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 Federal  Communications  Commission  FCC  00-  428 
 Before  the 
 Federal  Communications  Commission 
 Washington,  D.  C.  20554 


 In  the  Matter  of 
 Federal-  State  Joint  Board  on 
 Universal  Service 


 ) 
 ) 
 ) 
 ) 
 CC  Docket  No.  96-  45 


 THIRTEENTH  REPORT  AND  ORDER 
 AND  FURTHER  NOTICE  OF  PROPOSED  RULEMAKING 


 Adopted:  December  6,  2000  Released:  December  8,  2000 
 Comment  Date:  30  days  from  publication  in  the  Federal  Register  Reply  Comment  Date:  45  days  from  publication  in  the  Federal  Register 


 By  the  Commission: 
 I.  INTRODUCTION 
 1.  In  this  Thirteenth  Report  and  Order,  we  adopt  the  recommendations  of  the  Federal-  State 
 Joint  Board  on  Universal  Service  (Joint  Board)  for  phasing  down  the  interim  hold-  harmless  provision  of  the 
 forward-  looking  high-  cost  universal  service  support  mechanism  for  non-  rural  carriers.  1  Specifically,  we 
 adopt  measures  to  phase  down  interim  hold-  harmless  support,  excluding  Long-  Term  Support  (LTS),  2 
 through  $1.00  reductions  in  average  monthly,  per-  line  support  beginning  January  1,  2001,  and  every  year 
 thereafter  until  there  is  no  more  interim  hold-  harmless  support.  For  the  reasons  discussed  below,  we 
 believe  that  these  measures  will  ensure  a  prompt,  equitable  phase-  down  of  interim  hold-  harmless  support 
 without  causing  undue  rate  disruption.  We  conclude  that  several  issues,  such  as  appropriate  reforms  for 
 the  LTS  program,  should  be  addressed  in  the  context  of  our  pending  proceedings  for  rural  high-  cost  reform 
 and/  or  interstate  access  charge  reform  for  rate-  of-  return  carriers.  3 


 1  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Recommended  Decision,  15  FCC  Rcd 
 14714  (released  June  30,  2000)  (Recommended  Decision);  47  C.  F.  R.    54.311.  Non-  rural  carriers  are  local 
 exchange  carriers  (LECs)  that  do  not  meet  the  definition  of  a  rural  telephone  company  contained  in  47  U.  S.  C. 
   153(  37). 
 2  LTS,  which  provides  carriers  that  participate  in  the  National  Exchange  Carrier  Association  (NECA)  carrier 


 common  line  pool  with  support  for  interstate-  allocated  loop  costs,  is  one  of  two  support  mechanisms  included 
 under  the  interim  hold-  harmless  provision.  47  C.  F.  R.    54.303,  54.311(  a);  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,  20474  (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). 


 3  See  Ninth  Report  and  Order,  14  FCC  Rcd  at  20439,  n.  20  and  accompanying  text;  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).  We  note  that  the  Rural  Task  Force  submitted  to  the  Joint 
 Board  recommendations  regarding  rural  high-  cost  reform  on  September  29,  2000,  and  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.  See  Petition  for  Rulemaking  of  the  LEC  Multi-  Association 
 (continued.) 
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 2.  In  the  attached  Further  Notice  of  Proposed  Rulemaking,  we  seek  comment  on  the  narrow 
 issue  of  whether  to  continue  to  apply  section  54.305  of  the  Commissions  rules  to  transfers  of  telephone 
 exchanges  between  non-  rural  carriers  following  the  phase-  down.  4  Section  54.305  requires  a  carrier  that 
 acquires  an  exchange  to  step  into  the  sellers  shoes  for  universal  service  support  purposes.  5  The 
 Commission  adopted  the  rule  in  1997  as  a  stopgap  measure  to  prevent  carriers  receiving  support  based  on 
 the  size  of  their  study  areas  and  embedded  costs  from  placing  unreasonable  reliance  upon  potential 
 universal  service  support  in  deciding  whether  to  purchase  exchanges[.]  6  Because  all  non-  rural  carriers 
 will  receive  support  based  on  forward-  looking  economic  costs  following  the  phase-  down  of  interim  hold-harmless 
 support,  we  believe  that  the  need  for  section  54.305  would  no  longer  exist  with  regard  to  transfers 
 between  non-  rural  carriers  once  the  phase-  down  is  complete. 


 II.  BACKGROUND 
 3.  In  the  Ninth  Report  and  Order,  the  Commission  adopted  a  new  high-  cost  universal  service 
 support  mechanism  for  non-  rural  carriers,  based  on  the  estimated  forward-  looking  economic  costs  of 
 providing  services  eligible  for  support.  7  The  Commission  also  adopted  an  interim  hold-  harmless  provision 
 to  protect  consumers  in  high-  cost  areas  from  potential  rate  shock  as  a  result  of  any  sudden,  significant 
 increases  in  rates  during  the  shift  to  the  new,  forward-  looking  mechanism.  Under  the  interim  hold-  harmless 
 provision,  a  carrier  receives  the  greater  of  the  support  amount  for  which  it  qualifies  under  the  forward-looking 
 mechanism  or  under  two  preexisting  support  mechanisms:  (1)  LTS;  8  and  (2)  high-  cost  loop 
 support  under  Part  36  of  the  Commissions  rules.  9 


 4.  The  Commission  emphasized  in  the  Ninth  Report  and  Order  that  the  interim  hold-  harmless 
 (Continued  from  previous  page) 
 Group,  RM  10011  (filed  October  20,  2000);  Letter  of  William  R.  Gillis,  Chair,  Rural  Task  Force  to  Magalie 
 Roman  Salas,  Secretary,  Federal  Communications  Commission,  CC  Docket  No.  96-  45  (September  29,  2000) 
 (RTF  Recommendation).  We  intend  to  act  expeditiously  on  these  matters  with  full  consideration  of  the 
 interrelationships  of  the  proposals. 
 4  47  C.  F.  R.    54.305. 


 5  Id.;  see  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Report  and  Order,  12  FCC  Rcd 
 8776,  8942-  42  (1997)  (First  Report  and  Order)  (subsequent  history  omitted). 
 6  Id. 


 7  Ninth  Report  and  Order,  14  FCC  Rcd  at  20436-  39.  The  Commission  explained  that  using  forward-  looking 
 economic  costs  provides  sufficient  support  without  giving  non-  rural  carriers  an  incentive  to  inflate  their  costs  or 
 to  refrain  from  efficient  cost-  cutting.  Id.  at  20443  (citations  omitted).  The  forward-  looking  mechanism  became 
 effective  January  1,  2000.  Id.  at  20439.  The  Commissions  model  for  estimating  forward-  looking  costs  and  the 
 input  values  to  be  used  in  the  model  are  discussed  in  a  companion  order.  Federal-  State  Joint  Board  on  Universal 
 Service,  CC  Docket  No.  96-  45,  Tenth  Report  and  Order,  14  FCC  Rcd  20156  (1999)  (Tenth  Report  and  Order), 
 pets.  for  review  pending  sub  nom.,  Qwest  Corp.  v.  FCC,  10  th  Cir.  No.  99-  9546  and  consolidated  cases  (1999). 
 8  Ninth  Report  and  Order,  14  FCC  Rcd  at  20474;  47  C.  F.  R.    54.311(  a);  see  47  C.  F.  R.    54.303. 


 9  Ninth  Report  and  Order,  14  FCC  Rcd  at  20474;  47  C.  F.  R.    54.311(  a);  see  47  C.  F.  R.    36.601,  et.  seq.  High-cost 
 loop  support  provides  carriers  with  federal  support  for  a  variable  percentage  of  their  unseparated  loop  costs, 
 as  reflected  in  their  books,  depending  on  their  number  of  working  loops  and  the  degree  to  which  their  costs 
 exceed  the  national  average.  See  Ninth  Report  and  Order,  14  FCC  Rcd  at  20440.  The  term  unseparated  refers 
 to  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.  Part  36. 
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 provision  is  a  transitional  provision  to  avoid  rate  shock  during  the  shift  to  forward-  looking  support.  10 
 Accordingly,  we  requested  a  Joint  Board  recommendation  as  to  how  interim  hold-  harmless  support  can  be 
 phased  down  or  eliminated  without  causing  undue  rate  disruption.  11  The  Joint  Board  released  its 
 recommendations  on  June  30,  2000.  12  The  Common  Carrier  Bureau  subsequently  requested  comment  on 
 the  Joint  Boards  recommendations  in  a  public  notice.  13  Twenty  parties  filed  comments  and  reply 
 comments  with  the  Commission  concerning  the  Joint  Boards  recommendations.  14 


 5.  The  salient  features  of  the  Joint  Boards  recommended  phase-  down  approach,  which  are 
 discussed  in  detail  below,  are  as  follows.  The  Joint  Board  recommended  that  LTS  be  maintained  under  the 
 current  rules  until  the  Commission  considers  appropriate  reforms  for  the  LTS  program  in  connection  with 
 the  pending  proceedings  for  high-  cost  reform  for  rural  carriers  and/  or  interstate  access  charge  reform  for 
 rate-  of-  return  carriers.  15  It  further  recommended  that  the  Commission  phase  down  the  balance  of  interim 
 hold-  harmless  support,  excluding  LTS,  through  $1.00  reductions  in  average  monthly,  per-  line  support 
 beginning  January  1,  2001,  and  every  year  thereafter  until  there  is  no  more  interim  hold-  harmless  support.  16 
 The  Joint  Board  recommended  against  phasing  down  interim  hold-  harmless  support  that  is  transferred  to  a 
 rural  carrier  when  it  acquires  telephone  exchanges  from  a  non-  rural  carrier,  until  the  Commission 
 completes  a  review  of  section  54.305  of  the  Commissions  rules  or  until  rural  high-  cost  reform  is  complete.  17 


 III.  PHASE  DOWN  OF  INTERIM  HOLD-  HARMLESS  SUPPORT 
 A.  Long-  Term  Support 
 1.  Background 
 6.  LTS  supports  interstate  access  rates  by  reducing  the  carrier  common  line  (CCL)  charges  18 


 10  Ninth  Report  and  Order,  14  FCC  Rcd  at  20478  (emphasis  in  original). 
 11  Id.  at  20479. 
 12  Recommended  Decision,  15  FCC  Rcd  at  14714. 
 13  Common  Carrier  Bureau  Seeks  Comment  on  Federal-  State  Joint  Board  on  Universal  Service 
 Recommendations  for  Phasing  Down  Interim  Hold-  Harmless  Provision,  CC  Docket  No.  96-  45,  Public  Notice,  65 
 Fed.  Reg.  44507  (July  18,  2000). 
 14  See  Appendix  A. 


