We recognize that there are
formidable administrative problems that must be solved before this
problem can be addressed fully, but nonetheless it must be addressed.
Customers in some areas today have options for second or third lines
that include not only wireline service but also one or more wireless
telephones offered by eligible telecommunications carriers. I believe we
must look further into this issue in the upcoming reviews, and will be
particularly interested in examining the feasibility of requiring
multi-line customers to designate a single line to receive universal
service support.

In conclusion, I accept the Rural Task Force Recommendation because it
will address the needs of rural consumers, however, I recognize that we
will delay implementation of further refinements to target the fund for
the period this plan is in effect. My hope is that the 2002 review
process leads to meaningful results. While I accept the Rural Task Force
Recommendation, I strongly dissent to the extent the Recommendation
fails to refer the MAG plan to the Joint Board.

STATEMENT OF COMMISSIONER BOB ROWE

**Re: Federal-State Joint Board on Universal Service, CC Docket No.
96-45**

The Rural Task Force recommendation should be promptly implemented,
fully implemented, and implemented for the full five-year period
recommended. In addition, within the next six months a proceeding should
be commenced concerning the very highest cost unserved and underserved
areas, as more fully described below.

Perhaps nowhere in America is telecommunications more valuable than in
rural areas. Modern telecommunications can help overcome distance and
dispersion, and (as an intermediate good) allow rural citizens to
maximize the advantages provided by other rural attributes. Perhaps
nowhere are the challenges to deployment more daunting than in rural
America. This was persuasively demonstrated in the Rural Task Force's
second report, [The Rural Difference]{.underline}.

Many telecom providers, especially small providers, do a great job
providing rural citizens high quality service and, increasingly, access
to more advanced services. Despite the acute "rural difference" exciting
things are happening in rural America. Small carriers are investing in
fiber backbone, installing ATM switching, and are beginning to deploy
high-speed loop. Competition is also beginning to grow in some rural
areas, provided by regional and national companies, and (too-often
unnoticed) by small local competitors or competitive affiliates of rural
companies. All of this is to the great credit of the providers and to
the communities they serve. It is also a confirmation of Congress'
wisdom in embracing both competition and universal service.[^63] Public
policy should support and not impede private innovation and investment.

**A. The Rural Task Force Presented a Balanced Recommendation That
Should be Adopted.**

Our challenge, squarely addressed by the Rural Task Force, is first to
"do no harm," second to effectuate Congress' specific universal service
objectives in Section 254, and third to do so in a way consistent with
Congress' companion emphasis on competition. The Rural Task Force has
done an admirable job in devising a universal service plan for rural
carriers that preserves existing universal service support levels while
facilitating competition in rural areas. The Rural Task Force faced a
monumental challenge. Congress recognized that competition might
encourage investment in infrastructure and bring new and improved
services to rural America. Congress also found that special measures
beyond competition are required to preserve and advance universal
service in rural areas. The Rural Task Force's recommendation is a
fairly comprehensive plan designed to balance the sometimes-competing
goals of competition and universal service.

The recommendation is endorsed by all members of the Rural Task Force
and represents a consensus of their sometimes-divergent positions. As
such, the plan deserves due deference. I support its prompt and complete
adoption.

**B. Unserved and Underserved Areas Should be Promptly Addressed.**

Under the Rural Task Force recommendation support to some extremely
high-cost rural areas may not be sufficient to achieve rates and service
comparable to those in urban areas, as is required by Section 254 of the
Act. Some areas of the country, primarily because of geography, have
extraordinarily high costs for plant items not supported by the current
or proposed support plans. These plans generally support high loop costs
for all companies and switching costs for small companies. However,
costs not covered may include, depending upon the circumstances,
transport, general support facilities, and some switching costs.[^64] In
addition, the end result suggests that some very high cost companies may
be left with intrastate revenue requirements net of federal support in
excess of \$50 per line per month.[^65] We must develop a mechanism that
assures "sufficient" support for all areas.[^66] Otherwise, the
sufficiency requirement of Section 254 of the Act will not be met.

