*Pages 1--81 from  Microsoft Word - 15174*
 Federal  Communications  Commission  FCC  02-  43 
 Before  the  Federal  Communications  Commission 
 Washington,  D.  C.  20554 
 In  the  Matter  of 
 Federal-  State  Joint  Board  on  Universal  Service 


 1998  Biennial  Regulatory  Review    Streamlined  Contributor  Reporting 
 Requirements  Associated  with  Administration  of  Telecommunications  Relay  Service,  North 
 American  Numbering  Plan,  Local  Number  Portability,  and  Universal  Service  Support 
 Mechanisms 
 Telecommunications  Services  for  Individuals  with  Hearing  and  Speech  Disabilities,  and  the 
 Americans  with  Disabilities  Act  of  1990 
 Administration  of  the  North  American  Numbering  Plan  and  North  American 
 Numbering  Plan  Cost  Recovery  Contribution  Factor  and  Fund  Size 


 Number  Resource  Optimization 
 Telephone  Number  Portability 
 Truth-  in-  Billing  and  Billing  Format 


 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 
 )  ) 
 ) 


 CC  Docket  No.  96-  45 
 CC  Docket  No.  98-  171 


 CC  Docket  No.  90-  571 
 CC  Docket  No.  92-  237  NSD  File  No.  L-  00-  72 


 CC  Docket  No.  99-  200 
 CC  Docket  No.  95-  116 
 CC  Docket  No.  98-  170 


 FURTHER  NOTICE  OF  PROPOSED  RULEMAKING  AND  REPORT  AND  ORDER 
 Adopted:  February  14,  2002  Released:  February  26,  2002 
 Comment  Date:  30  days  from  publication  in  the  Federal  Register  Reply  Comment  Date:  45  days  from  publication  in  the  Federal  Register 


 By  the  Commission:  Chairman  Powell  and  Commissioner  Martin  issuing  separate  statements. 
 TABLE  OF  CONTENTS  Paragraph 


 I.  INTRODUCTION  ...........................................................................................................................  1 
 II.  OVERVIEW....................................................................................................................................  5 
1
 Federal  Communications  Commission  FCC  02-  43 
 2 
 III.  BACKGROUND  ...........................................................................................................................  22 
 IV.  FURTHER  NOTICE  OF  PROPOSED  RULEMAKING  ..............................................................  30 
 A.  Contribution  Assessment  ..................................................................................................  34  1.  Connection-  Based  Assessment  ............................................................................  35 


 a.  Operation  of  Proposed  Connection-  Based  Assessment..........................  35  b.  Legal  Authority.......................................................................................  64 
 c.  Potential  Costs  and  Benefits  of  Connection-  Based  Assessment.............  70  d.  Implementation  Issues  ............................................................................  74 
 2.  Revenue-  Based  Assessment  ................................................................................  84 
 B.  Recovery  of  Universal  Service  Contributions  from  End  Users  ........................................  89  1.  Universal  Service  Contribution  Recovery  Proposals...........................................  95 


 a.  Carrier  Flexibility  ...................................................................................  95  b.  Collect  and  Remit  .................................................................................  101 
 2.  Labeling  the  Line  Item.......................................................................................  103 
 V.  REPORT  AND  ORDER..............................................................................................................  110 
 A.  Eliminating  Circularity  ...................................................................................................  112 
 B.  Consolidated  Form  499  Filing  for  Certain  Contributors.................................................  116 
 C.  Limited  International  Revenues  Exception.....................................................................  123 
 VI.  PROCEDURAL  ISSUES.............................................................................................................  129 
 A.  Ex  Parte  Presentations  ....................................................................................................  129 
 B.  Initial  Paperwork  Reduction  Act  of  1995  Analysis  ........................................................  130 
 C.  Initial  Regulatory  Flexibility  Act  Analysis.....................................................................  131 
 D.  Comment  Filing  Procedures  ...........................................................................................  162 
 E.  Final  Regulatory  Flexibility  Act  Analysis  ......................................................................  167 
 VII.  ORDERING  CLAUSES..............................................................................................................  178 


 Appendix  A:  Final  Rules 
 Appendix  B:  List  of  Commenters 
 I.  INTRODUCTION 
 1.  In  1997,  the  Commission  adopted  a  system  under  which  telecommunications  providers  contribute  to  universal  service  based  on  their  end-  user  revenues.  1  Since  that  time,  the 


 1  See  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Report  and  Order,  12  FCC  Rcd  8776, 
 8797  para.  39-  40  (1997),  as  corrected  by  Federal-  State  Joint  Board  on  Universal  Service,  Erratum,  CC  Docket  No.  96-  45,  FCC  97-  157  (rel.  June  4,  1997),  affd  in  part,  revd  in  part,  remanded  in  part  sub  nom.  Texas  Office  of  Public 


 Utility  Counsel  v.  FCC,  183  F.  3d  393  (5  th  Cir.  1999),  cert.  denied  2000  WL  684656  (U.  S.  Sup.  Ct.  May  30,  2000)  (Universal  Service  Order). 
2
 Federal  Communications  Commission  FCC  02-  43 
 3 
 telecommunications  marketplace  has  changed  rapidly  and  technologies  have  evolved,  with  major  developments  including  increased  competition,  migration  to  new  products  and  services,  and 
 bundling  of  traditionally  distinct  services.  These  trends  could  erode  the  contribution  base  over  time.  In  light  of  these  trends,  the  Commission  began  a  proceeding  to  revisit  its  universal  service 
 contribution  methodology  in  May  2001.  2  Commenters  have  submitted  a  range  of  innovative  ideas  and  proposals  for  reforming  the  current  system,  while  others  assert  that  the  status  quo 
 should  be  maintained.  We  now  seek  to  further  develop  the  record  on  some  of  these  proposals. 
 2.  In  the  Further  Notice  of  Proposed  Rulemaking  (Further  Notice),  we  seek  more  focused  comment  on  whether  to  assess  contributions  based  on  the  number  and  capacity  of 


 connections  provided  to  a  public  network,  as  proposed  by  some  commenters.  3  We  seek  comment  on  whether  a  connection-  based  assessment  approach  would  ensure  the  long-  term 
 stability,  fairness,  and  efficiency  of  the  universal  service  contribution  system  in  a  dynamic  telecommunications  marketplace.  We  also  invite  commenters  to  supplement  the  record 
 developed  in  response  to  the  2001  Notice  with  any  new  arguments  or  data  regarding  proposals  to  retain  or  modify  the  existing  revenue-  based  system.  4  In  addition,  we  seek  additional  comment  in 
 the  Further  Notice  on  reforming  the  contribution  recovery  process  to  make  it  more  fair  and  understandable  for  consumers. 


 3.  In  the  attached  Report  and  Order,  we  adopt  certain  modifications  to  the  existing  system.  Based  on  examination  of  the  record,  we  conclude  that  these  modifications  are  warranted 
 because  they  will  streamline  and  improve  the  current  system  without  undue  disruption  while  we  consider  other,  more  substantial  reforms. 


 4.  Whereas  this  proceeding  concerns  the  Commissions  methodology  for  assessment  and  recovery  of  universal  service  contributions  generally,  we  seek  comment  in  a  companion 
 proceeding  on  a  different  but  related  issue:  in  an  evolving  telecommunications  marketplace,  should  facilities-  based  broadband  Internet  access  providers  be  required  to  contribute  to  support 
 universal  service  and,  if  so,  on  what  legal  basis?  5  That  proceeding  explores  this  question  by  seeking  comment  on  what  universal  service  contribution  obligations  providers  of  facilities-  based 
 broadband  Internet  access  should  have  as  the  telecommunications  market  evolves,  and  how  such  obligations  can  be  administered  in  an  equitable  and  non-  discriminatory  manner.  Commenters 
 should  be  mindful  of  the  relationship  between  this  proceeding  and  the  Broadband  NPRM  proceeding  and,  where  appropriate,  should  address  interrelated  issues  raised  by  the  proposals 


 2  See  Federal-  State  Joint  Board  on  Universal  Service,  1998  Biennial  Regulatory  Review    Streamlined  Contributor 
 Reporting  Requirements  Associated  with  Administration  of  Telecommunications  Relay  Service,  North  American  Numbering  Plan,  Local  Number  Portability,  and  Universal  Service  Support  Mechanisms,  Telecommunications 


 Services  for  Individuals  with  Hearing  and  Speech  Disabilities,  and  the  Americans  With  Disabilities  Act  of  1990,  Administration  of  the  North  American  Numbering  Plan  and  North  American  Numbering  Plan  Cost  Recovery 
 Contribution  Factor  and  Fund  Size,  Number  Resource  Optimization,  Telephone  Number  Portability,  CC  Docket  Nos.  96-  45,  98-  171,  90-  571,  92-  237,  99-  200,  95-  116,  Notice  of  Proposed  Rulemaking,  16  FCC  Rcd  9892  (2001) 
 (2001  Notice).  3 
 See  generally  AT&  T,  WorldCom,  Sprint,  and  Level  3  comments  supporting  connection-  based  assessment.  4 
 See  generally  ASCENT,  AT&  T  Wireless,  PCIA,  and  SBC  comments  supporting  assessment  on  current  revenues;  APCC,  Excel,  Iowa  Utilities  Board  comments  supporting  assessment  on  projected  revenues. 


 5  See  Appropriate  Framework  for  Broadband  Access  to  the  Internet  over  Wireline  Facilities,  Universal  Service 
 Obligations  of  Broadband  Providers,  CC  Docket  No.  02-  33,  Notice  of  Proposed  Rulemaking,  FCC  02-  42  (rel.  Feb.  15,  2002)  (Broadband  NPRM). 
3
 Federal  Communications  Commission  FCC  02-  43 
 4 
 detailed  below. 
 II.  OVERVIEW 
 5.  Prior  to  passage  of  the  Telecommunications  Act  of  1996,  the  Commission  and  the  states  oversaw  a  variety  of  explicit  and  implicit  subsidy  programs  designed  to  reduce  the  cost  of 


 telecommunications  services  for  consumers  living  in  high-  cost  areas  and  for  eligible  low-  income  consumers.  Universal  service  for  high-  cost  areas  helped  to  ensure  that  consumers  in  those  areas 
 paid  rates  for  services  comparable  to  those  paid  by  consumers  in  low-  cost  areas,  and  the  low-income  program  helped  to  make  services  more  affordable  for  low-  income  consumers.  Ensuring 
 the  affordability  and  availability  of  telecommunications  services  benefited  consumers,  and  continues  to  do  so,  by  increasing  subscribership  levels  and,  consequently,  the  value  of  the 
 Nations  communications  network. 
 6.  In  section  254  of  the  Telecommunications  Act  of  1996,  Congress  further  codified  the  Commissions  historic  commitment  to  ensuring  the  affordability  and  availability  of 


 telecommunications  services  for  all  Americans.  6  Specifically,  section  254(  d)  provides  that  federal  support  mechanisms  should  be  specific,  predictable,  and  sufficient  to  preserve  and 
 advance  universal  service,  and  that  telecommunications  providers  should  contribute  on  an  equitable  and  nondiscriminatory  basis.  7  The  Commission  implemented  the  current  contribution 
 system  in  1997.  8  This  system  has  two  distinct  but  related  components:  the  assessment  of  contributions  on  telecommunications  providers;  and  the  recovery  of  contribution  payments  by 
 providers  from  their  customers.  Contributors  are  assessed  on  the  basis  of  their  interstate  and  international  end-  user  telecommunications  revenues,  based  on  a  percentage  or  contribution 
 factor  that  is  calculated  every  quarter.  9  The  Commission  recognized  in  1997  that  contributors  likely  would  recover  their  contributions  to  universal  service  from  their  end  users,  although  they 
 are  not  required  to  do  so.  10  Contributors  are  permitted  to  do  so  in  any  equitable  and  non-discriminatory  manner.  Many  contributors  elect  to  recover  their  contributions  from  their 
 customers  through  a  line-  item  fee,  while  others  do  not  have  a  specific  line  item  to  recover  the  costs  and  instead  recover  them  through  their  rates.  As  discussed  below,  in  considering  possible 
 reforms  to  the  universal  service  contribution  system,  we  may  determine  that  it  is  appropriate  to  modify  the  assessment  and/  or  the  recovery  components. 


 7.  Over  the  last  few  years,  important  changes  have  occurred  in  the  interstate  telecommunications  marketplace.  11  Interstate  revenues  grew  consistently  between  1984  and 
 1997,  when  the  current  contribution  system  was  adopted,  and  such  growth  was  expected  to 


 6  Telecommunications  Act  of  1996,  Pub.  L.  No.  104-  104,  110  Stat.  56  (1996)  (1996  Act).  The  1996  Act  amended 
 the  Communications  Act  of  1934  (Act).  47  U.  S.  C.    151  et  seq.  7 
 47  U.  S.  C.    254(  d).  The  Act  provides  that  every  telecommunications  carrier  that  provides  interstate  telecommunications  services  shall  contribute,  and  permits  the  Commission  to  require  any  other  provider  of 


 telecommunications  to  contribute  if  the  public  interest  so  requires.  Id.;  see  infra  paras.  64-  68.  8 
 Universal  Service  Order,  12  FCC  Rcd  at  8797  paras.  39-  40.  9 
 47  C.  F.  R.    54.709(  a).  10 
 Universal  Service  Order,  12  FCC  Rcd  at  9211-  12  para.  855.  11 
 See  2001  Notice,  16  FCC  Rcd  at  9899-  00  paras.  12-  13. 
4
 Federal  Communications  Commission  FCC  02-  43 
 5 
 continue.  Recently,  however,  interstate  revenues  have  declined  for  interexchange  carriers,  12  which  are  now  responsible  for  contributing  approximately  63  percent  of  federal  universal  service 
 funding.  13  Various  factors  may  be  responsible  for  this  decline,  including  migration  of  customers  to  new  products  and  services,  local  exchange  carrier  entry  into  the  long  distance  market,  and 
 related  price  competition.  If  the  current  methodology  is  not  modified  or  replaced,  this  trend  could  erode  the  contribution  base  over  time,  requiring  increases  in  the  contribution  factor  to 
 maintain  current  levels  of  universal  service  support. 
 8.  We  also  have  observed  broader  fluctuations  in  the  contribution  base.  The  Common  Carrier  Bureau  recently  reported  that  annual  end-  user  switched  interstate  telecommunications 


 revenues  declined  in  2000,  the  first  time  since  such  data  has  been  compiled.  14  We  also  observed  a  decline  in  assessable  revenues  in  the  first  half  of  2001.  15  One  analyst  projected  that  United 
 States  long  distance  revenues  would  decline  12  percent  in  2001.  16 
 9.  Competition  in  the  interexchange  market  continues  to  increase.  For  example,  Regional  Bell  Operating  Companies  (RBOCs)  increasingly  are  providing  interstate  long  distance 


 service.  To  date,  the  Commission  has  granted  RBOCs  approval  to  offer  in-  region  interLATA  service  in  nine  states:  Arkansas,  Connecticut,  Massachusetts,  Missouri,  New  York,  Pennsylvania, 
 Kansas,  Oklahoma,  and  Texas.  17  One  analyst  recently  reported  that  Verizon  and  SBC  already  have  captured  25  percent  of  the  long  distance  markets  in  New  York  and  Texas,  respectively.  18 
 Verizon  recently  reported  that  it  is  the  fourth-  largest  residential  long  distance  provider  in  the  nation  based  on  subscriber  market  share.  19 


 12  See,  e.  g.,  AT&  T  Corp.,  S.  E.  C.  Form  10-  Q,  filed  Aug.  14,  2001  (consumer  services  revenue  declined  22.  1%,  or 
 $2.  2  billion,  for  the  first  six  months  of  2001  compared  with  the  corresponding  period  in  2000)  (AT&  T  2  nd  Quarter  2001  10-  Q);  WorldCom  Inc.,  S.  E.  C.  Form  10-  Q,  filed  Aug.  14,  2001  (consumer  revenues,  which  include  domestic 


 voice  communications  service  for  consumer  customers,  for  the  first  six  months  of  2001  decreased  6.6%  over  the  prior  year  period).  Sprint,  on  the  other  hand,  reports  modest  year-  to-  date  increases  in  its  long  distance  revenues. 
 Sprint  Corp.,  S.  E.  C.  Form  10-  Q,  filed  Aug.  14,  2001  (  In  the  2001  year-  to-  date,  sales  of  consumer  long  distance  services  increased  reflecting  the  success  of  bundled  services). 
 13  See  Telecommunications  Industry  Revenue  Report:  2001,  Industry  Analysis  Division,  Table  14  (rel.  Jan.  2002). 
 14  We  note  that  revenues  declined  in  the  first  half  of  1999,  but  increased  overall  for  the  year. 
 15  See,  e.  g.,  Proposed  Fourth  Quarter  2001  Universal  Service  Contribution  Factor,  CC  Docket  No.  96-  45,  Public 
 Notice,  16  FCC  Rcd  16281  (Com.  Car.  Bur.  2001)  (second  quarter  2001  estimate  of  interstate  and  international  end-user  telecommunications  revenues  of  $19.597  billion)  (Fourth  Quarter  2001  Contribution  Public  Notice);  Proposed 


 Third  Quarter  2001  Universal  Service  Contribution  Factor,  CC  Docket  No.  96-  45,  Public  Notice,  16  FCC  Rcd  11990  (Com.  Car.  Bur.  2001)  (first  quarter  2001  estimate  of  interstate  and  international  end-  user 
 telecommunications  revenues  of  $20.  141  billion)  (Third  Quarter  2001  Contribution  Public  Notice).  We  note,  however,  that  assessable  revenues  increased  in  the  third  quarter  of  2001.  See  Proposed  First  Quarter  2002 
 Universal  Service  Contribution  Factor,  CC  Docket  No.  96-  45,  Public  Notice,  16  FCC  Rcd  21329  (Com.  Car.  Bur.  2001)  (First  Quarter  2002  Contribution  Public  Notice). 
 16  See  COMMUNICATIONS  DAILY,  September  27,  2001,  at  5  (citing  Solomon-  Wolff  Associates  report). 
 17  Under  section  271  of  the  Act,  RBOCs  are  permitted  to  provide  out-  of-  region  interLATA  long  distance  services. 
 See  47  U.  S.  C.    271.  18 
 See  Jeff  May,  If  you  cant  beat  em,  join  em    AT&  T  is  discussing  a  merger  with  some  of  its  Baby  Bell  offspring,  THE  STAR-  LEDGER,  Sep.  30,  2001  (quoting  F.  Drake  Johnstone,  an  analyst  with  Davenport  and  Co.). 


 19  See  Verizon  Ranks  Highest  Among  Residential  Long-  Distance  Providers  in  Overall  Customer  Satisfaction 
 Ratings,  BUSINESS  WIRE,  Dec.  3,  2001.  Verizon  recently  reported,  for  example,  that  it  has  2.  13  million  long  (continued....) 
5
 Federal  Communications  Commission  FCC  02-  43 
 6 
 10.  Because  the  current  contribution  system  is  based  on  historical  revenues,  some  commenters  contend  that  it  creates  competitive  advantages  for  contributors  with  increasing 
 interstate  telecommunications  revenues,  while  disadvantaging  those  with  declining  revenues.  20  Under  the  current  system,  contributors  are  assessed  on  revenues  that  they  earned  six  months 
 earlier.  21  As  a  result,  contributors  with  increasing  revenues  recover  contributions  from  a  larger  revenue  base  than  the  one  on  which  they  are  assessed,  and  can  pass  through  to  their  customers 
 lower  fees  than  competitors  with  declining  revenues,  who  must  recover  their  contributions  from  a  declining  revenue  base.  New  entrants  also  may  be  able  to  undercut  the  prices  offered  by 
 established  service  providers  who  already  contribute  to  universal  service,  because  they  do  not  contribute  for  the  first  six  months  that  they  provide  service  due  to  their  lack  of  historical 
 revenues  for  that  period. 
 11.  In  addition,  the  growth  of  Commercial  Mobile  Radio  Service  (CMRS)  appears  to  be  causing  a  significant  migration  of  interstate  telecommunications  revenues  from  wireline  to 


 mobile  wireless  providers.  22  Since  the  current  assessment  system  was  adopted  in  1997,  mobile  telephony  23  subscribership  has  increased  from  55.3  million  to  109.5  million  subscribers,  and 
 average  customer  minutes  of  use  have  increased  from  117  minutes  per  month  to  255  minutes  per  month.  24  Consistent  with  these  trends,  mobile  service  is  becoming  a  substitute  for  traditional 
 wireline  services  such  as  payphones  and  second  lines  to  the  home,  25  and  there  is  a  small  but  growing  number  of  customers  who  have  substituted  mobile  wireless  for  their  primary  residential 


 (...  continued  from  previous  page)  distance  customers  in  New  York  and  475,000  in  Massachusetts.  See  Mary  Greczyn,  Verizon  Revenue  Rises, 
 Although  Economy,  Attacks  Trim  Profits,  COMMUNICATIONS  DAILY,  Oct.  31,  2001.  20 
 See,  e.  g.,  ASCENT  Comments  at  4-  5;  AT&  T  Comments  at  9;  AT&  T  Wireless  Comments  at  4-  5;  Excel  Comments  at  6. 


 21  See  Federal-  State  Joint  Board  on  Universal  Service,  Petition  for  Reconsideration  filed  by  AT&  T,  CC  Docket  No. 
 96-  45,  Report  and  Order  and  Order  on  Reconsideration,  16  FCC  Rcd  5748  (2001)  (Quarterly  Reporting  Order).  The  Commission  recently  reduced  the  interval  between  the  accrual  of  revenues  and  the  assessment  of  universal 


 service  contributions  based  on  those  revenues  from  12  months  to  6  months.  See  infra  para.  27.  22 
 See  Shawn  Young,  More  Callers  Cut  Off  Second  Phone  Lines  for  Cell  Phones,  Cable  Modems,  THE  WALL  STREET  JOURNAL,  Nov.  15,  2001,  B1  (  Wireless  substitution  is  now  a  fact,    says  BellSouth  Chairman  and  Chief 


 Executive  Duane  Ackerman.).  Another  report  states  that  migration  to  mobile  services  is  reducing  interexchange  carrier  minutes  and  revenues.  See  Andrew  Backover,  AT&  T  Loss  Reflects  Long-  Distance  Shift,  Consumers  Turn  To 
 Calling  Cards,  Wireless,  USA  TODAY,  Jan.  30,  2001,  at  B3  (citing  analyst  Peter  Friedland  at  W.  R.  Hambrecht).  In  this  Further  Notice,  we  use  the  term  mobile  wireless  to  refer  to  CMRS  providers  and  not  fixed  wireless  providers. 
 23  Mobile  telephony  refers  to  two-  way  mobile  voice  service  provided  by  cellular,  broadband  Personal 
 Communications  Service  (PCS),  and  digital  Specialized  Mobile  Radio  (SMR)  operators.  It  does  not  include  other  services  classified  as  CMRS,  such  as  paging.  See  Implementation  of  Section  6002(  b)  of  the  Omnibus  Budget 


 Reconciliation  Act  of  1993,  Annual  Report  and  Analysis  of  Competitive  Market  Conditions  With  Respect  to  Commercial  Mobile  Services,  Sixth  Report,  16  FCC  Rcd  13350,  13354  n.  8  (2001)  (Sixth  CMRS  Competition 
 Report).  24 
 See  id.  at  13372;  see  also  Bureau  Chief  &  Division  Presentation  on  the  Adoption  of  the  Sixth  Annual  Report  on  State  of  Wireless  Industry  Competition,  Thomas  Sugrue  Opening  Remarks,  June  20,  2001,  available  at 


 <http://  wireless.  fcc.  gov/  statements/  010620cmrsSugrue_  slides.  ppt>.  25 
 See  id.;  Shawn  Young,  More  Callers  Cut  off  Second  Phone  Lines  for  Cellphones,  Cable  Modems,  THE  WALL  STREET  JOURNAL,  Nov.  15,  2001,  at  B1. 
6
 Federal  Communications  Commission  FCC  02-  43 
 7 
 lines.  26  In  addition,  many  customers  are  using  their  mobile  service  rather  than  interexchange  service  to  make  long  distance  calls:  according  to  one  report,  16  percent  of  customers  surveyed 
 now  make  most  of  their  long  distance  calls  using  mobile  services.  27  In  some  areas,  such  technology  substitution  has  begun  to  erode  revenue  from  interexchange  services,  which  is 
 currently  the  primary  contribution  source  for  universal  service  funding.  28 
 12.  Since  1997,  marketplace  developments  also  have  blurred  the  distinctions  between  interstate/  intrastate  and  telecommunications/  non-  telecommunications  revenues  on  which  the 


 current  contribution  system  is  based.  For  example,  carriers  increasingly  are  bundling  services  together  in  creative  ways,  such  as  by  offering  flat-  rate  packages  that  include  both  local-  and 
 long-  distance  services.  Virtually  all  of  the  major  mobile  telecommunications  service  providers  now  offer  a  type  of  Digital-  One-  Rate  (DOR)  pricing  plan  that  allows  customers  to  purchase  a 
 bucket  of  minutes  on  a  nationwide,  or  nearly  nationwide,  network  without  incurring  roaming  or  long  distance  charges.  29  A  number  of  carriers,  including  AT&  T  Wireless,  Verizon  Wireless,  and 
 Cingular  Wireless,  also  have  begun  offering  regional  DOR  calling  plans.  30  At  the  end  of  2000,  approximately  20  million  mobile  wireless  telephone  customers  subscribed  to  calling  plans  that 
 do  not  charge  extra  for  long  distance.  31  The  availability  of  such  plans  compounds  the  inherent  difficulty  of  identifying  interstate  revenues  in  a  mobile  environment. 


 13.  Likewise,  more  and  more  carriers  now  offer  bundled  packages  of  telecommunications  services  and  customer  premises  equipment  (CPE)  or  information  services. 
 The  accelerating  development  of  new  technologies  like  voice  over  Internet  increases  the  strain  on  regulatory  distinctions  such  as  interstate/  intrastate  and  telecommunications/  non-telecommunications, 
 and  may  reduce  the  overall  amount  of  assessable  revenues  reported  under  the  current  system.  32  Additional  legal,  technological,  and  market  developments  that  we  cannot 


 26  See  Sixth  CMRS  Competition  Report,  16  FCC  Rcd  at  13381  (According  to  a  recent  survey  by  the  Yankee  Group, 
 about  3%  of  mobile  telephone  subscribers  rely  on  their  wireless  phone  as  their  only  phone);  see  also  Yuki  Noguchi,  More  Cell-  Phone  Users  Cut  Ties  to  Traditional  Service,  WASHINGTON  POST,  Dec.  28,  2001,  at  E1,  E5  (  2.  2  percent 


 of  people  in  the  United  States  have  done  away  with  their  regular  phone  service  and  depend  totally  on  their  cell  phones  or  other  wireless  devices). 
 27  See  The  Surveys  Say  Majority  of  U.  S.  Households  Use  Wireless  Phones,  WIRELESS  TODAY,  Sep.  10,  2001.  One 
 analyst  estimates  that  20%  of  all  outbound  mobile  voice  minutes  are  used  for  long  distance.  See  Michael  Rollins,  et  al.,  Wireless  by  the  Minute,  Equity  Research,  Salomon  Smith  Barney,  Jan.  8,  2001,  at  8.  Sprint  PCS  and  other 


 mobile  wireless  providers  market  their  nationwide  networks  as  a  long  distance  alternative.  See  Sixth  CMRS  Competition  Report,  16  FCC  Rcd  at  13382-  83. 
 28  See  id.  at  13381-  83. 
 29  Paul  Kagan  Associates,  Inc.,  National  Order-  Rate  Plans  Take  Off,  WIRELESS  MARKET  STATS,  Jun.  16,  2000,  at 
 11;  see  Sixth  CMRS  Competition  Report,  16  FCC  Rcd  at  13379-  80.  30 
 See  Deborah  Mendez-  Wilson,  Big  Carriers  Get  Personal  With  Regional  Calling  Plans,  WIRELESS  WEEK,  Feb.  26,  2001,  at  12;  see  also  Sixth  CMRS  Competition  Report,  16  FCC  Rcd  at  13380. 


 31  See  Andrew  Backover,  AT&  T  Loss  Reflects  Long-  Distance  Shift,  Consumers  Turn  To  Calling  Cards,  Wireless, 
 USA  TODAY,  Jan.  30,  2001,  at  B3  (citing  analyst  Peter  Friedland  at  W.  R.  Hambrecht);  see  also  Sixth  CMRS  Competition  Report,  16  FCC  Rcd  at  13382-  83. 


 32  See  United  States  General  Accounting  Office,  Federal  and  State  Universal  Service  Programs  and  Challenges  to 
 Funding,  GAO-  02-  187,  at  21-  23  (rel.  Feb.  2002)  (  IP  Telephony  may  not  be  an  immediate  threat  to  federal  funding  of  universal  service  but  may  threaten  its  long-  term  viability.);  see  also  Federal-  State  Joint  Board  on  Universal 


 Service,  CC  Docket  No.  96-  45,  Report  to  Congress,  13  FCC  Rcd  11501,  11508  para.  14  ,  11541  para.  83  (1998)  (Report  to  Congress). 
7
 Federal  Communications  Commission  FCC  02-  43 
 8 
 foresee  also  could  significantly  impact  the  universal  service  contribution  base. 
 14.  In  light  of  these  and  other  changes  in  the  telecommunications  marketplace,  we  have  recognized  the  need  to  review  the  current  system  for  assessing  universal  service  contributions. 


 Fifty-  nine  parties  filed  comments  in  response  to  the  2001  Notice.  33  Our  examination  of  the  record  reveals  a  consensus  that  reforms  are  necessary,  although  different  industry  segments 
 differ  on  what  reforms  should  be  undertaken.  34  Some  commenters  support  retention  of  the  current  revenue-  based  assessment  system.  35  Other  commenters  support  modifying  the  current 
 system,  for  example,  by  assessing  contributions  on  projected  or  current  revenues  rather  than  historical  revenues.  36  Still  other  commenters  support  replacing  the  current  revenue-  based 
 assessment  system  with  one  that  focuses  on  connections.  37 
 15.  Our  primary  goal  in  considering  possible  reforms  of  the  current  assessment  system  is  to  ensure  the  stability  and  sufficiency  of  the  universal  service  fund  as  the  marketplace 


 continues  to  evolve.  We  also  seek  to  identify  the  best  means  of  ensuring  that  contributors  continue  to  be  assessed  in  an  equitable  and  nondiscriminatory  manner.  In  addition,  we  seek  to 
 provide  certainty  to  market  participants,  and  minimize  the  regulatory  costs  of  complying  with  universal  service  obligations.  Achievement  of  these  goals,  in  turn,  should  benefit  consumers  by 
 helping  to  ensure  that  the  contribution  recovery  process  is  fair,  reasonable,  and  readily  understood  by  consumers. 


 16.  In  this  Further  Notice,  we  seek  comment  on  whether  to  base  contributions  not  on  a  contributors  revenues,  but  on  the  number  and  capacity  of  the  connections  it  provides  to  a  public 
 network.  38  Under  this  proposal,  contributions  for  residential,  single-  line  business,  and  mobile  wireless  connections  would  be  assessed  on  a  flat,  monthly  basis.  Contributions  for  multi-  line 
 business  connections  would  be  calculated  to  recover  the  remaining  universal  service  funding  needs,  based  on  the  capacity  of  the  connections  provided.  In  addition,  we  seek  comment  on  a 
 variant  of  a  connection-  based  assessment  methodology  that  would  maintain  the  relative  contribution  burdens  on  different  industry  segments.  39  We  also  invite  commenters  to  supplement 
 the  record  developed  in  response  to  the  2001  Notice  with  any  new  arguments  or  data  regarding  whether  to  retain  or  modify  the  existing  system.  40 


 33  Appendix  B  sets  forth  a  list  of  parties  that  filed  comments  and  reply  comments. 
 34  See,  e.  g.,  AT&  T  Comments  at  13;  C&  W  Reply  Comments  at  4;  CDD  Comments  at  7;  Excel  Comments  at  6; 
 Nextel  Comments  at  6;  Qwest  Comments  at  3;  SBC  Comments  at  4;  Texas  OPC  and  SFA  Comments  at  7;  Verizon  Comments  at  5;  WorldCom  Comments  at  14. 


 35  See  generally  CTIA,  Home,  SBA,  Time  Warner,  Verizon,  and  Verizon  Wireless  comments  supporting  retention 
 of  the  current  revenue-  based  assessment  system.  36 
 See  generally  ASCENT,  AT&  T  Wireless,  PCIA,  and  SBC  comments  supporting  assessment  on  current  revenues,  Qwest  comments  supporting  assessment  on  net-  booked  revenues,  and  APCC,  Excel,  and  Iowa  Utilities  Board 


 comments  supporting  assessment  on  projected  revenues.  37 
 See  generally  AT&  T,  WorldCom,  Sprint,  and  Level  3  comments  supporting  connection-  based  assessment.  38 
 See  Letter  from  Patrick  H.  Merrick,  Esq.,  AT&  T,  to  Magalie  Roman  Salas,  Federal  Communications  Commission,  filed  Nov.  14,  2001  (USF  Coalition  Ex  Parte). 


 39  See  Sprint  Comments  at  8-  9. 
 40  See  APCC  Comments  at  2;  Excel  Comments  at  7;  Iowa  Utility  Board  Comments  at  2. 
8
 Federal  Communications  Commission  FCC  02-  43 
 9 
 17.  As  discussed  in  more  detail  below,  a  connection-  based  assessment  may  address  the  difficulty  of  applying  regulatory  distinctions  inherent  in  the  existing  system  to  new  services  and 
 technologies.  By  harmonizing  the  contribution  system  with  the  telecommunications  marketplace,  a  connection-  based  assessment  approach  may  help  to  ensure  the  stability  and 
 sufficiency  of  the  universal  service  contribution  base  over  time.  Such  an  approach  also  may  provide  contributors  with  greater  certainty,  reduce  administrative  costs,  and  avoid  marketplace 
 distortions,  ultimately  benefiting  consumers.  Moreover,  by  eliminating  some  of  the  complexity  involved  with  contribution  recovery  fees  and  making  only  one  provider  responsible  for 
 contributing  based  on  a  single  connection,  a  connection-  based  assessment  also  may  make  the  recovery  process  more  understandable  for  consumers.  Furthermore,  by  reducing  costs  associated 
 with  the  recovery  of  contributions,  a  connection-  based  assessment  also  may  reduce  the  total  amount  that  consumers  pay  in  contribution  recovery  fees. 


 18.  Our  experience  over  the  last  few  years  also  has  led  us  to  reevaluate  carrier  recovery  practices.  Carriers  currently  have  the  flexibility  to  recover  their  contribution  obligations  in  any 
 manner  that  is  equitable  and  nondiscriminatory.  Some  elect  to  recover  their  contributions  from  their  customers  through  line-  item  charges,  while  others  elect  to  collect  their  contribution 
 requirement  through  their  rates.  Although  the  contribution  factor  is  uniform  for  all  contributors,  universal  service  line  items  to  consumers  may  vary  widely  among  contributors,  and  often 
 significantly  exceed  the  amount  of  the  contribution  factor.  41  For  example,  in  the  second  quarter  of  2001,  after  the  Commission  established  a  contribution  factor  of  6.882  percent,  42  one 
 interexchange  carrier  raised  its  residential  universal  service  line  item  to  12  percent.  43  That  carriers  residential  line  item  was  subsequently  reduced  to  9.9  percent.  Another  interexchange 
 carrier  increased  its  residential  line  item  to  11.5  percent  on  January  1,  2002,  even  though  the  contribution  factor  recently  decreased  from  6.918  in  the  fourth  quarter  to  6.808  percent  in  the 
 first  quarter.  44 
 19.  Some  carriers  also  employ  different  recovery  methods  for  different  customer  groups,  imposing  universal  service  line-  item  charges  on  certain  categories  of  presubscribed 


 customers,  but  recovering  an  undisclosed  amount  from  other  customers  through  per-  minute  service  rates.  For  example,  some  carriers  do  not  recover  universal  service  contributions  from 
 certain  categories  of  customers,  such  as  dial-  around  customers.  45  In  addition,  universal  service  line-  item  percentages  for  residential  customers  often  are  higher  than  those  for  business 
 customers.  46  Other  carriers  charge  customers  large,  up-  front  universal  service  fees  that  are 
 41  See  2001  Notice,  16  FCC  Rcd  at  9895  para.  5.  For  a  comparison  of  contributor  universal  service  line-  item 
 amounts,  see  <http://  www.  abtolls.  com/  compare/  fees/  fees.  html>.  42 
 See  Proposed  Second  Quarter  2001  Universal  Service  Contribution  Factor,  CC  Docket  No.  96-  45,  Public  Notice,  16  FCC  Rcd  5358  (Com.  Car.  Bur.  2001). 


 43  MCI  WorldCom  Tariff  F.  C.  C.  No.  1,  Section  C  1.  061212,  issued  March  22,  2001. 
 44  See  Letter  from  Robert  Quinn,  Jr.,  AT&  T,  to  Magalie  Roman  Salas,  Federal  Communications  Commission,  filed 
 Dec.  13,  2001  (AT&  T  Projected  Revenue  Request);  see  also  Jonathan  Cox,  AT&  T  Will  Raise  Users  Phone  Bills  Unless  U.  S.  Acts,  BLOOMBERG  NEWS,  Dec.  17,  2001.  AT&  T  asserts  that  this  is  due  to  its  decline  in  revenues  and  an 


 assessment  system  based  on  historical  revenues.  45 
 See  Susan  McGovern,  AT&  T  Boosts  Subscriber  Charges  to  Recoup  USF  Contributions,  TR  DAILY,  Jan.  3,  2002,  at  3. 