 15  Recommended  Decision,  15  FCC  Rcd  at  paras.  8-  10;  see  supra,  n.  3. 
 16  Recommended  Decision,  15  FCC  Rcd  at  paras.  13-  15. 
 17  Id.  at  paras.  19-  21;  see  47  C.  F.  R.    54.305. 
 18  CCL  charges  are  per-  minute  charges  that  LECs  assess  on  interexchange  carriers  to  recover  a  portion  of  their 
 interstate-  allocated  loop  costs.  LECs  also  recover  interstate-  allocated  loop  costs  through  subscriber  line  charges 
 (SLCs),  which  are  flat,  non-  traffic-  sensitive  charges.  With  regard  to  price-  cap  carriers,  the  Commission  has 
 taken  measures  to  replace  per-  minute  charges  such  as  CCL  charges  with  SLCs,  in  order  to  align  the  rate  structure 
 more  closely  with  the  manner  in  which  costs  are  incurred.  See  Access  Charge  Reform,  Price  Cap  Performance 
 Review  for  Local  Exchange  Carriers,  CC  Docket  Nos.  96-  262  and  94-  1,  Sixth  Report  and  Order,  Low-  Volume 
 Long-  Distance  Users,  CC  Docket  No.  99-  249,  Report  and  Order,  Federal-  State  Joint  Board  on  Universal 
 Service,  CC  Docket  No.  96-  45,  Eleventh  Report  and  Order,  15  FCC  Rcd  12962  at  paras.  64-  75,  pets.  for  review 
 (continued.) 
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 of  rate-  of-  return  carriers  that  participate  in  the  National  Exchange  Carrier  Association  (NECA)  common 
 line  pool.  19  In  the  First  Report  and  Order,  the  Commission  concluded  that  the  LTS  program  serves  the 
 public  interest  by  facilitating  interexchange  service  in  high-  cost  areas,  but  that  modifications  were 
 necessary  to  make  LTS  explicit,  portable,  and  competitively  neutral.  20  Therefore,  the  Commission 
 continued  the  LTS  program,  but  removed  its  recovery  from  the  interstate  access  charge  system  and 
 modified  its  calculation  and  distribution  scheme.  21  The  Commission  anticipated  that  LTS  for  non-  rural 
 carriers  would  be  subsumed  in  the  new,  forward-  looking  support  mechanism  in  the  near  future.  22  The 
 Commission  anticipated,  however,  that  rural  high-  cost  reform  would  require  a  more  extended  time  period, 
 during  which  it  sought  to  maintain  the  existing  LTS  support  structure  for  rural  carriers,  as  modified.  23  As 
 stated  above,  the  Commissions  related  proceedings  to  reform  the  high-  cost  support  mechanism  for  rural 
 carriers  and  to  reform  the  interstate  access  charge  system  for  rate-  of-  return  carriers  are  pending.  24 


 7.  Rural  carriers  are  the  primary  recipients  of  LTS  and  will  receive  approximately  $381 
 million  in  LTS  in  the  year  2000.  LTS  for  non-  rural  carriers  will  total  approximately  $97  million  in  2000, 
 which  is  slightly  more  than  half  of  the  projected  $184  million  in  net  annual  interim  hold-  harmless  support.  25 
 Three  non-  rural  carriers  receive  LTS:  Roseville  Telephone  Company  (Roseville)  in  California;  North 
 State  Telephone  Company  in  North  Carolina;  and  Puerto  Rico  Telephone  Company  (PRTC),  which  is 
 projected  to  receive  over  90  percent  (approximately  $89  million)  of  the  total  annual  LTS  for  all  three 
 carriers  in  2000.  26 


 8.  The  Joint  Board  recommended  that  LTS  for  non-  rural  carriers  be  maintained  under  the 
 (Continued  from  previous  page) 
 pending,  Texas  Office  of  Public  Util.  Counsel  et  al.  v.  FCC,  5  th  Cir.  Nos.  00-  60434  (and  consolidated  cases) 
 (2000). 
 19  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,  5352-  54  (1997)  (Fourth  Order  on  Reconsideration). 
 20  First  Report  and  Order,  12  FCC  Rcd  at  9164-  66. 


 21  Id.;  see  Fourth  Order  on  Reconsideration,  13  FCC  Rcd  at  5355-  56. 
 22  First  Report  and  Order,  12  FCC  Rcd  at  8927. 
 23  Fourth  Order  on  Reconsideration,  13  FCC  Rcd  at  5362  (discussing  First  Report  and  Order). 
 24  See  supra,  n.  3  and  accompanying  text. 
 25  See  Appendix  C.  Support  estimates  for  the  year  2000  are  based  on  projections  from  data  for  the  first  quarter  of 
 2000,  the  same  data  which  the  Joint  Board  used  in  its  Recommended  Decision.  Support  estimates  may  vary  from 
 quarter  to  quarter  because  interim  hold-  harmless  support  is  calculated  on  an  ongoing,  quarterly  basis.  See  Ninth 
 Report  and  Order,  14  FCC  Rcd  at  20474-  75,  20480-  81;  47  C.  F.  R.    54.311(  a).  Appendix  C  also  includes 
 support  estimates  for  the  year  2001  based  on  projections  from  estimates  for  the  first  quarter  of  2001  filed  by 
 USAC  on  November  2,  2000. 
 26  See  Appendix  C.  As  a  result  of  its  merger  with  GTE  Holdings  (Puerto  Rico)  LLC,  the  Commissions  rules 


 require  PRTC  to  convert  to  price-  cap  regulation,  after  which  it  would  no  longer  be  eligible  to  participate  in  the 
 NECA  pool  or  to  receive  LTS.  The  Commission  extended  PRTCs  deadline  to  convert  to  price  cap  regulation  to 
 July  1,  2001,  while  it  considers  PRTCs  waiver  requests  to  remain  subject  to  rate-  of-  return  regulation  or, 
 alternatively,  continue  to  receive  LTS  for  a  transitional  period.  Puerto  Rico  Telephone  Co.  Petition  for  Waiver 
 of  Section  61.41  or  Section  54.303(  a)  of  the  Commissions  Rules,  CCB/  CPD  No.  99-  36,  Order,  15  FCC  Rcd  9680 
 (released  June  5,  2000)  (PRTC  Waiver  Order). 
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 Commissions  current  rules  until  the  Commission  considers  appropriate  reforms  to  the  LTS  program  in 
 connection  with  the  pending  proceedings  for  rural  high-  cost  reform  and/  or  interstate  access  charge  reform 
 for  rate-  of-  return  carriers.  27  It  reasoned  that  no  substitute  for  LTS  currently  exists  for  non-  rural  carriers, 
 because  LTS  supports  interstate-  allocated  costs,  whereas  the  forward-  looking  mechanism  supports  only 
 intrastate-  allocated  costs.  28  In  addition,  the  Joint  Board  expressed  concern  about  the  potential  rate  impact 
 on  rural  LTS  recipients  of  phasing  down  LTS  for  non-  rural  carriers.  29  Twelve  commenters  support  the 
 Joint  Boards  recommendation  regarding  LTS,  and  none  express  opposition.  30  WorldCom,  however, 
 conditions  its  support  on  denial  of  PRTCs  waiver  requests.  31 


 2.  Discussion 
 9.  We  adopt  the  Joint  Boards  recommendation  regarding  LTS.  The  forward-  looking 
 mechanism  adopted  in  the  Ninth  Report  and  Order  does  not  replace  LTS  for  non-  rural  carriers,  contrary  to 
 the  Commissions  originally  anticipated  outcome.  32  Therefore,  we  agree  with  the  Joint  Board  that  LTS  for 
 non-  rural  carriers  should  be  preserved  until  we  have  considered  further  reform  of  the  LTS  program.  In 
 addition,  maintaining  LTS  for  non-  rural  carriers  is  consistent  with  our  objective  to  maintain  the  current 
 support  structure,  as  modified,  for  rural  LTS  recipients  pending  rural  high-  cost  reform.  Because  LTS  is 
 geared  primarily  to  the  needs  of  small,  rural  carriers,  we  find  that  this  determination  should  take  place  in 
 the  context  of  our  related  proceedings  to  reform  the  high-  cost  support  mechanism  for  rural  carriers  and  the 
 interstate  access  charge  system  for  rate-  of-  return  carriers.  We  will  examine  these  matters  in  the  near 
 future.  33 