I am particularly concerned that some consumers in some rural areas do
not have any telephone service available.[^67] Where consumers have no
opportunity to purchase telephone service there exists a fundamental
universal service concern.

Because of the pressing concern about unserved areas, I recommend that
within the next six months the Commission commence a proceeding and
refer to this Joint Board the question of whether additional, specific
measures are needed for areas where no telephone service is currently
available. Two members of the Rural Task Force suggested this
approach.[^68] Initiating a proceeding does not indicate any
predetermination about the scope of the problem, the range of technical
and policy solutions, or the appropriate balance of federal, state, and
private strategies. This proceeding should also examine areas that are
seriously underserved.[^69] I hope the results of this new proceeding if
adopted can be implemented as soon as possible.[^70]

**C. The Next Review of Rural Support Should Commence in Time to Allow
Thoughtful Development and Consideration of Issues.**

A full five year implementation period will allow providers sufficient
regulatory predictability to make critical investments. It will also
allow thoughtful consideration of any universal service issues before
expiration of the five year period. The next review will also be an
opportunity to more fully address several issues raised by commenters in
this proceeding that could not be addressed while acting promptly on the
Rural Task Force Recommendation. Over the next five years markets and
technology will surely change. Therefore, Joint Board and the Commission
should commence its initial review of the high cost mechanism for rural
carriers by January 2002.

As the Rural Task Force's findings demonstrate, there are substantial
differences between the average characteristics of rural carriers and
those of nonrural carriers. The Rural Task Force was charged solely with
considering the needs of rural carriers and therefore did not consider
the service needs of the large number of rural customers served by
nonrural carriers. When the Rural Task Force recommendation is put in
place the support rules for rural carriers will remain significantly
different from those that apply to nonrural carriers. Furthermore, the
costs for nonrural carriers' support will be measured primarily on an
embedded cost basis, but nonrural costs will be measured on a forward
looking basis. The difference in the way costs are measured and the
method used to determine needed support will produce significantly
different support amounts for comparable rural areas; those served by a
rural carrier and others served by a nonrural carrier.[^71] Several
commenters described potential problems at the borders between the two
programs.

During the next review the Joint Board should coordinate its examination
of the rural and nonrural mechanisms, identify areas where the programs
could benefit from harmonization,[^72] and develop strategies to do so.
This does [not]{.underline} suggest that the non-rural mechanism should
be adopted for rural companies. In fact some might suggest that a
mechanism closer to that used for rural companies might be desirable for
rural areas served by large companies if sufficient support is going to
be provided for all rural areas.

Some commenters suggested that existing support mechanisms might provide
some carriers support where the need for that support has not been
demonstrated.[^73] From reviewing rough cost data, this would appear to
be of concern in at most a small number of cases. Interest expressed by
some parties in greater targeting to the highest cost areas could be
considered in this future proceeding

At least one commenter was concerned that the existing support mechanism
may have unintended effects on carrier incentives to overbuild an area
where the incumbent has significantly under-invested.[^74] As pointed
out at the en banc hearing, rural carriers sometimes considering
overbuilding a nearby area served by a different incumbent. According to
the witness the decision to overbuild is affected, however, by the
current support mechanism, which treats overbuilders as CLECs, and thus
limits support based upon the embedded costs of the incumbent. If the
incumbent, however, has not invested in its system, this support may be
small.[^75] The result may be an incentive towards a buy-then-rebuild
strategy as opposed to a simple overbuilding strategy. If so, the
support mechanism may have the unintended effect of increasing the sale
price of poor quality plant and thus the overall cost of providing
service. The Joint Board should address this question when it examines
the design of the rural and nonrural systems.

Long-term sustainability of support mechanisms will be a critical issue
as well. We need to consider mechanisms consistent with changing
markets.

For these reasons the Joint Board and the Commission should begin review
of high-cost support mechanisms for rural carriers by January 2002. This
timing will allow orderly examination of both rural and non-rural
support mechanisms at the same time. This will facilitate the
evaluation, for all rural areas, of whether rates and services are
comparable to those in urban areas.