 46  See  2001  Notice,  16  FCC  Rcd  at  9895  para.  5. 
9
 Federal  Communications  Commission  FCC  02-  43 
 10 
 unrelated  to  their  revenues  from  a  customer.  47  Such  practices  may  be  inexplicable  to  the  casual  observer,  and  may  shift  a  disproportionate  share  of  the  cost  of  contributions  onto  certain 
 customer  classes. 
 20.  In  this  Further  Notice,  therefore,  we  seek  comment  on  how  to  modify  our  rules  to  ensure  that  carriers  that  elect  to  recover  their  universal  service  obligations  from  their  customers 


 do  so  in  a  manner  that  is  reasonable,  fair,  and  understandable.  In  particular,  we  seek  comment  on  whether  to  require  carriers  that  elect  to  recover  through  separate  universal  service  line-  item 
 charges  on  any  customer  bill  to  apply  a  uniform  line  item  on  all  customer  bills.  To  further  develop  the  record  in  the  Truth-  in-  Billing  proceeding,  we  also  seek  comment  on  whether  to 
 require  carriers  to  describe  such  line-  item  charges  on  customer  bills  as  the  Federal  Universal  Service  Fee.  48  We  seek  comment  on  whether  these  proposals  would  help  to  prevent  consumers 
 from  being  charged  excessive  universal  service  fees,  to  make  the  recovery  process  more  understandable  for  consumers,  and  to  ensure  that  carriers  do  not  recover  more  from  certain 
 customers  or  classes  of  customers  than  from  others.  We  also  seek  comment  on  whether  the  proposed  reforms  would  place  significant  administrative  or  financial  burdens  on  contributing 
 carriers  and  on  the  potential  benefits  and  costs  for  consumers. 
 21.  Finally,  in  the  attached  Report  and  Order,  we  adopt  modifications  to  the  current  contribution  assessment  system  that  will  further  reduce  administrative  burdens  for  contributors 


 and  maintain  the  predictability  and  sufficiency  of  universal  service  funding  during  the  period  while  we  consider  other,  more  substantial  changes  to  the  system.  First,  we  eliminate  circularity 
 in  our  current  assessment  methodology  by  excluding  universal  service  contributions  from  the  revenue  base  on  which  contributors  are  assessed.  Second,  we  streamline  our  rules  to  permit 
 affiliated  contributors  that  function  as  a  single  unit  to  report  revenue  data  on  a  consolidated  basis.  Finally,  we  increase  the  threshold  for  our  limited  international  revenue  exception  from  eight  to 
 12  percent. 
 III.  BACKGROUND 
 22.  In  the  Universal  Service  Order,  the  Commission  decided  to  assess  contributions  on  contributors  gross-  billed  end-  user  telecommunications  revenues.  49  The  Commission  did  so  after 


 considering  the  Recommended  Decision  of  the  Federal-  State  Joint  Board  on  Universal  Service  (Joint  Board)  and  the  record  developed  at  that  time.  50  Specifically,  the  Commission  concluded 
 that  assessment  based  on  end-  user  telecommunications  revenues  would  be  competitively  neutral,  would  be  easy  to  administer,  and  would  eliminate  some  economic  distortions  associated  with  an 


 47  Under  one  carriers  surcharge,  a  customer  that  makes  a  $0.  19  one  minute  call  would  be  charged  a  $1.  20  (or  over 
 600%)  universal  service  fee.  For  examples  of  such  practices  visit  <http://  www.  1010phonerates.  com>.  48 
 Truth-  in-  Billing  and  Billing  Format,  CC  Docket  No.  98-  170,  Report  and  Order  and  Further  Notice  of  Proposed  Rulemaking,  14  FCC  Rcd  7492  (1999)  (TIB  Order  and  FNPRM),  reconsideration  granted  in  part,  Order  on 


 Reconsideration,  15  FCC  Rcd  6023  (2000),  Errata,  15  FCC  Rcd  16544  (Com.  Car.  Bur.  2000).  49 
 See  Universal  Service  Order,  12  FCC  Rcd  at  9206  para.  844.  Section  254(  d)  of  the  Act  mandates  that  [  e]  very  telecommunications  carrier  that  provides  interstate  telecommunications  services  shall  contribute,  on  an  equitable  and 


 nondiscriminatory  basis,  to  the  specific,  predictable,  and  sufficient  mechanisms  established  by  the  Commission  to  preserve  and  advance  universal  service.  See  47  U.  S.  C.    254(  d). 
 50  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Recommended  Decision,  12  FCC  Rcd  87 
 (Jt.  Bd.  1996). 
10
 Federal  Communications  Commission  FCC  02-  43 
 11 
 assessment  based  on  gross  telecommunications  revenues.  51  At  that  time,  the  Commission  declined  to  adopt  a  non-  revenue-  based  methodology  for  assessing  contribution  obligations, 
 expressing  concern  that  such  a  methodology  would  require  the  adoption  of  equivalency  ratios  for  calculating  the  contributions  of  providers  that  do  not  offer  telecommunications  on  a  per-  line 
 or  per-  minute  basis.  52 
 23.  The  Commission  also  declined  to  adopt  a  mandatory  end-  user  surcharge  for  recovery  of  universal  service  contributions  by  telecommunications  providers,  agreeing  with  the 


 state  members  of  the  Joint  Board  that  a  mandatory  end-  user  surcharge  would  dictate  how  carriers  recover  their  contribution  obligations  and  would  violate  Congresss  mandate.  53  The 
 Commission  expressed  concern  that  mandating  recovery  through  an  end-  user  surcharge  might  affect  contributors  flexibility  to  offer,  for  example,  bundled  services  or  new  pricing  options, 
 possibly  resulting  in  fewer  options  for  consumers.  54  Instead,  the  Commission  allowed  contributors  to  decide  for  themselves  whether,  how,  and  how  much  of  their  universal  service 
 contributions  to  recover  from  their  customers.  55  The  Commission  required  only  that  contributors  not  shift  more  than  an  equitable  share  of  their  contributions  to  any  customer  or  group  of 
 customers,  and  that  contributors  provide  accurate,  truthful,  and  complete  information  regarding  the  nature  of  the  charge.  56 


 24.  In  the  Second  Order  on  Reconsideration,  the  Commission  set  forth  the  specific  method  of  computation  for  universal  service  contributions.  57  The  Commission  also  designated 
 the  Universal  Service  Administrative  Company  (USAC)  as  the  entity  responsible  for  administering  the  universal  service  support  mechanisms,  including  billing  contributors, 


 51  Universal  Service  Order,  12  FCC  Rcd  at  9206-  09  paras.  844-  50. 
 52  See  id.  at  9201  para.  852. 
 53  See  id.  at  9210-  11  para.  853. 
 54  See  id. 
 55  Id. 
 56  Id.  at  9199  para.  829,  9211  para.  855.  We  note  that  the  Commission  originally  prohibited  incumbent  local 
 exchange  carriers  from  recovering  universal  service  costs  from  end-  users,  and  instead  required  incumbent  local  exchange  carriers  to  recover  universal  service  costs  through  access  charges.  See  id.  at  9200  para.  830.  The  United 


 States  Court  of  Appeals  for  the  Fifth  Circuit  held  that  incumbent  local  exchange  carrier  recovery  of  universal  service  contributions  through  access  charges  constituted  an  implicit  subsidy,  and  the  Commissions  rules  permitting  that 
 practice  to  continue  at  an  incumbent  local  exchange  carriers  discretion  violated  section  254(  e)  of  the  Act.  See  COMSAT  Corp.  v.  FCC,  250  F.  3d  931,  938-  40  (5  th  Cir.  2001).  The  Commission  therefore  amended  its  rules  to 
 prohibit  local  exchange  carriers  from  recovering  contributions  to  the  universal  service  mechanisms  through  access  charges  imposed  on  interexchange  carriers.  See  47  C.  F.  R.    69.  4(  d). 
 57  Changes  to  the  Board  of  Directors  of  the  National  Exchange  Carrier  Association,  Inc,  CC  Docket  No.  97-  21, 
 Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Report  and  Order  and  Second  Order  on  Reconsideration,  12  FCC  Rcd  18400  (1997)  (Second  Order  on  Reconsideration);  see  also  47  C.  F.  R.    54.709. 


 Section  54.  709(  a)  provides,  in  relevant  part,  that  contributions  to  the  universal  service  support  mechanisms  shall  be  based  on  contributors  interstate  and  international  end-  user  telecommunications  revenues  and  a  contribution  factor 
 determined  quarterly  based  on  information  submitted  by  the  Administrator  of  the  fund,  the  Universal  Service  Administrative  Company  (USAC).  The  quarterly  contribution  factor  is  based  on  the  ratio  of  total  projected  quarterly 
 expenses  of  the  universal  service  support  mechanisms  to  total  end-  user  telecommunications  revenues.  Thus,  contributions  are  the  product  of  a  contributors  end-  user  telecommunications  revenues  multiplied  by  a  quarterly 
 contribution  factor  that  is  equal  to  the  ratio  of  total  projected  quarterly  expenses  of  the  universal  service  support  mechanisms  to  total  end-  user  telecommunications  revenues. 
11
 Federal  Communications  Commission  FCC  02-  43 
 12 
 collecting  contributions  to  the  universal  service  support  mechanisms,  and  disbursing  universal  service  support  funds.  58  To  collect  information  from  contributors  about  their  end-  user 
 telecommunications  revenues,  the  Commission  required  contributors  to  submit  to  USAC  a  Telecommunications  Reporting  Worksheet  (Worksheet)  semi-  annually.  Contributions  were 
 based  on  billed  end-  user  telecommunications  revenues  from  the  prior  year.  59  Therefore,  the  interval  between  the  accrual  of  revenues  by  contributors  and  the  assessment  of  universal  service 
 contributions  based  on  those  revenues  was  12  months.  60 
 25.  In  the  Truth-  In-  Billing  proceeding,  the  Commission  adopted  guidelines  requiring  carriers  to  use  full  and  non-  misleading  labels  on  telephone  bills  that  refer  to  line-  item  charges 


 associated  with  federal  regulatory  action.  61  The  Commission  focused  primarily  on  three  types  of  line-  item  charges  that  result  from  federal  regulatory  action:  (1)  universal  service-  related  fees;  (2) 
 subscriber  line  charges;  and  (3)  local  number  portability  charges.  62  The  Commission  adopted  truth-  in-  billing  principles  and  guidelines  to  improve  consumers  understanding  of  their  telephone 
 bills.  In  the  TIB  Order  and  FNPRM,  the  Commission  sought  comment  on  specific  standard  labels  to  be  used  on  bills  when  referring  to  various  line-  item  charges  relating  to  federal 
 regulatory  action,  including  charges  attributed  to  the  universal  service  fund.  63 
 26.  In  the  Sixteenth  Order  on  Reconsideration,  the  Commission  further  refined  the  method  for  calculating  universal  service  contributions.  64  Specifically,  in  response  to  a  decision 


 of  the  United  States  Court  of  Appeals  for  the  Fifth  Circuit,  the  Commission  modified  the  methodology  for  assessing  contributions  for  the  universal  service  support  mechanisms  for 


 58  See  Second  Order  on  Reconsideration,  12  FCC  Rcd  at  18423-  24  para.  41;  see  also  47  C.  F.  R.    54.  701. 
 59  Second  Order  on  Reconsideration,  12  FCC  Rcd  18400,  Appendix  B;  see  also  47  C.  F.  R.  54.  711(  a). 
 (  Contributions  shall  be  calculated  and  filed  in  accordance  with  the  Telecommunications  Reporting  Worksheet.  The  Telecommunications  Reporting  Worksheet  sets  forth  information  that  the  contributor  must  submit  to  the 


 Administrator  [USAC]  on  a  semi-  annual  basis.  .  .  .).  See  Second  Order  on  Reconsideration,  12  FCC  Rcd  at  18424  para.  43,  18442  para.  80,  18501-  02,  Appendix  C.  The  Commission  adopted  the  Worksheet  and  attached  it  as 
 Appendix  C  to  the  Second  Reconsideration  Order.  Subsequent  to  its  issuance  of  the  Second  Order  on  Reconsideration,  in  an  effort  to  reduce  administrative  burdens  on  contributors,  the  Commission  consolidated  carrier 
 reporting  requirements.  See  1998  Biennial  Regulatory  Review    Streamlined  Contributor  Reporting  Requirements  Associated  with  Administration  of  Telecommunications  Relay  Service,  North  American  Numbering  Plan,  Local 
 Number  Portability,  and  Universal  Service  Support  Mechanisms,  CC  Docket  98-  171,  Report  and  Order,  14  FCC  Rcd  16602  (1999)  (Consolidated  Reporting  Order);  see  also  Common  Carrier  Bureau  Announces  Release  of 
 September  Version  of  Telecommunications  Reporting  Worksheet  (FCC  Form  499-  S)  for  Contributions  to  the  Universal  Service  Support  Mechanisms,  CC  Docket  No.  98-  171,  Public  Notice,  DA  99-  1520  (rel.  July  30,  1999); 
 Common  Carrier  Bureau  Announces  Release  of  Telecommunications  Reporting  Worksheet  (FCC  Form  499-  A)  for  April  1,  2000  Filing  by  All  Telecommunications  Carriers,  CC  Docket  No.  98-  171,  Public  Notice,  15  FCC  Rcd 
 16434  (Com.  Car.  Bur.  2000).  60 
 For  example,  contributions  based  on  carriers  revenues  accrued  in  January  through  June  of  one  year  were  assessed  on  carriers  in  January  through  June  of  the  next  year. 


 61  TIB  Order  and  FNPRM,  14  FCC  Rcd  at  7522-  33  paras.  49-  64.  The  Commission  excluded  CMRS  providers  from 
 these  labeling  requirements.  Id.  at  7501-  03  paras.  13-  19.  See  infra  para.  103.  62 
 See  TIB  Order  and  FNPRM,  14  FCC  Rcd  at  7523-  25  paras.  51-  52.  63 
 Id.  at  7537  para.  71.  64 
 See  Federal-  State  Joint  Board  on  Universal  Service,  Access  Charge  Reform,  Sixteenth  Order  on  Reconsideration  and  Eighth  Report  and  Order  in  CC  Docket  No.  96-  45  and  Sixth  Report  and  Order  in  CC  Docket  No.  96-  262,  15 


 FCC  Rcd  1679,  1685  para.  15  (1999)  (Eighth  Report  and  Order). 
12
 Federal  Communications  Commission  FCC  02-  43 
 13 
 schools  and  libraries  and  rural  health  care  providers  to  make  it  consistent  for  all  federal  support  mechanisms.  65  The  Court  of  Appeals  found  that  the  Commission  had  exceeded  its  jurisdiction 
 by  assessing  contributions  for  those  programs  based,  in  part,  on  the  intrastate  revenues  of  universal  service  contributors.  66  Accordingly,  the  Commission  established  a  single  contribution 
 base  for  all  federal  universal  service  support  mechanisms  based  on  interstate  and  international  end-  user  telecommunications  revenues. 


 27.  In  order  to  ensure  that  universal  service  contributions  are  assessed  on  revenue  data  that  is  more  reflective  of  current  market  conditions,  the  Commission  recently  reduced  the 
 interval  between  the  accrual  of  revenues  by  contributors  and  assessment  of  universal  service  contributions  based  on  those  revenues  from  12  months  to  an  average  interval  of  six  months.  67 
 The  Commission  concluded  that  the  shortened  interval  allows  contributions  to  better  reflect  market  trends  influencing  carrier  revenues,  such  as  the  entry  of  new  providers  into  the  interstate 
 marketplace.  68 
 28.  The  Commission  also  has  implemented  rules  and  guidelines  meant  to  reduce  administrative  burdens  for  certain  categories  of  contributors.  For  example,  the  Commission 


 established  an  interim  safe  harbor  for  calculating  the  percentage  of  interstate  revenues  of  mobile  wireless  telecommunications  service  providers  for  universal  service  contribution  purposes. 
 Instead  of  reporting  their  actual  interstate  and  international  end-  user  telecommunications  revenues,  CMRS  providers  may  simply  report  a  fixed  percentage  of  revenues,  which  ranges  from 
 one  to  15  percent.  69  In  addition,  our  rules  provide  that  contributors  whose  annual  universal  service  contribution  is  expected  to  be  less  than  $10,000  are  not  required  to  contribute  to  the 
 universal  service  mechanisms,  the  de  minimis  exemption.  70  Our  rules  also  provide  a  limited  exception  to  universal  service  contribution  requirements  for  entities  with  interstate  end-  user 
 telecommunications  revenues  that  constitute  less  than  eight  percent  of  their  combined  interstate  and  international  end-  user  telecommunications  revenues.  71  The  Commission  also  recently 
 developed  a  safe  harbor  for  the  reporting  of  telecommunications  revenues  when  bundling  telecommunications  services  with  customer  premises  equipment  or  information  services.  72 


 65  Universal  Service  Order,  12  FCC  Rcd  at  9203-  05  paras.  837-  841. 
 66  Texas  Office  of  Public  Utility  Counsel  v.  FCC,  183  F.  3d  at  448  (section  254  does  not  unambiguously  grant  the 
 FCC  jurisdiction  to  assess  intrastate  revenues).  67 
 See  Quarterly  Reporting  Order,  16  FCC  Rcd  at  5748  para.  2.  68 
 See  id.  at  5751  para.  9.  69 
 See  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Memorandum  Opinion  and  Order  and  Further  Notice  of  Proposed  Rulemaking,  13  FCC  Rcd  21252,  21258-  59  paras.  13-  15  (1998)  (Interim  CMRS  Safe 


 Harbor  Order).  70 
 See  47  C.  F.  R.    54.  708.  Section  254(  d)  of  the  Act  states  that  the  Commission  may  exempt  a  carrier  or  class  of  carriers  from  contributing  to  the  universal  service  mechanisms  if  the  carriers  contribution  to  the  preservation  and 


 advancement  of  universal  service  would  be  de  minimis.  71 
 See  47  C.  F.  R.    54.  706(  c).  72 
 See,  e.  g.,  Policy  and  Rules  Concerning  Interstate,  Interexchange  Marketplace,  Implementation  of  Section  254(  g)  of  the  Communications  Act  of  1934,  as  amended,  1998  Biennial  Regulatory  Review    Review  of  Customer  Premises 


 Equipment  And  Enhanced  Services  Unbundling  Rules  In  the  Interexchange,  Exchange  Access  And  Local  Exchange  Markets,  CC  Docket  Nos.  96-  61,  98-  183,  Report  and  Order,  16  FCC  Rcd  7418,  7446-  48  paras.  47-  54  (2001) 
 (Bundling  Order). 
13
 Federal  Communications  Commission  FCC  02-  43 
 14 
 29.  In  the  2001  Notice,  the  Commission  sought  comment  generally  on  whether  and  how  to  streamline  and  reform  both  the  contribution  assessment  methodology  and  the  manner  in  which 
 contributors  may  elect  to  recover  the  costs  of  contributions  from  their  customers.  73  Among  other  things,  the  Commission  sought  comment  on  whether  to  modify  the  existing  system,  as  well  as 
 whether  to  replace  the  current  system  with  one  that  assesses  contributions  on  the  basis  of  a  flat-fee  charge,  such  as  a  per-  line  charge.  Additionally,  the  Commission  sought  comment  on  whether 
 to  reform  the  manner  in  which  carriers  may  recover  their  contribution  costs  from  their  customers.  If  carriers  choose  to  recover  universal  service  contributions  from  their  customers  through  line 
 items,  the  Commission  sought  comment  on  whether  to  require  carriers  to  do  so  through  a  uniform  universal  service  line  item  that  corresponds  to  the  contribution  assessment. 


 IV.  FURTHER  NOTICE  OF  PROPOSED  RULEMAKING 
 30.  In  this  Further  Notice,  we  seek  further  comment  on  whether  to  reform  the  assessment  and  recovery  of  universal  service  contributions.  We  welcome  input  on  these 


 proposals  from  all  segments  of  the  industry,  consumer  groups,  state  regulatory  bodies,  and  state  members  of  the  Federal-  State  Joint  Board  on  Universal  Service  (Joint  Board).  Based  on  the 
 record  in  this  proceeding,  if  a  significant  change  in  the  contribution  methodology  seems  warranted,  we  would  refer  one  or  more  issues  and  the  record  developed  in  this  proceeding  -- 
 through  a  traditional  referral  or  some  alternative  means  --  to  the  Joint  Board  for  its  input  on  an  expedited  basis.  We  recognize  the  importance  of  acting  promptly  and  would  take  that  into 
 account  in  determining  the  appropriate  role  for  the  Joint  Board. 
 31.  First,  we  seek  comment  on  a  proposal  to  fundamentally  reform  the  contribution  assessment  system  by  assessing  contributions  based  on  the  number  and  capacity  of  connections 


 provided  to  a  public  network.  This  proposal  incorporates  major  features  of  a  proposal  submitted  by  commenters  during  the  course  of  this  proceeding,  with  modifications  based  on  our 
 examination  of  the  record.  74  Under  this  proposal,  residential,  single-  line  business,  and  mobile  wireless  connections  (excluding  pagers)  would  be  assessed  a  flat  amount  of  $1.00  per 
 connection,  paging  connections  would  be  assessed  $0.25  per  connection,  and  the  remaining  universal  service  funding  needs  would  be  recovered  through  capacity-  based  assessments  on 
 multi-  line  business  connections.  We  also  seek  comment  on  alternatives  to  mitigate  the  potential  impact  of  transitioning  to  a  connection-  based  assessment  system  on  different  industry  segments, 
 either  by  maintaining  the  current  systems  burden  allocation,  or  by  requiring  multiple  providers  to  contribute  based  on  the  connection  provided  to  a  particular  consumer. 


 32.  Second,  we  invite  commenters  to  supplement  the  record  developed  in  response  to  the  2001  Notice  with  any  new  arguments  or  data  regarding  whether  to  retain  or  modify  the 
 existing  system.  Commenters  are  invited  to  address  the  relative  costs  and  burdens  on  different  industry  segments  of  retaining  or  modifying  the  current  system.  We  also  invite  comment  on 
 whether  proposals  to  retain  or  modify  the  current  system  would  serve  our  goals  of  ensuring  the  long-  term  stability,  fairness,  and  efficiency  of  the  universal  service  contribution  system  in  a 
 dynamic  telecommunications  market.  75 


 73  See  2001  Notice,  16  FCC  Rcd  at  9892. 
 74  See  USF  Coalition  Ex  Parte. 
 75  See  supra  paras.  7-  13. 
14
 Federal  Communications  Commission  FCC  02-  43 
 15 
 33.  Finally,  we  address  the  contribution  recovery  process.  We  seek  comment  on  modifying  the  current  system  by  adopting  certain,  narrowly  tailored  restrictions  on  the  manner  in 
 which  contributors  recover  their  contributions,  as  well  as  on  a  proposal  to  change  to  a  collect  and  remit  system. 


 A.  Contribution  Assessment 
 1.  Connection-  Based  Assessment 
 34.  We  seek  comment  on  replacing  the  existing  system  with  a  connection-  based  assessment.  Specifically,  we  seek  comment  on  whether  to  assess  universal  service  contributions 


 based  on  the  number  and  capacity  of  connections  a  contributor  provides  to  a  public  network.  This  connection-  based  assessment  proposal  incorporates  major  features  of  a  proposal  submitted 
 on  the  record  during  the  course  of  this  proceeding.  76  Below,  we  first  address  the  operation  of  the  proposed  connection-  based  assessment  methodology,  including  its  potential  impact  on 
 consumers  and  contributors.  In  this  regard,  we  also  ask  for  comment  on  alternatives  to  mitigate  the  potential  impact  on  certain  contributors  of  transition  to  a  new,  connection-  based  system  by 
 maintaining  the  contribution  obligations  of  different  industry  segments  under  the  current  system.  We  then  address  legal  issues  raised  by  a  connection-  based  assessment,  in  particular  its 
 consistency  with  the  statutory  requirement  that  [  e]  very  telecommunications  carrier  that  provides  interstate  telecommunications  service  contribute  to  universal  service  on  an  equitable  and 
 nondiscriminatory  basis.  77  We  then  seek  comment  on  the  potential  costs  and  benefits  of  a  connection-  based  assessment  system.  Finally,  we  address  implementation  issues  associated  with 
 a  transition  to  a  connection-  based  assessment. 
 a.  Operation  of  Proposed  Connection-  Based  Assessment 
 35.  We  seek  comment  on  the  operation  of  a  connection-  based  assessment  methodology,  which  incorporates  major  features  of  certain  commenters  proposals  with  modifications  based  on 


 our  examination  of  the  record.  78  This  methodology  would  assess  universal  service  contributions  on  providers  of  interstate  telecommunications  that  provide  end  users  with  a  connection  to  a 
 public  network.  Under  this  proposal,  interstate  telecommunications  providers  would  contribute  $1  per  month  for  each  residential,  single-  line  business,  and  mobile  wireless  connection  to  a 
 public  network,  except  for  pagers,  which  are  discussed  below.  79  Multi-  line  business  connection  assessments  would  be  based  on  the  maximum  available  capacity,  or  bandwidth,  of  a 
 connection.  80  Contributions  for  multi-  line  business  connections  would  be  a  residual  amount  calculated  to  meet  the  remaining  universal  service  funding  needs  not  met  by  contributions  for 


 76  See  USF  Coalition  Ex  Parte. 
 77  See  47  U.  S.  C.    254(  d). 
 78  See  supra  n.  3. 
 79  See  supra  para.  17.  For  purposes  of  this  discussion,  fixed  wireless  connections  are  classified  as  either  residential, 
 single-  line  business,  or  multi-  line  business,  as  appropriate.  80 
 Maximum  capacity  is  used  to  clarify  that  contributors  would  be  assessed  based  on  the  maximum  amount  of  bandwidth  they  allocate  to  a  multi-  line  business  connection,  not  the  actual  amount  of  capacity  used.  For  example,  if 


 a  provider  leases  a  facility  to  an  end  user  that  is  capable  of  providing  1.  544  Mbps  of  capacity,  but  the  end  user  only  used  a  fraction  of  that  amount,  the  provider  would  be  assessed  based  on  the  1.544  Mbps,  not  the  capacity  actually 
 used. 
15
 Federal  Communications  Commission  FCC  02-  43 
 16 
 residential,  single-  line  business,  and  mobile  connections.  A  wireline  and  fixed  wireless  connection  would  be  categorized  as  either  residential/  single-  line  business  or  multi-  line  business 
 depending  on  whether  a  residential/  single-  business  subscriber  line  charge  (SLC)  has  been  assigned  to  the  connection.  81  Mobile  wireless  providers  would  contribute  $1  per  month  for  each 
 activated  handset.  82 
 36.  Under  a  connection-  based  assessment,  local  exchange  carriers,  interexchange  carriers,  and  CMRS  providers  would  contribute  to  universal  service  based  on  the  number  and 


 capacity  of  end-  user  connections  they  provide  to  a  public  network.  Incumbent  and  competitive  local  exchange  carriers  (including  both  wireline  and  fixed  wireless)  would  contribute  for  the 
 residential,  single-  line  business,  and  multi-  line  business  connections  they  provide  to  end  users.  Likewise,  interexchange  carriers  would  contribute  for  multi-  line  business  connections,  such  as 
 special  access,  they  provide  to  end  users.  Interexchange  carriers  also  would  contribute  to  the  extent  that  they  operate  as  competitive  local  exchange  carriers.  Mobile  providers  would 
 contribute  for  each  activated  handset.  We  note,  however,  the  proposed  connection-  based  assessment  would  have  the  effect  of  making  local  exchange  carriers  and  mobile  service  providers 
 responsible  for  a  larger  portion  of  the  universal  service  funding,  the  majority  of  which  is  currently  paid  by  interexchange  carriers.  83  Below,  we  seek  comment  on  the  impact  of  a 
 connection-  based  assessment  on  different  industry  sectors  and  on  whether  a  connection-  based  assessment  would  be  consistent  with  the  Act.  84 


 37.  Residential,  Single-  Line  Business,  and  Mobile  Connections.  We  seek  comment  on  whether  to  set  a  standard  assessment  amount  for  each  residential,  single-  line  business,  and 
 mobile  connection  to  a  public  network  and  then  assess  the  remaining  universal  service  funding  requirements  on  providers  of  multi-  line  business  connections.  Under  this  proposal,  if  a 
 residential,  single-  line  business,  or  mobile  wireless  customer  maintains  one  voice  line,  the  connecting  provider  would  be  assessed  for  one  connection.  If  that  customer  has  two  voice  lines 
 from  its  residence,  the  contributor  would  be  assessed  for  two  connections.  If  a  customer  obtains  access  to  a  public  network  via  two  connections,  one  fixed  connection  and  one  activated  mobile 
 handset,  two  assessments  would  apply  (the  fixed  service  provider  would  contribute  for  its  connection  and  the  mobile  service  provider  would  contribute  for  its  connection). 


 38.  In  particular,  we  seek  comment  on  whether  initially  to  set  the  standard  assessment  amount  for  providers  of  residential,  single-  line  business,  and  mobile  wireless  connections 
 (excluding  pagers)  at  $1  per  month  for  each  connection.  85  A  $1  per  month  assessment  for  each  residential,  single-  line  business,  and  mobile  wireless  connection  to  a  public  network  is  supported 


 81  47  C.  F.  R.    69.  104(  g),  69.  152  (g).  The  subscriber  line  charge  is  a  flat,  monthly  charge  that  incumbent  local 
 exchange  carriers  assess  directly  on  end  users  of  telecommunications  service  to  recover  a  portion  of  their  revenue  assigned  to  the  interstate  jurisdiction.  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,  and  95-  72,  First  Report  and  Order,  12  FCC  Rcd  15982,  16007  para.  68  (1997)  (Access  Charge  Reform  Order). 
 Below,  we  seek  comment  on  how  carriers  that  do  not  charge  a  SLC  would  determine  whether  the  connection  is  provided  to  a  residential/  single-  line  business  customer.  See  infra  para.  58. 
 82  Paging  providers  would  contribute  $0.  25  for  each  pager.  See  infra  para.  39. 
 83  See  infra  paras.  59-  63. 
 84  See  infra  paras.  59-  63,  65-  69. 
 85  See  USF  Coalition  Ex  Parte. 
16
 Federal  Communications  Commission  FCC  02-  43 
 17 
 by  staff  analysis  showing  that  if  providers  pass  through  the  assessment  with  no  mark  up,  residential  customers  would  pay  roughly  the  same  overall  recovery  fees  under  a  per-  connection 
 assessment  system  as  they  do  under  the  existing  methodology.  86  A  standard  $1  per  month  assessment  amount  for  residential,  single-  line  business,  and  mobile  wireless  connections  also 
 may  make  a  carriers  contribution  obligation  more  predictable  and  understandable  for  consumers.  In  addition,  by  freezing  at  $1  per  month  the  assessment  for  residential,  single-  line 
 business,  and  mobile  wireless  connections  for  a  specified  period  of  time,  we  would  provide  contributors  with  greater  certainty  regarding  their  future  contribution  obligations.  87 


 39.  Under  a  connection-  based  assessment,  providers  of  interstate  paging  services  would  also  generally  be  subject  to  a  flat  per-  connection  assessment  amount  because  paging  services 
 provide  access  to  a  public  network.  Recognizing  the  unique  characteristics  of  paging  services,  we  seek  comment  on  how  to  assess  pager  connections  under  a  connection-  based  assessment.  In 
 contrast  to  other  telecommunications  services,  most  pagers  provide  limited  functionality,  only  providing  customers  with  access  to  one-  way  communications.  Pager  providers  currently 
 contribute  to  universal  service  under  an  interim  safe  harbor  provision  that  allows  them  to  assume  that  interstate  end-  user  telecommunications  revenues  comprise  12  percent  of  their  total 
 revenues.  88  Based  on  this  safe  harbor,  a  significant  number  of  pager  providers  are  not  required  to  contribute  based  on  the  de  minimis  exception,  and  many  have  urged  the  Commission  to  be 
 mindful  of  this  in  considering  possible  reforms  to  the  current  assessment  methodology.  89  We  seek  comment  on  whether  a  $0.25  per-  connection  assessment  on  pagers  would  be  an  appropriate 
 amount  and  what  impact  this  change  would  have  on  the  marketplace  generally  and  the  paging  industry  in  particular.  90  In  addition,  we  seek  comment  on  the  appropriate  assessment  amount  for 
 certain  Specialized  Mobile  Radio  providers  that  currently  contribute  based  on  a  safe  harbor  of  one  percent  of  their  total  revenues.  91 


 40.  We  also  seek  comment  on  whether  to  exempt  Lifeline  connections  from  the  contribution  base.  The  Commissions  Lifeline  support  program  is  designed  to  increase 
 subscribership  by  reducing  qualifying  low-  income  consumers  monthly  basic  local  service  charges.  92  Under  the  existing  system,  incumbent  local  exchange  carriers  may  not  recover 
 universal  service  contributions  from  their  Lifeline  subscribers,  although  other  carriers  may  do  so.  93  The  current  methodology  does  not,  however,  exclude  interstate  revenues  from  Lifeline 


 86  See  infra  paras.  46-  49. 
 87  Below,  we  seek  comment  on  how  frequently  to  adjust  the  $1  per  month  assessment  to  reflect  increases  or 
 decreases  to  universal  service  fund  requirements  and  the  number  and  capacity  of  connections.  See  infra  paras.  74-75. 


 88  See  Interim  CMRS  Safe  Harbor  Order,  13  FCC  Rcd  at  21259-  60  para.  14.  As  discussed  below,  the  average  pager 
 provider  currently  contributes  approximately  $0.  07  per  pager.  See  infra  para.  58.  89 
 Small  Paging  Alliance  Comments  at  5;  Letter  from  L.  Charles  Keller,  Wilkinson  Barker  Knauer  LLP,  on  behalf  of  Arch  Wireless,  Inc.  and  PCIA,  to  Magalie  Roman  Salas,  Federal  Communications  Commission,  filed  Nov.  16,  2001. 


 90  See  USF  Coalition  Ex  Parte  (This  amount  was  proposed  by  the  USF  coalition). 
 91  See  Interim  CMRS  Safe  Harbor  Order,  13  FCC  Rcd  at  21260  para.  15. 
 92  See  Universal  Service  Order,  12  FCC  Rcd  at  8952-  53  para.  329.  Lifeline  customer  eligibility  criteria  are  outlined 
 in  section  54.  409  of  our  rules.  See  47  C.  F.  R.    54.  409.  93 
 See  47  C.  F.  R.    69.  158,  69.  131;  see  also  Access  Charge  Reform,  Sixth  Report  and  Order  in  CC  Docket  No.  96-262  and  94-  1,  Report  and  Order  in  CC  Docket  No.  99-  249,  Eleventh  Report  and  Order  in  CC  Docket  No.  96-  45,  15 


 (continued....) 
17
 Federal  Communications  Commission  FCC  02-  43 
 18 
 customers  from  the  contribution  base.  Therefore,  under  the  current  system  contributors  are  assessed  based  on  interstate  revenues  derived  from  Lifeline  customers.  Because  Lifeline 
 customers  represent  only  a  small  portion  of  the  contribution  base,  approximately  5.9  million  94  of  235  million  residential  connections  and  mobile  wireless  connections,  95  we  do  not  believe  that 
 exempting  Lifeline  connections  would  have  a  significant  impact  on  universal  service  funding.  We  seek  comment  on  this  analysis. 


 41.  We  seek  comment  on  how  to  define  connection  for  purposes  of  a  connection-based  assessment.  The  same  definition  of  connection  would  apply  to  residential,  single-  line 
 business,  mobile  wireless,  and  multi-  line  business  connections.  96  Specifically,  we  seek  comment  on  defining  a  connection  as  a  facility  that  provides  an  end  user  with  independent  access  to  a 
 public  network,  regardless  of  whether  that  connection  is  circuit-  switched,  packet-  switched,  or  a  leased  line  (e.  g.,  special  access).  Under  this  definition,  each  connection  would  be  a  separate 
 assessable  unit.  We  seek  comment  on  this  definition.  We  invite  commenters  to  address  whether  to  apply  the  same  definition  of  end  user  that  is  applied  under  the  existing  methodology,  and,  if 
 not,  what  definition  to  use.  97  Under  the  existing  system,  end-  users  include  purchasers  of  retail  interstate  telecommunications  or  telecommunications  services.  98  End  users  do  not  include 
 entities  that  purchase  and  resell  telecommunications  or  telecommunications  services  to  other  customers.  99  Consistent  with  this  definition,  under  a  per-  connection  assessment, 
 telecommunications  resellers  could  be  considered  providers  of  connections  to  a  public  network  to  the  extent  that  they  provide  independent  access  to  a  public  network.  Resellers  provide 
 services  to  end  users  over  infrastructure  they  obtain  from  facilities-  based  providers.  We  seek  comment  on  this  analysis. 


 42.  We  also  invite  commenters  to  address  how  to  define  independent  access.  Should  a  connection  be  considered  independent  if  it  does  not  require  the  presence  of  any  other 
 activated  end-  user  connection  to  provide  access  to  a  public  network?  Under  such  a  definition, 


 (...  continued  from  previous  page)  FCC  Rcd  12962,  13057-  58  paras.  218-  220  (2000);  Multi-  Association  Group  (MAG)  Plan  for  Regulation  of 
 Interstate  Service  of  Non-  Price  Cap  Incumbent  Local  Exchange  Carriers  and  Interexchange  Carriers,  CC  Docket  No.  00-  256,  Second  Report  and  Order,  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45, 
 Fifteenth  Report  and  Order,  Access  Charge  Reform  for  Incumbent  Local  Exchange  Carriers  Subject  to  Rate-  of-Return  Regulation,  CC  Docket  No.  98-  77,  Report  and  Order,  Prescribing  the  Authorized  Rate  of  Return  for 
 Interstate  Service  of  Local  Exchange  Carriers,  CC  Docket  No.  98-  166,  Report  and  Order,  16  FCC  Rcd  19613,  19688-  89  para.  177  (2001)  (Multi-  Association  Group  Order). 
 94  FCC,  Common  Carrier  Bureau,  Industry  Analysis  Division,  Universal  Service  Monitoring  Report,  CC  Docket  No. 
 98-  202,  Table  2.5  (Oct.  2001)  (Monitoring  Report).  95 
 Trends  in  Telephone  Service,  Common  Carrier  Bureau,  Industry  Analysis  Division,  Table  8.4  (showing  approximately  125  million  residential  lines)  (Aug.  2001)  (Trends  Report);  Sixth  CMRS  Competition  Report,  16  FCC 


 Rcd  at  13354  (showing  109.  5  million  mobile  wireless  subscribers).  96 
 See  infra  para.  56.  97 
 See  Universal  Service  Order,  12  FCC  Rcd  at  9206-  09  paras.  843-  850;  see  also  Instructions  to  FCC  Form  499-  Q,  at  10;  Instructions  to  FCC  Form  499-  A,  at  15.  Under  the  existing  methodology,  end-  users  include  purchasers  of 


 retail  interstate  telecommunications  or  telecommunications  services.  See  Universal  Service  Order,  12  FCC  Rcd  at  9207  para.  844. 
 98  See  id.  at  9207  para.  844. 
 99  See  id. 
18
 Federal  Communications  Commission  FCC  02-  43 
 19 
 for  example,  two  activated  voice-  grade  connections  via  a  single  loop  might  be  deemed  independent  because  each  allows  stand-  alone  access  to  a  public  network.  Likewise,  line-shared 
 or  line-  split  voice-  band  service  and  digital  subscriber  line  (DSL)  service  provided  over  the  same  loop  might  both  be  deemed  independent,  and  therefore  separately  assessed,  because 
 each  allows  stand-  alone  access  to  a  public  network.  On  the  other  hand,  certain  information  services,  such  as  voice  mail  or  dial-  up  Internet  access,  may  not  be  deemed  independent 
 because  they  would  not  allow  access  to  a  public  network  without  an  activated  voice-  grade  connection.  100  We  seek  comment  on  this  analysis.  Finally,  we  seek  comment  on  how  to  define 
 public  network  for  the  purpose  of  connection-  based  assessment. 
 43.  We  seek  comment  on  whether  and  how  interstate  telecommunications  connections  to  private  networks  should  be  assessed  under  the  connection-  based  assessment  methodology 


 discussed  above.  Under  the  existing  system,  private  service  providers,  which  provide  access  to  private  networks  on  a  private  contractual  basis,  are  subject  to  contribution  obligations.  101  In  this 
 regard,  the  Commission  stated  that  these  entities  could  not  provide  their  services  to  others  for  a  fee  without  the  benefit  of  access  to  the  public  switched  telephone  network  (PSTN),  which  is 
 supported  by  universal  service  mechanisms.  102  Even  if  private  service  providers  are  not  connected  to  the  PSTN,  the  Commission  reasoned,  these  entities  compete  with  common  carriers 
 to  the  extent  that  they  provide  telecommunications,  and  therefore  should  contribute  based  on  the  principle  of  competitive  neutrality.  103  We  invite  commenters  to  address  whether  this  reasoning 
 would  be  applicable  under  a  connection-  based  assessment  system  and,  if  so,  how  to  structure  a  definition  of  connection  to  encompass  connections  to  private  networks. 