 B.  High-  Cost  Loop  Support  for  Non-  Rural  Carriers  Under  Part  36  of  the  Commissions 
 27  Recommended  Decision,  15  FCC  Rcd  at  paras.  8-  10. 
 28  The  Joint  Board  explained  that,  to  properly  account  for  the  separations  rules,  the  forward-  looking  mechanism 
 provides  support  only  for  the  percentage  of  total  costs  exceeding  the  national  benchmark  that  are  allocated  to  the 
 intrastate  jurisdiction,  not  for  interstate-  allocated  costs  such  as  those  supported  by  LTS.  Id.  at  para.  8. 
 29  See  id.  at  para.  9  (  Because  NECA  pools  costs,  revenues,  and  support  to  calculate  an  average  CCL  rate  for  pool 


 participants,  if  LTS  were  phased  down  for  the  three  eligible  non-  rural  carriers  without  a  corresponding  reduction 
 in  costs,  the  CCL  rate  for  all  NECA  pool  participants  would  increase.).  The  Joint  Board  noted  NECAs 
 estimate  that  the  loss  of  LTS  for  non-  rural  carriers  could  cause  the  NECA  CCL  rate  to  rise  by  up  to  42  percent. 
 Id. 
 30  See  AT&  T  Comments  at  2,  Florida  Public  Service  Commission  (Florida  Commission)  Comments  at  1,  General 


 Services  Administration  (GSA)  Comments  at  3-  5,  NECA/  NRTA/  OPASTCO  Comments  at  2-  4,  NTCA 
 Comments  at  10-  11,  PRTC  Comments  at  2-  3,  Roseville  Comments  at  1-  3,  Telecommunications  Regulatory 
 Board  of  Puerto  Rico  (PRTRB)  Comments  at  2-  3,  USTA  Comments  at  3-  4,  and  WorldCom  Comments  at  2. 
 NECA,  NRTA,  and  OPASTCO  filed  joint  comments  and  reply  comments  with  the  Commission. 
 31  See  WorldCom  Comments  at  4-  5;  supra,  n.  26.  GSA  concurs  with  WorldCom  that  PRTC  should  not  continue 


 to  receive  LTS,  and  conditions  its  own  support  on  the  Commission  setting  a  schedule  for  completing  the  reforms 
 within  a  reasonable  period  of  time,  such  as  18  months.  GSA  Comments  at  3  and  Reply  Comments  at  7. 
 32  Ninth  Report  and  Order,  14  FCC  Rcd  20467-  68;  see  First  Report  and  Order,  12  FCC  Rcd  at  8927. 


 33  See  supra,  n.  3.  We  emphasize  that,  by  adopting  the  Joint  Boards  recommendation  regarding  LTS,  we  are  not 
 prejudging  PRTCs  requests  for  waiver  of  the  Commissions  rules  to  remain  subject  to  rate-  of-  return  regulation 
 or,  alternatively,  continue  to  receive  LTS  for  a  transitional  period,  see  supra,  n.  26,  which  we  have  stated  raise 
 complex  issues  regarding  local  competition,  universal  service  support  in  Puerto  Rico,  and  operation  of  the 
 [NECA  pool].  PRTC  Waiver  Order,  15  FCC  Rcd  at  9682. 
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 Rules 
 1.  Background 
 10.  In  addition  to  LTS,  the  interim  hold-  harmless  provision  provides  support  to  eligible  non-rural 
 carriers  based  on  the  preexisting  high-  cost  loop  support  mechanism  under  Part  36  of  the 
 Commissions  rules.  34  Under  this  mechanism,  19  non-  rural  study  areas  are  projected  to  receive  a  total  of 
 about  $87  million  in  net  annual  interim  hold-  harmless  support  (excluding  LTS)  in  the  year  2000.  35  On  a 
 per-  line  basis,  12  of  the  19  study  areas  receive  average,  monthly  support  of  less  than  $1.00,  five  receive 
 support  of  less  than  $2.00,  one  receives  support  of  $3.26  (GTE  North,  Inc.-  Missouri),  and  one  (PRTC-Central) 
 receives  support  of  $12.06.  36 


 11.  The  Joint  Board  recommended  that  the  Commission  phase  down  interim  hold-  harmless 
 support,  excluding  LTS,  through  $1.00  reductions  in  average  monthly,  per-  line  support  beginning  January 
 1,  2001,  and  every  year  thereafter.  37  It  also  recommended  that  the  Commission  reexamine  the  phase-  down 
 schedule  in  conjunction  with  our  comprehensive  review  of  the  forward-  looking  mechanism,  which  is  to  be 
 completed  by  January  1,  2003.  38  Seven  commenters  generally  favor  this  phase-  down  schedule.  39  Six 


 34  Ninth  Report  and  Order,  14  FCC  Rcd  at  20474.;  47  C.  F.  R.    54.311(  a). 
 35  See  Appendix  C.  This  figure  represents  the  projected  $109  million  in  annual  interim  hold-  harmless  support 
 (excluding  LTS),  less  $22  million  that  will  not  be  paid  because  the  eligible  study  areas  qualify  for  greater 
 amounts  of  forward-  looking  support.  See  Ninth  Report  and  Order,  14  FCC  Rcd  at  20474.  Because  high-  cost 
 loop  support  is  calculated  on  a  study-  area  basis  under  Part  36,  we  treat  study  areas  separately  for  purposes  of 
 calculating  interim  hold-  harmless  support.  See  47  C.  F.  R.    36.601,  et  seq.  As  stated  above,  support  estimates 
 for  the  year  2000  are  based  on  the  same  first  quarter  2000  data  that  the  Joint  Board  used,  and  may  vary  from 
 quarter  to  quarter  because  support  is  calculated  on  an  ongoing,  quarterly  basis.  See  supra,  n.  25.  Based  on  first 
 quarter  2001  estimates,  five  fewer  study  areas  are  projected  to  qualify  for  interim  hold  harmless  support  next  year 
 due  to  changes  in  carriers  average  costs  and  line  counts,  and  net  annual  interim  hold-  harmless  support 
 (excluding  LTS)  will  decrease  by  a  total  of  approximately  $4  million.  See  Appendix  C.  In  addition,  the 
 Mountain  Bell-  Wyoming  study  area  will  receive  forward-  looking  support  rather  than  interim  hold-  harmless 
 support,  and  two  study  areas  will  no  longer  receive  high-  cost  support  under  the  interim  hold-  harmless  provision 
 because  Central  Telephone  Company  has  self-  certified  as  a  rural  carrier  under  the  Commissions  rules  in 
 Virginia  and  Texas. 
 36  See  id.  Based  on  projections  from  estimates  for  the  first  quarter  of  2001  filed  by  USAC  on  November  2,  2000, 


 seven  study  areas  will  qualify  for  average,  monthly  support  of  less  than  $1.00  per-  line  in  2001,  one  will  qualify 
 for  support  of  less  than  $2.00,  one  will  qualify  for  support  of  over  $2.00,  and  PRTCs  two  study  areas  will  qualify 
 for  support  of  $2.59  and  $10.21,  respectively.  See  id.  However,  GTEs  two  Missouri  study  areas  may  no  longer 
 qualify  for  support  once  their  costs  are  recalculated  to  reflect  the  transfer  of  some  of  GTEs  highest-  cost 
 exchanges  in  Missouri  to  Spectra  Communications  Group,  LLC  (Spectra).  See  Spectra  Communications  Group, 
 LLC  and  GTE  Midwest  Incorporated,  Joint  Petition  for  Waiver  of  Definition  of  Study  Area  Contained  in  the 
 Part  36  Appendix-  Glossary  of  the  Commissions  Rules  and  Section  69.3(  e)(  9)  of  the  Commissions  Rules, 
 Petition  for  Waiver  of  Section  61.41(  c)  of  the  Commissions  Rules,  CC  Docket  No.  96-  45,  Order,  DA  00-  1624 
 (Acc.  Pol.  Div.  rel.  Jul.  27,  2000);  see  also  infra,  n.  66. 
 37  Recommmended  Decision,  15  FCC  Rcd  at  paras.  13-  15. 


 38  Id. 
 39  See  AT&  T  Comments  at  2,  Florida  Commission  Comments  at  1,  GSA  Comments  at  6-  7,  New  York 
 Department  of  Public  Service  Comments  (NYDPS)  at  1-  2,  PRTRB  Comments  at  4,  USTA  Comments  at  3,  and 
 (continued.) 
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 commenters,  representing  LEC  and  state  recipients  of  interim  hold-  harmless  support,  oppose  any  phase-down 
 at  this  time.  40  The  District  of  Columbia  Public  Service  Commission  (DC  Commission)  advocates 
 immediate,  across-  the-  board  elimination  of  interim  hold-  harmless  support.  41 


 2.  Discussion 
 12.  We  adopt  the  Joint  Boards  recommendation  that  interim  hold-  harmless  support,  excluding 
 LTS,  be  phased  down  beginning  January  1,  2001,  through  annual  $1.00  reductions  in  each  carriers 
 average  monthly,  per-  line  support  until  this  support  is  eliminated.  42  This  approach  will  promptly  phase  out 
 interim  hold-  harmless  support  for  the  majority  of  carriers  currently  receiving  less  than  $1.00  per-  line/  per-month, 
 without  reducing  any  carriers  average  monthly,  per-  line  support  by  more  than  $1.00  per  year.  43 
 Thus,  there  will  be  no  significant,  sudden  reductions  in  per-  line  support  to  an  individual  study  area.  We 
 agree  with  the  Joint  Board  that  this  approach  is  a  reasonable  means  of  ensuring  a  prompt,  equitable  phase-down 
 of  interim  hold-  harmless  support  without  causing  undue  rate  disruption,  consistent  with  the  objectives 
 we  announced  in  the  Ninth  Report  and  Order.  44 