**D. The Commission Should Adopt the "No Barriers" to Advanced Services
Recommendation.**

Finally, I strongly endorse the Rural Task Force's balanced and
thoughtful approach to advanced services, and its clear statement of the
relationship between the network and the services provided over the
network. The Commission should ensure that the Federal universal service
methodology is not a barrier to the deployment of advanced services in
all areas of the nation. I look forward to the upcoming referral to the
Joint Board of the definition of covered services.

**E. Conclusion.**

In summary, I strongly support the Rural Task Force recommendations. I
urge the Commission to promptly and fully implement the package of
proposals for a full five years. In addition, I recommend that the
Commission initiate a proceeding within the next six months and make a
referral to the Joint Board concerning whether additional universal
service measures are needed for unserved and significantly underserved
areas where no service is available.

I thank and congratulate the Rural Task Force for its effort. I
especially commend my colleague and good friend Commissioner Bill Gillis
for his extraordinary leadership.

Commissioner Laska Schoenfelder concurs in this statement. Public
Counsel Martha Hogerty concurs in the request for a referral concerning
unserved areas.

[^1]: Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56
    (1996) (1996 Act). The 1996 Act amended the Communications Act of
    1934. 47 U.S.C. §§ 151, *et seq.*

[^2]: 47 U.S.C. § 254(b)(3).

[^3]: *Id.* at §§ 254(b)(2), (5).

[^4]: *See id.* at § 254(b)(7); *Federal-State Joint Board on Universal
    Service*, CC Docket No. 96-45, Report and Order, 12 FCC Rcd 8776,
    8801-03 paras. 46-51 (1997) (*First Report and Order*) (subsequent
    history omitted).

[^5]: *First Report and Order*, 12 FCC Rcd at 8803 para. 52.

[^6]: *See* 47 U.S.C. § 254(a).

[^7]: *Federal-State Joint Board on Universal Service*, CC Docket No.
    96-45, Recommended Decision, 12 FCC Rcd 87 (Jt. Bd. 1996) (*First
    Recommended Decision*).

[^8]: *First Report and Order*, 12 FCC Rcd 8776.

[^9]: "Rural carriers" are local exchange carriers (LECs) that meet the
    definition of a rural telephone company contained in section 153(37)
    of the 1996 Act, and "non-rural carriers" are LECs that do not meet
    this definition. 47 U.S.C. § 153(37).

[^10]: *First Report and Order*, 12 FCC Rcd at 8899-901 paras. 224-229.
    At the time of the *First Report and Order*, three federal universal
    service support mechanisms provided support for rural and non-rural
    carriers, for the most part based on embedded costs averaged over
    entire study areas. The high-cost loop support and Local Switching
    Support (formerly DEM Weighting) programs under Part 36 of the
    Commission's rules provided support for intrastate-allocated costs.
    *See infra* notes 21-22. The Long Term Support program provided
    support for interstate-allocated costs. *See infra* note 22. These
    three support mechanisms currently provide approximately \$1.568
    billion in annual high-cost support to over 1,300 rural carriers.
    *See* Letter from D. Scott Barash, Vice President and General
    Counsel, Universal Service Administrative Company (USAC), to Magalie
    Roman Salas, FCC, dated November 2, 2000, at Appendix HC 3 (USAC
    1^st^ Quarter 2001 Projections). The Commission's new,
    forward-looking high-cost support mechanism for non-rural carriers
    became effective on January 1, 2000. *Federal-State Joint Board on
    Universal Service*, CC Docket No. 96-45, Ninth Report and Order and
    Eighteenth Order on Reconsideration, 14 FCC Rcd 20432, 20439 (1999)
    (*Ninth Report and Order*), *pets. for review pending* *sub nom*.,
    *Qwest Corp. v. FCC*, 10^th^ Cir. No. 99-9546 and consolidated cases
    (1999).

[^11]: *First Report and Order*, 12 FCC Rcd at 8934 para. 291.

[^12]: *Id.* at 8936 para. 294.

[^13]: *Id.* at 8917 para. 252-53, 8936 para. 294.