 44.  In  addition,  we  seek  comment  on  whether  a  connection-  based  assessment  system  would  raise  any  of  the  issues  that  caused  the  Commission  previously  to  reject  a  per-  line 
 assessment  system.  When  the  Commission  originally  adopted  a  revenue-  based  assessment  system,  it  rejected  a  per-  line  approach,  concluding  that  the  need  to  establish  line-  equivalency 
 ratios  would  make  such  an  approach  difficult  to  administer  and  could  possibly  result  in  a  system  that  is  not  competitively  neutral.  104  Assessment  on  a  per-  line  basis  would  require  the 
 Commission  to  establish  equivalency  ratios  for  calculating  assessments  on  contributors  that  do  not  provide  service  on  a  per-  line  basis.  105  For  example,  the  Commission  would  have  to 
 determine  how  many  voice-  grade  equivalent  lines  are  provided  over  facilities  such  as  T-  1s.  106  By  contrast,  a  connection-  based  approach  may  not  require  the  use  of  equivalency  ratios,  107 
 because  the  determinative  factor  would  be  whether  a  customer  has  access  to  a  public  network.  Once  that  determination  is  made,  an  assessment  amount  would  be  assigned  to  the  connection 


 100  See  infra  para.  66. 
 101  Universal  Service  Order,  12  FCC  Rcd  at  9184  para.  796. 
 102  Id. 
 103  Id. 
 104  See  id.  at  9210  para.  852. 
 105  Bell  South  Comments  at  2;  SBC  Comments  at  15-  16;  see  also  Universal  Service  Order,  12  FCC  Rcd  at  9210 
 para.  852.  106 
 See  Dodd,  Annabel  Z.,  The  Essential  Guide  to  Telecommunications  (2d.  ed.  1999)  (discussing  these  types  of  facilities). 


 107  See  supra  para.  35. 
19
 Federal  Communications  Commission  FCC  02-  43 
 20 
 based  simply  on  whether  it  is  a  residential,  single-  line  business,  mobile  wireless,  or  multi-  line  business  connection.  Each  connection  would  have  a  separate  assessment  assigned  to  it.  A 
 residential,  single-  line  business,  or  mobile  wireless  connection,  other  than  pagers,  would  be  assessed  $1.00.  As  described  more  fully  below,  the  assessment  amount  for  multi-  line  business 
 connections  would  be  based  on  the  maximum  capacity  of  the  connection,  so  it  would  be  unnecessary  to  establish  voice-  grade  equivalency  ratios  for  such  connections.  108  We  seek 
 comment  on  this  analysis. 
 45.  For  purposes  of  identifying  the  facility  that  provides  access  to  a  public  network  in  the  mobile  context,  we  also  seek  comment  on  whether  to  assess  mobile  wireless  contributors 


 based  on  the  number  of  activated  handsets  they  provide  to  customers.  109  Mobile  service  providers  typically  provide  one  independent  connection  to  a  public  network  over  each  activated 
 handset.  By  focusing  on  activated  handsets,  contributions  would  be  assessed  only  on  those  handsets  that  are  capable  of  being  used  to  make  or  receive  interstate  calls.  We  also  note  that 
 mobile  wireless  carriers  currently  submit  data  to  the  Commission  on  an  activated  handset  basis.  110  While  this  assessment  basis  may  be  the  most  equitable  and  administratively  convenient, 
 we  encourage  commenters  to  suggest  other  possible  measures  for  mobile  wireless  contributors.  Commenters  also  should  address  how  offerings  by  mobile  wireless  providers,  such  as 
 emergency-  only  phones,  prepaid  wireless  services,  and  convention  center  and  other  temporary  service  arrangements,  should  be  treated. 


 46.  We  ask  commenters  to  provide  data  and  analysis  on  the  likely  impact  of  a  proposed  connection-  based  assessment  on  residential  customers.  Preliminary  staff  analysis  indicates  that 
 the  total  contribution  recovery  fees  paid  by  the  average  household  would  be  approximately  the  same  under  a  connection-  based  assessment  system  as  under  the  existing  system.  Based  on 
 publicly-  available  data  from  the  year  2000,  and  taking  into  account  the  elimination  of  circularity  from  the  contribution  base  and  anticipated  fund  growth,  staff  estimates  that  the 
 average  household  pays  approximately  $1.93  per  month  in  total  contribution  recovery  fees  under  the  current  system.  111  Based  on  the  same  data  and  assumptions,  staff  estimates  that  the  average 
 household  likewise  would  pay  approximately  $1.93  in  total  contribution  recovery  fees  under  the  proposed  connection-  based  assessment  system.  These  estimates  include  both  mobile  and  fixed 
 residential  assessments  for  the  average  household,  and  primarily  are  based  on  publicly  available  data  taken  from  Commission  reports  and  TNS  Telecommunications  Bill  Harvesting  Data  (Bill 


 108  See  infra  para.  56. 
 109  See  USF  Coalition  Ex  Parte. 
 110  Local  Competition  and  Broadband  Reporting,  CC  Docket  No.  99-  301,  Report  and  Order,  15  FCC  Rcd  7717, 
 7756-  57  para.  84  (2000).  111 
 For  purposes  of  this  analysis,  we  conservatively  use  an  8%  contribution  factor,  which  is  based  on  the  elimination  of  circularity  in  our  methodology,  and  anticipated  fund  growth  due  to  the  implementation  of  recent  universal  service 


 high-  cost  support  reforms  for  rural  and  rate-  of-  return  carriers.  See  infra  paras.  113-  114;  see  also  Multi-  Association  Group  Order,  16  FCC  Rcd  at  19688-  89  para.  177  (new  support  mechanism  to  be  implemented  July  1,  2002); 
 Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Fourteenth  Report  and  Order  and  Twenty-Second  Order  on  Reconsideration,  Multi-  Association  Group  (MAG)  Plan  for  Regulation  of  Interstate  Services  of 
 Non-  Price  Cap  Incumbent  Local  Exchange  Carriers  and  Interexchange  Carriers,  CC  Docket  No.  00-  256,  Report  and  Order,  16  FCC  Rcd  11244  (released  May  23,  2001)  (Rural  Task  Force  Order).  The  contribution  factor  is  likely 
 to  increase  further  over  time  as  these  reforms  are  fully  implemented.  The  contribution  factor  for  the  first  quarter  of  2001  is  6.  808%.  See  First  Quarter  2002  Contribution  Public  Notice  at  3. 
20
 Federal  Communications  Commission  FCC  02-  43 
 21 
 Harvesting  Data).  112  These  estimates  also  assume  that  contribution  costs  are  flowed  through  to  all  end  users  equally  and  without  markup.  113  In  order  to  determine  the  total  contribution 
 recovery  fees  paid  by  the  average  household,  staff  assumed  that  66.7  percent  of  mobile  wireless  devices  currently  are  subscribed  to  by  residential  customers.  The  staffs  analysis  also  assumes 
 that,  under  a  connection-  based  assessment  system,  both  residential  connections  and  mobile  wireless  connections  (excluding  pagers)  would  be  assessed  $1.00,  and  pager  providers  would  be 
 assessed  $.  25  per  pager.  We  invite  comment  on  this  analysis,  and  encourage  commenters  to  provide  their  own  analyses  and  supporting  data. 


 47.  We  seek  comment  on  whether  this  analysis  reasonably  approximates  average  household  contribution  obligations  under  the  existing  assessment  and  the  potential  impact  on  the 
 average  household  of  adopting  a  connection-  based  assessment.  For  example,  because  staff  uses  publicly  available  data  from  2000,  the  analysis  does  not  reflect  any  increases  or  decreases  in 
 revenues  or  the  number  of  connections  for  certain  types  of  services.  We  intend  to  incorporate  more  recent  public  data  in  the  analysis  of  consumer  impact  as  it  becomes  available.  We  seek 
 comment  on  how  to  refine  this  analysis.  We  also  seek  comment  on  other  ways  to  measure  consumer  impact. 


 48.  We  note  that  Verizon  also  submitted  summary  findings  from  a  study  estimating  the  impact  of  a  connection-  based  assessment  system  on  different  percentiles  of  residential 
 customers,  based  on  usage.  114  Some  of  the  data  submitted  by  Verizon  is  subject  to  a  Protective  Order,  115  and  it  is  unclear  from  the  publicly-  available  data  what  assumptions  Verizon  has  made 
 about  how  a  connection-  based  assessment  system  would  operate.  We  note,  however,  that  Verizons  study  appears  to  support  generally  the  conclusion  that  a  connection-  based  assessment 
 system  would  not  significantly  shift  the  burden  of  supporting  universal  service  to  or  from  contributors  serving  residential  customers,  although  certain  percentiles  of  residential  customers 
 would  have  increased  contribution  obligations.  116  We  invite  comment  on  Verizons  data  and  analysis. 


 112  Staff  have  relied  on  the  following  data  from  June  2000:  Monitoring  Report  (households  with  phone  service); 
 Trends  Report  (residential  lines,  residential  lines  charged  at  non-  primary  subscriber  line  rate,  residential  lines  charged  at  primary  subscriber  line  charge);  Statistics  of  Communications  Common  Carriers  2000/  2001  Edition, 


 Federal  Communications  Commission  (total  analog  and  digital  residential  lines);  Sixth  CMRS  Competition  Report,  16  FCC  Rcd  at  13462  (average  mobile  telephony  bill,  mobile  telephony  units);  Telecommunications  Industry 
 Revenues  2000,  Industry  Analysis  Division,  Common  Carrier  Bureau  (percent  contribution  base  from  CMRS  revenues,  total  paging  contribution  base  per  month,  percentage  of  end-  user  revenues  reported  as  interstate  and 
 international);  ReQuest  Market  Monitor  (Bill  Harvesting  Data),  TNS  Telecoms  (rel.  Feb.  2001)  (average  pre-  tax  long-  distance  bill). 
 113  As  we  note  above,  some  carriers  have  line  items  in  excess  of  our  contribution  factor.  See  supra  paras.  18-  19.  If 
 these  mark  ups  were  taken  into  account,  the  benefits  of  moving  to  a  connection-  based  assessment  system  would  be  greater. 


 114  See  Letter  from  W.  Scott  Randolph,  Verizon  Communications,  to  Magalie  R.  Salas,  Federal  Communications 
 Commission,  filed  Oct.  17,  2001  (Verizon  Ex  Parte).  The  Cambridge  Strategic  Management  Group  (CSMG)  conducted  the  study. 


 115  See  47  C.  F.  R.    0.459.  The  data  have  been  made  available  for  public  inspection  subject  to  a  Protective  Order. 
 See  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Protective  Order,  DA  01-  2842  (Acc.  Pol.  Div.  rel.  Dec.  12,  2001). 


 116  See  Verizon  Ex  Parte  at  11-  12. 
21
 Federal  Communications  Commission  FCC  02-  43 
 22 
 49.  We  also  seek  comment  on  the  impact  of  this  proposal  on  low-  volume  and  low-income  consumers.  We  seek  comment  on  arguments  from  some  parties  that  assessing  an  amount 
 of  $1  per  month  for  each  residential,  single-  line  business,  and  mobile  wireless  connection  (excluding  pagers)  would  be  overly  regressive  and  discriminatory  to  low-  volume  users,  117  and 
 would  increase  the  contribution  burden  on  low-  income  customers.  Regarding  low-  income  consumers,  staff  analysis  of  Bill  Harvesting  Data  indicates  that  low-  volume  usage  does  not 
 necessarily  indicate  a  low-  income  customer.  We  also  note  that,  because  the  proposal  would  prohibit  connecting  carriers  from  recovering  universal  service  contributions  from  Lifeline 
 customers,  many  low-  income  consumers  would  bear  no  burden  for  universal  service  contributions.  118  Lifeline  customers  may  also  benefit  significantly  from  a  connection-  based 
 assessment  because  they  would  not  be  assessed  contribution  recovery  fees  by  long  distance  providers.  We  seek  comment  on  this  analysis. 


 50.  Multi-  Line  Business  Connections.  We  also  seek  comment  on  how  to  calculate  assessments  for  multi-  line  business  connections  based  on  the  capacity  of  those  connections. 
 Specifically,  we  seek  comment  on  whether  to  assess  multi-  line  business  connections  on  a  capacity  basis.  Commenters  propose  assessing  multi-  line  business  connections  on  a  capacity 
 basis  because  these  connections  typically  provide  significantly  higher  bandwidths  than  connections  provided  to  residential,  single-  line  business,  and  mobile  wireless  customers.  119  If 
 multi-  line  business  connections  were  not  assessed  on  a  capacity  basis,  a  per-  connection  assessment  would  result  in  low-  volume  residential  connections  being  assessed  at  the  same  rate  as 
 higher-  volume  multi-  line  business  connections.  120  Alternatively,  we  seek  comment  on  whether  to  assess  all  residential,  single-  line  business,  mobile,  and  multi-  line  business  connections  the 
 same  amount,  regardless  of  the  capacity  of  the  connection. 
 51.  We  seek  comment  on  whether  contributions  from  providers  of  multi-  line  business  connections  should  be  a  residual  amount  calculated  to  meet  the  remaining  universal  service 


 funding  needs  not  met  by  contributions  for  residential,  single-  line  business,  and  mobile  connections.  This  proposal  would  make  a  contributors  contribution  obligation  more  predictable 
 and  understandable  for  residential,  single-  line  business,  and  mobile  customers,  while  ensuring  that  the  residual  universal  service  funding  requirement  is  assessed  on  multi-  line  business 
 connections.  121  Although  specific  assessment  amounts  for  multi-  line  business  connections  may  vary  more  than  assessment  amounts  for  residential,  single-  line  business,  and  mobile  connections, 
 multi-  line  business  assessment  amounts  would  be  reduced  more  frequently  to  account  for  increases  in  the  number  and  capacity  of  connections.  122  Multi-  line  business  customers  also  may 
 be  better  equipped  to  gather  necessary  information  to  understand  the  basis  for  recovery  amounts  that  fluctuate  from  quarter  to  quarter.  We  seek  comment  on  this  analysis. 


 117  Excel  Comments  at  4-  5;  NECA  Comments  at  6;  OPASTCO  Comments  at  6;  SBC  Comments  at  14;  Texas  OPC 
 and  CFA  Comments  at  6.  118 
 See  supra  para.  40.  119 
 See  USF  Coalition  Ex  Parte;  WorldCom  Comments  at  2;  Level  3  Reply  Comments  at  10.  120 
 See  WorldCom  Comments  at  18.  121 
 See  supra  para.  37.  122 
 See  infra  paras.  74-  76  (seeking  comment  on  whether  to  adjust  multi-  line  business  assessments  on  a  quarterly  basis  and  residential,  single-  line  business,  and  mobile  wireless  assessments  on  a  less  frequent  basis). 
22
 Federal  Communications  Commission  FCC  02-  43 
 23 
 52.  In  order  to  determine  the  assessment  for  an  individual  multi-  line  business  connection,  commenters  have  proposed  calculating  the  assessment  based  on  three  tiers  of 
 capacity.  123  Tier  1  would  include  connections  provided  to  end  users  at  speeds  of  less  than  1.544  MegaBits  Per  Second  (Mbps).  In  this  tier,  contributors  would  be  assessed  an  amount  equal  to  the 
 base  factor  for  each  connection.  124  The  base  factor  would  be  calculated  by  dividing  the  residual  funding  requirement  by  the  total  number  of  multi-  line  business  capacity  units  reported 
 by  all  contributors.  125  Tier  2  would  include  connections  with  speeds  of  equal  to  or  greater  than  1.544  Mbps  but  less  than  45  Mbps.  Contributors  would  be  assessed  an  amount  equal  to  five 
 times  the  base  factor  for  each  connection  in  this  tier.  126  Tier  3  would  include  connections  with  speeds  of  45  Mbps  and  higher.  In  this  tier,  contributors  would  be  assessed  an  amount  equal  to  40 
 times  the  base  factor  for  each  connection.  127  Under  a  tiered  approach,  contributors  would  simply  need  to  know  the  number  and  maximum  capacity  of  a  connection  to  determine  the  extent  of  their 
 contribution  obligations.  For  example,  assume  the  residual  funding  requirement  is  $4  billion,  and  that  contributors  reported  1  billion  units  of  multi-  line  business  capacity.  128  Dividing  the  total 
 residual  fund  requirement  by  the  total  number  of  reported  units  of  multi-  line  business  capacity  would  yield  a  base  factor  of  $4.00.  Therefore,  a  Tier  1  connection  would  be  assessed  $4.00,  a 
 Tier  2  connection  would  be  assessed  $20.00,  and  a  Tier  3  connection  would  be  assessed  $160.00.  Building  on  this  example,  further  assume  that  a  contributor  has  a  customer  who  purchased  three 
 T-  1s,  each  with  the  maximum  capacity  of  1.544  Mbps,  to  provide  service  to  a  customer  service  call  center.  Under  the  tiered  approach,  the  contributor  would  then  be  assessed  a  total  charge  of 
 $60.00  for  the  connections  to  that  customer.  129  In  subsequent  quarters,  the  base  factor  would  be  adjusted  to  reflect  changes  in  the  number  of  connections  in  each  tier  of  capacity  reported  by 
 contributors  and  changes  in  residual  funding  requirements.  We  seek  comment  generally  on  this  proposal. 


 53.  In  particular,  we  seek  comment  on  whether  the  proposed  tiers  are  set  at  the  appropriate  levels  and  whether  establishing  additional  tiers  of  capacity  would  be  appropriate. 
 WorldCom  states  that  the  proposed  tiers  are  based  on  current  market  practices  with  regard  to  assessing  multi-  line  business  presubscribed  interexchange  carrier  charges  (PICCs)  and  SLCs.  130 
 The  tiers  also  track  the  wireline  facilities  most  often  purchased  by  multi-  line  business  customers,  namely  DS1,  which  has  a  capacity  of  1.544  Mbps,  and  DS3,  which  has  a  capacity  of  45  Mbps. 
 In  addition,  the  tiers  reflect  the  potential  efficiencies  of  scale  gained  by  using  higher-  speed 


 123  USF  Coalition  Ex  Parte.  See  generally  WorldCom  Comments. 
 124  Id. 
 125  USF  Coalition  Ex  Parte.  Total  Multi-  Line  Business  Universal  Service  Obligation  =  (X*  connections  in  level 
 1)+(  5X*  connections  in  level  2)+(  40X*  connections  in  level  3),  where  X  =  the  multi-  line  business  assessment  for  level  1. 


 126  Id. 
 127  Id. 
 128  To  arrive  at  1  billion  units  of  capacity,  we  use  200  million  Tier  1  connections,  80  million  Tier  2  connections,  and 
 10  million  Tier  3  connections  to  the  formula  described  in  note  125.  129 
 $60  (Fee)  =  $20  (5  x  base  factor)  x  3  (number  of  connections  in  Tier  2).  130 
 See  supra  para.  52. 
23
 Federal  Communications  Commission  FCC  02-  43 
 24 
 facilities,  in  that  they  provide  a  discount  in  assessments  as  capacity  increases.  131  We  note,  however,  that  certain  facilities  are  designed  with  capacities  slightly  below  and  above  these 
 thresholds.  For  example,  there  are  DS3  facilities  with  a  capacity  of  44.7  Mbps.  We  therefore  seek  comment  on  whether  we  should  adopt  different  or  additional  tiers  to  account  for  alternative 
 infrastructure.  We  also  seek  comment  on  whether  the  proposed  third  tier  would  inappropriately  favor  certain  high-  volume  business  customers.  Because  a  multi-  line  business  connection  would 
 have  the  same  assessment  regardless  of  how  far  it  is  above  45  Mbps,  we  seek  comment  on  whether  this  tiered  approach  to  multi-  line  business  assessment  may  have  the  effect  of  favoring 
 providers  serving  certain  high-  volume  business  customers.  We  also  seek  comment  on  whether  three  tiers  would  provide  incentives  for  customers  to  purchase  high-  capacity  connections,  and 
 whether  this  would  have  the  effect  of  reducing  the  number  of  multi-  line  business  connections  and  shifting  contribution  burdens  to  subscribers  with  lower-  capacity  multi-  line  business 
 connections.  We  also  seek  comment  on  whether  the  multipliers  assigned  to  the  different  tiers  are  appropriate. 


 54.  We  seek  comment  on  whether  the  potential  administrative  benefits  of  a  tiered  approach  outweigh  the  potential  impact  of  such  an  approach  on  decisions  to  purchase  additional 
 capacity.  A  tiered  approach  would  only  require  contributors  to  assign  connections  into  three  categories,  as  opposed  to  having  to  provide  detailed  information  regarding  each  level  of  capacity 
 purchased  by  its  customers.  132  At  the  same  time,  a  tiered  approach  for  multi-  line  business  assessment  may  skew  marketplace  behavior.  Because  movement  to  the  next  tier  would  result  in 
 a  significant  increase  in  contribution  obligations,  a  tiered  approach  may  deter  multi-  line  business  customers  from  purchasing  certain  thresholds  of  additional  capacity. 


 55.  In  order  to  provide  contributors  with  guidance  in  determining  which  tier  of  capacity  to  assign  a  multi-  line  business  connection,  we  also  seek  comment  on  whether  the  capacity  of  a 
 multi-  line  business  connection  should  be  measured  as  the  maximum  amount  the  contributor  allocates  to  the  customer  or  on  the  maximum  amount  the  contributor  could  potentially  provide  to 
 the  customer.  Under  the  connection-  based  proposal  discussed  above,  contributors  would  be  assessed  for  multi-  line  business  connections  based  on  the  maximum  amount  of  bandwidth  they 
 allocate  to  the  connection,  not  the  actual  amount  of  capacity  used.  133  While  most  multi-  line  business  connections  provide  a  specific  maximum  level  of  capacity,  other  connections  provide 
 customers,  through  contractual  agreements,  with  the  option  of  utilizing  additional  capacity  on  a  short-  term  basis.  For  example,  Centrex  services  offer  the  potential  to  utilize  additional  capacity 
 in  those  instances  where  the  demand  for  capacity  exceeds  the  amount  of  capacity  that  the  carrier  has  allocated  for  the  customer.  134  We  seek  comment  on  how  to  measure  capacity  under  these 
 circumstances. 


 131  In  its  comments,  WorldCom  states  that,  if  a  discount  were  not  provided  to  higher  capacity  facilities,  the  universal 
 service  contribution  obligations  associated  with  those  facilities  may  exceed  the  cost  of  service.  WorldCom  Comments  at  23. 


 132  Id. 
 133  See  supra  n.  80. 
 134  For  example,  if  a  PBX  switch  has  a  1.544  Mbps  trunk,  and  all  of  that  capacity  is  being  used,  the  customer  would 
 be  unable  to  make  or  receive  phone  calls.  A  customer  that  uses  a  Centrex  switch,  however,  that  has  a  1.544  Mbps  trunk  in  which  all  of  the  capacity  is  being  used  would  be  able  to  continue  to  make  or  receive  phone  calls  because  the 


 carrier  establishes  the  service  with  reserve  capacity. 
24
 Federal  Communications  Commission  FCC  02-  43 
 25 
 56.  We  seek  comment  on  how  to  apply  the  definition  of  connection  proposed  above  for  purposes  of  determining  assessments  on  multi-  line  business  connections.  135  Under  the 
 proposed  definition,  the  assessable  unit  would  be  defined  as  a  facility  that  provides  an  end  user  with  independent  access  to  a  public  network,  regardless  of  whether  that  connection  is  circuit-switched, 
 packet-  switched,  or  a  leased  line.  We  anticipate  that  the  same  definition  would  be  applicable  in  the  multi-  line  business  context.  We  seek  comment,  however,  on  the  need  to 
 establish  a  method  of  identifying  a  specific  location  or  point  at  which  a  given  multi-  line  business  facility  provides  access  to  a  public  network,  in  order  to  ensure  that  the  capacity  of  a  multi-  line 
 business  connection  is  measured  in  a  competitively  neutral  manner.  Identifying  the  point  of  access  may  impact  the  number  of  connections  and  the  amount  of  capacity  of  a  connection  in 
 certain  multi-  line  business  contexts.  For  example,  Centrex  and  Private  Branch  Exchange  (PBX)  systems  are  purchased  by  multi-  line  business  customers  based  on  their  projected  capacity  needs, 
 and  service  providers  aggregate  capacity  for  both  types  of  systems  on  the  trunk-  side  of  the  switch.  136  The  two  systems  are  configured  differently,  however.  Customers  with  Centrex 
 systems  have,  for  each  telephone  on  their  premises,  a  separate  loop  to  the  Centrex  switch,  which  is  maintained  by  the  service  provider  and  may  be  located  either  at  the  customers  premises  or  at 
 the  service  providers  central  office.  137  Customers  with  PBX  systems,  on  the  other  hand,  maintain  their  own  facilities  for  internal  communications  and  may  have  only  a  single  facility 
 maintained  by  the  service  provider  that  provides  access  to  a  public  network.  If  the  point  of  access  for  Centrex  and  PBX  systems  were  deemed  to  be  the  trunk  side  of  the  switch,  the  two 
 types  of  systems  would  be  treated  equally  for  assessment  purposes.  We  therefore  seek  comment  on  whether  we  should  adopt,  for  multi-  line  business  connections,  a  method  of  identifying  a 
 specific  location  or  point  of  access  to  a  public  network,  and  what  that  methodology  should  be. 
 57.  At  this  time,  we  do  not  have  sufficient  data  on  universal  service  fees  paid  by  the  average  multi-  line  business  customer  to  determine  the  impact  that  a  connection-  based  assessment 


 approach  would  have  on  such  customers.  It  may  be,  however,  that  a  connection-  based  assessment  initially  would  result  in  modest  increases  to  fees  paid  by  certain  business  customers 
 and  a  decrease  in  fees  paid  by  other  customers.  We  ask  commenters  to  address  the  likely  impact  of  a  connection-  based  assessment  on  multi-  line  business  customers,  and  any  costs  and  benefits  of 
 such  impacts.  We  encourage  commenters  to  submit  data  in  support  of  their  positions. 
 58.  Distinguishing  Between  Residential/  Single-  Line  Business  and  Multi-  Line  Business  Connections.  We  also  seek  comment  on  whether  to  use  a  local  exchange  carriers  subscriber  line 


 charge  (SLC)  designation  on  a  customers  bill  as  a  proxy  for  determining  whether  a  fixed  connection  is  a  residential/  single-  line  business  or  multi-  line  business  connection  for  assessment 
 purposes.  138  The  SLC  designation  is  an  existing  one  that  incumbent  local  exchange  carriers  are 


 135  See  supra  para.  41. 
 136  See  generally,  Dodd,  Annabel  Z.,  The  Essential  Guide  to  Telecommunications  (2d.  ed.  1999)  (discussing  PBX 
 and  Centrex  technology).  137 
 Id.  138 
 Subscriber  line  charges  are  charges  that  are  assessed  by  local  phone  companies  to  recover  some  of  the  costs  associated  with  providing  interstate  access  through  the  local  phone  network.  See  Access  Charge  Reform  Order,  12 


 FCC  Rcd  at  16007  para.  68.  A  residential  subscriber  line  charge  is  assessed  on  those  lines  where  the  subscriber  pays  a  rate  that  is  described  as  a  residential  rate  in  the  local  exchange  service  tariff,  whereas  a  single  line  business 
 subscriber  line  charge  is  assessed  where  the  subscriber  pays  a  rate  that  is  not  described  as  a  residential  rate  in  the  (continued....) 
25
 Federal  Communications  Commission  FCC  02-  43 
 26 
 required  to  make  based  on  the  rate  the  subscriber  pays  for  the  connection.  In  the  context  of  fixed  connections,  the  local  exchange  carrier  would  most  often  be  the  connecting  provider,  because  its 
 infrastructure  is  used  to  obtain  a  connection  to  a  public  network.  Therefore,  local  exchange  carriers  may  be  best  able  to  determine  which  connections  to  treat  as  residential/  single-  line 
 business  connections  and  which  to  treat  as  multi-  line  business  connections.  139  Additionally,  local  exchange  carriers  may  be  in  a  better  position  than  other  contributors,  such  as  interexchange 
 carriers,  to  determine  which  connections  are  provided  to  Lifeline  customers,  and  thus  should  be  exempt  from  assessment.  140  We  note,  however,  that  competitive  local  exchange  carriers  are  not 
 required  to  assess  SLCs,  and  often  have  different  tariff  obligations  than  incumbent  local  exchange  carriers.  We  seek  comment  on  whether  competitive  local  exchange  carriers  have 
 sufficient  information  to  determine  which  of  their  customers  are  residential  or  single-  line  businesses  for  purposes  of  determining  their  assessment  obligation  and,  if  not,  possible 
 alternative  methods  for  making  that  determination. 
 59.  Contributor  Impact.  We  recognize  that  a  connection-  based  assessment  approach  may  affect  different  industry  segments  in  different  ways.  Under  the  connection-  based 


 assessment  methodology  discussed  above,  local  exchange  carriers,  interexchange  carriers,  and  mobile  wireless  providers  would  contribute  to  universal  service  based  on  the  number  and 
 capacity  of  end-  user  connections  they  provide  to  a  public  network.  141  This  would  represent  a  significant  shifting  of  contribution  obligations  away  from  interexchange  carriers  to  local 
 exchange  carriers  and  mobile  service  providers.  In  the  third  quarter  of  2001,  interexchange  carriers  were  responsible  for  approximately  63  percent  of  contributions,  while  local  exchange 
 carriers  were  responsible  for  approximately  23  percent,  and  mobile  wireless  providers  were  responsible  for  approximately  14  percent.  142  Under  the  connection-  based  assessment  proposal, 
 staff  estimates  that  mobile  service  providers  initially  would  be  responsible  for  approximately  24  percent  of  contributions,  143  so  that  fixed  service  providers,  including  both  local  exchange  carriers 
 and  interexchange  carriers,  to  the  extent  that  they  provide  end-  user  connections,  initially  would  be  responsible  for  approximately  76  percent  of  contributions.  On  average,  staff  estimates  that 
 mobile  wireless  providers  (excluding  paging  providers)  currently  contribute  approximately  $0.46  per  connection,  144  pager  providers  currently  contribute  approximately  $0.07  per  pager,  145  and 


 (...  continued  from  previous  page)  local  exchange  service  tariff  and  does  not  obtain  more  than  one  such  line  from  a  particular  telephone  company.  47 
 C.  F.  R.    69.104,  69.152.  139 
 Incumbent  local  exchange  carriers  also  keep  track  of  their  lines  for  determining  which  interstate  access  costs  to  recover  from  other  charges  (for  example,  common  carrier  line  charges  for  rate-  of-  return  carriers). 


 140  See  infra  para.  94  (discussing  whether  to  exempt  Lifeline  customers). 
 141  See  supra  para.  36.  Mobile  wireless  providers  would  contribute  for  each  activated  handset  and/  or  pager. 
 142  See  Telecommunications  Industry  Revenue  Report:  2001,  Industry  Analysis  Division,  Table  14  (rel.  Jan.  2002). 
 143  [(  109.5  million  handsets  x  $1)  x  3]    $1.  378456  billion  =  23.  8%.  See  First  Quarter  2002  Contribution  Public 
 Notice,  DA  01-  2823  (first  quarter  2002  fund  requirement).  144 
 This  number  is  derived  by  taking  the  average  mobile  telephony  bill  of  $45.27,  which  appears  in  the  Sixth  CMRS  Competition  Report,  and  dividing  that  number  by  the  current  interim  safe  harbor  of  15%  and  then  dividing  that 


 number  by  the  current  contribution  factor  of  6.808%.  See  Sixth  CMRS  Competition  Report  ,  16  FCC  Rcd  at  13462;  Interim  CMRS  Safe  Harbor  Order,  13  FCC  Rcd  at  21258  para.  13;  First  Quarter  2002  Contribution  Public  Notice, 
 16  FCC  Rcd  at  21331. 
26
 Federal  Communications  Commission  FCC  02-  43 
 27 
 fixed  service  providers  (local  exchange  carriers  and  interexchange  carriers)  contribute  approximately  $1.29  per  residential  connection.  146  Under  a  connection-  based  assessment 
 proposal,  both  fixed  connections  and  mobile  wireless  connections  (excluding  pagers)  would  be  assessed  $1.00,  and  pager  providers  would  be  assessed  $.  25  per  pager.  We  seek  comment  on 
 what  relevance,  if  any,  these  potential  shifts  should  have  for  the  analysis  of  whether  to  move  to  a  connection-  based  assessment  system.  We  specifically  seek  comment  on  whether  minimizing  the 
 reallocation  of  contribution  obligations  among  industry  segments  should  be  a  goal  in  moving  to  a  per-  connection  assessment  system,  and,  if  so,  the  extent  to  which  such  reallocation  should  be 
 minimized.  We  also  seek  comment  on  whether,  if  we  adopt  a  per-  connection  contribution  approach,  interim  measures  should  be  adopted  to  mitigate  the  immediate  impact  of  a  shift  in 
 contribution  burdens. 
 60.  Sprint  supports  adoption  of  a  connection-  based  assessment  methodology,  but  proposes  to  calculate  different  per-  connection  assessments  for  fixed  and  mobile  subscribers.  147 


 The  principal  purpose  of  Sprints  proposal  is  to  move  to  a  connection-  based  assessment  system  but  maintain  the  relative  contribution  burdens  on  different  industry  segments  (mobile  wireless, 
 local  exchange  carrier,  and  interexchange  carrier)  under  the  existing,  revenue-  based  assessment  system.  Sprints  proposal  would  operate  as  follows.  148  First,  Sprint  proposes  that  an  interstate 
 allocator  be  calculated  for  each  industry  segment  (mobile  wireless,  local  exchange  carrier,  and  interexchange  carrier)  based  on  the  proportion  of  each  industry  sectors  interstate  revenues  to  its 
 total  revenues.  149  Sprint  proposes  to  base  the  interstate  allocators  on  the  interstate  revenues  currently  reported  by  industry  segments.  150  Second,  the  interstate  allocator  for  each  industry 
 segment  then  would  be  multiplied  by  total  revenues  for  that  industry  segment  to  determine  the  interstate  revenues  in  that  industry  segment  that  will  be  considered  in  determining  the  universal 
 service  per-  connection  charge.  151  Third,  the  sum  of  interstate  revenues  for  the  fixed  and  mobile  industry  segments  would  be  divided  by  the  then-  applicable  universal  service  funding 


 (...  continued  from  previous  page)  145  This  number  is  derived  by  taking  the  average  paging  bill  of  $8.  00,  which  appears  in  comments  filed  by  Arch 
 Wireless,  Inc.,  and  dividing  that  number  by  the  current  paging  service  interim  safe  harbor  of  12%  and  then  dividing  that  number  by  the  current  contribution  factor  of  6.808%.  See  Arch  Wireless  Comments  at  5;  see  also  Interim 
 CMRS  Safe  Harbor  Order,  13  FCC  Rcd  at  21259  para.  14;  First  Quarter  2002  Contribution  Public  Notice,  16  FCC  Rcd  at  21331. 
 146  Based  on  staff  analysis  of  publicly-  available  data  as  of  June  30,  2000.  See  supra  n.  112. 
 147  Sprint  Comments  at  Attachment  A. 
 148  See  Letter  from  Pete  Sywenki,  Sprint,  to  Magalie  Roman  Salas,  Federal  Communications  Commission,  filed 
 Aug.  8,  2001  (Sprint  Ex  Parte).  149 
 See  Sprint  Comments  at  8-  9;  Sprint  Ex  Parte  at  4.  Sprint  uses  the  term  wireless,  which  it  defines  to  include  CMRS.  See  Sprint  Comments  at  8,  n.  14.  Although  Sprint  does  not  address  the  treatment  of  fixed  wireless 


 connections  under  its  proposal,  we  note  that  providers  of  fixed  wireless  local  exchange  service  are  classified  as  local  exchange  carriers  under  the  Act  and  the  Commissions  rules. 
 150  Sprint  Comments  at  8-  12.  Sprint  proposes  dividing  carriers  into  distinct  industry  segments,  such  as  wireless 
 carriers,  local  exchange  carriers,  and  interexchange  carriers.  A  percentage  of  revenues  that  represent  that  segments  interstate  revenues  would  then  be  determined  based  on  Form  499  filings.  Based  on  Sprints  estimates,  the  current 


 percentage  for  each  industry  segment  is:  local  exchange  carriers    15%;  interexchange  carriers    74%;  and  wireless  providers    15%.  Contributors  would  report  interstate  revenues  based  on  those  percentages.  Id. 
 151  See  id.  at  9;  Sprint  Ex  Parte  at  4. 
27
 Federal  Communications  Commission  FCC  02-  43 
 28 
 requirement  to  arrive  at  a  contribution  factor.  152  The  contribution  factor  would  be  multiplied  by  the  total  universal  service  funding  requirement  for  each  industry  segment  to  determine  the  dollar 
 amount  due  from  fixed  and  mobile  contributors.  Finally,  the  contribution  requirements  for  the  fixed  and  mobile  industry  segments  would  be  divided  by  total  fixed  and  mobile  subscriber  lines, 
 respectively,  to  obtain  the  per-  connection  contribution  charges  for  fixed  and  mobile  subscribers.  153  Using  this  approach,  Sprint  estimates  that  there  would  be  an  assessment  of  $2.01 
 per  month  for  each  fixed  connection  and  $0.46  per  month  for  each  mobile  connection.  154  We  note  that  Sprints  $2.01  estimate  assumes  that  all  residential,  single-  line  business,  and  multi-  line 
 business  connections  would  be  assessed  the  same  amount  per  connection,  although  Sprint  entertains  the  possibility  of  assessing  high  capacity  multi-  line  business  connections  on  some 
 multiple  of  the  assessment  for  residential  and  single-  line  business  connections.  155 
 61.  We  seek  comment  on  the  approach  described  by  Sprint.  In  particular,  we  seek  comment  on  whether  basing  per-  connection  contribution  obligations  on  the  proportion  of 


 industry  interstate  revenues  currently  reported  by  the  different  industry  segments  would  be  equitable,  non-  discriminatory,  and  competitively  neutral.  Would  the  preservation  of  existing 
 proportions  of  interstate  revenues  in  a  connection-  based  assessment  system  import  distortions  currently  present  in  the  revenue-  based  system?  The  percentage  of  interstate  revenues  reported 
 by  the  mobile  wireless  industry  under  the  current  system  is  largely  a  function  of  interim  safe  harbors  adopted  by  the  Commission.  156  Under  Sprints  approach,  this  method  of  reporting  would 
 continue  for  some  period  of  time,  such  as  three  to  five  years,  regardless  of  increases  and  decreases  in  the  proportion  of  revenues  that  are  interstate  for  different  segments  of  the 
 industry.  157  In  the  event  we  determine  that  we  should  assess  contributions  based  on  connections  rather  than  interstate  telecommunications  revenues,  we  seek  comment  on  whether  it  is 
 appropriate  to  freeze  the  interstate  revenue  percentages  of  different  industry  segments  based  on  the  previous  revenue-  based  system  as  proposed  by  Sprint.  We  also  seek  comment  on  whether 
 such  disparate  treatment  could  provide  certain  categories  of  contributors  with  a  cost  advantage  over  other  categories  of  contributors,  potentially  creating  uneconomic  incentives  for  customers  to 
 migrate  to  certain  types  of  services.  158  We  seek  comment  on  these  issues. 
 62.  Some  commenters  are  concerned  that  a  connection-  based  approach  would  shift  from  interexchange  carriers  to  local  exchange  carriers  some  of  the  burden  associated  with 


 contributing  to  the  fund.  159  We  seek  comment  below  on  the  legal  implications  of  this  shift.  Specifically,  we  seek  comment  on  whether  a  connection-  based  assessment  would  be  consistent 


 152  See  id.  at  4. 
 153  Id.  Sprint  supports  a  collect-  and-  remit  methodology  for  the  assessment  and  recovery  of  universal  service 
 contributions  under  which  the  connecting  carrier  would  collect  the  per-  connection  charge  from  subscribers  and  remit  those  amounts  to  the  fund  administrator.  See  Sprint  Reply  Comments  at  4-  6.  Below,  we  discuss  a  collect-  and-  remit 


 proposal  in  more  detail.  See  infra  paras.  101-  102.  154 
 See  Sprint  Ex  Parte  at  4.  155 
 Sprint  Reply  Comments  at  7.  156 
 Interim  CMRS  Safe  Harbor  Order,  13  FCC  Rcd  at  21258-  59  paras.  13-  15.  157 
 See  Sprint  Comments  at  12.  158 
 See  id.  at  11-  12.  159 
 Cingular  Comments  at  6;  NECA  Comments  at  5;  OPASTCO  Comments  at  6;  Verizon  Reply  Comments  at  2. 
28
 Federal  Communications  Commission  FCC  02-  43 
 29 
 with  the  general  requirement  that  [  e]  very  telecommunications  carrier  that  provides  interstate  telecommunications  service  contribute  to  universal  service.  160  One  way  to  address  this  concern 
 would  be  to  divide  the  proposed  per-  connection  assessment  among  more  than  one  wireline  or  fixed  wireless  entity,  or  to  assess  on  an  entity  other  than  the  connecting  provider.  For  example, 
 one  option  would  be  to  require  presubscribed  interexchange  carriers  to  contribute  for  their  presubscribed  residential  and  single-  line  business  customers,  and  require  local  exchange  carriers 
 to  contribute  only  for  those  customers  that  do  not  have  a  presubscribed  interexchange  carrier.  161  We  seek  comment  on  whether  this  approach  addresses  these  legal  concerns,  and  on  other  ways  of 
 addressing  this  issue. 
 63.  Although  such  an  approach  may  more  closely  maintain  the  relative  contribution  burdens  of  different  segments  of  the  telecommunications  industry,  it  may  reduce  the  potential 


 administrative  benefits  of  changing  to  a  connection-  based  system.  As  discussed  above,  we  believe  that  a  connection-  based  assessment  would  potentially  simplify  the  current  assessment 
 system  and  reduce  overall  administrative  burdens,  benefiting  both  contributors  and  customers.  162  This  is  because  only  one  entity  would  contribute  for  a  single  connection  under  the  connection-based 
 assessment.  In  addition,  interexchange  carriers  may  not  have  the  necessary  information  to  determine  whether  a  customer  has  a  residential/  single-  line  business  connection.  Some  also  argue 
 that  they  lack  the  information  necessary  to  exempt  Lifeline  customers.  163  In  addition,  it  may  be  difficult  to  determine  who  should  contribute  when  a  customer  selects  multiple  interexchange 
 carriers.  164  We  seek  comment  on  these  issues.  Do  the  potential  benefits  of  assessing  more  than  one  entity,  or  an  entity  other  than  the  connecting  provider,  for  a  connection  outweigh  the 
 increased  administrative  problems  and  burdens  of  such  approaches? 
 b.  Legal  Authority 
 64.  Background.  Congress  established  a  statutory  framework  in  the  Act  governing  the  assessment  of  universal  service  contributions.  165  Section  254(  d)  of  the  Act  mandates  that 


 [  e]  very  telecommunications  carrier  that  provides  interstate  telecommunications  services  shall  contribute,  on  an  equitable  and  nondiscriminatory  basis,  to  the  specific,  predictable,  and 
 sufficient  mechanisms  established  by  the  Commission  to  preserve  and  advance  universal  service.  166  Section  3  of  the  Act  defines  a  telecommunications  carrier  as  any  provider  of 


 160  See  infra  paras.  65-  67. 
 161  AT&  T  Reply  Comments  at  14.  Commenters  that  favor  a  connection-  based  assessment  generally  prefer  having 
 the  local  exchange  carrier  be  the  contributor.  Sprint  Comments  at  14;  WorldCom  Comments  at  21;  AT&  T  Reply  Comments  at  13-  14. 