 13.  We  also  agree  with  the  Joint  Board  that  the  phase-  down  schedule  should  be  reexamined  in 
 conjunction  with  our  review  of  the  forward-  looking  mechanism,  which  is  to  be  completed  by  January  1, 
 2003.  45  At  that  time,  PRTC  is  likely  to  be  the  only  carrier  still  receiving  interim  hold-  harmless  support,  46 
 and  more  information  will  be  available  on  the  impact  of  the  phase-  down  in  Puerto  Rico.  We  disagree  with 


 (Continued  from  previous  page) 
 WorldCom  Comments  at  5-  8.  As  discussed  below,  the  Florida  Commission  and  WorldCom  object  to  the  phase-down 
 schedule  as  applied  to  one  Puerto  Rico  study  area.  See  infra,  para.  13. 
 40  See  PRTC  Comments  at  3-  6,  Sprint  Comments  at  1-  3,  Verizon  Comments  at  2-  4,  Wyoming  Public  Service 


 Commission  (Wyoming  Commission)  Comments  at  3-  6,  Qwest  Reply  Comments  at  1-  4,  Valor  Telecom. 
 Enterprises,  LLC  (Valor)  Reply  Comments  at  2.  PRTC  is  a  Verizon  subsidiary  as  a  result  of  PRTCs  acquisition 
 by  GTE  and  the  subsequent  Bell  Atlantic-  GTE  merger  to  form  Verizon. 
 41  DC  Commission  Comments  at  3-  4.  Notwithstanding  its  position,  the  DC  Commission  acknowledges  that  the 


 Joint  Boards  recommended  approach  may  .  .  .  also  be  reasonable.  Id.  at  1. 
 42  For  example,  under  this  approach  a  study  area  that  qualifies  for  $3.00  in  average  monthly,  per-  line  support 


 would  receive  support  of  $2.00  ($  3.00  -  $1.00)  during  the  year  2001,  $1.00  during  the  following  year  ($  3.00  -$ 
 2.00),  and  no  support  ($  3.00  -  $3.00)  thereafter. 
 43  Specifically,  based  on  first  quarter  2001  estimates  (and  not  taking  into  account  the  recent  GTE  transfers),  this 


 approach  is  projected  to  phase  out  interim  hold-  harmless  support  for  7  of  11  study  areas  that  otherwise  would 
 qualify  for  such  support  in  2001.  One  more  study  area  will  be  phased  out  in  2002,  two  in  2003,  and  PRTC-Central 
 in  2011.  See  Appendix  C;  see  also  supra,  n.  35,  36. 
 44  See  Ninth  Report  and  Order,  14  FCC  Rcd  at  20478.  The  Joint  Board  observed  that  it  considered  a  range  of 


 options,  from  the  immediate,  across-  the-  board  elimination  of  interim  hold-  harmless  support  advocated  by  some 
 commenters,  to  the  wait-  and-  see  approach  advocated  by  others.  Recommended  Decision,  15  FCC  Rcd  at  para. 
 13.  We  note  that  although  some  commenters  continue  to  advocate  these  diametrically  opposed  alternatives,  see 
 infra,  para.  14,  none  proposes  a  different  or  modified  phase-  down  schedule,  except  the  Florida  Commission  and 
 WorldCom  with  regard  to  one  PRTC  study  area. 
 45  Recommended  Decision,  15  FCC  Rcd  at  para.  13;  see  Ninth  Report  and  Order,  14  FCC  Rcd  at  20479. 


 46  See  Appendix  C;  supra,  n.  43. 
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 Federal  Communications  Commission  FCC  00-  428 
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 those  commenters  that  argue  for  a  more  accelerated  phase-  down  for  PRTC.  47  Based  on  the  current  record, 
 we  cannot  determine  whether  acceleration  of  the  annual  phase-  down  rate  after  two  years,  as  WorldCom 
 proposes,  would  result  in  rate  shock.  Our  approach,  however,  will  ensure  that  rate  shock  is  minimized. 
 We  reject  the  arguments  of  the  Florida  Commission  and  WorldCom  that  the  current  schedule  discriminates 
 in  favor  of  PRTC.  The  phase-  down  rate  is  the  same  for  all  interim  hold-  harmless  recipients.  Indeed, 
 although  PRTCs  support  will  take  longer  to  phase  down  than  any  other  carriers  because  it  receives  higher 
 amounts  of  per-  line  support,  PRTC  also  will  lose  more  total  interim  hold-  harmless  support  than  any  other 
 carrier  as  a  result  of  the  phase-  down.  48  We  conclude  the  approach  recommended  by  the  Joint  Board 
 reasonably  balances  the  need  to  phase  down  interim  hold-  harmless  support  in  an  equitable  way  with  a 
 desire  to  minimize  potential  rate  shock  for  Puerto  Rico. 


 14.  We  disagree  with  commenters  who  argue  that  interim  hold-  harmless  support  should  be 
 preserved  at  its  current  level  pending  resolution  of  other  federal  high-  cost  issues,  including  rural  high-  cost 
 reform  and  exhaustion  of  all  judicial  appeals[.]  49  We  adopted  the  interim  hold-  harmless  provision  to 
 ensure  a  nondisruptive  transition  to  the  forward-  looking  mechanism  for  non-  rural  carriers,  not  to  provide  a 
 means  of  postponing  or  avoiding  the  need  for  a  transition  in  the  event  that  some  parties  raised  concerns 
 regarding  this  mechanism.  50  As  stated  above,  we  are  mindful  of  the  interrelationships  between  different 
 elements  of  the  federal  universal  service  scheme,  but  we  are  not  persuaded  that  any  of  the  high-  cost  issues 
 or  decisions  cited  by  commenters  justify  postponement  of  this  transition.  Based  on  our  examination  of  the 
 record,  we  conclude  that  the  public  interest  will  be  served  by  expeditiously  advancing  the  transition  to 
 forward-  looking  support  for  non-  rural  carriers. 


 a.  Mechanics  of  Phase-  Down 
 15.  To  ensure  that  the  phase-  down  conforms  with  the  quarterly  schedule  on  which  interim 
 hold-  harmless  support  is  calculated,  the  Joint  Board  recommended  that  the  applicable  annual  reductions  be 
 subtracted  from  the  interim  hold-  harmless  support  that  a  carrier  otherwise  would  be  eligible  to  receive  on 
 an  ongoing,  quarterly  basis.  51  We  adopt  this  recommendation.  We  disagree  with  the  New  York 


 47  The  Florida  Commission  and  WorldCom  argue  that,  unless  the  annual  rate  of  $1.  00  is  accelerated,  the  phase-down 
 period  will  be  too  long  and  will  primarily  benefit  PRTC.  Florida  Commission  Comments  at  1-  2; 
 WorldCom  Comments  at  2,  5-  8.  On  the  other  hand,  PRTC  contends  that  the  support  remains  critical  to 
 PRTCs  efforts  to  provide  affordable,  basic  telephone  service  throughout  Puerto  Rico,  and  that  its  loss  will  result 
 in  rate  shock.  PRTC  Comments  at  5.  Puerto  Ricos  state  regulatory  agency  supports  the  Joint  Boards 
 recommended  approach.  See  PRTRB  Comments  at  4. 
 48  See  Appendix  C. 


 49  Verizon  Comments  at  4;  see  also  Recommended  Decision,  15  FCC  Rcd  at  para.  15  (addressing  similar 
 arguments). 
 50  See  Ninth  Report  and  Order,  14  FCC  Rcd  at  20478-  79.  In  this  regard,  we  note  that  many  of  the  arguments 


 against  phase-  down  essentially  challenge  the  validity  or  sufficiency  of  the  forward-  looking  mechanism.  See,  e.  g., 
 PRTC  Comments  at  3  (arguing  that  forward-  looking  support  methodology  and  its  inputs  are  flawed  and 
 drastically  change  the  level  of  support  to  be  provided  to  Puerto  Rico.);  Wyoming  Commission  Comments  at  4 
 (arguing  that  Wyoming  already  receives  insufficient  federal  high-  cost  support,  and  the  pending  loss  of  any 
 additional  support  would  exacerbate  the  situation).  The  appropriate  context  for  such  challenges  is  in  petitions  for 
 reconsideration  of  the  Ninth  and  Tenth  Reports  and  Orders,  or  in  the  comprehensive  review  of  the  forward-looking 
 mechanism. 
 51  Recommended  Decision,  15  FCC  Rcd  at  para.  16;  see  Ninth  Report  and  Order,  14  FCC  Rcd  at  20474-  75, 


 20480-  81;  47  C.  F.  R.    54.311(  a). 
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 Federal  Communications  Commission  FCC  00-  428 
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 Department  of  Public  Services  (NYDPS)  argument  that  this  approach  would  defeat  the  intent  of  the  phase-down 
 because  a  carrier  may  continue  to  be  eligible  for  interim  hold-  harmless  support  during  a  particular 
 year  even  if  it  does  not  qualify  for  such  support  in  a  given  quarter.  52  The  possibility  that  interim  hold-harmless 
 support  amounts  will  vary  from  quarter  to  quarter  does  not  affect  the  consistency  of  the  annual 
 phase-  down  rate.  We  also  agree  with  the  Joint  Board  that  this  method  of  calculating  interim  hold-  harmless 
 support  during  the  phase-  down  is  the  most  equitable  to  interim  hold-  harmless  recipients  and  the  easiest  to 
 administer.  53 