[^14]: *Federal-State Joint Board on Universal Service*, CC Docket No.
    96-45, Second Recommended Decision, 13 FCC Rcd 24744 at 24758 para.
    30 (Jt. Bd. 1998) (Second Recommended Decision).

[^15]: *Id.* at 8917 para. 253; *see also id.* at para. 255; *Second
    Recommended Decision*, 13 FCC Rcd 24744 at para. 30 (Jt. Bd. 1998).

[^16]: *See Federal-State Joint Board on Universal Service Announces
    Rural Task Force Members*, CC Docket No. 96-45, Public Notice, FCC
    98J-1 (Jt. Bd. rel. July 1, 1998); *Federal-State Joint Board on
    Universal Service Announces the Creation of a Rural Task Force*, CC
    Docket No. 96-45, Public Notice, 12 FCC Rcd 15752 (Jt. Bd. 1997).

[^17]: *See* *id.*

[^18]: Letter from William R. Gillis, Chair, Rural Task Force, to
    Magalie Roman Salas, FCC, dated September 29, 2000 (Rural Task Force
    Recommendation or Recommendation).

[^19]: Appendix A; *see also* Rural Task Force web site at
    [www.wutc.wa.gov/rtf/rtfpub.nsf?open](http://www.wutc.wa.gov/rtf/rtfpub.nsf?open).

[^20]: The Rural Task Force emphasizes that its Recommendation applies
    only to rural, insular, and high-cost areas served by rural
    carriers, and not to areas served by non-rural carriers. *See*
    Appendix A at 18.

[^21]: High-cost loop support under Part 36 provides support for a
    variable percentage of carriers' unseparated loop costs, as
    reflected in their books, depending on the number of working loops
    they serve and the degree to which their costs exceed the national
    average cost per loop. *See* 47 C.F.R. §§ 36.601, *et. seq.*; *First
    Report and Order*, 12 FCC Rcd at 8891-92 paras. 209-11.
    Specifically, carriers with 200,000 or fewer working loops receive
    support equal to 65 percent of that portion of their unseparated
    loop costs exceeding 115 percent of the national average but not
    greater than 150 percent of the national average, and 75 percent of
    that portion of their unseparated loop costs exceeding 150 percent
    of the national average. For carriers with greater than 200,000
    working loops, the formula is similar, but with reduced levels of
    support. For example, a carrier with 200,001 loops reaches the 75
    percent support level only for costs that are greater than 250
    percent of the national average. The national average is calculated
    based on the loop costs of both rural and non-rural carriers. The
    term "unseparated" refers to costs as calculated before applying the
    jurisdictional separations process, which divides between the state
    and federal jurisdictions the costs of those portions of local
    exchange carriers' telephone plant that are used for intrastate and
    interstate services. *See* 47 C.F.R. § 36.631.

[^22]: LTS provides support for the interstate-allocated loop costs of
    rate-of-return carriers (typically small rural carriers) that
    participate in the National Exchange Carrier Association (NECA)
    common line pool, and LSS (formerly DEM Weighting) is available to
    support the intrastate switching costs of carriers with 50,000 or
    fewer loops. 47 C.F.R. §§ 36.125(b), 54.301, 54.303. The Commission
    removed LTS and LSS, as well as high-cost loop support under Part
    36, from the interstate access charge system in 1997, and they are
    now collected from all providers of interstate telecommunications
    services on an equitable and non-discriminatory basis. *See
    generally Federal-State Joint Board on Universal Service*, CC Docket
    No. 96-45, Fourth Order on Reconsideration, *Access Charge Reform,
    Price Cap Performance Review for Local Exchange Carriers, Transport
    Rate Structure and Pricing, End User Common Line Charge*, CC Docket
    Nos. 96-262, 94-1, 91-213, 95-72, Report and Order, 13 FCC Rcd 5318,
    5343-45 paras. 40-41, 5352-54 paras. 56-58 (1998) (*Fourth Order on
    Reconsideration*).