 162  See  infra  para.  71. 
 163  See  infra  at  para.  94.  We  note,  however,  that  AT&  T  recently  reported  that  it  does  not  recover  universal  service 
 contributions  from  Lifeline  customers.  See  Susan  McGovern,  AT&  T  Boosts  Subscriber  Charges  to  Recoup  USF  Contributions,  TR  DAILY,  at  3  (Jan.  3,  2002). 


 164  A  customer  could  have  more  than  one  interexchange  carrier  if,  for  example,  it  selected  one  for  interLATA 
 services  and  another  for  intraLATA  services.  165 
 See  47  U.  S.  C.    254.  166 
 47  U.  S.  C.    254(  d);  see  also  47  U.  S.  C.  254(  b)(  4),  (5)  (Commission  policy  on  universal  service  shall  be  based,  in  part,  on  the  principles  that  contributions  should  be  equitable  and  nondiscriminatory,  and  support  mechanisms  should 


 be  specific,  predictable,  and  sufficient).  The  Commission  adopted  the  additional  principle  that  federal  support  (continued....) 
29
 Federal  Communications  Commission  FCC  02-  43 
 30 
 telecommunications  services...,  and  telecommunications  service  as  the  offering  of  telecommunications  for  a  fee  directly  to  the  public,  or  to  such  classes  of  users  as  to  be  effectively 
 available  directly  to  the  public,  regardless  of  the  facilities  used.  167  Section  3  of  the  Act  defines  telecommunications  as  transmission,  between  or  among  points  specified  by  the  user,  of 
 information  of  the  users  choosing  without  change  in  the  form  or  content  of  the  information  as  sent  and  received.  168  In  the  Universal  Service  Order,  the  Commission  interpreted  this  statutory 
 language  as  imposing  a  mandatory  contribution  requirement  on  all  telecommunications  carriers  that  provide  interstate  telecommunications  services.  169  Section  254  states,  however,  that  [  t]  he 
 Commission  may  exempt  a  carrier  or  class  of  carriers  from  this  requirement  if  the  carriers  telecommunications  activities  are  limited  to  such  an  extent  that  the  level  of  such  carriers 
 contribution  to  the  preservation  and  advancement  of  universal  service  would  be  de  minimis.  170  In  section  254,  Congress  also  provided  the  Commission  with  discretion  to  require  [  a]  ny  other 
 provider  of  interstate  telecommunications  to  contribute  to  universal  service  if  the  public  interest  so  requires.  171 


 65.  Discussion.  We  seek  comment  on  whether  a  connection-  based  assessment  satisfies  each  element  of  the  requirement  in  section  254(  d)  of  the  Act  that  [  e]  very  telecommunications 
 carrier  that  provides  interstate  telecommunications  services  shall  contribute,  on  an  equitable  and  nondiscriminatory  basis,  to  the  specific,  predictable,  and  sufficient  mechanisms  established  by 
 the  Commission  to  preserve  and  advance  universal  service.  172  First,  we  seek  comment  on  whether  the  connection-  based  assessment  methodology  described  above  would  be  consistent 
 with  the  requirement  that  providers  of  interstate  telecommunications  services  contribute  to  universal  service.  173  As  the  Commission  previously  has  concluded,  providers  of  connections  to 
 the  public  switched  network  are  providers  of  interstate  telecommunications  services  because  end-  user  connections  to  the  public  switched  network  have  an  interstate  component.  174  Therefore, 
 under  our  current  universal  service  rules,  local  exchange  carriers  contribute  to  universal  service  based  in  part  on  their  subscriber  line  charges,  which  constitute  interstate  end-  user 
 telecommunications  revenues.  Likewise,  connections  provided  by  interexchange  carriers,  such  as  special  access,  may  have  an  interstate  component.  175  In  addition,  as  evidenced  by  the 


 (...  continued  from  previous  page)  mechanisms  should  be  competitively  neutral,  neither  unfairly  advantaging  nor  disadvantaging  particular  service 
 providers  or  technologies.  Universal  Service  Order,  12  FCC  Rcd  at  8801-  03  paras.  46-  51.  167 
 See  47  U.  S.  C.    153(  44),  (46).  168 
 See  47  U.  S.  C.    153(  43).  169 
 See  Universal  Service  Order,  12  FCC  Rcd  at  9173  para.  777;  see  also  47  C.  F.  R.    54.  706.  170 
 47  U.  S.  C.    254(  d).  171 
 Id.  172 
 Id.  173 
 See  id.  (emphasis  added).  174 
 MTS  and  WATS  Market  Structure,  CC  Docket  No.  78-  72,  Third  Report  and  Order,  93  FCC  2d  241,  260-  262  paras.  56-  62  (1983),  affd  in  part,  remanded  in  part  Natl  Assn  of  Regulatory  Utility  Commissioners  v.  Federal 


 Communication  Commission,  737  F.  2d  1095,  1111-  1115  (1984),  cert.  denied  469  U.  S.  1227  (1985).  175 
 47  C.  F.  R.    36.154(  a)  (treating  a  special  access  or  private  line  as  interstate  if  interstate  traffic  constitutes  more  than  10  percent  of  the  total  traffic  on  the  line). 
30
 Federal  Communications  Commission  FCC  02-  43 
 31 
 regulatory  structure  established  in  section  332(  c)  of  the  Act,  176  wireless  service  providers  offer  telecommunications  services  that  by  their  nature  operate  without  regard  to  state  lines  and  thus 
 have  an  interstate  component.  177  We  therefore  seek  comment  on  whether  it  would  be  reasonable  to  conclude  that,  because  the  proposed  definition  of  connection  includes  access  to  a  public 
 network,  a  wireless  or  wireline  connection  inherently  contains  an  interstate  component  sufficient  to  satisfy  this  requirement  of  the  Act. 


 66.  Second,  we  seek  comment  on  whether  the  connection-  based  assessment  methodology  described  in  this  Further  Notice  would  be  consistent  with  the  Acts  requirement 
 that  every  telecommunications  carrier  that  provides  interstate  telecommunications  service  shall  contribute[.]  178  It  appears  that  the  vast  majority  of  telecommunications  carriers  that  provide 
 interstate  telecommunications  service  also  provide  connections  to  a  public  network.  179  Interexchange  carriers,  for  example,  would  contribute  to  the  extent  that  they  provide  connections 
 to  a  public  network.  Interexchange  carriers  act  as  connecting  providers  for  certain  multi-  line  business  customers  and  would  contribute  for  those  connections.  Interexchange  carriers  also  may 
 serve  as  competitive  local  exchange  carriers  and  many  do.  We  seek  comment  on  this  analysis.  To  the  extent  that  providers  of  interstate  telecommunications  services,  such  as  pure  resellers  of 
 interexchange  services,  do  not  provide  connections  to  a  public  network,  we  seek  comment  on  whether  to  subject  such  carriers  to  a  minimum  contribution  requirement  and,  if  so,  what  a 
 minimum  contribution  requirement  would  entail.  Below,  we  also  seek  comment  on  whether  such  non-  connection-  based  providers  could  be  exempted  from  contributing  under  a  revised  de 
 minimis  exemption.  180 
 67.  Third,  we  seek  comment  on  whether  the  connection-  based  assessment  methodology  described  above  would  be  equitable  and  nondiscriminatory  for  purposes  of  section  254(  d).  181 


 In  addition,  we  seek  comment  on  whether  such  an  approach  would  be  consistent  with  the  principle  of  competitive  neutrality,  which  the  Commission  stated  in  the  Universal  Service  Order 
 would  guide  its  determinations  about  both  disbursements  and  contributions.  182  Under  a  connection-  based  assessment,  all  contributions  would  be  based  on  the  number  and  capacity  of 
 connections  provided  to  end  users.  Contributors  competing  in  the  same  market  segments  would  be  subject  to  equivalent  contribution  requirements.  For  example,  two  voice-  grade  connections 
 provided  by  the  same  or  different  carriers  would  be  subject  to  two  assessments.  In  addition,  a 


 176  47  U.  S.  C.    332(  c). 
 177  See  H.  R.  Rep.  103-  111  at  260  (1993)  (In  adopting  section  332(  c)(  3)  Congress  stated  [  m]  obile  services,  by  their 
 nature,  operate  without  regard  to  state  lines).  178 
 47  U.  S.  C.    254(  d)  (emphasis  added).  179 
 See,  e.  g.,  Edie  Herman,  Competitors,  Business  Users  Propose  Special  Access  Standards,  COMMUNICATION  DAILY,  Jan.  23,  2002,  at  1  (According  to  Verizon,  long-  distance  companies,  competitive  local  exchange  carriers, 


 incumbent  local  exchange  carriers,  competitive  access  providers  (CAPs),  and  even  end  users  themselves  compete  with  one  another  to  provide  special  access  to  end  users.). 


 180  See  infra  para.  68. 
 181  47  U.  S.  C.    254(  d).  In  Texas  Office  of  Public  Utility  Counsel  v.  FCC,  the  Court  of  Appeals  held  that  when 
 analyzing  whether  a  methodology  is  equitable  we  should  consider  the  fairness  in  the  allocation  of  contribution  duties.  See  Texas  Office  of  Public  Utility  Counsel  v.  FCC,  183  F.  3d  at  434. 


 182  Universal  Service  Order,  12  FCC  Rcd  at  8802  para.  49. 
31
 Federal  Communications  Commission  FCC  02-  43 
 32 
 connection-  based  assessment  would  not  distinguish  between  particular  classes  of  service  providers  or  the  technologies  used  in  providing  services.  183  A  wireless  connection  and  a  wireline 
 connection,  for  example,  would  be  subject  to  the  same  assessment.  Furthermore,  because  connections,  rather  than  the  services  provided  over  such  connections,  would  be  assessed,  this 
 approach  would  not  disadvantage  providers  of  services  that  do  not  provide  separate  and  independent  connections  to  a  public  network.  For  example,  if  a  customer  purchases  both  a 
 voice-  grade  connection  and  an  information  service,  such  as  voice-  mail  or  dial-  up  Internet  access,  only  the  voice-  grade  connection  would  be  subject  to  a  per-  connection  assessment.  Such  an 
 information  service  would  not  be  subject  to  a  separate  assessment  regardless  of  whether  it  is  provided  by  the  carrier  that  also  provides  the  voice-  grade  connection  or  is  provided  by  an 
 independent  information  service  provider.  This  is  because  the  information  service  does  not  provide  access  to  a  public  network  that  is  independent  from  the  voice-  grade  connection.  184  In 
 short,  a  connection-  based  assessment  may  mitigate  any  disparate  treatment  that  could  occur  as  a  result  of  a  contribution  methodology  based  on  the  type  of  provider  or  service  offering.  185  We 
 seek  comment  on  this  analysis. 
 68.  Section  254(  d)  provides  the  Commission  authority  to  exempt  carriers  or  classes  of  carriers  if  the  carriers  telecommunications  activities  are  limited  to  such  an  extent  that  their 


 contribution  would  be  de  minimis.  186  Under  section  54.708  of  the  Commissions  rules,  interstate  telecommunications  service  providers  whose  annual  universal  service  contributions  are  expected 
 to  be  less  than  $10,000  are  not  required  to  contribute  to  the  universal  service  mechanisms.  187  In  support  of  its  decision  to  adopt  the  de  minimis  exemption,  the  Commission  reasoned  that 
 compliance  costs  associated  with  contributing  to  the  universal  service  mechanisms  should  not  exceed  contribution  amounts.  188  We  seek  comment  on  whether  to  establish  a  de  minimis 
 exemption  should  the  Commission  adopt  the  proposed  methodology.  We  acknowledge,  for  example,  that  there  are  certain  non-  connection-  based  interstate  telecommunications  service 
 providers,  such  as  exclusive  providers  of  pre-  paid  calling  cards  or  dial-  around  services,  that  would  not  contribute  under  the  proposed  methodology.  We  seek  comment  on  whether  the  level 
 of  contributions  obtained  from  interstate  telecommunications  service  providers  that  do  not  provide  any  connections  to  a  public  network  would  in  fact  be  de  minimis  and  in  accordance  with 
 section  254(  d)  of  the  Act.  189  We  also  request  comment  on  whether  the  administrative  costs  incurred  by  such  non-  connection-  based  providers  likely  would  exceed  current  or  future 
 contribution  amounts. 
 69.  We  also  seek  comment  on  the  extent  to  which  the  proposed  methodology  would  require  the  Commission  to  exercise  its  permissive  authority  over  other  providers  of  interstate 


 telecommunications  and,  if  so,  whether  exercise  of  such  authority  is  warranted.  In  section  254, 
 183  WorldCom  Comments  at  18. 
 184  See  supra  para.  42. 
 185  Texas  Office  of  Public  Utility  Counsel  v.  FCC,  183  F.  3d  at  434. 
 186  47  U.  S.  C.    254(  d). 
 187  See  47  C.  F.  R.    54.  708. 
 188  See  Federal-  State  Joint  Board  on  Universal  Service,  Fourth  Order  on  Reconsideration  in  CC  Docket  No.  96-  45, 
 Report  and  Order  in  CC  Docket  Nos.  96-  45,  96-  262,  94-  1,  91-  213,  95-  72,  13  FCC  Rcd  5318,  5465  para.  295  (1997).  189 
 See  47  U.  S.  C.    254(  d);  supra  para.  64. 
32
 Federal  Communications  Commission  FCC  02-  43 
 33 
 Congress  provided  the  Commission  with  discretion  to  require  [  a]  ny  other  provider  of  interstate  telecommunications  to  contribute  to  universal  service  if  the  public  interest  so  requires.  190 
 Providers  of  telecommunications  include,  for  example,  private  service  providers  that  offer  service  to  others  for  a  fee  and  payphone  aggregators.  The  Commission  has  exercised  this 
 authority  to  require  private  service  providers  that  offer  interstate  telecommunications  to  others  for  a  fee  and  payphone  aggregators  to  contribute  to  universal  service.  191  Under  a  connection-based 
 assessment,  there  may  be  instances  in  which  a  provider  of  connections  to  a  public  network  is  not  a  provider  of  interstate  telecommunications  services,  but  instead  is  a  provider  of  interstate 
 telecommunications.  192 
 c.  Potential  Costs  and  Benefits  of  Connection-  Based  Assessment 
 70.  We  recognize  that  assessing  contributions  based  on  the  number  and  capacity  of  connections  provided  to  a  public  network  represents  a  significant  departure  from  the  current 


 methodology  and  therefore  seek  comment  on  the  potential  costs  and  benefits  of  connection-  based  assessment.  We  particularly  seek  comment  from  those  states  that  have  implemented  a  per-connection 
 or  per-  line  contribution  methodology.  193 
 71.  Our  examination  of  the  record  reveals  a  number  of  potential  benefits  to  a  connection-  based  assessment  methodology.  Because  the  number  of  connections  historically  has 


 been  more  stable  than  interstate  revenues,  a  connection-  based  assessment  may  provide  a  more  predictable  and  sufficient  funding  source  for  universal  service.  194  A  connection-  based 
 assessment  approach  would  not  require  carriers  to  distinguish  between  interstate  and  intrastate  revenues,  or  telecommunications  and  non-  telecommunications  services,  distinctions  that  do  not 
 apply  easily  or  naturally  outside  of  the  traditional  wireline  context,  and  may  become  more  and  more  difficult  to  apply  as  the  marketplace  evolves.  Instead,  any  entity  that  provides  an  end  user 
 with  a  connection  to  a  public  network  would  be  required  to  contribute  to  universal  service.  We  seek  comment  on  whether  a  connection-  based  assessment  would  ensure  that  contribution 
 obligations  are  applied  in  a  fair  and  predictable  manner  to  all  interstate  telecommunications  providers,  and  would  safeguard  the  long-  term  viability  of  universal  service.  By  making  the 
 assessment  system  more  consistent  with  the  current  marketplace  and  more  adaptable  to  future  changes  in  the  marketplace,  a  connection-  based  assessment  may  alleviate  the  need  for  interim 
 safe  harbors  and  other  measures  that  ultimately  could  lead  to  uncertainty  among  interstate  telecommunications  providers  and  potentially  distort  the  competitive  marketplace. 


 72.  A  connection-  based  assessment  also  may  increase  the  overall  efficiency  of  the  contribution  assessment  system  by  making  only  one  provider  responsible  for  contributing  based 
 on  a  single  connection.  Under  the  existing  system,  consumers  pay  contribution  recovery  fees  to 
 190  47  U.  S.  C.    254(  d). 
 191  See  47  C.  F.  R.    54.  706(  c);  see  also  Universal  Service  Order,  12  FCC  Rcd  at  9183-  84  paras.  794-  96. 
 192  The  Commission  has  sought  comment  in  a  companion  proceeding  on  whether  facilities-  based  broadband  Internet 
 access  providers  should  be  required  to  contribute  to  support  universal  service  and,  if  so,  on  what  legal  basis.  See  Broadband  NPRM,  FCC  02-  42  at  paras.  64-  83;  see  also  Report  to  Congress,  13  FCC  Rcd  at  11532  para.  69 


 (discussing  Commissions  permissive  authority  over  providers  of  telecommunications).  193 
 For  example,  Arizona,  Idaho,  and  Kentucky  have  systems  that  incorporate  a  per-  line  assessment.  194 
 See  Trends  in  Telephone  Service,  Industry  Analysis  Division,  Common  Carrier  Bureau,  December  2000,  Table  17.  1  (subscribership);  see  also  supra  para.  8. 
33
 Federal  Communications  Commission  FCC  02-  43 
 34 
 multiple  providers,  regardless  of  how  many  connections  or  lines  they  purchase.  For  example,  such  fees  generally  appear  on  both  local  and  long  distance  bills  for  the  same  line.  By  making 
 only  one  provider  responsible  for  contributing  based  on  a  single  connection,  a  connection-  based  assessment  may  increase  the  efficiency  of  the  recovery  process.  In  addition,  because  the 
 connecting  provider  is  an  entity  that  has  a  more  direct  relationship  with  the  end  user,  it  should  be  in  a  better  position  than  other  providers  to  identify  the  assessable  connections.  As  a  result,  such 
 a  proposal  could  reduce  the  total  amount  that  most  consumers  currently  pay  in  contribution  recovery  fees.  A  connection-  based  system  also  may  eliminate  some  of  the  complexity  involved 
 with  these  fees,  making  the  contribution  recovery  process  more  understandable.  We  seek  comment  on  these  potential  benefits. 


 73.  We  also  seek  comment  on  the  potential  costs  of  adopting  a  connection-  based  assessment,  and  how  such  costs  should  be  balanced  against  the  potential  benefits.  A  connection-based 
 assessment  could,  for  example,  result  in  increased  contribution  obligations  for  certain  industry  segments.  Above,  we  seek  comment  on  whether  minimizing  the  reallocation  of 
 contribution  obligations  among  industry  segments  should  be  a  goal  in  moving  to  a  per-connection  assessment  system.  195  A  connection-  based  assessment  also  could  result  in  increased 
 contribution  obligations  for  connections  provided  to  certain  categories  of  customers  (for  example,  for  connections  provided  to  certain  low-  volume  users).  196  In  addition,  a  connection-based 
 assessment  would  result  in  modified  reporting  obligations  for  contributors.  197  Finally,  adoption  of  a  per-  connection  assessment  potentially  could  lead  to  a  new  set  of  definitional 
 challenges  as  the  marketplace  evolves  in  the  future.  We  seek  comment  on  the  potential  costs  associated  with  such  effects,  whether  they  outweigh  the  potential  benefits  of  a  connection-  based 
 assessment,  and  to  what  extent  other  policy  measures  might  mitigate  these  costs. 
 d.  Implementation  Issues 
 74.  Accounting  for  Growth.  Under  the  existing  revenue-  based  assessment  system,  the  contribution  factor  changes  each  quarter  to  reflect  increases  or  decreases  in  reported  revenues 


 and  total  universal  service  funding  requirements.  We  seek  comment  on  how  to  address  growth  in  the  number  and  capacity  of  connections  and/  or  funding  requirements  in  the  event  that  we 
 adopt  a  connection-  based  assessment  system.  In  particular,  we  request  comment  on  whether  the  proposed  flat  assessment  rates  on  residential,  single-  line  business,  and  mobile  wireless 
 connections  should  be  adjusted  periodically  for  increases  or  decreases  in  connections  and/  or  funding  requirements.  Based  on  projections  provided  by  commenters  to  the  2001  Notice,  the 
 number  of  connections  is  expected  to  increase  for  the  foreseeable  future.  198  Therefore,  if  we  were  not  to  adjust  the  proposed  flat  assessment  rates  for  residential,  single-  line  business,  and 
 mobile  wireless  connections,  the  overall  proportion  of  universal  service  funding  requirements  met  by  assessments  on  such  connections  might  increase  over  time,  with  a  corresponding  decrease 
 in  the  residual  proportion  met  by  assessments  on  multi-  line  business  connections.  199 


 195  See  supra  para.  59. 
 196  See  supra  para.  49. 
 197  See  infra  paras.  76-  79. 
 198  Verizon  Ex  Parte;  AT&  T  Comments  at  13. 
 199  USF  Coalition  Ex  Parte. 
34
 Federal  Communications  Commission  FCC  02-  43 
 35 
 75.  We  invite  commenters  to  suggest  methods  for  implementing  any  proposed  adjustments  to  the  proposed  flat  assessment  rates  for  residential,  single-  line  business,  and  mobile 
 wireless  connections.  We  also  seek  comment  on  how  frequently  any  such  adjustments  should  be  made.  For  example,  if  the  total  number  of  connections  and  capacity  units  were  to  increase  three 
 percent  in  a  given  year  and  the  universal  service  funding  requirement  were  to  stay  the  same,  the  proposed  $1.00  flat  assessment  rate  for  residential,  single-  line  business,  and  mobile  wireless 
 connections  (excluding  pagers),  as  well  as  the  proposed  $0.25  flat  rate  for  pagers,  likewise  could  be  decreased  by  three  percent.  200  We  also  seek  comment  on  how  to  account  for  the  possibility  of 
 different  growth  rates  for  different  types  of  connections.  If,  for  example,  the  total  number  of  connections  and  capacity  units  were  to  increase  three  percent  in  a  given  year,  with  a  growth  rate 
 of  five  percent  for  residential,  single-  line  business,  and  mobile  wireless  connections  and  of  two  and  one-  half  percent  for  multi-  line  business  connections,  the  per-  unit  assessment  rate  for  all 
 connections  would  decrease,  but  the  overall  proportion  of  universal  service  funding  requirements  met  by  multi-  line  business  connections  would  decrease  slightly,  whereas  the  proportion  met  by 
 residential,  single-  line  business,  and  mobile  wireless  connections  would  increase  slightly.  201  We  invite  commenters  to  suggest  alternative  methodologies  to  account  for  increases  or  decreases  in 
 the  number  and  capacity  of  connections  and/  or  funding  requirements. 
 76.  Reporting  Requirements.  We  seek  comment  on  how  often  contributors  should  report  the  number  and  capacity  of  their  connections  under  a  connection-  based  assessment 


 methodology.  Below,  we  seek  comment  on  requiring  contributors  to  report  the  number  and  capacity  of  their  connections  on  a  monthly  basis.  We  also  invite  commenters  to  propose 
 alternative  reporting  requirements  under  a  connection-  based  assessment.  We  particularly  seek  comment  from  contributors  that  are  small  business  concerns  under  the  Small  Business  Act. 


 77.  Contributors  currently  report  their  gross-  billed  interstate  end-  user  telecommunications  revenues  five  times  per  year  --  on  a  quarterly  basis  on  the  Form  499-  Q  and 
 on  an  annual  basis  on  the  Form  499-  A.  Contributors  are  billed  for  their  universal  service  contribution  obligations  on  a  monthly  basis.  On  the  Form  499-  Q,  contributors  report  gross-  billed 
 revenues  from  the  prior  quarter  and  are  assessed  on  those  revenues  in  the  next  quarter.  Under  the  current  system,  there  is  a  six-  month  interval  between  the  accrual  of  revenues  and  assessment 
 based  on  those  revenues.  Revenues  reported  on  the  Form  499-  A  are  used  to  perform  true-  ups  to  account  for  discrepancies  between  an  individual  contributors  annual  and  quarterly  revenue  data 
 and  to  determine  assessments  for  the  Telecommunications  Relay  Services,  North  American  Numbering  Plan,  Local  Number  Portability,  and  regulatory  fees  administration  programs. 


 200  Excluding  pagers  for  purposes  of  this  example,  assume  that  there  are  250  million  residential,  single-  line  business, 
 and  mobile  wireless  connections  assessed  at  $1.  00  per  connection,  a  residual  funding  requirement  of  $4  billion,  and  1  billion  units  of  multi-  line  business  capacity,  so  that  the  base  factor  for  multi-  line  business  units  is  $4.00.  In 


 addition,  assume  a  total  connection  growth  rate  of  3%,  and  that  the  total  funding  requirement  stays  the  same.  The  assessment  rate  for  residential,  single-  line  business,  and  mobile  wireless  connections  would  be  decreased  to  $0.  97. 
 Assuming  that  multi-  line  business  connections  increased  at  the  same  3%  rate  as  residential,  single-  line  business,  and  mobile  wireless  connections,  the  base  factor  for  multi-  line  business  connections  likewise  would  decrease  to 
 approximately  $3.  88.  201 
 Building  on  the  example  above,  a  total  of  262,500,  000  residential,  single-  line  business,  and  mobile  wireless  connections  would  be  assessed  $1.  95  per  connection  or  a  total  of  $254,  625,  000,  and  a  total  of  1.  025  billion  multi-line 


 business  capacity  units  would  be  assessed  a  residual  funding  requirement  of  $3,  995,  375,  000,  with  the  base  factor  decreasing  to  approximately  $3.90.  See  supra  n.  200. 
35
 Federal  Communications  Commission  FCC  02-  43 
 36 
 78.  We  seek  comment  on  requiring  contributors  to  report  the  number  and  capacity  of  their  connections  on  a  monthly  basis.  We  specifically  seek  comment  on  the  operation  of  a 
 monthly  reporting  system.  Under  this  approach,  contributors  could  report  the  number  and  capacity  of  their  connections  on  a  monthly  basis  on  a  new  Form  499-  M,  which  the  contributor 
 would  use  to  calculate  its  contribution  amount  as  of  the  last  day  of  the  prior  month.  Each  month  contributors  would  receive  a  fill-  in-  the-  blank  bill  from  USAC  and  would  remit  their  contribution 
 based  on  the  number  and  capacity  of  their  end-  user  connections  in  service  as  of  the  end  of  the  prior  month.  Therefore,  the  new  Form  499-  M  would  serve  both  as  a  contributors  monthly  bill 
 and  its  reporting  obligation.  The  Commission  would  announce  the  per-  connection  multipliers  for  multi-  line  business  connections  prior  to  each  quarter  and  those  multipliers  would  appear  each 
 quarter  on  an  updated,  downloadable  form  that  would  appear  on  USACs  website.  202  The  Commission  also  would  periodically  announce  adjustments  to  the  per-  connection  assessment  for 
 residential,  single-  line  business,  and  mobile  wireless  connections  if  necessary  to  reflect,  for  example,  increases  or  decreases  in  the  number  and  capacity  of  connections.  203  The  Commission 
 would  use  the  data  submitted  on  a  monthly  basis  when  determining  the  base  factor  for  determining  multi-  line  business  assessments  for  the  upcoming  quarter.  Assuming  that 
 contributors  would  continue  reporting  revenues  on  an  annual  basis  for  the  Telecommunications  Relay  Services,  North  American  Numbering  Plan,  Local  Number  Portability,  and  regulatory  fees 
 administration  programs,  this  approach  would  result  in  contributors  submitting  thirteen  filings  per  year. 


 79.  We  seek  comment  on  the  costs  and  benefits  of  a  monthly  reporting  obligation.  Monthly  reporting  would  almost  entirely  eliminate  the  current  six-  month  interval  between 
 reporting  and  assessment.  This  would  address  concerns  that  the  current  six-  month  interval  between  the  accrual  of  revenues  and  the  assessment  of  contributions  based  on  those  revenues 
 creates  competitive  advantages  for  contributors  with  increasing  interstate  telecommunications  revenues,  while  disadvantaging  those  with  declining  revenues.  Although  contributors  would  have 
 to  report  more  frequently  under  a  monthly  reporting  requirement  than  under  the  current  system,  their  overall  reporting  burdens  may  be  significantly  reduced  because  they  would  only  be  required 
 to  report  the  number  and  capacity  of  the  connections  they  provide,  rather  than  their  interstate  telecommunications  revenues.  In  addition,  a  contributors  reporting  obligation  and  its  bill  would 
 be  combined.  We  also  note  that  several  states  with  universal  service  programs  currently  provide  for  monthly  reporting.  204 


 80.  The  increased  prevalence  of  customer  migration  between  contributors,  or  churn,  is  another  reason  for  proposing  to  require  contributors  to  report  on  a  monthly  basis.  As 
 competition  for  telecommunication  services  increases,  customer  churn  is  likely  to  occur  more  often,  as  evidenced  by  the  increasingly  high  churn  rates  experienced  by  interexchange  carriers 
 over  the  last  two  decades.  205  We  seek  comment  on  how  to  address  customer  churn  that  occurs  within  a  given  month.  No  commenters  proposed  a  method  for  addressing  this  issue  in  the  record 
 to  the  2001  Notice.  We  seek  comment,  for  example,  on  a  proposal  to  simply  assess  contributors 
 202  For  example,  in  early  June,  the  Commission  would  announce  the  per-  connection  multipliers  for  the  third  calendar 
 quarter.  On  August  15,  carriers  would  remit  contributions  based  on  connections  at  the  end  of  July.  203 
 See  supra  paras.  74-  75.  204 
 See  <http://  www.  necaservices.  com/  content/  stfund.  htm#  top>.  States  include  Arizona,  Kentucky,  and  Oklahoma.  205 
 Trends  Report  2000,  Tables  10.  1-  10.  16. 
36
 Federal  Communications  Commission  FCC  02-  43 
 37 
 for  connections  they  have  as  of  the  last  day  of  the  prior  month.  We  also  seek  comment  on  other  possible  ways  of  addressing  this  issue. 
 81.  In  the  event  that  we  adopt  a  monthly  reporting  requirement  that  combines  a  contributors  monthly  bill  and  reporting  obligation,  we  seek  comment  on  whether  a  reserve  fund 
 should  be  established.  A  reserve  fund  would  be  established  to  protect  against  occasional  shortfalls  in  universal  service  funding.  As  discussed  above,  the  number  and  capacity  of 
 connections  historically  has  been  more  stable  than  revenues  and  is  projected  to  grow  in  the  foreseeable  future.  206  Therefore,  a  reserve  fund  may  not  be  necessary  under  a  connection-  based 
 assessment.  207  We  seek  comment  on  this  analysis. 
 82.  As  discussed  above,  the  revenue  information  currently  reported  on  an  annual  basis  in  FCC  Form  499-  A  also  is  used  for  the  Telecommunications  Relay  Services,  North  American 


 Numbering  Plan,  Local  Number  Portability,  and  regulatory  fees  administration  programs.  208  These  three  programs  rely  on  similar  revenue  classifications  as  the  existing  universal  service 
 methodology.  For  example,  revenues  reported  for  purposes  of  assessments  for  Telecommunications  Relay  Services  are  interstate  end-  user  telecommunications  revenues.  209 
 The  Commission  has  discretion  under  the  Act  to  recover  costs  associated  with  these  programs  in  any  reasonable  manner.  210  Both  the  Local  Number  Portability  and  North  American  Numbering 
 Plan  programs  provide  the  Commission  discretion  in  establishing  the  funding  mechanism,  with  the  main  requirement  being  that  the  Commission  does  so  in  a  competitively-  neutral  manner.  211 
 The  Telecommunications  Relay  Services  program  requires  the  Commission  to  recover  the  costs  associated  with  providing  such  services  on  a  cost-  causative  basis.  212  We  therefore  seek  comment 
 on  the  appropriate  revenue  information  that  should  be  reported  on  a  revised  Form  499-  A  in  the  event  that  we  adopt  a  connection-  based  assessment  system.  Should  contributors  continue 
 reporting  interstate  gross-  billed  end-  user  telecommunications  revenues  on  an  annual  basis?  In  addition,  we  seek  comment  on  the  potential  administrative  and  financial  impact  of  reporting  such 
 other  information  in  addition  to  connection/  capacity  information.  We  also  seek  comment  on  alternative  ways  to  calculate  contributions  for  these  programs.  We  seek  comment,  for  example, 
 on  having  contributors  report  types  of  revenue  information  they  currently  report  to  other  government  agencies,  such  as  the  Securities  and  Exchange  Commission  (SEC),  thereby  lessening 
 the  burden  of  reporting  information  on  the  Form  499-  A  separately  in  addition  to  information  submitted  on  the  proposed  499-  M.  We  seek  comment  on  whether  the  types  of  information 
 reported  to  the  SEC  and  other  government  agencies  would  be  appropriate  for  determining 
 206  See  supra  paras.  71,  74-  75. 
 207  By  contrast,  a  reserve  fund  would  need  to  be  established  under  a  current  revenue-  based  assessment.  See  infra 
 para.  87.  208 
 See  2001  Notice,  16  FCC  Rcd  at  9909  para.  38.  Carriers  currently  report  this  information  on  the  FCC  Form  499-  A. 


 209  See  47  C.  F.  R.    64.  604(  c)(  iii)(  A).  Both  the  Local  Number  Portability  and  the  North  American  Numbering  Plan 
 also  rely  on  end-  user  telecommunications  revenues,  but  do  not  distinguish  between  interstate  and  intrastate.  See  47  C.  F.  R.    52.  17,  52.  32. 


 210  See  47  U.  S.  C.    225(  b)(  2),  251(  e)(  2). 
 211  See  id.  at    251(  e). 
 212  See  id.  at    225(  b)(  2).  If  costs,  therefore,  are  caused  by  interstate  telecommunications  relay  services,  then  such 
 costs  shall  be  recovered  from  the  interstate  jurisdiction. 
37
 Federal  Communications  Commission  FCC  02-  43 
 38 
 assessments  to  the  above  programs.  We  also  seek  comment  on  how  contributors  that  do  not  report  to  the  SEC  and  other  government  agencies  would  report  under  these  programs. 
 Alternatively,  we  seek  comment  on  possibly  including  the  costs  of  these  programs  in  a  per-connection  fee  should  we  ultimately  decide  to  adopt  a  connection-  based  assessment  system. 
 Commenters  should  address  whether  changes  in  information  submitted  would  be  inconsistent  with  any  statutory  or  other  requirements  for  these  non-  universal  service  programs. 