 16.  We  also  conclude  that  the  targeting  provisions  of  the  Ninth  Report  and  Order  should 
 govern  the  distribution  of  phased-  down  support.  Although  non-  rural  carriers  receive  interim  hold-  harmless 
 support  based  on  embedded  costs  averaged  over  their  entire  study  areas,  the  support  is  targeted  for 
 competitive  purposes  to  their  highest-  cost  exchanges  based  on  forward-  looking  economic  costs.  54  The  Joint 
 Board  did  not  address  the  issue  of  whether  phased-  down  support  should  be  targeted  to  individual 
 exchanges,  except  in  connection  with  transferred  exchanges.  55  We  find,  however,  that  targeting  phased-down 
 interim  hold-  harmless  support  to  a  carriers  highest-  cost  exchanges  is  consistent  both  with  the  Joint 
 Boards  recommendations  and  with  the  Ninth  Report  and  Order.  Accordingly,  we  disagree  with  PRTCs 
 argument  that  any  phase-  down  should  be  calculated  on  a  wire-  center  basis  to  avoid  a  premature  and 
 detrimental  reduction  in  support  to  the  highest  cost  wire  centers,  contrary  to  the  Commissions  targeting 
 rules.  56 


 b.  Calculation  of  High-  Cost  Loop  Support  for  Rural  Carriers 
 17.  We  adopt  the  Joint  Boards  recommendation  that  the  interim  cap  on  high-  cost  loop 
 support  for  rural  carriers  be  calculated  as  if  phased-  down  interim  hold-  harmless  support  were  being 
 distributed  to  non-  rural  carriers,  pending  reform  of  the  high-  cost  support  mechanism  for  rural  carriers.  57 
 Under  the  current  rules,  universal  service  support  for  all  carriers  under  Part  36  is  restricted  by  a  cap  that 
 limits  the  total  increase  in  support  each  year  to  the  annual  growth  in  nationwide  loops.  58  To  avoid  smaller 


 52  See  NYDPS  Comments  at  2.  For  example,  if  during  the  year  2001  a  carrier  otherwise  would  be  eligible  for 
 quarterly  support  of  $1.05,  $0.95,  $1.05,  and  $0.95  per-  line/  per-  month,  respectively,  then  it  would  receive 
 support  of  $0.05  during  the  first  and  third  quarters  of  the  year,  but  no  support  for  the  second  and  fourth  quarters. 
 The  following  year,  a  $2.  00  reduction  would  be  applicable  and  the  carrier  would  no  longer  receive  support. 
 53  Recommended  Decision,  15  FCC  Rcd  at  para.  16. 


 54  47  C.  F.  R.    54.311(  b);  Ninth  Report  and  Order,  14  FCC  Rcd  at  20476-  78;  see  Federal-  State  Joint  Board  on 
 Universal  Service,  CC  Docket  No.  96-  45,  Twentieth  Order  on  Reconsideration,  15  FCC  Rcd  12070  (2000),  at 
 paras.  15-  16  (clarifying  cascading  approach  to  targeting  of  interim  hold-  harmless  support).  Consistent  with 
 the  portability  provisions  of  the  Ninth  Report  and  Order,  targeting  ensures  that,  in  a  wire  center  where  the 
 incumbent  is  receiving  hold-  harmless  support,  a  competitor  will  receive  an  amount  of  support  that  is  related  to 
 the  costs  in  that  wire  center.  Ninth  Report  and  Order,  14  FCC  Rcd  at  20477.  For  purposes  of  the  instant  Report 
 and  Order  and  Notice  of  Proposed  Rulemaking,  the  terms  exchange  and  wire  center  are  synonymous,  and 
 exchange  is  used  to  refer  to  both. 
 55  See  Recommended  Decision,  15  FCC  Rcd  at  paras.  19-  22;  see  also  Wyoming  Commission  Comments  at  6 


 (requesting  clarification  as  to  whether  the  Commissions  targeting  provisions  will  apply  to  any  phase-  down). 
 56  PRTC  Comments  at  3-  4. 


 57  Recommended  Decision,  15  FCC  Rcd  at  paras.  17-  18. 
 58  See  generally  47  C.  F.  R.  Part  36,  Subpart  F.  We  note  that  the  Rural  Task  Force  has  recommended  to  the  Joint 
 Board  modifications  in  the  method  by  which  the  cap  is  calculated.  See  RTF  Recommendation  at  23-  25. 
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 10 
 annual  increases  in  the  support  available  to  rural  carriers  as  a  result  of  the  shift  to  forward-  looking  support 
 for  non-  rural  carriers,  we  directed  in  the  Ninth  Report  and  Order  that  the  cap  be  calculated  as  if  all 
 carriers  continue  to  participate  in  the  preexisting  Part  36  high-  cost  support  mechanism.  59  Subtracting 
 phased-  down  support  amounts  from  calculation  of  the  cap  likewise  could  result  in  smaller  annual  cap 
 increases,  because  the  prior  year  support  level  used  to  calculate  the  cap  includes  the  high-  cost  loop  support 
 for  non-  rural  carriers  under  Part  36  that  will  be  phased  down  as  a  result  of  the  approach  we  adopt  herein. 
 Accordingly,  we  agree  with  the  Joint  Board  that  an  interim  placeholder  measure  is  warranted  to  avoid 
 significant  and  immediate  changes  in  high-  cost  support  for  rural  carriers  as  a  result  of  the  phase-  down.  We 
 disagree  with  the  NYDPSs  argument  that  the  Joint  Board  is  seeking  to  provide  [rural  carriers]  with  yet 
 additional  support  based  upon  the  operations  of  non-  rural  carriers.  60  The  calculation  method  we  adopt  is 
 consistent  with  our  commitment  not  to  consider  significant  changes  in  rural  carriers  support  until  after 
 the  Rural  Task  Force  and  the  Joint  Board  have  made  their  recommendations  regarding  rural  high-  cost 
 reform.  61  In  accordance  with  the  Joint  Boards  recommendations,  we  also  conclude  that  phased-  down 
 support  for  non-  rural  carriers  (support  calculated  as  a  placeholder)  should  not  be  collected  or  distributed 
 to  other  carriers.  62  We  note  that  we  expect  this  placeholder  to  remain  in  effect  for  a  limited  time,  as  we  are 
 committed  to  moving  forward  expeditiously  on  high-  cost  reform  for  rural  carriers. 


 c.  Transferred  Interim  Hold-  Harmless  Support 
 18.  The  transfer  of  interim  hold-  harmless  support  is  governed  by  the  targeting  provisions  of 
 the  Ninth  Report  and  Order  and  section  54.305  of  our  rules.  As  stated  above,  although  carriers  receive 
 interim  hold-  harmless  support  based  on  embedded  costs  averaged  over  their  entire  study  areas,  the  support 
 is  targeted  for  competitive  purposes  to  their  highest-  cost  telephone  exchanges  based  on  forward-  looking 
 economic  costs.  63  Section  54.305  requires  a  carrier  that  acquires  an  exchange  to  step  into  the  sellers  shoes 
 for  universal  service  support  purposes.  64  Under  these  provisions,  as  of  the  date  of  the  sale,  the  acquiring 
 company  receives  the  same  per-  line,  targeted  interim  hold-  harmless  support  amount  for  the  transferred 
 exchange  that  the  seller  was  eligible  to  receive  as  of  the  date  of  the  sale.  The  Joint  Board  identified  an 
 issue,  however,  as  to  whether  transferred  interim  hold-  harmless  support  should  be  phased  down  following 
 the  transfer,  as  it  would  have  been  if  it  had  not  been  transferred,  or  should  remain  frozen  at  the  per-  line 
 support  level  as  of  the  sale  date.  65  To  date,  a  total  of  approximately  $9  million  in  annual  interim  hold- 


 59  Ninth  Report  and  Order,  14  FCC  Rcd  at  20490-  92. 
 60  NYDPS  Comments  at  3. 
 61  Ninth  Report  and  Order,  14  FCC  Rcd  at  20490-  91. 
 62  Recommended  Decision,  15  FCC  Rcd  at  para.  18.  Arguments  that  the  interim  cap  should  be  eliminated 
 entirely  are  outside  the  scope  of  this  proceeding,  and  are  currently  before  the  Joint  Board  in  connection  with  the 
 RTF  Recommendation.  See  NECA/  NRTA/  OPASTCO  Comments  at  8,  NTCA  Comments  at  10;  supra,  n.  3.  We 
 note  that,  contrary  to  NTCAs  argument,  there  are  no  remaining  caps  on  high-  cost  loop  support  for  individual 
 study  areas.  NTCA  Comments  at  5-  9;  see  Petitions  for  Waiver  Concerning  the  Definition  of  Study  Area 
 Contained  in  Part  36  Appendix-  Glossary  of  the  Commissions  Rules  filed  by  Accent  Commns,  Inc.,  et  al.,  CC 
 Docket  No.  96-  45,  Order,  DA  00-  1761  (Common  Carrier  Bur.  rel.  Aug.  4,  2000). 
 63  See  supra,  n.  54  and  accompanying  text. 