[^23]: An indexed cap that limits the increase in support each year to
    the annual nationwide growth in loops restricts total high-cost loop
    support under Part 36 of the Commission's rules. *See* 47 C.F.R.
    Part 36, Subpart F; *First Report and Order*, 12 FCC Rcd at 8940
    para. 302 ("indexed cap effectively limits the overall growth of the
    fund, while protecting individual carriers from experiencing extreme
    reductions in support").

[^24]: The Commission's rules limit the amount of corporate operations
    expenses that carriers may recover through high-cost loop support
    under Part 36. *See* 47 C.F.R. § 36.621; *First Report and Order*,
    12 FCC Rcd at 8930-32 paras. 283-85.

[^25]: The Rural Task Force estimates that this particular proposal
    would increase the size of the high-cost loop support fund by
    approximately \$118.5 million in the first year, representing \$83.9
    million in additional high-cost loop support and \$34.6 million in
    additional support for corporate operations expenses. For Rural Task
    Force estimates of the potential cost of other aspects of its
    Recommendation, *see* Letter from William R. Gillis, Rural Task
    Force, to Magalie Roman Salas, FCC, dated November 10, 2000.

[^26]: Section 54.305 of the Commission's rules currently limits
    universal service support for acquired exchanges to the per-line
    support received by the seller. 47 C.F.R. § 54.305.

[^27]: Under the Rural Task Force Recommendation, fixed per-line support
    in areas where competitive carriers are providing service would be
    subject to adjustment by the incumbent carrier to recover costs
    associated with catastrophic events.

[^28]: We note that the Multi-Association Group (MAG) recently submitted
    to the Commission a comprehensive proposal for interstate access
    charge and universal service reform for rate-of-return carriers.
    *Petition for Rulemaking of the LEC Multi-Association Group*, RM
    10011 (filed October 20, 2000) (*MAG Plan*); *see Access Charge
    Reform for Incumbent Local Exchange Carriers Subject to
    Rate-of-Return Regulation*, CC Docket No. 98-77, Notice of Proposed
    Rulemaking, 13 FCC Rcd 14238 (1998). The MAG is comprised of the
    National Rural Telecom Association (NRTA), National Telephone
    Cooperative Association (NTCA), Organization for the Promotion and
    Advancement of Small Telecommunications Companies (OPASTCO), and
    United States Telecom Association (USTA).

[^29]: For example, the 1996 Act provides that state commissions may
    designate more than one eligible telecommunications carrier in an
    area served by a rural telephone company, but only after determining
    that such additional designation is in the public interest. *See* 47
    U.S.C. § 214(e)(2). In addition, states may require a
    telecommunications carrier that seeks to provide service in a rural
    telephone company's service area to meet the eligible
    telecommunications carrier requirements of section 214(e)(1). *See*
    47 U.S.C. §§ 214(e)(1), 253(f).

[^30]: *See Federal-State Joint Board on Universal Service Announces
    Rural Task Force Members*, CC Docket No. 96-45, Public Notice, FCC
    98J-1 (Jt. Bd. rel. July 1, 1998); *Federal-State Joint Board on
    Universal Service Announces the Creation of a Rural Task Force*, CC
    Docket No. 96-45, Public Notice, 12 FCC Rcd 15752 (Jt. Bd. 1997).

[^31]: *See* Letter from William R. Gillis, Rural Task Force, to Magalie
    Roman Salas, FCC, dated November 10, 2000. The Rural Task Force
    support estimates include only high-cost loop support. In addition,
    based on USAC's first quarter 2001 projections, rural carriers will
    receive \$386 million in LSS, \$390 million in LTS, and \$52 million
    in interstate access support. *See* USAC 1^st^ Quarter 2001
    Projections. These amounts also do not include implicit universal
    service support that may be included in rural carrier interstate
    access charges. The Rural Task Force recommends that LSS and LTS
    remain in place for the duration of its proposed plan and does not
    comment on the existing interstate access support program for price
    cap companies.