 83.  Transition.  As  discussed  above,  a  connection-  based  methodology  would  constitute  a  significant  change  from  the  current  system.  In  the  event  that  we  adopt  a  connection-  based 
 assessment,  we  seek  comment  on  whether  it  can  be  implemented  immediately,  or  whether  a  transition  period  would  be  necessary.  In  this  regard,  the  USF  Coalition  proposed  a  12-  month 
 transition  period  for  implementation  of  a  connection-  based  assessment  for  multi-  line  business  connections,  but  proposed  to  implement  immediately  a  $1.00  per-  connection  assessment  for 
 residential,  single-  line  business,  and  mobile  wireless  connections  (excluding  pagers),  and  a  $0.25  per-  connection  assessment  for  pagers.  213  Should  we  employ  a  transition  period  for  implementing 
 part  or  all  of  a  connection-  based  assessment?  During  such  a  transition  period,  contributors  could  be  required  to  continue  reporting  revenue  data  and  contributing  based  on  the  current  system,  214 
 while  also  reporting  data  based  on  the  new  methodology.  A  transition  period  may  delay  realization  of  the  potential  benefits  of  a  new,  connection-  based  approach,  and  temporarily 
 increase  administrative  burdens  by  imposing  dual  reporting  requirements.  On  the  other  hand,  it  might  enable  contributors  and  USAC  to  prepare  for  implementation  of  the  new  mechanism.  215  A 
 transition  period  also  may  provide  additional  time  for  contributors  to  update  their  billing  and  accounting  systems  to  accommodate  changes.  216  If  we  conclude  that  a  transition  period  is 
 necessary,  we  seek  comment  on  the  appropriate  length  of  the  transition  and  on  how  to  phase  in  the  proposed  methodology  over  the  transition  period.  217 


 2.  Revenue-  Based  Assessment 
 84.  In  the  2001  Notice,  we  sought  broad  comment  on  whether  to  retain  or  modify  the  existing  revenue-  based  assessment  system.  218  The  2001  Notice  generated  a  significant  record  on 


 this  issue,  with  some  commenters  advocating  retention  of  the  existing  system,  and  others  proposing  various  modifications,  including  reliance  on  current  or  projected  revenues  rather  than 
 historical  revenues,  as  well  as  assessment  on  collected  or  net-  booked  revenues  rather  than  gross-billed  revenues.  219  All  of  these  proposals  remain  under  consideration,  and  we  invite  commenters 
 to  supplement  the  record  with  any  new  arguments  or  data  regarding  them.  Commenters  are  invited  to  address  the  relative  costs  and  burdens  on  different  industry  segments  of  retaining  or 
 modifying  the  current  system.  We  also  invite  comment  on  whether  proposals  to  retain  or  modify 


 213  See  USF  Coalition  Ex  Parte. 
 214  EPIK  Comments  at  6;  USAC  Comments  at  27. 
 215  Id. 
 216  WorldCom  Comments  at  21. 
 217  BTNA  Comments  at  6-  7;  SBC  Comments  at  9;  AOL/  Time-  Warner  Reply  Comments  at  4;  WorldCom  Reply 
 Comments  at  24.  218 
 See  2001  Notice,  16  FCC  Rcd  at  9905-  06.  219 
 See  supra  n.  4. 
38
 Federal  Communications  Commission  FCC  02-  43 
 39 
 the  current  system  would  serve  our  goals  of  ensuring  the  long-  term  stability,  fairness,  and  efficiency  of  the  universal  service  contribution  system  in  a  dynamic  telecommunications 
 market.  220 
 85.  For  example,  some  commenters  argue  that  we  should  modify  the  current  system  to  rely  on  projected  revenue  data,  to  address  the  concern  that  reliance  on  historical  revenue  data 


 from  six  months  earlier  benefits  new  entrants  and  contributors  with  increasing  assessable  revenues,  while  disadvantaging  contributors  with  declining  revenues.  221  This  approach  could 
 help  to  address  the  concerns  of  some  commenters  regarding  the  impact  on  certain  contributors  of  reliance  on  historical  revenues,  and  make  contribution  assessments  more  reflective  of  current 
 market  conditions.  222  On  the  other  hand,  it  raises  some  concerns.  Reporting  projected  revenues  may  be  more  administratively  burdensome  for  contributors  than  reporting  historical  revenues. 
 New  enforcement  mechanisms  might  be  necessary  to  ensure  that  contributors  do  not  under-  or  over-  project  revenues  in  order  to  minimize  their  contribution  obligations.  In  addition,  projected 
 revenues  are  likely  to  fluctuate  more  than  historical  revenues,  resulting  in  greater  variance  in  the  contribution  factor  from  quarter  to  quarter.  This  could  lead  to  increased  customer  confusion  and 
 make  it  more  difficult  for  contributors  to  account  for  contribution  obligations  in  their  business  plans. 


 86.  More  importantly,  however,  a  projected-  revenue  assessment  methodology  may  not  address  the  broader  concerns  raised  in  the  record  as  to  the  long-  term  viability  of  a  revenue-  based 
 assessment  system.  One  such  concern  is  that  the  current  system  places  most  of  the  burden  of  universal  service  funding  on  traditional  long  distance  revenues,  which  may  decline  in  the  future 
 due  to  increased  competition,  migration  to  new  products  and  services,  and  other  factors.  223  As  discussed  above,  this  trend  could  erode  the  contribution  base  over  time  and  correspondingly 
 accelerate  the  increase  in  the  contribution  factor  and  in  the  universal  service  line  items  and  other  recovery  fees  imposed  by  interexchange  carriers  and  other  contributors  to  recover  their 
 contribution  requirements  from  end  users.  Furthermore,  reliance  on  projected  revenues  would  not  address  the  current  assessment  systems  reliance  on  regulatory  distinctions  between 
 interstate/  intrastate  and  telecommunications/  non-  telecommunications  revenues.  Many  commenters  argue  that  such  distinctions  do  not  apply  well  outside  of  the  traditional  wireline 
 context,  and  that  the  difficulty  of  applying  them  to  new  products  and  services  could  lead  to  a  patchwork  contribution  system  that  distorts  competition  by  imposing  different  requirements  on 
 competing  providers,  or  by  unduly  influencing  providers  choices  as  to  how  to  package  a  particular  service.  224 


 87.  A  current-  revenue  assessment  methodology  could  have  similar  benefits  to  a  projected-  revenue  assessment  methodology.  Like  a  projected-  revenue  assessment  methodology, 
 however,  it  would  raise  some  new  concerns.  For  example,  because  USAC  would  not  know 
 220  See  supra  paras.  7-  13. 
 221  See,  e.  g.,  ASCENT  Comments  at  4-  5;  AT&  T  Comments  at  9;  AT&  T  Wireless  Comments  at  4-  5;  Excel 
 Comments  at  6.  222 
 Id.  223 
 See  supra  paras.  7-  13.  224 
 See,  e.  g.,  Ad  Hoc  Comments  at  19-  24;  AT&  T  Comments  at  2,  12-  13;  Cable  &  Wireless  Reply  Comments  at  4;  Level  3  Reply  Comments  at  5-  6;  SBC  Comments  at  4;  Sprint  Comments  at  4;  WorldCom  Comments  at  3,  13-  14. 
39
 Federal  Communications  Commission  FCC  02-  43 
 40 
 exactly  how  much  would  be  contributed  during  a  given  period,  establishment  of  a  substantial  reserve  fund  might  be  necessary  in  order  to  avoid  universal  service  funding  shortfalls, 
 necessitating  increased  collections  from  contributors.  In  addition,  a  current-  revenue  assessment  methodology  could  require  monthly  rather  than  quarterly  reporting  of  revenues,  which  could  be 
 administratively  burdensome,  especially  for  small  carriers.  Moreover,  a  current-  revenue  assessment  methodology  likewise  may  fail  to  address  the  broader  concerns  raised  in  the  record  as 
 to  the  long-  term  viability  of  a  revenue-  based  assessment  system. 
 88.  To  the  extent  that  commenters  wish  to  supplement  the  record  developed  in  response  to  the  2001  Notice  regarding  retention  or  modification  of  the  revenue-  based  assessment 


 mechanism,  they  should  provide  specific  data  or  analysis  showing  the  costs  and  benefits  of  such  an  approach.  We  also  seek  comment  on  whether  to  provide  contributors  with  a  one-  time 
 opportunity  to  elect  whether  to  report  and  be  assessed  on  current  or  projected  revenue,  instead  of  historical  revenue.  225  Commenters  should  address  the  potential  costs  and  benefits  of  an  optional 
 approach  and  whether  such  an  approach  would  be  consistent  with  section  254  of  the  Act.  226  Commenters  are  also  invited  to  address  other  issues  relating  to  implementation  of  a  modified 
 revenue-  based  assessment  approach. 
 B.  Recovery  of  Universal  Service  Contributions  from  End  Users 
 89.  In  considering  reforms  to  the  universal  service  contribution  recovery  process,  we  seek  to  ensure  that  this  process  is  reasonable,  fair,  and  understandable  for  consumers,  while 


 maintaining  the  flexibility  that  providers  of  interstate  telecommunications  services  may  need  in  recovering  the  costs  of  their  contributions.  We  also  seek  to  ensure  that  telecommunications 
 carriers  recovery  practices  are  within  the  bounds  of  reasonableness  that  Congress  established  in  sections  201  and  202.  227  As  stated  above,  our  consideration  of  reforms  to  the  contribution 
 recovery  process  is  independent  of  our  consideration  of  changes  to  the  assessment  system.  228  Commenters  are  encouraged  to  consider  recovery  reforms  independent  of  and/  or  in  the  context 
 of  both  the  existing  assessment  system  and  the  connection-  based  assessment  system  discussed  above.  We  also  invite  commenters  to  address  whether  adoption  of  a  connection-  based 
 assessment  system  is  likely  to  make  the  recovery  process  more  reasonable,  fair,  and  understandable  for  consumers,  and  how  this  should  influence  our  consideration  of  possible 
 limitations  on  recovery  practices.  229 
 90.  A  statutory  framework  established  by  Congress  in  the  Act  governs  the  recovery  of  universal  service  contributions  by  telecommunications  service  providers.  230  Sections  201(  b)  and 


 202(  a)  of  the  Act  govern  common  carrier  services  and  charges.  231  Section  201(  b)  requires  that 
 225  We  note  that  AT&  T  recently  filed  a  request  to  contribute  to  universal  service  based  on  its  projected  revenues, 
 instead  of  contributing  to  universal  service  based  on  historical  revenues.  See  AT&  T  Projected  Revenue  Request.  226 
 See  47  U.  S.  C.    254.  227 
 Id.  at    201,  202.  228 
 See  supra  para.  6.  229 
 See  supra  para.  72.  230 
 See  47  U.  S.  C.    201,  202.  231 
 See  id.  at    201(  b),  202(  a).  Because  sections  201  and  202  of  the  Act  only  apply  to  common  carriers  or  telecommunications  carriers,  and  not  to  the  broader  category  of  telecommunications  providers  that  are  currently 


 (continued....) 
40
 Federal  Communications  Commission  FCC  02-  43 
 41 
 all  charges,  practices,  classifications,  and  regulations  for  and  in  connection  with  interstate  communications  service  be  just  and  reasonable,  and  gives  the  Commission  jurisdiction  to  enact 
 rules  to  implement  that  requirement.  232  Section  202(  a)  of  the  Act  prohibits  unjust  or  unreasonable  discrimination  in  connection  with  the  provision  of  communications  services. 
 Section  202(  a)  also  prohibits  providers  from  making  or  giving  any  undue  or  unreasonable  preference  or  advantage  to  any  particular  person,  class  of  persons,  or  locality,  or  to  subject  any 
 particular  person,  class  of  persons,  or  locality  to  any  undue  or  unreasonable  prejudice  or  disadvantage.  233 


 91.  The  Commission  has  previously  identified  concerns  regarding  contribution  recovery  practices  employed  by  contributing  carriers.  234  For  example,  although  the  contribution 
 factor  is  uniform  for  all  interstate  telecommunications  carriers,  universal  service  line  items  on  customers  bills  may  vary  widely  among  different  carriers,  and  among  different  customer  classes 
 of  individual  carriers.  235  In  the  2001  Notice,  we  sought  comment  on  specific  proposals  to  limit  contribution  recovery  practices,  such  as  requiring  contributing  carriers  that  elect  to  impose  a  line 
 item  to  do  so  on  a  uniform  basis.  236  In  response  to  those  proposals,  some  commenters  informed  the  Commission  of  their  experiences  with  carrier  recovery  practices.  One  commenter  expressed 
 concern  regarding  the  inclusion  of  service-  related  charges  in  universal  service  line  items.  237  Other  commenters  expressed  concern  that  disparate  recovery  of  universal  service  contributions 
 impairs  the  ability  of  consumers  to  make  decisions  regarding  per-  minute  rates.  238  These  commenters  suggest  that  the  Commission  ban  the  use  of  line  items  for  recovery  of  universal 
 service  contribution  obligations  239  or,  alternatively,  require  that  contributing  carrier  line  items  match  the  quarterly  contribution  factor.  240  Other  commenters,  however,  urge  that  the 
 Commission  allow  carriers  to  retain  flexibility  in  their  contribution  recovery  practices.  241  These  commenters  point  out  that  each  carrier  faces  unique  business  circumstances  that  result  in 
 variations  in  the  amount  they  recover  for  universal  service.  Such  circumstances  include 


 (...  continued  from  previous  page)  subject  to  universal  service  contribution  obligations  pursuant  to  the  Commissions  authority  under  section  254(  d)  of 
 the  Act,  throughout  this  section  of  the  Further  Notice  we  refer  to  the  recovery  obligations  of  carriers,  not  contributors.  See  id.;  see  also  47  U.  S.  C.    153(  44),  153(  46). 
 232  47  U.  S.  C.    201(  b). 
 233  47  U.  S.  C.    202(  a). 
 234  See  TIB  Order  and  FNPRM,  14  FCC  Rcd  at  7522-  37  paras.  49-  71. 
 235  See  supra  paras.  18-  19. 
 236  See  2001  Notice,  16  FCC  Rcd  9892,  para.  42  (the  reprint  of  this  item  in  the  FCC  Record  inadvertently  omitted 
 this  page.  Commenters  should  refer  to  the  version  that  is  available  on  the  Commissions  website  at  <http://  www.  fcc.  gov/  Bureaus/  Common_  Carrier/  Notices/  2001/  fcc01145.  doc>. 


 237  Western  Kentucky  University  Comments  at  2. 
 238  NASUCA  Comments  at  10;  Texas  OPC  and  CFA  at  3-  4. 
 239  Id. 
 240  Ad  Hoc  Comments  at  35;  AOL/  Time  Warner  Reply  Comments  at  5. 
 241  IDT  Comments  at  6;  VarTec  Comments  at  4;  BellSouth  Reply  Comments  at  5;  CompTel  Reply  Comments  at  3; 
 Z-  Tel  Reply  Comments  at  4. 
41
 Federal  Communications  Commission  FCC  02-  43 
 42 
 uncollectibles,  declining  revenues,  and  administrative  costs.  242  They  further  assert  that  because  there  is  competition  for  telecommunications  services,  the  marketplace  will  prevent  those  carriers 
 that  elect  to  recover  contributions  through  a  line  item  from  over-  charging  their  customers.  243 
 92.  We  seek  comment  on  possible  alternative  methods  of  addressing  these  competing  concerns.  First,  we  could  adopt  certain  modifications  that  seek  to  address  those  aspects  of  carrier 


 recovery  practices  that  may  be  inconsistent  with  the  requirements  in  sections  201(  b)  and  202(  a)  of  the  Act  and  may  lead  to  customer  confusion.  Alternatively,  we  could  adopt  a  more 
 fundamental  change,  a  collect-  and-  remit  system,  which  would  require  carriers  to  only  remit  those  contributions  actually  collected  from  their  end  users,  but  which  would  also  remove  the  flexibility 
 that  carriers  are  currently  afforded  in  deciding  how  to  recover  their  contribution  obligations.  Additionally,  or  alternatively,  the  Commission  could  address  consumer  confusion  that  arises  due 
 to  varying  line-  item  labels.  Labeling  issues  would  be  addressed  in  the  Truth-  in-  Billing  proceeding. 


 93.  We  emphasize  that  nothing  in  these  proposals  would  require  new  tariff  filings.  We  note  that  the  Commission  has  recently  detariffed  most  interstate  services  offered  by 
 interexchange  carriers.  244  Further,  competitive  local  exchange  carriers  and  CMRS  providers  are  prohibited  from  filing  tariffs.  Only  incumbent  local  exchange  carriers  currently  file  tariffs  and, 
 consistent  with  our  current  rules,  we  would  not  prevent  local  exchange  carriers  from  combining  recovery  fees  with  other  end-  user  retail  rate  elements.  245  We  seek  comment,  however,  on 
 whether  any  of  the  proposals  to  modify  carrier  recovery  practices  would  impact  those  carriers  not  currently  subject  to  rate  regulation  and  how  to  address  any  such  impact. 


 94.  If,  as  proposed  above,  we  exempt  Lifeline  connections  from  the  contribution  base,  we  seek  comment  on  whether  to  also  prohibit  carriers  from  recovering  contribution  costs  from 
 Lifeline  customers.  246  Under  the  current  methodology,  incumbent  local  exchange  carriers  may  not  recover  universal  service  contributions  from  their  Lifeline  subscribers.  247  These  restrictions, 
 however,  do  not  extend  to  interexchange  carriers,  competitive  local  exchange  carriers,  and 


 242  AT&  T  Comments  at  7-  8;  IDT  Comments  at  6;  VarTec  Comments  at  4;  Bell  South  Reply  Comments  at  5; 
 CompTel  Comments  at  3;  Z-  Tel  Reply  Comments  at  4.  243 
 CTIA  Comments  at  11;  PCIA  Reply  Comments  at  7.  244 
 See  Policy  and  Rules  Concerning  the  Interstate,  Interexchange  Marketplace,  Implementation  of  Section  245(  g)  of  the  Communications  Act  of  1934,  CC  Docket  No.  96-  61,  Order  on  Reconsideration,  12  FCC  15014  (1997);  Policy 


 and  Rules  Concerning  the  Interstate,  Interexchange  Marketplace,  Implementation  of  Section  254(  g)  of  the  Communications  Act  of  1934,  CC  Docket  No.  96-  61,  Second  Order  on  Reconsideration  and  Erratum,  14  FCC  Rcd 
 6004  (1999);  Domestic,  Interexchange  Carrier  Detariffing  Order  Takes  Effect,  CC  Docket  No.  96-  61,  Public  Notice,  DA  00-  1028  (Com.  Car.  Bur.  May  9,  2000);  MCI  WorldCom,  Inc.  v.  FCC,  209  F.  3d  760  (D.  C.  Cir.  2000);  Policy 
 and  Rules  Concerning  the  Interstate,  Interexchange  Marketplace,  Implementation  of  Section  245(  g)  of  the  Communications  Act  of  1934,  CC  Docket  No.  96-  61,  Order,  15  FCC  Rcd  22,  321  (2001);  see  also  2000  Biennial 
 Regulatory  Review,  Policy  and  Rules  Concerning  the  International,  Interexchange  Marketplace,  IB  Docket  No.  00-  202,  Report  and  Order,  16  FCC  Rcd  10647  (2001)  (requiring  mandatory  detariffing  of  international  interexchange 
 services  provided  by  non-  dominant  providers  with  limited  exceptions  for  dial-  around,  local  exchange  carrier  implemented  services,  inbound  collect  calling,  and  on-  demand  Mobile  Satellite  Systems). 
 245  See  47  C.  F.  R.    69.  131,  69.  158. 
 246  See  supra  para.  40. 
 247  See  47  C.  F.  R.    69.  158,  69.  131. 
42
 Federal  Communications  Commission  FCC  02-  43 
 43 
 CMRS  providers  (although  some  voluntarily  do  not  recover  from  Lifeline  customers).  We  seek  comment  on  whether  to  extend  this  restriction  to  such  carriers. 
 1.  Universal  Service  Contribution  Recovery  Proposals 
 a.  Carrier  Flexibility 
 95.  We  seek  comment  on  whether  to  continue  providing  carriers  with  flexibility  in  the  recovery  of  universal  service  contribution-  related  costs,  but  to  adopt  certain  modifications  to 


 address  those  aspects  of  carrier  recovery  practices  that  may  be  inconsistent  with  the  requirements  in  sections  201(  b)  and  202(  a)  of  the  Act  and  may  lead  to  customer  confusion.  We  specifically 
 invite  comment  on  whether  to  require  carriers  that  elect  to  recover  contributions  through  a  separate  line  item  to  make  that  line-  item  amount  or  percentage  rate  uniform  for  all  customers. 
 We  also  seek  comment  on  requiring  carriers  that  recover  contributions  through  a  separate  line  item  to  make  mark-  up  percentages  uniform  across  all  customers  and  classes  of  customers.  248 
 In  addition,  we  seek  comment  on  establishing  a  uniform  safe  harbor  line-  item  mark-  up  amount  for  carriers  to  use  if  they  so  choose.  Under  these  proposals,  carriers  would  retain  the  flexibility 
 to  recover  their  universal  service  contributions  from  end  users  either  through  service  rates  or  through  a  line  item  on  end-  user  bills.  249  Moreover,  carriers  still  would  have  some  flexibility  in 
 how  much  they  may  recover  from  customers.  The  proposals  may  help  to  ensure,  however,  that  contribution  recovery  practices  are  consistent  with  the  just  and  reasonable  requirements  in 
 section  201  of  the  Act  and  the  non-  discrimination  requirements  of  section  202  of  the  Act.  250 
 96.  Under  the  first  proposal,  if  a  carrier  elects  to  recover  its  contributions  through  a  separate  line  item  on  any  customer  bill,  that  carrier  would  be  required  to  do  so  in  a  non-discriminatory 


 manner  by  making  the  separate  line  item  uniform  for  all  customers.  For  example,  if  the  Commission  were  to  adopt  a  connection-  based  methodology  for  assessment,  a  carrier 
 would  be  required  to  have  the  same  line-  item  amount  for  each  residential  connection  to  a  public  network.  Different  categories  of  connections  would  be  assigned  different  line-  item  amounts. 
 Thus,  under  the  tiered  capacity  approach,  a  Tier  Three  multi-  line  business  connection  would  have  a  different  line  item  than  a  Tier  One  multi-  line  business  connection.  Alternatively,  if  the 
 Commission  maintains  the  current  revenue-  based  assessment  system,  and  a  carrier  chooses  to  recover  a  specific  percentage  amount  from  one  set  of  customers  (for  example,  residential 
 customers),  it  would  be  required  to  apply  that  same  percentage  to  other  customers  (for  example,  business  customers). 


 97.  The  proposed  limitation  would  elaborate  on  obligations  that  common  carriers  already  have  under  sections  201(  b)  and  202(  a)  of  the  Act  not  to  shift  more  than  an  equitable 


 248  By  mark  up,  we  mean  amounts  recovered  through  universal  service  line  items  that  are  in  addition  to  the  then-applicable 
 contribution  factor.  So,  for  example,  we  propose  to  require  contributors  that  choose  to  mark-  up  one  customers  line  item  5%  to  mark-  up  all  line  items  by  5%.  As  discussed  in  the  2001  Notice,  such  mark  ups  typically 


 are  used  to  account  for  administrative  costs  and  other  variables.  See  2001  Notice,  16  FCC  Rcd  at  9895  para.  4.  249 
 We  note  that  incumbent  local  exchange  carriers  may  recover  universal  service  contributions  only  through  explicit,  interstate  end  user  charges.  See  47  C.  F.  R.    69.  4(  d).  Such  charges  may  be  assessed  on  a  per-  line  basis  or 


 as  a  percentage  of  interstate  retail  revenues,  and  at  the  option  of  the  local  exchange  carrier  may  be  combined  for  billing  purposes  with  other  end  user  retail  rate  elements.  See  47  C.  F.  R.    69.  131,  69.  158. 
 250  See  47  U.  S.  C.    201,  202;  see  also  Universal  Service  Order,  12  FCC  Rcd  at  9199  para.  829,  9211  para.  855. 
43
 Federal  Communications  Commission  FCC  02-  43 
 44 
 share  of  their  contributions  to  any  customer  or  group  of  customers.  251  We  seek  comment  on  whether  such  a  recovery  limitation  would  address  commenters  concerns  that  certain  customers 
 or  classes  of  customers  are  being  charged  excessively  for  carrier  universal  service  contributions.  252 


 98.  We  also  seek  comment  on  whether  to  require  carriers  to  make  mark-  up  amounts  uniform  across  all  customers  and  classes  of  customers.  The  uniform  mark  up  would  be  a 
 percentage  amount  applied  by  the  carrier  to  all  universal  service  contribution  amounts  that  appear  as  line  items  on  customer  bills.  Carriers  could  be  required  to  report  the  amount  of  their 
 percentage  mark-  up  to  the  Commission  on  the  current  Form  499  or  on  the  proposed  new  Form  499-  M  to  document  the  method  by  which  they  arrive  at  their  reported  mark-  up  amount,  and  to 
 submit  such  documentation,  upon  request,  to  USAC.  253  The  amount  of  a  carriers  mark-  up  could  be  reviewed  on  a  case-  by-  case  basis  either  in  an  audit  or  enforcement  context.  Such  a 
 requirement  may  respond  to  concerns  that  some  carriers  recover  a  disproportionate  amount  of  contribution-  related  costs  from  certain  customers  or  categories  of  customers.  254  We  are  aware  of 
 no  cost  justification  for  such  recovery  practices,  which  may  be  inconsistent  with  sections  201  and  202  of  the  Act.  This  proposal  would  not  limit  the  amount  of  a  contribution  mark-  up,  thereby 
 allowing  carriers  the  flexibility  to  develop  a  line-  item  mark  up  that  reflects  their  unique  circumstances.  255  We  seek  comment  on  this  proposal. 


 99.  To  assist  carriers  in  determining  the  amount  of  their  percentage  line-  item  mark  up,  we  also  seek  comment  on  whether  to  establish  an  interim  percentage  safe  harbor  reflecting 
 average  carrier  costs  incurred  in  the  recovery  of  universal  service  contributions.  256  Under  such  a  proposal,  a  mark  up  no  greater  than  the  interim  percentage  safe  harbor  could  be  treated  as 
 presumptively  reasonable.  As  discussed  above,  carriers  could  be  permitted  to  recover  contribution-  related  costs  through  a  line  item  in  excess  of  the  interim  safe  harbor  amount,  but 
 would  be  required  to  document  the  method  by  which  they  arrive  at  their  reported  amount  and  submit  such  documentation,  upon  request,  to  USAC.  Commenters  also  should  address  the 
 appropriate  methodology  for  calculating  such  a  safe  harbor.  We  seek  comment,  for  example,  on  whether  to  base  an  interim  safe-  harbor  percentage  on  an  analysis  of  publicly-  available  data  on 
 telecommunications  industry  administrative  costs  and  uncollectibles  taken  from  Securities  and  Exchange  Commission  (SEC)  filings  and  other  public  sources. 


 100.  We  also  seek  comment  on  whether  it  would  be  a  violation  of  the  Act  or  Commission  rules  for  carriers  to  collect  more  from  their  customers  than  they  remit  to  the 
 universal  service  fund,  and,  if  so,  whether  to  prohibit  carriers  from  recovering  amounts  in  excess 


 251  See  supra  paras.  89-  90;  see  also  Federal-  State  Joint  Board  on  Universal  Service,  CC  Docket  No.  96-  45,  Second 
 Recommended  Decision,  13  FCC  Rcd  24744,  24771  para.  69  (Jt.  Bd.  1997).  252 
 See,  e.  g.,  NASUCA  Comments  at  15.  253 
 See  supra  paras.  76-  82.  254 
 See  Texas  OPC  and  CFA  Comments  at  6.  We  previously  have  observed,  for  example,  that  the  amount  of  the  mark  up  on  residential  customer  line  items  often  is  significantly  higher  than  the  mark  up  on  business  customer  line 


 items.  See  2001  Notice,  16  FCC  Rcd  at  9896  para.  5.  255 
 See  BellSouth  Reply  Comments  at  5;  IDT  Reply  Comments  at  6;  VarTec  Comments  at  4.  256 
 See  WorldCom  Reply  Comments  at  27-  29. 
44
 Federal  Communications  Commission  FCC  02-  43 
 45 
 of  their  actual  contributions,  as  proposed  by  some  commenters.  257  One  way  of  addressing  this  concern  would  be  to  prevent  carriers  from  marking  up  their  line  items  above  the  relevant 
 contribution  amount  to  recover  administrative  costs,  uncollectibles,  or  other  contribution-  related  costs.  If,  for  example,  we  adopted  an  assessment  amount  for  residential  connections  of  $1.00  per 
 connection,  carriers  would  only  be  permitted  to  recover  through  a  line  item  of  $1.00  per  residential  connection.  258  Likewise,  if  we  adopt  a  contribution  factor  of  seven  percent,  carriers 
 would  only  be  permitted  to  have  a  seven-  percent  line  item.  Several  commenters  expressed  concerns  with  such  a  limitation.  259  We  seek  comment  on  these  concerns.  In  addition,  we  request 
 comment  on  whether  additional  measures  should  be  taken  to  ensure  that  carriers  recover  their  contribution  obligations  in  a  fair  and  non-  discriminatory  manner.  For  example,  we  seek 
 comment  on  whether  to  require  carriers  to  recover  universal  service  contributions  in  their  rates,  as  proposed  by  some  commenters.  260  We  also  seek  comment  on  whether  it  might  be  appropriate 
 to  adopt  recovery  limitations  for  carriers  that  are  dominant  under  our  rules,  while  providing  non-dominant  carriers  with  continued  flexibility  in  contribution  recovery  practices.  261 


 b.  Collect  and  Remit 
 101.  We  also  seek  comment  on  whether  to  replace  the  current  universal  service  contribution  methodology  with  a  collect  and  remit  system.  262  Under  such  a  system,  carriers 


 would  include  a  prescribed  universal  service  contribution  line-  item  on  customer  bills  and  would  only  be  required  to  remit  to  USAC  those  contributions  actually  collected  from  end-  user 
 customers.  Adoption  of  a  collect-  and-  remit  system  would  impact  not  only  the  recovery  element  of  the  universal  service  mechanism,  but  also  the  assessment  element.  Under  a  collect-  and-  remit 
 system,  if  a  customer  fails  to  pay  a  bill,  the  carrier  would  not  be  required  to  contribute  to  universal  service  for  that  customer.  Thus,  a  collect-  and-  remit  system  would  relieve  carriers  of 
 any  risk  associated  with  the  recovery  of  universal  service  contributions.  263  Accordingly,  advocates  of  such  a  system  argue  that  it  would  eliminate  the  need  to  mark-  up  line  items  to  reflect 
 uncollectibles  and  other  factors.  264  We  seek  comment  on  which  carrier  costs  would  be  eliminated  if  a  collect-  and-  remit  system  were  adopted.  Would  such  a  system  help  to  address 
 commenters  concerns  regarding  the  reasonableness,  fairness,  and  transparency  of  the  current  recovery  process?  We  also  seek  comment  on  whether,  in  the  event  that  we  do  adopt  a  collect-and- 
 remit  system,  it  would  be  appropriate  to  continue  permitting  carriers  to  mark-  up  contribution 
 257  See  Ad  Hoc  Comments  at  34-  35;  AOL  Reply  Comments  at  5;  CDD  Reply  Comments  at  7. 
 258  See  2001  Notice,  16  FCC  Rcd  9892,  para.  42  (the  reprint  of  this  item  in  the  FCC  Record  inadvertently  omitted 
 this  page.  Commenters  should  refer  to  the  version  that  is  available  on  the  Commissions  website  at  <http://  www.  fcc.  gov/  Bureaus/  Common_  Carrier/  Notices/  2001/  fcc01145.  doc>). 


 259  See,  e.  g.,  ASCENT  Comments  at  2;  BTNA  Reply  Comments  at  5-  6;  CompTel  Comments  at  3-  5;  CTIA 
 Comments  at  11-  12;  PCIA  Reply  Comments  at  7;  USTA  Reply  Comments  at  8.  260 
 See,  e.  g.,  NASUCA  Comments  at  9-  15;  Texas  OPC  and  CFA  Comments  at  3-  6;  West  Virginia  Consumer  Advocate  Comments  at  5. 


 261  See  Review  of  Regulatory  Requirements  for  Incumbent  LEC  Broadband  Telecommunications  Services,  CC 
 Docket  No.  01-  337,  Notice  of  Proposed  Rulemaking,  FCC  01-  360,  at  para.  5  (rel.  Dec.  20,  2001).  262 
 See,  e.  g.,  USF  Coalition  Ex  Parte.  263 
 See  AT&  T  Comments  at  3-  7.  264 
 See  ASCENT  Comments  at  2-  3;  AT&  T  Comments  at  7-  8;  IDT  Comments  at  3;  SBC  Comments  at  7-  8;  Sprint  Comments  at  10;  PCIA  Reply  Comments  at  6. 
45
 Federal  Communications  Commission  FCC  02-  43 
 46 
 amounts  recovered  through  line  items  to  reflect  contribution-  related  costs  that  they  continue  to  incur. 
 102.  There  are  additional  issues,  however,  regarding  a  collect-  and-  remit  system.  Because  a  collect-  and-  remit  system  would  appear  to  effectively  shift  contribution  obligations 
 from  carriers  to  their  end-  user  customers,  it  may  reduce  incentives  for  carriers  to  recover  universal  service  contributions  from  their  customers,  thereby  risking  the  overall  predictability 
 and  sufficiency  of  the  universal  service  fund.  Unlike  the  current  system,  a  provider  would  not  be  required  to  contribute  unless  the  customer  paid  the  charge  on  its  bill.  Moreover,  because  USAC 
 likely  would  not  be  able  to  predict  with  complete  accuracy  how  many  assessments  actually  would  be  collected  in  a  given  period,  a  collect-  and-  remit  system  would  create  the  possibility  of 
 shortfalls  in  the  universal  service  fund.  USAC  presumably  would  need  to  establish  a  significant  reserve  fund  to  account  for  such  potential  shortfalls.  It  also  is  unclear  how  a  collect-  and-  remit 
 system  could  be  implemented,  for  example  how  carriers  would  treat  partial  payment  of  customer  bills.  An  additional  concern  is  whether  a  shift  in  contribution  obligations  from  carriers  to 
 customers  may  contradict  section  254(  d)  of  the  Act,  which  seemingly  places  the  burden  of  contributing  on  [  e]  very  telecommunications  carrier  that  provides  interstate  telecommunications 
 services  and  not  on  end  users.  265  We  seek  comment  on  this  analysis,  and  ask  commenters  that  support  a  collect-  and-  remit  system  to  address  each  of  these  issues. 


 2.  Labeling  the  Line  Item 
 103.  In  its  Truth-  in-  Billing  proceeding,  the  Commission  issued  a  Further  Notice  of  Proposed  Rulemaking  in  1999  seeking  comment  on  the  appropriate  label  to  identify  various 


 charges  relating  to  federal  regulatory  action  on  consumers  bills.  266  The  Commission  tentatively  concluded  that  uniformity  in  labeling  would  better  enable  consumers  to  understand  the  charges 
 and  provide  them  a  basis  for  comparison  amongst  providers.  267  At  that  time,  the  Commission  excluded  CMRS  providers  from  these  labeling  requirements,  but  indicated  that,  should  it  adopt 
 uniform  labels  for  charges  resulting  from  federal  regulatory  action,  it  would  include  CMRS  providers  to  ensure  consistency  and  understandability  for  consumers.  268  We  now  seek  comment 
 on  whether  to  require  carriers  that  elect  to  impose  a  separate  line-  item  charge  on  customer  bills  to  recover  their  contribution  costs  to  describe  the  line  item  as  the  Federal  Universal  Service 
 Fee.  269  Many  commenters  support  this  proposal,  stating  that  a  uniform  line-  item  description  is  warranted  in  view  of  confusion  created  by  varying  provider  practices.  270  We  invite  commenters 
 to  address  the  need  for  a  uniform  line-  item  description  and  to  provide  specific  examples  of  varying  provider  practices  and  how  they  lead  to  customer  confusion.  We  also  invite  comment  on 


 265  See  47  U.  S.  C.    254(  d);  2001  Notice,  16  FCC  Rcd  at  9911  paras.  48-  49;  see  also  Universal  Service  Order,  12 
 FCC  Rcd  at  9201  para.  853  (  we  agree  with  the  Joint  Board  and  reject  commenters  suggestions  that  the  Commission  mandate  that  carriers  recover  contributions  through  an  end-  user  surcharge). 


 266  TIB  Order  and  FNPRM,  14  FCC  Rcd  at  7537  para.  71. 
 267  Id. 
 268  Id.  at  7502  para.  18. 
 269  See  WorldCom  Comments  at  31. 
 270  See  CDD  Comments  at  8;  Cingular  Comments  at  10;  Florida  State  University  Comments  at  2;  Home  Comments 
 at  8;  Iowa  Utilities  Board  Comments  at  3;  but  see  CompTel  Comments  at  6;  CTIA  Comments  at  11-  13;  PCIA  Reply  Comments  at  7-  9. 
46
 Federal  Communications  Commission  FCC  02-  43 
 47 
 whether  requirements  that  labels  on  line-  item  charges  relating  to  federal  regulatory  action  be  standard  should  be  extended  to  CMRS  providers.  Additionally,  we  seek  comment  on  permitting 
 carriers  to  abbreviate  the  words  in  this  description  to  address  commenters  concerns  that  the  proposed  description  exceeds  the  character  limit  in  carrier  billing  systems.  271 


 104.  We  recognize  that  certain  commenters  argue  that  mandating  a  uniform  description  for  universal  service  contribution  line  items  on  customer  bills  would  violate  the  First 
 Amendment  of  the  United  States  Constitution.  272  We  note,  however,  that  under  certain  circumstances  speech  may  be  regulated  without  running  afoul  of  the  First  Amendment.  In 
 determining  whether  government  regulation  of  commercial  speech  violates  the  First  Amendment,  courts  apply  a  four-  part  test.  273  First,  the  court  determines  whether  the  expression 
 is  protected  by  the  First  Amendment.  274  For  commercial  speech  to  be  afforded  First  Amendment  protections,  it  must  concern  lawful  activity  and  not  be  misleading.  275  Second,  the  court 
 determines  whether  the  government  has  a  substantial  interest  in  support  of  its  regulation.  276  Third,  the  court  determines  whether  the  restriction  on  commercial  speech  directly  and  materially 
 advances  that  interest.  277  Finally,  the  regulation  may  be  no  more  extensive  than  necessary  to  serve  that  interest.  278  We  seek  comment  on  whether  a  requirement  that  carriers  label  their 
 separate  federal  universal  service  line  item  on  customer  bills  as  the  Federal  Universal  Service  Fee  would  pass  this  four-  part  test. 


 105.  First,  we  seek  comment  on  whether  the  expression  in  question  is  protected  by  the  First  Amendment.  Are  some  carriers  line  items  sufficiently  confusing  as  to  become  misleading 
 for  purposes  of  the  First  Amendment  standard?  279  Commenters  that  believe  carrier  line  items  are  misleading  are  invited  to  provide  specific  examples  of  such  line  items. 