 64  47  C.  F.  R.    54.305.  Specifically,  the  rule  provides  that  [  a]  carrier  that  acquires  telephone  exchanges  from  an 
 unaffiliated  carrier  shall  receive  universal  service  support  for  the  acquired  exchanges  at  the  same  per-  line  support 
 levels  for  which  those  exchanges  were  eligible  prior  to  the  transfer  of  the  exchanges.  Id. 
 65  Recommended  Decision,  15  FCC  Rcd  at  para.  19. 
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 harmless  support  has  been  transferred.  66 
 19.  The  Joint  Board  expressed  general  concern  about  the  operation  of  section  54.305  with 
 regard  to  transfers  between  carriers  that  are  not  both  receiving  support  based  on  forward-  looking  economic 
 costs.  67  It  urged  the  Commission  to  consider  alternatives  to  the  rule.  In  the  meantime,  or  until  rural  high-cost 
 reform  is  completed,  the  Joint  Board  recommended  that  interim  hold-  harmless  support  for  exchanges 
 transferred  to  a  rural  carrier  not  be  phased  down  following  the  transfer.  68  The  Joint  Board  recommended, 
 however,  that  interim  hold-  harmless  support  for  exchanges  transferred  to  non-  rural  carriers  be  phased 
 down  over  the  same  time  period  as  the  sellers  support  would  have  been  phased  down.  69  Six  commenters 
 generally  support  the  Joint  Boards  recommendations.  70  AT&  T  and  the  NYDPS  oppose  these 
 recommendations.  71 


 20.  We  are  mindful  of  the  Joint  Boards  concerns  regarding  the  operation  of  section  54.305. 
 As  the  Joint  Board  recognized,  however,  the  rule  serves  the  important  purpose  of  preventing  carriers 
 receiving  support  based  on  the  size  of  their  study  areas  and  embedded  costs  from  placing  unreasonable 
 reliance  upon  potential  universal  service  support  in  deciding  whether  to  purchase  exchanges[.]  72  Section 
 54.305  was  adopted  as  a  temporary  measure  to  be  utilized  during  our  transition  to  universal  service 
 support  mechanisms  that  provide  support  to  all  carriers  based  on  the  forward-  looking  economic  costs  of 
 operating  a  given  exchange.  73  The  Joint  Board  is  currently  considering  reform  of  the  rural  high-  cost 
 support  mechanism,  including  the  operation  of  section  54.305  for  rural  carriers.  74  We  believe  that  the  rural 


 66  Valor  currently  receives  about  $71,000  per  month  in  interim  hold-  harmless  support  for  exchanges  acquired 
 from  GTE  Southwest  Inc.  in  Texas.  See  Valor  Telecommunications  of  Texas,  LP  and  GTE  Southwest 
 Incorporated,  Joint  Petition  for  Waiver  of  Definition  of  Study  Area  Contained  in  the  Part  36  Appendix-Glossary 
 of  the  Commissions  Rules,  CC  Docket  No.  96-  45,  Order,  DA  00-  1908  (Acc.  Pol.  Div.  rel.  Aug.  21, 
 2000).  Spectra  currently  receives  about  $693,000  per  month  in  interim  hold-  harmless  support  for  exchanges 
 acquired  from  GTE  in  Missouri.  See  supra,  n.  36.  We  note  that  Valor  has  self-  certified  as  a  rural  carrier  under 
 the  Commissions  rules,  and  that  Western  Wireless  Corporation  has  filed  a  petition  challenging  Valors  self-certification. 
 See  Common  Carrier  Bureau  Seeks  Comment  on  Western  Wireless  Corporation  Petition  to  Reject 
 Valor  Telecommunications  Southwest,  LLC  Rural  Telephone  Company  Self-  Certification,  Public  Notice,  DA  00-1882 
 (rel.  August  17,  2000). 
 67  Recommended  Decision,  15  FCC  Rcd  at  para.  20  (  by  freezing  support  based  on  the  sellers  embedded  costs, 


 the  rule  prevents  the  acquiring  carrier  from  receiving  an  amount  of  support  related  to  the  costs  of  providing 
 supported  services  in  the  transferred  exchange.  Moreover,  the  rule  requires  the  acquiring  carrier  to  keep  separate 
 books  of  account  for  the  acquired  exchanges  for  an  indefinite  period  of  time.). 
 68  Id.  at  para.  21. 


 69  Id.  at  para.  22. 
 70  See  NECA/  NRTA/  OPASTCO  Comments  at  5-  6,  NTCA  Comments  at  3-  5,  RICA  Reply  Comments  at  2-  3,  and 
 Valor  Reply  Comments  at  3-  4. 
 71  See  AT&  T  Comments  at  4-  6,  NYDPS  Comments  at  3-  4. 


 72  First  Report  and  Order,  12  FCC  Rcd  at  8942-  43;  see  Recommended  Decision,  15  FCC  Rcd  at  para.  20;  see 
 also  AT&  T  Comments  at  6. 
 73  See  First  Report  and  Order,  12  FCC  Rcd  at  8942-  43. 


 74  We  note  that  the  Rural  Task  Force  has  recommended  to  the  Joint  Board  retention  of  section  54.305  with  a  new 
 safety  valve  mechanism  permitting  additional  support  for  transferred  exchanges  if  the  acquiring  rural  carrier 
 makes  meaningful  new  investments.  See  RTF  Recommendation  at  47-  48. 
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 high-  cost  reform  proceeding  is  the  most  appropriate  context  in  which  to  reexamine  the  operation  of  section 
 54.305  with  regard  to  transfers  involving  rural  carriers. 


 21.  We  therefore  adopt  the  Joint  Boards  recommendation  not  to  phase  down  interim  hold-harmless 
 support  for  eligible  exchanges  transferred  to  rural  carriers  until  we  reexamine  section  54.305  or 
 until  rural  high-  cost  reform  is  complete.  We  disagree  with  AT&  Ts  argument  that  section  54.305  requires 
 that  an  acquiring  rural  carrier  receive  no  more  than  the  necessary  [forward-  looking]  support  amount 
 following  the  phase-  down.  75  The  Commission  did  not  determine  in  the  Ninth  Report  and  Order  that 
 forward-  looking  support  calculated  under  the  new  mechanism  for  non-  rural  carriers  is  appropriate  for  rural 
 carriers,  as  AT&  Ts  argument  suggests.  We  recognize  that  the  Joint  Boards  recommended  approach 
 raises  gaming  concerns  with  regard  to  transfers  from  nonrural  to  rural  carriers.  76  However,  the  window  of 
 opportunity  for  gaming  will  be  small,  because  under  the  phase-  out  schedule  most  exchanges  will  no  longer 
 receive  interim  hold-  harmless  support  as  of  January  1,  2001.  On  balance,  we  conclude  that  adoption  of  the 
 Joint  Boards  recommended  approach  would  serve  the  public  interest. 


 22.  We  also  adopt  the  Joint  Boards  recommendation  that  interim  hold-  harmless  support  for 
 exchanges  transferred  to  non-  rural  carriers  be  phased  down  over  the  same  time  period  as  the  sellers 
 support  would  have  been  phased  down.  77  We  agree  with  the  Joint  Board  that  this  approach  will  ensure  a 
 prompt  and  equitable  phase-  down  of  transferred  interim  hold-  harmless  support,  and  discourage  carriers 
 from  transferring  exchanges  to  delay  or  avoid  the  phase-  down  of  interim  hold-  harmless  support.  In 
 addition,  we  adopt  the  recommendation  that  targeted  support  for  exchanges  transferred  to  non-  rural  carriers 
 be  phased  down  by  an  equal  percentage  for  each  year  of  the  phase-  down  period,  on  an  exchange-  by-exchange 
 basis.  78  This  approach  will  be  administratively  simple  and  predictable  for  acquiring  non-  rural 
 carriers. 


 IV.  FURTHER  NOTICE  OF  PROPOSED  RULEMAKING 
 23.  As  set  forth  above,  section  54.305  of  the  Commissions  rules  requires  a  carrier  that 


 75  AT&  T  Comments  at  6;  see  also  NYDPS  Comments  at  3-  4. 
 76  See  AT&  T  Comments  at  5-  7;  see  also  infra,  n.  80  and  accompanying  text.  Specifically,  it  could  encourage 
 transfers  to  rural  carriers  merely  to  preserve  interim  hold-  harmless  support,  and  allow  sellers  to  obtain  the  benefit 
 of  such  support  by  inflating  the  sale  price. 
 77  As  the  Joint  Board  explained,  because  targeted  support  is  likely  to  be  greater  than  average  support  on  a  per-  line 


 basis,  targeted  support  for  exchanges  transferred  to  non-  rural  carriers  must  be  reduced  at  a  faster  rate  than  the 
 sellers  support  to  be  phased  down  over  the  same  time  period.  Recommended  Decision,  15  FCC  Rcd  at  para.  22. 
 78  For  example,  assume  Carrier  A  is  entitled  to  interim  hold-  harmless  support  in  2000  of  $2.50  per-  line/  per-month. 