[^32]: Joint Board staff estimate the \$1.26 billion increase as the
    difference between the Rural Task Force estimates and projected
    high-cost loop support based on the current rules. Staff derived
    current rule estimates by increasing the 2001 rural high-cost loop
    support estimate of \$835 million, reported in USAC's first quarter
    2001 projections, by 2.86 percent annual industry line growth
    factor, as reported in the NECA October 2000 filing. *See* NECA
    Universal Service Fund 2000 Submission of 1999 Study Results, filed
    October 1, 2000.

[^33]: *See* Appendix A at 8.

[^34]: *See, e.g.,* CenturyTel Comments at 1-2 (urging the Joint Board
    to act quickly because "\[r\]eform is critically needed"); Evans
    Comments at 2 ("The Task Force Recommendation to the Joint Board is
    the first comprehensive proposal for implementation of the policies
    and principles of the 1996 Act on the subject of universal service
    support for high-cost \[rural carriers\] that includes input of [and
    support by]{.underline} a broad base of interested stakeholders.");
    GVNW Comments at 3 ("With the record now developed by a group
    representing the spectrum of those impacted by rural universal
    service public policy, it is now time to implement these
    recommendations for a five year-period."). NECA Comments at 8-9
    ("The RTF *Recommendation* should be adopted immediately by the
    Joint Board and the Commission, with due consideration of the
    potential longer-term effects of imposing artificial limits, such as
    continuation of any form of capping, on the size of the Rural
    carrier high cost fund.").

[^35]: *See, e.g.*, Citizens Comments at 2-5 ("proposal to 'right size'
    the fund by ameliorating the impact of the past cap suggests the
    imposition of a new cap might necessitate . . . a new right sizing
    in order to achieve the intended result of spurring investment in
    rural America"); MTA Comments at 3 (arguing that loss of \$130
    million due to caps "is money that could have been directly invested
    in our telecommunications infrastructure"); NTCA Comments at 7-10
    (strongly believes that no caps on the universal service support
    funds should be retained and that caps are unlawful); USTA Comments
    at 6-8 (opposing any cap on the rural high-cost fund to ensure
    sufficiency as mandated by section 254(b)(5) of the Act).

[^36]: *See, e.g.,* Charter Comments at 6-10 ("reform of rural universal
    service should be about reform, not about tweaking a subsidy
    structure that is outmoded and antithetical to competition"); New
    York Comments at 3-4 (no showing that total amount of support
    recommended would be only that amount necessary to enable sates to
    establish reasonably comparable rates); WorldCom Comments at 5-8
    ("no evidence that rural LECs have been unable to maintain their
    quality of service or upgrade facilities at the support levels
    provided by the existing mechanisms"); Ad Hoc Reply Comments at
    13-14 ("any increase or elimination of the indexed cap on the
    \[high-cost loop\] fund would only encourage a rural carrier to make
    inefficient investment decisions").

[^37]: *See* Rural Task Force, *White Paper 2:* *The Rural Difference*
    (January 2000) (*White Paper 2*), which is available on the Rural
    Task Force's web site at
    [www.wutc.wa.gov/rtf/rtfpub.nsf?open](http://www.wutc.wa.gov/rtf/rtfpub.nsf?open).

[^38]: *See,* *id.; see, e.g.,* GCI Comments at 2-3; People Comments at
    2-3; WorldCom Comments at 2; Ad Hoc Reply Comments at 5-6; AT&T
    Reply Comments at 3-4.

[^39]: *See* *White Paper 2* at
    [www.wutc.wa.gov/rtf/rtfpub.nsf?open](http://www.wutc.wa.gov/rtf/rtfpub.nsf?open).

[^40]: 47 C.F.R. § 54.305. High-cost support mechanisms currently
    include non-rural carrier forward-looking high-cost support, interim
    hold-harmless support for non-rural carriers, rural carrier
    high-cost loop support, local switching support, and Long Term
    Support (LTS). *See* 47 C.F.R. §§ 36.601-36.631, 54.301, 54.303,
    54.309, 54.311.

[^41]: *See* Appendix A at 29.

[^42]: *See* *id.* at Appendix D.

[^43]: *See* 47 C.F.R. § 36.631.