 106.  Assuming  that  the  labeling  of  line  items  is  afforded  First  Amendment  protections  as  lawful  and  non-  misleading  commercial  speech,  we  next  seek  comment  on  whether  the 
 Commissions  interest  in  requiring  a  uniform  description  of  the  federal  universal  service  line  item  is  substantial.  The  Commission  has  responsibility  under  the  Act  to  ensure  that  consumers 
 are  able  to  make  intelligent  and  well-  informed  commercial  decisions  in  the  increasingly  competitive  telecommunications  market  that  the  1996  Act  is  intended  to  foster.  280  Even  though 


 271  So,  for  example,  a  carrier  could  call  the  Federal  Universal  Service  Fee  the  Fed.  Univ.  Service  Fee  or  the  Fed. 
 Universal  Serv.  Fee.  See  Cingular  Comments  at  10;  Sprint  Reply  Comments  at  16;  WorldCom  Comments  at  31.  272 
 See  e.  g.,  CompTel  Reply  Comments  at  6;  CTIA  Reply  Comments  at  8;  WorldCom  Comments  at  31.  See  U.  S.  CONST.  amend.  I. 


 273  See  Lorillard  Tobacco  Co.  v.  Reilly,  121  S.  Ct.  2404,  2421-  22  (2001)  (Lorillard)  (citing  Central  Hudson  Gas  & 
 Electric  Corp.  v.  Public  Service  Commission,  447  U.  S.  557,  563-  564  (1980)  (Central  Hudson)).  274 
 Lorillard,  121  S.  Ct.  at  2421.  275 
 Id.  276 
 Id.  277 
 Id.  278 
 Id.  279 
 In  the  Truth-  in-  Billing  proceeding,  the  Commission  stated  that  line-  item  charges  are  being  labeled  in  ways  that  could  mislead  consumers  by  detracting  from  their  ability  to  fully  understand  the  charges  appearing  on  their  monthly 


 bills.  See  TIB  Order  and  FNPRM,  14  FCC  Rcd  at  7531  para.  61.  280 
 47  U.  S.  C.    201,  202. 
47
 Federal  Communications  Commission  FCC  02-  43 
 48 
 the  Commission  currently  has  a  guideline  that  requires  telecommunications  carriers  to  use  standardized  labels  to  identify  charges  resulting  from  regulatory  action,  commenters  indicate  that 
 the  labeling  of  federal  universal  service  line  items  varies  by  carrier.  281  We  seek  comment  on  the  extent  to  which  the  labeling  of  line  items  varies  by  carrier  and  invite  commenters  to  provide 
 examples  of  such  variance.  We  also  seek  comment  on  whether  the  lack  of  uniform  descriptions  and  the  disparate  recovery  of  universal  service  contributions  from  consumers  may  make 
 comparison-  shopping  difficult  for  consumers.  In  addition,  we  seek  comment  on  whether  the  Commissions  interest  would  be  substantial  if  we  choose  to  adopt  limitations  on  carrier  mark-  ups 
 to  universal  service  contribution  line  items  that  appear  on  end-  user  bills.  282  We  seek  comment  on  this  analysis. 


 107.  Third,  we  seek  comment  on  whether  a  uniform  labeling  requirement  would  directly  and  materially  advance  the  Commissions  interest.  We  specifically  invite  comment  on 
 whether  a  uniform  line-  item  description  would  ensure  that  the  label  describing  the  recovery  of  federal  universal  service  contributions  is  consistent,  understandable,  and  does  not  confuse  or 
 mislead  consumers.  Would  uniform  labeling  better  ensure  that  carriers  provide  consumers  with  information  that  will  enable  them  to  better  understand  their  telecommunications  bills? 


 108.  Finally,  we  seek  comment  on  whether  a  limitation  on  labeling  such  line  items  would  be  no  more  extensive  than  necessary  to  serve  the  Commissions  interest  in  prohibiting 
 misleading  federal  universal  service  related  charges.  This  prong  requires  a  reasonable  fit  between  regulatory  ends  and  means:  [  n]  ot  necessarily  the  single  best  disposition  but  one  whose 
 scope  is  in  proportion  to  the  interest  served.    283  A  uniform  labeling  requirement  would  require  that  carriers  describe  the  separate  federal  universal  service  line  item  on  customer  bills  as  the 
 Federal  Universal  Service  Fee.  We  invite  commenters  to  address  concerns  that  a  uniform  labeling  requirement  would  unnecessarily  limit  or  censor  truthful,  non-  misleading  commercial 
 speech.  284  For  example,  would  a  uniform  labeling  requirement  limit  a  carriers  ability  to  provide  additional  information  to  its  customers  regarding  the  nature  and  purpose  of  the  charge?  285 
 Moreover,  would  such  a  regulation  limit  carrier  speech  relating  to  other  charges  on  customer  bills?  We  seek  comment  on  whether  the  proposed  regulation  would  be  valid  under  the  scrutiny 
 that  is  afforded  restrictions  on  commercial  speech. 
 109.  We  also  seek  comment  on  specific  consumer  outreach  efforts  that  would  help  to  make  the  universal  service  contribution  recovery  process  more  understandable  for  consumers. 


 The  Commission's  Consumer  Information  Bureau  currently  conducts  outreach  directed  at  educating  consumers  about  all  aspects  of  the  Commissions  universal  service  programs, 


 281  See  TIB  Order  and  FNPRM,  14  FCC  Rcd  at  7523;  see  also  ACUTA  Comments  at  3;  Brown  University 
 Comments  at  3;  Florida  State  University  Comments  at  2;  NASUCA  Comments  at  3,  19;  Western  Kentucky  University  Comments  at  2. 


 282  See  supra  paras.  95-  100. 
 283  See  Board  of  Trustees  v.  Fox,  492  U.  S.  469,  480  (1989)  (citing  In  re  R.  M.  J.,  455  U.  S.  191,  203  (1982));  see  also 
 Ward  v.  Rock  Against  Racism,  109  S.  Ct.  2746,  2758  (1989)  (a  regulation  is  narrowly  tailored  if  the  government  interest  would  be  achieved  less  effectively  without  the  regulation). 


 284  See  CTIA  Comments  at  13.  See  also  44  Liquormart,  Inc.  v.  Rhode  Island,  517  U.  S.  484  (1996)  (restrictions  on 
 speech  that  ban  truthful,  non-  misleading  commercial  speech  about  a  lawful  product  cannot  withstand  scrutiny  under  the  First  Amendment). 


 285  See  TIB  Order  and  FNPRM,  14  FCC  Rcd  at  7533  para.  64. 
48
 Federal  Communications  Commission  FCC  02-  43 
 49 
 including  the  contribution  recovery  process.  286  We  seek  comment  on  whether  to  expand  the  Consumer  Information  Bureaus  outreach  efforts.  We  invite  commenters  to  propose  specific 
 outreach  efforts  the  Consumer  Information  Bureau  could  undertake,  either  on  its  own,  or  in  conjunction  with  carriers  and  other  stakeholders.  In  the  interim,  the  Consumer  Information 
 Bureau  will  continue  its  educational  and  outreach  programs  regarding  federal  universal  service. 
 V.  REPORT  AND  ORDER 
 110.  In  the  2001  Notice,  we  recognized  the  need  to  reassess  periodically  the  current  contribution  methodology  to  ensure  that  it  remains  consistent  with  the  goals  of  the  Act  as  the 


 telecommunications  marketplace  evolves.  Although  we  are  seeking  more  focused  comment  on  specific  proposals  to  reform  the  Commissions  universal  service  contribution  methodology,  we 
 conclude  that  certain  modifications  to  the  current  revenue-  based  contribution  assessment  methodology  should  be  adopted  now  to  ensure  that  the  goals  of  the  Act  are  maintained  in  the 
 short  term.  Specifically,  the  measures  we  adopt  in  this  Order  will  ensure  that  universal  service  funding  remains  specific  and  predictable  while  we  consider  whether  to  implement  more 
 substantial  changes  to  the  contribution  methodology.  In  addition,  these  modifications  will  ensure  that  the  recovery  of  universal  service  contributions  is  more  understandable  for  consumers.  These 
 measures  also  will  further  reduce  the  regulatory  costs  of  complying  with  universal  service  obligations  and  will  ensure  that  the  assessment  of  contributions  remains  equitable  and 
 nondiscriminatory. 
 111.  First,  we  revise  the  Commissions  rules  to  exclude  universal  service  contributions  from  a  contributors  assessable  gross-  billed  interstate  telecommunications  revenues.  This 


 modification  addresses  circularity  in  the  current  methodology  that  may  cause  contributors  to  mark-  up  line  items.  Second,  we  amend  the  rules  to  permit  contributors  to  submit  revenue  data 
 on  a  consolidated  basis  on  behalf  of  commonly-  owned  subsidiaries.  Third,  we  increase  from  eight  to  12  percent  the  amount  of  domestic  interstate  revenues  a  contributor  may  have  and  still 
 qualify  for  the  limited  international  revenue  exception  to  our  universal  service  contribution  requirements. 


 A.  Eliminating  Circularity 
 1.  Background 
 112.  Contributors  currently  are  required  to  contribute  to  universal  service  based  on  gross-  billed  interstate  telecommunications  revenues,  including  revenues  from  charges  identified 


 on  a  bill  as  recovering  contributions  to  the  universal  service  support  mechanisms.  287  This  requirement  is  meant  to  ensure  that  such  revenues  are  properly  reported  and  included  in 
 contributors  contribution  bases,  and  to  make  it  easier  for  the  Commission  to  verify  that 
 286  For  example,  the  Consumer  Information  Bureau  operates  two  consumer  centers  that  consumers  can  contact  to 
 obtain  information  on  the  Commissions  universal  service  programs.  The  consumer  centers  may  be  reached  at  1-888-  CALL-  FCC  (1-  888-  225-  5322)  (voice)  or  1-  888-  TELL-  FCC  (1-  888-  835-  5322)  (TTY).  The  Consumer 


 Information  Bureau  also  provides  fact  sheets  on  universal  service  issues  through  the  Commissions  website.  See  <http://  www.  fcc.  gov/  cib>. 
 287  See  FCC  Form  499-  A,  at  line  403  (  Itemized  charges  levied  by  the  reporting  entity  in  order  to  recover 
 contributions  to  state  and  federal  universal  service  support  mechanisms  should  be  classified  as  end-  user  billed  revenues  and  should  be  reported  on  Line  (403)). 
49
 Federal  Communications  Commission  FCC  02-  43 
 50 
 contributors  are  not  over-  recovering  universal  service  contributions  from  subscribers.  288  Commenters,  however,  have  indicated  that  they  increase  their  universal  service  line  items  above 
 the  contribution  factor  in  part  to  account  for  the  inclusion  of  universal  service  line-  item  revenues  in  their  contribution  bases.  289  Such  circularity  leads  to  inflation  in  universal  service  line  items, 
 which  adds  to  customer  confusion  regarding  the  reasons  for  mark  ups.  To  address  the  problem  of  circularity,  we  proposed  to  impute  pass-  through  charges  for  all  contributors  and  remove  the 
 imputed  amounts  from  each  contributors  contribution  base.  290  Two  commenters  supported  the  removal  of  universal  service  contributions  from  the  contribution  base,  and  no  commenter 
 opposed  this  proposal.  291 
 2.  Discussion 
 113.  We  adopt  our  proposal  to  eliminate  circularity  from  contribution  assessments  by  excluding  each  contributors  actual  universal  service  contributions  from  its  assessable  gross-billed 


 interstate  telecommunications  revenues.  Although  the  elimination  of  circularity  will  reduce  the  contribution  base  and  therefore  will  result  in  an  increase  to  the  contribution  factor, 
 this  measure  will  eliminate  one  cause  for  contributors  to  recover  amounts  in  excess  of  the  contribution  factor. 


 114.  We  clarify  how  the  exclusion  of  contributor  contributions  from  the  contribution  base  will  operate  in  practice.  Contributors  will  continue  to  file  the  Form  499-  Q  with  their  gross-billed 
 interstate  telecommunications  revenues  from  the  prior  quarter.  As  discussed  above,  a  contributors  reported  gross-  billed  interstate  telecommunications  revenues  from  the  prior  quarter 
 serve  as  the  basis  for  its  contributions  in  the  next  quarter.  USAC  will  subtract  from  a  contributors  contribution  base  in  the  upcoming  quarter  those  amounts  contributed  to  universal 


 288  See  1998  Biennial  Regulatory  Review    Streamlined  Contributor  Reporting  Requirements  Associated  with 
 Administration  of  Telecommunications  Relay  Services,  North  American  Numbering  Plan,  Local  Number  Portability,  and  Universal  Service  Support  Mechanisms,  CC  Docket  No.  98-  171,  Notice  of  Proposed  Rulemaking  and  Notice  of 


 Inquiry,  13  FCC  Rcd  19295,  19307  para.  22  (1998).  289 
 See,  e.  g.,  AT&  T  Projected  Revenue  Request.  For  example,  assume  a  carrier  receives  $100  in  gross-  billed  interstate  telecommunications  revenues,  including  revenues  from  the  recovery  of  universal  service  contributions,  in 


 a  particular  reporting  period.  If  the  contribution  factor  for  that  period  is  7%,  the  carriers  contribution  would  be  $7.  If  the  carrier  then  passed  through  that  $7  assessment  to  its  end-  user  customers  and  the  carriers  other  revenues 
 remained  stable,  in  the  next  reporting  cycle  that  carrier  would  report  $107  in  gross-  billed  interstate  revenues.  Assuming  the  contribution  factor  remains  at  7%,  the  carriers  contribution  in  the  next  period  would  increase  to 
 $7.  49.  In  order  to  include  this  entire  amount  in  a  line  item  on  customer  bills,  the  carrier  would  need  to  increase  its  universal  service  line  item  above  the  current  contribution  factor.  In  the  example  provided,  the  carrier  would  need  a 
 contribution  line  item  of  7.49%  to  recover  all  of  its  contribution  costs  through  a  line  item.  We  acknowledge  that  if  total  universal  service  costs  remained  constant  and  the  contribution  base  increased,  the  contribution  factor  would  in 
 fact  decrease.  See  Federal-  State  Joint  Board  on  Universal  Service,  Division  Announces  Release  of  Revised  Universal  Service  Worksheet,  FCC  Form  457,  1998  Biennial  Regulatory  Review    Streamlined  Contributor 
 Reporting  Requirements  Associated  with  Administration  of  Telecommunications  Relay  Services,  North  American  Numbering  Plan,  Local  Number  Portability,  and  Universal  Service  Support  Mechanisms,  Twenty-  First  Order  on 
 Reconsideration  in  CC  Docket  No.  96-  45,  and  Memorandum  Opinion  and  Order  in  CC  Docket  Nos.  96-  45,  97-  21,  and  98-  171,  15  FCC  Rcd  12050,  12058-  59  (2000)  (Twenty-  First  Order  on  Reconsideration).  As  a  practical  matter, 
 however,  because  the  growth  in  total  program  costs  has  outpaced  growth  in  the  contribution  base,  the  contribution  factor  has  increased  over  time. 
 290  See  2001  Notice,  16  FCC  Rcd  at  9903  para.  22  n.  57. 
 291  See  Bahr  Comments  at  2-  7;  Letter  from  Jamie  M.  Tan,  SBC  Telecommunications,  Inc.,  to  Magalie  Roman  Salas, 
 Federal  Communications  Commission,  filed  Dec.  14,  2001,  at  5. 
50
 Federal  Communications  Commission  FCC  02-  43 
 51 
 service  in  the  prior  quarter.  292  Contributions  will  be  credited  in  the  quarter  in  which  they  are  received  by  USAC.  We  direct  USAC  to  begin  excluding  carrier  contributions  from  the 
 contribution  base  in  the  third  quarter  of  2002. 
 115.  We  note  that  excluding  actual  contributions  from  a  contributors  contribution  base  is  distinguishable  from  previously-  rejected  proposals  to  entirely  exclude  contributor-  imposed 


 universal  service  charges  from  the  contribution  base.  293  If  we  excluded  contributor-  imposed  universal  service  charges  from  the  contribution  base,  contributors  could  reduce  their  contribution 
 obligations  by  reducing  the  recovery  of  costs  through  service-  related  charges  and  increasing  the  recovery  of  costs  through  universal  service  charges.  294  Excluding  contributor-  imposed  universal 
 service  line-  item  charges  also  would  create  incentives  for  contributors  that  currently  recover  their  universal  service  contributions  through  their  rates  to  alter  their  business  plans  and  recover  such 
 contributions  through  a  line  item.  By  only  excluding  from  the  contribution  base  amounts  actually  contributed  to  universal  service,  we  avoid  creating  such  incentives,  provide  contributors 
 with  a  real  choice  of  recovery  methodologies,  and  maintain  competitive  neutrality. 
 B.  Consolidated  Form  499  Filing  for  Certain  Contributors 
 1.  Background 
 116.  To  collect  information  from  contributors  about  their  end-  user  telecommunications  revenues,  the  Commission  requires  contributors  to  submit  to  USAC  the  Telecommunications 


 Worksheet  (Worksheet),  also  known  as  Form  499-  A  and  Form  499-  Q,  five  times  per  year.  295  In  addition  to  collecting  revenue  information  for  universal  service  contribution  purposes,  the 
 Worksheet  also  collects  revenue  information  for  regulatory  fee  collection,  the  Telecommunications  Relay  Services  Fund,  the  cost  recovery  mechanism  for  administration  of 
 the  North  American  Numbering  Plan,  and  Local  Number  Portability.  296  Contributors  also  use  the  Worksheet  to  report  contact  information  regarding  their  agents  for  service  of  process  in  the 
 District  of  Columbia,  as  well  as  to  provide  registration  information  to  enable  the  Commission  to  monitor  contributor  activity,  especially  with  regard  to  slamming.  297  Contact  information 
 included  in  the  Worksheet  also  enables  the  Commission  to  confirm  contributor  compliance  with  obligations  under  the  Communications  Assistance  for  Law  Enforcement  Act  (CALEA).  298 


 117.  The  instructions  for  the  Worksheet  require  that  each  legal  entity  (defined  as 
 292  We  clarify  that  fees  and  other  charges  associated  with  late  payments  are  not  contributions  to  universal  service, 
 and  therefore  will  not  included  in  amounts  subtracted  from  a  contributor's  contribution  base  for  purposes  of  eliminating  circularity. 


 293  See  Twenty-  First  Order  on  Reconsideration,  15  FCC  Rcd  at  12058-  60  paras.  13-  15. 
 294  See  id.  at  12059  para.  15. 
 295  The  Form  499-  A  is  filed  annually,  while  the  Form  499-  Q  is  filed  quarterly. 
 296  See  Consolidated  Reporting  Order,  14  FCC  Rcd  16602. 
 297  Implementation  of  the  Subscriber  Carrier  Selection  Changes  Provisions  of  the  Telecommunications  Act  of  1996, 
 Policies  and  Rules  Concerning  Unauthorized  Changes  of  Consumers  Long  Distance  Carriers,  CC  Docket  No.  94-  129,  Third  Report  and  Order  and  Second  Order  on  Reconsideration,  15  FCC  Rcd  15996,  16025-  26  (2001).  The 


 term  slamming  refers  to  unauthorized  changes  to  a  customers  presubscribed  carrier.  298 
 See  47  C.  F.  R.    64.  2103. 
51
 Federal  Communications  Commission  FCC  02-  43 
 52 
 entities  with  separate  articles  of  incorporation)  submit  a  separate  Worksheet.  299  The  purpose  of  this  requirement  is  to  ensure,  among  other  things,  that:  (1)  the  filed  information  may  be 
 confirmed,  if  necessary,  by  a  company's  accounting  books;  (2)  the  officer  filing  the  information  is  familiar  with  such  information;  (3)  there  is  a  contact  person  for  each  entity;  (4)  contributors 
 will  be  able  to  document  and  respond  to  all  slamming  complaints;  and  (5)  there  is  no  disruption  to  the  Commissions  universal  service,  Telecommunications  Relay  Services,  Local  Number 
 Portability,  North  American  Numbering  Plan  Administration,  and  regulatory  fees  programs. 
 118.  In  certain  circumstances,  however,  this  requirement  may  result  in  requiring  a  single  contributor  to  file  multiple  separate  Worksheets.  This  may  happen  when  a  contributors 


 corporate  structure  contains  several  separate  legal  entities,  even  if  the  contributor  itself  functions  as  a  single  entity.  In  particular,  some  wireless  contributors  obtain  licenses  in  the  names  of 
 affiliates,  subsidiaries,  and  other  related  legal  entities  even  if  the  company  actually  functions  as  a  single  entity  in  all  other  respects.  Accordingly,  such  a  company  must  file  separate  Worksheets 
 for  each  of  its  subsidiaries  five  times  per  year,  even  though  the  company  functions  as  a  single  entity.  This  separate  filing  requirement  may  even  result  in  a  contributor  having  to  artificially 
 divide  its  whole  company  revenues  into  separate  revenue  amounts  for  each  of  its  subsidiaries,  solely  for  Worksheet  reporting  purposes.  Verizon  Wireless,  for  example,  reports  that,  as  a  result 
 of  the  quarterly  filing  requirement,  it  will  allocate  approximately  4,700  additional  hours  each  year  to  prepare  and  submit  700  forms  on  behalf  of  140  separate  corporate  subsidiaries.  300  A 
 number  of  commenters  asked  the  Commission  to  eliminate  the  separate  reporting  requirements  for  affiliated  entities.  301 


 2.  Discussion 
 119.  We  agree  with  commenters  that  we  should  streamline  the  reporting  requirements  to  permit  contributors  to  submit  revenue  data  on  a  consolidated  basis  under  certain 


 circumstances.  We  therefore  modify  our  reporting  requirements  to  enable  contributors  meeting  certain  criteria  to  file  the  Worksheet  on  a  consolidated  basis.  The  criteria  we  adopt  for 
 permitting  consolidated  filings  are  designed  to  ensure  that  a  contributor  actually  functions  as  a  single  entity,  and  to  obtain  essential  revenue  and  contact  information  from  such  a  contributor. 
 The  ability  to  file  a  consolidated  Worksheet  may  substantially  decrease  the  administrative  burdens  on  some  contributors.  For  example,  it  may  ameliorate  the  need  of  some  contributors  to 
 artificially  divide  their  whole  company  revenues  into  separate  revenue  amounts  for  their  subsidiaries  solely  for  Worksheet  reporting  purposes.  We  anticipate  that  many  wireless 
 contributors  will  qualify  and  choose  to  file  the  Worksheet  on  a  consolidated  basis.  Furthermore,  this  revision  may  dramatically  decrease  the  number  of  Worksheets  filed  with  USAC,  thereby 
 reducing  the  administrative  burden  on  the  Commissions  data  collection  agent  and  fund  administrators.  Most  importantly,  permitting  contributors  to  have  the  option  of  filing  on  a 
 consolidated  basis  will  have  no  negative  impact  on  the  integrity  of  the  information  contained  in  the  Worksheet. 


 299  See  Instructions  to  FCC  Form  499-  A  at  7;  see  also  Second  Order  on  Reconsideration,  12  FCC  Rcd  at  18512, 
 Appendix  C.  300 
 See  Verizon  Wireless  Comments  at  18.  301 
 See  CTIA  Comments  at  11;  Cingular  Comments  at  8;  Nextel  Comments  at  12;  PCIA  Reply  Comments  at  9;  USAC  Reply  Comments  at  22;  Verizon  Wireless  Comments  at  18. 
52
 Federal  Communications  Commission  FCC  02-  43 
 53 
 120.  Under  the  modified  reporting  requirements  we  adopt  here,  consolidated  filing  will  be  permitted  only  if  the  filing  entity  certifies  that  all  of  the  following  conditions  are  met: 
 (1)  A  single  entity  oversees  the  management  of  the  affiliated  systems;  (2)  A  single  entity  sends  bills  to  customers  and  these  bills  identify  a  single  entity  (or 
 trade  name)  as  the  service  provider,  rather  than  identifying  the  individual  legal  entities; 
 (3)  All  revenues  are  posted  to  a  single  general  ledger;  (4)  To  the  extent  that  separate  revenue  and  expense  accounts  exist,  they  are  derived 
 from  one  consolidated  set  of  books  and  the  consolidated  filing  must  cover  all  revenues  contained  in  the  consolidated  books; 
 (5)  Customers  have  a  single  point  of  contact;  (6)  The  consolidated  filer  acknowledges  that  process  served  on  the  consolidated  filer 
 would  represent  process  served  on  any  or  all  of  the  affiliated  legal  entities;  (7)  The  consolidated  filer  agrees  to  document  and  resolve  all  slamming  complaints  that 
 might  be  served  on  either  the  filing  entity  or  any  of  the  affiliated  legal  entities;  302  (8)  The  consolidated  filer  obtains  a  separate  FCC  Registration  Number  (FRN)  from 
 those  assigned  to  its  affiliated  legal  entities;  (9)  The  consolidated  filer  acknowledges  that  its  obligations  with  regard  to  universal 
 service,  Telecommunications  Relay  Services,  Local  Number  Portability,  the  North  American  Numbering  Plan,  and  regulatory  fees  will  be  based  on  the  data  provided 
 in  consolidated  Worksheet  filings,  that  it  bears  the  responsibility  to  satisfy  those  obligations,  and  that  all  legal  entities  covered  by  the  filing  are  jointly  and  severally 
 liable  for  such  obligations;  and  (10)  The  consolidated  filer  acknowledges  that  it:  (A)  was  not  insolvent  on  the  date  it 
 undertook  to  make  payments  on  a  consolidated  basis  or  on  the  date  of  actual  payments  to  universal  service,  Telecommunications  Relay  Services,  Local  Number 
 Portability,  the  North  American  Numbering  Plan,  and  regulatory  fees,  and  did  not  become  insolvent  as  a  result  of  such  undertaking  or  payments;  (B)  was  not  left  with 
 unreasonably  small  capital  as  a  result  of  such  undertaking  or  payments;  and  (C)  was  not  left  unable  to  pay  debts  as  they  matured  as  a  result  of  such  undertaking  or 
 payments.  303 
 121.  Each  year,  entities  choosing  to  file  on  a  consolidated  basis  must  file  a  statement  certifying  that  they  meet  all  of  the  above  conditions.  Such  certification  also  must  include:  (1)  a 
 list  of  the  legal  names  of  all  legal  entities  that  are  covered  by  the  filing;  (2)  the  Form  499  identification  numbers  of  all  legal  entities  that  are  covered  by  the  filing;  (3)  the  consolidated 
 filers  FRN;  and  (4)  for  wireless  carriers,  a  list  of  all  radio  licenses  (call  signs)  issued  to  each  legal  entity  covered  by  the  filing.  Consolidated  filers  should  file  this  certification  with  the 
 Commissions  Data  Collection  Agent.  Furthermore,  a  contributor  choosing  to  file  on  a  consolidated  basis  should  recognize  that  any  penalties  associated  with  failure  to  pay  or  with 
 underpayment  of  any  of  its  obligations  will  be  assessed  on  the  total  revenue  reported  on  the  consolidated  basis,  rather  than  on  a  separate  legal  entity  basis.  We  direct  USAC  to  begin 


 302  A  CMRS  carrier  that  is  not  subject  to  certain  slamming  regulations  is  not  required  to  certify  that  it  will  document 
 and  resolve  all  slamming  complaints  that  might  be  served  on  either  the  filing  entity  or  any  of  its  affiliated  legal  entity  that  also  are  not  subject  to  the  slamming  regulations. 


 303  For  purposes  of  this  certification,  the  term  "insolvent"  means  either  unable  to  pay  debts  when  due  or  having 
 liabilities  greater  than  assets.  See  11  U.  S.  C.    101(  32). 
53
 Federal  Communications  Commission  FCC  02-  43 
 54 
 accepting  such  consolidated  Worksheets  in  the  second  quarter  of  2002. 
 122.  We  also  amend  section  54.702  by  deleting  subsection  54.702(  f)  of  our  rules.  Under  section  54.702(  f)  of  our  rules,  USAC  is  required  to  periodically  compare  information 


 from  Telecommunications  Relay  Services  Fund  Worksheets  with  information  submitted  on  Universal  Service  Worksheets.  304  In  1999,  however,  the  Commission  established  the  FCC 
 Form  499  Telecommunications  Reporting  Worksheet,  which  consolidated  reporting  requirements  for  the  universal  service  mechanisms,  the  Telecommunications  Relay  Services 
 Fund,  the  cost  recovery  mechanism  for  administration  of  the  North  American  Numbering  Plan,  and  the  cost  recovery  mechanism  for  administration  of  long-  term  number  portability.  305  As  a 
 result,  section  54.702(  f)  was  made  obsolete,  but  inadvertently  was  not  deleted  at  that  time.  Accordingly,  we  delete  it  now. 


 C.  Limited  International  Revenues  Exception 
 1.  Background 
 123.  Under  section  54.706(  c)  of  the  Commissions  rules,  a  provider  of  interstate  and  international  telecommunications  is  not  required  to  contribute  based  on  its  international 


 telecommunications  end-  user  revenues  if  its  interstate  telecommunications  end-  user  revenues  constitute  less  than  eight  percent  of  its  combined  interstate  and  international  end-  user 
 telecommunications  revenues.  306  The  rule  is  intended  to  exclude  from  the  contribution  base  the  international  end-  user  telecommunications  revenues  of  any  telecommunications  provider  whose 
 annual  contribution,  based  on  the  providers  interstate  and  international  end-  user  telecommunications  revenues,  would  exceed  the  amount  of  its  interstate  end-  user 
 telecommunications  revenues.  307  The  Commission  concluded  that  the  rule  is  consistent  with  the  determination  of  the  United  States  Court  of  Appeals  for  the  Fifth  Circuit  that  requiring  a  carrier 
 to  pay  more  universal  service  contributions  than  it  derives  from  interstate  revenues  violates  the  requirement  in  section  254(  d)  of  the  Act  that  universal  service  contributions  be  equitable  and 
 nondiscriminatory.  308 
 124.  In  the  2001  Notice,  we  sought  comment  on  whether  to  increase  the  percentage  of  interstate  end-  user  telecommunications  revenues  a  contributor  could  have  and  still  qualify  for  the 


 limited  international  revenues  exception  to  our  universal  service  contribution  requirements.  309  Several  parties  submitted  comments  in  support  of  increasing  the  current  percentage.  310  No  party 
 submitted  comments  opposing  such  a  measure. 


 304  See  47  C.  F.  R.    54.  702. 
 305  See  Consolidated  Reporting  Order,  14  FCC  Rcd  16602. 
 306  See  47  C.  F.  R.    54.  706(  c);  see  also  Eighth  Report  and  Order,  15  FCC  Rcd  at  1687  para.  19. 
 307  Id. 
 308  See  id.  (citing  Texas  Office  of  Public  Utility  Counsel  v.  FCC,  183  F.  3d  at  434-  35). 
 309  See  2001  Notice,  16  FCC  Rcd  at  9907  para.  32. 
 310  See  BTNA  Comments  2-  4;  Lockheed  Comments  at  4-  9;  Loral  Reply  Comments  a  3-  4;  Primus  Comments  at  3-  4; 
 Verestar  Reply  Comments  at  3. 
54
 Federal  Communications  Commission  FCC  02-  43 
 55 
 2.  Discussion 
 125.  We  conclude  that  the  limited  international  revenues  exception  should  be  increased  from  eight  to  12  percent,  while  we  consider  whether  to  move  away  from  a  revenue-  based 


 assessment  system  altogether.  Consistent  with  section  254(  d)  of  the  Act,  we  conclude  that  raising  the  threshold  to  12  percent  will  ensure  that  a  contributors  universal  service  contribution 
 does  not  exceed  the  amount  of  its  interstate  end-  user  telecommunications  revenues  by  providing  a  margin  of  safety  to  account  for  any  possible  increases  to  the  contribution  factor  over  time. 
 When  the  limited  international  revenues  exception  was  implemented  in  November  1999,  the  universal  service  contribution  factor  was  5.8995  percent,  311  and  the  Commission  anticipated  that 
 the  universal  service  contribution  factor  would  not  exceed  eight  percent  in  the  near  future.  The  Commission  recently  established  a  universal  service  contribution  factor  of  6.808  percent.  312  As  a 
 result  of  many  factors,  including  possible  decreases  in  assessable  revenues  and  increases  in  universal  service  funding  requirements  over  time,  modest  increases  to  the  contribution  factor 
 may  occur  in  the  foreseeable  future.  313  If  the  universal  service  contribution  factor  increases  to  eight  percent,  a  contributor  may  become  obligated  to  contribute  to  the  universal  service 
 mechanisms  an  amount  that  exceeds  the  amount  of  its  interstate  end-  user  telecommunications  revenues.  With  the  elimination  of  circularity  and  anticipated  implementation  of  interstate 
 access  support  for  non-  price  cap  carriers,  Commission  staff  projects  that  the  contribution  factor  may  exceed  8  percent  in  2002.  314  This  projection  is  predicated  on  the  removal  of  prior  period 
 universal  service  contributions  from  the  contribution  base,  the  continuation  of  the  current  assessment  system  based  on  revenues,  anticipated  growth  in  the  universal  service  mechanisms, 
 and  continued  modest  growth  in  assessable  interstate  end-  user  telecommunications  revenues.  Large-  scale  migration  to  services  that  are  not  easy  to  categorize  by  jurisdiction  or  marketplace 
 disruptions,  such  as  a  prolonged  recession,  may  result  in  additional  increases  to  the  contribution  factor  over  time.  We  therefore  conclude  that  increasing  the  threshold  to  qualify  for  the 
 international  revenues  exception  to  12  percent  will  ensure  that  contributors  are  not  required  to  contribute  more  to  universal  service  than  they  derive  from  interstate  end-  user 
 telecommunications  revenues.  We  direct  USAC  to  begin  applying  the  higher  threshold  to  qualify  for  the  international  revenues  exception  in  the  second  quarter  of  2002. 


 126.  We  conclude  that  the  modified  rule  is  consistent  with  the  requirement  in  section  254(  d)  that  universal  service  support  be  sufficient.  Increasing  the  interstate  revenue  threshold 
 from  eight  percent  to  12  percent  to  qualify  for  the  limited  international  revenues  exception  will  exclude  only  slightly  more  international  revenues  from  the  contribution  base.  Based  on  revenue 
 data  reported  for  the  third  quarter  of  2001,  Commission  staff  projects  that  increasing  the  interstate  revenue  threshold  to  12  percent  would  result  in  less  than  a  0.5  percent  reduction  in  the 
 contribution  base.  The  relatively  small  amount  of  additional  international  revenue  that  will  be 


 311  See  Proposed  Fourth  Quarter  1999  Universal  Service  Contribution  Factor  for  November  and  December  1999, 
 CC  Docket  No.  96-  45,  Public  Notice,  DA  99-  2109  (Com.  Car.  Bur.  rel.  Oct.  8,  1999).  312 
 See  First  Quarter  2002  Contribution  Public  Notice,  16  FCC  Rcd  21329.  313 
 We  recently  have  observed  periodic  decreases  in  assessable  interstate  and  international  end-  user  telecommunications  revenues.  We  also  recently  have  implemented  reforms  to  certain  universal  service  support 


 mechanisms,  which  will  result  in  increased  funding  requirements  over  time.  See,  e.  g.,  Multi-  Association  Group  Order,  16  FCC  Rcd  at  19613  para.  1;  Rural  Task  Force  Order,  16  FCC  Rcd  11244. 
 314  See  supra  n.  111. 
55
 Federal  Communications  Commission  FCC  02-  43 
 56 
 excluded  from  the  contribution  base  should  not  dramatically  affect  the  level  of  the  quarterly  contribution  factor  or  the  ability  of  providers  to  meet  their  contribution  obligations. 
 127.  We  decline  to  increase  the  threshold  above  12  percent  or  to  exclude  international  revenues  from  the  contribution  requirement  altogether.  315  As  the  Commission  previously  has 
 observed,  under  section  254(  d)  of  the  Act,  all  interstate  telecommunications  providers  are  required  to  contribute  without  regard  to  whether  their  revenues  are  interstate  or  international.  316 
 The  Act  requires  only  that  contributions  be  equitable  and  nondiscriminatory,  and  specific,  predictable,  and  sufficient.  As  the  Commission  previously  concluded,  the  modified  international 
 revenues  exception  satisfies  each  of  these  requirements.  317  We  therefore  see  no  reason  to  further  broaden  the  exception  at  this  time. 