 Thus,  Carrier  As  support  would  be  phased  down  over  a  three-  year  period:  in  2001,  Carrier  A  would 
 receive  monthly  per-  line  support  of  $1.50,  then  $.  50  in  2002,  then  zero  in  2003.  Assume  further  that  Carrier  A 
 sells  three  exchanges  to  Carrier  B  in  2000,  and  that  the  targeted  interim  hold-  harmless  support  for  the  transferred 
 exchanges  at  the  time  of  sale  is  $3.  00,  $6.  00,  and  $9.  00  per-  line/  per-  month,  respectively.  Under  the  approach  we 
 adopt  herein,  the  transferred  support  would  be  phased  down  over  a  three-  year  period,  and  Carrier  Bs  support 
 would  not  depend  on  subsequent  recalculations  of  Carrier  As  phased-  down  support  levels.  In  2001,  Carrier  B 
 would  receive  per-  line  support  for  the  transferred  exchanges  of  $2.00  (=  67%  of  $3.00),  $4.00  (=  67%  of  $6.00), 
 and  $6.00  (=  67%  of  $9.00),  respectively.  In  2002,  the  per  line  support  for  each  transferred  exchange  would  be 
 33  percent  of  the  original  support  levels.  In  2003,  support  would  phase  down  to  zero  for  all  three  exchanges.  In 
 2001  and  2002,  Carrier  A  would  receive  the  support  it  would  have  received  absent  the  sale,  minus  the  support 
 that  is  paid  to  Carrier  B  for  the  three  transferred  exchanges. 
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 acquires  a  telephone  exchange  from  an  unaffiliated  carrier  to  step  into  the  sellers  shoes  for  universal 
 service  support  purposes.  79  The  Commission  adopted  the  rule  in  1997  as  a  stopgap  measure  to  prevent 
 carriers  receiving  support  based  on  the  size  of  their  study  areas  and  embedded  costs  from  placing 
 unreasonable  reliance  upon  potential  universal  service  support  in  deciding  whether  to  purchase 
 exchanges[.]  80  The  Commission  anticipated  that  the  rule  would  no  longer  be  necessary  once  all  carriers 
 received  support  based  on  forward-  looking  economic  costs.  81 


 24.  Following  the  phase-  down  of  interim  hold-  harmless  support,  all  non-  rural  carriers  will 
 receive  high-  cost  support  based  on  the  forward-  looking  economic  costs  of  operating  a  given  exchange.  As  a 
 result,  the  level  of  support  will  not  be  a  primary  factor  in  a  [non-  rural]  carriers  decision  to  purchase 
 exchanges  because  the  carriers  support  will  not  be  based  on  the  size  of  the  study  area  nor  embedded 
 costs.  82  We  believe  this  rule  change  is  necessary  regardless  of  the  outcome  of  the  current  Joint  Board 
 examination  of  the  RTF  Recommendation  on  section  54.305,  83  because  application  of  section  54.305  to 
 transfers  between  non-  rural  carriers  may  impede  operation  of  the  forward-  looking  mechanism  by 
 preventing  calculation  of  the  forward-  looking  economic  costs  of  operating  a  transferred  exchange  on  an 
 ongoing,  quarterly  basis.  84  We,  therefore,  seek  comment  on  whether  to  amend  section  54.305  of  our  rules 
 so  that  it  does  not  apply  to  transfers  of  exchanges  between  non-  rural  carriers  following  the  phase-  down  of 
 interim  hold-  harmless  support. 


 V.  PROCEDURAL  MATTERS 
 a.  Regulatory  Flexibility  Act  Certifications  Final  and  Initial 
 25.  The  Regulatory  Flexibility  Act  (RFA)  85  requires  an  Initial  Regulatory  Flexibility  Analysis 
 (IRFA)  86  of  the  possible  significant  economic  impact  on  small  entities  of  proposed  policies  and  rules,  and  a 
 Final  Regulatory  Flexibility  Analysis  (FRFA)  87  whenever  an  agency  subsequently  promulgates  a  final  rule, 
 unless  the  agency  certifies  that  the  proposed  or  final  rule  will  not  have  "a  significant  economic  impact  on  a 
 substantial  number  of  small  entities,"  and  includes  the  factual  basis  for  such  certification.  The  RFA 
 generally  defines  "small  entity"  as  having  the  same  meaning  as  the  terms  "small  business,"  "small 
 organization,"  and  "small  governmental  jurisdiction."  88  In  addition,  the  term  "small  business"  has  the  same 


 79  47  C.  F.  R.    54.305;  see  supra,  n.  64  and  accompanying  text. 
 80  First  Report  and  Order,  12  FCC  Rcd  at  8942-  43. 
 81  See  id. 
 82  Id. 
 83  See  supra,  n.  74.  The  RTF  Recommendation  focuses  on  the  operation  of  section  54.305  when  the  acquiring 
 carrier  is  a  rural  carrier  eligible  to  receive  high-  cost  support  based  on  embedded  costs.  See  id. 
 84  See  Ninth  Report  and  Order,  14  FCC  Rcd  at  20480-  81. 


 85  See  5  U.  S.  C.    603.  The  RFA,  see  5  U.  S.  C.    601  et.  seq.,  has  been  amended  by  the  Contract  With  America 
 Advancement  Act  of  1996,  Pub.  L.  No.  104-  121,  110  Stat.  847  (1996)  (CWAAA).  Title  II  of  the  CWAAA  is  the 
 Small  Business  Regulatory  Enforcement  Fairness  Act  of  1996  (SBREFA). 
 86  See  5  U.  S.  C.    603. 


 87  See  5  U.  S.  C.    604. 
 88  5  U.  S.  C.    601(  6). 
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 meaning  as  the  term  "small  business  concern"  under  the  Small  Business  Act.  89  A  small  business  concern  is 
 one  which:  (1)  is  independently  owned  and  operated;  (2)  is  not  dominant  in  its  field  of  operation;  and  (3) 
 satisfies  any  additional  criteria  established  by  the  Small  Business  Administration  (SBA).  90  The  SBA 
 defines  a  small  telecommunications  entity  in  Standard  Industrial  Classification  Code  4813  (Telephone 
 Communications,  Except  Radiotelephone)  91  as  an  entity  with  1,500  or  fewer  employees. 


 26.  We  conclude  that  neither  an  FRFA  nor  an  IRFA  is  required  here.  The  foregoing 
 Thirteenth  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking  adopts  a  final  rule  and  proposes 
 a  rule  change.  The  rules  adopted  and  the  proposed  rules  affect  the  amount  of  high-  cost  support  provided  to 
 non-  rural  carriers.  Non-  rural  carriers  generally  do  not  fall  within  the  SBA's  definition  of  a  small  business 
 concern  because  they  are  usually  large  corporations  or  affiliates  of  such  corporations.  Thus,  the  final  rules 
 adopted  here  do  not  affect  a  substantial  number  of  small  entities.  Therefore,  we  certify,  pursuant  to  section 
 605(  b)  of  the  RFA,  that  the  final  rule  adopted  and  the  rule  change  proposed  in  the  Thirteenth  Report  and 
 Order  and  Further  Notice  of  Proposed  Rulemaking  will  not  have  a  significant  economic  impact  on  a 
 substantial  number  of  small  entities.  The  Commission  will  send  a  copy  of  the  Thirteenth  Report  and  Order 
 and  Further  Notice  of  Proposed  Rulemaking  and  of  this  certification  to  the  Chief  Counsel  for  Advocacy  of 
 the  SBA.  In  addition,  this  certification  will  be  published  in  the  Federal  Register.  92  The  Commission  will 
 send  a  copy  of  this  Thirteenth  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking,  including  a 
 copy  of  this  certification,  in  a  report  to  Congress  pursuant  to  the  SBREFA.  93 


 b.  Effective  Date  of  Final  Rules 
 27.  We  conclude  that  the  amendments  to  our  rules  adopted  herein  shall  be  effective  upon 
 publication  in  the  Federal  Register.  In  this  Thirteenth  Report  and  Order  we  conclude  that  the  phase-  down 
 of  interim  hold-  harmless  support,  excluding  LTS,  will  be  implemented  beginning  January  1,  2001.  Thus, 
 the  amendments  must  become  effective  by  January  1,  2001.  Making  the  amendments  effective  30  days 
 after  publication  in  the  Federal  Register  would  jeopardize  the  required  January  1,  2001  implementation 
 date.  This  implementation  date  is  important  because  January  1,  2001  is  the  beginning  of  a  new  funding 
 year,  and  interim  hold-  harmless  support  is  a  transitional  funding  mechanism  that  increases  the  size  of  the 
 federal  high-  cost  fund  and  should  be  phased  down  as  rapidly  as  possible  without  causing  undue  disruption 
 to  consumer  rates  in  high-  cost  areas.  Accordingly,  pursuant  to  the  Administrative  Procedure  Act,  we  find 
 good  cause  to  depart  from  the  general  requirement  that  final  rules  take  effect  not  less  than  30  days  after 
 their  publication  in  the  Federal  Register. 


 c.  Paperwork  Reduction  Act 
 28.  The  instant  Report  and  Order  contains  no  information  collections,  and  the  instant  Further 


 89  5  U.  S.  C.    601(  3)  (incorporating  by  reference  the  definition  of  "small  business  concern"  in  15  U.  S.  C.  632). 
 Pursuant  to  the  RFA,  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(  s)  in  the  Federal  Register."  5  U.  S.  C.    601(  3). 
 90  15  U.  S.  C.    632. 


 91  13  C.  F.  R.    121.201,  SIC  Code  4813. 
 92  5  U.  S.  C.    605(  b). 
 93  5  U.  S.  C.    801(  a)(  1)(  A). 
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 Notice  proposes  no  information  collections. 
 d.  Comment  Filing  Procedure 
 29.  Pursuant  to  sections  1.415  and  1.419  of  the  Commission's  rules,  47  C.  F.  R.    1.415, 
 1.419,  interested  parties  may  file  comments  30  days  or  fewer  from  publication  in  the  Federal  Register,  and 
 reply  comments  45  days  or  fewer  from  publication  in  the  Federal  Register.  Comments  may  be  filed  using 
 the  Commission's  Electronic  Comment  Filing  System  (ECFS)  or  by  filing  paper  copies.  See  Electronic 
 Filing  of  Documents  in  Rulemaking  Proceedings,  63  Fed.  Reg.  24,121  (1998). 