[^44]: *See* Appendix A at Appendix D-1.

[^45]: *See id.*

[^46]: *See, e.g.*, USTA Comments at 9-10 (arguing that increased
    support resulting from a single transfer could exceed the five
    percent cap).

[^47]: For example, it may be more appropriate to define "meaningful
    investment" so that the "index year expense adjustment" is the year
    prior to the subsequent year "expense adjustment." As currently
    proposed, the "index year expense adjustment" is the study area's
    high-cost loop support "expense adjustment" calculated at the end of
    the acquiring company's first year of operations.

[^48]: *See* Appendix A at 26.

[^49]: *Id.*

[^50]: *Id.*

[^51]: *See* Sprint Comments at 3 ("fund should not become substitute
    for carriers' insurance policies").

[^52]: *See* Appendix A at 27.

[^53]: *Id.*

[^54]: *Id.*

[^55]: *See, e.g.,* Bristol Comments at 3; TDS Telecom Comments at 8.

[^56]: *See* Appendix A at 30-32.

[^57]: *See id.*

[^58]: *See* AT&T Comments at 5-6; CenturyTel Comments at 2; NTCA
    Comments at 18; Roseville Comments at 4; TDS Telecom Comments at
    6-7.

[^59]: *See* NTCA Comments at 19; Roseville Comments at 4; TDS Telecom
    Comments at 6-7; USTA Comments at 11.

[^60]: *See* 47 U.S.C. §§ 254(b), (c).

[^61]: *See supra* discussion at para. 5.

[^62]: *Federal-State Joint Board on Universal Service, Access Charge
    Reform*, CC Docket Nos. 96-45, 96-262, Seventh Report & Order and
    Thirteenth Order on Reconsideration in CC Docket No. 96-45, Fourth
    Report & Order in CC Docket No. 96-262, and Further Notice of
    Proposed Rulemaking, 14 FCC Rcd 8077, 8123 para. 94 (1999).

[^63]: See generally, the record in the Senate Commerce Committee
    hearing on rural digital divide issues, March 28, 2000, and the
    opening statement of Chairman Burns.

[^64]: The amount of switching cost covered is based on the size of the
    company (the smaller the company, the greater the support) rather
    than the per line switching cost. Therefore, a slightly larger
    company with very high switching cost might not receive adequate
    support.

[^65]: Based upon data filed by the National Exchange Carriers
    Association, it is possible to calculate an \"all facilities\"
    embedded cost-based revenue requirement for each rural carrier.
    Based upon this analysis, a \"best fit\" line can be calculated to
    the cost and support data. The results show that, on average, only
    44 cents of every dollar of unseparated cost are matched by the two
    federal programs for intrastate services: loop support and local
    switching support. Thus if a company has an overall intrastate
    separations factor of 75%, the existing system supports 44 cents of
    the 75 cents of every dollar that is separated to intrastate. This
    leaves approximately 31 cents per dollar of cost to recover from
    intrastate services. Because some companies have total embedded
    costs in excess of \$200 per line per month, this can leave
    companies with revenue requirements from intrastate services of \$50
    per line per month or more. Detailed examples cannot be offered here
    because the NECA cost data are under a protective order in this
    docket.

[^66]: See Maine/Vermont Comments and En Banc Comments of Maine Public
    Utility Chairman Thomas Welch.

[^67]: I am aware that unserved areas exist in numerous states. For
    example only, some of the unserved areas in Montana are:

    \*Qwest facilities extend to the General Mercantile store in
    Polebridge, Montana. Residents of the North Fork area north of
    Polebridge who have no access to telecommunications.

    \*The area south of Glasgow located on the "High Line" of eastern
    Montana is a rugged and sparsely populated area often termed the
    "bad lands." Ranches are up to 45 miles south of the nearest central
    office in Glasgow, Montana. It is not economically feasible for a
    rural telephone company to extend transport facilities to serve the
    area. Cellular service provides limited telecommunications options
    due to the terrain and location.