 128.  Our  adoption  of  a  12  percent  threshold  to  qualify  for  the  limited  international  revenues  exception  should  not  be  taken  as  an  indication  that  we  expect  the  contribution  factor  to 
 rise  to  that  level  in  the  near  future.  To  the  contrary,  we  choose  12  percent  because  it  will  provide  for  a  more  than  adequate  margin  of  safety  if  the  current  contribution  factor  increases  over  time. 
 Moreover,  we  seek  comment  on  measures  in  the  Further  Notice  that  are  intended  to  address  some  of  the  underlying  causes  of  increases  to  the  contribution  factor.  In  the  event  that  the  contribution 
 factor  increases  or  decreases  significantly,  the  Commission  could  revise  the  12  percent  threshold  to  a  more  appropriate  level.  318 


 VI.  PROCEDURAL  ISSUES 
 A.  Ex  Parte  Presentations 
 129.  This  is  a  non-  restricted  notice  and  comment  rulemaking  proceeding.  Ex  parte  presentations  are  permitted,  except  during  the  Sunshine  Agenda  period,  provided  they  are 


 disclosed  as  provided  in  the  Commissions  rules.  319 
 B.  Initial  Paperwork  Reduction  Act  of  1995  Analysis 
 130.  This  Further  Notice  contains  either  a  proposed  or  modified  information  collection.  As  part  of  a  continuing  effort  to  reduce  paperwork  burdens,  we  invite  the  general  public  and  the 


 Office  of  Management  and  Budget  (OMB)  to  take  this  opportunity  to  comment  on  the  information  collections  contained  in  this  Further  Notice,  as  required  by  the  Paperwork  Reduction 
 Act  of  1995,  Public  Law  104-  13.  Public  and  agency  comments  are  due  at  the  same  time  as  other  comments  on  this  Further  Notice;  OMB  comments  are  due  60  days  from  the  date  of  publication 


 315  See  BTNA  Comments  at  2;  Lockheed  Martin  Comments  at  9;  Loral  Reply  Comments  at  4;  Primus  Comments  at 
 4.  316 
 See  Eighth  Report  and  Order,  15  FCC  Rcd  at  1688  para.  22.  We  note  that,  under  section  254(  d)  of  the  Act,  the  Commission  may  exempt  a  carrier  or  class  of  carriers  from  contribution  requirements  if  the  carriers  contribution 


 would  be  de  minimis.  See  47  U.  S.  C.    254(  d).  317 
 See  Eighth  Report  and  Order,  15  FCC  Rcd  at  1688-  90  paras.  21-  26.  318 
 We  note  that,  if  we  adopt  a  per-  connection  assessment,  a  limited  international  revenue  exception  would  no  longer  be  necessary.  Under  the  proposal  discussed  in  greater  detail  above,  a  carrier  would  contribute  based  on  its 


 connections  to  a  public  network  and  therefore  no  longer  would  need  to  distinguish  between  international  and  interstate  revenues.  See  supra  paras.  41-  44. 
 319  See  generally  47  C.  F.  R.    1.1202,  1.1203,  1.  1206(  a). 
56
 Federal  Communications  Commission  FCC  02-  43 
 57 
 of  this  Further  Notice  in  the  Federal  Register.  Comments  should  address:  (a)  whether  the  proposed  collection  of  information  is  necessary  for  the  proper  performance  of  the  functions  of 
 the  Commission,  including  whether  the  information  shall  have  practical  utility;  (b)  the  accuracy  of  the  Commissions  burden  estimates;  (c)  ways  to  enhance  the  quality,  utility,  and  clarity  of  the 
 information  collected;  and  (d)  ways  to  minimize  the  burden  of  the  collection  of  information  on  the  respondents,  including  the  use  of  automated  collection  techniques  or  other  forms  of 
 information  technology. 
 C.  Initial  Regulatory  Flexibility  Act  Analysis 
 131.  As  required  by  the  Regulatory  Flexibility  Act  (RFA),  320  the  Commission  has  prepared  this  Initial  Regulatory  Flexibility  Analysis  (IRFA)  of  the  possible  significant  economic 


 impact  on  small  entities  by  the  policies  and  rules  proposed  in  this  Further  Notice  of  Proposed  Rulemaking.  Written  public  comments  are  requested  on  this  IRFA.  Comments  must  be 
 identified  as  responses  to  the  IRFA  and  must  be  filed  by  the  deadlines  for  comments  on  the  Further  Notice  provided  below  in  section  VI.  D.  The  Commission  will  send  a  copy  of  the  Further 
 Notice,  including  this  IRFA,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration.  321  In  addition,  the  Further  Notice  and  IRFA  (or  summaries  thereof)  will  be 
 published  in  the  Federal  Register.  322 
 1.  Need  for  and  Objectives  of  the  Proposed  Rules 
 132.  Over  the  last  few  years,  important  changes  have  occurred  in  the  interstate  telecommunications  marketplace.  323  Recently,  interstate  revenues  have  declined  for  certain 


 interexchange  carriers,  who  are  now  responsible  for  contributing  approximately  63  percent  of  federal  universal  service  funding.  We  observed  a  decline  in  assessable  revenues  in  the  first  half 
 of  2001.  324  One  analyst  projects  that  United  States  long  distance  revenues  will  decline  12  percent  in  2001.  325  Various  factors  may  be  responsible  for  this  decline,  including  migration  of 
 customers  to  new  products  and  services,  local  exchange  carrier  entry  into  the  long  distance  market,  and  related  price  competition.  This  trend  could  erode  the  contribution  base  over  time, 
 requiring  increases  in  the  contribution  factor. 
 133.  Additionally,  since  1997,  marketplace  developments  also  have  blurred  the  distinctions  between  interstate/  intrastate  and  telecommunications/  non-  telecommunications 


 revenues  on  which  the  current  contribution  system  is  based.  Carriers  increasingly  are  bundling  services  together  in  creative  ways,  for  example  by  offering  flat-  rate  packages  that  include  both 


 320  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). 


 321  See  5  U.  S.  C.    603(  a). 
 322  See  id. 
 323  See  2001  Notice,  16  FCC  Rcd  at  9899  paras.  12-  13. 
 324  See,  e.  g.,  Fourth  Quarter  2001  Contribution  Public  Notice,  16  FCC  Rcd  11990  (second  quarter  2001  estimate  of 
 interstate  and  international  end-  user  telecommunications  revenues  of  $19.  597  billion);  Third  Quarter  2001  Contribution  Public  Notice,  16  FCC  Rcd  11990  (first  quarter  2001  estimate  of  interstate  and  international  end-  user 


 telecommunications  revenues  of  $20.  141  billion).  325 
 See  COMMUNICATIONS  DAILY,  September  27,  2001,  at  5  (citing  Solomon-  Wolff  Associates  report). 
57
 Federal  Communications  Commission  FCC  02-  43 
 58 
 local  and  long  distance  services.  Virtually  all  of  the  major  mobile  telecommunications  service  providers  now  offer  a  type  of  Digital-  One-  Rate  (DOR)  pricing  plan  that  allows  customers  to 
 purchase  a  bucket  of  minutes  on  a  nationwide,  or  nearly  nationwide,  network  without  incurring  roaming  or  long  distance  charges.  326  A  number  of  carriers,  including  AT&  T  Wireless,  Verizon 
 Wireless,  and  Cingular  Wireless,  also  have  begun  offering  regional  DOR  calling  plans.  327  At  the  end  of  2000,  approximately  20  million  mobile  telephone  customers  subscribed  to  calling  plans 
 that  offer  free  nationwide  long  distance.  328  The  availability  of  such  plans  compounds  the  inherent  difficulty  of  identifying  interstate  revenues  in  a  mobile  environment.  Traditional 
 wireline  providers  also  are  increasingly  offering  bundled  rates  for  packages  of  local  and  long  distance  services.  329 


 134.  Likewise,  more  and  more  carriers  now  offer  bundled  packages  of  telecommunications  services  and  customer  premises  equipment  (CPE)  or  information  services. 
 The  accelerating  development  of  new  technologies  like  voice  over  Internet  increases  the  strain  on  regulatory  distinctions  such  as  interstate/  intrastate  and  telecommunications/  non-telecommunications, 
 and  may  reduce  the  overall  amount  of  assessable  revenues  reported  under  the  current  system.  330  Additional  legal,  technological,  and  market  developments  that  we  cannot 
 foresee  now  also  could  significantly  impact  the  universal  service  contribution  base. 
 135.  In  light  of  these  and  other  changes  in  the  telecommunications  marketplace,  the  Commission  has  recognized  the  need  to  review  the  current  system  for  assessing  universal  service 


 contributions.  Our  examination  of  the  record  reveals  a  consensus  that  reforms  are  necessary,  although  different  industry  segments  differ  on  what  reforms  should  be  undertaken.  331  Our 
 primary  goal  is  to  ensure  the  stability  and  sufficiency  of  the  universal  service  fund  as  the  marketplace  continues  to  evolve.  We  also  seek  to  identify  the  best  means  of  ensuring  that 
 contributors  continue  to  be  assessed  in  an  equitable  and  nondiscriminatory  manner,  and  recover  their  contributions  in  ways  that  are  fair  and  understandable  for  consumers.  In  addition,  we  seek 
 to  provide  certainty  to  market  participants,  and  minimize  the  regulatory  costs  of  complying  with  universal  service  obligations. 


 2.  Legal  Basis 
 136.  The  legal  basis  as  proposed  for  this  Further  Notice  is  contained  in  sections  4(  i),  4(  j),  201-  205,  254,  and  403  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    4(  i), 


 4(  j),  201-  205,  254,  403. 
 326  Paul  Kagan  Associates,  Inc.,  National  Order-  Rate  Plans  Take  Off,  WIRELESS  MARKET  STATS,  Jun.  16,  2000,  at 
 11.  See  Sixth  CMRS  Competition  Report,  16  FCC  Rcd  at  13377-  78.  327 
 See  Deborah  Mendez-  Wilson,  Big  Carriers  Get  Personal  With  Regional  Calling  Plans,  WIRELESS  WEEK,  Feb.  26,  2001,  at  12;  see  also  Sixth  CMRS  Competition  Report,  16  FCC  Rcd  at  13378. 


 328  See  Andrew  Backover,  AT&  T  Loss  Reflects  Long-  Distance  Shift,  Consumers  Turn  To  Calling  Cards,  Wireless, 
 USA  TODAY,  Jan.  30,  2001,  at  B3  (citing  analyst  Peter  Friedland  at  W.  R.  Hambrecht);  see  also  Sixth  CMRS  Competition  Report,  16  FCC  Rcd  at  13381-  82. 


 329  See  supra  para.  13. 
 330  See  Report  to  Congress,  13  FCC  Rcd  at  11508  para.  14  ,  11541  para.  83. 
 331  See,  e.  g.,  AT&  T  Comments  at  13;  Cable  and  Wireless  Reply  Comments  at  4;  Center  for  Digital  Democracy 
 Comments  at  7;  Excel  Comments  at  6;  Nextel  Comments  at  6;  Qwest  Comments  at  3;  SBC  Comments  at  4;  Texas  OPC  and  CFA  Comments  at  7;  Verizon  Comments  at  5;  WorldCom  Comments  at  14. 
58
 Federal  Communications  Commission  FCC  02-  43 
 59 
 3.  Description  and  Estimate  of  the  Number  of  Small  Entities  to  Which  the  Proposed  Rules  Will  Apply 
 137.  The  Commissions  contributor  reporting  requirements  apply  to  a  wide  range  of  entities,  including  all  telecommunications  carriers  and  other  providers  of  interstate 
 telecommunications  services  that  offer  telecommunications  services  for  a  fee.  332  Thus,  we  expect  that  the  proposal  in  this  proceeding  could  have  a  significant  economic  impact  on  a 
 substantial  number  of  small  entities.  Of  the  estimated  5,000  filers  of  the  Telecommunications  Reporting  Worksheet,  FCC  Form  499,  we  do  not  know  precisely  how  many  are  small  entities, 
 but  we  offer  below  some  estimates  of  the  number  of  small  entities  within  each  of  several  major  carrier-  type  categories. 


 138.  To  estimate  the  number  of  small  entities  that  could  be  affected  by  these  proposed  rules,  we  first  consider  the  statutory  definition  of  small  entity  under  the  RFA.  The  RFA 
 generally  defines  the  term  small  entity  as  having  the  same  meaning  as  the  terms  small  business,  small  organization,  and  small  governmental  jurisdiction.  333  In  addition,  the  term 
 small  business  has  the  same  meaning  as  the  term  small  business  concern  under  the  Small  Business  Act.  334  A  small  business  concern  is  one  that:  (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).  335 


 139.  The  SBA  has  defined  a  small  business  for  Standard  Industrial  Classification  (SIC)  categories  4812  (Radiotelephone  Communications)  and  4813  (Telephone  Communications, 
 Except  Radiotelephone)  to  be  small  entities  when  they  have  no  more  than  1,500  employees.  336  We  first  discuss  the  number  of  small  telephone  companies  falling  within  these  SIC  categories, 
 then  attempt  to  refine  further  those  estimates  to  correspond  with  the  categories  of  telecommunications  companies  that  are  commonly  used  under  our  rules. 


 140.  A  small  business  under  the  RFA  is  one  that,  inter  alia,  meets  the  pertinent  small  business  size  standard  (e.  g.,  a  telephone  communications  business  having  1,500  or  fewer 
 employees),  and  is  not  dominant  in  its  field  of  operation.  337  The  SBA's  Office  of  Advocacy 


 332  47  C.  F.  R.    52.  17  (applying  to  all  telecommunications  carriers),  54.  703  (applying  to  every  telecommunications 
 carrier  that  provides  interstate  telecommunications  services,  every  provider  of  interstate  telecommunications  that  offers  telecommunications  for  a  fee  on  a  non-  common  carrier  basis,  and  certain  payphone  providers),  and 


 64.  604(  c)(  4)(  iii)(  A)  (applying  to  every  carrier  providing  interstate  telecommunications  services).  We  note  that  the  Commissions  rules  for  universal  service  exempt  certain  small  contributors,  i.  e.,  contributors  that  have  revenue 
 below  a  stated  threshold.  47  C.  F.  R.    54.  705.  333 
 5  U.  S.  C.    601(  6).  334 
 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.  Id.  335 
 Small  Business  Act,  15  U.  S.  C.    632.  336 
 13  C.  F.  R.    121.201.  Categories  4812  and  4813  have  recently  been  reclassified  as  NAICS  codes  513321,  513322,  51331,  and  51334. 


 337  5  U.  S.  C.    601(  3). 
59
 Federal  Communications  Commission  FCC  02-  43 
 60 
 contends  that,  for  RFA  purposes,  small  incumbent  LECs  are  not  dominant  in  their  field  of  operation  because  any  such  dominance  is  not  national  in  scope.  338  We  have  therefore  included 
 small  incumbent  LECs  in  this  RFA  analysis,  although  we  emphasize  that  this  RFA  action  has  no  effect  on  Commission  analyses  and  determinations  in  other,  non-  RFA  contexts. 


 141.  The  most  reliable  source  of  information  regarding  the  total  numbers  of  common  carrier  and  related  providers  nationwide,  including  the  numbers  of  commercial  wireless  entities, 
 appears  to  be  data  the  Commission  publishes  annually  in  its  Trends  in  Telephone  Service  report.  339  According  to  data  in  the  most  recent  report,  there  are  4,822  interstate  carriers.  These 
 carriers  include,  inter  alia,  incumbent  local  exchange  carriers,  competitive  local  exchange  carriers,  competitive  access  providers,  interexchange  carriers,  other  wireline  carriers  and  service 
 providers  (including  shared-  tenant  service  providers  and  private  carriers),  operator  service  providers,  pay  telephone  operators,  providers  of  telephone  toll  service,  wireless  carriers  and 
 services  providers,  and  resellers. 
 142.  Total  Number  of  Telephone  Companies  Affected.  The  United  States  Bureau  of  the  Census  (  the  Census  Bureau)  reports  that,  at  the  end  of  1992,  there  were  3,497  firms  engaged  in 


 providing  telephone  services,  as  defined  therein,  for  at  least  one  year.  340  This  number  contains  a  variety  of  different  categories  of  carriers,  including  local  exchange  carriers,  interexchange 
 carriers,  competitive  access  providers,  cellular  carriers,  mobile  service  carriers,  operator  service  providers,  pay  telephone  operators,  PCS  providers,  covered  SMR  providers,  and  resellers.  It 
 seems  certain  that  some  of  those  3,497  telephone  service  firms  may  not  qualify  as  small  entities  or  small  incumbent  LECs  because  they  are  not  independently  owned  and  operated.  341  For 
 example,  a  PCS  provider  that  is  affiliated  with  an  interexchange  carrier  having  more  than  1,500  employees  would  not  meet  the  definition  of  a  small  business.  It  seems  reasonable  to  conclude, 
 therefore,  that  fewer  than  3,497  telephone  service  firms  are  small  entity  telephone  service  firms  or  small  incumbent  LECs  that  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 


 143.  Wireline  Carriers  and  Service  Providers.  SBA  has  developed  a  definition  of  small  entities  for  telephone  communications  companies  other  than  radiotelephone  companies. 
 The  Census  Bureau  reports  that,  there  were  2,321  such  telephone  companies  in  operation  for  at  least  one  year  at  the  end  of  1992.  342  According  to  SBA's  definition,  a  small  business  telephone 
 company  other  than  a  radiotelephone  company  is  one  employing  no  more  than  1,500  persons.  343 
 338  Letter  from  Jere  W.  Glover,  SBA,  to  Chmn.  William  E.  Kennard,  FCC,  dated  May  27,  1999.  The  Small 
 Business  Act  contains  a  definition  of  small  business  concern,  which  the  RFA  incorporates  into  its  own  definition  of  small  business.  See  15  U.  S.  C.    632(  a)  (Small  Business  Act);  5  U.  S.  C.    601(  3)  (RFA).  SBA  regulations 


 interpret  small  business  concern  to  include  the  concept  of  dominance  on  a  national  basis.  13  C.  F.  R.    121.102(  b).  Since  1996,  out  of  an  abundance  of  caution,  the  Commission  has  included  small  incumbent  local  exchange  carriers 
 in  its  regulatory  flexibility  analyses.  See,  e.  g.,  Implementation  of  the  Local  Competition  Provisions  of  the  Telecommunications  Act  of  1996,  CC  Docket  No.  96-  98,  First  Report  and  Order,  11  FCC  Rcd  15499,  16144-  45 
 (1996).  339 
 Trends  Report,  Table  16.3.  340 
 United  States  Department  of  Commerce,  Bureau  of  the  Census,  1992  Census  of  Transportation,  Communications,  and  Utilities:  Establishment  and  Firm  Size,  at  Firm  Size  1-  123  (1995)  (  1992  Census). 


 341  15  U.  S.  C.    632(  a)(  1). 
 342  1992  Census,  supra,  at  Firm  Size  1-  123. 
 343  13  C.  F.  R.    121.201,  SIC  Code  4813. 
60
 Federal  Communications  Commission  FCC  02-  43 
 61 
 All  but  26  of  the  2,321  non-  radiotelephone  companies  listed  by  the  Census  Bureau  were  reported  to  have  fewer  than  1,000  employees.  Thus,  even  if  all  26  of  those  companies  had  more  than 
 1,500  employees,  there  would  still  be  2,295  non-  radiotelephone  companies  that  might  qualify  as  small  entities  or  small  incumbent  LECs.  Although  it  seems  certain  that  some  of  these  carriers 
 are  not  independently  owned  and  operated,  we  are  unable  at  this  time  to  estimate  with  greater  precision  the  number  of  wireline  carriers  and  service  providers  that  would  qualify  as  small 
 business  concerns  under  SBAs  definition.  Consequently,  we  estimate  that  there  are  fewer  than  2,295  small  entity  telephone  communications  companies  other  than  radiotelephone  companies 
 that  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 
 144.  Local  Exchange  Carriers,  Interexchange  Carriers,  Competitive  Access  Providers,  Operator  Service  Providers,  Payphone  Providers,  and  Resellers.  Neither  the  Commission  nor 


 SBA  has  developed  a  definition  particular  to  small  local  exchange  carriers  (LECs),  interexchange  carriers  (IXCs),  competitive  access  providers  (CAPs),  operator  service  providers 
 (OSPs),  payphone  providers  or  resellers.  The  closest  applicable  definition  for  these  carrier-  types  under  SBA  rules  is  for  telephone  communications  companies  other  than  radiotelephone 
 (wireless)  companies.  344  The  most  reliable  source  of  information  regarding  the  number  of  these  carriers  nationwide  of  which  we  are  aware  appears  to  be  the  data  that  we  collect  annually  on  the 
 Form  499-  A.  According  to  our  most  recent  data,  there  are  1,335  incumbent  LECs,  349  CAPs,  204  IXCs,  21  OSPs,  758  payphone  providers  and  541  resellers.  345  Although  it  seems  certain  that 
 some  of  these  carriers  are  not  independently  owned  and  operated,  or  have  more  than  1,500  employees,  we  are  unable  at  this  time  to  estimate  with  greater  precision  the  number  of  these 
 carriers  that  would  qualify  as  small  business  concerns  under  SBA's  definition.  Consequently,  we  estimate  that  there  are  fewer  than  1,335  incumbent  LECs,  349  CAPs,  204  IXCs,  21  OSPs,  758 
 payphone  providers,  and  541  resellers  that  may  be  affected  by  the  decisions  and  rules  adopted  in  this  Order. 


 145.  Cellular  Licensees.  Neither  the  Commission  nor  the  SBA  has  developed  a  definition  of  small  entities  applicable  to  cellular  licensees.  The  applicable  definition  of  small 
 entity  is  the  definition  under  the  SBA  rules  applicable  to  radiotelephone  (wireless)  companies.  This  provides  that  a  small  entity  is  a  radiotelephone  company  employing  no  more  than  1,500 
 persons.  346  According  to  the  Bureau  of  the  Census,  only  twelve  radiotelephone  firms  from  a  total  of  1,178  such  firms  which  operated  during  1992  had  1,000  or  more  employees.  347  Even  if 
 all  twelve  of  these  firms  were  cellular  telephone  companies,  nearly  all  cellular  carriers  were  small  businesses  under  the  SBA's  definition.  In  addition,  we  note  that  there  are  1,758  cellular 
 licenses;  however,  a  cellular  licensee  may  own  several  licenses.  According  to  the  most  recent  Trends  Report,  806  carriers  reported  that  they  were  engaged  in  the  provision  of  either  cellular 
 service  or  Personal  Communications  Service  (PCS)  services,  which  are  placed  together  in  the  data.  348  We  do  not  have  data  specifying  the  number  of  these  carriers  that  are  not  independently 
 owned  and  operated  or  have  more  than  1,500  employees,  and  are  unable  at  this  time  to  estimate 
 344  13  C.  F.  R.    121.201,  SIC  Code  4813. 
 345  See  Trends  Report,  Table  16.  3.  The  total  for  resellers  includes  both  toll  resellers  and  local  resellers.  The 
 category  for  CAPs  also  includes  competitive  local  exchange  carriers  (CLECs)  (total  of  129  for  both).  346 
 13  C.  F.  R.    121.201,  SIC  code  4812.  347 
 1992  Census,  Series  UC92-  S-  1,  at  Table  5,  SIC  code  4812.  348 
 Trends  Report,  Table  16.3. 
61
 Federal  Communications  Commission  FCC  02-  43 
 62 
 with  greater  precision  the  number  of  cellular  service  carriers  that  would  qualify  as  small  business  concerns  under  the  SBA's  definition.  We  estimate  that  there  are  fewer  than  806  small  cellular 
 service  carriers  that  may  be  affected  by  the  proposed  rules,  if  adopted. 
 146.  220  MHz  Radio  Service  --  Phase  I  Licensees.  The  220  MHz  service  has  both  Phase  I  and  Phase  II  licenses.  Phase  I  licensing  was  conducted  by  lotteries  in  1992  and  1993. 


 There  are  approximately  1,515  such  non-  nationwide  licensees  and  four  nationwide  licensees  currently  authorized  to  operate  in  the  220  MHz  band.  The  Commission  has  not  developed  a 
 definition  of  small  entities  specifically  applicable  to  such  incumbent  220  MHz  Phase  I  licensees.  To  estimate  the  number  of  such  licensees  that  are  small  businesses,  we  apply  the  definition  under 
 the  SBA  rules  applicable  to  Radiotelephone  Communications  companies.  This  definition  provides  that  a  small  entity  is  a  radiotelephone  company  employing  no  more  than  1,500 
 persons.  349  According  to  the  Bureau  of  the  Census,  only  12  radiotelephone  firms  out  of  a  total  of  1,178  such  firms  which  operated  during  1992  had  1,000  or  more  employees.  350  If  this  general 
 ratio  continues  in  the  context  of  Phase  I  220  MHz  licensees,  we  estimate  that  nearly  all  such  licensees  are  small  businesses  under  the  SBA's  definition. 


 147.  220  MHz  Radio  Service  --  Phase  II  Licensees.  The  Phase  II  220  MHz  service  is  a  new  service,  and  is  subject  to  spectrum  auctions.  In  the  220  MHz  Third  Report  and  Order,  we 
 adopted  criteria  for  defining  small  and  very  small  businesses  for  purposes  of  determining  their  eligibility  for  special  provisions  such  as  bidding  credits  and  installment  payments.  351  We  have 
 defined  a  small  business  as  an  entity  that,  together  with  its  affiliates  and  controlling  principals,  has  average  gross  revenues  not  exceeding  $15  million  for  the  preceding  three  years.  A  very 
 small  business  is  defined  as  an  entity  that,  together  with  its  affiliates  and  controlling  principals,  has  average  gross  revenues  that  are  not  more  than  $3  million  for  the  preceding  three  years.  352 
 The  SBA  has  approved  these  definitions.  353  An  auction  of  Phase  II  licenses  commenced  on  September  15,  1998,  and  closed  on  October  22,  1998.  354  Two  auctions  of  Phase  II  licenses  have 
 been  conducted.  In  the  first  auction,  nine  hundred  and  eight  (908)  licenses  were  auctioned  in  3  different-  sized  geographic  areas:  three  nationwide  licenses,  30  Regional  Economic  Area  Group 
 Licenses,  and  875  Economic  Area  (EA)  Licenses.  Of  the  908  licenses  auctioned,  693  were  sold.  Companies  claiming  small  business  status  won:  one  of  the  Nationwide  licenses,  67%  of  the 
 Regional  licenses,  and  54%  of  the  EA  licenses.  The  second  auction  included  225  licenses:  216  EA  licenses  and  9  EAG  licenses.  Fourteen  companies  claiming  small  business  status  won  158 


 349  13  C.  F.  R.    121.201,  Standard  Industrial  Classification  (SIC)  code  4812. 
 350  U.  S.  Bureau  of  the  Census,  U.  S.  Department  of  Commerce,  1992  Census  of  Transportation,  Communications, 
 and  Utilities,  UC92-  S-  1,  Subject  Series,  Establishment  and  Firm  Size,  Table  5,  Employment  Size  of  Firms;  1992,  SIC  code  4812  (issued  May  1995). 


 351  220  MHz  Third  Report  and  Order,  12  FCC  Rcd  10943,  11068-  70,  at  paras.  291-  295  (1997). 
 352  Id.  at  11068-  69  para.  291. 
 353  See  Letter  from  A.  Alvarez,  Administrator,  SBA,  to  D.  Phythyon,  Chief,  Wireless  Telecommunications  Bureau, 
 FCC  (Jan.  6,  1998).  354 
 See  generally  Public  Notice,  "220  MHz  Service  Auction  Closes,"  Report  No.  WT  98-  36  (Wireless  Telecommunications  Bureau,  October  23,  1998). 
62
 Federal  Communications  Commission  FCC  02-  43 
 63 
 licenses.  355 
 148.  Private  and  Common  Carrier  Paging.  In  the  Paging  Third  Report  and  Order,  we  adopted  criteria  for  defining  small  businesses  and  very  small  businesses  for  purposes  of 


 determining  their  eligibility  for  special  provisions  such  as  bidding  credits  and  installment  payments.  356  We  have  defined  a  small  business  as  an  entity  that,  together  with  its  affiliates  and 
 controlling  principals,  has  average  gross  revenues  not  exceeding  $15  million  for  the  preceding  three  years.  Additionally,  a  very  small  business  is  defined  as  an  entity  that,  together  with  its 
 affiliates  and  controlling  principals,  has  average  gross  revenues  that  are  not  more  than  $3  million  for  the  preceding  three  years.  357  The  SBA  has  approved  these  definitions.  358  An  auction  of 
 Metropolitan  Economic  Area  (MEA)  licenses  commenced  on  February  24,  2000,  and  closed  on  March  2,  2000.  359  Of  the  985  licenses  auctioned,  440  were  sold.  Fifty-  seven  companies 
 claiming  small  business  status  won.  At  present,  there  are  approximately  24,000  Private-  Paging  site-  specific  licenses  and  74,000  Common  Carrier  Paging  licenses.  According  to  the  most  recent 
 Trends  Report,  427  carriers  reported  that  they  were  engaged  in  the  provision  of  paging  and  messaging  services.  360  We  do  not  have  data  specifying  the  number  of  these  carriers  that  are  not 
 independently  owned  and  operated  or  have  more  than  1,500  employees,  and  therefore  are  unable  at  this  time  to  estimate  with  greater  precision  the  number  of  paging  carriers  that  would  qualify  as 
 small  business  concerns  under  the  SBA's  definition.  Consequently,  we  estimate  that  there  are  fewer  than  427  small  paging  carriers  that  may  be  affected  by  the  decisions  and  rules  adopted  in 
 this  Order.  We  estimate  that  the  majority  of  private  and  common  carrier  paging  providers  would  qualify  as  small  entities  under  the  SBA  definition. 


 149.  Broadband  Personal  Communications  Service  (PCS).  The  broadband  PCS  spectrum  is  divided  into  six  frequency  designated  A  through  F,  and  the  Commission  has  held 
 auctions  for  each  block.  The  Commission  defined  small  entity  for  Blocks  C  and  F  as  an  entity  that  has  average  gross  revenues  of  less  than  $40  million  in  the  three  previous  calendar  years.  361 
 For  Block  F,  an  additional  classification  for  very  small  business  was  added  and  is  defined  as  an  entity  that,  together  with  their  affiliates,  has  average  gross  revenues  of  not  more  than  $15 
 million  for  the  preceding  three  calendar  years.  362  These  regulations  defining  small  entity  in  the 


 355  Public  Notice,  "FCC  Announces  It  is  Prepared  to  Grant  654  Phase  II  220  MHz  Licenses  After  Final  Payment  is 
 Made,"  Report  No.  AUC-  18-  H,  DA  No.  99-  229  (Wireless  Telecom.  Bur.  Jan.  22,  1999).  356 
 220  MHz  Third  Report  and  Order,  12  FCC  Rcd  10943,  11068-  70,  at  paragraph  291-  295  (1997).  357 
 220  MHz  Third  Report  and  Order,  12  FCC  Rcd  11068-  69,  at  paragraph  291  (1997).  358 
 See  Letter  from  A.  Alvarez,  Administrator,  SBA,  to  D.  Phythyon,  Chief,  Wireless  Telecommunications  Bureau,  FCC  (January  6,  1998). 


 359  See  generally  Public  Notice,  220  MHz  Service  Auction  Closes,  Report  No.  WT  98-  36  (Wireless 
 Telecommunications  Bureau  (October  23,  1998).  360 
 Trends  Report,  Table  16.3.  361 
 See  Amendment  of  Parts  20  and  24  of  the  Commissions  Rules    Broadband  PCS  Competitive  Bidding  and  the  Commercial  Mobile  Radio  Service  Spectrum  Cap,  Report  and  Order,  FCC  96-  278,  WT  Docket  No.  96-  59  Sections 


 57-  60  (released  June  24,  1996),  61  FR  33859  (July  1,  1996);  see  also  47  C.  F.  R.    24.  720(  b).  362 
 See  Amendment  of  Parts  20  and  24  of  the  Commissions  Rules    Broadband  PCS  Competitive  Bidding  and  the  Commercial  Mobile  Radio  Service  Spectrum  Cap,  Report  and  Order,  FCC  96-  278,  WT  Docket  No.  96-  59  Sections 


 60  (released  June  24,  1996),  61  FR  33859  (July  1,  1996) 
63
 Federal  Communications  Commission  FCC  02-  43 
 64 
 context  of  broadband  PCS  auctions  have  been  approved  by  the  SBA.  363  No  small  businesses  within  the  SBA-  approved  definition  bid  successfully  for  licenses  in  Blocks  A  and  B.  There  were 
 90  winning  bidders  that  qualified  as  small  entities  in  the  Block  C  auctions.  A  total  of  93  small  and  very  small  business  bidders  won  approximately  40%  of  the  1,479  licenses  for  Blocks  D,  E, 
 and  F.  364  On  March  23,  1999,  the  Commission  re-  auctioned  347  C,  D,  E,  and  F  Block  licenses;  there  were  48  small  business  winning  bidders.  Based  on  this  information,  we  conclude  that  the 
 number  of  small  broadband  PCS  licensees  will  include  the  90  winning  C  Block  bidders  and  the  93  qualifying  bidders  in  the  D,  E,  and  F  blocks,  plus  the  48  winning  bidders  in  the  re-  auction,  for 
 a  total  of  231  small  entity  PCS  providers  as  defined  by  the  SBA  and  the  Commission's  auction  rules.  On  January  26,  2001,  the  Commission  completed  the  auction  of  422  C  and  F  Broadband 
 PCS  licenses  in  Auction  No.  35.  Of  the  35  winning  bidders  in  this  auction,  29  qualified  as  small  or  very  small  businesses. 


 150.  Narrowband  PCS.  To  date,  two  auctions  of  narrowband  PCs  licenses  have  been  conducted.  Through  these  auctions,  the  Commission  has  awarded  a  total  of  41  licenses,  out  of 
 which  11  were  obtained  by  small  businesses.  For  purposes  of  the  two  auctions  that  have  already  been  held,  small  businesses  were  defined  as  entities  with  average  gross  revenues  for  the  prior 
 three  calendar  years  of  $40  million  or  less.  To  ensure  meaningful  participation  of  small  business  entities  in  the  auctions,  the  Commission  adopted  a  two-  tiered  definition  of  small  businesses  in 
 the  Narrowband  PCS  Second  Report  and  Order.  365  A  small  business  is  an  entity  that,  together  with  affiliates  and  controlling  interests,  has  average  gross  revenues  for  the  three  preceding  years 
 of  not  more  than  $40  million.  A  very  small  business  is  an  entity  that,  together  with  affiliates  and  controlling  interests,  has  average  gross  revenues  for  the  three  preceding  years  of  not  more  than 
 $15  million.  These  definitions  have  been  approved  by  the  SBA.  In  the  future,  the  Commission  will  auction  459  licenses  to  serve  MTAs  and  408  response  channel  licenses.  There  is  also  one 
 megahertz  of  narrowband  PCS  spectrum  that  has  been  held  in  reserve  and  that  the  Commission  has  not  yet  decided  to  release  for  licensing.  The  Commission  cannot  predict  accurately  the 
 number  of  licenses  that  will  be  awarded  to  small  entities  in  future  auctions.  However,  four  of  the  16  winning  bidders  in  the  two  previous  narrowband  PCS  auctions  were  small  businesses,  as  that 
 term  was  defined  under  the  Commissions  Rules.  The  Commission  assumes,  for  purposes  of  this  IRFA,  that  a  large  portion  of  the  remaining  narrowband  PCS  licenses  will  be  awarded  to  small 
 entities.  The  Commission  also  assumes  that  at  least  some  small  businesses  will  acquire  narrowband  PCS  licenses  by  means  of  the  Commissions  partitioning  and  disaggregation  rules. 


 151.  Rural  Radiotelephone  Service.  The  Commission  has  not  adopted  a  definition  of  small  entity  specific  to  the  Rural  Radiotelephone  Service.  366  A  significant  subset  of  the  Rural 
 Radiotelephone  Service  is  the  Basic  Exchange  Telephone  Radio  Systems  (BETRS).  367  We  will  use  the  SBA's  definition  applicable  to  radiotelephone  companies,  i.  e.,  an  entity  employing  no 


 363  See,  e.  g.,  Implementation  of  Section  309(  j)  of  the  Communications  Act    Competitive  Bidding,  PP  Docket  No. 
 93-  253,  Fifth  Report  and  Order,  9  FCC  Rcd  5532,  5581-  84  (1994).  364 
 FCC  News,  Broadband  PCS,  D,  E  and  F  Block  Auction  Closes,  No.  71744  (released  January  14,  1997).  365 
 In  the  Matter  of  Amendment  of  the  Commissions  Rules  to  Establish  New  Personal  Communications  Services,  Narrowband  PCS,  Docket  No.  ET  92-  100,  Docket  No.  PP  93-  253,  Second  Report  and  Order  and  Second  Further 


 Notice  of  Proposed  Rulemaking,  15  FCC  Rcd  10456  (2000).  366 
 The  service  is  defined  in  section  22.  99  of  the  Commission's  Rules.  47  C.  F.  R.    22.  99.  367 
 BETRS  is  defined  in  sections  22.  757  and  22.  759  of  the  Commission's  Rules.  47  C.  F.  R.    22.  757,  22.759. 
64
 Federal  Communications  Commission  FCC  02-  43 
 65 
 more  than  1,500  persons.  368  There  are  approximately  1,000  licensees  in  the  Rural  Radiotelephone  Service,  and  we  estimate  that  almost  all  of  them  qualify  as  small  entities  under 
 the  SBA's  definition. 
 152.  Air-  Ground  Radiotelephone  Service.  The  Commission  has  not  adopted  a  definition  of  small  entity  specific  to  the  Air-  Ground  Radiotelephone  Service.  369  We  will  use  the 


 SBA's  definition  applicable  to  radiotelephone  companies,  i.  e.,  an  entity  employing  no  more  than  1,500  persons.  370  There  are  approximately  100  licensees  in  the  Air-  Ground  Radiotelephone 
 Service,  and  we  estimate  that  almost  all  of  them  qualify  as  small  under  the  SBA  definition. 
 153.  Specialized  Mobile  Radio  (SMR).  Pursuant  to  47  CFR  Section  90.814(  b)(  1),  the  Commission  has  defined  small  business  for  purposes  of  auctioning  900  MHz  SMR  licenses, 


 800  MHz  SMR  licenses  for  the  upper  200  channels,  and  800  MHz  SMR  licenses  for  the  lower  230  channels  on  the  800  MHz  band,  as  a  firm  that  has  had  average  annual  gross  revenues  of  $15 
 million  or  less  in  the  three  preceding  calendar  years.  371  The  SBA  has  approved  this  small  business  size  standard  for  the  800  MHz  and  900  MHz  auctions.  Sixty  winning  bidders  for 
 geographic  area  licenses  in  the  900  MHz  SMR  band  qualified  as  small  business  under  the  $15  million  size  standard.  The  auction  of  the  525  800  MHz  SMR  geographic  area  licenses  for  the 
 upper  200  channels  began  on  October  28,  1997,  and  was  completed  on  December  8,  1997.  Ten  winning  bidders  for  geographic  area  licenses  for  the  upper  200  channels  in  the  800  MHz  SMR 
 band  qualified  as  small  businesses  under  the  $15  million  size  standard.  An  auction  of  800  MHz  SMR  geographic  area  licenses  for  the  General  Category  channels  began  on  August  16,  2000  and 
 was  completed  on  September  1,  2000.  Of  the  1,050  licenses  offered  in  that  auction,  1,030  licenses  were  sold.  Eleven  winning  bidders  for  licenses  for  the  General  Category  channels  in  the 
 800  MHz  SMR  band  qualified  as  small  business  under  the  $15  million  size  standard.  In  an  auction  completed  on  December  5,  2000,  a  total  of  2,800  EA  licenses  in  the  lower  80  channels  of 
 the  800  MHz  SMR  service  were  sold.  Of  the  22  winning  bidders,  19  claimed  small  business  status.  In  addition,  there  are  numerous  incumbent  site-  by-  site  SMR  licenses  on  the  800  and  900 
 MHz  band. 
 154.  We  do  not  know  how  many  firms  provide  800  MHz  or  900  MHz  geographic  area  SMR  service  pursuant  to  extended  implementation  authorizations,  nor  how  many  of  these 


 providers  have  annual  revenues  of  no  more  than  $15  million.  One  firm  has  over  $15  million  in  revenues.  We  assume,  for  purposes  of  this  FRFA,  that  all  of  the  remaining  existing  extended 
 implementation  authorizations  are  held  by  small  entities,  as  that  term  is  defined  by  the  SBA. 
 155.  For  geographic  area  licenses  in  the  900  MHz  SMR  band,  there  are  60  who  qualified  as  small  entities.  For  the  800  MHz  SMR's,  38  are  small  or  very  small  entities. 


 4.  Description  of  Projected  Reporting,  Recordkeeping,  and  Other  Compliance  Requirements 
 156.  Should  the  Commission  decide  that  fundamental  reform  of  the  existing 
 368  13  C.  F.  R.    121.201,  SIC  code  4812. 
 369  The  service  is  defined  in  section  22.  99  of  the  Commission's  Rules.  47  C.  F.  R.    22.  99. 
 370  13  C.  F.  R.    121.201,  SIC  code  4812. 
 371  47  C.  F.  R.    90.  814(  b)(  1). 
65
 Federal  Communications  Commission  FCC  02-  43 
 66 
 contribution  methodology  is  needed,  the  associated  rule  changes  potentially  could  modify  the  reporting  and  recordkeeping  requirements  of  telecommunications  service  providers  regulated 
 under  the  Communications  Act.  As  discussed  previously,  we  potentially  could  require  telecommunications  service  providers  to  file  additional  and/  or  different  monthly  or  quarterly 
 reports.  372  Any  such  reporting  requirements  potentially  could  require  the  use  of  professional  skills,  including  legal  and  accounting  expertise.  Without  more  data,  we  cannot  accurately 
 estimate  the  cost  of  compliance  by  small  telecommunications  service  providers.  In  this  Further  Notice,  we  therefore  seek  comment  on  the  frequency  with  which  carriers  should  submit  reports 
 to  USAC,  the  types  of  burdens  carriers  will  face  in  periodically  submitting  reports  to  USAC,  and  whether  the  costs  of  such  reporting  are  outweighed  by  the  potential  benefits  of  the  possible 
 reforms.  Entities,  especially  small  businesses,  are  encouraged  to  quantify  the  costs  and  benefits  of  the  reporting  requirement  proposals. 