 30.  Comments  filed  through  the  ECFS  can  be  sent  as  an  electronic  file  via  the  Internet  to 
 <http://  www.  fcc.  gov/  e-  file/  ecfs.  html>.  Only  one  copy  of  an  electronic  submission  must  be  filed.  In 
 completing  the  transmittal  screen,  commenters  should  include  their  full  name,  Postal  Service  mailing 
 address,  and  the  applicable  docket  or  rulemaking  number.  Parties  may  also  submit  electronic  comments  by 
 Internet  e-  mail.  To  receive  filing  instructions  for  e-  mail  comments,  commenters  should  send  an  e-  mail  to 
 ecfs@  fcc.  gov,  and  should  include  the  following  words  in  the  body  of  the  message,  "get  form  <your  e-  mail 
 address>."  A  sample  form  and  directions  will  be  sent  in  reply. 


 31.  Parties  who  choose  to  file  by  paper  must  file  an  original  and  four  copies  of  each  filing.  All 
 paper  filings  must  be  sent  to  the  Commission's  Secretary,  Magalie  Roman  Salas,  Office  of  the  Secretary, 
 Federal  Communications  Commission,  445  12th  Street,  S.  W.,  Washington,  D.  C.  20554.  Parties  who 
 choose  to  file  by  paper  also  must  send  three  paper  copies  of  their  filing  to  Sheryl  Todd,  Accounting  Policy 
 Division,  Common  Carrier  Bureau,  Federal  Communications  Commission,  445  Twelfth  Street  S.  W.,  Room 
 5-  B540,  Washington,  D.  C.  20554.  In  addition,  parties  who  choose  to  file  by  paper  must  send  diskette 
 copies  to  the  Commission's  copy  contractor,  International  Transcription  Service,  Inc.,  1231  20th  Street, 
 N.  W.,  Washington,  D.  C.  20037. 


 VI.  ORDERING  CLAUSES 
 21.  Accordingly,  IT  IS  ORDERED  that,  pursuant  to  the  authority  contained  in  sections  1-  4, 
 201-  205,  214,  218-  220,  254,  303(  r),  403,  and  410  of  the  Communications  Act  of  1934,  as  amended,  47 
 U.  S.  C.    151-  154,  201-  205,  214,  218-  220,  254,  303(  r),  403,  and  410,  this  Thirteenth  Report  and  Order 
 IS  ADOPTED. 


 22.  IT  IS  FURTHER  ORDERED  that  Part  36  of  the  Commissions  rules,  47  C.  F.  R.  Part  36, 
 IS  AMENDED  as  set  forth  in  Appendix  B  hereto,  effective  immediately  upon  publication  in  the  Federal 
 Register. 


 23.  IT  IS  FURTHER  ORDERED  that  Part  54  of  the  Commissions  rules,  47  C.  F.  R.  Part  54, 
 IS  AMENDED  as  set  forth  in  Appendix  B  hereto,  effective  immediately  upon  publication  in  the  Federal 
 Register. 


 24.  IT  IS  FURTHER  ORDERED  that,  pursuant  to  the  authority  contained  in  sections  1-  4, 
 201-  205,  214,  218-  220,  254,  303(  r),  403,  and  410  of  the  Communications  Act  of  1934,  as  amended,  47 
 U.  S.  C.    151-  154,  201-  205,  214,  218-  220,  254,  303(  r),  403,  and  410,  this  Further  Notice  of  Proposed 
 Rulemaking  IS  ADOPTED  and  comments  ARE  REQUESTED  as  described  above. 


 25.  IT  IS  FURTHER  ORDERED  that  the  Commissions  Consumer  Information  Bureau, 
 Reference  Information  Center,  SHALL  SEND  a  copy  of  the  Thirteenth  Report  and  Order  and  Further 
 Notice  of  Proposed  Rulemaking,  including  the  Regulatory  Flexibility  Act  Certifications,  to  the  Chief 
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 Counsel  for  Advocacy  of  the  Small  Business  Administration. 
 FEDERAL  COMMUNICATIONS  COMMISSION 


 Magalie  Roman  Salas 
 Secretary 
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 APPENDIX  A 
 Parties  Filing  Comments  and  Reply  Comments 
 Comments: 
 1.  AT&  T 
 2.  General  Services  Administration 
 3.  National  Exchange  Carrier  Association,  Inc.,  National  Rural  Telecom  Association,  and  Organization 
 for  the  Promotion  and  Advancement  of  Small  Telecommunications  Companies 
 4.  National  Telephone  Cooperative  Association 
 5.  Public  Service  Commission  of  the  District  of  Columbia 
 6.  Puerto  Rico  Telephone  Company,  Inc. 
 7.  Roseville  Telephone  Company 
 8.  Sprint  Corporation 
 9.  State  of  Florida  Public  Service  Commission 
 10.  State  of  New  York  Department  of  Public  Service 
 11.  Telecommunications  Regulatory  Board  of  Puerto  Rico 
 12.  United  States  Telecom  Association 
 13.  Verizon 
 14.  WorldCom,  Inc. 
 15.  Wyoming  Public  Service  Commission 


 Reply  Comments: 
 1.  AT&  T 
 2.  General  Services  Administration 
 3.  National  Exchange  Carrier  Association,  Inc.,  National  Rural  Telecom  Association,  and  Organization 
 for  the  Promotion  and  Advancement  of  Small  Telecommunications  Companies 
 4.  Puerto  Rico  Telephone  Company,  Inc. 
 5.  Qwest  Corporation 
 6.  Rural  Independent  Competitive  Alliance 
 7.  Valor  Telecommunications  Enterprises,  LLC 
17
 Federal  Communications  Commission  FCC  00-  428 
 APPENDIX  B 
 Final  Rules 


 Part  36  of  Title  47  of  the  Code  of  Federal  Regulations  is  amended  as  follows: 
 PART  36    JURISDICTIONAL  SEPARATIONS  PROCEDURES;  STANDARD 
 PROCEDURES  FOR  SEPARATING  TELECOMMUNICATIONS  PROPERTY  COSTS, 
 REVENUES,  EXPENSES,  TAXES  AND  RESERVES  FOR  TELECOMMUNICATIONS 
 COMPANIES 


 Subpart  F    Universal  Service  Fund 
 1.  Section  36.601  is  amended  to  add  the  following  sentence  at  the  end  as  paragraph  (c): 
   36.601 
 (c)  .  .  .  Support  amounts  calculated  pursuant  to  this  subpart  F  but  not  received  due  to  the  phase 
 down  of  interim  hold-  harmless  support  or  the  receipt  of  forward-  looking  support  pursuant  to 
 section  54.311  of  this  Chapter  shall  not  be  redistributed  to  other  carriers. 


 Part  54  of  Title  47  of  the  Code  of  Federal  Regulations  is  amended  as  follows: 
 PART  54    UNIVERSAL  SERVICE 
 Subpart  D    Universal  Service  Support  for  High  Cost  Areas 
 2.  Add  paragraph  (d)  to    54.311  to  read  as  follows: 
   54.311 
 (d)  Phase  down  of  interim  hold-  harmless  support.  Beginning  January  1,  2001,  the  interim  hold-harmless 
 support  for  which  a  non-  rural  incumbent  local  exchange  carrier  qualifies  under 
 paragraph  (a)  of  this  section,  excluding  Long  Term  Support,  shall  be  phased  down  through 
 annual  $1.00  reductions  in  average  monthly,  per-  line  support.  Applicable  annual  reductions 
 shall  be  subtracted  from  the  total  amount  of  interim  hold-  harmless  support  that  a  non-  rural 
 incumbent  local  exchange  carrier  otherwise  would  be  eligible  to  receive  on  an  ongoing, 
 quarterly  basis.  The  provisions  of  paragraph  (b)  of  this  section  shall  apply  to  the  total  amount 
 of  phased-  down  interim  hold-  harmless  support  provided  to  each  non-  rural  incumbent  local 
 exchange  carrier. 


 (1)  Interim  hold-  harmless  support  for  a  wire  center  transferred  to  a  carrier  that  does  not 
 meet  the  definition  of  rural  telephone  company  in    51.  5  of  this  chapter  shall  be 
 phased  down  following  the  transfer  over  the  same  time  period  as  the  sellers  support 
 would  have  been  phased  down,  by  an  equal  percentage  for  each  year  of  the  phase-down 
 period. 


 (2)  Interim  hold-  harmless  support  for  a  wire  center  transferred  to  a  carrier  that  meets  the 
 definition  of  rural  telephone  company  in    51.  5  of  this  chapter  shall  remain  frozen  at 
 the  per-  line  support  level  as  of  the  sale  date. 
18
 Federal  Communications  Commission  FCC  00-  428 
 STATEMENT  OF  COMMISSIONER  HAROLD  FURCHTGOTT-  ROTH, 
 APPROVING  IN  PART  AND  DISSENTING  IN  PART 


 Re:  Federal-  State  Joint  Board  on  Universal  Service,  Thirteenth  Report  and  Order  and 
 Further  Notice  of  Proposed  Rulemaking,  CC  Docket  No.  96-  45. 


 I  cannot  endorse  the  Commissions  decision  that  hold-  harmless  loop  support  be  phased 
 out  over  the  next  three  years,  so  that  non-  rural  carriers  eventually  will  receive  universal  service 
 support  based  exclusively  on  the  model  that  the  Commission  adopted  last  year.  That  model  never 
 worked,  and  it  has  no  prospect  of  working.  As  I  have  said  before,  the  model  does  not  satisfy  the 
 Acts  basic  requirements  that  universal  service  support  be  specific  and  predictable,  and  I 
 believe  that  relying  in  any  way  on  this  model  does  not  meet  the  requirements  of  the  statute.  I 
 therefore  dissent  from  those  aspects  of  this  order  that  reach  that  conclusion. 
19