    \*Sixteen customers living approximately twenty miles southwest of
    Utica in central Montana have no access to telecommunications. The
    estimated cost to connect these customers to the network is
    \$400,000 (\$250,000 for fiber facilities and \$150,000 for
    backbone). The terrain is rugged with sheer rock cliffs on the side
    of the road that is not much more than a few feet of dirt piled on
    top of rock. Burying the fiber to connect these customers to the
    public switched network would require rock sawing for nearly 20
    miles. The distance and the mountainous terrain limit cellular
    options.

    \*Six customers living in the Olaf area, twenty-five miles north of
    Two Dot in central Montana have no telecommunications service. An
    engineering study estimates it would cost \$200,000 in predominately
    transport investment to provide service to these six customers. The
    rocky terrain and mountainous area are barriers to service access.

    \*Seventy-four persons filed a petition with the Montana PSC in 1998
    seeking telephone service in the Little Wolf Creek area north of
    Helena. Again the cost of tying this area into the public switched
    network is prohibitive.

    \*A destination ranch for critically ill children is located 23
    miles west of Whitefish, Montana (northwest Montana) near the Hope
    Ranch, a private adolescent facility. Neither the ranch nor the
    approximately 24 families who live in the area, have access to
    telecommunications. Cellular service is poor or not available due to
    the rugged terrain and mountains. Engineering studies have
    determined that the cost to extend trunking facilities needed to
    connect this area to the public switched network is prohibitive.

    \*Other examples of unserved territory can be found in Maine. In
    most all cases these areas consist of relatively compact settlements
    that are far from existing service facilities. In some cases these
    areas are islands or are settlements not connected to the rest of
    Maine by public roads. Therefore, in these areas, loop costs are
    likely to be low but switching costs per customer and trunking costs
    are likely to be extremely high.

    While commenters identify the problem, these specific examples are
    outside the record, and are only offered to demonstrate the
    problem's significance. This does not suggest the appropriate
    policy, technology, or balance of federal, state and private efforts
    to address such problems. For another time are stories about
    successful and unsuccessful efforts to extend service, and - where
    successful - about the dramatic effect on citizens receiving good
    telecommunications access for the first time.

[^68]: See Reply Comments of Maine Public Advocate Stephen Ward and West
    Virginia Consumer Advocate Billy Jack Gregg.

[^69]: On its own motion the Commission has undertaken proceedings
    concerning access to telecommunications on tribal lands and to
    promote deployment and subscribership in underserved tribal areas.
    State commissions have been active in implementation.

[^70]: The Commission should be careful not to diminish the flow of
    support and not take away any new support provided under the Rural
    Task Force recommendations when it implements any needed additional
    support for unserved areas.

[^71]: Commenters suggested that two vastly different support mechanisms
    may create a risk of the kind of incentives described in the
    Maine/Vermont comments and in the comments of Maine Chairman Thomas
    Welch discussed supra.

[^72]: "Harmonization" does not mean uniformity, particularly due to the
    "rural differences" identified by the Rural Task Force, and also due
    to the great limitations in existing economic cost models when
    applied to rural areas, as identified in Rural Task Force Report 4,
    [A Review of the FCC's Non-Rural Universal Service Fund Method and
    the Synthesis Model for Rural Telephone Companies]{.underline}.
    Harmonization means identifying and addressing issues arising on the
    seams or borders between the two programs, such as the possibly
    increased incentive to sell exchanges if the seller is eligible for
    less support, ensuring purchasers are able to invest in those
    exchanges, or the cost and complexity of maintaining different
    costing methodologies.

[^73]: See Maine/Vermont and New York Comments and Comments of
    Commissioner Thomas Dunleavy of the New York Public Service
    Commission and Thomas Welch of the Maine Public Utility Commission
    made to the Joint Board at the San Diego NARUC meeting.

[^74]: See David Cosson's comments at the en banc hearing.

[^75]: On the other hand, if the carrier first buys the existing plant
    and then rebuilds it, the purchasing carrier gains ILEC status under
    the rules, but under rule 305 support is limited to the prior
    owner's support. The Rural Task Force's "Safety Valve" may
    ameliorate this problem, but does not eliminate it.