 5.  Steps  Taken  to  Minimize  Significant  Economic  Impact  on  Small  Entities,  and  Significant  Alternatives  Considered 
 157.  The  RFA  requires  an  agency  to  describe  any  significant  alternatives  that  it  has  considered  in  reaching  its  proposed  approach,  which  may  include  the  following  four  alternatives 
 (among  others):  (1)  the  establishment  of  differing  compliance  or  reporting  requirements  or  timetables  that  take  into  account  the  resources  available  to  small  entities;  (2)  the  clarification, 
 consolidation,  or  simplification  of  compliance  or  reporting  requirements  under  the  rule  for  small  entities;  (3)  the  use  of  performance,  rather  than  design,  standards;  and  (4)  an  exemption  from 
 coverage  of  the  rule,  or  any  part  thereof,  for  small  entities.  373 
 158.  As  discussed  previously,  this  Further  Notice  seeks  comment  on  how  to  streamline  and  reform  both  the  manner  in  which  the  Commission  assesses  carrier  contributions  to  the 


 universal  service  fund  and  the  manner  in  which  carriers  may  recover  those  costs  from  their  customers.  We  seek  more  focused  comment  on  whether  to  assess  contributions  based  on  the 
 number  and  capacity  of  connections  provided  to  a  public  network,  as  proposed  by  some  commenters.  374  A  connection-  based  assessment  approach  may  address  the  difficulty  of  applying 
 regulatory  distinctions  inherent  in  the  existing  system  to  new  services  and  technologies.  By  harmonizing  the  contribution  system  with  the  telecommunications  marketplace,  a  connection-based 
 assessment  approach  may  help  to  ensure  the  stability  and  sufficiency  of  the  universal  service  contribution  base  over  time.  We  also  invite  commenters  to  supplement  the  record 
 developed  in  response  to  the  2001  Notice  with  any  new  arguments  or  data  regarding  whether  to  retain  or  modify  the  existing  revenue-  based  system.  For  example,  some  commenters  suggest  that 
 we  retain  or  modify  slightly  the  existing  system.  375  In  addition,  we  seek  additional  comment  in  the  Further  Notice  on  reforming  the  contribution  recovery  process  to  make  it  more  fair  and 
 understandable  for  consumers. 
 159.  Wherever  possible,  the  Further  Notice  seeks  comment  on  how  to  reduce  the 


 372  See  supra  paras.  76-  82. 
 373  5  U.  S.  C.    603(  c). 
 374  See  generally  AT&  T,  WorldCom,  Sprint,  and  Level  3  comments  supporting  connection-  based  assessment. 
 375  See  generally  ASCENT,  AT&  T  Wireless,  PCIA,  and  SBC  comments  supporting  assessment  on  current  revenues, 
 APCC,  Excel,  and  Iowa  Utilities  Board  comments  supporting  assessment  on  projected  revenues. 
66
 Federal  Communications  Commission  FCC  02-  43 
 67 
 administrative  burden  and  cost  of  compliance  for  small  telecommunications  service  providers.  We  seek  comment,  for  example,  on  the  appropriate  frequency  and  content  of  reporting  under  a 
 connection-  based  methodology.  We  particularly  seek  comment  from  contributors  that  are  small  business  concerns  under  the  Small  Business  Act. 


 160.  Contributors  currently  report  their  gross-  billed  interstate  end-  user  telecommunications  revenues  on  a  quarterly  basis  on  the  Form  499-  Q.  We  seek  comment  on 
 requiring  contributors  to  report  the  number  and  capacity  of  their  connections  on  a  monthly  basis.  376  Under  this  proposal,  each  month  contributors  would  receive  a  fill-  in-  the-  blank  bill  from 
 USAC  and  would  remit  their  contribution  based  on  the  number  and  capacity  of  their  end-  user  connections  in  service  as  of  the  end  of  the  prior  month.  Therefore,  the  proposed  new  Form  499- 
 M  would  serve  both  as  a  contributors  monthly  bill  and  its  reporting  obligation.  Although  contributors  would  have  to  report  more  frequently  under  this  proposal  than  under  the  current 
 system,  their  overall  reporting  burdens  may  be  significantly  reduced  because  they  would  only  be  required  to  report  the  number  and  capacity  of  the  connections  they  provide,  rather  than  their 
 interstate  telecommunications  revenues.  In  addition,  a  contributors  reporting  obligation  and  its  bill  would  become  one  in  the  same.  We  also  seek  comment  on  whether  requiring  only  one  entity 
 to  contribute  for  a  connection  would  ease  some  of  the  administrative  burdens  associated  with  compliance.  377  Last,  we  also  seek  comment  on  an  alternative  that  might  assist  small  entities: 
 how  to  craft  a  de  minimis  exemption  should  the  Commission  choose  to  adopt  a  connection-  based  system.  378 


 6.  Federal  Rules  that  May  Duplicate,  Overlap,  or  Conflict  with  the  Proposed  Rules 
 161.  None. 
 D.  Comment  Filing  Procedures 
 162.  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.  379 
 163.  Comments  filed  through  the  ECFS  can  be  sent  as  an  electronic  file  via  the  Internet  to  <http://  www.  fcc.  gov/  e-  file/  ecfs.  html>.  Generally,  only  one  copy  of  an  electronic  submission 


 must  be  filed.  If  multiple  docket  or  rulemaking  numbers  appear  in  the  caption  of  this  proceeding,  however,  commenters  must  transmit  one  electronic  copy  of  the  comments  to  each 
 docket  or  rulemaking  number  referenced  in  the  caption.  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  an  electronic  comment  by  Internet  e-mail.  To  get  filing  instructions  for  e-  mail  comments,  commenters  should  send  an  e-  mail  to 


 376  See  supra  paras.  76-  82. 
 377  See  supra  para.  63. 
 378  See  supra  para.  68. 
 379  See  Electronic  Filing  of  Documents  in  Rulemaking  Proceedings,  63  Fed.  Reg.  24,  121  (1998). 
67
 Federal  Communications  Commission  FCC  02-  43 
 68 
 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. 
 164.  Parties  who  choose  to  file  by  paper  must  file  an  original  and  four  copies  of  each  filing.  If  more  than  one  docket  or  rulemaking  number  appear  in  the  caption  of  this  proceeding, 
 commenters  must  submit  two  additional  copies  for  each  additional  docket  or  rulemaking  number.  All  filings  must  be  sent  to  the  Commission's  Acting  Secretary,  William  F.  Caton,  Office  of  the 
 Secretary,  Federal  Communications  Commission,  445  12th  Street,  S.  W.,  Washington,  D.  C.  20554. 


 165.  Parties  who  choose  to  file  by  paper  should  also  submit  their  comments  on  diskette.  These  diskettes  should  be  submitted  to:  Sheryl  Todd,  Accounting  Policy  Division,  445 
 12th  Street,  S.  W.,  Washington,  D.  C.  20554.  Such  a  submission  should  be  on  a  3.5-  inch  diskette  formatted  in  an  IBM  compatible  format  using  Word  or  compatible  software.  The  diskette  should 
 be  accompanied  by  a  cover  letter  and  should  be  submitted  in  "read  only"  mode.  The  diskette  should  be  clearly  labeled  with  the  commenter's  name,  proceeding  (including  the  docket  number, 
 in  this  case  CC  Docket  No.  96-  45,  type  of  pleading  (comment  or  reply  comment),  date  of  submission,  and  the  name  of  the  electronic  file  on  the  diskette.  The  label  should  also  include  the 
 following  phrase  "Disk  Copy  -  Not  an  Original."  Each  diskette  should  contain  only  one  party's  pleadings,  preferably  in  a  single  electronic  file.  In  addition,  commenters  must  send  diskette 
 copies  to  the  Commission's  copy  contractor,  Qualex  International,  Portals  II,  445  12st  Street,  S.  W.,  Room  CYB402,  Washington,  D.  C.  20554. 


 166.  Written  comments  by  the  public  on  the  proposed  and/  or  modified  information  collections  are  due  on  or  before  thirty  days  after  the  date  of  publication  in  the  Federal  Register. 
 Written  comments  must  be  submitted  by  the  Office  of  Management  and  Budget  (OMB)  on  the  proposed  and/  or  modified  information  collections  on  or  before  60  days  after  date  of  publication 
 in  the  Federal  Register.  In  addition  to  filing  comments  with  the  Secretary,  a  copy  of  any  comments  on  the  information  collections  contained  herein  should  be  submitted  to  Judy  Boley, 
 Federal  Communications  Commission,  Room  1-  C804,  445  12th  Street,  S.  W.,  Washington,  DC  20554,  or  via  the  Internet  to  jboley@  fcc.  gov  and  to  Jeanette  Thornton,  OMB  Desk  Officer, 
 10236  NEOB,  725  -  17th  Street,  N.  W.,  Washington,  D.  C.  20503  or  via  the  Internet  to  JeanetteThornto@  omb.  eop.  gov. 


 E.  Final  Regulatory  Flexibility  Act  Analysis 
 1.  Need  for,  and  Objectives  of,  the  Report  and  Order 
 167.  As  required  by  the  Regulatory  Flexibility  Act  (RFA),  380  an  Initial  Regulatory  Flexibility  Analysis  (IRFA)  was  incorporated  in  the  2001  Notice.  381  The  Commission  sought 


 written  public  comment  on  the  proposals  in  the  2001  Notice,  including  comment  on  the  IRFA.  This  present  Final  Regulatory  Flexibility  Analysis  (FRFA)  conforms  to  the  RFA.  382 


 380  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). 


 381  2001  Notice,  16  FCC  Rcd  at  9912-  20. 
 382  See  5  U.  S.  C.    604. 
68
 Federal  Communications  Commission  FCC  02-  43 
 69 
 168.  In  this  Order,  we  adopt  modifications  to  our  current  contribution  methodology,  which  will  further  refine  and  streamline  the  assessment  of  universal  service  contributions.  First, 
 we  amend  the  rules  governing  submission  of  FCC  Form  499  to  permit  contributors  to  exclude  universal  service  contributions  from  their  assessable  gross-  billed  interstate  telecommunications 
 revenues.  383  This  modification  addresses  circularity  in  our  current  methodology  that  may  cause  contributors  to  mark-  up  line  items.  Second,  we  amend  our  rules  to  permit  contributors  to 
 submit  revenue  data  on  a  consolidated  basis  on  behalf  of  commonly-  owned  subsidiaries.  384  This  modification  will  allow  certain  carriers  to  reduce  the  burdens  associated  with  complying  with  the 
 reporting  requirements  of  the  universal  service  fund.  Third,  we  increase  from  eight  to  12  percent  the  amount  of  domestic  interstate  revenues  a  contributor  may  have  and  still  qualify  for  the 
 limited  international  revenue  exception  to  our  universal  service  contribution  requirements.  385  Examination  of  the  record  in  this  proceeding  demonstrates  the  need  for  these  modifications, 
 which  address  specific  concerns  raised  by  commenters  to  the  2001  Notice.  386 
 2.  Summary  of  Significant  Issues  Raised  by  the  Public  Comments  in  Response  to  the  IRFA 


 169.  The  Commission  received  comments  related  to  the  needs  of  small  local  telephone  companies.  In  particular,  the  Small  Business  Administrations  Office  of  Advocacy  suggested 
 that  the  Commission  should  retain  the  current  contribution  methodology  to  avoid  raising  the  administrative  costs  on  small  businesses  associated  with  compliance.  387  While  we  retain  the 
 current  methodology,  we  note  that  the  Commission,  concurrent  with  the  issuance  of  the  Order  adopted  a  Further  Notice  that  seeks  comment  on  a  specific  plan  to  fundamentally  reform  the 
 contribution  methodology.  The  proposed  methodology  detailed  in  the  Further  Notice  may  result  in  a  program  with  significantly  reduced  administrative  burdens.  388 


 170.  In  the  Order,  however,  the  Commission  adopts  certain  modifications  to  the  existing  methodology.  In  particular,  the  Commission  adopts  a  proposal  suggested  by  many 
 wireless  carriers  to  allow  certain  contributors  to  file  on  a  consolidated  basis,  which  should  alleviate  some  of  the  administrative  burden  associated  with  complying  with  the  universal  service 
 fund.  389  Additionally,  the  Commissions  reform  of  the  limited  international  revenue  exception  should  help  continue  to  ensure  that  contributors  are  not  required  to  contribute  more  to  universal 
 service  than  they  derive  from  interstate  end-  user  telecommunications  revenues.  390  The 
 383  See  Order  at  IV.  A. 
 384  Id.  at  IV.  B. 
 385  Id.  at  IV.  C. 
 386  Bahr  Comments  at  2-  7  (discussing  circularity);  BTNA  Comments  at  2-  4,  Lockheed  Comments  at  4-  9,  Loral 
 Reply  Comments  at  3-  4  (discussing  limited  international  revenue  exception);  Verizon  Wireless  Comments  at  18,  CTIA  Comments  at  11,  Cingular  Comments  at  8,  Nextel  Comments  at  12;  PCIA  Reply  Comments  at  9  (discussing 


 consolidated  filing).  387 
 SBA  Reply  Comments  at  4.  388 
 Ad  Hoc  Comments  at  27-  33;  AT&  T  Comments  at  13;  Nextel  Comments  at  8;  Sprint  Comments  at  12;  Telstar  Reply  Comments  at  7;  WorldCom  reply  Comments  at  22. 


 389  Cingular  Comments  at  8;  Nextel  Comments  at  12;  Verizon  Wireless  Comments  at  18;  WorldCom  Reply 
 Comments  at  27.  390 
 BTNA  Comments  at  2. 
69
 Federal  Communications  Commission  FCC  02-  43 
 70 
 Commission  has  through  these  modifications  minimized  potential  burdens  raised  by  its  existing  contribution  methodology,  including  the  burdens  on  small  entity  carriers. 
 3.  Description  and  Estimate  of  the  Number  of  Small  Entities  to  Which  Rules  Will  Apply 
 171.  The  RFA  directs  agencies  to  provide  a  description  of,  and,  where  feasible,  an  estimate  of  the  number  of  small  entities  that  may  be  affected  by  the  rules  adopted  herein.  391  The 
 RFA  generally  defines  "small  entity"  as  having  the  same  meaning  as  the  term  "small  business,"  "small  organization,"  and  "small  governmental  jurisdiction."  392  In  addition,  the  term  "small 
 business"  has  the  same  meaning  as  the  term  "small  business  concern"  under  the  Small  Business  Act,  unless  the  Commission  has  developed  one  or  more  definitions  that  are  appropriate  to  its 
 activities.  393  Under  the  Small  Business  Act,  a  "small  business  concern"  is  one  that:  (1)  is  independently  owned  and  operated;  (2)  is  not  dominant  in  its  field  of  operation;  and  (3)  meets 
 any  additional  criteria  established  by  the  SBA.  394 
 172.  We  have  described  in  detail  in  the  Initial  Regulatory  Flexibility  Analysis  in  this  proceeding  the  categories  of  entities  that  may  be  directly  affected  by  our  proposals.  395  For  this 


 Final  Regulatory  flexibility  Analysis,  we  hereby  incorporate  those  entity  descriptions  by  reference. 


 4.  Description  of  Reporting,  Recordkeeping,  and  Other  Compliance  Requirements 
 173.  Pursuant  to  the  Order,  the  only  new  reporting  requirement  is  that  we  amend  our  rules  to  permit  contributors  to  submit  revenue  data  on  a  consolidated  basis  on  behalf  of 
 commonly-  owned  subsidiaries.  396  The  Commission  based  its  decision  in  part  on  the  fact  that  the  reduction  in  administrative  costs  for  these  carriers  would  be  significant.  We  therefore  find  that 
 this  change  amounts  to  a  positive  compliance  change  for  carriers,  including  small  entity  carriers. 
 5.  Steps  Taken  to  Minimize  Significant  Economic  Impact  on  Small  Entities,  and  Significant  Alternative  Considered 


 174.  The  RFA  requires  an  agency  to  describe  any  significant  alternatives  that  it  has  considered  in  reaching  its  proposed  approach,  which  may  include  the  following  four  alternatives 
 (among  others):  (1)  the  establishment  of  differing  compliance  or  reporting  requirements  or  timetables  that  take  into  account  the  resources  available  to  small  entities;  (2)  the  clarification, 


 391  5  U.  S.  C.    604(  a)(  3). 
 392  5  U.  S.  C.    601(  6). 
 393  5  U.  S.  C.    601(  3)  (incorporating  by  reference  the  definition  of  "small  business  concern"  in  5  U.  S.  C.    632). 
 Pursuant  to  5  U.  S.  C.    601(  3),  the  statutory  definition  of  a  small  business  applies  "unless  an  agency  after  consultation  with  the  Office  of  Advocacy  of  the  Small  Business  Administration  and  after  opportunity  for  public 


 comment,  establishes  one  or  more  definitions  of  such  term  which  are  appropriate  to  the  activities  of  the  agency  and  publishes  such  definition  in  the  Federal  Register." 
 394  15  U.  S.  C.    632. 
 395  See  supra  paragraphs  142-  155. 
 396  Id.  at  IV.  B. 
70
 Federal  Communications  Commission  FCC  02-  43 
 71 
 consolidation,  or  simplification  of  compliance  or  reporting  requirements  under  the  rule  for  small  entities;  (3)  the  use  of  performance,  rather  than  design,  standards;  and  (4)  an  exemption  from 
 coverage  of  the  rule,  or  any  part  thereof,  for  small  entities.  397 
 175.  The  Commission  has  taken  numerous  steps  to  minimize  significant  economic  impacts  on  small  entities  of  modifying  the  universal  service  contribution  methodology  adopted  in 


 this  Order.  By  eliminating  circularity  that  exists  under  the  current  contribution  methodology,  we  reduce  one  cause  for  contributors  to  recover  amounts  in  excess  of  the  current  contribution  factor 
 and  will  help  address  consumer  concerns  regarding  the  disparate  recovery  of  universal  service  contributions  through  line  items.  398  Further,  by  amending  our  rules  to  permit  contributors  to 
 submit  revenue  data  on  a  consolidated  basis  on  behalf  of  commonly-  owned  subsidiaries,  we  substantially  decrease  the  administrative  burdens  of  some  contributors.  399  We  anticipate  that 
 many  wireless  contributors,  for  example,  will  choose  to  file  on  a  consolidated  basis.  Finally,  by  increasing  the  international  revenue  exception  from  eight  percent  to  12  percent,  we  ensure  that  a 
 contributors  universal  service  obligation  does  not  exceed  the  amount  of  its  interstate  end-  user  telecommunications  revenues.  400 


 6.  Report  to  Congress 
 176.  The  Commission  will  send  a  copy  of  this  Order,  including  the  FRFA  analysis,  in  a  report  to  be  sent  to  Congress  pursuant  to  the  Congressional  Review  Act.  401  In  addition,  the 


 Commission  will  send  a  copy  of  this  Order,  including  this  FRFA  analysis,  to  the  Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration.  A  copy  of  this  Order  and  FRFA  analysis 
 (or  summaries  thereof)  also  will  be  published  in  the  Federal  Register.  402 
 7.  Paperwork  Reduction  Act  Analysis 
 177.  The  action  contained  herein  has  been  analyzed  with  respect  to  the  Paperwork  Reduction  Act  of  1995  and  found  to  impose  no  new  or  modified  reporting  and  recordkeeping 


 requirements  or  burdens  on  the  public.  Implementation  of  these  new  or  modified  reported  and  recordkeeping  requirements  will  be  subject  to  approval  by  the  Office  of  Management  and  Budget 
 (OMB)  as  prescribed  by  the  Act,  and  will  go  into  effect  upon  announcement  in  the  Federal  Register  of  OMB  approval. 


 VII.  ORDERING  CLAUSES 
 178.  Accordingly,  for  the  above  stated  reasons: 
 179.  IT  IS  ORDERED  that,  pursuant  to  the  authority  contained  in  sections  4(  i),  4(  j),  254,  and  303(  r)  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.    154(  i),  154(  j), 


 397  5  U.  S.  C.    603(  c). 
 398  See  supra  Section  V.  A. 
 399  See  supra  V.  B. 
 400  See  supra  V.  C. 
 401  See  5  U.  S.  C.    801(  a)(  1)(  A). 
 402  See  5  U.  S.  C.    604(  b). 
71
 Federal  Communications  Commission  FCC  02-  43 
 72 
 254,  303(  r)  this  Report  and  Order  IS  ADOPTED.  The  collections  of  information  contained  within  this  Order  are  contingent  upon  approval  by  the  Office  of  Management  and  Budget.  The 
 Commission  will  publish  a  notice  announcing  the  effective  date  of  the  collections  of  information. 
 180.  IT  IS  FURTHER  ORDERED  that  Part  54  of  the  Commissions  rules,  47  C.  F.  R.  Part  54,  IS  AMENDED  as  set  forth  in  Appendix  A  attached  hereto,  effective  thirty  (30)  days 


 after  the  publication  of  this  REPORT  AND  ORDER  in  the  Federal  Register. 
 181.  IT  IS  FURTHER  ORDERED  that  the  Commissions  Consumer  Information  Bureau,  Reference  Information  Center,  SHALL  SEND  a  copy  of  this  Report  and  Order  to  the 


 Chief  Counsel  for  Advocacy  of  the  Small  Business  Administration. 
 182.  IT  IS  FURTHER  ORDERED  that,  pursuant  to  the  authority  contained  in  sections  4(  i),  4(  j),  201-  205,  254,  and  403  of  the  Communications  Act  of  1934,  as  amended,  47  U.  S.  C.   


 154(  i),  154(  j),  201-  205,  254,  and  403,  this  Further  Notice  of  Proposed  Rulemaking  IS  ADOPTED. 


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


 FEDERAL  COMMUNICATIONS  COMMISSION 
 William  F.  Caton  Acting  Secretary 
72
 Federal  Communications  Commission  FCC  02-  43 
 A-  1 
 APPENDIX  A    FINAL  RULES 
 Part  54  of  the  Code  of  Federal  Regulations  is  amended  as  follows: 
 PART  54    UNIVERSAL  SERVICE 
 Subpart  H  --  Administration 
 1.  Section  54.702  is  amended  by  deleting  paragraph  (f). 
 2.  Section  54.706  is  amended  by  revising  paragraphs  (b)  and  (c)  as  follows: 
   54.706  Contributions 
 (a)  *  *  *  (b)  Except  as  provided  in  paragraph  (c)  of  this  section,  every  telecommunications  carrier  that 
 provides  interstate  telecommunications  services,  every  provider  of  interstate  telecommunications  that  offers  telecommunications  for  a  fee  on  a  non-  common  carrier  basis,  and  every  payphone 
 provider  that  is  an  aggregator  shall  contribute  to  the  federal  universal  service  support  mechanisms  on  the  basis  of  its  interstate  and  international  end-  user  telecommunications 
 revenues,  net  of  prior  period  actual  contributions.  (c)  Any  entity  required  to  contribute  to  the  federal  universal  service  support  mechanisms  whose 
 interstate  end-  user  telecommunications  revenues  comprise  less  than  12  percent  of  its  combined  interstate  and  international  end-  user  telecommunications  revenues  shall  contribute  to  the  federal 
 universal  service  support  mechanisms  for  high  cost  areas,  low-  income  consumers,  schools  and  libraries,  and  rural  health  care  providers  based  only  on  such  entitys  interstate  end-  user 
 telecommunications  revenues,  net  of  prior  period  actual  contributions.  For  purposes  of  this  paragraph,  an  entity  shall  refer  to  the  entity  that  is  subject  to  the  universal  service  reporting 
 requirements  in  47  C.  F.  R.  54.711  and  shall  include  all  of  that  entitys  affiliated  providers  of  telecommunications  services. 


 *  *  *  *  * 
 3.  Section  54.709  is  amended  by  revising  paragraph  (a),  paragraph  (a)(  1)  and  the  first  sentence  of  paragraph  (a)(  2)  to  read  as  follows: 


   54.709  Computations  of  required  contributions  to  universal  service  support  mechanisms. 
 (a)  Contributions  to  the  universal  service  support  mechanisms  shall  be  based  on  contributors  end-  user  telecommunications  revenues  and  a  contribution  factor  determined  quarterly  by  the 
 Commission.  (1)  For  funding  the  federal  universal  service  support  mechanisms,  the  subject  revenues  will  be 
 contributors  interstate  and  international  revenues  derived  from  domestic  end  users  for  telecommunications  or  telecommunications  services,  net  of  prior  period  actual  contributions. 
 (2)  The  quarterly  universal  service  contribution  factor  shall  be  determined  by  the  Commission  based  on  the  ratio  of  total  projected  quarterly  expenses  of  the  universal  service  support 
73
 Federal  Communications  Commission  FCC  02-  43 
 A-  2 
 mechanisms  to  the  total  end-  user  interstate  and  international  telecommunications  revenues,  net  of  prior  period  actual  contributions.  *  *  * 
 *  *  *  * 
74
 Federal  Communications  Commission  FCC  02-  43 
 B-  1 
 APPENDIX  B 
 LIST  OF  PARTIES  FILING  COMMENTS  AND  REPLY  COMMENTS 
 Commenter  Abbreviation 
 ACUTA,  Inc.  ACUTA  (late  file,  recd  7/  2)  Ad  Hoc  Telecommunications  Ad  Hoc 
 American  Mobile  Telecommunications  Association,  Inc.  AMTA  American  Public  Communications  Council,  The  APCC 
 Arch  Wireless,  Inc.  Arch  Association  of  Communications  Enterprises,  The  ASCENT 
 AT&  T  Corp.  AT&  T  AT&  T  Wireless  Services,  Inc.  AT&  T  Wireless 
 Bahr,  Susan  (small  wireline  and  wireless  carriers)  Law  Office  of  Susan  Bahr  BBG  Communications,  Inc.  BBG 
 BellSouth  Corporation  Bell  South  Brown  University  Brown 
 BT  North  America  Inc.  BT  Cellular  Telecommunications  &  Internet  Association  CTIA 
 Center  for  Digital  Democracy,  The  Edgemont  Neighborhood  Coalition 
 Migrant  Legal  Action  Program  CDD  et  al.  Cingular  Wireless  LLC  Cingular 
 EPIK  Communications  EPIK  Excel  Communications,  Inc.  Excel 
 Florida  State  University  Florida  U  Home  Telephone  Company,  Inc.  Home  Telephone  Company 
 IDT  Corporation  IDT  Iowa  Utilities  Board  IUB 
 Lockheed  Martin  Global  Telecommunications,  LLC  Lockheed  Martin  National  Exchange  Carrier  Association,  Inc.  NECA 
 National  Association  of  State  Utility  Consumer  Advocates 
 National  Telephone  Cooperative  Association  NTCA  (late  filed,  recd  7/  2)  Nextel  Communications,  Inc.  Nextel 
 Organization  for  the  Promotion  and  Advancement  of  Small  Telecommunications  Companies  OPASTCO 
 Primus  Telecommunications,  Inc.  Primus  Qwest  Communications  International,  Inc.  Qwest 
 Rural  Cellular  Association  RCA  SBC  Communications,  Inc.  SBC 
 Small  Paging  Carrier  Alliance  Small  Paging  Alliance  Sprint  Corporation  Sprint 
 Telstar  International,  Inc  Telstar  Teltronic,  Inc.  26  De  Minimis  Carriers 
 ERC  Communications,  Huffman  Communications, 
75
 Federal  Communications  Commission  FCC  02-  43 
 B-  2 
 South  Plains  Communications,  Mobile  Relays,  Inc., 
 Megahertz  Technology,  Inc.,  Electrocomm    Michigan,  Inc., 
 Net  Wave  Communications,  Inc.,  Two  Way  Radio  Service,  Inc., 
 Taxi  Systems,  Inc.,  Allcomm  Wireless,  Inc., 
 Electrocom,  Inc.,  Telecom  Network,  Inc., 
 General  Communications  Systems,  Inc.,  Wireless  Solutions, 
 DW  Communications,  Inc.  Applied  Technology  Group,  Inc., 
 John  Mitchell  Company,  Collins  Communications, 
 Rayfield  Communications,  Inc.,  Technical  Electronics,  Inc. 
 Reed  Enterprises,  Tri-  State  Communications, 
 Mobilcomm,  Inc.  Texas  Office  of  Public  Utility  Counsel 
 The  Consumer  Federation  of  America  Consumers  Union 
 AOL/  Time-  Warner  Telecom  AOL/  Time-  Warner  Universal  Service  Administrative  Company,  The  USAC 
 United  States  Telecom  Association  USTA  VarTec  Telecom,  Inc.  VarTec 
 Verestar,  Inc.  Verestar  (late  filed,  recd  7/  2)  Verizon 
 Verizon  Wireless  Western  Kentucky  University 
 West  Virginia  Consumer  Advocate  WorldCom,  Inc.  WorldCom 
 Z-  Tel  Communications,  Inc.  Z-  Tel 
 Reply  Commenter  Abbreviation 
 American  Public  Communications  Council,  The  APCC  AOL  Time  Warner,  Inc. 
 Arch  Wireless,  Inc.  Arch  Wireless  Association  of  Communications  Enterprises,  The  ASCENT 
 AT&  T  Corp.  AT&  T  BellSouth  Corporation  Bell  South 
 BT  North  America,  Inc.  BT  Cable  &  Wireless  USA  Cable  &  Wireless 
 California  Public  Utilities  Commission  and  the  People  of  the  State  of  California  CPUC  *  filed  late  on  8/  2/  01 
76
 Federal  Communications  Commission  FCC  02-  43 
 B-  3 
 Cbeyond  Communications,  LLC  Cbeyond  Cellular  Telecommunications  &  Internet  Association  CTIA 
 Center  for  Digital  Democracy  CDD  Cingular  Wireless  LLC  Cingular 
 Competitive  Telecommunications  Association  CompTel  Dobson  Communications  Corporation  Dobson 
 iBasis,  Inc.  iBasis  Level  3  Communications,  LLC  Level  3 
 Loral  Space  &  Communications  Ltd.  Loral  National  Exchange  Carrier  Association,  The  NECA 
 National  Cable  &  Telecommunications  Association,  The  NCTA  Office  on  Advocacy  of  the  United  States  Small 
 Business  Administration,  The  SBA  Personal  Communications  Industry  Association,  The  PCIA 
 Qwest  Communications  International,  Inc.  Qwest  SBC  Communications,  Inc.  SBC 
 Sprint  Corporation  Sprint  Telstar  International,  Inc.  Telstar 
 Teltronic,  Inc.,  26  De  Minimis  Carriers  ERC  Communications, 
 Huffman  Communications,  South  Plains  Communications, 
 Mobile  Relays,  Inc.,  Megahertz  Technology,  Inc. 
 Electrocomm    Michigan,  Inc.  Net  Wave  Communications,  Inc. 
 Two  Way  Radio  Services,  Inc.  Taxi  Systems,  Inc. 
 T.  W.  R.  Communications  Taxi  Equipment  Company,  Inc. 
 Allcomm  Wireless,  Inc.  Electrocom,  Inc. 
 Telecom  Network,  Inc.  General  Communications  Systems,  Inc. 
 Wireless  Solutions,  DW  Communications,  Inc., 
 Applied  Technology  Group,  Inc.  John  Mitchell  Company, 
 Collins  Communications,  Rayfield  Communications,  Inc. 
 Technical  Electronics,  Inc.  Reed  Enterprises, 
 Tri-  State  Communications,  Mobilcomm,  Inc. 
 Texas  Office  of  Public  Utility  Counsel,  The  Consumer  Federation  of  America 
 and  Consumer  Union  United  States  Telecom  Association,  The  USTA 
77
 Federal  Communications  Commission  FCC  02-  43 
 B-  4 
 Universal  Service  Administrative  Company  USAC  Verizon  Wireless 
 Verizon  Telephone  Companies,  The  Verizon  Verestar,  Inc.  Verestar 
 WorldCom,  Inc.  WorldCom  Z-  Tel  Communications,  Inc.  Z-  Tel 
78
 Federal  Communications  Commission  FCC  02-  43 
 SEPARATE  STATEMENT  OF  CHAIRMAN  MICHAEL  K.  POWELL 


 Re:  Federal-  State  Joint  Board  on  Universal  Service  et  al.,  CC  Docket  Nos.  96-  45  et  al. 
 I  write  separately  to  underscore  my  support  for  this  Further  Notice  and  to  express  the  urgency  with  which  I  feel  we  must  move  forward  in  this  proceeding. 


 In  light  of  market  trends  such  as  the  overall  decline  in  interstate  revenues  and  the  bundling  of  services,  this  Further  Notice  seeks  additional  comment  on  how  we  might  reform  the 
 system  of  assessment  and  recovery  of  universal  service  contributions  to  ensure  that  this  system  remains  equitable  and  nondiscriminatory,  as  the  statute  demands.  The  questions  we  ask  in  this 
 item  cover  a  wide  range  of  approaches,  including  whether  to  assess  contributions  on  carriers  based  on  the  number  and  capacity  of  connections  they  provide  to  customers,  rather  than  on  the 
 interstate  revenues  they  earn. 
 But  the  urgency  for  making  progress  arises  not  from  the  specific  proposals  upon  which  we  seek  comment,  but  from  the  pressing  need  to  adopt  some  reform  by  which  we  can  exert  more 
 discipline  over  the  manner  in  which  carriers  pass  on  their  contributions  to  consumers.  At  present,  carriers  have  flexibility    some  would  say  too  much    over  how  they  recover  costs  from 
 their  customers  This  fact  has  led  some  consumers  and  policymakers  to  level  strong  accusations  that  carriers  are  charging  too  much,  are  concentrating  such  recovery  on  customers  with  the 
 fewest  competitive  choices,  or  are  otherwise  abusing  their  entitlement  to  recovery.  This  has  caused  considerable  consumer  frustration  and  led  some  consumers  to  question  unnecessarily  the 
 value  and  fairness  of  the  universal  service  programs  mandated  by  the  Act. 
 Thus,  delay  in  completion  of  this  proceeding  also  would  delay  benefits  to  consumers  and  to  the  viability  of  universal  service  that  will  accrue  once  we  take  steps  to  make  assessment  and 
 recovery  more  justifiable  and  sustainable.  If  I  were  persuaded  that  the  infirmities  of  the  current  system  could  not  be  corrected  in  a  way  that  is  equitable  and  nondiscriminatory  among 
 contributing  carriers,  I  would  not  feel  the  same  urgency  to  move  forward  in  this  proceeding.  But  luckily,  there  are  a  number  of  approaches  upon  which  we  seek  comment  in  this  Notice  that  I 
 believe  may  cure  these  infirmities.  And  so  I  strongly  encourage  participants  in  this  proceeding  to  help  the  Commission  complete  this  important  task. 


 In  the  meantime,  I  would  remind  carriers  choosing  to  recover  their  contributions  from  end  users  that  the  Commission  is  not  without  authority  to  prosecute  abuses  of  such  recovery.  At 
 a  minimum,  section  201(  b)  of  the  Act  requires  that  all  rates,  terms  and  conditions  of  common  carrier  service  are  just  and  reasonable,  and  I  believe  that  requirement  extends  to  carriers  use  of 
 line  items  to  recover  universal  service  contributions.  I  therefore  ask  carriers  to  be  mindful  of  such  requirements  as  we  strive  to  finalize  reform  of  the  universal  service  contribution  system. 
79
 Federal  Communications  Commission  FCC  02-  43 
 SEPARATE  STATEMENT  OF  COMMISSIONER  KEVIN  J  .  MARTIN 


 Re:  Federal-  State  Joint  Board  on  Universal  Service,  Further  Notice  of  Proposed  Rulemaking  and  Report  and  Order,  CC  Docket  No.  96-  45  et  al. 
 I  am  pleased  to  join  in  approving  this  item,  which  seeks  comment  on  proposals  to  alter  our  universal  service  contribution  methodology.  Maintaining  the  stability  of  the 
 universal  service  contribution  system  is  one  of  the  Commissions  most  important  responsibilities.  Congress  codified  this  responsibility  in  section  254  of  the 
 Telecommunications  Act  of  1996,  which  requires  the  Commission  to,  among  other  things,  ensure  there  are  specific,  predictable,  and  sufficient  support  mechanisms  to 
 preserve  and  advance  universal  service.  See  47  U.  S.  C.    254(  b)(  5).  I  am  firmly  committed  to  carrying  out  this  directive  and  to  fulfilling  Congress  goals  of  ensuring 
 affordable  telecommunications  services  and  access  to  advanced  services  in  all  regions  of  the  nation.  See  id.    254(  b). 


 To  fulfill  this  responsibility,  the  Commission  today  issues  a  notice  reevaluating  the  contribution  methodology.  As  consumers  migrate  to  new  products  and  services,  we 
 may  need  new  methods  for  assessing  universal  service  contributions.  Accordingly,  I  welcome  consideration  of  novel  and  different  proposals  of  how  to  assess  universal 
 service  contributions. 
 While  we  consider  these  comprehensive  reforms,  however,  I  believe  it  may  be  important  to  take  some  immediate  steps.  For  example,  AT&  T  has  complained  that 
 assessing  contribution  obligations  on  past  revenues,  as  the  system  currently  does,  unfairly  penalizes  carriers  with  declining  revenues  and  unfairly  benefits  those  with  increasing 
 revenues.  I  believe  we  should  take  action  on  AT&  Ts  waiver  request,  which  seeks  to  allow  AT&  T  to  pay  its  contributions  based  on  projected  rather  than  past  revenue. 
 Whether  we  make  changes  along  these  lines  or  some  other  alterations  to  the  current  system,  I  believe  some  short  term  adjustments  may  be  warranted. 


 I  also  wish  to  highlight  one  issue  for  comment.  In  weighing  the  various  proposals,  we  must  make  sure  that  [  a]  ll  providers  of  telecommunications  services  .  .  . 
 make  an  equitable  and  nondiscriminatory  contribution  to  the  preservation  and  advancement  of  universal  service.  47  U.  S.  C.    254(  b)(  4).  We  must  also  follow  the 
 Court  of  Appeals  for  the  Fifth  Circuits  holding  that  the  Communications  Act  prohibits  the  Commission  from  assessing  contributions  on  intrastate  revenue.  See  Texas  Office  of 
 Public  Utility  Counsel  v.  FCC,  183  F.  3d  393,  448  (5th  Cir.  1999).  I  thus  think  it  is  crucial  that  parties  comment  on  how  the  different  proposals  comply  with  both  of  these 
 limitations. 
 Finally,  I  wish  to  emphasize  the  importance  of  participation  by  the  states  in  this  proceeding.  We  welcome  comments  from  the  state  commissions,  and  we  have 
 committed  to  seeking  input  from  the  Universal  Service  Joint  Board  before  making  any 
80
 Federal  Communications  Commission  FCC  02-  43 
 significant  changes  to  the  contribution  methodology.  I  am  confident  that  we  could  do  so  in  a  manner  that  does  not  cause  any  unnecessary  delay. 
81